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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission file number 000-22393
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
a Delaware Corporation
I.R.S. Employer Identification No. 33-0730363
3540 Howard Way, Costa Mesa, CA 92626-1417
(Address of principal executive offices) (Zip Code)
(714) 436-4800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes No X
----- -----
The registrant had 3,000,758 shares of common stock, par value $0.01
per share, outstanding at August 12, 1997.
The Exhibit Index Appears on Page 30
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
(amounts in thousands, JUNE 30, DECEMBER 31,
except share data) 1997 1996
--------- ------------
Cash and cash equivalents $ 67,457 $ 41,212
Accounts receivable, net 4,446 8,473
Receivables from FHP (Note 2) 5,122 2,791
Inventories 6,676 7,302
Deferred income taxes (Note 3) -- 8,771
Prepaid expenses and other
current assets 5,531 5,530
---------- ----------
Total current assets 89,232 74,079
Property and equipment, net 8,642 8,075
Deferred rent 4,990 3,995
Other assets 506 550
---------- ----------
Total assets $ 103,370 $ 86,699
---------- ----------
---------- ----------
- ----------
See accompanying notes to consolidated financial statements.
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TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(amounts in thousands, JUNE 30, DECEMBER 31,
except share data) 1997 1996
--------- ------------
Accounts payable $ 10,452 $ 12,121
Payables to FHP/PacifiCare (Note 2) 7,820 --
Medical claims payable 14,134 15,538
Accrued salaries and employee
benefits 24,546 21,113
Other current liabilities 1,985 2,255
Advances from FHP (Note 5) -- 39,162
---------- ----------
Total current liabilities 58,937 90,189
Deferred income taxes (Note 3) -- 1,934
Other liabilities -- 113
---------- ----------
Total liabilities 58,937 92,236
Stockholders' deficit:
Preferred Stock, $0.01 par value; 1,200,000
authorized; no shares outstanding at
June 30, 1997 and December 31, 1996,
respectively --- ---
Common Stock, $0.01 par value;
15,000,000 shares authorized; issued and
outstanding 3,000,758 and 3,000,000
shares at June 30, 1997 and December 31,
1996, respectively 30 30
Paid in capital (Note 5) 72,929 5,922
Deferred stock compensation expense (Note 5) (2,900) (3,510)
Retained deficit (25,626) (7,979)
---------- ----------
Total stockholders' equity (deficit) 44,433 (5,537)
---------- ----------
Total liabilities and
stockholders' equity (deficit) $ 103,370 $ 86,699
---------- ----------
---------- ----------
- ----------
See accompanying notes to consolidated financial statements.
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TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE
(amounts in thousands, THREE MONTHS ENDED
except per share data) JUNE 30,
1997 1996
-------- --------
Revenue:
Capitation from FHP $ 81,091 $ 95,519
Copayments, fee for service 20,661 23,578
-------- --------
Total revenue 101,752 119,097
Expenses:
Affiliated medical services 28,489 35,435
Purchased medical services 28,206 27,758
Dental services 6,463 7,040
Optometry, pharmacy and other
primary health care services 24,884 28,079
Clinic Operations 16,735 17,001
-------- --------
Total cost of health care 104,777 115,313
Marketing, general and administrative 7,999 7,007
-------- --------
Operating loss (11,024) (3,223)
Interest income 1,366 420
-------- --------
Loss before income tax benefit (9,658) (2,803)
Income tax benefit -- 1,173
-------- --------
Net Loss $ (9,658) $ (1,630)
-------- --------
-------- --------
Loss per common and common equivalent share $ (3.15) $ (0.54)
(Note 4)
-------- --------
-------- --------
- ----------
See accompanying notes to consolidated financial statements.
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TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
FOR THE
(amounts in thousands, SIX MONTHS ENDED
except per share data) JUNE 30,
1997 1996
-------- --------
Revenue:
Capitation from FHP $168,290 $191,719
Copayments, fee for service and other 38,334 44,773
-------- --------
Total revenue 206,624 236,492
Expenses:
Affiliated medical services 59,507 71,175
Purchased medical services 54,883 56,787
Dental services 13,217 13,613
Optometry, pharmacy, and other primary
health care services 50,964 55,295
Clinic operations 33,728 32,295
-------- --------
Total cost of health care 212,299 229,165
Marketing, general and administrative 16,031 12,799
-------- --------
Operating loss (21,706) (5,472)
Interest income 2,336 651
-------- --------
Loss before income tax benefit (19,370) (4,821)
Income tax benefit 1,723 2,017
-------- --------
Net loss $(17,647) $ (2,804)
-------- --------
-------- --------
Loss per common and common equivalent
share (Note 4) $ (5.79) $ (0.93)
-------- --------
-------- --------
- -----------
See accompanying notes to consolidated financial statements.
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TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
FOR THE
SIX MONTHS ENDED
(amounts in thousands) JUNE 30,
1997 1996
---------- ---------
OPERATING ACTIVITIES
Net loss $(17,647) $ (2,804)
Adjustments to reconcile
net loss to net cash
provided by operating activities:
Depreciation and amortization 706 505
Change in allowance for doubtful
accounts receivable 680 (286)
Amortization of deferred stock
compensation expense 611 --
Deferred income taxes 6,837 1,008
Effect on cash of changes
in operating assets and
liabilities:
Accounts receivable 3,347 --
Accounts receivable from FHP (2,331) (2,572)
Other current assets 625 (3,705)
Other assets (951) 257
Accounts payable (1,670) (3,673)
Payables to FHP/PacifiCare 7,820 --
Medical claims payable (1,404) 9,363
Accrued salaries and
employee benefits 3,433 3,929
Other liabilities (383) 1,731
-------- --------
Net cash (used in) provided by
operating activities (327) 3,753
-------- --------
INVESTING ACTIVITIES
Purchase of property and equipment (1,273) (4,790)
-------- --------
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TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)
(unaudited)
FOR THE
SIX MONTHS ENDED
(amounts in thousands) JUNE 30,
1997 1996
---------- ---------
FINANCING ACTIVITIES
Issuance of common stock -- 99
Exercise of stock options 7 --
Advances from FHP (39,162) 28,579
Capital contribution by FHP 67,000 5,055
-------- --------
Net cash provided by
financing activities 27,845 33,733
-------- --------
Increase in cash and
cash equivalents 26,245 32,696
Cash and cash equivalents at
beginning of period 41,212 --
-------- --------
Cash and cash equivalents at end
of period $ 67,457 $ 32,696
-------- --------
-------- --------
Supplemental cash flow information:
Non-cash transactions:
Recapitalization of the Company by
FHP - Assumption of medical claims
payable by FHP $ -- $ 12,831
-------- --------
-------- --------
__________
See accompanying notes to consolidated financial statements.
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TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. Organization and Significant Accounting Policies
Talbert Medical Management Holdings Corporation ("TMMHC", and with its
subsidiaries, the "Company") through its subsidiaries Talbert Medical
Management Corporation ("TMMC") and Talbert Health Services Corporation
("THSC"), organizes and manages physician and dentist practice groups that
contract with HMOs and other payors to provide health care services to their
members. Under long-term management services agreements with its affiliated
practice groups (the "Talbert Medical Groups"), the Company provides
management systems and services, nonphysician health care personnel,
facilities and equipment to the Talbert Medical Groups in return for a
reimbursement of certain clinic operations costs, plus a management fee based
on the Talbert Medical Groups' revenues net of certain reimbursed clinic
operations costs, except for the California Talbert Medical Group, where TMMC
receives a management fee based on gross revenues. Pharmacy, radiology,
optometry, laboratory, home health, hospice, rehabilitation and physical
therapy services are also available through contracts with THSC.
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The accompanying consolidated financial statements of the Company
include the accounts of TMMC, THSC and the Talbert Medical Groups. TMMC has
direct or indirect unilateral and perpetual control over the assets and
non-medical operations of the Talbert Medical Groups by means other than
owning the majority of voting stock. TMMC and the Talbert Medical Groups
have entered into 20-40 year practice management agreements with provisions
for extensions under certain circumstances. Because of control by means
other than equity ownership, consolidation of the Talbert Medical Groups is
necessary to present fairly the financial position and results of operations
of TMMC.
In the opinion of management of the Company, the foregoing consolidated
financial statements reflect all adjustments necessary for a fair statement
of the results of the Company and its subsidiaries for the periods shown and
such adjustments are of a normal recurring nature. Results of operations for
the first six months of fiscal 1997 are not necessarily indicative of
results to be expected for the full year.
SEPARATION FROM FHP
From January 1, 1996 through February 14, 1997, TMMC and THSC operated
as subsidiaries of FHP International Corporation ("FHP"), providing practice
management and ancillary services to the medical groups that were a part of
FHP's staff model operations. On August 4, 1996, FHP agreed to merge (the
"Merger") with PacifiCare Health Systems, Inc. ("PacifiCare"). The Merger
was completed on February 14, 1997.
In connection with the Merger between FHP and PacifiCare, FHP sold its
92.4% of the common stock of TMMC and THSC to TMMHC in exchange for
transferable rights to acquire 92.4% of the Company for $21.50 per share,
plus a note for $59,598,000 (the "Talbert Note"). On May 20, 1997, TMMHC
completed its Stock Rights Offering (the "Offering") to the stockholders of
FHP. FHP stockholders received one right for
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every 21.19154 shares of FHP common stock and one right for every 26.27752
shares of FHP preferred stock. The maximum number of shares issued was
2,772,000. The Company received $59,598,000 from the Offering, which was
used to retire the Talbert Note.
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NOTE 2. Receivables from/payable to FHP
Receivables from FHP at June 30, 1997 and December 31, 1996 are comprised of the
following:
(amounts in thousands) June 30, December 31,
1997 1996
------------ ------------
Hospital Incentives $ 3,120 $ 2,791
Capitation - Net 614 --
Fee for service claims 497 --
Other 891 --
------------ ------------
Total $ 5,122 $ 2,791
------------ ------------
------------ ------------
Payables to FHP/PacifiCare at June 30, 1997 of $7,820,000 are comprised
primarily of pharmacy claims, subcapitation payables, building occupancy
expenses (i.e., rent, taxes, utilities) and other items.
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NOTE 3. Deferred Income Taxes
For the year ended December 31, 1996, the results of the operations of
TMMC, THSC and the Talbert Medical Groups were included in the consolidated
federal and state income tax returns of FHP. A tax allocation was made to
the Company in accordance with the method utilized by FHP's consolidated
group. Under this method, the tax expense of the group is allocated to its
members based on the members' profit or loss, including the recording of
benefits for tax losses utilized in the consolidated groups tax return. Upon
separation from FHP, management has determined that the Company will not
likely recognize tax benefits from losses due to the uncertainty of when the
Company will generate sufficient taxable income to realize such benefits.
The accrued tax benefits were retained by FHP and the Company received cash
in exchange.
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NOTE 4. Per Share Calculations
The per common and common equivalent share calculations have been
computed by dividing net loss by the weighted average number of common shares
and common share equivalents outstanding during the periods. Common share
equivalents included in determining loss per share include shares issuable
upon exercise of stock options.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin Topic 4:D, stock options granted during the twelve-month period
prior to the date of the initial filing of the Company's Form S-1
Registration Statement have been included in the calculation of common
equivalent shares using the treasury stock method as if the shares were
outstanding for all periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share"
(SFAS 128) which is effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 simplifies the previous standards
for computing earnings per share and requires the disclosure of basic and
diluted earnings per share. For the three month period ended June 30, 1997,
and the six month period ended June 30, 1997, the amount reported as net
income per common and common equivalent share is not materially different
than that which would have been reported for basic and diluted earnings per
share in accordance with SFAS 128.
The issued and outstanding of the Company's Common Stock are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Total shares 3,061,606 3,000,000 3,044,555 3,000,000
Total shares, assuming
full dilution 3,065,322 3,000,000 3,061,848 3,000,000
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NOTE 5. Capitalization
At December 31, 1996, the Company had cash balances of $41.2 million and
a stockholders' deficit of approximately $5.5 million. On February 14, 1997
and immediately prior to the Merger, the Company received a capital
contribution from FHP of $67 million. Immediately following the Merger, the
Company settled amounts due to FHP of approximately $23 million and made a
final settlement of intercompany balances in May 1997 to reimburse FHP for
medical service and other costs paid on behalf of the Company. The Company
intends to use the remainder of the capital contribution to fund operating
losses and for working capital and other general corporate purposes.
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Note 6. Commitments and Contingencies
LITIGATION
During the ordinary course of business, the Company has become a party
to pending and threatened legal actions and proceedings. Management of the
Company is of the opinion that the outcome of the currently known legal
actions and proceedings will not, singly or in the aggregate, have a material
effect on the consolidated financial position and operating results of the
Company.
On April 2, 1997, six former FHP stockholders filed a class action
lawsuit entitled BRADY, ET. AL. v. ANDERSON, ET. AL. in U.S. District Court
for the Central District of California. The lawsuit alleged certain
violations of federal securities laws and common law by certain of the former
directors and officers of FHP (many of whom are directors and/or officers of
the Company), including material misrepresentations in connection with FHP
acquisition by PacifiCare and the separation of the Company from FHP. The
plaintiffs sought unspecified damages and other relief. The Company was not
named as a defendant in the lawsuit. Pursuant to the terms of the Merger
Agreement, PacifiCare assumed the defense of this action. On July 28, 1997,
the court granted defendants' motion to dismiss the complaint. Plaintiffs
may file an amended complaint within thirty days of this ruling.
LEASES
The Company and FHP have entered into a Real Estate and Equipment Master
Transfer Agreement (the "Master Lease Agreement") to provide for the lease,
sublease or assignment by FHP to TMMC of facilities and equipment used by the
Talbert Medical Groups that are either owned or leased by FHP. The leases
are accounted for as operating leases. The Company and FHP have agreed to
certain amendments of the Master Lease Agreement, which include (i) the
extension, at prevailing market rates, of the existing terms of the
individual leases to December 31, 2005, with the exception of leases with
respect to up to 90,000 square feet (of a total of approximately 472,000)
square feet) that the Company may elect not to renew; (ii) two five-year
extension options at prevailing market rates, exercisable solely at
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the Company's discretion; (iii) a right of first offer for the Company to
purchase the furniture, fixtures and equipment subject to the Master Lease
Agreement ("FF&E"). The parties have also agreed to enter into a separate
lease agreement with respect to FF&E that will expire on December 31, 2000.
The Company has also entered into leases with third parties and has assumed
the obligations of FHP under certain other leases with third parties.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
TMMC, THSC and the Talbert Medical Groups, subsidiaries and affiliates of
the Company, commenced operations on January 1, 1996, and were formed as part
of a plan announced by FHP in June 1995 to restructure its operations (the
"Restructuring Plan"). The Restructuring Plan included the transformation of
FHP's staff model operations (except for FHP's staff model operations in
Guam) into a physician practice management company (now known as TMMC), an
ancillary clinical services provider (now known as THSC), and a number of
affiliated medical and dental provider practice groups (now known as the
Talbert Medical Groups). TMMC and THSC were originally formed as
subsidiaries of FHP. The Talbert Medical Groups comprise a number of
professional corporations organized in California, Utah, Arizona and Nevada
to succeed to FHP's staff model business in each of those states. In New
Mexico, TMMC directly employs physicians and acts as the Talbert Medical
Group in that state. The Talbert Medical Groups are solely and exclusively
in control of and responsible for all aspects of the practice of medicine and
the delivery of medical services. TMMC and THSC facilitate the delivery of
medical care by providing practice management and ancillary clinical
services. Approximately 4,000 of FHP's employees, including health care
professionals, became employees of TMMC, THSC or the Talbert Medical Groups.
FHP's staff model operations had no separate legal status prior to the
organization of TMMC, THSC, and the Talbert Medical Groups. However, through
its subsidiaries FHP had offered health care services to FHP members as a staff
model HMO since 1961. Effective January 1, 1996, and pursuant to its management
services agreements with the Talbert Medical Groups, TMMC began providing a
broad range of practice management services in return for a management fee. At
the same time, the Talbert Medical Groups became responsible for providing all
physician-related covered medical care for each FHP member enrolled with a
Talbert Medical Group in exchange for a prepaid monthly
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capitation payment for each such member. The Talbert Medical Groups are not
limited to serving only FHP members. However, they have continuously served
FHP members who received their health care in the former FHP staff model
operations.
TRANSFERS TO TMMC AND THSC. In connection with their commencement of
operations on January 1, 1996, FHP recapitalized TMMC and THSC to eliminate a
stockholder's deficit of approximately $17.9 million and transferred to TMMC
and THSC certain assets and liabilities related to the operations of the
Company's predecessor businesses. These transfers included current assets of
approximately $27.5 million (including approximately $5.1 million in cash,
accounts receivable of approximately $5 million, inventories of approximately
$7.4 million, deferred income taxes of approximately $6.4 million, and
prepaid expenses and other current assets of approximately $3.6 million), all
of which were transferred at their historical cost to FHP.
THE MERGER. From January 1, 1996 through February 14, 1997, TMMC and
THSC operated as subsidiaries of FHP providing practice management and
ancillary services to the medical groups that were a part of FHP's staff
model operations. On August 4, 1996, FHP agreed to merge with PacifiCare.
Upon completion of the Merger on February 14, 1997, TMMHC acquired FHP's
92.4% equity interest in TMMC and THSC in exchange for Rights to purchase
92.4% of the Company's Common Stock, plus the Talbert Note. Immediately
prior to the Merger, TMMC received the capital contribution of $67 million
from FHP. The Company and FHP also entered into a number of other agreements
in connection with the Merger, including with respect to Common Stock
acquired by FHP, administrative services, and the allocation of liabilities,
taxes and employee benefits obligations between the Company and FHP. These
transactions were effected for the purpose of separating TMMC and THSC from
FHP concurrently with the FHP Merger.
THE OFFERING. Beginning on April 21, 1997, the Rights to purchase 92.4%
of the Company's Common Stock were distributed to the FHP stockholders of
record as of the
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effective time of the Merger, pursuant to the Company's Registration
Statement on Form S-1. Each Right entitled the holder to purchase one share
of the Company's Common Stock at a price of $21.50 per share. The Offering
was completed on May 20, 1997 and the Company received proceeds of
$59,598,000 from the Offering, which were used to retire the Talbert Note.
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RESULTS OF OPERATIONS
MEMBERSHIP
The Company's revenue is largely dependent on the number of enrollees for
whom the Talbert Medical Groups receive monthly capitation payments. The
table below sets forth the number of capitated enrollees for each of the
states in which the Company does business:
CAPITATED ENROLLEES
JUNE 30, DECEMBER 31, JUNE 30,
1996 1996 1997
California 135,266 124,749 114,957
Utah 114,640 105,840 94,853
Arizona 28,774 34,866 33,183
New Mexico 25,783 24,315 24,008
Nevada 4,655 4,067 3,089
------- ------- -------
Total 309,118 293,837 270,090
------- ------- -------
------- ------- -------
Currently, FHP is the primary payor for the Talbert Medical Groups,
accounting for approximately 98% of capitated enrollees and revenues for the
three month period ended June 30, 1997. The Company believes FHP will
continue to be the primary source of capitated revenue for the forseeable
future.
TMMC has, however, established approximately 28 contractual relationships
with other HMO's on behalf of the Talbert Medical Groups. In addition, TMMC has
negotiated in excess of 45 PPO payor contracts on behalf of one or more of the
Talbert Medical Groups. Under a typical PPO contract, the payor agrees to list
one of the Talbert Medical Groups on its panel of authorized practice groups.
These new payor relationships do not yet constitute a significant source of
revenues for TMMC.
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REVENUE
PROVIDER AGREEMENTS. The Talbert Medical Groups have provided health
care services to FHP members since their formation pursuant to provider
agreements with FHP. The Company derives nearly all of its revenues from
FHP, either through capitated payments directly from FHP or copayments, fee
for service or other revenue from FHP members. Pursuant to the terms of the
Merger, the Talbert Medical Groups entered into the new FHP Provider
Agreements, which took effect as of March 1, 1997. The new FHP Provider
Agreements will result in significantly lower revenue to the Company. On a
pro forma basis, the new FHP Provider Agreements would have decreased the
Company's revenue from $119.1 million to $109.3 million and increased its
operating loss from $2.8 million to $14.3 million for the three months ended
June 30, 1996.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996
REVENUE. Total revenue decreased $17.3 million, or 14.6%, to $101.8
million for the three months ended June 30, 1997 from $119.1 million for the
three months ended June 30, 1996. This decrease primarily reflects a decline
in FHP capitated enrollment and a reduction in FHP capitated rates as a
result of the new FHP Provider Agreements which became effective on March 1,
1997. Total FHP capitated enrollment declined by 14.7%, from 309,118 at June
30, 1996 to 263,589 at June 30, 1997, and was responsible for $5.4 million of
the capitated revenue decline. Capitated enrollment from non-FHP payors
increased to 6,501 enrollees and produced $819,000 in additional capitated
revenue for the three months ended June 30, 1997. The new FHP Provider
Agreements decreased the Company's capitated revenue by $9.8 million for the
three months ended June 30, 1997. Copayment and fee for service revenue
decreased by a net $2.9 million, or 12.4%, to $20.7 million for the three
months ended June 30, 1997. This decrease reflects lower copayment and fee
for service revenue from vision and pharmacy services as a result of the
lower enrollment, partially offset by increased fee for service business in
Utah.
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COST OF HEALTH CARE. Total cost of health care declined $10.5 million,
or 9.1%, to $104.8 million for the three months ended June 30, 1997, from
$115.3 million for the three months ended June 30, 1996. Lower capitated
enrollment levels during the three months ended June 30, 1997 caused
affiliated medical services expense and optometry, pharmacy and other primary
health care service expense to decline by $6.9 million and $3.2 million,
respectively. Purchased medical services expense for the three months ended
June 30, 1997 remained approximately the same as the previous year. However,
the FHP Provider Agreements required the Company to provide additional
medical services which increased purchased medical service expense by $2.0
million, which amount was offset by savings from existing contracted provider
agreements.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSE. Marketing, general and
administrative expense increased $992,000, or 14.2%, to $8.0 million (7.9% of
revenue) for the three months ended June 30, 1997, from $7.0 million (5.9% of
revenue) for the three months ended June 30, 1996. The increase was attributed
primarily to additional marketing costs of $642,000 and the recognition of stock
compensation expense of $306,000 in connection with the capital contribution of
$67.0 million.
INTEREST INCOME. Net interest income increased $946,000, to $1.4 million
for the three months ended June 30, 1997, compared to the same period in the
previous year. This increase is a result of growth in the Company's cash
balances as a result of the $67.0 million capital contribution made in
February 1997.
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SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
REVENUE. Total revenue decreased $29.9 million or 12.6%, to $206.6
million, for the six months ended June 30, 1997, from $236.5 million at June 30,
1996. This decrease primarily reflects a decrease in FHP capitated enrollment
and a reduction in capitated rates from the new FHP Provider Agreements which
went into effect on March 1, 1997. Total capitated revenue declined by $23.4
million, or 12.2%, to $168.3 for the six months ended June 30, 1997 from $191.7
million for the six months ended June 30, 1996. FHP enrollment declines were
responsible for $11.6 million of the decrease in capitated revenue and the rate
decrease from the new FHP Provider Agreements was responsible for $13.1 million
in lower capitated revenue during the six month period ended June 30, 1997.
Capitated revenue from non-FHP payors totaled $1.3 million for the six months
ended June 30, 1997. Copayment and fee for service revenue decreased $6.4
million to $38.3 million, or 14.4%, from $44.8 million for the six months ended
June 30, 1996. This decrease reflects lower pharmacy and vision copayment and
fee for service revenue attributed with the declining enrollment levels during
the period, partially offset by increased fee for service business in Utah.
COST OF HEALTH CARE. Total cost of health care decreased by $16.9 million,
or 7.4%, to $212.3 million for the six months ended June 30, 1997 from $229.2
million at June 30, 1996. Lower capitated enrollment levels during the six
months ended June 30, 1997, caused affiliated medical services expense and
optometry, pharmacy and other primary care services expense to decline by $11.7
million and $4.3 million, respectively. Overall, purchased medical services
expense decreased slightly by $1.9 million, or 3.4%, to $54.9 million,
reflecting lower utilization of services as a result of lower enrollment, as
well as lower rates received from the new FHP Provider contracts. However,
these reductions in purchased services expense were offset by an increase in
costs associated with the added medical services
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required to be provided by the Talbert Medical Groups under the new FHP
Provider Agreements.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSE. Marketing, general and
administrative expense increased $3.2 million, or 25.3%, to $16.0 million (7.8%
of revenue) for the six months ended June 30, 1997, from $12.8 million (5.4% of
revenue) for the six months ended June 30, 1996. The increase was attributable
to increased marketing costs of $1.1 million, added costs of $891,000 attributed
to the implementation of new patient billing and claims processing systems, the
recognition of stock compensation expense of $611,000 in connection with the
capital contribution of $67.0 million and added financial administrative costs
of $561,000.
INTEREST INCOME. Net interest income increased $1.7 million, to $2.3
million for the six months ended June 30, 1997, compared to $651,000 for the
same period in the previous year. This increase is a result of growth in the
Company's cash balances as a result of the $67.0 million capital contribution
made in February 1997.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash and cash equivalents increased by $26.2
million to $67.5 million at June 30, 1997, from $41.2 million at June 30,
1996. This increase primarily reflects the capital contribution of $67.0
million the Company received on February 14, 1997, less reimbursements of
approximately $39.0 million the Company made to settle amounts due FHP for
medical service and other costs paid on behalf of the Company in connection
with the Company's separation from FHP. Reimbursements to FHP during the
period include the $23 million settlement immediately following the Merger
and a final settlement of intercompany balances made in May 1997.
The Company generates cash flow principally from monthly payments from
HMO's for their members who are serviced by the Talbert Medical Groups.
FHP's staff model operations, which comprise the Company's predecessor
businesses, experienced substantial operating losses over the last five
years. Subsidies from FHP have partially offset losses incurred in these
periods, but FHP has not provided such subsidies since March 1, 1997. In
addition, FHP's membership, including enrollees served by the Company, has
declined at unanticipated rates following the announcement of the Merger. If
such declines continued and were not offset by comparable gains in revenues
from other sources, they would adversely affect the Company's operations.
The new FHP Provider Agreements, executed pursuant to the terms of the
Merger, have resulted in lower revenues and higher expenses per enrollee.
Management, therefore, anticipates that the Company will incur substantial
losses in 1997 and 1998 and will not generate positive cash flow for those
periods.
The Company does not have a credit facility in place and there can be no
assurance that the Company will be able to obtain such a facility in the
future. The Company also does not have significant tangible assets, other
than computer equipment and tenant improvements. It, therefore, does not
anticipate that credit
25
<PAGE>
facilities would be readily available to it without significant improvements
in its results of operations and cash flows.
Although the Company has experienced significant membership losses over
the past year, the trend of these losses appears to have improved in May,
June, and July of this year. The Company believes that its existing cash
resources will be sufficient to meet the Company's anticipated expansion and
working capital needs for the next several years. However, this belief
assumes that the Company's enrollment trends do not worsen, that expenses do
not increase in excess of anticipated amounts and that competitive pressures
or other factors do not further depress revenues
FORWARD-LOOKING STATEMENTS
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, particularly in the preceding
four paragraphs entitled "Liquidity and Capital Resources" and elsewhere in
this quarterly report on Form 10-Q, are forward-looking statements.
Statements in this quarterly report on Form 10-Q which address activities,
events or developments that the Company expects or anticipates will or may
occur in the future, including such things as results of operations and
financial condition, the consummation of acquisition and financing
transactions and the effect of such transactions on the Company's business
and the Company's plans and objectives for future operations and expansion.
These forward-looking statements are subject to risks and uncertainties,
including those identified as "Risk Factors" in the Company's Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-1 filed on April 21,
1997. The foregoing should not be construed as an exhaustive list of all
factors which could cause actual results to differ materially from those
expressed in forward-looking statements made by the Company. Actual results
may materially differ from anticipated results described in these statements.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information relating to certain litigation as set form in Note 6 of
Notes to Consolidated Financial Statements in Part I of this report is
incorporated herein by this reference.
On April 2, 1997, six former FHP International Corporation ("FHP")
stockholders filed a class action lawsuit entitled BRADY, ET. AL. v.
ANDERSON, ET. AL. in U.S. District Court for the Central District of
California. The lawsuit alleged certain violations of federal securities
laws and common law by certain of the former directors and officers of FHP
(many of whom are directors and/or officers of the Registrant), including
material misrepresentations in connection with FHP acquisition by PacifiCare
Health Systems, Inc. ("PacifiCare") and the separation of the Registrant from
FHP. The plaintiffs sought unspecified damages and other relief. The
Registrant was not named as a defendant in the lawsuit. Pursuant to the
terms of the acquisition agreement, PacifiCare assumed the defense of this
action. On July 28, 1997, the Court granted defendants' motion to dismiss
the complaint. Plaintiffs may file an amended complaint within thirty days
of this ruling.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
27
<PAGE>
On June 12, 1997, the Registrant amended the Rights Agreement dated as of
May 21, 1997 by and between the Registrant and American Stock Transfer & Trust
Company. The Rights Agreement, as amended, is attached as Exhibit 4.1 to this
report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. See Index to Exhibits at page 30 of this report.
(b) Reports on Form 8-K. The Registrant filed a report on Form 8-K
on May 9, 1997, reporting its financial and operating results for the quarter
ended March 31, 1997. The Registrant also availed itself of the safe harbor
provided in the Securities Act of 1933 and the Securities Exchange Act of 1934
with respect to forward-looking statements by enumerating certain factors which
could cause events described in forward-looking statements to differ materially
form those expressed or implied in such forward-looking statements.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
Dated: August 12, 1997 By: /s/ Kenneth S. Ord
--------------------------------------
Executive Vice President and
Chief Financial Officier
29
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- --------
4.1 Rights Agreement, as amended, dated as of May 21, 1997 between
Talbert Medical Management Holdings Corporation and American Stock
Transfer & Trust Company.
10.1 Form of Employment Agreement between Talbert Medical Management
Holdings Corporation and Kenneth S. Ord, Russell D. Phillips, Jr.,
and Peter W. McKinley, dated May 19, 1997, May 21, 1997, and
June 16, 1997, respectively.
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
30
<PAGE>
EXHIBIT 4.1
RIGHTS AGREEMENT
by and between
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Rights Agent
Dated as of May 21, 1997, as amended
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. CERTAIN DEFINITIONS.............................................. 1
Section 2. APPOINTMENT OF RIGHTS AGENT...................................... 6
Section 3. ISSUANCE OF RIGHT CERTIFICATES................................... 6
Section 4. FORM OF RIGHT CERTIFICATES....................................... 8
Section 5. COUNTERSIGNATURE AND REGISTRATION................................ 9
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN
RIGHT CERTIFICATES............................................... 9
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.... 10
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES............... 12
Section 9. RESERVATION AND AVAILABILITY OF SHARES; REGISTRATION............. 12
Section 10. RECORD DATE...................................................... 13
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS........................................................... 13
Section 12. CERTIFICATION OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES..... 20
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER............................................................ 20
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.......................... 24
Section 15. RIGHTS OF ACTION................................................. 24
Section 16. AGREEMENT OF RIGHT HOLDERS....................................... 25
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER................ 25
Section 18. CONCERNING THE RIGHTS AGENT...................................... 25
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT........ 26
Section 20. DUTIES OF RIGHTS AGENT........................................... 26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 21. CHANGE OF RIGHTS AGENT........................................... 28
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES............................... 29
Section 23. REDEMPTION....................................................... 29
Section 24. NOTICE OF PROPOSED ACTIONS....................................... 30
Section 25. NOTICES.......................................................... 30
Section 26. SUPPLEMENTS AND AMENDMENTS....................................... 31
Section 27. EXCHANGE......................................................... 32
Section 28. SUCCESSORS....................................................... 32
Section 29. DETERMINATION AND ACTIONS TAKEN BY THE BOARD OF DIRECTORS........ 32
Section 30. BENEFITS OF THIS AGREEMENT....................................... 33
Section 31. GOVERNING LAW.................................................... 33
Section 32. COUNTERPARTS..................................................... 33
Section 33. SECTION HEADINGS................................................. 33
Section 34. SEVERABILITY..................................................... 33
Exhibit A Form of Right Certificate
Exhibit B Form of Summary of Rights
Exhibit C Certificate re Junior Participating Preferred Stock
</TABLE>
ii
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of May 21, 1997, as amended, between
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION, a Delaware corporation (the
"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York
corporation, as Rights Agent.
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company has authorized and
declared the distribution of one right for (i) each share of Common Stock of
the Company ("Common Stock") outstanding at the Close of Business (as
hereinafter defined) on May 20, 1997 (the "Rights Record Date"), each right
representing the right to purchase one Unit consisting, initially, of one
one-hundredth of a share of Junior Participating Preferred Stock, and (ii)
each additional share of Common Stock which shall become outstanding between
the Rights Record Date and the earliest of the Distribution Date, the
Expiration Date (as such terms are hereinafter defined) and the date, if any,
on which such rights may be redeemed, all upon the terms and subject to the
conditions hereinafter set forth (each such right being hereinafter referred
to as a "Right");
NOW, THEREFORE, the parties agree as follows:
Section 1. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the following terms have the
meanings indicated:
"ACQUIRING PERSON" shall mean any Person who or which, alone or
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner (within the meaning of Section 1(b)) of a Substantial
Block of Voting Stock, but shall not include (i) an Exempt Person or
(ii) any Person who or which acquires a Substantial Block of Voting Stock
in connection with a transaction or series of transactions approved prior
to such transaction or transactions by the Board of Directors of the
Company; provided that no person shall become an Acquiring Person solely as
a result of a reduction in the number of shares of Voting Stock
outstanding, unless and until such Person shall thereafter become the
Beneficial Owner of additional shares constituting 1% or more of the
general voting power of the Company.
"AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect as of the date hereof.
1
<PAGE>
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday
or day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
"CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m., Los
Angeles time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 p.m., Los Angeles time, on the next
succeeding Business Day.
"COMMON STOCK" shall have the meaning assigned to it in the
preamble; and "COMMON STOCK" when used with reference to Persons other than
the Company shall mean: (i) in the case of Persons organized in corporate
form, the capital stock or equity security with the greatest voting power
of such Person or, if such Person is a Subsidiary of another Person, of the
Person or Persons which ultimately control such first-mentioned Person; and
(ii) in the case of Persons not organized in corporate form, the units of
beneficial interest which (A) represent the right to participate generally
in the profits and losses of such Person (including without limitation any
flow-through tax benefits resulting from an ownership interest in such
Person) and (B) are entitled to exercise the greatest voting power of such
Person or, in the case of a limited partnership, shall have the power to
remove the general partner or partners.
"CONTINUING DIRECTOR" shall mean any member of the Board of
Directors of the Company (while such Person is a member of the Board) who
(i) is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and (ii) either (A) was a member of the Board of
Directors prior to the time any Person became an Acquiring Person, or
(B) became a member of the Board of Directors subsequent to the time any
Person became an Acquiring Person, if such Person's nomination for
election, or re-election, to the Board was recommended, or approved, by a
majority of the Continuing Directors then in office.
"DISTRIBUTION DATE" shall have the meaning assigned to it in
Section 3(a).
"EFFECTIVE TIME" shall mean the effective time of the FHP Merger.
"EQUIVALENT STOCK" shall have the meaning assigned to it in
Section 7(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"EXEMPT PERSON" shall mean (i) the Company, (ii) any Subsidiary
of the Company, (iii) any employee benefit plan or employee stock plan of
the Company or of any Subsidiary of the Company or any trust or other
entity organized, established or holding shares of Common Stock by, for or
pursuant to, the terms of any such plan, (iv) any Person, including FHP,
who, solely as a result of the exercise of Subscription
2
<PAGE>
Rights distributed to such Person or, in the case of FHP, solely as a
result of the transfer by the Company to FHP of Unsubscribed Shares,
Beneficially Owns a percentage of the outstanding Voting Stock (the
"Grandfathered Percentage") equal to or in excess of the Trigger
Percentage as of the Subscription Rights Expiration Date, PROVIDED,
HOWEVER, that (A) such Person's Grandfathered Percentage shall not exceed
its FHP Ownership Percentage, or in the case of FHP, shall not exceed the
Unsubscribed Share Percentage, (B) such Person shall not acquire any
additional Voting Stock of the Company after the Subscription Rights
Expiration Date, (C) such Person's Grandfathered Percentage shall be
reduced to the extent such Person transfers any Voting Stock, and (D) any
transferee of such Person's Voting Stock (other than an Exempt Person
within the meaning of clauses (i)-(iii) above or (v) below) who after
such transfer would Beneficially Own Voting Stock equal to or in excess
of the Trigger Percentage shall not be an Exempt Person; and (v) any
transferee of Voting Stock held by FHP (an "FHP Transferee") who after
such transfer would Beneficially Own Voting Stock equal to or in excess
of the Trigger Percentage, but only to the extent of such FHP
Transferee's Beneficial Ownership as a result of such Transfer (the "FHP
Transferee Percentage"), PROVIDED, HOWEVER, that (A) FHP's Unsubscribed
Share Percentage shall be in excess of 20%, (B) such FHP Transferee shall
not acquire any additional Voting Stock after such transfer, (C) such FHP
Transferee's FHP Transferee Percentage shall be reduced to the extent
such FHP Transferee transfers any Voting Stock, and (D) any transferee of
such FHP Transferee's Voting Stock (other than an Exempt Person within
the meaning of clauses (i)-(iii) above) who after such transfer would
Beneficially Own Voting Stock equal to or in excess of the Trigger
Percentage shall not be an Exempt Person; and (vi) Joel M. Greenblatt and
Daniel L. Nir individually and in their capacities as controlling persons
of Alfred Partners, L.L.C., a Delaware limited liability company and
Gotham Capital III, L.P., a Delaware limited partnership (collectively,
the "Gotham Group"), but only until June 30, 1997 and with respect to
40,862 shares of Common Stock acquired on or prior to June 6, 1997 as
reflected in Amendment No. 1 to Schedule 13D filed by the Gotham Group
with the Commission on that date (the"Gotham Exempt Shares"), and only
for so long as the Gotham Group shall divest the Gotham Exempt Shares
pursuant to, and shall otherwise fully comply with the Gotham Letter
Agreement. .
"EXPIRATION DATE" shall have the meaning assigned to it in
Section 7(a).
"FHP" shall mean FHP International Corporation, a Delaware
corporation.
"FHP MERGER" shall mean the merger of FHP and PacifiCare Health
Systems, Inc., a Delaware corporation.
"FHP OWNERSHIP PERCENTAGE" shall be calculated by dividing the
number of shares of FHP Common Stock (on an as-if-converted basis)
Beneficially Owned by such Person as of the Effective Time by the number of
shares of FHP Common Stock (on an as-if-converted basis) outstanding as of
the Effective Time.
3
<PAGE>
"OFFER DATE" shall have the meaning assigned to it in Section
3(a).
"PERSON" shall mean any individual, firm, corporation,
partnership, trust or other entity and shall include any successor by
merger (or otherwise) of any of the foregoing.
"PRINCIPAL PARTY" shall have the meaning assigned to it in
Section 13(b).
"PURCHASE PRICE" shall mean the price payable for one Unit upon
exercise of a Right.
"QUALIFIED OFFER" shall mean a tender or exchange offer for all
outstanding Common Stock at a price and on terms determined to be adequate
and otherwise in the best interests of the Company and its shareholders
(other than the Person or an Affiliate or Associate thereof on whose behalf
the offer is made) by at least a majority of the Continuing Directors who
are not representatives of or affiliated with the Person making such offer
or any Affiliate or Associate of such Person.
"REDEMPTION PRICE" shall have the meaning assigned to it in
Section 23(a).
"RIGHT" shall have the meaning assigned to it in the preamble.
"RIGHTS RECORD DATE" shall have the meaning assigned to it in the
preamble.
"SUBSCRIPTION RIGHTS" shall mean the subscription rights to
purchase the Company's common stock distributed to FHP's stockholders in
connection with the FHP Merger.
"SUBSCRIPTION RIGHTS EXPIRATION DATE" shall mean the expiration
date of the Subscription Rights.
"SUBJECT SHARES" shall mean the class or series of shares then
issuable on exercise of the Rights.
"STOCK ACQUISITION DATE" shall mean the date of the first public
announcement by the Company or an Acquiring Person (which, for purposes of
this definition, shall include, without limitation, a report filed pursuant
to Section 13(d) under the Exchange Act) that an Acquiring Person has
become such.
"SUBSIDIARY" shall mean, with respect to any Person, a
corporation or other entity the securities or other ownership interests of
which having ordinary voting power sufficient to elect a majority of the
board of directors or other persons performing
4
<PAGE>
similar functions are at the time directly or indirectly owned by such
Person and any Affiliate of such Person.
"SUBSTANTIAL BLOCK" shall mean a number of shares of Voting Stock
equal to or in excess of the Trigger Percentage.
"TRADING DAY" shall have the meaning assigned to it in Section
11(d).
"TRIGGER PERCENTAGE" shall mean, for a period of 90 days from the
Subscription Rights Expiration Date, 8% of the Company's outstanding Voting
Stock, and following such 90-day period shall mean 15% of the Company's
outstanding Voting Stock.
"UNIT" shall mean the shares or other securities issuable upon
exercise of one Right, initially one one-hundredth of a share of Junior
Participating Preferred Stock of the Company having the rights and
preferences set forth in Exhibit C, before any adjustment pursuant to
Section 11(a)(ii) or Section 13.
"UNSUBSCRIBED SHARES" shall mean shares of the Company's common
stock unsubscribed in the distribution to FHP's stockholders of the
Subscription Rights.
"UNSUBSCRIBED SHARE PERCENTAGE" shall mean the percentage of the
Company's outstanding Voting Stock acquired by FHP through the transfer by
the Company to FHP of Unsubscribed Shares.
"VOTING STOCK" shall mean shares of the Company's capital stock
the holders of which have general voting power.
(b) For purposes of this Agreement, a Person shall be deemed the
"BENEFICIAL OWNER" of any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, (whether or not in writing) or upon the
exercise of any conversion, exchange or purchase rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person
or any of such Person's Affiliates or Associates until such tendered
securities are accepted for payment or exchange; or (B) the right to vote
or to direct the voting of, pursuant to any agreement, arrangement or
understanding (whether or not in writing); or (C) the right to dispose or
5
<PAGE>
to direct the disposition of, pursuant to any agreement, arrangement or
understanding (whether or not in writing); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any securities of the
Company;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to Beneficially Own, any security if the agreement, arrangement or understanding
to vote such security (1) arises solely from the grant of a revocable proxy or
consent given to such Person in connection with a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations under the Exchange Act, and (2) is not also then reportable on
Schedule 13D (or any comparable or successor report) under the Exchange Act;
provided, further, that a Person engaged in business as an underwriter of
securities shall not be deemed the "Beneficial Owner" of securities acquired
through such person's participation in good faith in a firm commitment
underwriting until the expiration of the 40-day period immediately following the
date of such acquisition.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
Co-Rights Agent or Agents as it may deem necessary or desirable and determine
the respective duties of the Rights Agent and the Co-Rights Agents.
Section 3. ISSUANCE OF RIGHT CERTIFICATES.
(a) Until the Close of Business on the earlier of (i) the tenth
Business Day after a Stock Acquisition Date or (ii) the tenth Business Day (or
such later date as the Company's Board of Directors shall determine) after the
date of the commencement by any Person (other than an Exempt Person) of, or the
date of the first public announcement (such commencement date or announcement
date being herein referred to as the "Offer Date") of the intent of any Person
(other than an Exempt Person) to commence, a tender or exchange offer upon the
successful consummation of which such Person, together with its Affiliates and
Associates, would be the Beneficial Owner of Voting Stock equal to or in excess
of the Trigger Percentage (irrespective of whether any shares are actually
purchased pursuant to such offer) (the tenth Business Day after the first to
occur of a Stock Acquisition Date or an Offer Date being herein referred to as
the "Distribution Date"),
(i) the Rights will automatically attach to, and be evidenced
by, the certificates for Common Stock registered in the names of the
holders of Common Stock (which certificates for Common Stock shall be
deemed also to be Right Certificates) and not by separate Right
Certificates, and
6
<PAGE>
(ii) each Right will be transferable only in connection with the
transfer of the underlying shares of Common Stock.
As soon as practicable after the Distribution Date, the Rights Agent
will mail, by first-class, insured, postage prepaid mail, to each record holder
of Common Stock as of the Close of Business on the Distribution Date, as shown
by the records of the Company at the Close of Business on the Distribution Date,
at the address of such holder shown on such records, a Right Certificate, in
substantially the form of Exhibit A hereto, evidencing one Right for each share
of Common Stock so held.
(b) As soon as practicable after the Rights Record Date, the Company
will send a copy of a Summary of Rights, in substantially the form attached
hereto as Exhibit B, by first-class mail, postage prepaid, to each record holder
of Common Stock as of the Close of Business on the Rights Record Date, at the
address of such holder shown on the records of the Company.
(c) The Company will cause certificates for Common Stock issued after
the Rights Record Date (including replacement certificates for shares of Common
Stock outstanding on or prior to the Rights Record Date), but prior to the
earliest of (i) the Distribution Date, (ii) the Expiration Date and (iii) the
date, if any, on which the Rights may be redeemed, to have impressed on, printed
on, written on or otherwise affixed to them the following legend:
This certificate also entitles the holder hereof to certain Rights as
set forth in the Rights Agreement between the Company and American
Stock Transfer & Trust Company as Rights Agent as the same shall be
amended from time to time (the "Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances
set forth in the Rights Agreement, Rights issued to, or held by, any
Person who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement)
or certain transferees of any thereof, whether currently held by or on
behalf of such Person or by any subsequent holder, may be limited as
provided in Section 7(f) of the Rights Agreement.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with Common Stock represented by such
certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any such certificates shall also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate.
7
<PAGE>
(d) Until the Distribution Date, the surrender for transfer of any of
the certificates for Common Stock outstanding on or after the Rights Record
Date, with or without a copy of the Summary of Rights attached thereto and with
or without the legend set forth in subsection (C) above, shall also constitute
the transfer of the Rights associated with such Common Stock. After the
Distribution Date, the Rights will be evidenced solely by the Right
Certificates.
Section 4. FORM OF RIGHT CERTIFICATES.
(a) The Right Certificates (and the forms of assignment and
certification and of election to purchase shares to be printed on the reverse
thereof) shall be in substantially the form of Exhibit A hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Rights may from time
to time be listed, or to conform to usage.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section
22 that represents Rights Beneficially Owned by: (i) an Acquiring Person or any
Associate or Affiliate of any Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights, or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(f), and any Right Certificate
issued pursuant to Section 6 or Section 11 upon transfer, exchange, replacement
or adjustment of any other Right Certificate referred to in this sentence, shall
contain (to the extent feasible and reasonably identifiable as such) the
following legend:
The Rights represented by this Right Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement) or certain transferees thereof. Accordingly, under certain
circumstances as provided in the Rights Agreement, this Right Certificate
and the Rights represented hereby may be limited as provided in Section
7(f) of such Agreement.
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Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its President or any of its Vice Presidents,
either manually or by facsimile signature, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Right Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, issued and delivered
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer (as specified above) of the Company to sign such Right Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept books for registration and transfer of the Right Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Right Certificates, the number of Rights evidenced on
its face by each Right Certificate, the date of each Right Certificate and the
number of each Right Certificate.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(f) and
Section 14, at any time after the Close of Business on the Distribution Date,
and prior to the Close of Business on the Expiration Date or the day prior to
the day, if any, on which the Rights are to be redeemed pursuant to Section
23, any Right Certificate or Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase such number of Units as the Right
Certificate or Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate(s) to be
transferred, split up, combined or exchanged, with the form of assignment on
the reverse side(s) thereof duly completed and executed, at the stock
transfer office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the persons entitled thereto the Right
Certificate(s) requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates. Notwithstanding the foregoing, neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Right Certificate unless and until the
registered holder shall
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<PAGE>
have completed and signed the certificate contained in the form of assignment
on the reverse side of such Right Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of the Right
Certificate, if mutilated, the Company will execute and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
owner in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Subject to Section 7(f), and unless earlier redeemed as provided
in Section 23, the registered holder of any Right Certificate may exercise the
Rights evidenced thereby in whole or in part at any time after the Distribution
Date upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly completed and executed, to the Rights
Agent at the stock transfer office of the Rights Agent, together with payment of
the Purchase Price for each Unit as to which the Rights are exercised, at or
prior to the Close of Business on the tenth anniversary of the Rights Record
Date or such other date to which the Rights may be extended as provided in this
Agreement (the latest of such dates being herein referred to as the "Expiration
Date"). If at any time after the Distribution Date but prior to the Expiration
Date the Company is unable, under its Certificate of Incorporation, to issue the
number and class of shares required to be issued upon the exercise of all of the
outstanding Rights, the Company may issue upon exercise of any of the Rights
shares of capital stock or other securities of the Company of equivalent value
to the shares so required to be issued ("Equivalent Stock"), as determined by
the Board of Directors.
(b) The Purchase Price for each Unit pursuant to the exercise of a
Right shall initially be $107.50, shall be subject to adjustment from time to
time as provided in Sections 11 and 13 and shall be payable in lawful money of
the United States of America.
(c) Upon receipt of a Right Certificate, with the form of election to
purchase duly executed, accompanied by payment of the Purchase Price for the
Units to be purchased and an amount equal to any applicable transfer tax in
cash, or by certified check, bank draft or money order payable to the order of
the Company, the Rights Agent shall thereupon promptly (i) requisition from the
Company or any transfer agent of the Company a certificate for the number of
shares to be purchased and the Company will comply, and hereby irrevocably
authorizes its transfer agent to comply, with all such requests,
(ii) requisition from the Company the amount of cash to be paid in lieu of
issuance of a fractional share, when appropriate, in accordance with Section 14,
and (iii) promptly after receipt of such certificate
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from any such transfer agent, cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, and, when appropriate,
after receipt promptly deliver such cash in lieu of a fractional share to or
upon the order of the registered holder of such Right Certificate; provided,
however, that in the case of the purchase, in connection with the exercise of
a Right, of securities other than shares of stock, the Rights Agent shall
promptly take the appropriate actions with respect thereto as shall as nearly
as practicable correspond to the actions described in the foregoing clauses
(i) through (iii).
(d) The Company shall not be required to pay any transfer tax which
may be payable in respect of any transfer involved in the transfer or delivery
of Right Certificates, or the issuance or delivery of certificates in a name
other than that of the registered holder of the Right Certificate evidencing
Rights surrendered for exercise, or to issue or deliver any certificates upon
the exercise of any Rights, until any such tax shall have been paid (any such
tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
(e) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14.
(f) Notwithstanding any provision of this Agreement to the
contrary, upon the occurrence of any of the events described in any of
clauses (A), (B), (C) or (D) of Section 11(a)(ii), the adjustment provided
for under Section 11(a)(ii) shall not apply with respect to any Rights that
are at the time of the occurrence of such event Beneficially Owned by (i) an
Acquiring Person or by any Associate or Affiliate of such Acquiring Person
(which Acquiring Person or Affiliate or Associate engages in, or realizes the
benefit of, one or more of the transactions described in clause (A) or clause
(B) of Section 11(a)(ii), realizes the benefits set forth in clause (C) of
Section 11(a)(ii) or, alone or together, become the Beneficial Owner(s) of a
number of shares of Voting Stock which equals or exceeds the percentage of
the general voting power as provided in clause (D) of Section 11(a)(ii), as
the case may be), or (ii) a transferee of an Acquiring Person or of any
Associate or Affiliate of such Acquiring Person (which Acquiring Person or
Associate or Affiliate engages in, or realizes the benefit of, one or more of
the transactions described in clause (A) or clause (B) of Section 11(a)(ii),
realizes the benefits set forth in clause (c) of Section 11(a)(ii) or, alone
or together with such Acquiring Person or any such Associate or Affiliate,
become the Beneficial Owner(s) of a number of shares of Voting Stock which
equals or exceeds the percentage of the general voting power as provided in
clause (D) of Section 11(a)(ii), as the case may be) (A) who becomes a
transferee after the Acquiring Person becomes such, or (B) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such
and receives such Rights pursuant to either (1) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests
in such Acquiring Person or to any Person with whom such Acquiring Person has
any continuing agreement, arrangement or understanding regarding the
transferred Rights or
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<PAGE>
(2) a transfer which the Board of Directors of the Company has determined is
part of a plan, arrangement or understanding which has as a primary purpose
or effect the avoidance of this Section 7(f). Upon the exercise of such
Rights, the holders thereof shall be entitled to receive, upon payment of the
Purchase Price, the number of Units issuable upon exercise of such Rights
without giving effect to the adjustment provided for under Section 11(a)(ii).
The Company shall use all reasonable efforts to insure that the provisions of
this Section 7(f) and Section 4(b) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of
its making or failing to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.
(g) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
this Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such can-celled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF SHARES; REGISTRATION.
(a) The Company covenants and agrees that it shall (i) on or prior
to the Rights Record Date, take all such action as shall be necessary to
cause to be reserved and kept available out of its authorized and unissued
capital stock, the number, class and series of shares that will be sufficient
to permit the exercise in full of all Rights to be outstanding as of the
Rights Record Date, (ii) no later than promptly following the Distribution
Date, take all such action as shall be necessary to cause to be reserved and
kept available out of its authorized and unissued capital stock, or its
authorized and issued shares held in its treasury, the number of additional
shares that will, from time to time, be sufficient to permit the exercise in
full of all Rights from time to time outstanding, (iii) take all such action
as may be necessary to insure that all shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly authorized
and
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<PAGE>
issued and fully paid and nonassessable, and (iv) pay when due and payable
any and all federal and state transfer taxes and charges which may be payable
in respect of the issuance or delivery of the Right Certificates or of any
shares upon the exercise of Rights (except as otherwise provided in Section
7(d)).
(b) The Company agrees to take all such action, from and after the
Distribution Date, as may be necessary or appropriate to permit the issuance of
shares in connection with the exercise of the Rights, including any required
registration under (i) the Securities Act of 1933, as amended from time to time
(the "Securities Act"), and (ii) the securities or "blue sky" laws of the
various states. The Company may temporarily suspend, for a period of time not to
exceed 90 days, the exercisability of the Rights in order to prepare and file a
registration statement or statements for the purpose of effecting any such
registration and permit such statement(s) to become effective. At the
commencement and termination of any such suspension, the Company shall issue a
public announcement and shall provide written notice to the Rights Agent,
stating that the exercisability of the Rights has been temporarily suspended, or
that such suspension has terminated, as the case may be.
(c) If and so long as the stock issuable upon the exercise of Rights
is listed on any national securities exchange, the Company shall use its
reasonable efforts to cause all shares reserved for issuance upon exercise of
Rights to be listed on such exchange upon official notice of issuance upon such
exercise.
Section 10. RECORD DATE. Each Person in whose name any stock
certificate is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the shares represented thereby on,
and such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made. Prior to the exercise of the
Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a stockholder of the Company with respect to shares
for which the Rights shall be exercisable, including without limitation the
right to vote or to receive dividends or other distributions, and such holder
shall not be entitled to receive any notice of any proceedings of the Company,
except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER
OF RIGHTS. The Purchase Price, the number and kind of shares or other
securities covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare and pay a dividend on the shares which are
subject to the Rights ("Subject Shares") payable in shares of stock of the
Company, (B) subdivide or split the Subject Shares, (C) combine or
consolidate the Subject Shares into a smaller number of shares or effect a
reverse stock split of the Subject Shares or (D) issue any shares of its
capital stock in a reclassification of the Subject Shares (including any
such reclassifica-
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tion in connection with a consolidation or merger in which the Company is
the continuing or surviving corporation), then, and in each such event,
except as otherwise provided in this Section 11(a), the Purchase Price in
effect at the time of the record date for such dividend or of the
effective date of such subdivision, split, reverse split, combination,
consolidation or reclassification, and the number and kind of shares of
capital stock issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled
to receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date
and at a time when the transfer books of the Company were open, he would
have received upon such exercise and been entitled to receive by virtue
of such dividend, subdivision, split, reverse split, combination,
consolidation or reclassification. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii).
(ii) In the event that at any time after the date of this
Agreement
(A) any Acquiring Person, or any Associate or Affiliate of
any Acquiring Person, directly or indirectly (1) shall merge into the
Company or any of its Subsidiaries or otherwise combine with the
Company or any of its Subsidiaries and the Company or such Subsidiary
shall be the continuing or surviving corporation of such merger or
combination and the Common Stock shall remain outstanding and the
outstanding shares thereof shall not be changed into or exchanged for
stock or other securities of the Company or of any other Person or
cash or any other property, or (2) shall sell or otherwise transfer in
one or more transactions, assets to the Company or any of its
Subsidiaries in exchange for 20 percent or more of the shares of any
class of capital stock of the Company or any of its Subsidiaries, and
the Common Stock shall remain outstanding and unchanged, or
(B) directly or indirectly, any Acquiring Person, or any
Associate or Affiliate of any Acquiring Person, shall (1) in one or
more transactions, transfer any assets to the Company or any of its
Subsidiaries in exchange (in whole or in part) for shares of any class
of capital stock of the Company or any of its Subsidiaries or for
securities exercisable for or convertible into shares of any class of
capital stock of the Company or any of its Subsidiaries or otherwise
obtain from the Company or any of its Subsidiaries, with or without
consideration, any additional shares of any class of capital stock of
the Company or any of its Subsidiaries or other securities exercisable
for or convertible into shares of any class of capital stock of the
Company or any of its Subsidiaries (other than as part of a PRO RATA
distribution by the Company or such Subsidiary to all holders of
Common Stock), (2) sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise dispose (in one or more transactions), to, from
or with, as the case may be, the Company or any of its Subsidiaries,
assets on terms
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and conditions less favorable to the Company or such Subsidiary than
the Company or such Subsidiary would be able to obtain in arm's-length
negotiation with an unaffiliated third party, (3) receive any
compensation from the Company or any of the Company's Subsidiaries
other than compensation for full-time employment as a regular
employee, or fees for serving as director, at rates in accordance with
the Company's (or its Subsidiaries') past practices, or (4) receive
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance provided by the Company or any of its
Subsidiaries, on terms and conditions less favorable to the Company or
such Subsidiary than the Company or such Subsidiary would be able to
obtain in arm's-length negotiation with an unaffiliated third party, or
(C) during any such time as there is an Acquiring Person,
there shall be any reclassification of securities (including any
reverse stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any of its Subsidiaries or
any other similar transaction or series of transactions involving the
Company or any of its Subsidiaries (whether or not with or into or
otherwise involving an Acquiring Person or any Affiliate or Associate
of such Acquiring Person) which has the effect, directly or
indirectly, of increasing by more than one percent the proportionate
share of the outstanding shares of any class of equity securities, or
of securities exercisable for or convertible into equity securities,
of the Company or any of its Subsidiaries which is directly or
indirectly owned by any Acquiring Person or any Associate or Affiliate
of any Acquiring Person, or
(D) any Person shall become an Acquiring Person otherwise
than pursuant to a Qualified Offer,
then, and in each such case, but subject to the provisions of Section 27,
proper provision shall be made so that each holder of a Right, except as
provided below and in Section 7(f), shall, on and after the later of (i) the
date of the occurrence of an event described in clause (A), (B), (C) or (D)
of this Section 11(a)(ii), or (ii) the date of the expiration of the period
within which the Rights may be redeemed pursuant to Section 23 (as the same
may have been amended as provided in Section 26), have the right to receive,
upon exercise thereof at the then current Purchase Price, such number of
shares of Common Stock as shall equal the result obtained by (x) multiplying
the then current Purchase Price by the then number of Units for which a Right
is then exercisable and dividing that product by (y) 50 percent of the
current market price per share of Common Stock (determined in accordance with
Section 11(d)) on the date of the occurrence of the relevant event listed
above in clause (A), (B), (C) or (D) of this subparagraph (ii); PROVIDED,
HOWEVER, that if the transaction that would otherwise give rise to the
foregoing adjustment is also subject to the provisions of Section 13, then
only the provisions of Section 13 shall apply and no adjustment shall be made
pursuant to this Section 11(a)(ii). The Company shall not consummate any
such merger, combination, transfer or transaction referred to in any of such
clauses (A), (B) and (C) unless prior thereto there shall be sufficient
authorized but
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unissued Common Stock to permit the exercise in full of the Rights in
accordance with the foregoing sentence, unless the Board of Directors has
determined to issue Equivalent Stock in accordance with Section 7(a);
PROVIDED, HOWEVER, that in no case may the Company consummate any such
merger, combination, transfer or transaction if at the time of or immediately
after such transaction there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights.
In the event that the Company issues Equivalent Stock upon the
exercise of any Rights pursuant to the immediately preceding paragraph, then,
upon any such exercise, proper provision shall be made so that the holder of
a Right (except as provided in Section 7(f)) shall have the right to receive,
upon such exercise at the then current Purchase Price, such number of shares
or other units of Equivalent Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of
Units for which a Right is then exercisable and dividing that product by (y)
50 percent of the current market price per share or other unit of the
Equivalent Stock of the Company (determined on substantially the same basis
as is prescribed by Section 11(d) with respect to the valuation of Common
Stock) on the date of occurrence of the relevant event listed above in clause
(A), (B), (C) or (D) of this subparagraph (ii). In the event that at any
time the Company should be prohibited by law, by any provision of its
Certificate of Incorporation, or by any instrument or agreement to which the
Company is a party or by which it is bound, from issuing, or should be unable
under its Certificate of Incorporation to issue, sufficient Equivalent Stock
to permit the exercise of all outstanding Rights in accordance with the
foregoing sentence, then, in lieu of issuing such Equivalent Stock upon such
exercise, the Company shall pay to each holder of a Right (except as provided
in Section 7(f)) upon surrender of the Right as provided herein but without
payment of the Purchase Price, an amount in cash for each Right equal to the
Purchase Price.
(b) In case the Company shall at any time after the Rights Record
Date fix a record date for the issuance of rights or warrants to all holders of
Common Stock or Subject Shares entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Common Stock
or Subject Shares or securities convertible into Common Stock or Subject Shares
at a price per share (or having a conversion price per share, if a security
convertible into Common Stock) less than the current market price per share
(determined in accordance with Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the total number of shares of Common
Stock and Subject Shares outstanding on such record date plus the number of
shares of Common Stock which the aggregate offering price of the total number of
shares so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current market
price and of which the denominator shall be the total number of shares of Common
Stock and Subject Shares outstanding on such record date plus the number of
additional shares to be offered for subscription or purchase (or into which the
convertible securities to be offered are initially convertible). In case such
subscription or purchase price may be paid, in whole or in part, in a
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form other than cash, the value of such consideration shall be as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent. Shares owned
by or held for the account of the Company shall not be deemed outstanding for
the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such
rights or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price which would then be in effect if such record date had
not been fixed.
(c) In case the Company shall at any time after the Rights Record
Date fix a record date for the making of a distribution on the shares of Common
Stock or the Subject Shares, whether by way of a dividend, distribution,
reclassification of stock, recapitalization, reorganization or partial
liquidation of the Company or otherwise (and including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation), of subscription rights or warrants (excluding those
referred to in Section 11(b)), evidences of indebtedness or other assets (other
than (i) regular periodic cash dividends, (ii) a dividend payable in Common
Stock or (iii) a distribution which is part of or is made in connection with a
transaction to which Section 11(a)(ii) or Section 13 applies), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the current market price per share of
Common Stock (determined in accordance with Section 11(d)) on such record date,
less the fair market value applicable to one share of Common Stock (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
such assets or evidences of indebtedness or of such subscription rights or
warrants so to be distributed, and of which the denominator shall be such
current market price per share of Common Stock. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) For the purpose of any computation hereunder, the "current
market price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the 30
consecutive Trading Days immediately prior to such date; PROVIDED, HOWEVER,
that in the event that the current market price per share of Common Stock is
determined during a period following the announcement by the issuer of such
Common Stock of a dividend or distribution on such Common Stock payable in
shares of such Common Stock or securities convertible into shares of Common
Stock (other than the Rights), and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, then, and in
each such case, the current market price shall be appropriately adjusted to
reflect the current market price per share of Common Stock in connection with
ex-dividend trading. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if
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the shares of Common Stock are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc., Automated Quotation
System ("NASDAQ"). If on any such date the shares of Common Stock are not
quoted by any such organization, the fair market value of such shares on such
date as determined in good faith by the Board of Directors of the issuer of
such Common Stock shall be used. Any such determination of current market
price shall be described in a statement filed with the Rights Agent.
For the purpose of any computation hereunder, the "current market
price" of a Unit shall be deemed to be equal to the current market price per
share of Common Stock, and the "current market price" of a Subject Share shall
be deemed to be equal to the current market price per share of Common Stock
divided by the number of Subject Shares which comprise a Unit.
For purposes of this Agreement, the term "Trading Day" shall mean a
day on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, a Business Day.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one percent in such
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. Notwithstanding the proviso to the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which gives
rise to such adjustment or (ii) the date of the expiration of the right to
exercise any Rights.
(f) In the event that at any time, as a result of an adjustment made
pursuant to Section 11(a), the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Company other than
shares of Common Stock, thereafter the number of such other shares so receivable
upon exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions, with
respect to such shares, contained in Sections 11(a) through (c), inclusive, and
the provisions of Sections 7, 9, 10, 13 and 14 with respect to the shares of
Common Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall represent the right to
purchase, at the adjusted
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Purchase Price, the number of shares purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of shares (calculated to
the nearest one-hundredth) obtained by (i) multiplying (x) the number of shares
covered by a Right immediately prior to such adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of shares purchasable upon the exercise of each Right.
Each of the Rights outstanding after such adjustment of the number of Rights
shall be exercisable for the number of Units for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one-hundredth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price.
The Company shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i) the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Purchase Price) and shall be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of shares issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price per share and the number of shares which were expressed in the
initial Right Certificates issued hereunder.
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(k) In any case in which this Section 11 requires that an adjustment
in the Purchase Price be made effective as of the record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the
additional shares or securities of the Company, if any, issuable as a
consequence of such adjustment; PROVIDED, HOWEVER, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares or securities upon the
occurrence of such event.
(l) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the number of shares which
may be acquired upon exercise of the Rights, and such adjustments in the
Purchase Price, in addition to those adjustments expressly required by the other
subsections of this Section 11, as and to the extent that the Company, in its
sole discretion, shall determine to be advisable, in order that, in the event of
(i) any reclassification, consolidation or subdivision of the Common Stock,
(ii) any reorganization or partial liquidation of the Company or similar
transaction, (iii) any issuance wholly for cash of any Common Stock at less than
the current market price, (iv) any issuance wholly for cash of Common Stock or
securities which by their terms are convertible into or exchangeable for Common
Stock, (v) any stock dividends or (vi) any issuance of rights, options or
warrants, hereafter made by the Company to holders of its Common Stock as
provided herein-above in this Section 11, (x) the holders of the Rights in any
such event shall be treated equitably and in accordance with the purpose and
intent of this Agreement, and (y) to the extent reasonably possible, such event
shall not, in the opinion of counsel for the Company, result in the stockholders
of the Company being subject to any United States federal income tax liability
by reason thereof.
Section 12. CERTIFICATION OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 or 13, the
Company shall (i) promptly prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (ii) promptly
file with the Rights Agent and with each transfer agent for the Common Stock a
copy of such certificate, and (iii) mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 25. Notwithstanding the
foregoing sentence, the failure of the Company to give such notice shall not
affect the validity of, or the force or effect of, the requirement for such
adjustment.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, at any time after an Acquiring Person has
become such,
(i) the Company shall consolidate with, or merge with and into,
any other Person and the Company shall not be the continuing or surviving
corporation of such consolidation or merger,
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(ii) any other Person(s) shall consolidate or merge with and into
the Company, the Company shall be the continuing or surviving corporation
of such merger and, in connection with such consolidation or merger, all or
part of the Common Stock shall be changed into or exchanged for stock or
other securities of the Company or of any other Person or cash or any other
property, or
(iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating more than 50 percent of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person, (other than a pro rata distribution by the
Company of assets (including securities) of the Company or any of its
Subsidiaries to all holders of the Company's Common Stock),
then, on and after the later of (i) the date of the occurrence of an event
described in clause (i), (ii) or (iii) of this Section 13(a), or (ii) the date
of the expiration of the period within which the Rights may be redeemed pursuant
to Section 23 (as the same may have been amended as provided in Section 26):
(A) proper provision shall be made so that each holder of a
Right shall thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price, such number of shares of
common stock of the Principal Party as shall be equal to the result
obtained by (x) multiplying the then current Purchase Price by the
number of Units for which a Right is then exercisable and dividing
that product by (y) 50 percent of the current market price per share
of the common stock of the Principal Party (determined in the same
manner as the current market price of Common Stock is determined under
Section 11(d)) on the date of consummation of such consolidation,
merger, sale or transfer;
(B) the Principal Party shall thereafter be liable for, and
shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to
this Agreement, and proper provision shall be made for the foregoing,
provided that the Principal Party shall, prior to the first occurrence
of an event described in clause (i), (ii) or (iii) of this Section
13(a), have caused to be reserved out of its authorized and unissued
shares of common stock (or its authorized and issued shares of common
stock held in its treasury), for issuance pursuant to this Agreement,
the number of shares of common stock that will be sufficient to permit
the exercise in full of the Rights after the occurrence of such event;
(C) the term "Company" wherever used in this Agreement
shall thereafter be deemed to refer to such Principal Party; and
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(D) the Principal Party shall, in addition to the
reservation of shares of its common stock as provided in the proviso
to clause (B) above, take such steps (including without limitation
compliance with the Company's other obligations as set forth in
Section 9) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as
nearly as reasonably may be, in relation to the shares of its Common
Stock thereafter deliverable upon the exercise of the Rights;
PROVIDED, HOWEVER, that, upon the subsequent occurrence of any merger,
consolidation, sale of all or substantially all assets,
recapitalization, reclassification of shares, reorganization or other
extraordinary transaction in respect of such Principal Party, each
holder of a Right shall thereupon be entitled to receive, upon
exercise of a Right and payment of the Purchase Price, such cash,
shares, rights, warrants and other property which such holder would
have been entitled to receive had such holder, at the time of such
transaction, owned the shares of common stock of the Principal Party
purchasable upon the exercise of a Right, and such Principal Party
shall take such steps (including, but not limited to, reservation of
shares of stock) as may be necessary to permit the subsequent exercise
of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property.
(b) For purposes of this Agreement, "Principal Party" shall mean
(i) in the case of any transaction described in clause (i) or
(ii) of Section 13(a), (A) the Person that is the issuer of the securities
into which shares of Common Stock are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the
common stock of which has the greatest market value, or (B) if no
securities are so issued, (x) the Person that is the other party to the
merger or consolidation and that survives said merger or consolidation, or,
if there is more than one such Person, the Person the common stock of which
has the greatest market value or (y) if the Person that is the other party
to the merger or consolidation does not survive the merger or
consolidation, the Person that does so survive (including the Company if it
survives); and
(ii) in the case of any transaction described in clause (iii) of
Section 13(a), the Person that is the party receiving the greatest portion
of the assets or earning power transferred pursuant to such transaction or
transactions, or, if each Person that is a party to such transaction or
transactions receives the same portion of the assets or earning power so
transferred or if the Person receiving the greatest portion of the assets
or earning power cannot be determined, whichever of such Persons is the
issuer of common stock having the greatest market value of shares
outstanding;
PROVIDED, HOWEVER, that in any such case, (1) if the common stock of such Person
is not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary of another
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corporation the common stock of which is and has been so registered,
"Principal Party" shall refer to such other corporation; (2) if the common
stock of such Person is not and has not been so registered and such Person is
not a direct or indirect Subsidiary of another corporation the common stock
of which is and has been so registered, "Principal Party" shall refer to the
corporation which ultimately controls such Person; (3) in case such Person is
a Subsidiary, directly or indirectly, of more than one corporation, the
common stocks of all of which are and have been so registered, "Principal
Party" shall refer to whichever of such corporations is the issuer of common
stock having the greatest market value of shares held by the public; and (4)
if the common stock of such Person is not and has not been so registered and
such Person is owned, directly or indirectly, by a joint venture formed by
two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in clauses (1), (2) and (3) above shall apply to
each of the chains of ownership having an interest in such joint venture as
if such Person were a "Subsidiary" of both or all of such joint venturers and
the Principal Party in each such chain shall bear the obligations set forth
in this Section 13 in the same ratio as its direct or indirect interests in
such Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and the Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement making
valid provision for the results described in clause (A) of Section 13(a) and
confirming that the Principal Party will perform its obligations under this
Section 13(a); PROVIDED, HOWEVER, that in no case may the Company consummate any
such consolidation, merger, sale or transfer if (i) at the time of or
immediately after such transaction there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (ii) prior to, simultaneously with or immediately
after such transaction, the shareholders of the Person which constitutes, or
would constitute, the Principal Party for purposes of this Section 13 shall have
received a distribution of Rights previously owned by such Person or any of its
Affiliates and Associates.
(d) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. This Section
13 shall not be applicable to a transaction described in Subparagraphs (i), (ii)
or (iii) of Subsection (a) of this Section if (i) such transaction is
consummated with a Person or Persons who acquired Common Stock pursuant to a
Qualified Offer (or a wholly owned subsidiary of any such Person or Persons),
(ii) the price per share of Common Stock offered in such transaction or
distributable to shareholders upon conclusion of such transaction is not less
than the price per share of Common Stock paid to all holders of Common Stock
whose shares were purchased pursuant to such Qualified Offer and (iii) the form
of consideration being offered to the remaining holders of Common Stock pursuant
to such transaction or distributable to shareholders upon conclusion of such
transaction is the same as the form of consideration paid pursuant to such
Qualified Offer. Upon conclusion of any transaction described in the foregoing
sentence, all Rights shall expire.
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Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. If the
Company shall elect not to issue such fractional Rights, in lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such Fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the average
of the high bid and low asked prices in the over-the-counter market, as reported
by NASDAQ. If on any such date the Rights are not quoted by any such
organization, the fair value of the Rights on such date as determined in good
faith by the Board of Directors of the Company shall be used. Any such
determination of current market value shall be described in a statement filed
with the Rights Agent.
(b) The Company shall not be required to issue fractions of shares
upon exercise of a Right or to distribute certificates which evidence fractional
shares. In lieu of fractional shares, the Company shall pay to the registered
holders of Right Certificates at the time such Right Certificates are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a share of Common Stock. For purposes of this Section 14, the
current market value of a share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to the second sentence of Section
11(d)) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance thereof expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right.
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Right
Certificates (and prior to the Distribution Date, the registered holders of the
Common Stock), and any registered holder of any Right Certificate (or, prior to
the Distribution Date, any registered holder of the Common Stock), without the
consent of the Rights Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, any other registered holder of the Common
Stock), may, on his own behalf and for his own benefit, enforce, and may
institute and maintain, any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
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Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) on and after the Distribution Date, the Right Certificates will
be transferable only on the registry books of the Rights Agent and then if
surrendered at the stock transfer office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties
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hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense incurred, without
negligence, bad faith or willful misconduct on the part of the Rights Agent,
for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Right Certificate
or Certificate for Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it, acting with reasonable care, to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned,
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned, and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name, and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of
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which the Company and the holders of Right Certificates, by their acceptance
thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President,
any Vice President, or the Secretary of the Company and delivered to the Rights
Agent, and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof), nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate, nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
13 or responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment), nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of stock to be issued pursuant to this Agreement or
any Right Certificate or as to whether any shares of stock will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performance by the Rights Agent of
the provisions of this Agreement.
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(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President or the Secretary of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first obtaining the Company's approval.
Section 21. CHANGE OF RIGHTS AGENT. Unless the Company and the
Rights Agent agree to a shorter time period, the Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 15 days' notice in writing mailed to the Company and to each transfer agent
of Common Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. Unless the Company and the Rights Agent agree
to a shorter time period, the Company may remove the Rights Agent or any
successor Rights Agent upon 15 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of Common Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 15 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation
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organized and doing business under the laws of the United States or of the
State of California (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of California) in good standing, having a stock transfer office in the
State of California, which is authorized under such laws to exercise stock
transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $100,000,000. After appointment,
the successor Rights Agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed, but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time
held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall file notice thereof
in writing with the predecessor Rights Agent and each transfer agent of
Common Stock and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Expiration Date, the Purchase Price per share or the number or
kind or class of shares of stock or other securities or property purchasable
under the Right Certificates made in accordance with the provisions of this
Agreement.
Section 23. REDEMPTION.
(a) The Board of Directors of the Company may, at its option and as
provided herein, and notwithstanding the provisions of Sections 11 and 13 of
this Agreement, elect to redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend, reclassification or similar
transaction occurring after the date hereof (such redemption price being herein
referred to as the "Redemption Price") at any time up to the Close of Business
on the tenth Business Day after a Stock Acquisition Date; PROVIDED, HOWEVER, the
Board of Directors of the Company may authorize the redemption of the Rights
after the time that an Acquiring Person has become such only if (i) there is at
least one Continuing Director then in office and (ii) a majority of all of the
Continuing Directors then in office approves such redemption.
(b) Immediately upon the action of the Board of Directors of the
Company electing to redeem the Rights, the Company shall make a public
announcement thereof, and from and after the date of such announcement, without
any further action and without any further notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. As soon as practicable after the
29
<PAGE>
election of the Board of Directors to redeem the Rights, the Company shall give
notice of such redemption to the holders of the then outstanding Rights by
mailing such notice to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
Section 24. NOTICE OF PROPOSED ACTIONS. In case the Company, after
the Rights become exercisable, shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Common Stock or the Subject Shares or
to make any other distribution to the holders of its Common Stock or Subject
Shares (other than a regular periodic cash dividend), or (ii) to offer to the
holders of its Common Stock or Subject Shares rights or warrants to subscribe
for or to purchase any additional shares of Common Stock or shares of stock of
any class or any other securities, rights or options, or (iii) to effect any
reclassification of its Common Stock or Subject Shares (other than a
reclassification involving only the subdivision of outstanding shares of Common
Stock) or any recapitalization or reorganization of the Company, or (iv) to
effect any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than 50 percent of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to, any other Person, or (v) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to each
holder of a Right, in accordance with Section 25, a notice of such proposed
action, which shall specify the record date for the purposes of such dividend,
distribution of rights or warrants, or the date on which such reclassification,
recapitalization, reorganization, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of Common Stock and/or Subject Shares, if
any such date is to be fixed, and such notice shall be so given in the case of
any action covered by clause (i) or (ii) above at least twenty days prior to the
record date for determining holders of the Common Stock and/or Subject Shares
for purposes of such action, and in the case of any such other action, at least
twenty days prior to the date of the taking of such proposed action or the date
of participation therein by the holders of Common Stock and/or Subject Shares,
whichever shall be the earlier. The failure to give notice required by this
Section 24 or any defect thereon shall not affect the legality or validity of
the action taken by the Company or the vote upon any such action.
Section 25. NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Attention: Corporate Trust Department
30
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Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
Talbert Medical Management Holdings Corporation
3540 Howard Way
Costa Mesa, California 92626
Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to or on the holder of any Right Certificate shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 26. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Right Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder (which lengthening or
shortening, after the time that any Acquiring Person has become such, shall be
effective only if (x) there is at least one Continuing Director then in office
and (y) a majority of all of the Continuing Directors then in office have
approved of such action), or (iv) to change or supplement the provisions hereof
in any manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Right Certificates;
PROVIDED, HOWEVER, this Agreement may not be supplemented or amended to
lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period, unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests
of the holders of Common Stock. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price, the Purchase Price or the number of shares or
Units for which a Right is exercisable.
31
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Section 27. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become subject to the provisions of Section 7(f) hereof) for Common Stock
at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio").
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Stock for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become subject to the
provisions of Section 7(f) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient authorized Common
Stock to permit an exchange of Rights as contemplated in accordance with this
Section, the Company shall take all such action as may be necessary to authorize
additional Common Stock or Equivalent Stock for issuance upon exchange of the
Rights.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATION AND ACTIONS TAKEN BY THE BOARD OF
DIRECTORS. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock (or other applicable securities hereunder) outstanding at
any particular time, including for purposes of determining the particular
percentage of such outstanding shares of Common Stock (or other securities) of
which any Person is the Beneficial Owner, shall be made in accordance with the
last sentence of Rule 13d-3(d)(1)(i) (as in effect on the date of this
Agreement) of the General Rules and Regulations under the Exchange Act. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to such Board or to the Company, or as may be necessary or
32
<PAGE>
advisable in the administration of this Agreement, including without
limitation the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or
not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (B) below, all omissions with respect to the foregoing) which are done
or made by the Board in good faith, shall (A) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (B) not subject the Board to any liability to the holders
of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the holders of Common Stock) any legal or equitable right,
remedy or claim under this Agreement. This Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the holders of
Common Stock).
Section 31. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State. The rights and obligations of the Rights
Agent under this Agreement shall be governed by and construed in accordance with
the laws in effect in the State of Delaware.
Section 32. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. SECTION HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 34. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, illegal, or unenforceable, (i) such invalid,
illegal or unenforceable term, provision, covenant or restriction shall
nevertheless be valid, legal and enforceable to the extent, if any, provided by
such court or authority, and (ii) the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THE COMPANY:
By: /s/ Jack D. Massimino
Jack D. Massimino
President and Chief Executive Officer
THE RIGHTS AGENT:
By: /s/ Herbert S. Lemmer
Name: Herbert S. Lemmer
Vice President
S-1
<PAGE>
EXHIBIT A
[Form of Right Certificate]
Certificate No. R- Rights
-----
NOT EXERCISABLE AFTER PUBLIC ANNOUNCEMENT OF
REDEMPTION IS MADE. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$.01 PER RIGHT ON THE TERMS SET FORTH IN THE
AGREEMENT. IN THE EVENT THAT THE RIGHTS
REPRESENTED BY THIS CERTIFICATE ARE ISSUED TO
A PERSON WHO IS AN ACQUIRING PERSON OR AN ASSOCIATE
OR AFFILIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT) OR CERTAIN TRANSFEREES
THEREOF, THIS RIGHT CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BE SUBJECT TO CERTAIN
LIMITATIONS IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7 OF THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of May 21, 1997 (the "Rights Agreement"), between Talbert
Medical Management Holdings Corporation, (the "Company"), and American Stock
Transfer & Trust Company (the "Rights Agent"), to purchase from the Company,
unless the Rights have been previously redeemed, at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
the Expiration Date (as such term is defined in the Rights Agreement), or the
date, if any, on which the Rights evidenced by this Certificate may be redeemed,
at the stock transfer office of the Rights Agent, or its successors as Rights
Agent, one one-hundredth of a fully paid and nonassessable share of Junior
Participating Preferred Stock ("Preferred Shares"), at a purchase price of $____
(the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly completed and executed.
The number of Rights evidenced by this Right Certificate as set forth above (and
the number of shares which may be purchased upon exercise
A-1
<PAGE>
thereof), and the Purchase Price set forth above, are the number and Purchase
Price as of the date of the Rights Agreement based on the shares of Common
Stock of the Company as constituted at such date.
Upon the occurrence of an event described in clause (A), (B), (C) or
(D) of Section 11(a)(ii) of the Rights Agreement, the holder of any Rights that
are, or were, beneficially owned by an Acquiring Person or an Associate or
Affiliate thereof (as such terms are defined in the Rights Agreement) or certain
transferees thereof which engaged in, or realized the benefit of, an event or
transaction or transactions described in clause (A), (B), (C) or (D) of such
Section 11(a)(ii), shall not be entitled to the benefit of the adjustment
described in such Section 11(a)(ii).
As provided in the Rights Agreement, the Purchase Price and the number
and class of shares which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and at the principal office of the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the stock transfer office of the Rights Agent set forth above, may
be exchanged for another Right Certificate or Right Certificates of like tenor
and date evidencing Rights entitling the holder to purchase such number of
shares as the Rights evidenced by the Right Certificate or Right Certificates
surrendered shall have entitled such holder to purchase. If this Right
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right.
No fractional shares will be issued upon the exercise of any Rights
evidenced hereby, but in lieu thereof a cash payment may be made, as provided in
the Rights Agreement.
A-2
<PAGE>
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares or of any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signatures of the proper officers of the
Company. Dated as of ____________, 199_.
Attest:
By:
- -------------------------- ---------------------------
Secretary Title:
Countersigned:
- --------------------------
By:
----------------------
Authorized Signature
A-3
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________________________ hereby sells,
assigns and transfers unto __________________.
____________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ____________________ Attorney to
transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated: , 19
------------ -- ------------------------------
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies (after due inquiry and to the best
knowledge of the undersigned) by checking the appropriate boxes that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such terms are defined in the
Rights Agreement);
(2) the undersigned [ ] did [ ] did not acquire the Rights evidenced
by this Right Certificate from any Person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Date: , 19
-------------- -- ------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
A-4
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To the Company and the Rights Agent:
The undersigned hereby irrevocably elects to exercise
_________________ Rights represented by this Right Certificate and to purchase
the shares issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of:
Please insert social security
or other identifying number: _____________________________
____________________________________________________________
(Please print name and address)
____________________________________________________________ If such number of
Rights shall not be all the Rights evidenced by this Right Certificate, a new
Right Certificate for the balance remaining of such Rights shall be registered
in the name of and delivered to:
Please insert social security
or other identifying number: _____________________________
____________________________________________________________
____________________________________________________________
(Please print name and address)
Dated: , 19
-------------- --
Signature:
------------------
(Signature must conform in all respects to name
of holder as specified on the face of this Right
Certificate)
Signature Guaranteed:
A-5
<PAGE>
CERTIFICATE
The undersigned hereby certifies (after due inquiry and to the best
knowledge of the undersigned) by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) the undersigned [ ] did [ ] did not acquire the Rights evidenced
by this Right Certificate from any person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Date: , 19
-------------- -- ------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
A-6
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT by and between Talbert Medical Management Holdings Corporation, a
Delaware corporation (the "Company") and _____________ (the "Executive"), dated
as of the ___ day of ____, 1997. For all purposes of this Agreement, employment
with the Company shall include employment with any of its affiliated companies.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the second anniversary of the date hereof.
(c) A "Hostile Change in Control" shall mean a change of control that
results from an unsolicited proposal that is not approved by a majority of the
Continuing Directors (as defined below) prior to disclosure of such proposal for
a Change in Control or if such disclosure is made without the prior approval of
a majority of the disinterested directors. Any reference in this Agreement to a
Change in Control includes any Hostile Change in Control unless specifically
noted otherwise.
(d) A "Continuing Director" shall mean any member of the Board of
Directors of the Company (while such Person is a member of the Board) who (i) is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a representative of an Acquiring Person or of any such Affiliate or Associate,
and (ii) either (A) was a member of the Board of Directors prior to the time any
person became an Acquiring Person, or (B) became a member of the Board of
Directors subsequent to the time any person became an Acquiring Person, if such
person's nomination for
1
<PAGE>
election, or re-election, to the Board was recommended, or approved, by a
majority of the Continuing Directors then in office.
(e) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act (as defined below), as in effect as of the date hereof.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (an "Acquiring Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company, or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (v) any
acquisition by FHP International Corporation ("FHP") as a result of the rights
offering to purchase the Company's Common Stock being made in connection with
PacifiCare Health Systems, Inc.'s acquisition of FHP and more fully described in
the Form S-1 Registration Statement filed with the Securities and Exchange
Commission on December 11, 1996, (the "Rights Offering"), or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of an Acquiring Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
70% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the
2
<PAGE>
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on either (i) the third
anniversary of such date if such Effective Date is triggered by a Hostile Change
of Control or (ii) the second anniversary of such date if such Effective Date is
triggered by a Change in Control that is not hostile (the "Employment Period").
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance
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with this Agreement. To the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the
highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement, the
term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) OTHER BENEFITS. During the Employment Period, the
Executive shall be entitled to participate in all incentive, savings,
retirement, welfare benefit, vacation and sick leave plans, practices,
policies and programs applicable generally to other peer executives of
the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
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(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one
of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Executive by the Board
or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any material respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in material
diminution in such position, authority, duties or responsibilities;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
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(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
For purposes of this Section 5(c), any controversy or claim arising out of or
relating to any determination of "Good Reason" made by the Executive shall be
settled by arbitration in Orange County, California, in accordance with the
following:
(v) Each party shall appoint its own arbitrator and the two
arbitrators shall choose a third, impartial arbitrator as umpire
before the date set for the hearing. If a party fails to appoint its
arbitrator within 30 days after have either received or given the
notice requesting arbitration, the other shall appoint the second
arbitrator. If the two arbitrators fail to appoint the umpire without
30 days after their appointments, either party may apply to the Orange
County Superior Court of the State of California to appoint an
impartial umpire. The umpire shall promptly notify all parties to the
arbitration of his selection.
(vi) The arbitration shall be conducted pursuant to the
provisions of the California Code of Civil Procedure, including the
rules pertaining to discovery.
(vii) Within a reasonable time after completion of the
arbitration, the arbitrators shall prepare a written opinion, a copy
of which shall be provided to each party.
(viii) The parties shall share equally the expenses of
arbitration, including the arbitrator's fee, provided, however, that
the arbitrators, in their discretion, may award costs to the
prevailing party.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(c) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
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(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of Death or Disability, the Date of Termination shall be
the date of Death of the Executive or the Disability Effective Date, as the case
may be.
6. OBLIGATIONS OF THE COMPANY OR EXECUTIVE UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, Death or Disability or the Executive shall
terminate employment for Good Reason, such termination, for purposes of this
Section 6(a), shall constitute separation from, and cessation of duties for, the
Company as of the Date of Termination. Under such circumstances, the Company
shall pay to the Executive the following payments and benefits:
(i) Bi-weekly salary continuation at the Executive's Annual Base
Salary as if the Executive had remained employed through the end of
the Employment Period; and
(ii) Medical and Dental Coverage continuation as if the Executive
had remained employed through the end of the Employment Period at the
Executive's benefit level as of the Date of Termination;
(iii) Life Insurance Coverage continuation through the end of the
Employment Period at the Executive's current benefit level as of the
Date of Termination;
(iv) Outplacement services consistent with the Company's
outplacement policy for a person at the Executive's job classification
and/or grade level;
(v) A payment on the last day of the Employment Period in an
amount equal to the sum of (A) the additional contributions that would
have been allocated to Executive's accounts under the Talbert Medical
Management Holdings Corporation Employee Stock Ownership Plan (the
"ESOP") and the Talbert Medical Management Holdings Corporation Money
Purchase Pension Plan if the Executive had remained employed through
the end of the Employment Period and deferred the maximum pretax
deferral allowed under the terms of the ESOP (after the application of
the limitations on deferrals set forth in the ESOP) and (B) the amount
of any benefits under the ESOP which were forfeited upon termination
of employment but which would have become vested if the Executive had
remained employed through the end of the Employment Period;
(vi) Payment within 30 days of the Date of Termination of all
accrued vacation, holiday and personal leave days as of the Date of
Termination; and
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(vii) Payment of any incentive compensation that Executive would
have earned if Executive had remained employed through the end of the
Employment Period under, and in accordance with the terms of, any
applicable incentive compensation plan.
The Company reserves the right to deduct from any applicable sum those
amounts required by law. Any monies owed to the Company by Executive may be
deducted from the Amounts payable pursuant to this Section 6(a). All accruals
of vacation, holiday and personal leave days shall end effective the Date of
Termination. The payments called for in this Section 6(a) shall be in lieu of
and discharge any obligations of Company to Executive for compensation, accrued
vacation, accrued personal leave days, accrued holidays, incentive compensation,
car allowances or any other expectations of remuneration or benefit on the part
of the Executive.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of accrued obligations and the
timely payment or provision of other benefits under any plan, program, policy or
practice of the Company in accordance with the terms of such plan, program,
policy or practice (the "Other Benefits"). Accrued obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination.
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of accrued obligations and the timely payment or provision of Other Benefits.
Accrued obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for accrued
obligations and the timely payment or provision of Other Benefits. In such
case, all accrued obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
(e) ACCELERATION OF OPTIONS. The Board of Directors has determined
that the events described in Section 2 hereof will constitute a "Change of
Control of the Company" for purposes of Section 6.2(b) of the Incentive Plan (as
defined below). Therefore, if the Executive's employment is terminated other
than voluntarily or for Cause, Death or Disability prior to the end of the
Employment Period, then, subject to Section 11 of this Agreement, all of the
Executive's outstanding Options under, and as defined in, the Talbert Medical
Management Holdings Corporation 1996 Stock Incentive Plan
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(the "Incentive Plan") which have not otherwise become exercisable shall
become immediately exercisable in full on the Date of Termination, and
all substantial risks of forfeiture and restrictions on transfer
relating to any of the Executive's shares of Restricted Stock under, and
as defined in, the Incentive Plan shall be terminated on the Date of
Termination. For purposes of this provision, any termination of the
Executive's employment other than voluntarily or for Cause, Death or
Disability shall be deemed to be a termination for the convenience of
the Board; accordingly, any Option granted to the Executive which are or
become exercisable as of the Date of Termination shall terminate 90 days
after the Date of Termination.
(f) DUTY TO COOPERATE. During the Employment Period and thereafter,
Executive agrees to cooperate with and assist the Company, upon reasonable
notice, in the defense of any litigation or governmental investigation arising
from events which occurred while Executive was employed by the Company. Such
cooperation and assistance shall include, but not be limited to, Executive's
full participation in locating, producing, collecting, analyzing and preparing
documents and other informational materials; in preparing for and participating
in depositions, hearings and trials; and in responding to document production
requests, interrogatories, and other discovery. If it becomes necessary for
Executive to testify in any judicial or administrative proceedings, the Company
shall reimburse Executive for any reasonable travel expenses (including
transportation, food and lodging) which are incurred (or are to be incurred) in
connection with such testimony (including preparation therefor). The Company
shall not be required to pay Executive any additional consideration, including,
but not limited to, consulting or witness fees, in connection with any
cooperation, assistance or testimony required of or provided by Executive
pursuant to this Agreement. In addition, from the Date of Termination to the
end of the Employment Period, the Executive shall devote a reasonable amount of
time cooperating with and assisting the Company in maintaining and improving its
relationships with its customers.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. Except as stated herein, the Company's obligation
to make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains other
employment.
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9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
(a) Notwithstanding anything to the contrary in Section 6 of this
Agreement or the Incentive Plan (as defined in Section 6(e) above), in no event
shall (1) Options and Stock Appreciation become immediately exercisable (2) the
risks of forfeiture and restrictions relating to Restricted Stock terminate or
(3) Performance Share Awards become payable under the Incentive Plan upon the
Executive's Date of Termination if such acceleration would (i) cause any payment
made to the Executive, whether pursuant to the terms of this Agreement or
otherwise (a "Payment") to constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) disqualify the transaction constituting the Change of Control
from being accounted for as a "pooling of interests" within the meaning of APB
No. 16, which would qualify for such accounting treatment in the absence of such
acceleration (the "Disqualification"). In the event acceleration of any Options
would cause any Payment to constitute an excess parachute payment, or would
cause a Disqualification, the Compensation Committee of the Company's Board of
Directors shall select the Options which shall remain unexercisable so that no
Payment shall constitute an excess parachute
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payment, or would cause a Disqualification, the Compensation Committee of
the Company's Board of Directors shall select the Options which shall remain
unexercisable so that no Payment shall constitute an excess parachute payment
and/or no Disqualification shall occur. Any Options which
remain unexercisable upon the Executive's Date of Termination by reason
of this Section 11(a) shall become exercisable as set forth in Section
11(c) below. Any shares of Restricted Stock or Performance Share Awards
which do not become vested by reason of this Section 11(a) shall be
forfeited upon the Executive's Date of Termination.
(b) All determinations required to be made under this Section 11 as
to whether a Payment or benefit would be deductible by the Company shall be made
by the Company's independent auditors (the "Accounting Firm") which shall
provide detailed supporting information both to the Company and the Executive
within 30 business days following the Date of Termination or such earlier time
as is requested by the Company. A determination as to whether a
Disqualification would occur shall be made by the Accounting Firm at least 10
days prior to a Change of Control. Any such determination by the Accounting
Firm shall be binding upon the Company and the Executive.
(c) PROVIDED that within 30 days after the Date of Termination (i)
the Executive shall have executed and delivered to the Company a Covenant Not to
Compete during the Employment Period in the form of EXHIBIT "A" hereto and (ii)
the Executive shall have executed and delivered to the Company a Settlement and
Release Agreement in the form of "EXHIBIT "B" hereto in the manner specified
therein, THEN: If the Executive's employment is terminated other than
voluntarily or for Cause, Death or Disability prior to the end of the Employment
Period, each of the Executive's outstanding Options which shall not otherwise
have become exercisable shall become exercisable in such manner and at such
times as the Options would have become exercisable if the Executive had not
terminated employment and shall remain exercisable until the earlier of the date
which is 90 days following the date on which the Options first becomes
exercisable or the original expiration date of the Options. Calculation of the
number of Options that become immediately exercisable under Section 11(a) shall
be made independently of this Section 11(c).
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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IF TO THE EXECUTIVE:
IF TO THE COMPANY:
Talbert Medical Management Holdings Corporation
3540 Howard Way
Costa Mesa, California 92626
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) As stated, the Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement.
(g) From and after the Effective Date, this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof entered into prior to the date hereof.
(h) This Agreement shall be void and without further force and effect
unless approved or ratified by the Company's Board of Directors or Compensation
Committee thereof.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
------------------------------
By: Jack D. Massimino
Its: President and Chief Executive Officer
------------------------------
<PAGE>
COVENANT NOT TO COMPETE
This COVENANT NOT TO COMPETE, is entered into as of
____________, 1997 (the "Agreement"), is made by and between Talbert
Medical Management Holdings Corporation, a Delaware corporation (the
"Company"), and _________ ("Executive") pursuant to the Employment
Agreement between them dated as of the ___ day of ___, 1997 (the
"Employment Agreement"). Defined terms not defined herein shall have
the meanings assigned to them in the Employment Agreement.
WHEREAS, the Company desires the benefits of the continued
services of the Executive, and the Executive is willing to render such
services, pursuant and subject to the terms and conditions of the
Employment Agreement; and
WHEREAS, Executive desires the benefits of Section 11(c) of the
Employment Agreement and in consideration thereof desires to execute
and deliver this Agreement in accordance therewith.
NOW, THEREFORE, in consideration of the promises and the
covenants and agreements contained herein, the parties hereto agree as
follows:
1. COVENANT NOT TO COMPETE. Until the earlier of the expiration of
the Employment Period or the expiration of 30 days following
Executive's Date of Termination without execution and delivery by
Executive of a Settlement and Release Agreement as provided in
Section 11(c) of the Employment Agreement, Executive shall not,
directly or indirectly, as principal, employee, agent,
independent contractor, proprietor, partner, or otherwise,
operate, own, manage, control, or participate in conducting the
same business in the same cities and counties as carried on by
the Company in the State of California at the Effective Date, if
in so doing Executive personally carries on activities
substantially the same in all material respects as the activities
carried on by Executive as an officer and employee of the Company
at the Effective Date.
2. REASONABLENESS OF COVENANT. Executive has carefully considered
the nature and extent of the restrictions upon Executive and the
rights and remedies conferred upon Company under this Agreement,
and hereby acknowledges and agrees that such covenants are
reasonable, are designed to prevent irreparable damage to
Company, are required to protect Company's legitimate interests,
and do not confer a benefit upon Company disproportionate to the
detriment of Executive.
3. NO WAIVER. No waiver of any of the provisions herein shall be
valid unless in writing signed by the party against whom such
claimed waiver is sought to be enforced, nor shall a failure to
enforce any right hereunder constitute a continuing waiver of the
notice or a waiver of any other right hereunder. The failure of
the Company at any time or from time
"EXHIBIT A"
<PAGE>
to time to require performance of any of Executive's obligations
hereunder shall in no manner affect the Company's right to
enforce any provision of this Agreement at a subsequent time.
4. SEVERABILITY. In the event that any provision or portion of this
Agreement be found by a court of competent jurisdiction to be
invalid or unenforceable, this Agreement shall be deemed to be
amended so as to delete only the invalid or unenforceable
provision, or the invalid or unenforceable portion thereof, and
the remaining provisions hereof shall remain in full force and
effect.
5. SUCCESSORS. This Agreement shall inure to the benefit of, and be
binding upon the parties, their heirs, executors, administrators,
successors and assigns.
6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the law of the State of California, without
reference to principles of conflicts of laws.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but
all of which together will constitute but one instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above mentioned.
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
---------------------------
By:
Jack D. Massimino
President and Chief Executive Officer
---------------------------
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SETTLEMENT AGREEMENT AND RELEASE
This SETTLEMENT AGREEMENT AND RELEASE ("Agreement") is entered
into by and between ____________ ("Executive") and Talbert Medical
Management Holdings Corporation, a Delaware corporation (the
"Company"), pursuant to the EMPLOYMENT AGREEMENT between them dated as
of the ___ day of ___, 1997 (the "Employment Agreement").
WHEREAS, the employment of Executive by the Company terminated
__________________ (the "Termination Date"); and
WHEREAS, Executive desires the benefits of Section 11(c) of the
Employment Agreement and in consideration thereof desires to execute
and deliver this Agreement in accordance therewith.
NOW, THEREFORE, in consideration of the promises and the
covenants and agreements contained herein, the parties hereto agree as
follows:
1. RELEASE. In consideration of the above, the sufficiency of
which Executive hereby acknowledges, and subject to the proviso
hereinafter set forth, Executive hereby agrees not to sue and fully,
finally, completely and generally releases, absolves and discharges
the Company, its predecessors, successors, subsidiaries, parents,
related companies and business concerns, affiliates, partners,
trustees, directors, officers, agents, attorneys, servants,
representatives and employees, past and present, and each of them
(hereinafter collectively referred to as "Releasees") from any and all
claims, demands, liens, agreements, contracts, covenants, actions,
suits, causes of action, grievances, arbitrations, unfair labor
practice charges, wages, vacation payments, severance payments,
obligations, commissions, overtime payments, Workers' Compensation
claims, debts, profit sharing or bonus claims, expenses, damages,
judgments, orders and/or liabilities of whatever kind or nature in
law, equity or otherwise, whether known or unknown to Executive, which
Executive now owns or holds or has at any time owned or held as
against Releasees, or any of them ("Claims"), including specifically
but not exclusively and without limiting the generality of the
foregoing, any and all Claims arising out of or in any way connected
to Executive's employment with or separation of employment from
Executive including any Claims based on contract, tort, wrongful
discharge, fraud, breach of fiduciary duty, attorneys' fees and costs,
discrimination in employment, any and all acts or omissions in
contravention of any federal or state laws or statutes (including but
not limited to federal or state securities laws and the Racketeer
Influenced and Corrupt Organizations Act), and any right to recovery
based on state or federal age, sex, pregnancy, race, color, national
origin, marital status, religion, veteran status, disability, sexual
orientation, medical condition, union affiliation or other
anti-discrimination laws, including, without limitation, Title VII,
the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the National Labor Relations Act, and the California
Fair Employment and Housing Act, all as amended, whether such claim be
based upon
"EXHIBIT B"
<PAGE>
an action filed by Executive or by a governmental agency; PROVIDED, HOWEVER,
the foregoing release shall not affect or diminish any rights of Executive
under the Employment Agreement or in respect of vested employee benefits.
"Vested employee benefits" means any and all rights of Executive under or in
respect of (i) any employee benefit plan of the Company or any corporation or
other entity which controlling, controlled by or under common control with
the Company or that is a Releasee ("Affiliated Company"), (ii) any option or
other agreement relating to any right or interest of Executive in any stock
or other securities of the Company or any Affiliated Company, (iii) salary or
wages payable for services rendered before the Termination Date, (iv)
reimbursement for business expenses or other amounts for which Executive is
entitled to reimbursement by the Company immediately before the Termination
Date, or (v) indemnification as an agent.
(a) Executive acknowledges and agrees that neither anything
in this Agreement or the offer, execution, delivery, or acceptance
thereof shall be construed as an admission of any kind by the Company,
and this Agreement shall not be admissible as evidence in any
proceeding except to enforce this Agreement.
(b) It is the intention of Executive in executing this
instrument that it shall be effective as a bar to each and every
claim, demand, grievance and cause of action hereinabove specified as
being released. In furtherance of this intention, Executive hereby
expressly consents that this Agreement shall be given full force and
effect according to each and all of its express terms and provisions,
including those relating to unknown and unsuspected claims, demands
and causes of action, if any, as well as those relating to any other
claims, demand and causes of action hereinabove specified, and elects
to assume all risks for claims that now exist in Executive's favor,
known or unknown, that are released under this Agreement. Executive
acknowledges that Executive may hereafter discover facts different
from, or in addition to, those Executive now knows or believes to be
true with respect to the claims, demands, liens, agreements,
contracts, covenants, actions, suits, causes of action, wages,
obligations, debts, expenses, damages, judgments, orders and
liabilities herein released, and agrees the release herein shall be
and remain in effect in all respects as a complete and general release
as to all matters released herein, notwithstanding any such different
or additional facts.
(c) If any provision of this Agreement or application
thereof is held invalid, the invalidity shall not affect other
provisions or applications of the Agreement which can be given effect
without the invalid provision or application. To this end, the
provisions of this Agreement are severable.
(d) Executive represents and warrants that Executive has
not heretofore assigned or transferred or purported to assign or
transfer to any person, firm or corporation any claim, demand, right,
damage, liability, debt, account, action, cause of action, or any
other matter herein released.
(e) NOTICE TO EXECUTIVE: The law requires that Executive
be advised and the Company hereby advises Executive to consult with an
attorney and discuss this Agreement before executing it. Executive
acknowledges that the Company has provided to Executive at least 21
days within which to review and consider this Agreement before signing
it. If Executive decides not to use the full 21 days, then Executive
knowingly and voluntarily waives any claims that Executive was not in
fact given that period of time or did not use the entire 21
<PAGE>
days to consult an attorney and/or consider this Agreement. Executive
acknowledges that Executive may revoke this Agreement for up to seven
calendar days following Executive's execution of this Agreement and that it
shall not become effective or enforceable until the revocation period has
expired. Executive further acknowledges and agrees that such revocation must
be in writing addressed to the Company as follows: Talbert Medical
Management Holdings Corporation, 3540 Howard Way, Costa Mesa, California
92626-1417, Attn: President, and received by the Company as so addressed not
later than midnight on the seventh day following execution of this Agreement
by Executive. If Executive so revokes this Agreement, the Agreement shall
not be effective or enforceable and Executive will not receive the benefits
described above. If Executive does not revoke this Agreement in the time
frame specified above, the Agreement shall become effective at 12:00:01 on
the eighth day after it is signed by Executive.
(f) Executive represents that Executive has read and
understood the foregoing Agreement, has been advised to and has had
the opportunity to discuss it with anyone he or she desires, including
an attorney of his or her own choice, and Executive accepts and agrees
to the terms of this Agreement, acknowledges receipt of a copy of the
same and the sufficiency of the benefits described above, and hereby
executes this Agreement voluntarily and with full understanding of its
consequences.
PLEASE READ CAREFULLY. THIS AGREEMENT CONTAINS A GENERAL
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
Date: __________________, 199__ Executive:
Date: __________________, 199__ Talbert Medical Management
Holdings Corporation
By: ______________________
Its: _____________________
<PAGE>
EXHIBIT 11.1
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
FOR THE
(dollars in thousands, THREE MONTHS ENDED
except per share data) JUNE 30,
1997 1996
----------- -----------
Primary loss per share:
Net loss $ (9,658) $ (1,630)
---------- ---------
---------- ---------
Weighted average number of
common shares and common
share equivalents:
Common Stock 3,000,126 3,000,000
Assumed exercise of options 61,480 --
----------- -----------
Total shares 3,061,606 3,000,000
----------- -----------
----------- -----------
Primary loss per share $ (3.15) $ (0.54)
----------- -----------
----------- -----------
Fully diluted earnings per share:
Net loss $ (9,658) $ (1,630)
----------- -----------
----------- -----------
Weighted average number of
common shares and common
share equivalents:
Common Stock 3,000,126 3,000,000
Assumed exercise of options 65,196 --
----------- -----------
Total common and common
equivalent shares,
assuming full dilution 3,065,322 3,000,000
----------- -----------
----------- -----------
Fully diluted loss per share $ (3.15) $ (0.54)
----------- -----------
----------- -----------
1
<PAGE>
EXHIBIT 11.1
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
FOR THE
(dollars in thousands, SIX MONTHS ENDED
except per share data) JUNE 30,
1997 1996
----------- -----------
Primary loss per share:
Net loss $ (17,647) $ (2,804)
----------- -----------
----------- -----------
Weighted average number of
common shares and common
share equivalents:
Common Stock 3,000,063 3,000,000
Assumed exercise of options 44,492 --
----------- -----------
Total shares 3,044,555 3,000,000
----------- -----------
----------- -----------
Primary loss per share $ (5.79) $ (0.93)
----------- -----------
----------- -----------
Fully diluted earnings per share:
Net loss $ (17,647) $ (2,804)
----------- -----------
----------- -----------
Weighted average number of
common shares and common
share equivalents:
Common Stock 3,000,063 3,000,000
Assumed exercise of options 61,785 --
----------- -----------
Total common and common
equivalent shares,
assuming full dilution 3,061,848 3,000,000
----------- -----------
----------- -----------
Fully diluted loss per share $ (5.76) $ (0.93)
----------- -----------
----------- -----------
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND CASHFLOWS OF
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH JUNE 30, 1997 QUARTERLY REPORT ON
FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 67,457
<SECURITIES> 0
<RECEIVABLES> 9,568
<ALLOWANCES> 0
<INVENTORY> 6,676
<CURRENT-ASSETS> 89,232
<PP&E> 10,273
<DEPRECIATION> 1,631
<TOTAL-ASSETS> 103,370
<CURRENT-LIABILITIES> 58,937
<BONDS> 0
0
0
<COMMON> 72,959
<OTHER-SE> (28,526)
<TOTAL-LIABILITY-AND-EQUITY> 103,370
<SALES> 206,624
<TOTAL-REVENUES> 206,624
<CGS> 228,330
<TOTAL-COSTS> 228,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,370)
<INCOME-TAX> (1,723)
<INCOME-CONTINUING> (17,647)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,647)
<EPS-PRIMARY> (5.79)
<EPS-DILUTED> (5.76)
</TABLE>
