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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
(NAME OF SUBJECT COMPANY)
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(TOGETHER WITH ASSOCIATED JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
874121-10-6
(CUSIP NUMBER OF CLASS OF SECURITIES)
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RUSSELL D. PHILLIPS, JR., ESQ.
CHIEF LEGAL OFFICER AND SECRETARY
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
3540 HOWARD WAY
COSTA MESA, CALIFORNIA 92626-1417
(714) 436-4800
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
With a copy to:
C. JAMES LEVIN, ESQ.
O'MELVENY & MYERS LLP
400 SOUTH HOPE STREET
SUITE 1500
LOS ANGELES, CALIFORNIA 90071
(213) 669-6000
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9" or this "Statement") relates to an offer by Talmed Merger
Corporation, a Delaware corporation and wholly-owned subsidiary of MedPartners,
Inc., a Delaware corporation, to purchase all Shares (as defined below) of
Talbert Medical Management Holdings Corporation, a Delaware corporation.
Capitalized terms used and not otherwise defined in this Statement have the
meanings assigned to them in the Offer to Purchase dated August 20, 1997 (the
"Offer to Purchase"), a copy of which is filed as Exhibit 1 to this Statement.
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Talbert Medical Management Holdings
Corporation, a Delaware corporation (the "Company"). The address of the
principal executive offices of the Company is 3540 Howard Way, Costa Mesa,
California 92626-1417. The title of the class of equity securities to which this
Statement relates is the shares of common stock, par value $.01 per share, of
the Company (the "Common Stock"), together with the associated rights (the
"Rights") to purchase shares of preferred stock, par value $.01 per share, of
the Company designated as "Junior Participating Preferred Stock" and issued
pursuant to the Rights Agreement dated as of May 21, 1997 between the Company
and American Stock Transfer and Trust Company, as amended (the "Rights
Agreement").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by Talmed Merger Corporation, a
Delaware corporation (the "Subsidiary") and wholly-owned subsidiary of
MedPartners, Inc., a Delaware corporation (the "Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1 dated August 20, 1997 (the "Schedule 14D-1"),
to purchase all outstanding shares of the Common Stock, together with their
associated Rights (such shares and Rights being collectively referred to herein
as the "Shares"), at a price of $63.00 per Share, net to the seller in cash (the
"Per Share Amount"), upon the terms and subject to the conditions set forth in
the Offer to Purchase and the related letter of transmittal (the "Letter of
Transmittal"; which together with the Offer to Purchase, as they may be amended
or supplemented from time to time, constitute the "Offer"), copies of which are
filed as Exhibits 1 and 2 to this Statement, respectively, and are incorporated
herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of August 14, 1997 (the "Merger Agreement") among the Parent, the Subsidiary
and the Company. A copy of the Merger Agreement is filed as Exhibit 3 to this
Statement and is incorporated herein by reference. The Merger Agreement provides
that, among other things, following the consummation of the Offer and upon the
terms and subject to the conditions set forth in the Merger Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), the Subsidiary will be merged with and into the Company (the "Merger")
at the Effective Time (as defined below). Following the Effective Time, the
separate corporate existence of the Subsidiary will cease, and the Company will
continue as the surviving corporation (the "Surviving Corporation") and as a
wholly-owned subsidiary of the Parent. In the Merger, each Share issued and
outstanding immediately prior to the Effective Time (other than (i) Shares owned
by the Company, the Parent or any subsidiary of the Company or the Parent, all
of which will be cancelled, and (ii) the Dissenting Shares (as defined in the
Merger Agreement)) will be converted into the right to receive the Per Share
Amount in cash. The Merger Agreement is summarized in Item 3(b) of this
Statement.
According to the Schedule 14D-1, the principal executive offices of the
Parent and the Subsidiary are located at 3000 Galleria Tower, Suite 1000,
Birmingham, Alabama 35244.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and its executive officers, directors and
affiliates are described in Annex I attached to this Statement
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and incorporated herein by reference. Other such contracts, agreements,
arrangements or understandings are summarized below or described in the
Company's Prospectus (the "Prospectus") dated April 21, 1997, as filed with the
Securities and Exchange Commission (the "Commission") under Rule 424(b) under
the Securities Act of 1933, as amended, on April 18, 1997, under the captions
"CERTAIN TRANSACTIONS -- Transactions with the Management Investors," and
"RELATIONSHIP WITH FHP AND PACIFICARE FOLLOWING THE OFFERING -- Management Stock
Exchange Agreement." A copy of the relevant portions of the Prospectus is filed
as Exhibit 4 to this Statement, and such portions are incorporated herein by
reference. Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and the Parent, the Subsidiary and their
respective executive officers, directors and affiliates are also summarized
below.
MERGER AGREEMENT
The following is a summary of certain material provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the full text of the Merger Agreement, a copy of which
is filed as Exhibit 3 to this Statement. In particular, when the term "material
adverse change" or "material adverse effect" is used herein it has the meaning
given in the Merger Agreement.
The Offer. The Merger Agreement provides that the Subsidiary will commence
the Offer not later than the fifth business day from the public announcement of
the execution of the Merger Agreement. The obligation of the Subsidiary to
commence the Offer and pay for any Shares tendered is subject to certain
conditions. See "-- Conditions to the Offer." The Merger Agreement provides that
the Subsidiary may in its sole discretion modify the terms and conditions of the
Offer, or waive certain conditions to the Offer. However, without the Company's
prior written consent, the Subsidiary cannot reduce the Per Share Amount, change
the form of consideration payable in the Offer, reduce the number of Shares
subject to the Offer, allow the Offer to expire before September 19, 1997, add
to or modify the conditions to the Offer set forth in the Merger Agreement, or
make any other modification materially adverse to the holders of Shares. The
Subsidiary may, without the consent of the Company, extend the term of the Offer
on one or more occasions beyond the scheduled expiration date if any of the
conditions to the Subsidiary's obligation to consummate the Offer have not been
satisfied or waived by that date, provided that the Subsidiary may not extend
the Offer for a total of more than 60 days from the commencement of the Offer.
The Subsidiary may also extend the Offer for a period not to exceed 10 business
days, notwithstanding that all conditions to the Offer are satisfied as of that
date, if the Shares tendered at that date equal more than 75% but less than 90%
of the outstanding Shares.
The Minimum Condition. One of the conditions to the Offer is that there
must be validly tendered and not withdrawn at least 51% (determined on a fully
diluted basis) of the outstanding Shares (the "Minimum Condition"). The Company
has informed the Subsidiary that, as of August 14, 1997, there were 3,000,758
Shares issued and outstanding, that 174,252 shares of Common Stock were reserved
for future issuance pursuant to outstanding stock options, and that, except as
otherwise disclosed in the Merger Agreement, no other stock of the Company is
outstanding or committed to be issued. Based on this information and assuming
all outstanding options to purchase shares of Common Stock will have been
accelerated so as to be fully exercisable prior to the consummation of the
Offer, the Subsidiary believes that the Minimum Condition will be satisfied if
the Subsidiary acquires at least 1,619,256 Shares in the Offer. The Parent does
not directly or indirectly hold any Shares.
Conditions to the Offer. The Subsidiary is not required to accept for
payment or (subject to any applicable rules and regulations of the Commission)
to pay for Shares tendered pursuant to the Offer unless (i) the Minimum
Condition is satisfied, and (ii) any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations thereunder (the "HSR Act"), has expired or been terminated. In
addition, the Subsidiary is not obligated to consummate the Offer if, at any
time on or after the date of the Merger Agreement and before the acceptance of
Shares for payment, any of the following events has occurred (other than as a
result of the action or inaction of the Parent or any of its subsidiaries that
constitutes a breach of the Merger Agreement):
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(a) any order, injunction, judgment or ruling in any legal proceeding
is entered that (i) makes illegal or otherwise restrains or prohibits the
acquisition by the Parent or the Subsidiary of any Shares under the Offer
or the making or consummation of the Offer or the Merger, the performance
by the Company of any of its obligations under the Merger Agreement or the
consummation of any purchase of Shares contemplated thereunder, (ii)
prohibits or limits the ownership or operation by the Company, the Parent
or any of their respective subsidiaries of a material portion of the
business or assets of the Company and its subsidiaries, taken as a whole,
or the Parent and its subsidiaries, taken as a whole, or compels the
Company or the Parent to dispose of or hold separate any material portion
of the business or assets of the Company and its subsidiaries, taken as a
whole, or the Parent and its subsidiaries, taken as a whole, as a result of
the Offer or the Merger, (iii) imposes material limitations on the ability
of the Parent or the Subsidiary to acquire or hold, or exercise full rights
of ownership of, any Shares accepted for payment pursuant to the Offer
including, without limitation, the right to vote such Shares on all matters
properly presented to the stockholders of the Company or (iv) prohibits the
Parent or any of its subsidiaries from effectively controlling in any
material respect the business or operations of the Company and its
subsidiaries, taken as a whole; or
(b) any law is enacted, entered, enforced or deemed applicable to the
Offer or the Merger, or any other action is taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that results in any of the consequences
referred to in paragraph (a) above; or
(c) any material adverse change to the Company occurs; or
(d) (i) the Board of Directors of the Company or any committee thereof
withdraws or modifies in a manner adverse to the Parent or the Subsidiary
its approval or recommendation of the Offer, the Merger or the Merger
Agreement, or approves or recommends any other acquisition proposal or (ii)
the Company enters into any agreement to consummate any acquisition
proposal; or
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality are not true
and correct or any such representations and warranties that are not so
qualified are not true and correct in any respect that is reasonably likely
to have a material adverse effect, in each case at the date of the Merger
Agreement and at the scheduled expiration of the Offer; or
(f) the Company fails to perform in any material respect any material
obligation or to comply in any material respect with any material agreement
or material covenant of the Company to be performed or complied with by it
under the Merger Agreement; or
(g) there has occurred and continues for three business days (i) any
general suspension of trading in, or limitation on prices for, securities
on the New York Stock Exchange (excluding any coordinated trading halt
triggered solely as a result of a specified decrease in a market index),
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) commencement of a war or armed
hostilities or other national or international calamity involving the
United States which is reasonably expected to have a material adverse
effect or to materially adversely affect the Parent's or the Subsidiary's
ability to complete the Offer or the Merger or materially delay the
consummation of the Offer, the Merger or both or (iv) in case of any of the
foregoing existing on the date of the Merger Agreement, material
acceleration or worsening thereof; or
(h) the Merger Agreement terminates in accordance with its terms.
For purposes of the Offer and the Merger Agreement, "material adverse change" or
"material adverse effect" means with reference to a party any change, effect,
event or occurrence that has or is reasonably likely to have a material adverse
impact on the business or financial position of such party and its subsidiaries
and other controlled entities, taken as a whole. However, the meaning of
"material adverse change" or "material adverse effect" excludes (i) changes in
generally accepted accounting principles, (ii) changes in applicable law, (iii)
changes or effects of any kind that impact the party's industry generally, or,
as to the Company, Southern California, (iv) changes in Medicare reimbursement
rates, (v) changes or effects arising from the announce-
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ment of the Merger Agreement or from any party's performance under the Merger
Agreement, and (vi) any changes resulting from any restructuring or other
similar charges or write-offs taken by the Company with the consent of the
Parent.
The foregoing conditions are for the sole benefit of the Parent and may,
subject to the terms of the Merger Agreement, be waived by the Subsidiary and
the Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by the Parent at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances and each such
right will be deemed an ongoing right that may be asserted at any time and from
time to time. The Offer is not subject to obtaining any consents from third
parties.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, and in accordance with the DGCL, the Subsidiary will be
merged with and into the Company not later than the second business day after
the satisfaction or waiver of the conditions set forth in the Merger Agreement.
The Merger will become effective upon the filing of a Certificate of Merger with
the Secretary of State of the State of Delaware (the "Effective Time"). As a
result of the Merger, the separate corporate existence of the Subsidiary will
cease, and the Company will continue as the Surviving Corporation. In the
Merger, each issued and outstanding Share (other than Shares owned directly or
indirectly by the Company, the Parent or any subsidiary of the Company or the
Parent, and other than Shares owned by stockholders who have properly exercised
dissenters rights under the DGCL) will be converted into the right to receive
the Per Share Amount, and each issued and outstanding share of common stock of
the Subsidiary will be converted into one fully paid and nonassessable share of
common stock of the Surviving Corporation (which will constitute the only issued
and outstanding capital stock of the Surviving Corporation).
The Merger Agreement provides that the certificate of incorporation and
by-laws of the Subsidiary at the Effective Time will be the certificate of
incorporation and by-laws of the Surviving Corporation until amended in
accordance with applicable law. The Merger Agreement also provides that the
directors and officers of the Subsidiary at the Effective Time will be the
directors and officers of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that,
promptly upon the purchase of Shares by the Subsidiary pursuant to the Offer,
seven of the Company's nine directors will resign, and the Parent will designate
three replacements for appointment or election to the Company's Board of
Directors. The Company will, upon request of the Subsidiary, use its best
efforts promptly to cause the Parent's designees to be so appointed or elected.
The remaining two directors (and any successors appointed or elected before the
Effective Time, which successors will not be affiliated with the Parent) are
referred to as the "Original Directors." Once the Parent's designees constitute
a majority of the Company's Board of Directors, any amendment of the Merger
Agreement, any termination of the Merger Agreement by the Company, any extension
of time for performance of any of the obligations of the Parent or the
Subsidiary thereunder, any waiver of any condition or any of the Company's
rights thereunder or other action by the Company thereunder may be effected only
by the joint action of the Original Directors. In connection with the
appointment of the Parent's designees to the Board of Directors, the Company has
agreed to comply with Section 14(f) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14f-1 promulgated thereunder.
Rights Agreement. Pursuant to the Merger Agreement, the Rights Agreement
was amended so that the Rights will not be distributed and do not become
exercisable as a consequence of the execution, announcement or consummation of
the transactions contemplated by the Merger Agreement. A copy of the amendment
to the Rights Agreement was included as an exhibit in the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1997 filed with the Commission
on August 12, 1997, and such amendment is incorporated herein by reference.
Recommendation. In the Merger Agreement, the Company states that its Board
of Directors has, by unanimous vote of those present, (i) determined that the
Offer and the Merger are fair to and in the best interests of the stockholders
of the Company and (ii) resolved to recommend acceptance of the Offer and
approval and adoption of the Merger Agreement and the Merger by the stockholders
of the Company.
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Interim Operations. In the Merger Agreement, the Company has agreed to use
its commercially reasonable best efforts to preserve the business organization
of the Company intact, to keep available the services of the present employees
of the Company, and to preserve the goodwill of the suppliers, customers and
others having business relations with the Company. In addition, other than as
contemplated by the Merger Agreement and the related documents (including the
schedules thereto) or without the prior written consent of the Parent, which
consent will not be unreasonably withheld, each of the Company and its
subsidiaries will not (other than in the ordinary course of business and
consistent with past practice or with respect to binding commitments entered
into before the date of the Merger Agreement):
(a) Encumber any material asset or enter into any material transaction
or make any material contract or commitment relating to the properties,
assets and business of the Company.
(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to the Company.
(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$100,000.
(d) Make any payment or distribution to the trustee under any bonus,
pension, profit-sharing or retirement plan or incur any obligation to make
any such payment or contribution which is not in accordance with the
Company's usual past practice, or, except as required pursuant to the
Employee Benefits and Compensation Allocation Agreement dated as of
February 14, 1997 between the Company and FHP International Corporation
("FHP"), make any payment or contributions or incur any obligation pursuant
to or in respect of any other plan or contract or arrangement providing for
bonuses, executive incentive compensation, pensions, deferred compensation,
retirement payments, profit-sharing or the like, establish or enter into
any such plan, contract or arrangement, or terminate any plan.
(e) Extend credit to anyone.
(f) Guarantee the obligation of any person, firm or corporation.
(g) Amend its Certificate of Incorporation or By-laws.
(h) Discharge or satisfy any material lien or encumbrance, or pay or
satisfy any material obligation or liability (absolute, accrued, contingent
or otherwise) other than (i) liabilities shown or reflected on the
unaudited balance sheet dated June 30, 1997 included in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1997 (the
"Company Balance Sheet") or (ii) liabilities incurred or due since the date
of the Company Balance Sheet in the ordinary course of business, which
discharge or satisfaction would have a material adverse effect on the
Company.
(i) Increase or establish any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on the Company, except as may have been required due to
income or operations of the Company since the date of the Company Balance
Sheet.
(j) Mortgage, pledge or subject to any material lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the business or financial condition of the Company.
(k) Sell or transfer any of the assets material to the consolidated
business of the Company, cancel any material debts owed to the Company or
claims reflected as assets on the Company Balance Sheet, or waive any
material rights.
(l) Grant any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable
by the Company to any officer or employee, consultant or agent (other than
normal increases consistent with past practices), or by means of any bonus
or pension plan, contract or other commitment, increased in a material
respect the compensation of any officer, employee, consultant or agent.
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(m) Except for the Merger Agreement and any other agreement executed
and delivered pursuant to the Merger Agreement, enter into any material
transaction other than in the ordinary course of business or permitted
under other sections of the Merger Agreement.
(n) Issue any stock (other than pursuant to the Stock Incentive Plan
(as defined below)), bonds or other securities or any options or rights to
purchase any of its securities.
No Solicitation. In the Merger Agreement, the Company has agreed not to
directly or indirectly furnish information and access, in response to
unsolicited requests, to any third party, participate in discussions and
negotiate with such third party concerning any proposal to acquire such party
upon a merger, purchase of assets, purchase of or tender offer for shares of its
Common Stock or similar transaction (an "Acquisition Transaction"). However, if
prior to the acceptance for payment of Shares pursuant to the Offer, the Board
of Directors, after receiving advice from outside legal counsel to the Company,
determines that a failure to act would be inconsistent with its fiduciary duties
to the Company's stockholders under applicable law, the Company may (i) furnish
information about and access to the Company to any third party in response to an
unsolicited request pursuant to a confidentiality agreement with terms and
conditions similar to the Confidentiality Agreement (as defined below), (ii)
participate in discussions and negotiations regarding any potential Acquisition
Transaction, and/or (iii) terminate the Merger Agreement. The Company will
notify the Parent of any unsolicited request for information and access in
connection with a possible Acquisition Transaction involving a third party,
which notification will include the identity of the third party and the proposed
material terms of the possible Acquisition Transaction.
Stock Incentive Plan. The Merger Agreement provides that the Company will
take all actions necessary to provide that each outstanding stock option to
purchase shares of Common Stock (an "Option") under the Talbert Medical
Management Holdings Corporation 1996 Stock Incentive Plan (the "Stock Incentive
Plan") will be accelerated so as to be fully exercisable on or prior to the
consummation of the Offer. Options (other than Options granted under Article 7
of the Stock Incentive Plan) therefore may be exercised, and the corresponding
Common Stock tendered pursuant to the Offer, except to the extent that such
tender could result in short-swing profit liability under Section 16(b) of the
Exchange Act. Options granted under Article 7 of the Stock Incentive Plan (other
than Options granted within six months of the termination of such Option) will
be fully exercisable upon consummation of the Offer and prior to any of the
resignations of the current directors of the Company pursuant to the Merger
Agreement. With respect to each Option that remains outstanding immediately
after the consummation of the Offer, the Company, immediately after the
consummation of the Offer, but prior to any termination or resignation of the
holder of such Option pursuant to the Merger Agreement, will pay to each such
holder in connection with the surrender and termination or settlement of such
Options an amount in cash equal to the product of (x) the number of shares of
Common Stock then subject to the Option multiplied by (y) the excess of the Per
Share Amount over the per share exercise price of the Option, less all
applicable tax withholding. The Stock Incentive Plan will terminate as of the
Effective Time.
A summary of the Stock Incentive Plan is included in Annex I attached to
this Statement. Such summary does not purport to be complete and is qualified in
its entirety by reference to the text of the Stock Incentive Plan, a copy of
which is attached to this Statement as Exhibit 5 and incorporated herein by
reference.
Management Incentive Program. In March 1997, the Company implemented an
executive bonus program (the "Management Incentive Program") for the year ending
December 31, 1997. Bonuses are based on the achievement of budgeted objectives
and improvements to the quality of services provided to members. Pursuant to the
Merger Agreement and a letter agreement dated August 14, 1997 among the Parent,
the Subsidiary and the Company, the Parent will cause the Company and the
Surviving Corporation to pay at the time of the consummation of the Offer to
each corporate-level employee currently participating in the Company's
Management Incentive Program cash awards equivalent to the award that would have
been received by the participants in such program if calculated as of June 30,
1997. A copy of such letter agreement is filed as Exhibit 6 to this Statement
and incorporated herein by reference.
Transition Bonus. Certain employees of the Company who do not participate
in the Company's Management Incentive Program will receive cash bonuses in the
amounts agreed to between the Company
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and the Parent in another letter agreement dated August 14, 1997. A copy of such
letter agreement is filed as Exhibit 7 to this Statement and incorporated herein
by reference. The bonuses will be paid from a $923,000 contribution from the
Parent. The purpose of these cash bonuses is to reward such employees for
remaining with the Company in order to facilitate the transactions contemplated
by the Merger Agreement. The bonuses will be paid on January 1, 1998 to the
listed employees who are then employed by the Surviving Corporation or any of
its affiliates. If any listed employee is terminated before January 1, 1998
other than for cause, the employee will be paid the designated amount on the
effective date of termination.
Other Provisions Relating to Employee Benefits. The Merger Agreement
provides that all service credited to each employee by the Company through the
Effective Time will be recognized by the Parent for all purposes, including
eligibility, vesting and benefit accruals, under any employee benefit plan
provided by the Parent or the Surviving Corporation for the benefit of the
employees. The Parent further agrees not to take any action, or fail to take any
action, that would cause the Surviving Corporation not to honor (without
modification) and assume the employment agreements, executive termination
agreements and individual benefit arrangements of the Company.
Physician Warrant Agreements. In connection with the Merger, the Parent has
agreed to enter into nontransferable warrant agreements (the "Physician Warrant
Agreements") with certain physicians (the "Physicians") employed by the medical
groups managed by Talbert Medical Management Corporation ("TMMC"), a
wholly-owned subsidiary of the Company, or by TMMC. A copy of the form of the
Physician Warrant Agreement is filed as Exhibit 8 to this Statement and
incorporated herein by reference.
Each Physician Warrant Agreement provides that the Parent will grant to the
Physician party to such agreement warrants with respect to an aggregate of 2,000
shares of the common stock, par value $.001 per share, of the Parent (the
"Warrants"). Each Warrant entitles the Physician to purchase one share of the
Parent's common stock. The exercise price of the Warrants will be the average
closing price of the Parent's common stock for the ten trading days preceding
the date which is two days before the Effective Time.
Directors' and Officers' Insurance; Indemnification. The Merger Agreement
provides that for four years after the Effective Time, the Parent has agreed to
cause the Surviving Corporation to maintain in effect directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy on terms
(including coverage amounts) comparable to those now applicable under the
current Company policy, subject to prescribed limits on premiums.
The Merger Agreement provides that all rights to indemnification for acts
and omissions occurring prior to the Effective Time existing as of the date of
the Merger Agreement in favor of the current or former directors, officers,
employees and agents (the "Indemnified Parties") of the Company and its
subsidiaries as provided in their respective certificates of incorporation and
by-laws (or similar organizational documents) will survive the Merger and
continue for at least six years after the Effective Time. Additionally, for not
less than six years after the Effective Time, the Parent will, and will cause
the Subsidiary to, (i) indemnify and hold harmless the Indemnified Parties to
the full extent they may be indemnified by applicable law, their respective
certificates of incorporation or by-laws (or similar organizational documents)
or pursuant to indemnification agreements in effect as of the date of the Merger
Agreement for acts or omissions occurring prior to the Effective Time, and (ii)
advance litigation expenses incurred by the Indemnified Parties in connection
with defending any action arising out of such acts or omissions to the extent
permitted by law or as otherwise provided by such certificates of incorporation,
by-laws, similar organizational documents or indemnification agreements.
Share Repurchase. The Merger Agreement provides that, after the
consummation of the Offer but before the consummation of the Merger, the Company
will repurchase, from any current or former director or officer of the Company
who is terminated during such period, all Shares held by any such individual who
desires to sell such Shares.
Conditions to the Merger. The Merger Agreement provides that the respective
obligations of the Company, the Parent and the Subsidiary to effect the Merger
are subject to the satisfaction at or prior to the
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Effective Time of the following conditions (any of which may be waived in
writing by the Parent, the Subsidiary and the Company, to the extent permitted
by applicable law):
(i) None of the Parent, the Subsidiary or the Company nor any of their
respective subsidiaries will be subject to any order, decree or injunction
by a United States federal or state court of competent jurisdiction which
prevents the consummation of the Merger.
(ii) No statute, rule or regulation will have been enacted or
promulgated by the government or any governmental agency of the United
States or any state that prohibits the consummation of the Merger.
(iii) The Subsidiary will have purchased and paid for Shares pursuant
to the Offer.
(iv) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated.
(v) If required by law, the holders of shares of the Common Stock will
have approved the adoption of the Merger Agreement.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Parent and the Subsidiary
with respect to, among other things, its organization, good standing,
capitalization, ownership of subsidiaries, foreign qualification, corporate
power, Commission reports and financial information, contracts, properties,
legal proceedings, events since June 30, 1997, accounts receivable, tax matters,
employee benefit plans, compliance with laws, regulatory approvals, and
commissions and fees. The Parent and the Subsidiary have made customary
representations and warranties to the Company with respect to, among other
things, organization, good standing, corporate power, brokers, legal
proceedings, available funds, other transactions, and ownership of Shares.
Termination; Fees. The Merger Agreement may be terminated at any time prior
to the purchase of Shares pursuant to the Offer (i) by mutual written consent of
the Parent, the Subsidiary and the Company; (ii) by either the Parent or the
Company if a court of competent jurisdiction or other governmental entity issues
a nonappealable final order, decree or ruling or takes any other action having
the effect of permanently enjoining, restraining or otherwise prohibiting the
Offer (or acceptance of or payment for Shares) or the Merger (provided that the
party seeking to terminate the Merger Agreement has used all reasonable efforts
to remove the order, decree or ruling or the taking of such action); (iii) by
either the Parent or the Company if, before the purchase of Shares in the Offer,
there is, or is discovered, a material breach by the other party of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement that cannot be or has not been cured within ten days after the
occurrence or discovery of such breach by the breaching party, whichever is
later (a "Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other agreement
contained in the Merger Agreement); (iv) by the Company if the Parent and the
Subsidiary fail to commence the Offer in accordance with the Merger Agreement,
or if the Offer expires without the purchase of Shares pursuant to the Offer; or
(v) by the Company in response to a proposal from a third party for an
Acquisition Transaction.
If the Company terminates the Merger Agrement in response to a proposal
from a third party for an Acquisition Transaction, the Company will pay to the
Parent, in immediately available funds, the sum of $8 million and will promptly
reimburse upon demand (up to a maximum amount of $2 million) all documented
out-of-pocket expenses incurred by the Parent and the Subsidiary in connection
with the transactions contemplated by the Merger Agreement. In the event Shares
are not purchased pursuant to the Offer, the Parent will pay to the Company, in
immediately available funds, the sum of $8 million and will promptly reimburse
upon demand (up to a maximum amount of $2 million) all documented out-of-pocket
expenses incurred by the Company in connection with the transactions
contemplated by the Merger Agreement, unless such failure to purchase Shares is
attributable solely to (i) a court or other governmental entity issuing an order
or taking any other action permanently enjoining, restraining or otherwise
prohibiting the Offer or the Merger, which order has become final and
nonappealable (provided that the order or action is not the result of any action
or inaction by the Parent or the Subsidiary that constitutes a breach of the
Merger Agreement and the party seeking to terminate the Merger Agreement has
used all reasonable efforts to remove the order or other action), (ii) the
Parent's valid termination of the Merger Agreement by reason of
8
<PAGE> 10
the Company's breach of a representation, warranty, covenant or agreement set
forth in the Merger Agreement, or (iii) a failure of a condition set forth in
the Merger Agreement by reason of any act, event or circumstance that is beyond
the control of the Parent and the Subsidiary. All other costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring the expense.
EMPLOYMENT AGREEMENTS
The Company has entered into Change in Control Employment Agreements (the
"Employment Agreements") with Gloria L. Austin, Becky J. Behlendorf, Jennifer M.
Gutzmore, Regina B. Lightner, Jack D. Massimino, Peter W. McKinley, Kenneth S.
Ord, Russell D. Phillips, Jr. and Walter R. Stone. A copy of the form of the
Employment Agreements with Mr. Massimino and Ms. Austin, as amended as described
below in connection with the Merger, is filed as Exhibit 9 to this Statement and
incorporated herein by reference. A copy of the form of the Employment
Agreements with Messrs. McKinley, Ord, Phillips and Stone, Ms. Behlendorf, Ms.
Lightner and Dr. Gutzmore, as amended as described below in connection with the
Merger, is filed as Exhibit 10 to this Statement and incorporated herein by
reference.
Pursuant to their respective Employment Agreements, the executives party to
such agreements will have their employment continue for two years following the
Merger on equivalent terms (including position, duties, compensation and
benefits) to those existing immediately prior to the Merger. If during the
relevant period the executive's employment is terminated other than for "Cause"
(as defined in the Employment Agreements), death or disability, or if the
executive terminates his/her employment for "Good Reason" (as defined in the
Employment Agreements), the executive is entitled to receive an annual salary
and annual incentive payment through the date that is the second anniversary of
such "Change of Control" (as defined in the Employment Agreements), and, except
in the event of death or disability, payments and benefits including the
continuation of bi-weekly salary payments and certain medical, dental and life
insurance coverage for the relevant period, payment of accrued vacation, holiday
and personal leave time, and a lump sum payment equal to additional
contributions that would have been allocated to the executive's accounts under
the Company's 1996 Employee Stock Ownership Plan and 1996 Money Purchase Pension
Plan if the executive had remained employed for the relevant period and deferred
the maximum pretax deferral allowed under the terms of these plans and the
amount of any benefits under the 1996 Employee Stock Ownership Plan that were
forfeited upon termination of employment but that would have vested if the
executive remained employed for the relevant period. Additionally, in connection
with the Merger, the Employment Agreements will be amended (i) to remove certain
contingent provisions relating to the vesting of stock options which could have
caused the vesting of a portion of the executive's outstanding stock options to
be deferred under certain conditions and (ii) to revise the consideration that
would be forfeited if the executive does not enter into an agreed form of
non-compete covenant and settlement agreement. In addition, the Employment
Agreements with Mr. Massimino and Ms. Austin will be further amended by adding
certain contingent provisions relating to taxes, which could result in certain
payments by the Parent of certain additional amounts to Mr. Massimino and Ms.
Austin not to exceed $4 million.
The summary of the various Employment Agreements included in Annex I to
this Statement does not purport to be complete and is qualified in its entirety
by reference to the texts of such Employment Agreements, copies of which are
filed as Exhibits 9 and 10 to this Statement.
The Company also has entered into a letter agreement with Jim Wade
providing for one year of benefits upon a "Change of Control." A copy of the
letter agreement with Mr. Wade is filed as Exhibit 11 to this Statement and
incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
The Company and the Parent entered into a mutual confidentiality agreement
dated July 23, 1997 (the "Confidentiality Agreement") containing customary
provisions pursuant to which, among other matters, each party agreed to keep
confidential all information (other than information already in the receiving
party's possession that was not supplied by the other party or information that
is or becomes generally available to the
9
<PAGE> 11
public) furnished to it by the other party, to use such material solely for the
purpose of evaluating and implementing a possible acquisition or investment
transaction between the Company and the Parent, and, except with the prior
written consent of the other party, not to disclose the fact that discussions or
negotiations are taking place concerning a possible transaction involving the
Company. Except with the prior written consent of the other party's Board of
Directors, each party has agreed not to, for two years after the date of the
Confidentiality Agreement, acquire or offer to acquire any securities or assets
of the other party or seek to influence the management of the other party or
enter into discussions, negotiations, arrangements or understandings with any
third party with respect to any of the foregoing. A copy of the Confidentiality
Agreement is filed as Exhibit 12 to this Statement and incorporated herein by
reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION OF THE BOARD OF DIRECTORS
(a) Recommendation.
At a meeting held on August 13, 1997, the Board of Directors of the
Company, by a unanimous vote of the directors present, approved the Offer and
the Merger, determining that the terms of the Offer and the Merger (including
the Per Share Amount of $63.00 per Share in cash) are fair to, and in the best
interests of, the stockholders of the Company. At such meeting, the Board, also
by a unanimous vote of the directors present, adopted a resolution recommending
that the stockholders of the Company accept the Offer and tender their Shares
pursuant to the Offer and approved the Merger Agreement. Copies of a press
release and a letter from the President and Chief Executive Officer to the
Company's stockholders concerning the Offer, the Merger Agreement and the
Board's recommendations are filed as Exhibits 13 and 14, respectively, to this
Statement and are incorporated herein by reference.
(b) Background and Reasons for the Recommendation.
Background. The Company was separated from FHP in May 1997 in conjunction
with the merger of FHP and PacifiCare Health Systems, Inc. (the "FHP Merger").
Because of its past affiliation with FHP, a large percentage of the Company's
capitated enrollment has been historically associated with FHP members. For the
years ended December 31, 1994, 1995 and 1996, FHP members accounted for nearly
100% of the Company's revenue. Since its separation from FHP, the Company has
sought to reduce its dependence on FHP members, but has not been entirely
successful in this effort. Moreover, in connection with the FHP Merger, the
Company has experienced declines in the enrollment of FHP members, which has had
an adverse effect on the Company's revenues. Since the commencement of
operations of the Company's subsidiaries in January 1996, the Company's
management has received periodic inquiries from representatives of other parties
regarding a possible combination. In light of the uncertainties created by the
Company's enrollment declines, at a meeting of the Board of Directors of the
Company held on June 25, 1997, the Board of Directors (following a review of
financial results and enrollment trends) authorized the Company's management to
respond to such inquiries and to explore the possibility of a strategic
combination with one or more of the industry's larger participants to enhance
stockholder value.
On July 11, 1997, Jack D. Massimino, the Company's President and Chief
Executive Officer, met with Larry R. House, Chairman of the Board and Chief
Executive Officer of the Parent. Mr. Massimino and Mr. House discussed generally
the operations and business strategy of the two companies and the potential
desirability of a combination. The pricing phase of their discussion focused on
consideration of an all cash tender offer at a substantial premium to the
Company's market price.
On July 18, 1997, Mr. Massimino and Kenneth S. Ord, the Company's Executive
Vice President and Chief Financial Officer, met with Mark L. Wagar, the
President and Chief Operating Officer of the Parent, and Kent Marquardt, the
Chief Operating Officer for West Coast Operations of the Parent. The parties
discussed, among other matters, the Company's medical center locations and
certain financial performance information.
On July 23, 1997, the Company and the Parent executed the Confidentiality
Agreement.
On July 24, 1997, representatives of the Parent began due diligence at the
offices of the Company's outside counsel. On July 25, 1997, Mr. Ord and Walter
R. Stone, the Company's Vice President of Finance,
10
<PAGE> 12
met with representatives of the Parent to discuss the Company's financial
performance, and on July 26, 1997, a meeting was held in which members of the
senior management of the Company answered questions from representatives of the
Parent. Informational discussions and meetings continued during the week of July
28.
On July 29, 1997, Mr. Massimino and Mr. Ord met with Mr. Wagar and Michael
S. Faulkner, Vice President of Finance, Mergers and Acquisitions, of the Parent
and discussed the potential terms of a transaction.
On July 31, 1997, Mr. Massimino and Mr. Ord met with the Chief Executive
Officer and Chief Financial Officer of another major physician practice
management company (the "Other Party"). Mr. Massimino and Mr. Ord discussed with
them the potential for a combination between the Other Party and the Company.
On August 1, 1997, the Company received a non-binding letter of intent from
the Parent proposing to acquire all outstanding Shares of the Company for $63.00
per Share, subject to legal and financial due diligence.
On August 5, 1997, at a special meeting of the Company's Board of
Directors, the directors reviewed the letter from the Parent and reviewed with
Smith Barney Inc. ("Smith Barney"), the Company's financial advisor, certain
matters relating to the financial aspects of the proposal from the Parent. The
Board authorized the Company's management to pursue a definitive agreement with
the Parent to present to the Board, but also to contact the Other Party
concerning its interest.
From August 5, 1997 until August 13, 1997, due diligence continued and
members of the Company's management met with the Parent's representatives to
answer questions and explain material documents. On August 4, 1997, the Parent
provided the Company and its counsel with a draft form of the Merger Agreement.
Between August 8, 1997 and August 13, 1997, the Company's counsel had a series
of meetings with J. Brooke Johnston, Jr., Senior Vice President and General
Counsel of the Parent, to negotiate the terms of a definitive agreement.
During the first two weeks of August, Smith Barney, at the request of the
Company, had discussions with the Other Party to indicate that the Company was
nearing an agreement with another party, and that the Other Party would have to
move quickly if it were interested in making a bid of its own. The Other Party
did not express interest in making a competing offer.
On August 12, the Company's Board of Directors met to hear reports from the
management and outside counsel concerning the status of discussions with the
Parent and the results to that date of contacts with the Other Party.
Counsel for the Parent and the Company concluded negotiating the definitive
agreements on August 13, 1997. That evening at a special meeting of the Board of
Directors of the Company, the Board of Directors approved the Offer and the
Merger by unanimous vote of the directors present. The parties executed the
Merger Agreement and announced such execution prior to the opening of securities
market trading on August 14, 1997.
Reasons for the Recommendation. In deciding to approve the Merger Agreement
and recommend to the Company's stockholders acceptance of the Offer and approval
of the Merger Agreement, the Board considered a number of factors, including,
without limitation, the following:
(i) The terms and conditions of the Merger Agreement, including the
amount and form of consideration.
(ii) The likelihood that the Offer and Merger would be consummated,
including the experience, reputation and financial condition of the Parent
and the risks to the Company if the acquisition were not consummated.
(iii) The circumstances giving rise to the Offer and the Merger, the
Company's performance on a historical and prospective basis, various
factors affecting the Company's strategic plans, the Company's position in
its industry and industry conditions generally, the historical price range
of Shares and the price-earnings multiples represented by the Offer as
compared to historical ratios, the premium presented
11
<PAGE> 13
by the price to be paid in the Offer for Shares over the historical price
range of Shares, prices paid in recent acquisitions of similar companies,
and the familiarity of the Board with the financial condition, results of
operations, competitive positions and prospects of the Company, all as
reflected in the Company's historical and projected financial information.
(iv) The historical market prices of, and recent trading activity in,
the Company's shares, particularly the fact that the Offer and the Merger
will enable the stockholders of the Company to realize a premium of
approximately 53% over the close on the first day of trading on May 21,
1997 and a 38% premium over the Company's stock price at the close of the
trading day on the day discussions began with the Parent.
(v) The desirability of cash consideration because of the investment
considerations affecting a stock transaction, and the Parent's ability to
effect a cash transaction without any financing contingency.
(vi) The desire to close a transaction quickly to limit the disruption
in the Company's operations and its personnel resulting from the
acquisition process and uncertainty as to the outcome of the process.
(vii) The lack of a competing offer from the Other Party.
(viii) The opinion of Smith Barney rendered to the Company's Board of
Directors at its August 13, 1997 meeting (which opinion was subsequently
confirmed by delivery of a written opinion dated August 14, 1997, the date
of execution of the Merger Agreement), to the effect that, as of such date
and based upon and subject to certain matters stated therein, the $63.00
per Share cash consideration to be received in the Offer and the Merger by
holders of Shares (other than the Parent and its affiliates) was fair, from
a financial point of view, to such holders. The full text of Smith Barney's
written opinion dated August 14, 1997, which sets forth the assumptions
made, matters considered and limitations on the review undertaken by Smith
Barney, is attached to this Statement as Exhibit 15 and is incorporated
herein by reference. Smith Barney's opinion is directed only to the
fairness, from a financial point of view, of the cash consideration to be
received in the Offer and the Merger by holders of Shares (other than the
Parent and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any stockholder should tender
shares of Shares pursuant to the Offer. HOLDERS OF SHARES ARE URGED TO READ
SUCH OPINION CAREFULLY IN ITS ENTIRETY.
(ix) The ability of the Company under the Merger Agreement to
terminate the Offer and accept a higher offer from another party.
The Board did not assign relative weights to the above factors. Rather, the
Board viewed its position and recommendations as being based on the totality of
the information presented to and considered by it during the process followed by
the Board.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Smith Barney as its financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of Smith
Barney's engagement, the Company has agreed to pay Smith Barney for its services
an aggregate financial advisory fee equal to 1% of the total consideration
(including liabilities assumed) payable in connection with the Offer and the
Merger. The Company also has agreed to reimburse Smith Barney for reasonable
travel and other out-of-pocket expenses, including reasonable legal fees and
expenses, and to indemnify Smith Barney and certain related parties against
certain liabilities, including liabilities under the federal securities laws,
arising out of Smith Barney's engagement. Smith Barney has in the past provided
investment banking services to affiliates of the Company and to the Parent
unrelated to the Offer and the Merger, for which Smith Barney has received
compensation. In the ordinary course of business, Smith Barney and its
affiliates may actively trade or hold the securities of the Company and the
Parent for their own account or for the account of customers and, accordingly,
may at any time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf has employed,
retained or agreed to compensate any person to make solicitations or
recommendations to the stockholders concerning the Offer.
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<PAGE> 14
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in Shares have been effected during the past 60 days by
the Company or, to the best knowledge of the Company, by any executive officer,
director or affiliate of the Company.
(b) To the best knowledge of the Company, all of the executive officers,
directors, affiliates and subsidiaries of the Company (except those individuals
who would be subject to liability therefor pursuant to the short-swing profit
recapture provisions of Section 16(b) of the Exchange Act), subject to their
fiduciary and contractual obligations, currently intend to tender Shares
pursuant to the Offer. This intention does not include any Shares over which, or
with respect to which, any such person acts in a fiduciary or representative
capacity or is subject to instructions from a third party, as to which Shares,
to the Company's knowledge, no determination has been made.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth above, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in Item 3 and 4 above, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer that relate to or would result in one or more of the events referred
to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Information Statement
The Information Statement attached hereto as Annex I is being furnished in
connection with the contemplated designation by the Parent, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's stockholders following
the purchase by the Subsidiary of the number of Shares pursuant to the Offer
necessary to satisfy the Minimum Condition.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 Offer to Purchase*
Exhibit 2 Letter of Transmittal*
Exhibit 3 Agreement and Plan of Merger
Exhibit 4 Relevant Portions from the Prospectus
Exhibit 5 Talbert Medical Management Holdings Corporation 1996 Stock Incentive Plan
Exhibit 6 Letter Agreement Regarding Management Incentive Program Bonus
Exhibit 7 Letter Agreement Regarding Transition Bonus
Exhibit 8 Form of Physician Warrant Agreement
Exhibit 9 Form of Employment Agreement (Massimino/Austin)
Exhibit 10 Form of Employment Agreement (Others)
Exhibit 11 Letter Agreement with Jim Wade
Exhibit 12 Confidentiality Agreement
Exhibit 13 Press Release
Exhibit 14 Letter from President and Chief Executive Officer to Stockholders*
Exhibit 15 Opinion of Smith Barney Inc.*
</TABLE>
- - ---------------
* Included in copies of this Schedule 14D-9 mailed to stockholders.
13
<PAGE> 15
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
By: /s/ JACK D. MASSIMINO
------------------------------------
Name: Jack D. Massimino
Title: President and Chief Executive
Officer
Dated: August 20, 1997
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<PAGE> 16
ANNEX I
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
3540 HOWARD WAY
COSTA MESA, CALIFORNIA 92626-1417
INFORMATION STATEMENT PURSUANT
TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED
NOT TO SEND THE COMPANY A PROXY.
This Information Statement, which is being mailed on or about August 20,
1997 to the holders of shares of the common stock, par value $.01 per share (the
"Common Stock"), of Talbert Medical Management Holdings Corporation, a Delaware
corporation (the "Company"), is being furnished in connection with the
designation by MedPartners, Inc., a Delaware corporation (the "Parent"), of
persons (the "Parent Designees") to the Board of Directors of the Company (the
"Board"). Such designation is to be made pursuant to an Agreement and Plan of
Merger dated as of August 14, 1997 (the "Merger Agreement") among the Company,
the Parent and Talmed Merger Corporation, a Delaware corporation and
wholly-owned subsidiary of the Parent (the "Subsidiary").
Pursuant to the Merger Agreement, the Subsidiary commenced a cash tender
offer on August 20, 1997 to purchase all of the issued and outstanding shares of
Company Stock, together with certain rights (the "Rights") to purchase shares of
the preferred stock, par value $.01 per share, of the Company designated as
"Junior Participating Preferred Stock" (such shares of Common Stock and their
associated Rights are collectively referred to herein as the "Shares"), at a
price of $63.00 per Share, net to the seller in cash, as described in the
Subsidiary's Offer to Purchase dated August 20, 1997 and the related Letter of
Transmittal (which Offer to Purchase and related Letter of Transmittal together
constitute the "Offer"). The Offer is scheduled to expire at 12:00 midnight (New
York City time) on September 19, 1997, unless extended. The Offer is subject to,
among other things, the condition that there have been validly tendered and not
withdrawn prior to the expiration of the Offer such number of shares of the
Company's Common Stock which would constitute not less than 51% (determined on a
fully diluted basis) of the outstanding shares of Common Stock of the Company
(the "Minimum Condition"). The Merger Agreement also provides for the merger
(the "Merger") of the Subsidiary with and into the Company at the Effective Time
(as defined in the Merger Agreement) upon the terms and satisfaction or, if
permissible, waiver of the conditions set forth in the Merger Agreement and in
accordance with the provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Following the Effective Time, the separate corporate
existence of the Subsidiary will cease, and the Company will be the surviving
corporation (the "Surviving Corporation") and a wholly-owned subsidiary of the
Parent. In the Merger, each Share issued and outstanding immediately prior to
the Effective Time (other than (i) Shares held by the Company, the Parent or any
subsidiary of the Company or the Parent, all of which will be canceled, and (ii)
the Dissenting Shares (as defined in the Merger Agreement)) will be converted
into the right to receive the Per Share Amount in cash.
The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to stockholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the Securities
and Exchange Commission (the "Commission") as exhibits to the Schedule 14D-9 and
as exhibits to the Tender Offer Statement on Schedule 14D-1 of the Subsidiary
and Parent (the "Schedule 14D-1"). The exhibits to the Schedule 14D-9 and the
Schedule 14D-1 may be examined at, and
A-1
<PAGE> 17
copies thereof may be obtained from, the regional offices of and public
reference facilities maintained by the Commission (except that the exhibits
cannot be obtained from the regional offices of the Commission) in the manner
set forth in Section 7 of the Offer to Purchase. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.
No action is required by the stockholders of the Company in connection with
the election or appointment of the Parent Designees to the Board. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the mailing to the Company's stockholders of the information set
forth in this Information Statement prior to a change in a majority of the
Company's directors otherwise than at a meeting of the Company's stockholders.
The information contained in this Information Statement concerning the Parent,
the Subsidiary and the Parent Designees has been furnished to the Company by
such persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The Schedule 14D-1 indicates that the
principal executive offices of the Parent and the Subsidiary are located at 3000
Galleria Tower, Suite 1000, Birmingham, Alabama 35244.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
GENERAL
The shares of Common Stock are the only class of voting securities of the
Company outstanding. Each share of Common Stock is entitled to one vote. As of
August 14, 1997, there were 3,000,758 shares of Common Stock outstanding. The
Board of Directors of the Company currently consists of nine members. The Board
is divided into three classes, with each class elected to serve a three-year
term. Each director holds office until his successor is elected and qualified or
until his earlier death, resignation or removal.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
The Merger Agreement provides that, promptly upon the purchase of Shares
pursuant to the Offer, seven of the Company's nine directors will resign, and
the Parent will designate three Parent Designees as replacements for appointment
or election to the Company's Board of Directors. The Company, upon request of
the Subsidiary, will use its best efforts promptly to cause the Parent Designees
to be so appointed or elected. The other two directors (the "Original
Directors") will remain on the Board until the consummation of the Merger. The
Merger Agreement also provides that, once the Parent Designees constitute a
majority of the Company's Board of Directors, any amendment of the Merger
Agreement, any termination of the Merger Agreement by the Company, any extension
of time for performance of any of the obligations of the Parent or Subsidiary
under the Merger Agreement, any waiver of any condition or any of the Company's
rights under the Merger Agreement or other action by the Company under the
Merger Agreement will require the joint action of the Original Directors.
The Subsidiary has informed the Company that each of the Parent Designees
listed below has consented to act as a director. It is expected that the Parent
Designees may assume office at any time following the Subsidiary's purchase of
Shares satisfying the Minimum Condition, which purchase cannot be earlier than
September 19, 1997, and that, upon assuming office, the Parent Designees will
thereafter constitute at least a majority of the Board.
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<PAGE> 18
Biographical information concerning each of the Parent Designees, directors
and executive officers is presented below:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION AND FIVE YEAR
NAME AGE EMPLOYMENT HISTORY
- - --------------------------- ---- ------------------------------------------------
<S> <C> <C>
Larry R. House 53 Chief Executive Officer of the Parent since
August 1993, and Chairman of the Board since
January 1993. Mr. House also served as President
from August 1993 until June 1997. From 1985 to
1992, he was Chief Operating Officer of
HEALTHSOUTH Rehabilitation Corporation, now
HEALTHSOUTH Corporation ("HEALTHSOUTH"). From
1992 to 1993, Mr. House was President of
HEALTHSOUTH International, Inc. Mr. House is a
member of the Board of Directors of each of
HEALTHSOUTH, Capstone Capital Corporation, a
publicly traded real estate investment trust,
the American Sports Medicine Institute, UAB
Research Foundation and Monitor MedX.
Harold O. Knight, Jr. 39 Executive Vice President and Chief Financial
Officer of the Parent since November 1994. Mr.
Knight was Senior Vice President of Finance and
Treasurer of the Parent from August 1993 to
November 1994, and from March 1993 to August
1993, Mr. Knight served as Vice President of
Finance of the Parent. From 1980 to 1993, Mr.
Knight was with Ernst & Young LLP, most recently
as Senior Manager. Mr. Knight is a member of the
Alabama Society of Certified Public Accountants
and the American Institute of Certified Public
Accountants.
Tracy P. Thrasher 34 Chief Administrative Officer of the Parent since
June 1997 and Executive Vice President of the
Parent since November 1994 and Corporate
Secretary since March 1994. Ms. Thrasher was
Senior Vice President of Administration from
March 1994 to November 1994, and from January
1993 to March 1994, she served as Corporate
Comptroller and Vice President of Development.
From 1990 to 1993, Ms. Thrasher was the Audit
and Health Care Management Advisory Service
Manager with Burton, Canady, Moore & Carr, P.C.,
independent public accountants. Ms. Thrasher
began her career with Ernst & Young LLP in 1985,
and became a certified public accountant in
1986.
</TABLE>
None of the Parent Designees (i) is currently a director of or holds any
position with the Company, (ii) has a familial relationship with any directors
or executive officers of the Company, or (iii) to the best knowledge of the
Subsidiary, beneficially owns any securities (or any rights to acquire such
securities) of the Company. The Company has been advised by the Subsidiary that,
to the best of its knowledge, none of the Parent Designees has been involved in
any transactions with the Company or any of its directors, officers or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Commission, except as may be disclosed in this Information
Statement or the Schedule 14D-9.
A-3
<PAGE> 19
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the current directors of the Company, their ages as of August
20, 1997, and certain other information about them are set forth below. As
indicated above, seven of these directors are expected to resign effective
immediately following the purchase of Shares pursuant to the Offer. The Board of
Directors has designated Jack D. Massimino and Westcott W. Price III to serve as
the Original Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- - --------------------------- ---- ------------------------------------------------
<S> <C> <C>
Jack D. Massimino 48 President, Chief Executive Officer and Director
Executive Vice President and Chief Financial
Kenneth S. Ord 51 Officer
Gloria L. Austin 43 Executive Vice President
Becky J. Behlendorf 48 Vice President, Information Systems
Jennifer M. Gutzmore, M.D. 46 Vice President, Health Care Services
Regina B. Lightner 47 Vice President, Marketing
Peter W. McKinley 38 Vice President, Development
Walter R. Stone 46 Vice President, Finance and Treasurer
Jack R. Anderson 72 Chairman and Director
Richard M. Burdge, Sr. 70 Director
Warner Heineman 75 Director
Van B. Honeycutt 52 Director
Robert W. Jamplis, M.D 77 Director
Robert C. Maxson, Ed.D 61 Director
Joseph F. Prevratil 59 Director
Westcott W. Price III 58 Director
</TABLE>
Jack D. Massimino has been President, Chief Executive Officer and a
director of the Company since November 1996, and has held the same positions
with Talbert Medical Management Corporation ("TMMC") since December 1995. Mr.
Massimino previously served FHP International Corporation ("FHP") as Executive
Vice President since 1993, and added the responsibility of Chief Operating
Officer in 1994. He also served in other executive positions since joining FHP
in 1988, including Senior Vice President and Vice President for Corporate
Development. Mr. Massimino is a director of the American Graduate School for
International Business World Business Advisory Council, and the Orange County
Business Committee for the Arts.
Kenneth S. Ord has been Executive Vice President and Chief Financial
Officer of the Company since May 1997. He was Senior Vice President and Chief
Financial Officer of FHP from 1994 to February 1997. From 1982 to 1994, Mr. Ord
was employed by Kelly Services, Inc. in Troy, Michigan, most recently as Vice
President of Finance, Controller and Treasurer. From February 1997 to May 1997,
Mr. Ord served as a consultant to the Company in connection with its separation
from FHP.
Gloria L. Austin has been Executive Vice President of the Company since May
1997 and was formerly Senior Vice President of the Company from November 1996 to
May 1997, holding the same positions with TMMC since December 1995. Ms. Austin
previously served as Senior Vice President of FHP's former staff model
operations from July 1995, and Senior Vice President, Health Care Delivery from
February 1995. She has also served in several executive capacities in FHP's
California and Utah regional operations, including Associate Vice President,
Utah Region Administration and Regional Vice President, Los Angeles. Ms. Austin
joined FHP in 1978.
Becky J. Behlendorf has been Vice President, Information Systems of the
Company since November 1996, and has held the same position with TMMC since
January 1996. Ms. Behlendorf previously served as a strategic information
systems consultant to Beverly Enterprises, an owner and operator of skilled
nursing facilities, from July 1995 to January 1996. She was Associate Vice
President of Strategic Systems of Tenet Health Care from July 1993 to July 1995.
Prior to July 1993, Ms. Behlendorf spent 12 years with IBM in a
A-4
<PAGE> 20
variety of technical and marketing positions, including three years as a health
care marketing manager, most notably as Brand Manager of Enterprise Systems.
Jennifer M. Gutzmore, M.D. has been Vice President, Health Care Services of
the Company since November 1996, and has held the same position at TMMC since
July 1995. Dr. Gutzmore previously served in a number of senior medical
management positions at FHP, including Senior Medical Director for Utilization
Management from February to July 1995, Senior Medical Director of Fountain
Valley Hospital from September 1994 to February 1995, Senior Medical Director of
Medicare from September 1992 to September 1994, and Senior Medical Director for
Health Care Delivery for FHP's southern California staff model operations from
March 1991 to September 1992. Dr. Gutzmore joined FHP in 1985.
Regina B. Lightner has been Vice President, Marketing of the Company since
November 1996, and has held the same position with TMMC since April 1996. Ms.
Lightner served as Vice President of Government Health Care programs at CIGNA
Health Care from July 1994. She was Associate Vice President Region Sales and
Marketing at FHP from March 1990. She was Corporate Associate Vice President of
Sales at FHP from April 1988, and Director of Commercial Sales from February
1986. Ms. Lightner joined FHP in 1985.
Peter W. McKinley has been Vice President, Development of the Company since
June 1997. Mr. McKinley previously served in a number of senior management
positions at FHP's California regional operations, including Vice President,
Provider Services and Network Development from June 1995 to March 1997,
Associate Vice President, IPA Management from July 1993 to June 1995, Associate
Vice President, Medical Center Operations from May 1990 to July 1993 and
Director, Hospital Administration for FHP-owned and managed hospitals from July
1988 to May 1990. Mr. McKinley joined FHP in 1986.
Walter R. Stone has been Vice President, Finance, and Treasurer of the
Company since November 1996, and has held the same positions with TMMC since
December 1995. Mr. Stone was previously Corporate Vice President, Finance at FHP
since August 1992. He was Regional Vice President for FHP's staff model
operations from 1990 to 1992, and Regional Vice President for FHP's California
contracted care operations from 1988 to 1990. Mr. Stone joined FHP in 1980.
Jack R. Anderson has been Chairman and a director of the Company since
November 1996. Mr. Anderson was appointed a director of PacifiCare Health
Systems, Inc. ("PacifiCare") in connection with the merger of FHP and PacifiCare
(the "FHP Merger") and his term commenced in May 1997. He became a director of
FHP in June 1994 and Chairman of the FHP Board of Directors in June 1995, and
held these positions through the completion of the FHP Merger. He previously
served as Chairman of the Board of Directors of TakeCare, Inc. from 1988 to June
1994. He has been President of Calver Corporation, a health care consulting and
investing firm, and a private investor since 1982. Mr. Anderson is a director of
Horizon Mental Health Management, Inc. and United Dental Care, Inc.
Richard M. Burdge, Sr. has been a director of the Company since November
1996. Mr. Burdge serves as the Chairman of the Compensation Committee. He was a
director of FHP from July 1994 to February 1997. Mr. Burdge retired in 1984 as
Executive Vice President of CIGNA Corporation, a position he held from 1982 to
1984. He served as Senior Executive Vice President of INA Corporation from 1980
to 1982 and as Executive Vice President of INA Corporation from 1975 to 1980. He
also served as President and Chief Operating Officer of the American Stock
Exchange from 1972 to 1975. Mr. Burdge is a director of First Commonwealth, Inc.
and PacifiCare.
Warner Heineman has been a director of the Company since November 1996. Mr.
Heineman serves as the Chairman of the Audit Committee and as a member of the
Finance Committee. He was a director of FHP from 1990 to February 1997. He has
been a senior advisor to First Business Bank since 1992. From 1989 to 1992, he
served as senior vice president of Bank of Los Angeles. Mr. Heineman also served
as a Senior Vice President of City National Bank from 1981 to 1988. In 1981 he
retired as Vice Chairman and Director of Union Bank after 38 years of service.
Mr. Heineman is a trustee of Southwestern University School of Law, a member of
the Board of Advisors of UCLA Medical Center and the Board of Visitors of UCLA
School of Medicine, a director of Alexander Haagen Properties, Inc. and a
director of the Archstone Foundation (formerly the FHP Foundation).
A-5
<PAGE> 21
Van B. Honeycutt has been a director of the Company since November 1996.
Mr. Honeycutt serves as a member of the Audit Committee. He was a director of
FHP from November 1995 to February 1997. He has been Chairman of the Board of
Computer Sciences Corporation ("CSC") since March 1997 and President and Chief
Executive Officer of CSC since April 1995. Mr. Honeycutt also served as
President and Chief Operating Officer of CSC from 1993 to 1995. CSC is a
publicly-traded company listed on the New York Stock Exchange that provides
information technology consulting, systems integration and outsourcing services
to industry and government. From 1987 to 1993, he served as Corporate Vice
President and President of CSC's Industry Services Group.
Robert W. Jamplis, M.D. has been a director of the Company since November
1996. Dr. Jamplis serves as a member of the Compensation Committee. He was a
director of FHP from August 1995 to February 1997. Dr. Jamplis served as a
director of TakeCare, Inc. and two of its HMO subsidiaries prior to FHP's
acquisition of TakeCare, Inc. in 1994. He has been President and Chief Executive
Officer of the Palo Alto Medical Foundation since 1981, was named Executive
Director of the Palo Alto Clinic in 1966 and joined the Clinic in 1954. Dr.
Jamplis has written extensively and held leadership positions with numerous
medical, academic and business organizations. He is a director of the Children's
Hospital at Stanford, the Santa Barbara Medical Foundation Clinic and the
American Cancer Society-California Division.
Robert C. Maxson, Ed.D. has been a director of the Company since November
1996. Dr. Maxson serves as a member of the Audit Committee. He was a director of
FHP from August 1995 to February 1997. He has been President of California State
University, Long Beach since 1994. Dr. Maxson served as the President of the
University of Nevada, Las Vegas, from 1984 to 1994. He has also served on the
corporate boards of Bank of America Nevada and Houston Security Bank. Dr. Maxson
currently serves as a director of the Archstone Foundation (formerly the FHP
Foundation).
Joseph F. Prevratil has been a director of the Company since June of 1997
and formerly served as a director of the Company from November 1996 to February
1997. From 1989 to 1993, Mr. Prevratil was president of his own business,
providing contracted consulting and management services to leisure-time industry
and the Redevelopment Agency of the City of Long Beach. Since 1990, Mr.
Prevratil has been President of J&P Riverside Hotel Corp., the general partner
in Riverside Hotel Partners, Ltd., which owned and operated the Sheraton
Riverside Hotel. In February, 1996, Riverside Hotel Partners, Ltd., a limited
partnership, filed a petition under Chapter 11 of the federal bankruptcy laws.
In 1993, Mr. Prevratil became President of the RMS Foundation, Inc., a nonprofit
corporation operating the Queen Mary ocean liner attraction. Mr. Prevratil also
serves as a director and Chief Executive Officer of the Archstone Foundation
(formerly the FHP Foundation).
Westcott W. Price III has been a director of the Company since November
1996. Mr. Price serves as a member of the Finance Committee. He has been a
member of the Board of Directors of FHP from 1984 to 1997 and its Vice Chairman
from 1986 to 1997. He became President of FHP in 1989 and Chief Executive
Officer of FHP in 1990. Mr. Price held these positions with FHP until the
completion of the FHP Merger.
BOARD OF DIRECTOR MEETINGS AND COMMITTEES
Meetings. During the year ended December 31, 1996, the Board of Directors
held only one Board meeting on November 21, 1997, which was the organizational
Board meeting for the Company. Seven of nine directors attended this meeting.
Since January 1, 1997, the Board of Directors has held two regularly
scheduled meetings and four special meetings. All but one of the directors
attended 75% or more of these meetings and meetings of the Board of Directors
committee(s) on which the directors served, and the other director attended 50%
of such meetings. In addition, during 1996 and 1997, only the Class III
directors acted by unanimous written consent on one occasion with respect to the
election of one director.
Committees of the Board of Directors. The Board of Directors has
established a Finance Committee, an Audit Committee and a Compensation
Committee.
A-6
<PAGE> 22
(i) FINANCE COMMITTEE. The Finance Committee has the responsibility to
review the Company's budget, capital resources and financing needs.
(ii) AUDIT COMMITTEE. The Audit Committee has the responsibility to
review and supervise the financial controls of the Company. The Audit
Committee makes recommendations to the Board of Directors with respect to
the Company's financial statements and the appointment of independent
auditors, reviews significant audit and accounting policies and practices,
meets with the Company's independent public accountants concerning, among
other things, the scope of audits and reports, and reviews the performance
of overall accounting and financial controls of the Company.
(iii) COMPENSATION COMMITTEE. The Compensation Committee has the
responsibility to review the performance of the officers of the Company and
recommend to the Board of Directors annual salary and bonus amounts for all
officers of the Company. The Compensation Committee also has the
responsibility for oversight and administration of the Company's 1996 Stock
Incentive Plan and other compensatory plans.
DIRECTOR COMPENSATION
The Company's 1996 Stock Incentive Plan (the "Stock Incentive Plan")
provides for initial and subsequent annual grants of nonqualified stock options
to non-employee directors. See below for a summary of the Stock Incentive Plan
and Exhibit 5 to the Schedule 14D-9 for the full text of such plan. In
connection with the Offer and the Merger, options granted under the Stock
Incentive Plan will be accelerated so that they become fully exercisable on or
prior to the consummation of the Offer, and the Stock Incentive Plan will
terminate as of the Effective Time. For a summary of the effect of the Offer and
Merger on the Stock Incentive Plan, see Item 3(b) of the Schedule 14D-9. Except
for reimbursement of expenses, directors are not otherwise compensated for
attending meetings of the Board of Directors or its committees.
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
paid by the Company or FHP for services rendered during the years ended December
31, 1995 and 1996, to the Chief Executive Officer and the next four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers"). The Company did not have its own executive compensation or
employee benefit plans prior to November 1996. Certain of the amounts shown
below reflect the participation of the Named Executive Officers in plans
administered by FHP.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) COMPENSATION(4)
- - ----------------------------------------------- ----- -------- --------- ---------------
<S> <C> <C> <C> <C>
Jack D. Massimino.............................. 1996 $350,000 $591,700 $10,267
President and Chief Executive Officer 1995 411,925(5) -- 13,560
Kenneth S. Ord................................. 1996 336,265 59,170 101,219(6)
Executive Vice President and 1995 249,995 -- 12,864
Chief Financial Officer
Gloria L. Austin............................... 1996 210,001 645,280 10,031
Executive Vice President..................... 1995 205,502 20,000 12,263
Walter R. Stone................................ 1996 151,382 258,833 10,611
Vice President, Finance, Treasurer and....... 1995 148,627 -- 12,074
Secretary
Jennifer M. Gutzmore, M.D...................... 1996 200,273 188,578 10,108
Vice President, Health Care Services......... 1995 175,036 3,000 12,325
----- -------- --------- ---------------
</TABLE>
- - ---------------
(1) The dollar value of perquisites and other personal benefits did not exceed
the lesser of $50,000 or 10% of the Named Executive Officer's salary and
bonus.
A-7
<PAGE> 23
(2) Includes the base salary earned by the Named Executive Officer during the
year and any voluntary salary reduction resulting from contributions for the
year by the Named Executive Officer to (a) the FHP Employee Stock Ownership
Plan (the "FHP ESOP") under Section 401(k) of the Code and (b) the FHP
Deferred Compensation Plan.
(3) 1995 figures include the cash value of any bonus earned by the Named
Executive Officer during FHP's fiscal year ended June 30, 1995 and the cash
value of any voluntary bonus reductions resulting in contributions to (a)
the FHP ESOP under Section 401(k) of the Code and (b) the FHP Deferred
Compensation Plan.
(4) Includes the dollar value of taxable income from group term life insurance
coverage in excess of $50,000 purchased by FHP as follows: Mr. Massimino:
1996--$662, 1995--$1,560; Mr. Ord: 1996--$1,968, 1995--$864; Ms. Austin:
1996--$386, 1995--$263; Mr. Stone: 1996--$966, 1995--$183; and Dr. Gutzmore:
1996--$463, 1995--$325. Also includes FHP contributions under the FHP Money
Purchase Plan as follows: Mr. Massimino: 1995--$9,000; Mr. Ord:
1995--$9,000; Ms. Austin: 1995--$9,000; Mr. Stone: 1995--$8,918; and Dr.
Gutzmore: 1995--$9,000 (the FHP Money Purchase Plan was discontinued as of
December 31, 1995, thus no contributions were made after that date). Also
includes FHP contributions under the FHP ESOP as follows: Mr. Massimino:
1996--$3,495, 1995--$3,000; Mr. Ord: 1996--$3,495, 1995--$3,000; Ms. Austin:
1996--$3,495, 1995--$3,000; Mr. Stone: 1996--$3,495, 1995--$2,973; and Dr.
Gutzmore: 1996--$3,495, 1995--$3,000. Also includes FHP contributions under
the 401(k) portion of the FHP ESOP Plan as follows: Mr. Massimino:
1996--$6,150; Ms. Austin: 1996--$6,150; Mr. Stone: 1996--$6,150; 1995--$500;
and Dr. Gutzmore: 1996--$6,150.
(5) Mr. Massimino's annual salary was reduced from $450,000 to $350,000
effective July 1, 1995.
(6) Includes $95,756 of loan forgiveness by FHP.
OPTION GRANTS
Option Grants in Fiscal Year 1996. The following table sets forth the
options granted with respect to the fiscal year ended December 31, 1996 to the
Named Executive Officers. The Company has not granted any stock appreciation
rights.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL
SHARES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM (4)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR ($/SH) DATE 5%($) 10%($)
- - ------------------------------ --------- ---------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Massimino(5).......... 26,082(2) 33.9% $10.00 11/21/2006 $979,303 $1,709,683
Kenneth S. Ord(6)............. -- -- -- -- -- --
Gloria L. Austin(5)........... 5,353(2) 7.0% 10.00 11/21/2006 200,990 350,891
Walter R. Stone(5)............ 5,353(2) 7.0% 10.00 11/21/2006 200,990 350,891
Jennifer M. Gutzmore,
M.D.(5)..................... 7,500(3) 9.7% 29.17 09/17/2006 137,828 347,852
</TABLE>
- - ---------------
(1) Stock options were granted under the Stock Incentive Plan. See Exhibit 4 to
the Schedule 14D-9 for a description of the Stock Incentive Plan and Exhibit
5 to the Schedule 14D-9 for the full text of such Stock Incentive Plan.
(2) These options are scheduled to vest at the rate of (a) 40% on the date of
commencement of trading of the Common Stock on Nasdaq and (b) 15% per year
on each January 1 of the years 2000 through 2003, but as a result of the
Offer, will become fully vested and exercisable on or prior to the
consummation of the Offer.
A-8
<PAGE> 24
(3) These options are scheduled to vest at the rate of (a) 20% on the later of
September 17, 1997 or the date of commencement of trading of the Common
Stock on Nasdaq and (b) 20% per year on each September 17 of the years 1998
through 2001, but as a result of the Offer, will become fully vested and
exercisable on or prior to the consummation of the Offer.
(4) This column shows the hypothetical gains or "option spreads" of the options
granted based on both the fair market value of the Common Stock for
financial reporting purposes and assumed annual compound stock appreciation
rates of 5% and 10% over the full 10-year term of the options. The 5% and
10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices. The gains shown are
net of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise of the option or the sale of the
underlying shares. The actual gains, if any, on the exercises of stock
options will depend on the future performance of the Common Stock, the
option holder's continued employment through the option period, and the date
on which the options are exercised.
(5) Mr. Massimino, Mr. Stone and Dr. Gutzmore have not been granted any
additional options since December 31, 1996. On May 21, 1997, Ms. Austin was
granted additional options to purchase 14,000 shares of Common Stock at an
exercise price of $37.57 per Share.
(6) Mr. Ord became an officer of the Company in May 1997 and therefore did not
receive any options in 1996. Pursuant to a consulting agreement with Mr.
Ord, the Company agreed to grant Mr. Ord options to purchase 30,000 shares
of Common Stock when Mr. Ord assumed the position of Executive Vice
President and Chief Financial Officer of the Company. Mr. Ord assumed such
position and the Company granted him such options as of January 9, 1997 at
an exercise price of $29.17 per share. The options granted to Mr. Ord are
scheduled to vest at the rate of 20% on each December 15 of the years 1997
through 2000, but as a result of the Offer, will become fully vested and
exercisable on or prior to consummation of the Offer. Mr. Ord's options are
to expire on January 9, 2007.
Option Exercises and Year-End Holdings. None of the options held by the
Named Executive Officers were exercisable in 1996. The following table sets
forth information regarding the number and value of options held at the end of
1996 by the Named Executive Officers.
FISCAL YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack D. Massimino(2)....................... 0 26,082 0 $ 499,992
Kenneth S. Ord(3).......................... -- -- -- --
Gloria L. Austin(2)........................ 0 5,353 0 102,617
Walter R. Stone(2)......................... 0 5,353 0 102,617
Jennifer M. Gutzmore, M.D.(2).............. 0 7,500 0 0
</TABLE>
- - ---------------
(1) The amounts set forth represent solely the difference between the estimated
fair value of $29.17 per share of the Common Stock underlying those
unexercised options that had an exercise price below such price (i.e.,
"in-the-money options") and the respective exercise prices of the options.
No assumptions or representations regarding the "value" of such options are
made or intended.
(2) Mr. Massimino, Mr. Stone and Dr. Gutzmore have not been granted any
additional options since December 31, 1996. On May 21, 1997, Ms. Austin was
granted additional options to purchase 14,000 shares of Common Stock at an
exercise price of $37.57 per share.
(3) Mr. Ord became an officer of the Company in May 1997 and therefore did not
receive any options in 1996. Pursuant to a consulting agreement with Mr.
Ord, the Company agreed to grant Mr. Ord options to
A-9
<PAGE> 25
purchase 30,000 shares of Common Stock when Mr. Ord assumed the position of
Executive Vice President and Chief Financial Officer of the Company. Mr. Ord
assumed such position and the Company granted him such options as of January
9, 1997 at an exercise price of $29.17 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into agreements (the "Employment Agreements")
providing for benefits in the event of a "Change of Control" of the Company with
the following executives: Gloria L. Austin, Becky J. Behlendorf, Jennifer M.
Gutzmore, M.D., Regina B. Lightner, Jack D. Massimino, Peter W. McKinley,
Kenneth S. Ord, Russell D. Phillips, Jr. and Walter R. Stone. The Company has
also entered into a similar letter agreement with Jim Wade providing for one
year of benefits upon a "Change of Control." Copies of the Employment Agreements
and Mr. Wade's letter agreement are filed as Exhibits 9-11 to the Schedule
14D-9.
For the purposes of the Employment Agreements, a Change of Control occurs
when: (i) another party, other than a Company-sponsored employee benefit plan,
acquires (other than directly from the Company) beneficial ownership of 20% or
more of the Company's stock or voting securities; (ii) there is a change in a
majority of the current Board of Directors (the "Incumbent Board") (excluding
any persons approved by a vote of the Incumbent Board other than in connection
with an actual or threatened proxy contest); or (iii) there is a consummation of
a complete liquidation or dissolution of the Company or a merger, consolidation
or sale of all or substantially all of the Company's assets (collectively, a
"Business Combination") other than a Business Combination in which: (a) all or
substantially all of the stockholders of the Company receive 70% or more of the
stock of the Company resulting from the Business Combination; (b) no party,
other than a Company sponsored employee benefit plan, beneficially owns,
directly or indirectly, 20% or more of the Company's stock or voting securities
except to the extent any such ownership existed prior to the Business
Combination; and (c) at least a majority of the board of directors of the
resulting corporation were members of the Incumbent Board.
The Employment Agreements provide that the executive's employment will
continue for three years following a Hostile Change of Control and for two years
following a Change of Control that is not Hostile, in each case on equivalent
terms (including position, duties, compensation and benefits) to those existing
immediately prior to the Change of Control. A Change in Control is "Hostile" if
it results from an unsolicited proposal that is not approved by a majority of
the disinterested directors prior to disclosure of the Change in Control or if
such disclosure is made without the prior approval of a majority of the
disinterested directors. If during the relevant period the executive's
employment is terminated other than for "Cause" (as defined in the Employment
Agreements), death or disability, or if the executive terminates his employment
for "Good Reason" (as defined in the Employment Agreements), the executive is
entitled to receive an annual salary and annual incentive payment through the
date that is the third anniversary of a Hostile Change of Control or the second
anniversary if such Change of Control was not hostile, and, except in the event
of death or disability, payments and benefits including the continuation of
bi-weekly salary payments and certain medical, dental and life insurance
coverage for the relevant period, payment of accrued vacation, holiday and
personal leave time, and a lump sum payment equal to additional contributions
that would have been allocated to the executive's accounts under the Company's
1996 Employee Stock Ownership Plan and 1996 Money Purchase Pension Plan if the
executive had remained employed for the relevant period and deferred the maximum
pretax deferral allowed under the terms of these plans and the amount of any
benefits under the 1996 Employee Stock Ownership Plan that were forfeited upon
termination of employment but that would have vested if the executive remained
employed for the relevant period. All of the executive's outstanding option
rights under the Company's 1996 Stock Incentive Plan will immediately become
exercisable and all restrictions on Restricted Stock will be eliminated on the
date of termination of employment, unless prohibited by law.
The Employment Agreements also contain provisions with respect to the
acceleration of options. Upon termination of employment other than voluntary or
for Cause, death or disability, after a Change of Control and prior to the end
to the relevant period, all outstanding options held by the executive vest,
except to the extent such vesting would result in an "excess parachute payment"
nondeductible by the Company or would prevent accounting for the Change of
Control as a "pooling-of-interest." Options that do not vest by reason of
A-10
<PAGE> 26
the exception become exercisable in accordance with their original vesting
schedule and remain exercisable until 90 days thereafter (or, if earlier, until
the original expiration date), provided that within 30 days of the executive's
date of termination the executive satisfies the following two requirements: (i)
the executive executes and delivers to the Company a Settlement and Release
Agreement waiving all the claims against the Company and its affiliates (other
than obligations under the Employment Agreement and vested employee benefits);
and (ii) the executive executes and delivers to the Company a Covenant Not to
Compete for the period through the end of the Employment Period, imposing
certain restrictions upon the executive conducting the same business in the same
cities and counties as carried on by the Company at the effective date of a
Change of Control.
In connection with the Offer and the Merger, the Employment Agreements will
be amended to permit certain of the transactions contemplated under the Merger
Agreement. For a summary of the Employment Agreements, as amended in connection
with the Merger, see Item 3(b) of the Schedule 14D-9.
STOCK INCENTIVE PLAN
The Company Stock Incentive Plan was adopted by the Board of Directors in
November 1996. The purpose of the Stock Incentive Plan is to provide long-term
incentives to those key employees (including executive officers), significant
agents and consultants responsible for the continued success and growth of the
Company. In addition, the Stock Incentive Plan is intended to enable the Company
to attract, motivate and retain experienced and knowledgeable independent
directors.
The Stock Incentive Plan is administered by a committee (the "Committee"),
comprised of the Board of Directors or a committee consisting of two or more of
its members, each of whom is an "outside" director within the meaning of Section
162(m) of the Internal Revenue Code (the "Code"). The Committee may grant
discretionary awards to any officer, non-employee director, key employee, or
significant consultant or advisor to the Company. In addition, the Stock
Incentive Plan provides for the automatic grant of nonqualified stock options to
non-employee directors.
Shares that May Be Issued Under the Stock Incentive Plan. A maximum of
180,000 shares of Common Stock, or approximately 5.7% of the issued and
outstanding shares of Common Stock (on a fully diluted basis), has been reserved
for issuance under the Stock Incentive Plan and may be issued upon the exercise
of stock options ("Options") or stock appreciation rights ("SARs") or pursuant
to awards of restricted stock ("Restricted Stock Awards") or performance share
awards ("Performance Awards") and stock bonuses ("Stock Bonuses") or
non-employee director options ("Non-Employee Director Options") (Options, SARs,
Restricted Stock Awards, Performance Awards, Stock Bonuses and Non-Employee
Director Options are collectively referred to as "Awards"). As of August 20,
1997, Options with respect to 166,252 Common Stock had been granted, and no
other Awards had been made. The maximum number of shares of Common Stock that
may be delivered pursuant to incentive stock options is 50,000 shares. The
maximum number of shares of Common Stock that may be delivered as Non-Employee
Director Options is 60,000. The maximum number of shares subject to Options and
SARs that are granted during any calendar year to any individual is limited to
50,000. As is customary in incentive plans of this nature, the number and kind
of shares available under the Stock Incentive Plan are subject to adjustment in
the event of any extraordinary dividend or any extraordinary distribution in
respect of the Common Stock, or any reclassification, recapitalization, stock
split (including a stock split in the form of a stock dividend), reverse stock
split, reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase or exchange of Common Stock or other securities of the
Company, or there will occur any other like corporate transaction or event in
respect of the Common Stock or a sale of substantially all the assets of the
Company. Shares relating to Awards which expire or for any reason are cancelled,
terminated, forfeited, fail to vest, or are reacquired, will again become
available for grant purposes in the Stock Incentive Plan to the extent permitted
by law.
Awards are not transferable by an Award holder other than as expressly
provided for under the Stock Incentive Plan or by law, and are exercisable,
during his or her lifetime, only by the Award holder. The Committee determines
the terms of Awards, including the number of shares subject to the Award,
exercise price, term and exercisability. Unless the Committee otherwise
expressly provides, no Award is exercisable or
A-11
<PAGE> 27
will vest prior to twelve months after its grant date. In the case of Options or
other rights to acquire Common Stock, an Award will expire not later than ten
years after its grant date (five years in the case of Incentive Stock Options
granted to Option holders who own more than 10% of the voting power of the
Company's outstanding voting stock).
The Stock Incentive Plan also permits the Committee to grant certain other
types of awards ("Performance-Based Awards") that are intended to qualify as
"performance based compensation" under Section 162(m) of the Code. Under Section
162(m), the Company may not deduct certain compensation of over $1,000,000 paid
in any year to the Named Executive Officers unless, among other things, this
compensation qualifies as performance-based compensation under Section 162(m),
and the material terms of the plan for such compensation are approved by
stockholders.
Options and SAR's that are granted under that Plan at a fair market value
exercise price are intended to qualify as performance-based compensation. In
addition, other share-based awards (such as restricted stock or performance
awards) that may be granted under the Stock Incentive Plan may qualify as
performance-based compensation under Section 162(m). The Stock Incentive Plan
also provides for the grant of Performance-Based Awards that are not denominated
nor payable in and do not have a value derived from the value of a price related
to shares of Common Stock and are payable only in cash ("Cash-Based Awards")
that are intended to satisfy the requirements for performance-based compensation
under Section 162(m).
The maximum amount payable to any participant under all Cash-Based Awards
that are intended to be Performance-Based Awards during any calendar year under
the Plan will be $1,000,000. The maximum number of shares of the Company's
Common Stock that may be subject to all Performance-Based Awards, including
stock options and stock appreciation rights, that are granted to any participant
during any calendar year will not exceed 100,000 shares, either individually or
in the aggregate.
Acceleration of Awards; Possible Early Termination of Awards. Unless prior
to a Change in Control Event (as described below) the Committee determines that
upon its occurrence there will be no acceleration, then upon the occurrence of a
Change in Control Event, each Option and SAR will become immediately
exercisable, Restricted Stock will vest free of restrictions, and Performance
Shares will become payable. In general, a Change in Control Event includes: (i)
approval by the stockholders of the Company of the dissolution or liquidation of
the Company; (ii) any acquisition by a person or group (subject to certain
exceptions) of 20% or more of either the outstanding Common Stock or the
combined voting power of the Company's outstanding securities; (iii) a change in
the majority of the Company's directors; or (iv) consummation of a
reorganization, merger, consolidation, sale or other disposition of all or
substantially all of the assets of the Company under certain circumstances;
provided that no award will be accelerated as to any person subject to Section
16 of the Securities Act of 1933, as amended, to a date less than six months
after its applicable date of grant. Options or other Awards not exercised prior
to the dissolution of the Company or a merger or other corporate event where the
Company is not the surviving corporation and where no provision is made for the
assumption, conversion, substitution or exchange of the Options or Awards, will
terminate upon the occurrence of such event.
Termination of or Changes to the Stock Incentive Plan. The Board of
Directors may terminate or amend the Stock Incentive Plan. Any amendment, to the
extent then required by the Code or as required by any other applicable law,
must be approved by the stockholders of the Company. Unless previously
terminated by the Board of Directors, the Stock Incentive Plan will terminate
ten years after the effective date.
Effect of the Offer and the Merger. In connection with the Offer and the
Merger, options granted under the Stock Incentive Plan will be accelerated so
that they become fully exercisable on or prior to the consummation of the Offer,
and the Stock Incentive Plan will terminate as of the Effective Time. For a
summary of the effect of the Offer and Merger on the Stock Incentive Plan, see
Item 3(b) of the Schedule 14D-9.
A-12
<PAGE> 28
MANAGEMENT INCENTIVE PROGRAM
In March 1997, the Company implemented an executive bonus program (the
"Management Incentive Program") for the year ending December 31, 1997. Bonuses
are based on the achievement of budgeted objectives for a particular region (for
regional employees) or for the Company as a whole (for corporate-level
employees) and improvements to the quality of services provided to members.
Pursuant to the Merger Agreement and a letter agreement dated August 14,
1997 among the Parent, the Subsidiary and the Company, the Parent will cause the
Company and the Surviving Corporation to pay at the time of the consummation of
the Offer to each corporate-level employee currently participating in the
Company's Management Incentive Program cash awards equivalent to the award that
would have been received by the participants in such program if calculated as of
June 30, 1997. The Named Executive Officers will receive the following amounts:
(1) Jack D. Massimino: $186,560; (2) Kenneth S. Ord: $102,420; (3) Gloria L.
Austin: $102,420; (4) Walter R. Stone: $68,280; and (5) Jennifer M. Gutzmore,
M.D.: $68,280.).
EMPLOYEE STOCK OWNERSHIP PLAN
The Talbert Medical Management Holdings Corporation Employee Stock
Ownership Plan (the "ESOP") is intended to be a tax-qualified retirement plan
that satisfies the requirements of Sections 401(a), 401(k), 501(a) and 4975 of
the Code. The ESOP provides for a discretionary employer contribution that can
be made each year and allocated to the employer contribution accounts of
participants. The employer contribution accounts of each participant are subject
to a five-year "cliff" vesting schedule.
In addition, the ESOP permits employees to elect to reduce their salaries
and make 401(k) contributions to the ESOP. The 401(k) account of each
participant will be 100% vested. The ESOP also provides for matching
contributions in the same manner as the FHP ESOP. Accordingly, if a participant
has completed less than five years of service, the employer matching
contribution rate, subject to the satisfaction of applicable nondiscrimination
rules, equals 50% of the participant's 401(k) deferrals up to six percent of the
participant's compensation. If the participant has completed at least five years
of service, the employer matching contributions rate, subject to the
satisfaction of applicable nondiscrimination rules, equals 100% of the
participant's 401(k) deferrals up to six percent of the participant's
compensation. The ESOP permits participants to direct the investment of their
401(k) and employer matching accounts on a monthly basis.
DEFERRED COMPENSATION PLAN
The Talbert Medical Management Holdings Corporation Deferred Compensation
Plan (the "Deferred Compensation Plan") is a nonqualified deferred compensation
plan that permits the Company's non-employee directors and a select group of
management or highly compensated employees to elect to defer compensation under
the Deferred Compensation Plan. The Deferred Compensation Plan permits a minimum
deferral of 3% with respect to salaries (or, with respect to bonuses, 1%) and a
maximum deferral of 50% with respect to salaries (or, with respect to bonuses,
100%). The Deferred Compensation Plan also permits discretionary employer
contributions. Amounts deferred under the Deferred Compensation Plan are
credited to bookkeeping accounts established and maintained for each
participant.
The compensation deferral account of each participant is 100% vested. The
employer contribution account of each participant is subject to a five-year
"cliff" vesting schedule, but will become 100% vested in the event of a
Change-of-Control (as defined under the Deferred Compensation Plan).
The Company's Deferred Compensation Plan will provide, among others, the
following distribution options: (i) short-term payout option; (ii) retirement
benefit; (iii) termination distribution (iv) survivor benefit; and (v)
withdrawal election.
MONEY PURCHASE PENSION PLAN
The Talbert Medical Management Holdings Corporation Money Purchase Pension
Plan (the "Money Purchase Pension Plan") is intended to be a tax-qualified
retirement plan that satisfies the requirements of
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<PAGE> 29
Sections 401(a) and 501(a) of the Code. The accounts of each participant under
the Money Purchase Pension Plan are 100% vested. In general, accounts will be
distributable upon a participant's termination from employment.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains a provision eliminating
or limiting director liability for monetary damages arising from a breach of
fiduciary duty as a director, except for liability of a director (i) for any
breach of such director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) under the Delaware statutory
provision making directors personally liable, under a negligence standard, for
unlawful dividends or unlawful stock purchases or redemptions; or (iv) for any
transaction from which the director derived an improper personal benefit. As a
result of this provision, the ability of the Company or a stockholder thereof to
successfully prosecute an action against a director for a breach of his or her
duty of care is limited. However, the provision does not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of his duty of care.
In addition, the Certificate of Incorporation and the Company's Bylaws
provide for mandatory indemnification rights, subject to limited exceptions, to
any person who by reason of the fact that he or she is a director or officer of
the Company, is involved in a legal proceeding of any nature if he or she acted
in good faith and in a manner he or she reasonably believed to be in and not
opposed to the best interests of the Company. If such legal proceeding is
brought by or in the right of the Company, no indemnification will be made if
the person is adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company, unless a court finds such person to be
entitled to indemnity despite adjudication of liability. Such indemnification
rights include reimbursement for expenses incurred by such director or officer
in advance of the final disposition of such proceeding in accordance with the
applicable provisions of the DGCL.
For a summary of the effect of the Offer and the Merger on the provisions
relating to the indemnification of directors, officers, employees and agents of
the Company or its subsidiaries contained in the Company's Certificate of
Incorporation and Bylaws (or other similar organizational documents), see Item
3(b) of the Schedule 14D-9.
The Company has entered into separate indemnification agreements with its
directors and executive officers. Each indemnification agreement provides for,
among other things: (i) indemnification against any and all expenses, judgments,
fines, penalties, and amounts paid in settlement of any claim that an indemnitee
was, is, or is threatened to be made a party to or witness or other participant
to unless it is determined, as provided in the indemnification agreement, that
indemnification is not permitted under law; and (ii) prompt advancement of
expenses to any indemnitee.
The Company also maintains directors' and officers' liability insurance.
The Company believes that the provisions of its Certificate of Incorporation,
Bylaws, indemnification agreements and insurance are necessary to attract and
retain qualified persons as directors and officers. At present, there is no
pending litigation or proceeding involving any director, officer, employee or
agent of the Company where indemnification would be required or permitted. The
Company is not aware of any threatened litigation or proceeding that might
result in a claim for such indemnification.
For a summary of the effect of the Offer and the Merger on directors' and
officers' liability insurance, see Item 3(b) of the Schedule 14D-9.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Burdge (Chairman) and Dr. Jamplis have served as members of the
Compensation Committee since the Company's organizational meeting in November
1996. Each of the members of the Compensation Committee is a non-employee
Director of the Company. No executive officer of the Company during the last
fiscal year served as a member of a compensation committee or director of
another for-profit entity in a situation in which an executive officer of such
other entity served as a member of the Compensation
A-14
<PAGE> 30
Committee or Director of the Company. Mr. Burdge serves as a director of
PacifiCare. Substantially all of the Company's revenues are derived from
provider agreements with FHP. In addition to provider agreements, the Company
has entered into a number of other transactions in connection with the Company's
separation from FHP.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of August 20, 1997 (except as
otherwise indicated) in each case by (a) each stockholder who is known to the
Company to beneficially own 5% or more of the outstanding shares of Common
Stock, (b) each director and Named Executive Officer of the Company, and (c) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(2)
---------------------------
NUMBER OF
NAME OF BENEFICIAL OWNER(1) SHARES PERCENT
--------------------------------------------------- --------- -------
<S> <C> <C>
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404.............................. 264,812(3) 8.8%
Joel M. Greenblatt
153 E. 53rd Street, 51st Floor
New York, NY 10022............................... 227,752(4) 7.6%
Jack D. Massimino.................................. 170,590(5)(6)(7) 5.7%
Gloria L. Austin................................... 17,244(6)(7) *
Kenneth S. Ord..................................... 4,847(6) *
Walter R. Stone.................................... 9,414(6)(7) *
Jennifer M. Gutzmore, M.D.......................... 113(6) *
Jack R. Anderson................................... 186,462(7)(8) 6.2%
Richard M. Burdge, Sr.............................. 44,514(5)(7)(9) 1.5%
Warner Heineman.................................... 2,500(7) *
Van B. Honeycutt................................... 1,500(7) *
Robert W. Jamplis, M.D............................. 1,500(7) *
Robert C. Maxson, Ed.D............................. 1,500(7) *
Joseph F. Prevratil................................ 2,500(7) *
Westcott W. Price III.............................. 46,046(5)(6)(7) 1.5%
All executive officers and directors as a group (16
persons) ........................................ 489,652 16.3%
</TABLE>
- - ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the stockholders named in
this table is: c/o Talbert Medical Management Holdings Corporation, 3540
Howard Way, Costa Mesa, California 92626-1417.
(2) Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each stockholder named in this
table has sole voting authority and investment discretion with respect to
the shares shown as beneficially owned.
(3) Based on beneficial ownership of 5,370,900 shares of FHP Common Stock and
298,680 shares of FHP Preferred Stock, which stock was converted into shares
of the Company's Common Stock in connection with the separation of the
Company from FHP, as reported on Schedule 13F for the period ended December
31, 1996.
(4) Includes 53,105 shares of Common Stock held by Alfred LLC, of which Mr.
Greenblatt is a managing partner, and 62,850 shares of Common Stock held by
Gotham III, of which Mr. Greenblatt is a general partner.
A-15
<PAGE> 31
(5) Includes shares held under a revocable trust controlled by the named
individual. With respect to Mr. Massimino, includes shares held under an
irrevocable trust, the voting rights to which Mr. Massimino has retained.
(6) Includes shares held by the trustee under the FHP ESOP. As of May 21, 1997
the approximate number of shares of Common Stock allocated to the ESOP
accounts of the officers and directors named above were as follows: Gloria
L. Austin -- 103 shares; Jennifer M. Gutzmore -- 113 shares; Jack D.
Massimino -- 158 shares; Kenneth S. Ord -- 10 shares; Westcott W. Price
III -- 252 shares; and Walter R. Stone -- 202 shares.
(7) Shares reported include stock options exercisable 60 days after August 20,
1997, which are reported pursuant to Rule 13-3(d)(1) under Exchange Act.
(8) Includes 23,878 shares of Common Stock held by Mr. Anderson's wife and
47,200 shares of Common Stock held by trusts of which Mr. Anderson's
relatives are beneficiaries.
(9) Includes 4,356 shares of Common Stock held by Mr. Burdge's wife and 2,265
held by Mr. Burdge's family trust.
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The matters set forth elsewhere in this Information Statement and in Item 3
of the Schedule 14D-9 are hereby incorporated by reference.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Reporting Persons
to file with the Commission initial reports of Common Stock ownership and
reports of changes in such ownership. A Reporting Person must file a Form
3 -- Initial Statement of Beneficial Ownership of Securities within 10 days
after such person becomes a Reporting Person. A Reporting Person must file a
Form 4 -- Statement of Changes of Beneficial Ownership of Securities within 10
days after any month in which such person's beneficial ownership of securities
changes, except for certain changes exempt from the reporting requirements of
Form 4. Such exempt changes include stock options granted under a plan
qualifying under Rule 16b-3. A Reporting Person must file a Form 5 -- Annual
Statement of Beneficial Ownership of Securities within 45 days after the end of
the issuer's fiscal year to report any changes in ownership during such year not
reported on a Form 4, including changes exempt from the reporting requirements
of Form 4.
The Commission's rules require the Company's Reporting Persons to furnish
the Company with copies of all Section 16(a) reports that they file. Based
solely upon a review of the copies of such reports furnished to the Company, the
Company believes that the Reporting Persons have complied with all applicable
Section 16(a) filing requirements for 1997 on a timely basis, except for the
Form 3's that were to be filed concurrently with the initial public offering of
rights to purchase shares of Common Stock of the Company on April 21, 1997,
which forms were filed on April 22, 1997. The Company was not subject to the
reporting requirements of the Exchange Act prior to April 21, 1997.
A-16
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK (TOGETHER WITH THE ASSOCIATED JUNIOR
PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
AT $63.00 NET PER SHARE IN CASH
BY TALMED MERGER CORPORATION
A WHOLLY-OWNED SUBSIDIARY OF
MEDPARTNERS, INC.
---------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY SEPTEMBER 19, 1997, UNLESS THE
OFFER IS EXTENDED.
---------------------
THE BOARD OF DIRECTORS OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
(THE "COMPANY") HAS BY UNANIMOUS VOTE OF THOSE PRESENT APPROVED THE OFFER AND
THE MERGER, DETERMINED THAT THE OFFER DESCRIBED HEREIN IS IN THE BEST INTEREST
OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT ALL STOCKHOLDERS TENDER THEIR
SHARES.
---------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES REPRESENTING AT LEAST FIFTY-ONE PERCENT OF THE OUTSTANDING SHARES OF THE
COMPANY, ASSUMING CERTAIN EXERCISES (THE "MINIMUM CONDITION"). THE OFFER IS ALSO
SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 13.
---------------------
THE OFFER IS NOT CONDITIONED UPON MEDPARTNERS OR THE
SUBSIDIARY OBTAINING FINANCING.
---------------------
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES SHOULD EITHER (I) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A
FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF
TRANSMITTAL AND MAIL OR DELIVER THE LETTER OF TRANSMITTAL (OR SUCH FACSIMILE)
TOGETHER WITH THE CERTIFICATE(S) EVIDENCING THE TENDERED SHARES AND ANY OTHER
REQUIRED DOCUMENTS TO THE DEPOSITARY, OR TENDER SUCH SHARES PURSUANT TO THE
PROCEDURES FOR BOOK-ENTRY TRANSFER SET FORTH IN SECTION 3; OR (II) REQUEST SUCH
STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO
EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER. A STOCKHOLDER WHOSE SHARES ARE
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR
OTHER NOMINEE MUST CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY
OR OTHER NOMINEE IF SUCH STOCKHOLDER DESIRES TO TENDER SHARES SO REGISTERED.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
EVIDENCING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH
THE PROCEDURES FOR BOOK-ENTRY TRANSFER DESCRIBED IN THIS OFFER TO PURCHASE ON A
TIMELY BASIS, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED
DELIVERY SET FORTH IN SECTION 3.
QUESTIONS AND REQUESTS FOR ASSISTANCE, OR FOR ADDITIONAL COPIES OF THIS
OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL OR OTHER OFFER MATERIALS, MAY BE
DIRECTED TO THE INFORMATION AGENT AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH
ON THE BACK COVER OF THIS OFFER TO PURCHASE. STOCKHOLDERS MAY ALSO CONTACT
BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES FOR ASSISTANCE CONCERNING
THE OFFER.
AUGUST 20, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1
INTRODUCTION.............................................................
Section 1. Terms of the Offer; Expiration Date......................... 2
Section 2. Acceptance for Payment and Payment for Shares............... 4
Section 3. Procedure for Tendering Shares.............................. 5
Section 4. Withdrawal Rights........................................... 8
Section 5. Certain U.S. Federal Income Tax Matters..................... 9
Section 6. Price Range of the Company's Common Stock; Dividends........ 9
Section 7. Certain Information Concerning the Company.................. 10
Section 8. Certain Information Concerning the Subsidiary and
MedPartners................................................. 11
Section 9. Source and Amount of Funds.................................. 14
Section 10. Background of the Offer; Contacts with the Company.......... 14
Section 11. Purpose of the Offer; Merger Agreement; Plans for the
Company..................................................... 16
Section 12. Effect of the Offer on the Market for the Shares, Exchange
Act Registration and Margin Regulations..................... 23
Section 13. Certain Conditions to the Offer............................. 24
Section 14. Certain Legal Matters and Regulatory Approvals.............. 25
Section 15. Fees and Expenses........................................... 28
Section 16. Miscellaneous............................................... 28
Schedule I Information Concerning the Directors and Executive Officers
of MedPartners and the Subsidiary........................... S-1
</TABLE>
<PAGE> 3
TO: THE HOLDERS OF COMMON STOCK OF
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
INTRODUCTION
Talmed Merger Corporation (the "Subsidiary"), a Delaware corporation and a
wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation
("MedPartners"), hereby offers to purchase all of the outstanding shares of
common stock, par value $.01 per share, together with the associated rights to
purchase shares of preferred stock, par value $.01 per share, designated as
"Junior Participating Preferred Stock" (the "Shares"), of Talbert Medical
Management Holdings Corporation, a Delaware corporation (the "Company"), at a
purchase price of $63.00 per Share, net to the seller in cash, upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, together with any supplements or
amendments, collectively constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to
the Offer. The Subsidiary will pay all fees and expenses of ChaseMellon
Shareholder Services, L.L.C., as Depositary (the "Depositary") and Georgeson &
Company, Inc. as Information Agent (the "Information Agent"), incurred in
connection with the Offer. See Section 15.
The Offer is conditioned upon, among other things, there having been
validly tendered and not properly withdrawn prior to the expiration of the Offer
a number of Shares which constitutes at least fifty-one percent (51%) of the
Company's outstanding voting power (assuming the exercise of all outstanding
options and rights to purchase shares of Common Stock) (the "Minimum
Condition"). The Company has informed the Subsidiary that as of August 14, 1997,
there were 3,000,758 Shares issued and outstanding, and 174,252 shares of Common
Stock reserved for issuance under the Company's stock option plan, and that,
except as otherwise disclosed in the Merger Agreement, no other stock of the
Company is outstanding or committed to be issued. Based on this information, and
assuming all outstanding options to purchase shares of Common Stock will have
been accelerated so as to be fully exercisable prior to the consummation of the
Offer, the Subsidiary believes that the Minimum Condition will be satisfied if
the Subsidiary acquires at least 1,619,256 Shares in the Offer. MedPartners does
not directly or indirectly hold any Shares. Certain other conditions to the
Offer are described in Section 13.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of August 14, 1997 (the "Merger Agreement"), by and among MedPartners, the
Subsidiary and the Company. The Merger Agreement provides, among other things,
that not later than the second business day after satisfaction or, waiver of all
the conditions to the Merger, the Subsidiary will be merged with and into the
Company (the "Merger"). Following consummation of the Merger, the Company will
continue as the surviving corporation of the Merger and as a wholly-owned
subsidiary of MedPartners. Thereupon, each outstanding Share (other than Shares
owned directly or indirectly by the Company, MedPartners or any subsidiary of
the Company or MedPartners, and other than Shares held by stockholders, if any,
who have properly exercised appraisal rights) will be converted into and
represent the right to receive $63.00 in cash, or any higher price that may be
paid per Share in the Offer, without interest. See Section 11.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS" OR THE
"BOARD") HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AND HAS DETERMINED
THAT THE TERMS OF THE OFFER AND THE MERGER (INCLUDING THE OFFER PRICE OF $63.00
PER SHARE IN CASH) IS IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS, AND
RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES
PURSUANT TO THE OFFER.
The Company has advised MedPartners that Smith Barney Inc. ("Smith
Barney"), financial advisor to the Company, has delivered to the Board of
Directors a written opinion dated August 14, 1997 to the effect that, as of such
date and based upon and subject to certain matters stated in such opinion, the
$63.00 per Share cash consideration to be received by the holders of Shares
(other than MedPartners and its affiliates)
<PAGE> 4
in the Offer and the Merger, taken together, was fair from a financial point of
view to such holders. A copy of the written opinion of Smith Barney dated August
14, 1997, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by Smith Barney, is attached as Exhibit 15
to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to stockholders concurrently herewith
and should be carefully read in its entirety. Smith Barney's opinion is directed
only to the fairness, from a financial point of view, of the cash consideration
to be received in the Offer and the Merger by holders of the Shares (other than
MedPartners and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any stockholder should tender Shares
pursuant to the Offer. HOLDERS OF THE SHARES ARE URGED TO READ SUCH OPINION
CAREFULLY IN ITS ENTIRETY.
The Merger Agreement provides that promptly upon the purchase of Shares by
the Subsidiary pursuant to the Offer, seven of the Company's nine directors will
resign, and MedPartners will designate three replacements for appointment or
election to the Company's Board of Directors. The Company will, upon request of
the Subsidiary, use its best efforts promptly to cause MedPartners' designees to
be so appointed or elected. The remaining two directors (and any successors
appointed or elected before the Effective Time) are referred to as the "Original
Directors." The Company will promptly take all actions required by Section 14(f)
of the Exchange Act and related Rule 14f-1 as is necessary to enable
MedPartners' designees to be elected to the Company's Board of Directors.
MedPartners or the Subsidiary will supply the Company in writing, and be solely
responsible for, any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1. Once MedPartners' designees constitute a majority of the Company's
Board of Directors, any amendment of the Merger Agreement, any termination of
the Merger Agreement by the Company, any extension of time for performance of
any of the obligations of MedPartners or the Subsidiary thereunder, any waiver
of any condition or any of the Company's rights thereunder or other action by
the Company thereunder may be effected only by the joint action of the Original
Directors.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including, if required by law, the approval and adoption of
the Merger Agreement by the requisite vote of the stockholders of the Company.
See Section 11 and Section 13. Under the Company's Certificate of Incorporation
and the General Corporation Law of the State of Delaware ("the DGCL"), the
holders of Shares have one vote for each Share owned by them of record. Under
the Company's Certificate of Incorporation and the DGCL, a majority vote of the
then outstanding Shares is required to approve and adopt the Merger Agreement
and the Merger. Consequently, if the Minimum Condition is satisfied, the
Purchaser will have sufficient voting power to approve and adopt the Merger
Agreement and the Merger without the vote of any other stockholder.
Under the DGCL, if the Subsidiary acquires, pursuant to the Offer or
otherwise, at least 90% of the then outstanding Shares, the Subsidiary will be
able to consummate the Merger without a vote of the Company's stockholders. In
such event, MedPartners and the Subsidiary will take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition without a meeting of the Company's
stockholders. If, however, the Subsidiary does not acquire at least 90% of the
then outstanding Shares pursuant to the Offer or otherwise, and a vote of the
Company's stockholders is required under the DGCL, a longer period of time will
be required to effect the Merger. See Section 11.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE
ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of such extension or amendment), the
Subsidiary will accept for payment and pay for all Shares validly tendered on or
prior to the Expiration Date and not properly withdrawn as permitted by Section
4 below. For purposes of the Offer, the term "Expiration Date" means 12:00
midnight, New York City time, on Friday, September 19, 1997, unless and until
the Purchaser, in its sole discretion (subject to the terms of the Merger
Agreement),
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<PAGE> 5
has extended the period of time during which the Offer is open, in which event
the term "Expiration Date" will mean the latest time and date at which the
Offer, as so extended by the Subsidiary, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition and the expiration or termination of all waiting periods
imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations thereunder (the "HSR Act"). The Offer is also subject to
certain other conditions set forth in Section 13 below. If these or any of the
other conditions referred to in Section 13 are not satisfied or any events
specified in Section 13 have occurred or are determined by the Subsidiary to
have occurred prior to the Expiration Date, the Subsidiary reserves the right
(but is not obligated), subject to the terms of the Merger Agreement and whether
or not any shares have theretofore been accepted for payment, (i) to decline to
purchase any of the Shares tendered in the Offer, terminate the Offer and return
all tendered Shares to the tendering stockholders, (ii) to waive or amend any or
all conditions to the Offer, to the extent permitted by applicable law and the
provisions of the Merger Agreement, and, subject to complying with applicable
rules and regulations of the Securities and Exchange Commission (the
"Commission"), purchase all Shares validly tendered, (iii) to extend the Offer
and, subject to the right of stockholders to withdraw Shares until the
Expiration Date, retain the Shares which have been tendered during the period or
periods for which the Offer is extended or (iv) to delay acceptance for payment
or payment for Shares, subject to applicable law, until satisfaction or waiver
of the conditions to the Offer. In the event that the Subsidiary waives any of
the conditions set forth in Section 13, the Commission may, if the waiver is
deemed to constitute a material change to the information previously provided to
the stockholders, require that the Offer remain open for an additional period of
time and/or that the Subsidiary disseminate information concerning such waiver.
The Subsidiary will, subject to the conditions specified in Section 13,
accept for payment and pay for Shares which have been validly tendered and not
withdrawn pursuant to the Offer as soon as it is permitted to do so under
applicable law; provided that, if the number of Shares that have been validly
tendered and not withdrawn represent more than 75% but less than 90% of the
Company's outstanding voting power (calculated assuming the exercise of all
outstanding options and rights to purchase shares of Common Stock), the
Subsidiary may extend the Offer up to the tenth business day following the date
on which all conditions to the Offer shall first have been satisfied or waived.
If any of the conditions specified in Section 14 are not satisfied on the
initial Expiration Date, the Subsidiary may extend (and re-extend) the Offer
through October 20, 1997, to provide time to satisfy such conditions. During
such extension, all Shares previously tendered and not withdrawn will remain
subject to the Offer, subject to the rights of a tendering stockholder to
withdraw its Shares. See Section 4.
The Merger Agreement provides that the Subsidiary may modify the terms of
the Offer except that, without the written approval of the Company, the
Subsidiary will not (i) reduce the number of Shares subject to the Offer; (ii)
decrease the price per Share paid in the Offer, (iii) modify or add to the
conditions set forth in Section 13 herein; (iv) allow the Offer to expire prior
to September 19, 1997; (v) extend the Offer beyond October 20, 1997; (vi) change
the form of consideration payable in the Offer; or (vii) make any other
modifications to the Offer that are otherwise materially adverse to the holders
of the Shares.
Subject to the applicable regulations of the Commission, the Subsidiary
also reserves the right, in its sole discretion, at any time and from time to
time, (i) to delay acceptance for payment of or, regardless of whether such
Shares were theretofore accepted for payment, payment for any Shares pending
receipt of any regulatory approval specified in Section 14 below or in order to
comply in whole or in part with any other applicable law, (ii) to terminate the
Offer (whether or not any Shares have theretofore been accepted for payment) if
any of the conditions referred to in Section 13 has not been satisfied or upon
the occurrence of any of the events specified in Section 13 and (iii) to waive
any condition or otherwise amend the Offer in any respect in any manner that is
not prohibited as described above, in each case by giving oral or written notice
of such delay, termination, waiver or amendment to the Depositary and by making
a public announcement thereof. The Subsidiary acknowledges that (i) Rule
14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Subsidiary to pay the consideration offered or return the
Shares tendered promptly after the termination or withdrawal of the Offer and
(ii) the Subsidiary may not delay acceptance for payment of, or payment for
(except as provided in clause (i) of the preceding sentence), any Shares upon
the
3
<PAGE> 6
occurrence of any of the conditions specified in Section 13 without extending
the period of time during which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Except as provided by applicable law (including Rules 14d-4(c),
14d-6(d) and 14e-1(d) under the Exchange Act, which require that material
changes be promptly disseminated to stockholders in a manner reasonably designed
to inform them of such changes) and without limiting the manner in which the
Subsidiary may choose to make any public announcement, the Subsidiary shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release to the Dow Jones News
Service.
If the Subsidiary makes a material change in the terms of the Offer or if
it waives a material condition of the Offer, the Subsidiary will extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1(d) under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the offer, other than a change in
price or a change in the percentage of securities sought, will depend upon the
facts and circumstances, including the materiality, of the changes. With respect
to a change in price or, subject to certain limitations, a change in the
percentage of securities sought, a minimum ten business day period from the day
of such change is generally required to allow for adequate dissemination to
stockholders and investor response. For purposes of the Offer, a "business day"
means any day other than a Saturday, Sunday or a federal holiday and consists of
the time period from 12:01 a.m. through 12:00 Midnight, New York City time.
The Company has provided the Subsidiary with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares whose names
appear on the Company's stockholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms
and subject to the conditions of the Offer (including, if the Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
Subsidiary will accept for payment and will pay for all Shares validly tendered
and not properly withdrawn on or prior to the Expiration Date promptly after the
Expiration Date provided that the conditions of the Offer set forth in Section
13, including, without limitation, the expiration or termination of the waiting
period applicable to the acquisition of Shares pursuant to the Offer under the
HSR Act, have been satisfied or waived prior to the Expiration Date. In
addition, subject to applicable rules of the Commission, the Subsidiary
expressly reserves the right to delay acceptance for payment of, or payment for,
Shares pending receipt of any other regulatory approvals specified in Section
14.
On August 15, 1997, MedPartners filed with the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") a Premerger Notification and Report Form under the HSR Act
with respect to the Offer. The waiting period under the HSR Act applicable to
the Offer would expire at 11:59 p.m., New York City time, on August 30, 1997,
unless prior to the expiration or termination of the waiting period the FTC or
the Antitrust Division extends the waiting period by requesting additional
information or documentary material from MedPartners. If such a request is made,
the waiting period applicable to the Offer will expire on the tenth calendar day
after the date of substantial compliance by MedPartners with such request.
Thereafter, the waiting period may be extended by court order or with the
consent of MedPartners. The waiting period under the HSR Act may be terminated
by the FTC and the Antitrust Division prior to its expiration. See Section 14.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates"), or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares,
4
<PAGE> 7
if such procedure is available, into the Depositary's account at The Depository
Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry
Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities")
pursuant to the procedures set forth in Section 3, (ii) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed with
any required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer, and (iii) any other documents required by
the Letter of Transmittal.
The term "Agent's Message" means a message from a Book-Entry Transfer
Facility transmitted to, and received by, the Depositary forming a part of a
Book-Entry Confirmation, which states that (i) the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that are the subject of the Book-Entry
Confirmation, (ii) the participant has received and agrees to be bound by the
terms of the Letter of Transmittal and (iii) the Purchaser may enforce such
agreement against the participant.
For purposes of the Offer, the Subsidiary will be deemed to have accepted
for payment (and thereby purchased) Shares validly tendered and not properly
withdrawn if, as and when the Subsidiary gives oral or written notice to the
Depositary of the Subsidiary's acceptance of such Shares for payment pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Subsidiary
and transmitting those payments to stockholders whose Shares have been accepted
for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR
SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING
SUCH PAYMENT. If for any reason whatsoever acceptance for payment of or payment
for any Shares tendered pursuant to the Offer is delayed or the Subsidiary is
unable to accept for payment or pay for Shares tendered pursuant to the Offer,
then, without prejudice to the Subsidiary's rights set forth herein, the
Depositary may nevertheless, on behalf of the Subsidiary, retain tendered
Shares, and those Shares may not be withdrawn except to the extent that the
tendering stockholder is entitled to exercise and duly exercises withdrawal
rights as described in Section 4, subject, however, to the Subsidiary's
obligation under Rule 14e-1(c) under the Exchange Act to pay for Shares tendered
or return those Shares promptly after termination or withdrawal of the Offer.
If any tendered Shares are not accepted for payment pursuant to the Offer
for any reason or if Share Certificates are submitted for more Shares than are
tendered, Share Certificates evidencing unpurchased or untendered Shares will be
returned (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the
procedures set forth in Section 3, such Shares will be credited to an account
maintained at such Book-Entry Transfer Facility), without expense to the
tendering stockholder, as promptly as practicable following the expiration,
termination or withdrawal of the Offer.
If, prior to the Expiration Date, the Subsidiary increases the
consideration offered to stockholders pursuant to the Offer, such increased
consideration will be paid to all stockholders whose Shares are purchased
pursuant to the Offer, regardless of whether those Shares were tendered prior to
the increase in consideration.
The Subsidiary reserves the right to transfer or assign, in whole at any
time or in part from time to time, to one or more of the Subsidiary's
affiliates, the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Subsidiary of its obligations under the Offer or prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
SECTION 3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. Except as set forth below, in order for Shares to be validly
tendered pursuant to the Offer, (i) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed with any required signature
guarantees, or an Agent's Message in connection with a book-entry delivery of
Shares, and any other documents required by the Letter of Transmittal, must be
received by the Depositary at one of its addresses
5
<PAGE> 8
set forth on the back cover of this Offer to Purchase on or prior to the
Expiration Date, and (ii) either (a) Share Certificates evidencing tendered
Shares must be received by the Depositary at such address, or the Shares must be
tendered pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case on or
prior to the Expiration Date, or (b) the tendering stockholder must comply with
the guaranteed delivery procedures described below.
If Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) must accompany each delivery.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of any Book-Entry Transfer
Facility may make book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's transfer procedures. However, although delivery of Shares may be
effected through book-entry transfer at a Book-Entry Transfer Facility, a Letter
of Transmittal (or a facsimile thereof), properly completed and duly executed
with any required signature guarantees, or an Agent's Message in connection with
a book-entry transfer, and any other documents required by the Letter of
Transmittal, must in any case be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase on or prior to
the Expiration Date, or the tendering stockholder must comply with the
guaranteed delivery procedures described below.
Delivery of documents to a Book-Entry Transfer Facility in accordance with
the Book-Entry Transfer Facility's procedures does not constitute delivery to
the Depositary.
Signature Guarantees. Signatures on Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of a recognized
Medallion Signature Guarantee Program or by any other "eligible guarantor
institution," as defined in Rule 17A(b)-15 under the Exchange Act (each of the
foregoing, an "Eligible Institution"), unless the Shares tendered thereby are
tendered (i) by a registered holder of Shares who has not completed either the
box labeled "Special Payment Instructions" or the box labeled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Share Certificate is registered in the name of a person other than the
person who signs the Letter of Transmittal, or if payment is to be made, or a
Share Certificate not accepted for payment or not tendered is to be returned, to
a person other than the registered holder(s), the Share Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appears on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed as provided above. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available, time will not permit all required documents to reach the Depositary
on or prior to the Expiration Date, or a stockholder cannot complete the
procedure for delivery by book-entry transfer on a timely basis, then such
stockholder's Shares may nevertheless be tendered, provided that all of the
following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary as provided below on or prior to the Expiration
Date; and
(iii) the Share Certificates evidencing all tendered Shares, in proper
form for transfer, or a Book-Entry Confirmation, together with the Letter
of Transmittal (or a facsimile thereof) properly completed and duly
executed with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required
by the Letter of Transmittal, are received by the
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<PAGE> 9
Depositary within three Nasdaq National Market trading days after the date
of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution and a representation that the stockholder
owns the Shares tendered within the meaning of, and that the tender of the
Shares effected thereby complies with, Rule 14e-4 under the Exchange Act, each
in the form set forth in the Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) Share Certificates evidencing such Shares or a
Book-Entry Confirmation of the delivery of such Shares (if available), (ii) a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) or, in the case of a book-entry transfer, an Agent's Message, and (ii)
any other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering stockholders at the same time and will depend
upon when Share Certificates are received by the Depositary or Book-Entry
Confirmations of tendered Shares are received in the Depositary's account at a
Book-Entry Transfer Facility.
The method of delivery of Share Certificates and all other required
documents, including through any Book-Entry Transfer Facility, is at the option
and risk of the tendering stockholder and the delivery will be deemed made only
when actually received by the Depositary. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares pursuant to any of the procedures described above will be determined
by the Subsidiary, in its sole discretion, which determination shall be final
and binding on all parties. The Subsidiary reserves the absolute right to reject
any and all tenders determined by it not to be in proper form or the acceptance
for payment of which may, in the opinion of its counsel, be unlawful. The
Subsidiary also reserves the absolute right to waive any defect or irregularity
in any tender of Shares of any particular stockholder, whether or not similar
defects or irregularities are waived in the case of other stockholders. No
tender of Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived.
None of the Subsidiary, MedPartners, any of their affiliates or assigns,
the Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. The Subsidiary's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints the Purchaser, its officers
and its designees, and each of them, as the stockholder's attorneys-in-fact and
proxies, with full power of substitution, in the manner set forth in the Letter
of Transmittal, to the full extent of such stockholder's rights with respect to
the Shares tendered by such stockholder and accepted for payment by the
Purchaser (and with respect to any and all other Shares or other securities
issued or issuable in respect of the Shares on or after August 14, 1997). All
such powers of attorney and proxies shall be considered irrevocable and coupled
with an interest in the tendered Shares. Such appointment will be effective if,
when and only to the extent that, the Purchaser accepts such Shares for payment.
Upon such acceptance for payment, all prior powers of attorney and proxies given
by the stockholder with respect to the Shares (and such other Shares and
securities) will, without further action, be revoked, and no subsequent powers
of attorney, proxies or written consents may be given or executed (and if given
or executed will not be deemed effective with respect thereto by the
stockholder). The Subsidiary, its officers and its designees will, with respect
to the Shares (and such other Shares and securities) for which such appointment
is effective, be empowered to exercise all voting and other rights of the
stockholder as they in their sole discretion may deem proper at any annual or
special meeting of the Company's stockholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or otherwise. The
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<PAGE> 10
Subsidiary reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon the Subsidiary's payment for such Shares, the
Subsidiary must be able to exercise full voting rights with respect to such
Shares and other securities, including voting at any meeting of stockholders.
Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may be
required to withhold 31% of the amount of any payments of cash pursuant to the
Offer. In order to avoid backup withholding, each stockholder surrendering
Shares in the Offer to the extent not previously provided must provide the payor
of such cash with the stockholder's correct taxpayer identification number
("TIN") on a Substitute Form W-9 and certify under penalties of perjury that
such TIN is correct and that the stockholder is not subject to backup
withholding. Certain stockholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
If a stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service ("IRS") may impose
a penalty on the stockholder and payment of cash to the stockholder pursuant to
the Offer may be subject to backup withholding. All stockholders surrendering
Shares pursuant to the Offer should complete and sign the Substitute Form W-9
included in the Letter of Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Depositary).
Non-corporate foreign stockholders should complete and sign a Form W-8,
Certificate of Foreign Status (a copy of which may be obtained from the
Depositary), in order to avoid backup withholding. See Instruction 9 of the
Letter of Transmittal.
Other Requirements. The Subsidiary's acceptance for payment of Shares
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering stockholder and the Subsidiary upon the
terms and subject to the conditions of the Offer, including the tendering
stockholder's representation and warranty that such stockholder is the owner of
the Shares within the meaning of, and that the tender of the Shares complies
with, Rule 14e-4 under the Exchange Act.
SECTION 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the
Offer are irrevocable, except that Shares tendered pursuant to the Offer may be
withdrawn at any time on or prior to the Expiration Date and unless already
accepted for payment by the Subsidiary pursuant to the Offer, may also be
withdrawn at any time after October 20, 1997. If the Subsidiary is delayed in
its acceptance for payment of Shares or is unable to purchase Shares validly
tendered pursuant to the Offer for any reason, then, without prejudice to the
Subsidiary's rights under the Offer, tendered Shares may be retained by the
Depositary on behalf of the Subsidiary, and may not be withdrawn except to the
extent that tendering stockholders are entitled to withdrawal rights as set
forth in this Section 4; subject, however, to the Subsidiary's obligation,
pursuant to Rule 14e-1(c) under the Exchange Act, to pay for the tendered Shares
or return those Shares promptly after termination or withdrawal of the Offer.
Any such delay will be accompanied by an extension of the Offer to the extent
required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If Share Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such Share Certificates, the serial numbers shown on such Share
Certificates must be submitted to the Depositary and the signature(s) on the
notice of withdrawal must be guaranteed by an Eligible Institution, unless such
Shares have been tendered for the account of an Eligible Institution. If Shares
have been tendered pursuant to the procedure for book-entry transfer as set
forth in Section 3, any notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Subsidiary, in its sole
discretion, whose determination will be final and binding. None of the
Subsidiary, MedPartners, any of their affiliates or assigns, the Depositary, the
Information Agent or any other
8
<PAGE> 11
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described in Section 3.
SECTION 5. CERTAIN U.S. FEDERAL INCOME TAX MATTERS. The summary of tax
consequences set forth below is for general information only and is based on the
law as currently in effect, including modifications made by the Taxpayer Relief
Act of 1997. The tax treatment of each stockholder will depend in part upon such
stockholder's particular situation. Special tax consequences not described
herein may be applicable to particular classes of taxpayers, such as financial
institutions, broker-dealers, persons who are not citizens or residents of the
United States, stockholders who acquired their Shares through the exercise of an
employee stock option or otherwise as compensation and persons who received
payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
LAWS AND CHANGES IN SUCH TAX LAWS.
The receipt of cash pursuant to the Offer or the Merger will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended, and may also be a taxable transaction under applicable state,
local, foreign income or other tax laws. Generally, a tendering stockholder will
recognize gain or loss in an amount equal to the difference between the cash
received by the stockholder pursuant to the Offer or the Merger and the
stockholder's adjusted tax basis in the Shares tendered and purchased pursuant
to the Offer or the Merger. Gain or loss is computed separately for each block
of Shares (Shares which were purchased at the same time and price) sold. For
federal income tax purposes, such gain or loss will be a capital gain or loss if
the Shares are a capital asset in the hands of the stockholder, and a long-term
capital gain or loss if the stockholder meets one of the holding periods set
forth below as of the date the Subsidiary accepts such Shares for payment
pursuant to the Offer or the effective date of the Merger, as the case may be.
There are significant limitations on the deductibility of capital losses by
individuals or corporations. Capital losses can offset capital gains on a
dollar-for-dollar basis and, in the case of an individual stockholder, capital
losses in excess of capital gains can be deducted to the extent of $3,000
annually. An individual can carry forward unused capital losses indefinitely. A
corporation can utilize capital losses only to offset capital gain income; a
corporation's unused capital losses can be carried back three years and forward
five years.
Pursuant to the Tax Relief Act of 1997, long-term capital gains recognized
after July 28, 1997, on marketable securities such as the Shares, will be
taxable at a maximum rate of 20% for individuals if the individual's holding
period is more than 18 months and 28% if the holding period is more than one
year but not more than 18 months, and 35% for corporations. Ordinary income is
taxable at a maximum rate of 39.6% for individuals and 35% for corporations.
SECTION 6. PRICE RANGE OF THE COMPANY'S COMMON STOCK; DIVIDENDS. Shares
of the Company's common stock are traded in the Nasdaq National Market under the
symbol "TMMC." At August 18, 1997 there were 77 holders of record. The Company
went public through an offering of rights to purchase the common stock. Each
such right entitled the holder to purchase one share of Common Stock at a price
of $21.50. The rights were traded in the Nasdaq National Market from April 21,
1997 to May 20, 1997. The rights closed at $20.50 on the initial day of trading,
reached a high closing price of $20.50 and a low closing sale price of $13.63.
Shares of common stock began trading in the Nasdaq National Market on May 21,
1997, and closed at a sale price of $40.94 per share. Based on information
provided by the Company, the following table sets forth, for the periods
indicated, the high and low closing sale price per share of
9
<PAGE> 12
common stock subsequent to the day trading commenced. The sale prices per share
of common stock set forth below are as reported in published financial sources
and do not include commissions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ending December 31, 1997:
First Quarter(1)............................................ -- --
Second Quarter(1)........................................... $48.00 $40.94
Third Quarter (through August 19, 1997)..................... $62.38 $45.00
</TABLE>
- - ---------------
(1) The Common Stock was not publicly traded prior to May 21, 1997.
The Company has not paid any cash dividends since its formation.
On August 13, 1997, the last full day of trading prior to the public
announcement of the execution of the Merger Agreement, the reported closing sale
price per Share as reported on the Nasdaq National Market was $57.00. On August
18, 1997, two trading days prior to commencement of the Offer, the reported
closing sale price per share as reported on the Nasdaq was $62.25. STOCKHOLDERS
ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY.
The information concerning the Company contained in this Offer to Purchase,
including financial information, has been taken from or based upon publicly
available documents and records on file with the Commission and other public
services. Neither MedPartners nor the Subsidiary assumes any responsibility for
the accurateness or completeness of the information concerning the Company
contained in such documents and records or for any failure by the Company to
disclose events which may have occurred or may affect the significance or
accuracy of any such information but which are unknown to MedPartners or the
Subsidiary.
General. The Company is a Delaware corporation with its headquarters
located at 3540 Howard Way, Costa Mesa, California, 92626. The telephone number
of the Company at such offices is (714) 436-4800.
The Company, through its wholly-owned physician practice management
subsidiary, Talbert Medical Management Corporation ("TMMC"), organizes and
manages physician and dental practice groups that contract with health
maintenance organizations and other payors to provide health care services to
their members.
Financial Information. Set forth below is certain selected financial
information with respect to the Company and its subsidiaries, excerpted or
derived from the information contained in the audited financial statements for
the years ended December 31, 1996, 1995 and 1994 contained in the Company's
Prospectus (the "Prospectus") dated April 21, 1997, as filed with the Commission
under Rule 424(b) under the Securities Act of 1933, as amended, on April 18,
1997, and the unaudited financial statements for the six months ended June 30,
1997 contained in the Company's Quarterly Report on Form 10-Q filed with the
Commission on August 12, 1997.
10
<PAGE> 13
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------ ENDED
1994 1995 1996 JUNE 30, 1997
-------- -------- -------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue....................................... $455,787 $495,699 $460,546 $206,624
Loss before income tax benefit...................... (27,681) (48,362) (12,066) (19,370)
Net loss............................................ (16,332) (28,608) (7,979) (17,647)
PER SHARE DATA:
Loss per common and common equivalent share(1)...... $ (5.45) $ (9.55) $ (2.66) $ (5.79)
BALANCE SHEET DATA:
Working capital..................................... $(18,742) $(18,638) $(16,110) $ 30,295
Total assets........................................ 23,087 23,178 86,699 103,370
Long-term obligations............................... -- -- -- --
Stockholders' equity (deficit)...................... (18,113) (17,886) (5,537) 44,433
</TABLE>
- - ---------------
(1) Loss per common and common equivalent share is computed based on 2,996,104
common equivalent shares for the years ended December 31, 1994, 1995 and
1996, and 3,044,555 common equivalent shares for the six months ended June
30, 1997.
Available Information. The Common Stock and associated rights are
registered under the Exchange Act. Accordingly, the Company is subject to the
information and reporting requirements of the Exchange Act and in accordance
therewith is obligated to file periodic reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. Information as of particular dates concerning the Company's
directors and officers, their remuneration, stock options granted to them, the
principal holders of the Company's securities and any material interest of such
persons in transactions with the Company is required to be disclosed in such
proxy statements and distributed to the Company's stockholders and filed with
the Commission. These reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection and copying at prescribed rates at the
regional offices of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of this material may also be obtained by
mail, upon payment of the Commission's customary fees, from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov. In addition, such material should also be available for
inspection at Talbert Medical Management Holdings Corporation, 3540 Howard Way,
Costa Mesa, California, 92626.
A copy of this Offer to Purchase, and certain of the agreements referred to
herein, are attached to the Subsidiary's Tender Offer Statement on Schedule
14D-1, dated August 20, 1997 (the "Schedule 14D-1"), which has been filed with
the Commission. The Schedule 14D-1 and the exhibits thereto, along with such
other documents as may be filed by the Subsidiary with the Commission, may be
examined and copied from the offices of the Commission in the manner set forth
above.
SECTION 8. CERTAIN INFORMATION CONCERNING THE SUBSIDIARY AND
MEDPARTNERS. General. The Subsidiary, a newly incorporated Delaware
corporation and a wholly-owned subsidiary of MedPartners, was organized in
connection with the Offer and has not carried on any activities to date other
than in connection with the Offer and the Merger Agreement. The principal
executive office of the Subsidiary is located at 3000 Galleria Tower, Suite
1000, Birmingham, Alabama 35244, and the telephone number at such office is
(205) 733-8996. The principal executive office of MedPartners is located at
11
<PAGE> 14
3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244, and the telephone
number at such office is (205) 733-8996.
MedPartners. MedPartners is the largest physician practice management
("PPM") company in the United States, based on revenues. MedPartners develops,
consolidates and manages comprehensive integrated healthcare delivery systems,
consisting of primary care and specialty physicians, as well as the nation's
largest group of physicians engaged in the delivery of emergency medicine and
other hospital-based services. MedPartners provides services to prepaid managed
care enrollees and fee-for-service patients in 34 states through its network of
over 12,400 affiliated physicians. As an integral part of the PPM business,
MedPartners operates one of the nation's largest independent pharmacy benefit
management ("PBM") programs and provides disease management services and
therapies for patients with certain chronic conditions.
MedPartners affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to managed care payor systems. MedPartners enhances clinic
operations by centralizing administrative functions and introducing management
tolls, such as clinical guidelines, utilization review and outcomes measurement.
MedPartners provides affiliated physicians with access to capital and advanced
management information systems. In addition, MedPartners contracts with health
maintenance organizations and other third-party payors that compensate
MedPartners and its affiliated physicians on a prepaid basis (collectively,
"HMOs"), as well as hospitals and outside providers on behalf of its affiliated
physicians. These relationships provide physicians with the opportunity to
operate under a variety of payor arrangements and increase their patient flow.
MedPartners also operates the largest hospital-based physician ("HBP") group in
the country with over 2,200 physicians providing emergency medicine, radiology,
anesthesiology, primary care and other hospital-based physician services. In
addition, MedPartners provides comprehensive medical care for inmates at various
correctional institutions and for military personnel and their dependents at
facilities owned by the Department of Defense.
MedPartners manages outpatient prescription drug benefit programs for
clients throughout the United States, including corporations, insurance
companies, unions, government employee groups and managed care organizations.
MedPartners dispenses over 44,000 prescriptions daily through four mail service
pharmacies and manages patients' immediate prescription needs through a network
of retail pharmacies. MedPartners is in the process of integrating its PBM
program with the PPM business by providing pharmaceutical services to affiliated
physicians, clinics and HMOs. MedPartners' disease management services are
intended to meet the healthcare needs of individuals with chronic diseases or
conditions. These services include the design, development and management of
comprehensive programs that comprise drug therapies, physician support and
patient education. MedPartners currently provides therapies and services for
individuals with such conditions as hemophilia, growth disorders, immune
deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.
Financial Information. Set forth below is certain selected consolidated
financial information relating to MedPartners and its subsidiaries for
MedPartners' last five fiscal years. More comprehensive financial information
(including management's discussion and analysis of financial condition and
results of operations) is included in the reports and other documents filed by
MedPartners with the Commission. The following financial information is
qualified in its entirety by reference to such reports and other documents,
including the financial statements and related notes contained therein.
12
<PAGE> 15
MEDPARTNERS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $1,484,027 $1,980,967 $2,909,024 $3,908,717 $5,222,019 $2,524,407 $3,028,533
Income (loss) from continuing
operations....................... 25,351 55,017 63,510 32,189 (76,790) 42,393 46,445
Income (loss) from discontinued
operations....................... 5,858 30,808 25,902 (136,528) (68,698) (68,698) (75,434)
Net income (loss).................. 31,209 85,825 89,412 (104,339) (145,488) (26,305) (28,989)
Income (loss) per share from
continuing operations(1)......... 0.24 0.42 0.43 0.20 (0.44) 0.25 0.25
Income (loss) per share from
discontinued operations(1)....... 0.05 0.24 0.18 (0.86) (0.39) (0.40) (0.40)
Net income (loss) per share(1)..... 0.29 0.66 0.61 (0.66) (0.83) (0.15) (0.15)
Number of shares used in net income
(loss) per share................. 107,460 130,903 146,773 158,109 174,269 171,889 187,192
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 40,249 $ 44,852 $ 101,101 $ 87,581 $ 127,397 $ 134,162
Working capital................................ 158,634 251,736 180,198 286,166 226,409 277,766
Total assets................................... 832,671 1,117,557 1,682,345 1,964,130 2,423,120 2,661,509
Long-term debt, less current portion........... 92,873 177,141 394,811 541,391 715,996 926,524
Total stockholders' equity..................... 395,441 496,455 663,974 674,442 837,408 853,061
</TABLE>
- - ---------------
(1) Income (loss) per share amounts are computed by dividing income (loss) by
the number of common equivalent shares outstanding during the periods
presented in accordance with the applicable rules of the Commission. All
stock options issued have been considered as outstanding common equivalent
shares for all periods presented, even if anti-dilutive, under the treasury
stock method. Shares of Common Stock issued in February 1995 upon conversion
of the then outstanding convertible preferred stock are assumed to be common
equivalent shares for all periods presented.
The name, citizenship, business address, principal occupation or employment
and five year employment history of each of the directors and executive officers
of the Subsidiary and MedPartners are set forth in Schedule I to this Offer to
Purchase.
None of the Subsidiary, MedPartners nor, to the best knowledge of the
Subsidiary and MedPartners, any of the persons listed on Schedule I or any
associate or wholly-owned or majority-owned subsidiary of the Subsidiary,
MedPartners or any of the persons so listed, beneficially owns or has a right to
acquire directly or indirectly any Shares. None of the Subsidiary, MedPartners
nor, to the best knowledge of the Subsidiary and MedPartners, any of the persons
or entities referred to above, or any of the respective executive officers,
directors or subsidiaries of any of the foregoing, has effected any transactions
in the Shares during the past sixty (60) days.
Except as described in this Offer to Purchase, none of the Subsidiary,
MedPartners or, to the best knowledge of the Subsidiary and MedPartners, any of
the persons listed on Schedule I, has any contract, arrangement, understanding
or relationship with any other person with respect to any securities of the
Company, including but not limited to contracts, arrangements, understandings or
relationships concerning the transfer or voting of such securities, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies. Except as set
forth in this Offer to Purchase, none of the Subsidiary, MedPartners or, to the
best knowledge of the Subsidiary and MedPartners, any of the persons listed on
Schedule I, has had any business relationships or transactions with the Company
or any of its executive officers, directors or affiliates that are required to
be reported under the rules and
13
<PAGE> 16
regulations of the Commission applicable to the Offer. Except as set forth in
this Offer to Purchase, there have been no contacts, negotiations or
transactions between any of MedPartners, the Subsidiary or, to the best
knowledge of the Subsidiary and MedPartners, any of the persons listed on
Schedule I, on the one hand, and the Company or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale or other transfer
of a material amount of assets.
Available Information. MedPartners is subject to the information and
reporting requirements of the Exchange Act and in accordance therewith is
obligated to file certain information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning MedPartners' directors and officers, their remuneration, stock
options granted to them, the principal holders of MedPartners' securities and
any material interests of such persons in transactions with MedPartners is
contained in that information. This information may be inspected and copies may
be obtained from the offices of the Commission in the same manner as set forth
with respect to information about the Company in Section 7. Such information
concerning MedPartners can be inspected at the offices of The New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
SECTION 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required
by the Subsidiary and MedPartners to consummate the Offer and the Merger
(including the cash out of stock options as described in Section 11) and to pay
related fees and expenses (approximately $2 million) is estimated to be
approximately $200 million.
The Subsidiary will obtain all necessary funds through capital
contributions or advances to be made by MedPartners. MedPartners has sufficient
funds available to it, from cash on hand and from available credit under its
existing $1.0 billion credit facility ("Credit Facility") with NationsBank,
National Association, as administrative agent to a group of lenders and other
sources, to fund fully all of its requirements and the Subsidiary's requirements
in connection with the Offer and the Merger. MedPartners may borrow up to an
aggregate amount of $1.0 billion under the Credit Facility for general corporate
purposes, including transactions contemplated by the Offer.
At MedPartners' option, pricing on the Credit Facility is based on either a
debt to cash flow test or MedPartners' senior debt ratings. No principal is due
on the facility until its maturity date of September 2001. As of June 30, 1997,
there was $383 million outstanding under the facility. The Credit Facility
contains affirmative and negative covenants which include requirements that
MedPartners maintain certain financial ratios (including minimum net worth,
minimum fixed charge coverage ratio and maximum indebtedness to cash flow), and
establishes certain restrictions on investments, mergers and sales of assets.
Additionally, MedPartners is required to obtain bank consent for acquisitions
with an aggregate purchase price in excess of $75 million and for which more
than half of the consideration is to be paid in cash. The Credit Facility is
unsecured but provides a negative pledge on substantially all assets of
MedPartners. As of June 30, 1997, MedPartners was in compliance with the
covenants in the Credit Facility.
MedPartners anticipates that any indebtedness incurred through borrowings
under the Credit Facility will be repaid from a variety of sources, which may
include, but may not be limited to, funds generated internally by MedPartners
and its affiliates (including, following the Merger, funds generated by the
Surviving Corporation). No decision has been made concerning the method
MedPartners will employ to repay such indebtedness. Such decision will be made
based on MedPartners' review from time to time of the advisability of particular
actions, as well as on prevailing interest rates and financial and other
economic conditions and such other factors as MedPartners may deem appropriate.
THE OFFER IS NOT CONDITIONED UPON THE SUBSIDIARY OBTAINING FINANCING.
SECTION 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.
Background. The Company was separated from FHP International Corporation
("FHP") in May 1997 in conjunction with the merger of FHP and PacifiCare Health
Services, Inc. (the "FHP Merger"). In connection with MedPartners ongoing
expansion of its PPM business, MedPartners management kept it
14
<PAGE> 17
informed as to the progress of the FHP Merger and after the Company became a
publicly traded company, developed an interest in a possible combination.
On July 11, 1997, Larry R. House, Chairman of the Board and Chief Executive
Officer of MedPartners, met with Jack D. Massimino, the Company's President and
Chief Executive Officer. Mr. House and Mr. Massimino discussed generally the
operations and business strategy of the two companies and the potential
desirability of a combination. The pricing phase of their discussion focused on
consideration of an all cash tender offer at a substantial premium to the
Company's market price.
On July 18, 1997 Mark L. Wagar, the President and Chief Operating Officer
of MedPartners, and Kent Marquardt, the Chief Operating Officer for West Coast
Operations of MedPartners, met with Mr. Massimino and Kenneth S. Ord, the
Company's Executive Vice President and Chief Financial Officer. The parties
discussed information concerning, among other matters, the Company's medical
center locations and certain financial performance information.
On July 23, 1997, the Company and MedPartners executed the Confidentiality
Agreement.
On July 24, 1997, representatives of MedPartners began due diligence at the
offices of the Company's outside counsel. On July 25, 1997, Mr. Ord and Walter
R. Stone, the Company's Vice President of Finance, met with representatives of
MedPartners to discuss the Company's financial performance, and on July 26,
1997, a meeting was held in which members of the senior management of the
Company answered questions from representatives of MedPartners. Informational
discussions and meetings continued during the week of July 28.
On July 29, 1997, Mr. Massimino and Mr. Ord met with Mr. Wagar in person
and Michael S. Faulkner, Vice President of Finance, Mergers and Acquisitions, of
MedPartners by telephone and discussed the potential terms of a transaction.
On August 1, 1997, the Company received a non-binding letter of intent from
MedPartners proposing to acquire all outstanding Shares of the Company for
$63.00 per share, subject to legal and financial due diligence.
On August 5, 1997, at a special meeting of the Company's Board of
Directors, the directors reviewed the letter from MedPartners and reviewed with
Smith Barney, the Company's financial advisor, certain matters relating to the
financial aspects of the proposal from MedPartners. The Board authorized the
Company's management to pursue a definitive agreement with MedPartners to
present to the Board.
From August 5, 1997 until August 13, 1997, due diligence continued and
members of the Company's management met with MedPartners' representatives to
answer questions and explain material documents. On August 4, 1997, MedPartners
provided the Company and its counsel with a draft form of the Merger Agreement.
Between August 8, 1997 and August 13, 1997, the Company's counsel had a series
of meetings with J. Brooke Johnston, Jr., Senior Vice President and General
Counsel of the Parent, to negotiate the terms of a definitive agreement.
On August 12, the Company's Board of Directors met to hear reports from the
management and outside counsel concerning the status of discussions with
MedPartners.
Counsel for MedPartners and the Company concluded negotiating the
definitive agreements on August 13, 1997. That evening at a special meeting of
the Board of Directors of the Company, the Board of Directors approved the Offer
and the Merger by unanimous vote of the directors present. The parties executed
the Merger Agreement and announced such execution prior to the opening of
securities market trading on August 14, 1997.
To the extent any of the foregoing background describes events to which
MedPartners was not a party, it is based upon information provided by the
Company.
15
<PAGE> 18
SECTION 11. PURPOSE OF THE OFFER; MERGER AGREEMENT; PLANS FOR THE COMPANY.
Purpose of the Offer. The purpose of the Offer, the Merger and the Merger
Agreement is to enable MedPartners to acquire control of the entire equity
interest of the Company. Upon consummation of the Merger, the Company will
become a wholly-owned subsidiary of MedPartners. The Offer is being made
pursuant to the Merger Agreement.
Merger Agreement. The following is a summary of certain provisions of the
Merger Agreement. This summary does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, which is incorporated
herein by reference and a copy of which has been filed with the Commission as an
exhibit to the Schedule 14D-1. In particular, when the term material adverse
effect is used herein it has the meaning as defined in the Merger Agreement. The
Merger Agreement may be examined and copies may be obtained at the place and in
the manner set forth in Section 7 of this Offer to Purchase.
The Offer. The Merger Agreement provides that the Subsidiary will commence
the Offer not later than the fifth business day from the public announcement of
the execution of the Merger Agreement. The obligation of the Subsidiary to
commence the Offer and pay for any Shares tendered is subject to certain
conditions. See "-- Conditions to the Offer." The Merger Agreement provides that
the Subsidiary may in its sole discretion modify the terms and conditions of the
Offer, or waive certain conditions to the Offer. However, without the Company's
prior written consent, the Subsidiary cannot reduce the per Share amount, change
the form of consideration payable in the Offer, reduce the number of Shares
subject to the Offer, allow the Offer to expire before September 19, 1997, add
to or modify the conditions to the Offer set forth in the Merger Agreement, or
make any other modifications that are otherwise materially adverse to the
holders of Shares. The Subsidiary may, without the consent of the Company,
extend the term of the Offer on one or more occasions beyond the scheduled
expiration date if any of the conditions to the Subsidiary's obligation to
consummate the Offer have not been satisfied or waived by that date, provided
that the Subsidiary may not extend the Offer for a total of more than 60 days
from the commencement of the Offer. The Subsidiary may also extend the Offer for
a period not to exceed ten business days, notwithstanding that all conditions to
the Offer are satisfied as of that date, if the number of Shares tendered at
that date equal more than 75% but less than 90% of the outstanding Shares.
The Minimum Condition. One of the conditions to the Offer is that there
must be validly tendered and not withdrawn at least 51% (determined on a fully
diluted basis) of the outstanding Shares (the "Minimum Condition"). The Company
has informed the Subsidiary that, as of August 14, 1997, there were 3,000,758
Shares issued and outstanding, of which 174,252 shares of Common Stock were
reserved for future issuance pursuant to outstanding stock options, and that,
except as otherwise disclosed in the Merger Agreement, no other stock of the
Company is outstanding or committed to be issued. Based on this information and
assuming all outstanding options to purchase shares of Common Stock will have
been accelerated so as to be fully exercisable prior to the consummation of the
Offer, the Subsidiary believes that the Minimum Condition will be satisfied if
the Subsidiary acquires at least 1,619,256 Shares in the Offer. MedPartners does
not directly or indirectly hold any Shares.
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Conditions to the Offer. The Subsidiary is not required to accept for
payment or (subject to any applicable rules and regulations of the Commission)
to pay for Shares tendered pursuant to the Offer unless (i) the Minimum
Condition is satisfied, and (ii) any applicable waiting period under the HSR Act
has expired or been terminated. In addition, the Subsidiary is not obligated to
consummate the Offer if, at any time on or after the date of the Merger
Agreement and before the acceptance of Shares for payment, any of the following
events has occurred (other than as a result of the action or inaction of
MedPartners or any of its subsidiaries that constitutes a breach of the Merger
Agreement):
(a) any order, injunction, judgment or ruling in any legal proceeding
is entered that (i) makes illegal or otherwise restrains or prohibits the
acquisition by MedPartners or the Subsidiary of any Shares under the Offer
or the making or consummation of the Offer or the Merger, the performance
by the Company of any of its obligations under the Merger Agreement or the
consummation of any purchase of Shares contemplated thereunder, (ii)
prohibits or limits the ownership or operation by the Company, MedPartners
or any of their respective subsidiaries of a material portion of the
business or assets of the Company and its subsidiaries, taken as a whole,
or MedPartners and its subsidiaries, taken as a whole, or compels the
Company or MedPartners to dispose of or hold separate any material portion
of the business or assets of the Company and its subsidiaries, taken as a
whole, or MedPartners and its subsidiaries, taken as a whole, as a result
of the Offer or the Merger, (iii) imposes material limitations on the
ability of MedPartners or the Subsidiary to acquire or hold, or exercise
full rights of ownership of, any Shares accepted for payment pursuant to
the Offer including, without limitation, the right to vote such Shares on
all matters properly presented to the stockholders of the Company or (iv)
prohibits MedPartners or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the
Company and its subsidiaries, taken as a whole; or
(b) any law is enacted, entered, enforced or deemed applicable to the
Offer or the Merger, or any other action is taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that results in any of the consequences
referred to in paragraph (a) above; or
(c) any material adverse change to the Company occurs; or
(d) (i) the Board of Directors of the Company or any committee thereof
withdraws or modifies in a manner adverse to MedPartners or the Subsidiary
its approval or recommendation of the Offer, the Merger or the Merger
Agreement, or approves or recommends any other acquisition proposal or (ii)
the Company enters into any agreement to consummate any acquisition
proposal; or
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality are not true
and correct or any such representations and warranties that are not so
qualified are not true and correct in any respect that is reasonably likely
to have a material adverse effect, in each case at the date of the Merger
Agreement and at the scheduled expiration of the Offer; or
(f) the Company fails to perform in any material respect any material
obligation or to comply in any material respect with any material agreement
or material covenant of the Company to be performed or complied with by it
under the Merger Agreement; or
(g) there has occurred and continues for three business days (i) any
general suspension of trading in, or limitation on prices for, securities
on the New York Stock Exchange (excluding any coordinated trading halt
triggered solely as a result of a specified decrease in a market index),
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) commencement of a war or armed
hostilities or other national or international calamity involving the
United States which is reasonably expected to have a material adverse
effect or to materially adversely affect the Parent's or the Subsidiary's
ability to complete the Offer or the Merger or materially delay the
consummation of the Offer, the Merger or both or (iv) in case of any of the
foregoing existing on the date of the Merger Agreement, material
acceleration or worsening thereof occurs and continues to exist for at
least three business days; or
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(h) the Merger Agreement terminates in accordance with its terms.
For purposes of the Merger Agreement, "material adverse change" or "material
adverse effect" means with reference to a party any change, effect, event or
occurrence that has or is reasonably likely to have a material adverse impact on
the business or financial position of such party and its subsidiaries and other
controlled entities, taken as a whole. However, the meaning of "material adverse
change" or "material adverse effect" excludes (i) changes in generally accepted
accounting principles, (ii) changes in applicable law, (iii) changes or effects
of any kind that impact the party's industry generally, or, as to the Company,
Southern California, (iv) changes in Medicare reimbursement rates, (v) changes
or effects arising from the announcement of the Merger Agreement or from any
party's performance under the Merger Agreement, and (vi) any changes resulting
from any restructuring or other similar charges or write-offs taken by the
Company with the consent of MedPartners.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, and in accordance with the DGCL, the Subsidiary will be
merged with and into the Company not later than the second business day after
the satisfaction or waiver of the conditions set forth in the Merger Agreement.
The Merger will become effective upon the filing of a Certificate of Merger with
the Secretary of State of the State of Delaware (the "Effective Time"). As a
result of the Merger, the separate corporate existence of the Subsidiary will
cease, and the Company will continue as the surviving corporation (the
"Surviving Corporation"). In the Merger, each issued and outstanding Share
(other than Shares owned directly or indirectly by MedPartners or any of its
subsidiaries or by the Company as treasury stock, and other than Shares owned by
stockholders who have properly exercised rights of appraisal under the DGCL)
will be converted into the right to receive $63.00 per Share, without interest,
and each issued and outstanding share of common stock of the Subsidiary will be
converted into one fully paid and nonassessable shares of common stock of the
Surviving Corporation (which will constitute the only issued and outstanding
capital stock of the Surviving Corporation).
The Merger Agreement provides that the Certificate of Incorporation and
By-laws of the Subsidiary at the Effective Time will be the certificate of
incorporation and by-laws of the Surviving Corporation until amended in
accordance with applicable law. The Merger Agreement also provides that the
directors and officers of the Subsidiary at the Effective Time will be the
directors and officers of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
promptly upon the purchase of Shares by the Subsidiary pursuant to the Offer,
seven of the Company's nine directors will resign, and MedPartners will
designate three replacements for appointment or election to the Company's Board
of Directors. The Company will, upon request of the Subsidiary, use its best
efforts promptly to cause MedPartners' designees to be so appointed or elected.
The remaining two directors (and any successors appointed or elected before the
Effective Time) are referred to as the "Original Directors." Once MedPartners'
designees constitute a majority of the Company's Board of Directors, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension of time for performance of any of the obligations of
MedPartners or the Subsidiary thereunder, any waiver of any condition or any of
the Company's rights thereunder or other action by the Company thereunder may be
effected only by the joint action of the Original Directors. In connection with
the appointment of MedPartners' designees to the Board of Directors, the Company
has agreed to comply with Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder.
Rights Agreement. Pursuant to the Merger Agreement, the Rights Agreement
was amended so that the Rights will not be distributed and do not become
exercisable as a consequence of the execution, announcement or consummation of
the transactions contemplated by the Merger Agreement.
Recommendation. In the Merger Agreement, the Company states that its Board
of Directors has, by unanimous vote of those present, (i) determined that the
Offer and the Merger are fair to and in the best interests of the stockholders
of the Company and (ii) resolved to recommend acceptance of the Offer and
approval and adoption of the Merger Agreement and the Merger by the stockholders
of the Company.
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Interim Operations. In the Merger Agreement, the Company has agreed to use
its commercially reasonable best efforts to preserve the business organization
of the Company intact, to keep available the services of the present employees
of the Company, and to preserve the goodwill of the suppliers, customers and
others having business relations with the Company. In addition, other than as
contemplated by the Merger Agreement and the related documents (including the
schedules thereto) or without the prior written consent of MedPartners, which
consent will not be unreasonably withheld, each of the Company and its
subsidiaries will not (other than in the ordinary course of business and
consistent with past practice or with respect to binding commitments entered
into before the date of the Merger Agreement):
(a) Encumber any material asset or enter into any material
transactions or make any material contract or commitment relating to the
properties, assets and business of the Company.
(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to the Company.
(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$100,000.
(d) Make any payment or distribution to the trustee under any bonus,
pension, profit-sharing or retirement plan or incur any obligation to make
any such payment or contribution which is not in accordance with the
Company's usual past practice, or, except as required pursuant to the
Employee Benefits and Compensation Allocation Agreement dated as of
February 14, 1997 between the Company and FHP, make any payment or
contributions or incur any obligation pursuant to or in respect of any
other plan or contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement
payments, profit-sharing or the like, establish or enter into any such
plan, contract or arrangement, or terminate any plan.
(e) Extend credit to anyone.
(f) Guarantee the obligation of any person, firm or corporation.
(g) Amend its Certificate of Incorporation or By-laws.
(h) Discharge or satisfy any material lien or encumbrance, or pay or
satisfy any material obligation or liability (absolute, accrued, contingent
or otherwise) other than (i) liabilities shown or reflected on the
unaudited balance sheet dated June 30, 1997 included in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1997 (the
"Company Balance Sheet") or (ii) liabilities incurred or due since the date
of the Company Balance Sheet in the ordinary course of business, which
discharge or satisfaction would have a material adverse effect on the
Company.
(i) Increase or establish any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on the Company, except as may have been required due to
income or operations of the Company since the date of the Company Balance
Sheet.
(j) Mortgage, pledge or subject to any material lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the business or financial condition of the Company.
(k) Sell or transfer any of the assets material to the consolidated
business of the Company, cancel any material debts owed to the Company or
claims reflected as assets on the Company Balance Sheet, or waive any
material rights, except in the ordinary course of business.
(l) Grant any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable
by the Company to any officer or employee, consultant or agent (other than
normal increases consistent with past practices), or by means of any bonus
or pension plan, contract or other commitment, increased in a material
respect the compensation of any officer, employee, consultant or agent.
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(m) Except for the Merger Agreement and any other agreement executed
and delivered pursuant to the Merger Agreement, enter into any material
transaction other than in the ordinary course of business or permitted
under other sections of the Merger Agreement.
(n) Issue any stock (other than pursuant to the Stock Incentive Plans,
as defined in the Merger Agreement), bonds or other securities or any
options or rights to purchase any of its securities.
No Solicitation. In the Merger Agreement, the Company has agreed not to
directly or indirectly furnish information and access, in response to
unsolicited requests, to any third party, participate in discussions and
negotiate with such third party concerning any proposal to acquire such party
upon a merger, purchase of assets, purchase of or tender offer for shares of its
Common Stock or similar transaction (an "Acquisition Transaction"). However, if
prior to the acceptance for payment of Shares pursuant to the Offer, the Board
of Directors, after receiving advice from outside legal counsel to the Company,
determines that a failure to act would be inconsistent with its fiduciary duties
to the Company's stockholders under applicable law, the Company may (i) furnish
information about and access to the Company to any third party in response to an
unsolicited request pursuant to a confidentiality agreement with terms and
conditions similar to the Confidentiality Agreement (as defined below), (ii)
participate in discussions and negotiations regarding any potential Acquisition
Transaction, and/or (iii) terminate the Merger Agreement. The Company will
notify the Parent of any unsolicited request for information and access in
connection with a possible Acquisition Transaction involving a third party,
which notification will include the identity of the third party and the proposed
material terms of the possible Acquisition Transaction.
Directors' and Officers' Insurance; Indemnification. For a period of four
years after the Effective Time, MedPartners has agreed to cause the Surviving
Corporation to maintain in effect directors' and officers' liability insurance
covering those persons who are currently covered by the Company's directors' and
officers' liability insurance policy on terms (including coverage amounts)
comparable to those now applicable under the current Company policy, subject to
certain prescribed limits on premiums.
The Merger Agreement provides that all rights to indemnification for acts
and omissions occurring prior to the Effective Time existing as of the date of
the Merger Agreement in favor of the current or former directors, officers,
employees and agents (the "Indemnified Parties") of the Company and its
subsidiaries as provided in their respective certificates of incorporation and
bylaws (or similar organizational documents) will survive the Merger and
continue for at least six years after the Effective Time. Additionally, for not
less than six years after the Effective Time, MedPartners will, and will cause
the Subsidiary to, (i) indemnify and hold harmless the Indemnified Parties to
the full extent they may be indemnified by applicable law, their respective
certificates of incorporation or by-laws (or similar organizational documents)
or pursuant to indemnification agreements in effect as of the date of the Merger
Agreement for acts or omissions occurring prior to the Effective Time, and (ii)
advance litigation expenses incurred by the Indemnified Parties in connection
with defending any action arising out of such acts or omissions to the extent
permitted by law or as otherwise provided by such certificates of incorporation,
by-laws, similar organizational documents or indemnification agreements.
Share Repurchase. The Merger Agreement provides that, after the
consummation of the Offer but before the consummation of the Merger, the Company
will repurchase, from any current or former director or officer of the Company
who is terminated during such period, all Shares held by any such individual who
desires to sell such Shares.
Stock Incentive Plan. The Merger Agreement provides that the Company will
take all actions to provide that each outstanding stock option to purchase
shares of Common Stock (an "Option") under the Talbert Medical Management
Holdings Corporation 1996 Stock Incentive Plan (the "Stock Incentive Plan") will
be accelerated so as to be fully exercisable on or prior to the consummation of
the Offer. Options (other than Options granted under Article 7 of the Stock
Incentive Plan) therefore may be exercised, and the corresponding Common Stock
tendered pursuant to this Offer, except to the extent that such tender could
result in short-swing profit liability under Section 16(b) of the Exchange Act.
Options granted under Article 7 of the Stock Incentive Plan (other than Options
granted within six months of the termination of such Option) will be fully
exercisable upon consummation of the Offer and prior to any of the resignations
of the current
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<PAGE> 23
directors of the Company pursuant to the Merger Agreement. With respect to each
Option that remains outstanding immediately after the consummation of the Offer,
the Company, immediately after the consummation of the Offer, but prior to any
termination or resignation of the holder of such Option pursuant to the Merger
Agreement will pay to each such holder in connection with the surrender and
termination or settlement of such Options an amount in cash equal to the product
of (x) the number of shares of Common Stock then subject to the Option
multiplied by (y) the excess of the per Share amount over the per share exercise
price of the Option, less all applicable tax withholding. The Stock Incentive
Plan will terminate as of the Effective Time.
Management Incentive Program. In March 1997, the Company implemented an
executive bonus program (the "Management Incentive Program") for the year ending
December 31, 1997. Bonuses to participants are based on the achievement of
budgeted objectives and improvements to the quality of services provided to
members. Pursuant to the Merger Agreement and a letter agreement dated August
14, 1997 among MedPartners, the Subsidiary and the Company, MedPartners will
cause the Company and the Surviving Corporation to pay at the time of the
consummation of the Offer to each corporate-level employee currently
participating in the Company's Management Incentive Program cash awards
equivalent to the award that would have been received by the participants in
such program if calculated as of June 30, 1997. A copy of such letter agreement
is filed as Exhibit 6 to the Company's Schedule 14D-9 and incorporated herein by
reference.
Transition Bonus. Certain employees of the Company who do not participate
in the Company's Management Incentive Program will receive cash bonuses in the
amounts agreed to between the Company and MedPartners in another letter
agreement dated August 14, 1997. A copy of such letter agreement is filed as
Exhibit 7 to the Company's Schedule 14D-9 and incorporated herein by reference.
The bonuses will be paid from a $923,000 contribution from MedPartners. The
purpose of these cash bonuses is to reward such employees for remaining with the
Company in order to facilitate the transactions contemplated by the Merger
Agreement. The bonuses will be paid on January 1, 1998 to the listed employees
who are then employed by the Surviving Corporation or any of its affiliates. If
any listed employee is terminated before January 1, 1998 other than for cause,
the employee will be paid the designated amount on the effective date of
termination.
Other Provisions Relating to Employee Benefits. The Merger Agreement
provides that all service credited to each employee by the Company through the
Effective Time will be recognized by MedPartners for all purposes, including
eligibility, vesting and benefit accruals, under any employee benefit plan
provided by MedPartners or the Surviving Corporation for the benefit of the
employees. MedPartners further agrees not to take any action, or fail to take
any action, that would cause the Surviving Corporation not to honor (without
modification) and assume the employment agreements, executive termination
agreements and individual benefit arrangements of the Company.
Physician Warrant Agreements. In connection with the Merger, MedPartners
has agreed to enter into nontransferable warrant agreements (the "Physician
Warrant Agreements") with certain physicians (the "Physicians") who are employed
by the medical groups managed by Talbert Medical Management Corporation
("TMMC"), a wholly-owned subsidiary of the Company. Each Physician Warrant
Agreement provides that MedPartners will grant to the Physician party to such
agreement warrants with respect to an aggregate of 2,000 shares of the common
stock, par value $.001 per share, of MedPartners (the "Warrants"). Each Warrant
entitles the Physician to purchase one share of MedPartners' common stock. The
exercise price of the Warrants will be the average closing price of MedPartners'
common stock for the ten trading days preceding the date which is two days
before the Effective Time. A copy of the form of the Physician Warrant Agreement
is filed as Exhibit 8 to the Company's Schedule 14D-9 and incorporated herein by
reference.
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<PAGE> 24
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of the Company, MedPartners and the Subsidiary to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
the following conditions (any of which may be waived in writing by MedPartners,
the Purchaser and the Company, to the extent permitted by applicable law):
(i) None of MedPartners, the Subsidiary or the Company nor any of
their respective subsidiaries will be subject to any order, decree or
injunction by a United States federal or state court of competent
jurisdiction which prevents the consummation of the Merger.
(ii) No statute, rule or regulation will have been enacted or
promulgated by the government or any governmental agency of the United
States or any state that prohibits the consummation of the Merger.
(iii) The Subsidiary will have purchased and paid for the Shares
pursuant to the Offer.
(iv) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated.
(v) If required by law, the holders of shares of the Company's Common
Stock will have approved the adoption of the Merger Agreement.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Parent and the Subsidiary
with respect to, among other things, its organization, good standing,
capitalization, ownership of subsidiaries, foreign qualification, corporate
power, Commission reports and financial information, contracts, properties,
legal proceedings, events since June 30, 1997, accounts receivable, tax matters,
employee benefit plans, compliance with laws, regulatory approvals, and
commissions and fees. MedPartners and the Subsidiary have made customary
representations and warranties to the Company with respect to, among other
things, organization, good standing, corporate power, brokers, legal
proceedings, available funds, other transactions, and ownership of Shares.
Employment Agreements. The Company has entered into Change in Control
Employment Agreements with Jack D. Massimino, Kenneth S. Ord, Gloria L. Austin,
Becky J. Behlendorf, Jennifer M. Gutzmore, Regina B. Lightner, Peter W.
McKinley, Russell D. Phillips, Jr. and Walter R. Stone (the "Employment
Agreements"). In connection with the Merger, MedPartners has agreed to amend the
Employment Agreements (i) to remove certain contingent provisions relating to
the vesting of stock options which could have caused the vesting of a portion of
the executive's outstanding stock options to be deferred under certain
conditions and (ii) to revise the consideration that would be forfeited in the
event the executive does not enter into an agreed form of non-compete covenant
and settlement agreement. In addition, the Employment Agreements with Mr.
Massimino and Ms. Austin will be further amended by adding certain contingent
provisions relating to taxes, which provisions could result in certain payments
by MedPartners of certain additional amounts to Mr. Massimino and Ms. Austin not
to exceed $4,000,000.
Termination; Fees. The Merger Agreement may be terminated at any time
prior to the purchase of Shares pursuant to the Offer (i) by mutual written
consent of the Company, the Subsidiary and MedPartners; (ii) by either
MedPartners or the Company if a court of competent jurisdiction or governmental
entity issues a nonappealable final order, decree or ruling or takes any other
action having the effect of permanently restraining, enjoining or otherwise
prohibiting the Offer (or acceptance of or payment for Shares) or the Merger
(provided that the party seeking to terminate the Merger Agreement has used all
reasonable efforts to remove the order, decree or ruling or the taking of such
action); (iii) by either MedPartners or the Company if, before the purchase of
Company Shares in the Offer, there is, or is discovered, a material breach by
the other party of any representation, warranty, covenant or other agreement
contained in the Merger Agreement that cannot be or has not been cured within 10
days after the occurrence or discovery of such breach by the breaching party,
whichever is later (a "Material Breach") (provided that the terminating party is
not then in Material Breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement); (iv) by the Company if MedPartners
and the Subsidiary fail to commence the Offer in accordance with the Merger
Agreement, or if the Offer expires without the purchase of Shares pursuant to
the Offer; or (v) by the Company in response to a proposal from a third party
for an Acquisition Transaction.
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<PAGE> 25
If the Company terminates the Merger Agreement in response to a proposal
from a third party for an Acquisition Transaction, the Company will pay to
MedPartners, in immediately available funds, the sum of $8 million and will
promptly reimburse upon demand (up to a maximum amount of $2 million) all
documented out-of-pocket expenses incurred by MedPartners and the Subsidiary in
connection with the transactions contemplated by the Merger Agreement. In the
event Shares are not purchased pursuant to the Offer, MedPartners will pay to
the Company, in immediately available funds, the sum of $8 million and will
promptly reimburse upon demand therefore (up to a maximum amount of $2 million)
all documented out-of-pocket expenses incurred by the Company in connection with
the transactions contemplated by the Merger Agreement, unless such failure to
purchase Shares is attributable solely to (i) a court or other governmental
entity issuing an order or taking any other action permanently enjoining,
restraining or otherwise prohibiting the Offer or the Merger, which order has
become final and nonappealable (provided that the order or action is not the
result of any action or inaction by MedPartners or the Subsidiary that
constitutes a breach of the Merger Agreement and the party seeking to terminate
the Merger Agreement has used all reasonable efforts to remove the order or
other action), (ii) MedPartners' valid termination of the Merger Agreement by
reason of the Company's breach of a representation, warranty, covenant or
agreement set forth in the Merger Agreement, or (iii) a failure of a condition
set forth in the Merger Agreement by reason of any act, event or circumstance
that is beyond the control of MedPartners and the Subsidiary. All other costs
and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring the
expense.
Plans for the Company. MedPartners intends, upon acquiring control of the
Company, to continue to focus on the development of a national integrated health
care delivery system and continue to grow the markets in which the Company
already operates.
SECTION 12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE ACT
REGISTRATION AND MARGIN REGULATIONS. Depending upon the aggregate market value
and per Share price of any Shares not purchased pursuant to the Offer, following
the Offer the common stock may no longer meet the standards for continued
listing on the Nasdaq National Market, which requires an issuer to have at least
100,000 publicly held shares with an aggregate market value of at least
$5,000,000. common stock held by directors and officers (or their immediate
families) of the Company and other concentrated holdings of 10% or more of the
common stock outstanding generally will not be considered to be publicly held
for the purpose of the foregoing standards. In the event that the common stock
were no longer quoted on the Nasdaq National Market, it is possible that the
common stock could continue to trade in the over-the-counter market and that
quotations would continue to be reported through other sources. The extent of
the public market for the common stock and the availability of such quotations
would, however, depend upon the number of stockholders remaining at such time,
the interest in maintaining a market in the common stock on the part of
securities firms, the possible termination of registration of the common stock
under the Exchange Act, as described below, and other factors.
The Shares are currently registered under the Exchange Act. Such
registration of the Shares may be terminated upon application of the Company to
the Commission if the Shares are not listed on a national securities exchange or
quoted on Nasdaq National Market and there are fewer than 300 holders of record
of the Shares. Deregistration of the Shares under the Exchange Act would reduce
substantially the information required to be furnished by the Company to holders
of Shares and to the Commission and would render inapplicable certain of the
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), the requirement of Section 14(a) that the Company
furnish stockholders with proxy materials in connection with stockholders'
meetings and the requirements of Rule 13e-3 promulgated under the Exchange Act
with respect to "going private" transactions. Furthermore, "affiliates" of the
Company and persons holding "restricted securities" of the Company might be
deprived of the ability to dispose of Shares pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
If registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be "margin securities." It is the current intention of
MedPartners to cause the Company to deregister the Shares after the consummation
of the Offer if the requirements for termination of registration are met.
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The Shares currently are "margin securities" under the rules of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), which
has the effect, among other things, of allowing brokers to extend credit on the
collateral of the Shares. Depending upon factors similar to those described
above regarding listing and market quotations, it is possible that following the
Offer, the Shares would cease to constitute "margin securities" for the purpose
of the Federal Reserve Board's margin regulations and, therefore, could no
longer be used as collateral for margin loans made by brokers.
SECTION 13. CERTAIN CONDITIONS TO THE OFFER. The Subsidiary is not
required to accept for payment or (subject to any applicable rules and
regulations of the Commission) to pay for any Shares tendered pursuant to the
Offer unless (i) the Minimum Condition has been satisfied, and (ii) any
applicable waiting period under the HSR Act at any time prior to the Expiration
Date, has not expired or been terminated. In addition, the Subsidiary is not
obligated to consummate the Offer if, at any time on or after August 14, 1997
and before the acceptance of Shares for payment, any of the following events has
occurred (other than as a result of any action or inaction of MedPartners or any
of its subsidiaries which constitutes a breach of the Merger Agreement):
(a) any order, injunction, judgment or ruling in any legal proceeding
that (i) makes illegal or otherwise directly or indirectly restrains or
prohibits the acquisition by MedPartners or the Subsidiary of any Shares
under the Offer or the making or consummation of the Offer or the Merger,
the performance by the Company of any of its obligations under the Merger
Agreement or the consummation of any purchase of Shares contemplated
thereunder, (ii) prohibits or limits the ownership or operation by the
Company, MedPartners or any of their respective subsidiaries of a material
portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or MedPartners and its subsidiaries, taken as a whole, or
compels the Company or MedPartners to dispose of or hold separate any
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or MedPartners and its subsidiaries, taken
as a whole, as a result of the Offer or the Merger, (iii) imposes material
limitations on the ability of MedPartners or the Subsidiary to acquire or
hold, or exercise full rights of ownership of, any Shares accepted for
payment pursuant to the Offer including, without limitation, the right to
vote such Shares on all matters properly presented to the stockholders of
the Company or (iv) prohibits MedPartners or any of its subsidiaries from
effectively controlling in any material respect the business or operations
of the Company and its subsidiaries, taken as a whole; or
(b) any law is enacted, entered, enforced or deemed applicable to the
Offer or the Merger, or any other action is taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that results, in any of the consequences
referred to in paragraph (a) above; or
(c) any material adverse change to the Company occurs; or
(d) (i) the Board of Directors of the Company or any committee thereof
withdraws or modifies in a manner adverse to MedPartners or the Subsidiary
its approval or recommendation of the Offer, the Merger or the Merger
Agreement, or approves or recommends any other acquisition proposal or (ii)
the Company enters into any agreement to consummate any acquisition
proposal; or
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality are not true
and correct or any such representations and warranties that are not so
qualified are not true and correct in any respect that is reasonably likely
to have a material adverse effect, in each case at the date of the
Agreement and at the scheduled expiration of the Offer; or
(f) the Company fails to perform in any material respect any material
obligation or to comply in any material respect with any material agreement
or material covenant of the Company to be performed or complied with by it
under the Merger Agreement; or
(g) there has occurred and continues to exist for at least three
business days (i) any general suspension of trading in, or limitation on
prices for, securities on the New York Stock Exchange (excluding any
coordinated trading halt triggered solely as a result of a specified
decrease in a market index), (ii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in
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<PAGE> 27
the United States, (iii) commencement of a war or armed hostilities or
other national or international calamity directly or indirectly involving
the United States which in any case is reasonably expected to have a
material adverse effect or to materially adversely affect MedPartners' or
the Subsidiary's ability to complete the Offer or the Merger or materially
delay the consummation of the Offer, the Merger or both or (iv) in case of
any of the foregoing existing on the date of the Merger Agreement, material
acceleration or worsening thereof; or
(h) the Merger Agreement terminates in accordance with its terms.
For purposes of the Offer and the Merger Agreement, "material adverse
change" or "material adverse effect" means with reference to a party any change,
effect, event or occurrence that has or is reasonably likely to have a material
adverse impact on the business or financial position of such party and its
subsidiaries and other controlled entities, taken as a whole. However, the
meaning of "material adverse change" or "material adverse effect" excludes
changes in generally accepted accounting principles, (ii) changes in applicable
law, (iii) changes in effects of any kind that impact the party's industry
generally, or, as to the Company, Southern California, (iv) changes in Medicare
reimbursement rates, (v) changes or effects arising from the announcement of the
Merger Agreement or from any party's performance under the Merger Agreement, and
(iv) any charges resulting from any restructuring or other similar charges or
write-offs taken by the Company with the consent of MedPartners.
The foregoing conditions are for the sole benefit of MedPartners or may,
subject to the terms of the Merger Agreement, be waived by the Subsidiary and
MedPartners in whole or in part at any time and from time to time in their sole
discretion. The failure by MedPartners at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time. The Offer is not subject to obtaining any consents from third
parties.
A public announcement will be made of a material change in, or waiver of,
such conditions to the extent required by Rules 14d-4(c) and 14d-6(d) under the
Exchange Act, and the Offer will be extended in connection with any such change
or waiver to the extent required by such rules.
SECTION 14. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
General. Except as otherwise disclosed herein, based upon an examination
of publicly available information filed by the Company with the Commission,
neither the Subsidiary nor MedPartners is aware of (i) any license or other
regulatory permit that appears to be material to the business of the Company and
its subsidiaries, taken as a whole, that might be adversely affected by the
Subsidiary's acquisition of Shares (and the indirect acquisition of the stock of
the Company's subsidiaries) pursuant to the Offer or the Merger, or (ii) any
filings, approvals or other actions by or with any domestic (federal or state),
foreign or supranational governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of Shares (or the
indirect acquisition of the stock of the Company's subsidiaries) by the
Subsidiary as contemplated herein. Should any such approval or other action be
required, it is the Subsidiary's present intention to seek such approval or
action. However, the Subsidiary does not presently intend to delay the purchase
of Shares tendered pursuant to the Offer pending the receipt of any such
approval or the taking of any such action (subject to the Subsidiary's right to
delay or decline to purchase Shares if any of the conditions in Section 13 has
occurred). There can be no assurance that any such approval or other action, if
needed, would be obtained without substantial conditions or that adverse
consequences might not result to the business of the Company, MedPartners or the
Subsidiary or that certain parts of the businesses of the Company, MedPartners
or the Subsidiary might not have to be disposed of or held separate or other
substantial conditions complied with in order to obtain such approval or other
action or, in the event that such approval was not obtained or such other action
was not taken, any of which could cause the Subsidiary to elect to terminate the
Offer without the purchase of the Shares thereunder. The Subsidiary's obligation
under the Offer to accept for payment and pay for Shares is subject to certain
conditions, including conditions relating to the legal matters discussed in this
Section 14. See Section 13.
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<PAGE> 28
State Takeover Laws. The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of the DGCL prevents an "interested
stockholder" (generally a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock, or an affiliate or associate
thereof) from engaging in a "business combination" (defined to include mergers
and certain other transactions) with a Delaware corporation for a period of
three (3) years following the date such person became an interested stockholder
unless, among other things, prior to such date the board of directors of the
corporation approved either the business combination or the transaction in which
the interested stockholder became an interested stockholder. In connection with
the review of the proposed transaction, the Company's Board of Directors prior
to the execution of the Merger Agreement (i) by unanimous vote of those present
approved the Offer and the Merger and (ii) determined that the terms of the
Offer and the Merger including the Offer price of $63.00 per Share in cash, are
in the best interest of, the stockholders of the Company, and (iii) recommended
that the stockholders of the Company accept the Offer and tender their Shares
pursuant to the Offer. Accordingly, the Subsidiary and MedPartners believe that
Section 203 of the DGCL is inapplicable to the Merger Agreement, the Offer and
the Merger because its provisions have been satisfied.
A number of other states have also adopted takeover laws and regulations
which purport to varying degrees to be applicable to attempts to acquire
securities of corporations which are incorporated in such states or which have
or whose business operations have substantial economic effects in such states,
or which have substantial assets, security holders, principal executive offices
or principal places of business therein. To the extent that certain provisions
of certain of these state takeover statutes purport to apply to the Offer, the
Subsidiary believes that such laws conflict with federal law and constitute an
unconstitutional burden on interstate commerce. In 1982, the Supreme Court of
the United States, in Edgar v. MITE Corp., invalidated on constitutional grounds
the Illinois Business Takeovers Act, which, as a matter of state securities law,
made takeovers of corporations meeting certain requirements more difficult.
However, in 1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court
of the United States held that the State of Indiana could, as a matter of
corporate law and in particular those aspects of corporate law concerning
corporate governance, constitutionally disqualify a potential acquiror from
voting on the affairs of a target corporation without the prior approval of the
remaining stockholders, provided that such laws were applicable only under
certain conditions. Subsequently, a number of federal courts have ruled that
various state takeover statutes were unconstitutional insofar as they apply to
corporations incorporated outside the state of enactment.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws. The Subsidiary does not know whether any of these laws will, by
their terms, apply to the Offer or the Merger and has not taken any action to
comply with any such laws. Should any person seek to apply any state takeover
law, the Subsidiary will take reasonable efforts to resist such application,
which may include challenging the validity or applicability of any such statute
in appropriate court proceedings. In the event it is asserted that one or more
state takeover laws is applicable to the Offer or the Merger, and an appropriate
court does not determine that it is inapplicable or invalid as applied to the
Offer, the Subsidiary might be required to file certain information with, or
receive approvals from, the relevant state authorities. In addition, if
enjoined, the Subsidiary might be unable to accept for payment or pay for any
Shares tendered pursuant to the Offer or be delayed in continuing or
consummating the Offer and the Merger. In such case, the Subsidiary may not be
obligated to accept for payment, or pay for, any Shares tendered. See Section
13.
Short-Form Merger. The DGCL would permit the Merger to occur without a
vote of the Company's stockholders (a "short-form merger") if the Purchaser were
to acquire at least 90% of the outstanding Shares. If, however, the purchase
does not acquire at least 90% of the then outstanding Shares pursuant to the
Offer or otherwise, and a vote of the Company's stockholders is required under
the DGCL, a longer period of time will be required to effect the Merger.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders of the Company would
have certain rights to dissent and demand appraisal of their Shares under
Section 262 of the DGCL. Dissenting stockholders who comply with the requisite
statutory procedures under the DGCL would be entitled to a judicial
determination and payment of the "fair value" of their Shares as of the close of
business on the day prior to the date of stockholder authorization of the
Merger, together with interest thereon, at such rate as the court finds
equitable, from the date the Merger is
26
<PAGE> 29
consummated until the date of payment. Under the DGCL, in fixing the fair value
of the Shares, a court would consider the nature of the transaction giving rise
to the stockholders' right to receive payment for Shares and its effects on the
Company and its stockholders, the concepts and methods then customary in the
relevant securities and financial markets for determining fair value of shares
of a corporation engaging in a similar transaction under comparable
circumstances, and all other relevant factors.
The foregoing summary of the rights of objecting stockholders does not
purport to be a complete statement of the procedures to be followed by
stockholders desiring to exercise any available dissenters' rights. The
preservation and exercise of dissenters' rights require strict adherence to the
applicable provisions of the DGCL.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information and documentation has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Shares by the Subsidiary pursuant to the Offer is
subject to the HSR Act requirements. See Section 2.
Under the provisions of the HSR Act applicable to the purchase of Shares
pursuant to the Offer, such purchase may not be made until the expiration of a
15-calendar day waiting period following the required filing of a Pre-merger
Notification and Report Form under the HSR Act by MedPartners, which MedPartners
filed on August 15, 1997. The waiting period under the HSR Act will expire at
11:59 p.m., New York City time, August 30, 1997, unless early termination of the
waiting period is granted or MedPartners receives a request from the Antitrust
Division or the FTC for additional information or documentary material prior
thereto. If such a request were made, the waiting period applicable to the Offer
would expire on the tenth calendar day after the date of substantial compliance
by MedPartners with such request.
The waiting period under the HSR Act may be terminated by the FTC and the
Antitrust Division prior to its expiration. Accordingly, pursuant to the HSR Act
each of MedPartners and the Company have requested early termination of the
waiting period applicable to the Offer. There can be no assurance, however, that
the 15-day HSR Act waiting period will be terminated early. Shares will not be
accepted for payment or paid for pursuant to the Offer until the expiration or
earlier termination of the applicable waiting period under the HSR Act. See
Section 2. Subject to Section 4, any extension of the waiting period will not
give rise to any withdrawal rights not otherwise provided for by applicable law.
If the Purchaser's acquisition of Shares is delayed due to a request by the
Antitrust Division or the FTC for additional information or documentary material
pursuant to the HSR Act and all other conditions to the Offer have been
satisfied, the Offer may be extended (and re-extended) until at least October
20, 1997, and may, with the consent of MedPartners, the Subsidiary and the
Company, be extended beyond that date.
No separate HSR Act requirements with respect to the Merger or the Merger
Agreement will apply if the 15-day waiting period relating to the Offer (as
described above) has expired or been terminated. However, if the Offer is
withdrawn or if the filing relating to the Offer is withdrawn prior to the
expiration or termination of the 15-day waiting period relating to the Offer,
the Merger may not be consummated until 30 calendar days after receipt by the
Antitrust Division and the FTC of the Pre-merger Notification and Report Forms
of both MedPartners and the Company, unless the 30-day period is earlier
terminated by the Antitrust Division and the FTC. Within such 30-day period, the
Antitrust Division or the FTC may request additional information or documentary
materials from MedPartners and/or the Company, in which event, the acquisition
of Shares pursuant to the Merger may not be consummated until 20 days after both
MedPartners and the Company substantially comply with such requests.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
the Subsidiary pursuant to the Offer. At any time before or after the purchase
by the Subsidiary of Shares pursuant to the Offer, either the FTC or the
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition of Shares pursuant to the Offer or seeking the divestiture of Shares
purchased by the Subsidiary or the divestiture of substantial assets of
MedPartners, the Company or any of their respective subsidiaries. Private
parties and state attorneys general may also bring legal action under federal or
state antitrust laws under certain circumstances.
27
<PAGE> 30
Although the Subsidiary believes that the acquisition of Shares pursuant to
the Offer would not violate the antitrust laws, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if a challenge
is made, what the outcome will be.
SECTION 15. FEES AND EXPENSES. Except as set forth below, neither
MedPartners nor the Subsidiary will pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders of Shares
pursuant to the Offer.
The Subsidiary has also retained Georgeson & Company, Inc. to act as the
Information Agent and Chase Mellon Shareholder Services, L.L.C. to act as the
Depositary in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telegraph and personal interview and may
request brokers, dealers and other nominee stockholders to forward the Offer
materials to beneficial owners. The Information Agent and the Depositary will
receive reasonable and customary compensation for their services relating to the
Offer and will be reimbursed for certain out-of-pocket expenses. The Subsidiary
and MedPartners have also agreed to indemnify the Information Agent and the
Depositary against certain liabilities and expenses in connection with the
Offer, including certain liabilities under the federal securities laws.
Brokers, dealers, commercial banks and trust companies will, upon request,
be reimbursed by the Subsidiary for customary mailing and handling expenses
incurred by them in forwarding the Offer materials to their customers.
SECTION 16. MISCELLANEOUS. The Offer is being made solely by this Offer
to Purchase and the related Letter of Transmittal and is being made to all
holders of Shares. The Subsidiary is not aware of any state where the making of
the Offer is prohibited by administrative or judicial action pursuant to any
valid state statute. If the Subsidiary becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto, the Subsidiary will make a good faith effort to comply with any such
state statute or seek to have such statute declared inapplicable to the Offer.
If after such good faith effort, the Subsidiary cannot comply with such state
statute, the Offer will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Shares in such state. In any jurisdiction where the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on behalf of the
Subsidiary by one or more registered brokers or dealers that are licensed under
the laws of such jurisdiction.
A copy of this Offer to Purchase, and certain of the agreements referred to
herein, are attached to the Schedule 14D-1, which has been filed with the
Commission. The Schedule 14D-1 and the exhibits thereto, along with such other
documents as may be filed by the Subsidiary and MedPartners with the Commission,
may be examined and copied from the offices of the Commission in the manner set
forth in Section 7.
No person has been authorized to give any information or to make any
representation on behalf of the Subsidiary or MedPartners not contained in this
Offer to Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized.
TALMED MERGER CORPORATION
August 20, 1997
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<PAGE> 31
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder or his
broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<C> <C> <C>
By Mail: By Overnight Courier: By Hand:
Post Office Box 3305 85 Challenger Road-Mail Drop Reorg 120 Broadway - 13(th) Floor
South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 New York, NY 10271
Attn: Reorganization Dept. Attention: Reorganization Dept. Attention: Reorganization Dept.
</TABLE>
By Facsimile Transmission:
201-329-8936
Confirmation of Fax:
201-296-4860
29
<PAGE> 32
SCHEDULE I
INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF
MEDPARTNERS AND THE SUBSIDIARY
1. DIRECTORS AND EXECUTIVE OFFICERS OF MEDPARTNERS. Set forth in the table
and paragraphs below are the name and the present principal occupations or
employment and the name, principal business and address of any corporation or
other organization in which such occupation or employment is conducted, and the
five-year employment history of each of the directors and executive officers of
MedPartners. MedPartners owns 100% of the equity interest in the Subsidiary.
Unless otherwise indicated, each person identified below is employed by
MedPartners. The principal business address of MedPartners and, unless otherwise
indicated, the business address of each person identified below is 3000 Galleria
Tower, Suite 1000, Birmingham, Alabama 35244.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH MEDPARTNERS
- - ---- --- --------------------------
<S> <C> <C>
Larry R. House..................... 53 Chairman of the Board and Chief Executive Officer and
Director
Mark L. Wagar...................... 45 President and Chief Operating Officer
John J. Gannon..................... 58 President -- Physician Practice Management
H. Lynn Massingale, M.D............ 44 President -- Team Health
Harold O. Knight, Jr............... 39 Executive Vice President and Chief Financial Officer
Tracy P. Thrasher.................. 34 Executive Vice President and Chief Administrative Officer
and Corporate Secretary
Edward J. Novinski................. 38 Executive Vice President -- Managed Care
John M. Deane...................... 42 Executive Vice President -- Information Services
J. Brooke Johnston, Jr............. 57 Senior Vice President and General Counsel
Charles C. Clark................... 47 Senior Vice President and Chief Tax Officer
Peter J. Clemens, IV............... 32 Vice President of Finance and Treasurer
Mark S. Weeks...................... 34 Vice President of Finance and Controller
Richard M. Scrushy................. 44 Director
Larry D. Striplin, Jr.(1).......... 67 Director
Charles W. Newhall III(1).......... 52 Director
Ted H. McCourtney(2)............... 58 Director
Walter T. Mullikin, M.D............ 79 Director
John S. McDonald, J.D.(1).......... 64 Director
Rosalio J. Lopez, M.D.............. 44 Chief Medical Officer and Director
C.A. Lance Piccolo (2)............. 56 Director
Roger L. Headrick (1).............. 60 Director
Harry M. Jansen Kraemer, Jr........ 42 Director
</TABLE>
- - ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Larry R. House has been Chief Executive Officer of MedPartners since August
1993, and has been Chairman of the Board since January 1993. Mr. House also
served as President from August 1993 until June 1997. From 1985 to 1992, he was
Chief Operating Officer of HEALTHSOUTH Rehabilitation Corporation, now
HEALTHSOUTH Corporation ("HEALTHSOUTH"). From 1992 to 1993, Mr. House was
President of HEALTHSOUTH International, Inc. Mr. House is a member of the Board
of Directors of each of HEALTHSOUTH, Capstone Capital Corporation, a publicly
traded real estate investment trust ("Capstone"), the American Sports Medicine
Institute, UAB Research Foundation and Monitor MedX.
Mark L. Wagar has been President and Chief Operating Officer of MedPartners
since June 1997. Form January 1996 until June 1997, Mr. Wagar was
President -- Western Operations of MedPartners. From January 1995 through
December 1995, Mr. Wagar was Chief Operating Officer of MME, from March 1994 to
December 1994, he was the President of CIGNA HealthCare of California, a
healthcare plan serving
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<PAGE> 33
enrollees in California, Oregon and Washington, from January 1993 through
February 1994, was a Vice President of CIGNA HealthCare of California, an HMO.
From November 19898 to December 1992, he was the President of Managed Care
Partners, Inc., a private consulting management company specializing in managed
care services. He has been involved in healthcare management for over 20 years,
including 10 years in managed care companies.
John J. Gannon has been President -- Physician Practice Management of
MedPartners since June 1997. From July 1996 to June 1997, Mr. Gannon was
President -- Eastern Operations. For 23 years, Mr. Gannon was a Partner with
KPMG Peat Marwick. His most recent position with KPMG was that of National
Partner-in-Charge of Strategy and Marketing, Healthcare and Life Sciences. He
served as one of the firm's designated industry review specialists for
healthcare financial feasibility studies.
H. Lynn Massingale, M.D. has been President of Team Health since its
formation in March 1994. Dr. Massingale has served as President of Southeastern
Emergency Physicians, Inc., a subsidiary of Team Health, since 1981. A graduate
of the University of Tennessee Center for Health Sciences in Memphis, Dr.
Massingale is certified by the National Board of Medical Examiners, Tennessee
Board of Medical Examiners and American Board of Emergency Medicine. Dr.
Massingale's professional memberships include the Knoxville Academy of Medicine,
Tennessee Medical Association, American Medical Association and American College
of Emergency Physicians.
Harold O. Knight, Jr. has been Executive Vice President and Chief Financial
Officer of MedPartners since November 1994. Mr. Knight was Senior Vice President
of Finance and Treasurer of MedPartners from August 1993 to November 1994, and
from March 1993 to August 1993, Mr. Knight served as Vice President of Finance
of MedPartners. From 1980 to 1993, Mr. Knight was with Ernst & Young LLP, most
recently as Senior Manager. Mr. Knight is a member of the Alabama Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
Tracy P. Thrasher was named Chief Administrative Officer of MedPartners in
June 1997 and has been Executive Vice President of MedPartners since November
1994 and Corporate Secretary since March 1994. Ms. Thrasher was Senior Vice
President of Administration from March 1994 to November 1994, and from January
1993 to March 1994, she served as Corporate Comptroller and Vice President of
Development. From 1990 to 1993, Ms. Thrasher was the Audit and Health Care
Management Advisory Service Manager with Burton, Canady, Moore & Carr, P.C.
independent public accountants. Ms. Thrasher began her career with Ernst & Young
LLP in 1985, and became a certified public accountant in 1986.
Edward J. Novinski has been Executive Vice President of Managed Care for
MedPartners since September 1996. Prior to joining MedPartners, Mr. Novinski was
most recently Vice President of Network Management for United HealthCare
Corporation in their corporate office and held various positions from August
1986 to August 1996. Mr. Novinski was responsible for United HealthCare's
network strategies for physician and hospital relationships with supported
United HealthCare's diverse managed care product line. From 1977 to 1986, Mr.
Novinski was with Lutheran General Health System in managerial and
administrative positions including Director of Physician Practice Management for
a large multi-specialty group.
John M. Deane has been Executive Vice President, Information Services of
MedPartners since January 1997. From January 1995 through December 1996, Mr.
Deane was Vice President Information Services and CIO of Caremark Pharmaceutical
Services Group, based in Northbrook, Illinois. Prior to 1985, Mr. Deane was
Director, Information Services -- Planning and Consulting for the Whirlpool
Corporation and a Senior Manager on large IS projects for Price Waterhouse's
Management Consulting Services practice in the Midwest, where he led large IS
engagements for various Fortune 100 companies.
J. Brooke Johnston, Jr. has been Senior Vice President and General Counsel
of MedPartners since April 1996. Prior to that, Mr. Johnston was a senior
principal of the law firm of Haskell Slaughter Young & Johnston, Professional
Association, Birmingham, Alabama, where he practiced corporate and securities
law for over seventeen years. Prior to that Mr. Johnston was engaged in the
practice of law in New York, New York and at another firm in Birmingham. Mr.
Johnston is a member of the Alabama State Bar and the New
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<PAGE> 34
York and American Bar Associations. Mr. Johnston is a member of the Board of
Directors of United Leisure Corporation, a publicly traded leisure time services
company.
Charles C. Clark has been Senior Vice President and Chief Tax Officer of
MedPartners since January 1997. Prior to that, Mr. Clark was a Partner with KPMG
Peat Marwick, having served as Tax Partner in Charge of the Birmingham, Alabama
office and leader of tax services for the Health Care & Life Sciences practice
in the Southeast. Mr. Clark was with KPMG Peat Marwick for 21 years. Mr. Clark
is a Certified Public Accountant holding memberships in the American Institute
of Certified Public Accountants and the Alabama and Mississippi Societies of
Certified Public Accountants.
Peter J. Clemens, IV has been Vice President of Finance and Treasurer of
MedPartners since April 1995. From 1991 to 1995, Mr. Clemens worked in Corporate
Banking with Wachovia Bank of Georgia, N.A. Mr. Clemens began his career with
AmSouth Bank, N.A. in 1987, and received a Masters Degree in Business
Administration from Vanderbilt University in 1991.
Mark S. Weeks has been Vice President of Finance and Controller of
MedPartners since June 1994. From 1985 to 1994, Mr. Weeks was with Ernst & Young
LLP, most recently as Senior Manager. Mr. Weeks is a certified public accountant
and a member of the American Institute of Certified Public Accountants.
Richard M. Scrushy has been a member of MedPartners' Board of Directors
since January 1993. Since 1984, Mr. Scrushy has been Chairman of the Board and
Chief Executive Officer of HEALTHSOUTH. Mr. Scrushy is also a member of the
Board of Directors of Capstone.
Larry D. Striplin, Jr. has been a member of MedPartners' Board of Directors
since January 1993. Since December 1995, Mr. Striplin has been the Chairman and
Chief Executive Officer of Nelson-Brantley Glass Contractors, Inc. and Chairman
and Chief Executive Officer of Clearview Properties, Inc. Until December 1995,
Mr. Striplin had been Chairman of the Board and Chief Executive Officer of
Circle "S" Industries, Inc., a privately owned bonding wire manufacturer. Mr.
Striplin is a member of the Board of Directors of Kulicke & Suffa, Inc., a
publicly traded manufacturer of electronic equipment, and of Capstone.
Charles W. Newhall III has been a member of MedPartners' Board of Directors
since September 1993. He has been a general partner of New Enterprise
Associates, a venture capital firm, since 1978. Mr. Newhall is a member of the
Board of Directors of HEALTHSOUTH, Integrated Health Services, Inc. and OPTA
Food Ingredients, Inc., all publicly traded companies. He is a founder and
Chairman of the Mid-Atlantic Venture Association, which was organized in 1988.
Ted H. McCourtney has been a member of MedPartners' Board of Directors
since August 1993. He has been a general partner of Venrock Associates, a
venture capital firm, since 1970. Mr. McCourtney is a member of the Board of
Directors of Cellular Communications, Inc., Cellular Communications of Puerto
Rico, Inc., Cellular Communications International, Inc., International CabelTel
Incorporated, SBSF, Inc. and Structural Dynamics Research Corporation, each of
which is publicly traded.
Walter T. Mullikin, M.D., a surgeon, has been a member of MedPartners'
Board of Directors since November 1995. Dr. Mullikin was a Chairman of the Board
of the general partner of MME from 1989 to 1995. He founded Pioneer Hospital and
the predecessors to MME's principal professional corporation in 1957. He was
also the Chairman of the Board, President and a stockholder of Mullikin
Independent Practice Association ("MIPA"), until November 1995. Dr. Mullikin is
a member of the Board of Directors of HealthNet, a publicly traded HMO, and was
one of the founders and a past chairman of the United Medical Group Association.
John S. McDonald, J.D. has been a member of MedPartners Board of Directors
since November 1995. Mr. McDonald was the Chief Executive Officer of the general
partner of MME from March 1994 to 1995, and he was an executive of Pioneer
Hospital and their related entities since 1967. Mr. McDonald was also a
director, the Secretary and a stockholder of MME's general partner. Mr. McDonald
is on the Board of Directors of the Truck Insurance Exchange and is a past
president of the United Medical Group Association.
Rosalio J. Lopez, M.D. has been a member of MedPartners' Board of Directors
since November 1995 and became Chief Medical Officer of MedPartners in June
1997. Dr. Lopez has been a director of the general
S-3
<PAGE> 35
partner of MME since 1989. Dr. Lopez joined MME's principal professional
corporation in 1984 and serves as the Chairman of its Medical Council and Family
Practice and Managed Care committees. He also acted as a director and a Vice
President of MME's principal professional corporation. He is also a director and
stockholder of MIPA.
C.A. Lance Piccolo has been a member of MedPartners' Board of Directors
since September 1997. From August 1992 to September 1996, he was Chairman of the
Board of Directors and Chief Executive Officer of Caremark. From 1987 until
November 1992, Mr. Piccolo was an Executive Vice President of Baxter and from
1988 until November 1992, he served as a director of Baxter. Mr. Piccolo also
serves as a director of Crompton & Knowles Corporation ("CKC"), which is
publicly traded.
Roger L. Headrick has been a member of MedPartners' Board of Directors
since September 1996 and has been President and Chief Executive Officer of the
Minnesota Vikings Football Club since 1991. Additionally, since June 1989, Mr.
Headrick has been President and Chief Executive Officer of ProtaTek
International, Inc., a bio-process and biotechnology company that develops and
manufactures animal vaccines. Prior to 1989, he was Executive Vice President and
Chief Financial Officer of The Pillsbury Company, a food manufacturing and
processing company. Mr. Headrick also serves as a director of CKC.
Harry M. Jansen Kraemer, Jr. has been a member of MedPartners' Board of
Directors since September 1996, and is President of Baxter, having served in
that capacity since April 1997. Mr. Kraemer served as Senior Vice President and
Chief Financial Officer of Baxter from November 1993 to April 1997. He was
promoted to Baxter's three-member Office of the Chief Executive in June 1995,
and appointed to Baxter's Board of Directors in November 1995. Mr. Kraemer has
been an employee of Baxter since 1982, serving in a variety of positions,
including Vice President, Group Contoller for Baxter's hospital and
alternate-site businesses, president of Baxter's Hospitex Division and Vice
President Finance and Operations for Baxter's global-business group.
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE SUBSIDIARY. Set forth in the
table and paragraphs below are the name and the present principal occupations or
employment and the name, principal business and address of any corporation or
other organization in which such occupation or employment is conducted, and the
five-year employment history of each of the directors and executive officers of
the Subsidiary. Each person identified below is employed by MedPartners and is a
director of the Subsidiary. The principal business address of the Subsidiary and
of each person identified below is 3000 Galleria Tower, Suite 1000, Birmingham,
Alabama 35244.
<TABLE>
<CAPTION>
NAME AGE OFFICES WITH THE SUBSIDIARY
---- --- ---------------------------
<S> <C> <C>
Larry R. House....................... 53 President
Harold O. Knight, Jr................. 39 Vice President and Treasurer
Tracy P. Thrasher.................... 34 Vice President and Secretary
</TABLE>
Larry R. House has been Chief Executive Officer of MedPartners since August
1993, and has been Chairman of the Board since January 1993. Mr. House also
served as President from August 1993 until June 1997. From 1985 to 1992, he was
Chief Operating Officer of HEALTHSOUTH. From 1992 to 1993, Mr. House was
President of HEALTHSOUTH International, Inc. Mr. House is a member of the Board
of Directors of each of HEALTHSOUTH, Capstone, the American Sports Medicine
Institute, UAB Research Foundation and Monitor MedX.
Harold O. Knight, Jr. has been Executive Vice President and Chief Financial
Officer of MedPartners since November 1994. Mr. Knight was Senior Vice President
of Finance and Treasurer of MedPartners from August 1993 to November 1994, and
from March 1993 to August 1993, Mr. Knight served as Vice President of Finance
of MedPartners. From 1980 to 1993, Mr. Knight was with Ernst & Young LLP, most
recently as Senior Manager. Mr. Knight is a member of the Alabama Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
S-4
<PAGE> 36
Tracy P. Thrasher was named Chief Administrative Officer of MedPartners in
June 1997 and has been Executive Vice President of MedPartners since November
1994 and Corporate Secretary since March 1994. Ms. Thrasher was Senior Vice
President of Administration from March 1994 to November 1994, and from January
1993 to March 1994, she served as Corporate Comptroller and Vice President of
Development. From 1990 to 1993, Ms. Thrasher was the Audit and Health Care
Management Advisory Service Manager with Burton, Canady, Moore & Carr, P.C.
independent public accountants. Ms. Thrasher began her career with Ernst & Young
LLP in 1985, and became a certified public accountant in 1986.
Any questions and requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal and related materials may be directed to
the Information Agent at the address and telephone number set forth below.
Stockholders may also contact their broker, dealer, commercial bank or trust
company for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[GEORGESON & COMPANY INC. LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: 212-440-9800
All Others Call Toll Free: 1-800-223-2064
S-5
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHTS)
OF
TALBERT MEDICAL MANAGEMENT HOLDINGS
CORPORATION
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 20, 1997
BY
TALMED MERGER CORPORATION
A WHOLLY-OWNED SUBSIDIARY
OF
MEDPARTNERS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<C> <C> <C>
By Mail: By Overnight Courier: By Hand:
Post Office Box 3305 85 Challenger Road- 120 Broadway - 13(th) Floor
South Hackensack, NJ 07606 Mail Drop Reorg New York, NY 10271
Attn: Reorganization Dept. Ridgefield Park, NJ 07660 Attention: Reorganization Dept.
Attention: Reorganization Dept.
</TABLE>
By Facsimile Transmission:
201-329-8936
Confirmation of Fax:
201-296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or, unless an Agent's Message (as defined in Section 2 of the Offer to Purchase)
is utilized, if tenders of Shares are to be made by book-entry transfer into the
account of ChaseMellon Shareholder Services, L.L.C., as Depositary (the
"Depositary"), at The Depository Trust Company or the Philadelphia Depository
Trust Company (each, a "Book-Entry Transfer Facility" and, collectively, the
"Book-Entry Transfer Facilities"), pursuant to the procedures set forth in
Section 3 of the Offer to Purchase (as defined below). Stockholders who tender
Shares by book-entry transfer are referred to herein as "Book-Entry
Stockholders."
Holders of Shares whose certificates evidencing such Shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase), or who
cannot complete the procedure for book-entry transfer on a timely basis, must
tender their Shares according to the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO
A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE> 2
<TABLE>
- - ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- - ----------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
CERTIFICATION) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL NUMBER
OF SHARES NUMBER
SHARE CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL SHARES
- - ----------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Shareholders.
** Unless otherwise indicated, all Shares represented by certificates delivered to the Depositary will be deemed to
have been tendered. See Instruction 4.
- - ----------------------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY
MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
--------------------------------------------------------------------------------------------------------------------
Check box of Book-Entry Transfer Facility (check one):
[ ] The Depository Trust Company Account Number:
--------------------------------------------------------------------------------------------------------------------
[ ] Philadelphia Depository Trust Company Transaction Code Number:
--------------------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
--------------------------------------------------------------------------------------------------------------------
Window Ticket Number (if any):
--------------------------------------------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------------------------------------------------------------------------------------
Name of Institution that Guaranteed Delivery:
--------------------------------------------------------------------------------------------------------------------
If delivered by Book-Entry Transfer, check box of Book-Entry Transfer
Facility (check one):
[ ] The Depository Trust Company Account Number:
--------------------------------------------------------------------------------------------------------------------
[ ] Philadelphia Depository Trust Company Transaction Code Number:
--------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Talmed Merger Corporation (the
"Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of
MedPartners, Inc., a Delaware corporation ("MedPartners"), the above-described
shares of common stock, par value $.01 per share, together with associated
rights to purchase shares of preferred stock, par value $.01 per share,
designated as "Junior Participating Preferred Stock" (the "Shares"), of Talbert
Medical Management Holdings Corporation, a Delaware corporation (the "Company"),
at a purchase price of $63.00 per Share, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated August 20, 1997 (the "Offer to Purchase") and in this
Letter of Transmittal (which, together with any supplements and amendments,
collectively constitute the "Offer"), receipt of which is hereby acknowledged.
The undersigned understands that the Subsidiary reserves the right to transfer
or assign, in whole or from time to time in part, to one or more of its
affiliates, the right to purchase all or any portion of the Shares tendered
pursuant to the Offer.
Upon the terms and conditions of the Offer and subject to, and effective
upon, acceptance for payment for the Shares tendered herewith in accordance with
the terms of the Offer, the undersigned hereby sells, assigns and transfers to,
or upon the order of, the Subsidiary all right, title and interest in and to all
of the Shares that are being tendered hereby and any and all dividends,
distributions (including additional Shares) or rights declared, paid or issued
with respect to the tendered Shares on or after August 14, 1997 and payable or
distributable to the undersigned on a date prior to the transfer to the name of
the Subsidiary or nominee or transferee of the Subsidiary on the Company's stock
transfer records of the Shares tendered herewith, and appoints the Depositary
the true and lawful agent and attorney-in-fact of the undersigned with respect
to such Shares with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) to (a) deliver such
Share Certificates (as defined herein) or transfer ownership of such Shares on
the account books maintained by a Book-Entry Transfer Facility, together in
either case with all accompanying evidences of transfer and authenticity, to the
Depositary for the account of the Subsidiary upon receipt by the Depositary of
the purchase price, (b) present such Shares for transfer on the books of the
Company and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares, all in accordance with the terms and
subject to the conditions of the Offer.
The undersigned irrevocably appoints the Subsidiary, its officers and its
designees, and each of them, the attorneys-in-fact and proxies of the
undersigned, with full power of substitution, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by the Subsidiary and with respect to any and all other
Shares or other securities issued or issuable in respect of such Shares on or
after August 14, 1997. This proxy and power of attorney is coupled with an
interest in the Shares tendered hereby and is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for payment of such
Shares by the Subsidiary in accordance with the terms of the Offer. Upon such
acceptance for payment, all prior proxies given by such stockholder with respect
to such Shares (and such other shares and securities) will be revoked without
further action, and no subsequent proxies may be given nor any subsequent
written consents executed (and, if given or executed, will not be deemed
effective) with respect thereto by the undersigned. The Subsidiary, its officers
and its designees will, with respect to the Shares (and such other securities)
tendered, be empowered to exercise all voting and other rights of such
stockholder as they in their sole discretion may deem proper at any annual or
special meeting of the Company's stockholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or otherwise. The
Subsidiary reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon the Subsidiary's payment for such Shares the
Subsidiary must be able to exercise full voting rights with respect to such
Shares and other securities, including voting at any meeting of stockholders.
The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and (b) when the Shares are accepted for payment by the
Subsidiary, the Subsidiary will acquire good, marketable and unencumbered title
to the Shares, free and clear of all liens, restrictions, charges and
encumbrances, and the same will not be subject to any adverse
3
<PAGE> 4
claim. The undersigned, upon request, will execute and deliver any additional
documents deemed by the Depositary or the Subsidiary to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date (as defined in the Offer to Purchase) and, unless theretofore
accepted for payment by the Subsidiary pursuant to the Offer, may also be
withdrawn at any time after October 20, 1997. See Section 4 of the Offer to
Purchase.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto and acceptance for payment of such Shares will constitute a
binding agreement between the undersigned and the Subsidiary upon the terms and
subject to the conditions set forth in the Offer, including the undersigned's
representation that the undersigned owns the Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or issue or return any
certificate(s) for Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or any
certificate(s) for Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or any
certificate(s) for Shares not tendered or accepted for payment in the name of,
and deliver such check and/or such certificates to, the person or persons so
indicated. The undersigned recognizes that the Subsidiary has no obligation,
pursuant to the Special Payment Instructions, to transfer any Shares from the
name(s) of the registered holder(s) thereof if the Subsidiary does not accept
for payment any of the Shares so tendered.
4
<PAGE> 5
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this document, shall include
any participant in a Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of Shares) of Shares tendered herewith,
unless such holder(s) has completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" above, or (b)
if such Shares are tendered for the account of a firm which is a bank, broker,
dealer, credit union, savings association or other entity which is a member in
good standing of a recognized Medallion Signature Guarantee Program (each of the
foregoing being referred to as an "Eligible Institution"). In all other cases,
all signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5 of this Letter of Transmittal.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed
by stockholders either if certificates are to be forwarded herewith or, unless
an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth in Section 3 of the Offer
to Purchase. Share Certificates, or timely confirmation (a "Book-Entry
Confirmation") of a book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility, as well as this Letter of Transmittal
(or a facsimile hereof), properly completed and duly executed with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other documents required by this Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth on the front
page of this Letter of Transmittal prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase). Stockholders whose Share Certificates are
not immediately available or who cannot deliver their Share Certificates and all
other required documents to the Depositary prior to the Expiration Date or who
cannot complete the procedure for delivery by book-entry transfer on a timely
basis may tender their Shares by properly completing and duly executing a Notice
of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth
in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form made available by the Subsidiary, must be received by the Depositary prior
to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry
Confirmation) representing all tendered Shares, in proper form for transfer, in
each case together with the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed with any required signature guarantees (or,
in the case of a book-entry delivery, an Agent's Message) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three Nasdaq National Market trading days after the date of
execution of such Notice of Guaranteed Delivery. If Share Certificates are
forwarded separately to the Depositary, a properly completed and duly executed
Letter of Transmittal must accompany each such delivery.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased (unless you are tendering all of the Shares
you own). All tendering stockholders, by execution of this Letter of Transmittal
(or a facsimile hereof), waive any right to receive any notice of the acceptance
of their Shares for payment.
5
<PAGE> 6
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares and any other required
information should be listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (NOT APPLICABLE TO BOOK-ENTRY STOCKHOLDERS) If fewer
than all of the Shares evidenced by any Share Certificate delivered to the
Depositary are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such a case, new
Share Certificates for the Shares that were evidenced by your old Share
Certificates, but were not tendered by you, will be sent to you (unless
otherwise provided in the appropriate box on this Letter of Transmittal) as soon
as practicable after the Expiration Date. All Shares represented by Share
Certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to or
certificates for Shares not tendered or not purchased are to be issued in the
name of a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the certificate(s) listed, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s)
for such Shares. Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Subsidiary will pay or cause to be paid any stock transfer taxes with
respect to the transfer and sale of Shares to it or its order pursuant to the
Offer. If, however, payment of the purchase price is to be made to, or if
certificate(s) for Shares not tendered or accepted for payment are to be
registered in the name of, any person other than the registered holder(s), if a
transfer tax is imposed for any reason other than the sale or transfer of Shares
to Subsidiary pursuant to the Offer, or if tendered certificate(s) are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such person) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or an exemption therefrom is submitted.
EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE
NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN
THIS LETTER OF TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the
purchase price of any Shares purchased is to be issued in the name of, or any
Shares not tendered or not purchased are to be returned to, a person other than
the person(s) signing this Letter of Transmittal or if the check or any
6
<PAGE> 7
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal at an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Stockholders tendering Shares by book-entry transfer may request that Shares not
purchased be credited to such account at any of the Book-Entry Transfer
Facilities as such stockholder may designate under "Special Payment
Instructions." If no such instructions are given, any such Shares not purchased
will be returned by crediting the account at the Book-Entry Transfer Facilities
designated above.
8. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by the
Subsidiary in whole or in part at any time and from time to time in its sole
discretion.
9. 31% BACKUP WITHHOLDING, SUBSTITUTE FORM W-9. Each tendering stockholder
is required to provide the Depositary with a correct Taxpayer Identification
Number ("TIN"), generally the stockholder's social security or federal employer
identification number, on Substitute Form W-9 below. Failure to provide the
information on the form may subject the tendering stockholder to 31% federal
income tax withholding on the payment of the purchase price. The box in Part 3
of the form may be checked if the tendering stockholder has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future. If the box in Part 3 is checked and the Depositary is not provided with
a TIN by the time of payment, the Depositary will withhold 31% of all payments
of the purchase price thereafter until a TIN is provided to the Depositary.
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for purchase is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is his or her social security number. If a
stockholder fails to provide a TIN to the Depositary, such stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Depositary.
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares or of
the last transferee appearing on the transfers attached to, or endorsed on, the
Shares. If the Shares are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests
for assistance may be directed to the Information Agent at its address and
telephone numbers set forth below. Additional copies of the Offer to Purchase,
this Letter of Transmittal and the Notice of Guaranteed Delivery
7
<PAGE> 8
may also be obtained from the Information Agent at the address and telephone
number set forth below, or from brokers, dealers, commercial banks or trust
companies.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate evidencing
Shares has been lost, destroyed or stolen, the stockholder should promptly
notify the Information Agent. The stockholder will then be instructed as to the
steps that must be taken in order to replace the certificate. This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost or destroyed certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF
GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE.
8
<PAGE> 9
PAYER'S NAME: CHASE MELLON SHAREHOLDERS SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------------------
Social Security
Number
---------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT OR
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
---------------------
Employer
Identification Number
-----------------------------------------------------------------------
PART 2 -- For Payees exempt from backup withholding, see the enclosed
Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 and complete as instructed therein.
Certification -- Under penalties of perjury, I certify that: (1) The
number shown on this form is my correct Taxpayer Identification Number
Department of the Treasury, (or I am waiting for a number to be issued to me) and (2) I am not
Internal Revenue Service subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to backup withholding.
-----------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you
IDENTIFICATION NUMBER (TIN) have been notified by the IRS that you are currently subject to backup
withholding because of under-reporting interest or dividends on your
tax return. However, if after being notified by the IRS that you were PART 3
subject to backup withholding you received another notification from
the IRS that you are no longer subject to backup withholding, do not
cross out such Item 2). (Also see instructions in the enclosed Awaiting TIN [ ]
Guidelines.)
SIGNATURE __________________________DATE _____________________________
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a Taxpayer Identification Number by the time of payment, 31% of all
reportable payments made to me will be withheld.
<TABLE>
<S> <C>
, 1997
- - ------------------------------------------------------------ ----------------------------------------------------
Signature: Date:
</TABLE>
9
<PAGE> 10
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be issued in the name of someone other than the undersigned.
Issue: [ ] check and/or [ ] certificates to:
- - ------------------------------------------------------
NAME -- (PLEASE PRINT)
- - ------------------------------------------------------
ADDRESS
- - ------------------------------------------------------
(INCLUDE ZIP CODE)
- - ------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
[ ] Credit unpurchased Shares tendered by book-entry transfer to the account set
forth below:
Name of Account Party
------------------------------------------------------------
- - --------------------------------------------------------------------------------
Account Number at
---------------------------------------------------------------
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be sent to someone other than the undersigned or to the
undersigned at an address other than that appearing under "DESCRIPTION OF SHARES
TENDERED."
Issue: [ ] check and/or [ ] certificates to:
- - -------------------------------------------------------------------------------
NAME -- (PLEASE PRINT)
- - -------------------------------------------------------------------------------
ADDRESS
- - -------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- - -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
10
<PAGE> 11
- - --------------------------------------------------------------------------------
SIGN HERE
AND COMPLETE SUBSTITUTE FORM W-9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(SIGNATURE OF HOLDER(S))
Dated: ______________________, 1997
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please provide
the following information and See Instruction 5.)
Name(s)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (Full Title)
--------------------------------------------------------------------------
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------------------------------
Tax Identification or
Social Security No.
--------------------------------------------------------------------------
(SEE SUBSTITUTE FORM W-9)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
--------------------------------------------------------------------------
Name
--------------------------------------------------------------------------
Name of Firm
--------------------------------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------------------------------
Dated:
------------------------, 1997
--------------------------------------------------------------------------
<PAGE> 12
THE INFORMATION AGENT FOR THE OFFER IS:
LOGO
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: 1-800-223-2064
August 20, 1997
<PAGE> 1
EXHIBIT 3
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 14, 1997
AMONG
MEDPARTNERS, INC.,
TALMED MERGER CORPORATION
AND
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
================================================================================
<PAGE> 2
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
AMONG
MEDPARTNERS, INC.,
TALMED MERGER CORPORATION
AND
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3. Effect of the Merger on the Capital Stock of the Constituent Corporations; Merger
Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Payment of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Certificate of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . 8
3.4 By-laws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Directors and Officers of Surviving Corporation . . . . . . . . . . . . . . . . . . . . 8
Section 4. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . 9
4.1 Organization, Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Company Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Foreign Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 SEC Filings; Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.7 Contracts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.12 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Employee Benefit Plans; Employment Matters . . . . . . . . . . . . . . . . . . . . . . . 15
4.14 Compliance with Laws in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.15 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.16 Commissions and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.17 No Untrue Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18 Amendment of Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19 14D-1 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5. Representations and Warranties of the Parent and the Subsidiary . . . . . . . . . . . . 18
5.1 Organization, Existence and Good Standing of the Parent and Subsidiary . . . . . . . . . 18
5.2 Power and Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.3 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 No Contracts or Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.8 The Parent to Cause Subsidiary to Perform . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.10 14D-9 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.11 Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6. Access to Information and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Return of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Effect of Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Preservation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Material Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Exemption from State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Public Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5 Resignation of Company Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6 Notice of Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.7 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.8 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.9 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.10 Additional Agreements Regarding Benefit Plans . . . . . . . . . . . . . . . . . . . . . 23
7.11 Physician Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.12 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.13 Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.14 Share Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8. Termination, Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Procedure for Termination, Amendment, Extension or Waiver . . . . . . . . . . . . . . . 27
8.6 Termination Fee; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9. Conditions to the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.1 Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 29
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.6 Material Adverse Change or Material Adverse Effect . . . . . . . . . . . . . . . . . . . 30
10.7 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.12 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.13 No Rule of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit 1.1 Conditions of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit 7.11 Nontransferable Warrant Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 14, 1997 (the
"Agreement"), among MEDPARTNERS, INC., a Delaware corporation (the "Parent"),
TALMED MERGER CORPORATION, a Delaware corporation (the "Subsidiary"), and
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of the Parent, the Company
and the Subsidiary have each determined that it is in the best interests of
their respective stockholders for the Parent to acquire the Company upon the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition, the Parent proposes to
cause the Subsidiary to make a tender offer (as it may be amended from time to
time as permitted under this Agreement, the "Offer") to purchase all the
outstanding shares of Common Stock, par value $.01 per share, of the Company
and associated Rights, as defined in Section 4.2 ("Company Common Stock" or
"Company Shares"), at a purchase price of US$63.00 per share (such amount, or
any greater amount to be paid per share of Company Common Stock in the Offer,
being referred to as the "Per Share Amount"), net to the seller in cash, upon
the terms and subject to the conditions set forth in this Agreement and in the
Offer; and the Board of Directors of the Company has unanimously approved the
Offer and is recommending that the Company's stockholders accept the Offer and
tender their shares of Company Common Stock pursuant to the Offer;
WHEREAS, in furtherance of such acquisition, the respective Boards of
Directors of the Parent, the Company and the Subsidiary have approved the
merger of the Subsidiary with and into the Company (the "Merger") upon the
terms and subject to the conditions set forth in this Agreement and in
accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), whereby each share of Company Common Stock, other than shares owned
directly or indirectly by the Parent or by the Company and other than
Dissenting Shares (as defined in Section 3.1(d)), will be converted into the
right to receive the Per Share Amount; and
WHEREAS, each of the Parent, the Subsidiary and the Company desire to
make certain representations, warranties, covenants and agreements in
connection with the Offer and also to prescribe various conditions to the
Offer.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
1
<PAGE> 6
SECTION 1. THE OFFER
1.1 The Offer. (a) Subject to the provisions of this Agreement,
as promptly as practicable, but in no event later than five business days after
the date of the public announcement of this Agreement, the Subsidiary shall,
and the Parent shall cause the Subsidiary to, commence the Offer. The
obligation of the Subsidiary to, and of the Parent to cause the Subsidiary to,
commence the Offer and accept for payment, and pay for, any shares of Company
Common Stock tendered pursuant to the Offer shall be subject to the conditions
set forth in Exhibit 1.1 (any and all of which may, except as limited by the
following sentence, be waived in whole or in part by the Subsidiary in its sole
discretion), and to the terms and conditions of this Agreement. The Subsidiary
expressly reserves the right to modify the terms and conditions of the Offer,
except that, without the prior written consent of the Company or as expressly
permitted by this Agreement, the Subsidiary shall not (i) reduce the number of
shares of Company Common Stock subject to the Offer, (ii) reduce the Per Share
Amount, (iii) modify or add to the conditions set forth in Exhibit 1.1, (iv)
allow the Offer to expire prior to September 19, 1997; (v) except as provided
in the following sentence, extend the term of the Offer, (vi) change the form
of consideration payable in the Offer or (vii) make any other modifications
that are otherwise materially adverse to holders of Company Common Stock.
Notwithstanding the foregoing, the Subsidiary may, without the consent of the
Company, (A) extend the term of the Offer on one or more occasions beyond any
scheduled expiration date of the Offer if, at any such scheduled expiration
date, any of the conditions to the Subsidiary's obligation to accept for
payment, and pay for, shares of Company Common Stock tendered pursuant to the
Offer shall not have been satisfied or waived (provided, however, that the
Subsidiary may not extend the Offer under this subsection (A) for a total of
more than 60 days from the commencement of the Offer), (B) extend the Offer for
a period not to exceed 10 business days, notwithstanding that all conditions to
the Offer are satisfied as of such expiration date of the Offer, if,
immediately prior to that expiration date (as it may be extended), the Company
Shares validly tendered and not withdrawn pursuant to the Offer equal more than
75% but less than 90% of the outstanding Company Shares, and (C) extend the
Offer for any period required by any rule, regulation, interpretation or
position of the Securities and Exchange Commission (the "SEC") or the staff
thereof applicable to the Offer or any other applicable law.
(b) The Per Share Amount shall, subject to applicable withholding
of taxes, be net to the seller in cash, upon the terms and subject to the
conditions of the Offer. Subject to the terms and conditions of the Offer and
this Agreement, the Subsidiary shall, and the Parent shall cause the Subsidiary
to, pay for all shares of Company Common Stock validly tendered and not
withdrawn pursuant to the Offer promptly after the expiration of the Offer.
The Parent shall provide or cause to be provided to the Subsidiary on a timely
basis the funds necessary to pay for any shares of Company Common Stock that
the Subsidiary becomes obligated to accept for payment, and pay for, pursuant
to the Offer or this Agreement.
(c) On the date of commencement of the Offer, the Parent and the
Subsidiary shall file with the SEC a Tender Offer Statement on Schedule 14D-1
with respect to the Offer, which shall contain an offer to purchase and a
related letter of transmittal and summary advertisement (such Schedule 14D-1
and the documents included therein pursuant to which the Offer will be
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made, together with any supplements or amendments thereto, the "Offer
Documents"). The Parent and the Subsidiary agree that the Offer Documents
shall comply as to form in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder and, on the date filed with the SEC and
when first published, sent or given to the Company's stockholders, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Parent or the
Subsidiary with respect to information supplied by the Company for inclusion in
the Offer Documents or incorporated therein by reference to any statement,
report or other document filed by or on behalf of the Company with the SEC.
Each of the Parent, the Subsidiary and the Company agrees to correct promptly
any information provided by it for use in the Offer Documents if and to the
extent that such information shall have become false or misleading in any
material respect, and each of the Parent and the Subsidiary further agrees to
take all steps necessary to amend or supplement the Offer Documents and to
cause the Offer Documents as so amended or supplemented to be filed with the
SEC and to be disseminated to the Company's stockholders, in each case as and
to the extent required by applicable federal securities laws. The Company and
its counsel shall be given reasonable opportunity to review and comment upon
the Offer Documents and all amendments and supplements thereto prior to their
filing with the SEC or dissemination to stockholders of the Company. The
Parent and the Subsidiary agree to provide the Company and its counsel any
comments the Parent, the Subsidiary or their counsel may receive from the SEC
or its staff with respect to the Offer Documents promptly after the receipt of
such comments and shall provide the Company and its counsel an opportunity to
participate in the response of the Parent and/or the Subsidiary to such
comments.
1.2 Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that the Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote of those present
adopted resolutions (i) approving this Agreement, the Offer and the Merger, (ii)
determining that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's stockholders, and (iii) recommending that the
Company's stockholders accept the Offer, tender their shares pursuant to the
Offer and approve this Agreement. Subject to the fiduciary duties of the Board
under applicable law as advised by independent counsel (which may be the
Company's regularly engaged outside counsel) ("Independent Counsel"), the
Company hereby consents to the inclusion in the Offer Documents of the
recommendation of the Board described in the immediately preceding sentence.
The Company has been advised by each of its directors and executive officers
that, subject to their fiduciary and contractual obligations, they intend to
tender all shares of Company Common Stock beneficially owned by them to the
Subsidiary pursuant to the Offer, unless to do so would potentially subject them
to short-swing liability under Section 16 of the Exchange Act.
(b) On the date the Offer Documents are filed with the SEC, or as
soon thereafter as is practicable, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9")
containing, subject to the fiduciary duties of the Board under
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<PAGE> 8
applicable law as advised by Independent Counsel, the recommendation described
in Section 1.2(a) and shall mail the Schedule 14D-9 to the stockholders of the
Company. The Company agrees that the Schedule 14D-9 shall comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder and, on the date filed with the SEC and
when first published, sent or given to the Company's stockholders, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Company with respect
to information supplied by the Parent or the Subsidiary for inclusion in the
Schedule 14D-9. Each of the Company, the Parent and the Subsidiary agrees to
correct promptly any information provided by it for use in the Schedule 14D-9
if and to the extent that such information shall have become false or
misleading in any material respect, and the Company further agrees to take all
steps necessary to amend or supplement the Schedule 14D-9 and to cause the
Schedule 14D-9 as so amended or supplemented to be filed with the SEC and
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable federal securities laws. The Parent and its counsel
shall be given reasonable opportunity to review and comment upon the Schedule
14D-9 and all amendments and supplements thereto prior to their filing with the
SEC or dissemination to stockholders of the Company. The Company agrees to
provide the Parent and its counsel with any comments the Company or its counsel
may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments and shall provide the Parent and
its counsel an opportunity to participate in the response of the Company to
such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish the Subsidiary promptly with mailing labels
containing the names and addresses of the record holders of Company Common
Stock as of the most recent practicable date and of those persons becoming
record holders subsequent to such date, together with copies of all lists of
stockholders, security position listings and computer files and all other
information in the Company's possession or control regarding the beneficial
owners of Company Common Stock, and shall furnish to the Subsidiary such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as the Parent may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, the Parent and the Subsidiary shall hold in confidence the
information contained in any such labels, listings and files, will use such
information only in connection with the Offer and the Merger and, if this
Agreement shall be terminated, will, upon request, deliver to the Company all
copies of such information then in their possession or control.
1.3 Directors. (a) Promptly upon the purchase of Company Shares
by the Subsidiary pursuant to the Offer, seven of the Company's nine directors
will resign, and the Parent shall designate three replacements for appointment
or election to the Company's Board of Directors. The Company shall, upon
request of the Subsidiary, use its best efforts promptly to cause the Parent's
designees to be so appointed or elected. The remaining two directors (and any
successors appointed or elected before the Effective Time, as defined in
Section 2.3 below,
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which successors shall not be affiliated with the Parent) are referred to as
the "Original Directors." The Company shall promptly take all actions required
by Section 14(f) of the Exchange Act and related Rule 14f-1 in order to fulfill
its obligations under this Section 1.3(a), including mailing to stockholders
the required information (or, at the Parent's request, furnishing such
information to the Parent for inclusion in the Offer Documents initially filed
with the SEC and distributed to the stockholders of the Company) as is
necessary to enable the Parent's designees to be elected to the Company's Board
of Directors. The Parent or the Subsidiary will supply the Company in writing,
and be solely responsible for, any information with respect to either of them
and their nominees, officers, directors and affiliates required by such Section
14(f) and Rule 14f-1 as is necessary in connection with the appointment of any
of the Parent's designees under Section 1.3(a).
(b) Once the Parent's designees constitute a majority of the
Company's Board of Directors, any amendment of this Agreement, any termination
of this Agreement by the Company, any extension of time for performance of any
of the obligations of the Parent or the Subsidiary hereunder, any waiver of any
condition or any of the Company's rights hereunder or other action by the
Company hereunder may be effected only by the joint action of the Original
Directors.
SECTION 2. THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, the Subsidiary shall
be merged with and into the Company at the Effective Time (as defined in
Section 2.3). Following the Effective Time, the separate corporate existence
of the Subsidiary shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") as a business corporation
incorporated under the laws of the State of Delaware under a name to be
designated by the Parent and shall succeed to and assume all the rights and
obligations of the Subsidiary and the Company in accordance with the DGCL.
2.2 The Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. Central Time on a date to be specified by the parties
(the "Closing Date"), which shall be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Section 9.1, at
the offices of Haskell Slaughter & Young, L.L.C., Birmingham, Alabama, unless
another date or place is agreed to in writing by the parties hereto.
2.3 Effective Time. Subject to the provisions of this Agreement,
the Company and the Subsidiary shall file a Certificate of Merger (the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL, and shall make all other filings or recordings required under the
DGCL to effect the Merger on the Closing Date. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware, or at such other time as the
Parent, the Subsidiary and the Company shall agree should be specified in the
Certificate of Merger (the "Effective Time").
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2.4 Effect of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto and any other applicable laws, at the Effective
Time, all the properties, rights, privileges, powers and franchises of the
Company and the Subsidiary shall vest in the Surviving Corporation, and all
debts, liabilities, restrictions, disabilities and duties of the Company and
the Subsidiary shall become the debts, liabilities, restrictions, disabilities
and duties of the Surviving Corporation.
SECTION 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; MERGER CONSIDERATION
3.1 Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of any holder of the Company
Shares or any shares of capital stock of the Subsidiary:
(a) Subsidiary Common Stock. Each share of Common Stock, par
value $.01 per share, of the Subsidiary issued and outstanding immediately
prior to the Effective Time shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Certain Shares of Company Common Stock. Each
share of Company Common Stock that is owned by the Company, the Parent or by
any subsidiary of the Company or the Parent shall automatically be canceled and
retired and shall cease to exist, and no cash or other consideration shall be
delivered in exchange therefor.
(c) Conversion of the Company Shares. At the Effective Time, each
Company Share (other than the Company Shares to be canceled in accordance with
Section 3.1(b)) issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive the Per Share Amount (the "Merger
Consideration"). Upon such conversion, all such Company Shares shall be
canceled and cease to exist, and each holder thereof shall cease to have any
rights with respect thereto other than the right to receive the Merger
Consideration paid in exchange therefor in accordance with the terms provided
herein.
(d) No Conversion of Dissenting Shares. Notwithstanding Section
3.1(c), if dissenters rights are available in connection with the Merger
pursuant to Section 262 of the DGCL, shares of Company Common Stock held by a
holder who has not voted in favor of the Merger and who, subject to and in
accordance with Section 262 of the DGCL, has demanded and perfected such
holder's right to an appraisal of such holder's shares of Company Common Stock
and has not effectively withdrawn or lost the right to such appraisal
("Dissenting Shares"), shall not be converted into a right to receive the
Merger Consideration, unless such holder withdraws or otherwise loses the right
to appraisal for such holder's shares of Company Common Stock. If after the
Effective Time such holder withdraws or loses the right to appraisal for such
holder's shares of Company Common Stock, such shares of Company Common Stock
shall be treated as if they had been converted as of the Effective Time into
the right to receive the Merger
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Consideration payable in respect of such shares of Company Common Stock
pursuant to Section 3.1(c).
3.2 Payment of Merger Consideration.
(a) Payment Agent. Prior to the expiration date of the Offer, the
Parent shall designate a bank or trust company reasonably acceptable to the
Company to act as payment agent in the Merger (the "Payment Agent"), and, from
time to time, prior to or after the Effective Time, the Parent shall make
available, or cause the Surviving Corporation to make available, to the Payment
Agent cash in amounts and at the times necessary for the payment of the Merger
Consideration (the "Payment Fund") upon surrender of certificates representing
Company Common Stock as part of the Merger pursuant to Section 3.1.
(b) Exchange Procedure. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Payment Agent to
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Payment Agent and shall be in such form and have such other provisions as the
Parent may specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Payment Agent or to such other agent or
agents as may be appointed by the Parent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Parent that
such tax has been paid or is not applicable. Until surrendered as contemplated
by this Section 3.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
amount of cash, without interest, into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.1. No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate.
(c) Termination of Payment Fund. If any portion of the Payment
Fund remains undistributed to the holders of the Certificates for six months
after the Effective Time, the Parent may require the Payment Agent to deliver
such portion to the Parent, and any holders of the Certificates who have not
theretofore complied with this Section 3 shall thereafter look only to the
Parent for payment of the Merger Consideration.
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(d) No Liability. None of the Parent, the Surviving Corporation
or the Payment Agent shall be liable to any person in respect of any of the
Merger Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(e) Investment of Payment Fund. The Payment Agent shall invest
such portions of the Merger Consideration as the Parent directs (it being
understood that any and all interest earned on funds made available to the
Payment Agent pursuant to this Agreement shall be the property of, and shall be
turned over to, the Parent), provided that such investments shall be in
obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of
America, in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Services, Inc. or Standard & Poor's Corporation, respectively, or in
deposit accounts, certificates of deposit or banker's acceptances of,
repurchase or reverse repurchase agreements with, or Eurodollar time deposits
purchased from, commercial banks with capital, surplus and undivided profits
aggregating in excess of US$100 million (based on the most recent financial
statements of such bank which are then publicly available at the SEC or
otherwise). The Merger Consideration shall not be used for any other purpose,
except as provided in this Agreement.
(f) No Further Ownership Rights in Company Common Stock. All cash
paid upon the surrender of Certificates in accordance with this Section 3 shall
be deemed to have been paid in full satisfaction of all rights pertaining to
the shares of Company Common Stock theretofore represented by such
Certificates, and, from and after the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Payment Agent
for any reason, they shall be cancelled and exchanged as provided in this
Section 3.
3.3 Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of the Subsidiary, effective immediately following
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Time and until thereafter amended as
provided by law and such Certificate of Incorporation; provided, however, that
at the Effective Time of the Merger such Certificate of Incorporation shall be
amended to change the Surviving Corporation's name as contemplated by Section
2.1.
3.4 By-laws of Surviving Corporation. The By-laws of the
Subsidiary shall be the By-laws of the Surviving Corporation from and after the
Effective Time and until thereafter altered, amended or repealed in accordance
with the DGCL, the Certificate of Incorporation of the Surviving Corporation
and the said By-laws.
3.5 Directors and Officers of Surviving Corporation. The
directors and officers of the Subsidiary immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and the
Subsidiary as follows:
4.1 Organization, Existence and Good Standing. The Company is a
Delaware corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company has all necessary
corporate power to own its properties and assets and to carry on its business
as presently conducted.
4.2 Company Capital Stock. The Company's authorized capital
consists of 15 million shares of Common Stock and 1.2 million shares of
preferred stock, no par value (the "Preferred Stock") of which 3,000,758 shares
of Common Stock and no shares of Preferred Stock are issued and outstanding as
of the date of this Agreement. Pursuant to a Rights Agreement, dated as of May
21, 1997, as amended, by and between the Company and American Stock Transfer &
Trust Company, as Rights Agent (the "Rights Agreement"), the Company has issued
to its stockholders certain rights (the "Rights") to purchase shares of Junior
Participating Cumulative Preferred Stock of the Company, which Junior
Participating Cumulative Preferred Stock is, under certain circumstances,
convertible into Company Common Stock. There were 174,252 shares of Company
Common Stock reserved for issuance upon exercise of outstanding Stock Options
(as defined in Section 7.10) as of the date of this Agreement. All of the
issued and outstanding Company Shares are duly and validly issued, fully paid
and nonassessable. Except for the Rights Agreement or as set forth in Exhibit
4.2 to the Disclosure Schedule delivered to the Parent and the Subsidiary by
the Company at the time of the execution and delivery of this Agreement (the
"Company Disclosure Schedule"), there are no options, warrants, or similar
rights granted by the Company or any other agreements to which the Company is a
party providing for the issuance or sale by it of any additional securities
which would remain in effect after the Effective Time. There is no liability
for dividends declared or accumulated but unpaid with respect to any of the
Company Shares.
4.3 Subsidiaries. (a) Exhibit 4.3 to the Company Disclosure
Schedule lists all of the Company's subsidiaries (the "Company Subsidiaries")
and states with respect to each Company Subsidiary, its jurisdiction of
incorporation, its authorized and outstanding capital stock, and the ownership
of its outstanding voting securities. Other than the Company Subsidiaries and
except as described in such Exhibit 4.3, the Company does not own stock in and
does not control, directly or indirectly, any other corporation, association or
business organization, nor does the Company own an equity interest in, or
control, directly or indirectly, any other joint venture or partnership.
(b) Each Company Subsidiary is duly organized in its jurisdiction
of organization, is validly existing and in good standing in that jurisdiction,
and has all necessary corporate power to own its properties and assets and to
carry on its business as presently conducted.
(c) Except as set forth in Exhibit 4.3 to the Company Disclosure
Schedule, (i) all of the issued and outstanding shares of each Company
Subsidiary are duly and validly issued, fully paid and nonassessable, and held
of record and beneficially by the Company, and (ii) there are
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no options, warrants, or similar rights granted by the Company or any Company
Subsidiary, or any other agreements to which the Company or any Company
Subsidiary is a party, providing for the issuance or sale by the Company or any
Company Subsidiary of any Company Subsidiary securities and which would remain
in effect after the Effective Time.
4.4 Foreign Qualifications. The Company and each Company
Subsidiary is qualified to do business and is in good standing in each
jurisdiction where the nature or character of the property owned, leased or
operated by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to so qualify would not have
a material adverse effect on its business or operations.
4.5 Power and Authority. Subject to the satisfaction of the
conditions precedent set forth herein, the Company has the corporate power to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered or to be executed and delivered by it pursuant
to this Agreement, and, subject to the satisfaction of the conditions precedent
set forth herein has taken all action required by its Certificate of
Incorporation, By-laws or otherwise, to authorize the execution, delivery and
performance of this Agreement and such related documents. Except as set forth
in Exhibit 4.5 to the Company Disclosure Schedule, the execution and delivery
of this Agreement does not and, subject to the receipt of required regulatory
approvals (and, in the case of the Merger if less than 90% of the Company
Shares are purchased in the Offer, Company stockholder approval) and any other
required third-party consents or approvals, the consummation of the Offer and
Merger will not, violate any provisions of the Certificate of Incorporation or
By-laws of the Company or any provisions of, or result in the acceleration of
any obligation under, any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree, to which the Company is a party, or by
which it is bound, or violate any restrictions of any kind to which they are
subject which, if violated or accelerated would have a material adverse effect
on the Company.
4.6 SEC Filings; Financial Information. (a) The Company has
filed with the SEC and made available to the Parent all forms, reports and
documents required to be filed with the SEC (the "Company SEC Reports"). The
Company SEC Reports (i) were prepared in all material respects in accordance
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time of filing (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of the Company and its consolidated
subsidiaries as at the respective dates thereof and the consolidated statements
of income and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal
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and recurring year-end adjustments. The unaudited Balance Sheet dated June 30,
1997 included in the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1997 is referred to as the "Company Balance Sheet."
4.7 Contracts, etc. Exhibit 4.7 to the Company's Disclosure
Schedule lists all of the Company's "Material Contracts," defined as all
agreements to which the Company or any Company Subsidiary is a party or by
which any of them is bound, and which, as of the date of this Agreement, (i)
would be required to be filed as "material contracts" with the SEC pursuant to
the Exchange Act, or (ii) under which the consequences of a default, nonrenewal
or termination would have a material adverse effect on the Company
(collectively, the "Material Contracts"). The Company has made the Material
Contracts available to the Parent. Except as set forth in Exhibit 4.7 to the
Company Disclosure Schedule, to the Company's knowledge:
(a) All Material Contracts are (i) legally valid and binding in
accordance with their terms, (ii) in full force and effect, and (iii) do not
violate any federal, state or local law, rule, regulation or ordinance, and the
Company has provided the Parent and the Subsidiary with copies of all such
documents. All parties to the Material Contracts have complied with the
provisions of the Material Contracts, except for such failures as do not,
individually or in the aggregate, have a material adverse effect on the
Company. No party is in default under any Material Contract, and no event has
occurred which, but for the passage of time or the giving of notice or both,
would constitute a default thereunder, except, in each case, where the
invalidity of the Material Contract or the default or breach thereunder or
thereof would not, individually or in the aggregate, have a material adverse
effect on the Company. As of the date hereof, the Company has not received any
notice of termination or cancellation or a request to renegotiate any Material
Contract.
(b) No Material Contract will, by its terms, terminate as a result
of the transactions contemplated hereby or require any consent from any obligor
thereto in order to remain in full force and effect immediately after the
Effective Time, except for contracts or agreements which, if terminated, would
not have a material adverse effect on the Company.
(c) The Company has not granted any right of first refusal or
similar right in favor of any third party with respect to any material portion
of its properties or assets (excluding liens described in Section 4.8) or
entered into any non-competition agreement or similar agreement restricting its
ability to engage in any business in any location.
4.8 Properties and Assets. The Company or one of the Company
Subsidiaries owns or leases all of the real and personal property included in
the Company Balance Sheet (except assets recorded under capital lease
obligations and such property as has been disposed of during the ordinary
course of the Company's business since the date of the Company Balance Sheet),
free and clear of any liens, claims, charges, exceptions or encumbrances,
except for those if any, which in the aggregate are not material and which do
not materially affect the continued use of such property.
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4.9 Legal Proceedings. Except as listed in Exhibit 4.9 to the
Company Disclosure Schedule, there are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against the Company, at law or
in equity, relating to or affecting the Company, that would reasonably be
expected to have a material adverse effect on the Company or the transactions
contemplated by this Agreement.
4.10 Subsequent Events. Except as set forth in Exhibit 4.10 to the
Company Disclosure Schedule or as contemplated by this Agreement, the Company
has not, since the date of the Company Balance Sheet:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than (i)
liabilities shown or reflected on the Company Balance Sheet or (ii)
liabilities incurred or due since the date of the Company Balance
Sheet in the ordinary course of business, which discharge or
satisfaction would have a material adverse effect on the Company.
(c) Increased or established any reserve for taxes or any
other liability on its books or otherwise provided therefor which
would have a material adverse effect on the Company, except as may
have been required due to income or operations of the Company since
the date of the Company Balance Sheet.
(d) Mortgaged, pledged or subjected to any material lien,
charge or other encumbrance any of the assets, tangible or intangible,
which assets are material to the business or financial condition of
the Company.
(e) Sold or transferred any of the assets material to the
consolidated business of the Company, canceled any material debts owed
to the Company or claims reflected as assets on the Company Balance
Sheet, or waived any material rights, except in the ordinary course of
business.
(f) Granted any general or uniform increase in the rates
of pay of employees or any material increase in salary payable or to
become payable by the Company to any officer or employee, consultant
or agent (other than normal increases consistent with past practices),
or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Agreement and any other agreement
executed and delivered pursuant to this Agreement, entered into any
material transaction other than in the ordinary course of business or
permitted under other sections of this Agreement.
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(h) Issued any stock (other than pursuant to the Stock
Incentive Plans, as defined in Section 7.10), bonds or other
securities or any options or rights to purchase any of its securities.
4.11 Accounts Receivable. Since the date of the Company Balance
Sheet, the Company has not changed any principle or practice with respect to
the recordation of accounts receivable or the calculation of reserves therefor,
or any material collection, discount or write-off policy or procedure. The
Company is in compliance with the terms and conditions of all third-party payor
arrangements relating to its accounts receivable, except to the extent that
such noncompliance would not have a material adverse effect on the Company.
4.12 Tax Matters. Except as set forth in Exhibit 4.12 to the
Company Disclosure Schedule:
(a) Prior to its separation from FHP International
Corporation ("FHP") on February 14, 1997, the responsibility for
filing the Tax Returns of each of the Talbert Entities (as defined
below in this Section 4.12) was administered by FHP, and subsequently
by PacifiCare Health Systems, Inc. ("PacifiCare"). Except for any tax
periods prior to February 15, 1997, and based upon the best knowledge
of the officers of the Company:
(i) Each of the Talbert Entities (as defined
below in this Section 4.12) has filed all Tax Returns (as
defined below in this Section 4.12) that it was required to
file. All such Tax Returns were materially correct and
materially complete in all respects. All material Taxes (as
defined below in this Section 4.12) owed by any of the Talbert
Entities (whether or not shown on any Tax Return) have been
paid. None of the Talbert Entities currently is the
beneficiary of any extension of time within which to file any
Tax Return. No material claim has ever been made by an
authority in a jurisdiction where any of the Talbert Entities
does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no material security
interests on any of the assets of any of the Talbert Entities
that arose in connection with any failure (or alleged failure)
to pay any Tax.
(ii) Each of the Talbert Entities has withheld and
paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third
party.
(iii) There is no material dispute or claim
concerning any Tax liability of any of the Talbert Entities
either (A) claimed or raised by any authority in writing or
(B) as to which any of the officers (and employees responsible
for Tax matters) of the Talbert Entities has knowledge based
upon personal contact with any agent of such authority.
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(iv) None of the Talbert Entities has waived any
statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or
deficiency.
(v) None of the Talbert Entities has filed a
consent under Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code") concerning collapsible
corporations. None of the Talbert Entities has been a United
States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified
in Code Section 897(c)(1)(A)(ii). Except as set forth on
Exhibit 4.12(a) to the Company Disclosure Schedule, none of
the Talbert Entities is a party to any Tax allocation or
sharing agreement. Except as set forth on such Exhibit
4.12(a), none of the Talbert Entities has any liability for
the Taxes of any person (other than any of the Talbert
Entities) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(vi) The unpaid Taxes of the Talbert Entities (A)
did not, as of June 30, 1997, materially exceed the reserve
for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax
income) set forth in the Company Balance Sheet (or in any
notes thereto) and (B) do not materially exceed that reserve
as adjusted for the passage of time through the consummation
of the Offer in accordance with the past custom and practice
of the Talbert Entities in filing their Tax Returns.
(vii) As of February 28, 1997, the Company and the
Company Subsidiaries did not have any receivables from or any
liabilities payable to any of the other Talbert Entities.
(viii) As discussed in Section 6, the Company has
made or will make available to the Parent all Tax Returns and
tax records of the Talbert Entities (or copies of such returns
or records) currently in possession of any of the Talbert
Entities.
(b) With respect to the June 30, 1996 Tax Returns filed
by FHP, the officers of the Company are not aware of any failure by
FHP to include the Talbert Entities in its: (i) consolidated federal
income tax return as members of an affiliated group within the meaning
of Code Section 1504(a), (ii) California unitary return as members of
a unitary group, (iii) Arizona combined return as members of a unitary
business or (iv) combined Utah return as members of a unitary group.
(c) The officers of the Company are not aware of any
material unrecorded liabilities for Taxes for any of the Talbert
Entities nor any material
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unrecorded liabilities to FHP under the Tax Allocation Agreement
listed in Exhibit 4.12 to the Company Disclosure Schedule for the
periods preceding February 15, 1997.
(d) The officers of the Company are not aware of any Tax
Returns due for the Talbert Entities for Tax periods preceding
February 15, 1997 which FHP has not timely filed or caused to be
filed.
(e) The Company shall use its reasonable efforts to
obtain copies of all Tax returns (or portions of returns related to
any of the Talbert Entities) filed on behalf of the Talbert Entities
that are in the possession of PacifiCare or its related entities and
shall make such available to the Parent prior to the Closing Date.
(f) Prior to February 14, 1997, the Company was dormant
and had no material operations.
(g) To the Company's knowledge, FHP has never owned of
record any shares of common stock of the Company.
(h) Definitions: "Talbert Entities" means the Company,
Talbert Medical Management Corporation, Talbert Health Services
Corporation. Robert Anderson, DDS, Inc. (CA), (dba Talbert Dental
Group); James Brodahl, DDS, Inc. (CA), (dba Talbert Dental Group);
Larry Kaban, DDS, Inc. (CA), (dba Talbert Dental Group); John Whitley,
DDS, Inc. (CA), (dba Talbert Dental Group); Talbert Medical Group,
Inc. (CA), (dba Talbert Medical Group); Talbert Medical Group, LTD.
(NV); Talbert Dental Group, P.C. (AZ); Talbert Medical Group, P.C.
(AZ); Talbert Dental Group, Inc. (UT); and Talbert Medical Group, Inc.
(UT).
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
4.13 Employee Benefit Plans; Employment Matters. (a) Except as set
forth in Exhibit 4.13(a) to the Company Disclosure Schedule, the Company has
neither established nor
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maintained nor is obligated to make contributions to or under or otherwise
participate in (i) any bonus or other type of incentive compensation plan,
program or arrangement (whether or not set forth in a written document), (ii)
any pension, profit-sharing, retirement or other plan, program or arrangement,
or (iii) any other employee benefit plan, fund or program, including, but not
limited to, those described in Section 3(3) of ERISA. To the Company's
knowledge, all such plans listed in such Exhibit 4.13(a) (individually, a
"Company Plan" and collectively, the "Company Plans") have been operated and
administered in all material respects in accordance with, as applicable, ERISA,
the Code, the Age Discrimination in Employment Act of 1967, as amended, and the
related rules and regulations adopted by those federal agencies responsible for
the administration of such laws. To the Company's knowledge, no act or failure
to act by the Company has resulted in a "prohibited transaction" (as defined in
ERISA) with respect to the Company Plans that is not subject to a statutory or
regulatory exception and that could have a material adverse effect on the
Company. No "reportable event" (as defined in ERISA, but excluding any event
for which notice is waived under the ERISA regulations) has occurred with
respect to any of the Company Plans which is subject to Title IV of ERISA. The
Company has not previously made, is not currently making, and is not obligated
in any way to make, any contributions to any multi-employer plan within the
meaning of the Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as set forth in Exhibit 4.13(b) to the Company
Disclosure Schedule, the Company is not a party to any oral or written (i)
union, guild or collective bargaining agreement which agreement covers
employees in the United States (nor is it aware of any union organizing
activity currently being conducted in respect to any of its employees), (ii)
agreement with any executive officer or other key employee the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction of the nature contemplated by this Agreement and
which provides for the payment of in excess of Twenty-Five Thousand Dollars
($25,000.00), or (iii) agreement or plan, including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement (except as
set forth in this Agreement).
4.14 Compliance with Laws in General. Except as set forth in
Exhibit 4.14 to the Company Disclosure Schedule, the Company has not received
any notices of, nor to the best of its knowledge, have there been any,
violations of any federal, state and local laws, regulations and ordinances
relating to its business and operations that would have a material adverse
effect on the Company, including, without limitation, the Occupational Safety
and Health Act, the Americans with Disabilities Act, the Medicare or applicable
Medicaid statutes and regulations, including billing and coding, and any
Environmental Laws, and no notice of any pending inspection or violation of any
such law, regulation or ordinance has been received by the Company which, if it
were determined that a violation had occurred, would have a material adverse
effect on the Company.
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4.15 Regulatory Approvals. Except as set forth in Exhibit 4.15 to
the Company Disclosure Schedule, to the knowledge of the Company, the Company
holds all licenses, certificates of need and other regulatory approvals
required or necessary to be applied for or obtained in connection with its
business as presently conducted or as proposed to be conducted, except where
the failure to obtain such license, certificate of need or regulatory approval
would not have a material adverse effect on the Company. All such licenses,
certificates of need and other regulatory approvals relating to the business,
operations and facilities of the Company are in full force and effect, except
where any failure of such license, certificate of need or regulatory approval
to be in full force and effect would not have a material adverse effect on the
Company. Any and all past litigation concerning such licenses, certificates of
need and regulatory approvals, and all claims and causes of action raised
therein, has been finally adjudicated. No such license, certificate of need or
regulatory approval has been revoked, conditioned (except as may be customary)
or restricted, and no action (equitable, legal or administrative), arbitration
or other process is pending, or to the best knowledge of the Company,
threatened, which in any way challenges the validity of, or seeks to revoke,
condition or restrict any such license, certificate of need, or regulatory
approval. Subject to compliance with applicable securities laws and the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), the
consummation of the Merger will not violate any law or restriction to which the
Company is subject which, if violated, would have a material adverse effect on
the Company.
4.16 Commissions and Fees. There are no valid claims for brokerage
commissions or finder's or similar fees in connection with the transactions
contemplated by this Agreement which may be now or hereafter asserted against
the Parent or the Company resulting from any action taken by the Company or its
officers, Directors or agents, or any of them, except for fees owed to Smith
Barney Inc.
4.17 No Untrue Representations. No representation or warranty by
the Company in this Agreement, and no Exhibit or certificate issued by the
Company and furnished or to be furnished to the Parent and the Subsidiary
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact in response to
the disclosure requested, or omits or will omit to state a material fact
necessary to make the statements or facts contained therein in response to the
disclosure requested not misleading in light of all of the circumstances then
prevailing.
4.18 Amendment of Rights Agreement. The Rights Agreement has been
duly and validly amended to the extent necessary to permit the Parent and the
Subsidiary to perform their obligations under this Agreement and consummate the
transactions contemplated hereby.
4.19 14D-1 Information. The information supplied, and to be
supplied to, the Parent in writing by the Company for inclusion in the Parent's
Schedule 14D-1 shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
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SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE
SUBSIDIARY
Each of the Parent and the Subsidiary hereby, jointly and severally,
represent and warrant to the Company as follows:
5.1 Organization, Existence and Good Standing of the Parent and
Subsidiary.
(a) The Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Parent has
all necessary corporate power and authority to own its properties and assets
and to carry on its business as presently conducted. The Parent is qualified
to do business and is in good standing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect.
(b) The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Subsidiary's authorized capital consists of 1,000 shares of Common Stock, par
value $.01 per share, all of which shares are validly issued and outstanding,
fully paid and registered in the name of and owned by the Parent free and clear
of all liens, claims and encumbrances. The Subsidiary has all necessary
corporate power and authority to own its properties and assets and to carry on
its business as presently conducted. The Subsidiary is qualified to do
business and is in good standing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect.
5.2 Power and Authority; Non-Contravention.
(a) Each of the Parent and the Subsidiary has all necessary
corporate power and authority to execute, deliver and perform this Agreement
and all agreements and other documents executed and delivered, or to be
executed and delivered, by it pursuant to this Agreement, and, subject to the
satisfaction of the conditions precedent set forth herein, has taken all
actions required by law, its Certificate of Incorporation, its By-laws or
otherwise, to authorize the execution and delivery of this Agreement and such
related documents. The Agreement has been duly and validly executed and
delivered by the Parent and the Subsidiary and, assuming the due authorization,
execution and delivery by the Company, constitutes the legal, valid and binding
obligation of each of them, enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement does not and,
subject to compliance with the HSR Act, the consummation of the transactions
contemplated hereby will not, violate any provisions of the Certificate of
Incorporation or By-laws of either the Parent or the Subsidiary, or any
agreement, instrument, order, judgment or decree to which the Parent or the
Subsidiary is a party or by which either is bound, violate any restrictions of
any kind to which the Parent or the Subsidiary is subject, or result in the
creation of any lien, charge or encumbrance upon any of the property or assets
of the Subsidiary.
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5.3 Brokers. There are no claims for brokerage commissions,
investment bankers' fees or finder's fees in connection with the transaction
contemplated by this Agreement resulting from any action taken by either the
Parent or the Subsidiary or any of its officers, directors or agents, except
for fees owed to NationsBanc Capital Markets, Inc.
5.4 No Subsidiaries. The Subsidiary does not own stock in, and
does not control directly or indirectly, any other corporation, association or
business organization. The Subsidiary is not a party to any joint venture or
partnership.
5.5 Legal Proceedings. There are no actions, suits or proceedings
pending or threatened against either the Parent or the Subsidiary, that could
reasonably be expected to have a material adverse effect on the ability of the
Parent or the Subsidiary to consummate the transactions contemplated by this
Agreement.
5.6 No Contracts or Liabilities. The Subsidiary was formed solely
for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only
as contemplated hereby. Other than the obligations created under this
Agreement, the Subsidiary has no obligations or liabilities (contingent or
otherwise) under any contracts, claims, leases, loans or otherwise.
5.7 Available Funds. The Parent has funds available sufficient to
consummate the Offer and the Merger on the terms contemplated by this
Agreement. The Parent and the Subsidiary acknowledge, however, that they are
in any case obligated to accept for payment and promptly pay for all Company
Shares validly tendered pursuant to the Offer, subject to the conditions of the
Offer, and to consummate the Merger as contemplated by this Agreement.
5.8 The Parent to Cause Subsidiary to Perform. The Parent shall
cause the Subsidiary to fulfill the Subsidiary's covenants and obligations
under this Agreement.
5.9 Other Transactions. The Parent and its affiliates are not
engaged in, or intending to engage in or announce, prior to the Effective Time,
any other acquisition or similar transaction in the markets served by the
Company and the Company Subsidiaries.
5.10 14D-9 Information. The information supplied, and to be
supplied, to the Company in writing by the Parent and the Subsidiary for
inclusion in the Company's Schedule 14D-9 shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
5.11 Company Shares. Neither the Parent nor any of its affiliates
holds as of the date of this Agreement, or shall hold at any time prior to the
consummation of the Offer, any Company Shares.
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SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS
6.1 Access to Information. Between the date hereof and the
Closing Date, the Company will give to the Parent and its counsel, accountants
and other representatives reasonable access to all the Company's properties,
documents, contracts, personnel files and other records and shall furnish the
Parent with copies of such documents and with such information with respect to
the Company's affairs as the Parent may from time to time reasonably request.
The Company will disclose and make available to the Parent and its
representatives all books, contracts, accounts, personnel records, letters of
intent, papers, records, communications with regulatory authorities and other
documents relating to the business and operations of the Company. In addition,
the Company shall make available to the Parent all such banking, investment and
financial information as shall be necessary to allow for the efficient
integration of the Company's banking, investment and financial arrangements
with those of the Parent at the Effective Time.
6.2 Return of Records. If the transactions contemplated hereby
are not consummated and this Agreement terminates, each party agrees to
promptly return all documents, contracts, records or properties of the other
party, all copies thereof furnished pursuant to this Section 6 or otherwise,
and all copies thereof made by or for the receiving party, and agrees to
promptly destroy any analyses, evaluations, compilations or other materials
derived from such documents. All information disclosed by any party or any
affiliate or representative of any party shall be deemed to be "Evaluation
Material" under the terms of the Confidentiality Agreement, dated July 23,
1997, between the Company and the Parent (the "Confidentiality Agreement").
6.3 Effect of Access. Nothing contained in this Section 6 shall
be deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party. With respect
to matters as to which any party has made express representations or warranties
herein, the parties shall be entitled to rely upon such express representations
and warranties irrespective of any investigations made by such parties, except
to the extent that such investigations result in actual knowledge of the
inaccuracy or falsehood of particular representations and warranties.
SECTION 7. COVENANTS
7.1 Preservation of Business. From the date of this Agreement,
the Company will use its commercially reasonable best efforts to preserve the
business organization of the Company intact, to keep available to the Parent
and the Surviving Corporation the services of the present employees of the
Company, and to preserve for the Parent and the Surviving Corporation the
goodwill of the suppliers, customers and others having business relations with
the Company.
7.2 Material Transactions. Prior to the Effective Time, the
Company will not (other than as contemplated by the terms of this Agreement and
the related documents, other than in
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the ordinary course of business and consistent with prior practice, and other
than with respect to transactions for which binding commitments have been
entered into prior to the date hereof and transactions described in Exhibit 7.2
to the Company Disclosure Schedule which do not vary materially from the terms
set forth on such Exhibit 7.2), without first obtaining the written consent of
the Parent, which consent shall not be unreasonably withheld:
(a) Encumber any material asset or enter into any
material transaction or make any material contract or commitment
relating to the properties, assets and business of the Company, other
than in the ordinary course of business or as otherwise disclosed
herein.
(b) Enter into any employment contract which is not
terminable upon notice of 30 days or less, at will, and without
penalty to the Company except as provided herein.
(c) Enter into any contract or agreement (i) which cannot
be performed within three months or less, or (ii) which involves the
expenditure of over One Hundred Thousand Dollars ($100,000).
(d) Make any payment or distribution to the trustee under
any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with the Company's usual past practice, or, except as
required pursuant to the Employee Benefits and Compensation Allocation
Agreement dated as of February 14, 1997 between the Company and FHP,
make any payment or contributions or incur any obligation pursuant to
or in respect of any other plan or contract or arrangement providing
for bonuses, executive incentive compensation, pensions, deferred
compensation, retirement payments, profit-sharing or the like,
establish or enter into any such plan, contract or arrangement, or
terminate any plan.
(e) Extend credit to anyone, except in the ordinary
course of business consistent with prior practices.
(f) Guarantee the obligation of any person, firm or
corporation other than the Talbert Entities, except in the ordinary
course of business consistent with prior practices.
(g) Amend its Certificate of Incorporation or By-laws.
(h) Take any action described in Section 4.10(b) to
4.10(h), inclusive.
7.3 Exemption from State Takeover Laws. The Company shall take
all reasonable steps necessary and within its power to exempt the Offer and the
Merger from the requirements of any state takeover statute or other similar
state law which would prevent or impede the consummation of the transactions
contemplated hereby.
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7.4 Public Disclosures. The Parent and the Company will consult
with each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation except as may be required by applicable law or
requirements of the NYSE or NASDAQ. The parties shall issue a joint press
release, mutually acceptable to the Parent and the Company, promptly upon
execution and delivery of this Agreement.
7.5 Resignation of Company Directors. At the Effective Time, the
Original Directors shall be deemed to have resigned.
7.6 Notice of Subsequent Events. Each party hereto shall notify
the other parties of any changes, additions or events of which they have
knowledge which would cause any material change in or material addition to any
Exhibit to its Disclosure Schedule delivered by the notifying party under this
Agreement, promptly after the occurrence of the same. If the effect of such
change or addition would, individually or in the aggregate with the effect of
changes or additions previously disclosed pursuant to this Section 7.6,
constitute a material adverse effect on the notifying party, the non-notifying
party may, within ten days after receipt of such notice and so long as Company
Shares have not been purchased in the Offer, elect to terminate this Agreement.
If the non-notifying party does not give written notice of such termination
within such 10-day period, the non-notifying party shall be deemed to have
consented to such change or addition and shall not be entitled to terminate
this Agreement by reason thereof.
7.7 No Solicitations. The Company shall not, directly or
indirectly, furnish information and access, in response to unsolicited requests
therefor, to any corporation, partnership, person or other entity or group,
participate in discussions and negotiate with such corporation, partnership,
person or other entity or group concerning any proposal to acquire such party
upon a merger, purchase of assets, purchase of or tender offer for shares of
its Common Stock or similar transaction (an "Acquisition Transaction").
Notwithstanding the foregoing, if prior to the acceptance for payment of
Company Shares pursuant to the Offer, the Board of Directors, after receiving
advice from outside legal counsel to the Company, determines that a failure to
act would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable law, the Company may (i) furnish information
about and access to the Company to any third party in response to an
unsolicited request pursuant to a confidentiality agreement with terms and
conditions similar to the Confidentiality Agreement, (ii) participate in
discussions and negotiations regarding any potential Acquisition Transaction,
and/or (iii) terminate this Agreement. The Company shall notify the Parent of
any unsolicited request for information and access in connection with a
possible Acquisition Transaction involving such party, such notification to
include the identity of such third party and the proposed material terms of
such possible Acquisition Transaction.
7.8 Other Actions. Subject to the provisions of Section 7.6
hereof, none of the Company, the Parent and the Subsidiary shall knowingly or
intentionally take any action, or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of its
representations and warranties set forth herein being or becoming untrue in any
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material respect, or in any of the conditions to the Offer set forth in this
Agreement not being satisfied, or (unless such action is required by applicable
law) which would materially adversely affect the ability of the Company or the
Parent to obtain any consents or approvals required for the consummation of the
Offer or the Merger without imposition of a condition or restriction which
would have a material adverse effect on the Surviving Corporation or (unless
such action is permitted by Section 7.7) which would otherwise materially
impair the ability of the Company or the Parent to consummate the Offer and the
Merger in accordance with the terms of this Agreement or materially delay such
consummation.
7.9 Cooperation. (a) The Parent, the Subsidiary and the Company
shall together, or pursuant to an allocation of responsibility agreed to
between them, (i) cooperate with one another in determining whether any filings
required to be made or consents required to be obtained in any jurisdiction
prior to the Effective Time in connection with the consummation of the
transactions contemplated hereby and cooperate in making any such filings
promptly and in seeking to obtain timely any such consents, (ii) cooperate with
one another in coordinating the plan devised by the Parent for the swift
integration of the Company and the Company Subsidiaries with the operations of
the Parent as soon as practicable after the Effective Time, (iii) use their
respective best efforts to cause to be lifted any injunction prohibiting the
Merger, or any part thereof, or the other transactions contemplated hereby, and
(iv) furnish to one another and to one another's counsel all such information
as may be required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and
unless this Agreement shall have been validly terminated as provided herein,
each of the Parent, the Subsidiary and the Company shall use all reasonable
efforts (i) to take, or cause to be taken, all actions necessary to comply
promptly with all legal requirements which may be imposed on such party (or any
subsidiaries or affiliates of such party) with respect to this Agreement and to
consummate the transactions contemplated hereby and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity and/or any other
public or private third party which is required to be obtained or made by such
party or any of its subsidiaries or affiliates in connection with this
Agreement and the transactions contemplated hereby. Each of the Parent, the
Subsidiary and the Company will promptly cooperate with and furnish information
to the other in connection with any such burden suffered by, or requirement
imposed upon, either of them or any of their subsidiaries or affiliates in
connection with the foregoing.
7.10 Additional Agreements Regarding Benefit Plans. (a) As soon as
practicable following the date of this Agreement, the Board of Directors of the
Company (or, if appropriate, any committee administering the Stock Incentive
Plans (as defined below)) shall adopt such resolutions or take such other
actions (if any) as are required to provide that each outstanding stock option
to purchase shares of Company Common Stock (a "Stock Option") heretofore
granted under any stock option or stock purchase plan, program or arrangement
or other option agreement or contingent stock grant plan of the Company or any
of its subsidiaries (collectively, the "Stock Incentive Plans") shall be
accelerated so as to be fully exercisable on or prior to the consummation of
the Offer, and the Company shall assure that (i) any Stock Options (other than
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options granted under Article 7 of the Talbert Medical Management Holdings
Corporation 1996 Stock Incentive Plan) may be exercised and the corresponding
Company Common Stock be available to be tendered pursuant to the Offer, except
to the extent that such tender could result in short-swing profit liability
under Section 16 of the Exchange Act, (ii) Stock Options granted under Article
7 of the Talbert Medical Management Holdings Corporation 1996 Stock Incentive
Plan, except for any Stock Option granted within six months of the termination
of such Stock Option, shall be fully exercisable on consummation of the Offer
and prior to any of the resignations contemplated pursuant to Section 1.3, and
(iii) any Stock Options not tendered that remain outstanding immediately after
the consummation of the Offer shall no later than immediately prior to the
consummation of the Merger, be converted into, surrendered in exchange or
otherwise settled for an amount in cash from the Company, payable at the time
of such conversion, exchange or settlement, equal to the product of (x) the
number of shares of Company Common Stock then subject to the Stock Option and
(y) the excess of the Per Share Amount over the per share exercise price of the
Stock Option, subject, in each case to any applicable withholding taxes. A
listing of all outstanding Stock Options as of August 14, 1997, showing the
portions of such Stock Options that are exercisable as of such date, the dates
upon which such Stock Options expire and the exercise price of such Stock
Options, is set forth in Exhibit 7.10 of the Company Disclosure Schedule.
(b) All Stock Incentive Plans shall terminate as of the Effective
Time, and the Company shall use its best efforts to ensure that following the
Effective Time no holder of a Stock Option or any participant in any Stock
Incentive Plan shall have any right thereunder to acquire any capital stock of
the Company, the Parent or the Subsidiary.
(c) All service credited to each employee by the Company through
the Effective Time shall be recognized by the Parent for all purposes,
including for purposes of eligibility, vesting and benefit accruals under any
employee benefit plan provided by the Surviving Corporation or the Parent for
the benefit of the employees; provided, however, that, to the extent necessary
to avoid duplication of benefits, amounts payable under employee benefit plans
provided by the Surviving Corporation or the Parent may be reduced by amounts
payable under similar Company plans with respect to the same periods of
service.
(d) The Parent hereby agrees not to take any action, or omit to
take any action, that would cause the Surviving Corporation not to honor
(without modification) and assume the employment agreements, executive
termination agreements and individual benefit arrangements listed in Exhibit
4.13(a) to the Company Disclosure Schedule, all as in effect on the date hereof
or as amended after the date hereof with the Parent's consent pursuant to
Section 7.2.
(e) To provide bonuses for certain employees who do not
participate in the Company's Management Incentive Program, and to reward them
for staying with the Company to facilitate the transactions contemplated by
this Agreement, the Parent shall contribute US $923,000 to be paid to the
employees, and in the amounts, listed in the schedule attached to the letter
agreement of even date herewith between the Company and the Parent. These
respective amounts shall be paid on January 1, 1998 to the listed employees
then employed by the Surviving Corporation or any of its affiliates. If any
listed employee is terminated before
24
<PAGE> 29
January 1, 1998, other than for cause, he or she will be paid the designated
amount on the effective date of termination.
(f) The Parent hereby agrees to cause the Company and the
Surviving Corporation to pay, at the time of the consummation of the Offer, to
each employee currently participating in the Company's Management Incentive
Program cash awards in the amounts listed on the schedule attached to the
letter agreement of even date herewith between the Company and the Parent.
7.11 Physician Warrants. As soon as possible following the
purchase of Company Shares pursuant to the Offer, the Parent shall offer to
those physicians who are employed by Talbert Medical Group, Inc. (CA) (dba
Talbert Medical Group), Talbert Medical Group, Ltd. (NV), Talbert Medical
Group, P.C. (AZ), or Talbert Medical Group, Inc. (UT) and who are designated by
the Company before such purchase warrants to purchase the common stock of the
Parent (the "Warrants"). The Warrants shall be issued pursuant to Warrant
Agreements in substantially the form attached as Exhibit 7.11. Promptly
following the purchase of Company Shares in the Offer, the Parent shall cause
the offer and sale of the Warrants to be registered under the Securities Act of
1933.
7.12 Indemnification and Insurance. (a) The Parent and the
Subsidiary agree that all rights to indemnification for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors, officers, employees and agents (the "Indemnified Parties") of
the Company and its subsidiaries as provided in their respective articles of
incorporation or by-laws (or similar organizational documents) shall survive
the Merger and shall continue in full force and effect in accordance with their
terms for a period of not less than six years. From and after the Effective
Time and for a period of not less than six years thereafter, the Parent shall,
and shall cause the Surviving Corporation to, indemnify and hold harmless any
and all Indemnified Parties to the full extent such persons may be indemnified
under applicable law, their respective certificates of incorporation or by-laws
(or similar organizational documents) or pursuant to indemnification agreements
as in effect on the date of this Agreement for acts or omissions occurring at
or prior to the Effective Time, and the Parent shall, or shall cause the
Surviving Corporation to, advance litigation expenses incurred by such persons
in connection with defending any action arising out of such acts or omissions
to the extent permitted by law or as otherwise provided by the respective terms
and provisions of such certificates of incorporation, by-laws, similar
documents or indemnification agreements as in effect on the date hereof.
(b) For not less than four years from the Effective Time, the
Parent shall cause to be maintained in effect directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy (a copy of which
has been heretofore delivered to the Parent) on terms (including coverage
amounts) comparable to those now applicable under the current Company policy;
provided, however, that in no event shall the Parent be required to pay a
premium in any one year in an amount in excess of 175% of the annual premium
paid by the Company (which annual premium the Company represents and warrants
to be approximately US$282,000); and provided further that
25
<PAGE> 30
if the annual premiums of such insurance coverage exceed such amount, the
Parent shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
(c) This Section 7.12 shall survive the consummation of the
Merger, is intended to benefit the Company, the Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of the Parent and the Surviving Corporation.
7.13 Antitrust. The Parent, the Subsidiary and the Company shall
take such actions as may be necessary to obtain any governmental consents,
orders or approvals required for the consummation of the Offer and the Merger,
or to avoid the imposition of any prohibition or the seeking of any restraining
order or similar act. Such actions may include the making of filings and
requests for extensions and waivers. Such actions may also include the sale or
other disposition of assets.
7.14 Share Repurchase. Before the Closing Date and after the
purchase of Company Shares pursuant to the Offer, the Company shall, and the
Parent shall cause the Company to, purchase, for a cash consideration equal to
the Per Share Amount, from any current or former director or officer of the
Company whose service with the Company is terminated for any reason between the
consummation of the Offer and the Closing Date, all shares of Company Common
Stock held by any such individual who desires so to sell such shares, promptly
upon delivery to the Company of the certificates therefor for cancellation.
SECTION 8. TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time
prior to the purchase of Company Shares pursuant to the Offer:
(a) by mutual written consent of the Parent, the Subsidiary and
the Company;
(b) by either the Parent or the Company;
(i) if a United States federal or state court of
competent jurisdiction or other United States federal or state
governmental entity shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the Offer (or the acceptance of or payment for Company
Shares) or the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; provided, that the party
seeking to terminate this Agreement shall have used all reasonable
efforts to remove such order, decree, ruling or other action;
(ii) if, before the purchase of Company Shares in the
Offer, there is, or is discovered, a material breach by the other
party of any representation, warranty, covenant or other agreement
contained in this Agreement that cannot
26
<PAGE> 31
be or has not been cured within 10 days after the occurrence or
discovery of such breach by the breaching party, whichever is later (a
"Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other
agreement contained in this Agreement);
(c) by the Company if the Parent and the Subsidiary fail to
commence the Offer in accordance with this Agreement, or if the Offer expires
without the purchase of Company Shares pursuant to the Offer; or
(d) by the Company under the circumstances described in the second
sentence of Section 7.7.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 7.4, 8.2 and 8.6, and except
to the extent that such termination results from the willful and material
breach by a party of any of its representations, warranties, covenants or other
agreements set forth in this Agreement.
8.3 Amendment. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the holders of the Company Shares; provided,
however, that after such approval, there shall be made no amendment that
pursuant to Section 251(d) of the DGCL requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.3, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of each of the
Parent, the Subsidiary and the Company, action by its Board of Directors or the
duly authorized designee of the Board of Directors. Once the Subsidiary's
designees are appointed or elected to the Board of Directors of the Company as
provided in Section 1.3, the affirmative vote of the Original Directors shall
be required for the Company to agree to any such termination, amendment,
extension or waiver.
27
<PAGE> 32
8.6 Termination Fee; Expenses. In the event of a termination of
this Agreement by the Company pursuant to Section 8.1(d), the Company shall pay
to the Parent, in immediately available funds, the sum of $8 million and shall
promptly reimburse upon demand therefor (up to a maximum amount of $2 million)
all documented out-of-pocket expenses incurred by Parent and Subsidiary in
connection with the transactions contemplated by this Agreement. In the event
that Company Shares are not purchased pursuant to the Offer, the Parent shall
pay to the Company, in immediately available funds, the sum of $8 million and
shall promptly reimburse upon demand therefor (up to a maximum amount of $2
million) all documented out-of-pocket expenses incurred by the Company in
connection with the transactions contemplated by this Agreement, unless such
failure to purchase Company Shares is (i) attributable solely to an event of
the kind described in Section 8.1(b)(i) that is not the result of any action or
inaction by the Parent or the Subsidiary which constitutes a breach of this
Agreement, (ii) attributable solely to Parent's valid termination of this
Agreement pursuant to Section 8.1(b)(ii) by reason of the Company's breach of a
representation, warranty, covenant or agreement set forth in this Agreement, or
(iii) attributable solely to a failure of a condition set forth in Exhibit 1.1
by reason of any act, event or circumstance that is beyond the control of the
Parent and the Subsidiary. Notwithstanding this Section 8.2, no payment of the
fee contemplated by this Section 8.6 shall relieve any party to this Agreement
from liability to another for its willful and material breach of any of its
representations, warranties, covenants or other agreements set forth in this
Agreement. Except as otherwise required by the preceding sentences of this
Section 8.6, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense.
SECTION 9. CONDITIONS TO THE CLOSING
9.1 Mutual Conditions. The respective obligations of each party
to effect the Merger shall be subject to the satisfaction, at or prior to the
Closing Date, of the following conditions (any of which may be waived in
writing by the Parent, the Subsidiary and the Company, to the extent permitted
by applicable law):
(a) None of the Parent, the Subsidiary or the Company nor any of
their respective subsidiaries shall be subject to any order, decree or
injunction by a United States federal or state court of competent jurisdiction
which prevents the consummation of the Merger.
(b) No statute, rule or regulation shall have been enacted or
promulgated by the government or any governmental agency of the United States
or any state that prohibits the consummation of the Merger.
(c) The Subsidiary shall have purchased and paid for Company
Shares pursuant to the Offer.
(d) Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
28
<PAGE> 33
(e) If required by law, the holders of shares of the Company
Common Stock shall have approved the adoption of this Agreement.
SECTION 10. MISCELLANEOUS
10.1 Nonsurvival of Representations and Warranties. None of the
Company's representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the purchase of Company
Shares in the Offer. All covenants and agreements set forth in this Agreement
shall survive in accordance with their terms.
10.2 Notices. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery
or by facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as a party may advise the other in writing
from time to time:
If to the Parent or the Subsidiary:
MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attention: President
Fax: (205) 733-4154
with a copy to:
Haskell Slaughter & Young, L.L.C.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35244
Attention: Robert E.L. Garner, Esq.
Fax: (205) 324-1133
If to the Company:
Talbert Medical Management Holdings Corporation
3540 Howard Way
Costa Mesa, California 92626
Attention: President
Fax: 714-436-4860
29
<PAGE> 34
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Attention: C. James Levin, Esq.
Fax: 213-669-6407
All such communications shall be deemed to have been delivered on the
date of hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
10.4 Governing Law. This Agreement shall be interpreted, construed
and enforced with the laws of the State of Delaware, applied without giving
effect to any conflicts-of-law principles.
10.5 Knowledge. "To the knowledge", "to the best knowledge,
information and belief", or any similar phrase shall be deemed to refer to the
knowledge of the Chief Executive Officer or Chief Financial Officer of a party
and to include the assurance that such knowledge is based upon a reasonable
investigation, unless otherwise expressly provided.
10.6 Material Adverse Change or Material Adverse Effect. "Material
adverse change" or "material adverse effect" means, when used in this Agreement
or Exhibit 1.1 hereto in connection with the Company or the Parent, any change,
effect, event or occurrence that has, or is reasonably likely to have,
individually or in the aggregate, a material adverse impact on the business or
financial position of such party and its subsidiaries and other controlled
entities identified herein or in any Schedule or Disclosure Schedule delivered
pursuant to this Agreement, including the subsidiaries and other entities,
taken as a whole; provided, however, that "material adverse change" and
"material adverse effect" shall be deemed to exclude the impact of (i) changes
in generally accepted accounting principles, (ii) changes in applicable law,
(iii) changes or effects of any kind that impact the party's industry generally
or, as to the Company, Southern California, (iv) changes in Medicare
reimbursement rates, (v) changes or effects that are reasonably expected to
have only short-term impacts on the party, (vi) changes or effects arising from
the announcement of this Agreement or from any party's performance under this
Agreement, and (vii) any changes resulting from any restructuring or other
similar charges or write-offs taken by the Company with the consent of the
Parent.
10.7 Hazardous Materials. The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
ground, in any surface or underground water, airborne in ambient
30
<PAGE> 35
air or in the air inside any structure built or located upon or below the
surface of the ground or in building materials or in improvements of any
structures, or in any personal property located or used in any such structure,
including, but not limited to, all hazardous substances, imminently hazardous
substances, hazardous wastes, toxic substances, infectious wastes, pollutants
and contaminants from time to time defined, listed, identified, designated or
classified as such under any Environmental Laws (as defined in Section 10.8
regardless of the quantity of any such material).
10.8 Environmental Laws. The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any
judicial or administrative interpretation thereof, regulating the use,
generation, handling, storage, transportation, discharge, emission, spillage or
other release of Hazardous Materials or relating to the protection of the
environment.
10.9 Captions. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
10.10 Entire Agreement. This Agreement, the Company Disclosure
Schedule, the Exhibits attached hereto and the Confidentiality Agreement
contain the entire agreement of the parties and supersede any and all prior or
contemporaneous agreements between the parties, written or oral, with respect
to the transactions contemplated hereby.
10.11 Counterparts. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
10.12 Binding Effect. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors
and assigns, and, except as contemplated by Sections 1.3(b), 7.10, 7.11, 7.12
and 7.14, no other person shall acquire or have any right under or by virtue of
this Agreement. No party may assign any right or obligation hereunder without
the prior written consent of the other parties.
10.13 No Rule of Construction. The parties agree that, because all
parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language
in favor of or against any party by reason of that party's role in drafting
this Agreement.
31
<PAGE> 36
IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have
caused this Agreement to be executed by their respective duly authorized
officers, all as of the day and year first above written.
MEDPARTNERS, INC.
By /s/ LARRY R. HOUSE
---------------------------------------
Larry R. House
Chairman and Chief Executive
Officer
TALMED MERGER CORPORATION
By /s/ LARRY R. HOUSE
---------------------------------------
Larry R. House
Chairman of the Board
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
By /s/ JACK D. MASSIMINO
---------------------------------------
Jack D. Massimino
President and CEO
32
<PAGE> 37
EXHIBIT 1.1
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or the Agreement, the
Subsidiary shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to the Subsidiary's obligation to pay for or return
tendered shares of Company Common Stock after the termination or withdrawal of
the Offer), to pay for any shares of Company Common Stock tendered pursuant to
the Offer unless (i) there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer such number of shares of Company Common
Stock which would constitute not less than 51% (determined on a fully diluted
basis) of the outstanding shares of Company Common Stock (the "Minimum
Condition"), and (ii) any waiting period under the HSR Act applicable to the
purchase of shares of Company Common Stock pursuant to the Offer shall have
expired or been terminated. Furthermore, notwithstanding any other terms of
the Offer or the Agreement, the Subsidiary shall not be required to accept for
payment or, subject as aforesaid, to pay for any shares of Company Common Stock
not theretofore accepted for payment or paid for, and may terminate the Offer
if, at any time on or after the date of the Agreement and before the acceptance
of such shares for payment, any of the following events shall occur (other than
as a result of any action or inaction of the Parent or any of its subsidiaries
which constitutes a breach of the Agreement):
(a) there shall have been entered any order, preliminary
or permanent injunction, decree, judgment or ruling in any suit,
action or proceeding that (i) makes illegal or otherwise directly or
indirectly restrains or prohibits the acquisition by the Parent or the
Subsidiary of any shares of Company Common Stock under the Offer or
the making or consummation of the Offer or the Merger, the performance
by the Company of any of its obligations under this Agreement or the
consummation of any purchase of Company Common Stock contemplated
hereby, (ii) prohibits or limits the ownership or operation by the
Company, the Parent or any of their respective subsidiaries of a
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or the Parent and its subsidiaries,
taken as a whole, or compels the Company or the Parent to dispose of
or hold separate any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or the Parent and its
subsidiaries, taken as a whole, as a result of the Offer or the
Merger, (iii) imposes material limitations on the ability of the
Parent or the Subsidiary to acquire or hold, or exercise full rights
of ownership of, any shares of Company Common Stock accepted for
payment pursuant to the Offer including, without limitation, the right
to vote such Company Common Stock on all matters properly presented to
the stockholders of the Company or (iv) prohibits the Parent or any of
its subsidiaries from effectively controlling in any material respect
the business or operations of the Company and its subsidiaries, taken
as a whole; or
A-1
<PAGE> 38
(b) there shall be any law enacted, entered, enforced,
promulgated or deemed applicable to the Offer or the Merger, or any
other action shall be taken by any governmental entity, other than the
application to the Offer or the Merger of applicable waiting periods
under the HSR Act, that results, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above; or
(c) there shall have occurred any material adverse change
to the Company; or
(d) (i) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse
to the Parent or the Subsidiary its approval or recommendation of the
Offer, the Merger or this Agreement, or approved or recommended any
other acquisition proposal or (ii) the Company shall have entered into
any agreement to consummate any acquisition proposal; or
(e) any of the representations and warranties of the
Company set forth in the Agreement that are qualified as to
materiality shall not be true and correct or any such representations
and warranties that are not so qualified shall not be true and correct
in any respect that is reasonably likely to have a material adverse
effect, in each case at the date of the Agreement and at the scheduled
expiration of the Offer; or
(f) the Company shall have failed to perform in any
material respect any material obligation or to comply in any material
respect with any material agreement or material covenant of the
Company to be performed or complied with by it under this Agreement;
or
(g) there shall have occurred and be continuing to exist
for at least three business days (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock
Exchange (excluding any coordinated trading halt triggered solely as a
result of a specified decrease in a market index), (ii) a declaration
of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States which in any case is reasonably
expected to have a material adverse effect or to materially adversely
affect the Parent's or the Subsidiary's ability to complete the Offer
or the Merger or materially delay the consummation of the Offer, the
Merger or both or (iv) in case of any of the foregoing existing on the
date of this Agreement, material acceleration or worsening thereof; or
(h) the Agreement shall have been terminated in accordance
with its terms.
A-2
<PAGE> 39
Subject to the provisions of the Agreement, the foregoing conditions
are for the sole benefit of the Parent and may, subject to the terms of the
Agreement, be waived by the Subsidiary and the Parent in whole or in part at
any time and from time to time in their sole discretion. The failure by the
Parent at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time. Terms
used but not defined herein shall have the meanings assigned to such terms in
the Agreement to which this Exhibit 1.1 is a part.
A-3
<PAGE> 1
Exhibit 4
TRANSACTION WITH THE MANAGEMENT INVESTORS
In connection with the reorganization of the staff model operations of
FHP and the creation of TMMC and THSC, in March 1996 twelve individuals, then
all FHP or TMMC executives (the "Management Investors"), purchased shares of
TMMC's common stock (the "TMMC Management Shares") and shares of THSC's Common
Stock (the "THSC Management Shares") for an aggregate consideration of
approximately $8,000 pursuant to a Stock Purchase Agreement among FHP, TMMC,
THSC and the Management Investors (the "Management Stock Purchase Agreement").
In connection with the Acquisition, pursuant to a Management Stock
Exchange Agreement with the Company, the Management Investors exchanged their
TMMC and THSC Management Shares for an equivalent number of shares of the
Company's Common Stock, on equivalent terms and conditions as are provided in
the Management Stock Purchase Agreement (the "Company Management Shares"). See
"Relationship with FHP and PacifiCare Following the Offering-Management Stock
Exchange Agreement.
The Company Management Shares were issued as follows:
<TABLE>
<CAPTION>
Name Number of Shares
--- ----------------
<S> <C>
Jack D. Massimino . . . . . . . . . . . . . . 150,000(1)
Wescott W. Price III . . . . . . . . . . . . 20,250
Gloria L. Austin . . . . . . . . . . . . . . 15,000
Kathryn M. Adair . . . . . . . . . . . . . . 7,500
Richard D. Jacobs . . . . . . . . . . . . . . 7,500
Larry L. Georgopolous . . . . . . . . . . . . 6,000
Walter R. Stone . . . . . . . . . . . . . . . 6,000
Barbara C. McNutt . . . . . . . . . . . . . . 4,500
Gary E. Goldstein, M.D. . . . . . . . . . . . 3,750
Kenneth S. Ord . . . . . . . . . . . . . . . 3,000
Michael J. Weinstock . . . . . . . . . . . . 3,000
Margaret Van Meter . . . . . . . . . . . . . 1,500
-------
Total 228,000
=======
</TABLE>
- - ------------
(1) Includes 15,000 shares held under an irrevocable trust for the benefit
of Mr. Massimino's children.
The Management Investors will not make capital contributions to the
Company equivalent to the Capital Contribution by FHP. The Company therefore
will recognize stock compensation expense of approximately $5.1 million. See
"Prospectus Summary -- Unaudited Pro Forma Condensed Financial Date."
<PAGE> 2
MANAGEMENT STOCK EXCHANGE AGREEMENT
The Company and the Management Investors have entered into a Management
Stock Exchange Agreement, in the form of an amendment to the Management Stock
Purchase Agreement, pursuant to which the Management Investors agreed to
exchange their TMMC and THSC Management Shares for Company Management Shares
effective as of the Closing Date of the FHP Merger. Transfer of Company
Management Shares is restricted; restrictions lapsed as to 25% of each
Management Investor's shares on July 1, 1996, and will lapse as to an
additional 25% on July 1 of 1997, 1998 and 1999. FHP has the right to
repurchase Company Management Shares: (i) in the event of termination of
employment and prior to the lapse of restrictions for $.03 per share (other
than the shares owned by Messrs. Ord, Price and Weinstock); (ii) at any time
before October 1, 1999 for $100 per share; or (iii) in certain amounts if the
Company fails to meet specified financial goals. These prices are subject to
adjustment by the Compensation Committee of the board of directors of
PacifiCare Holdings, plus one member of the Company's Board of Directors. The
Company Management Shares that are no longer restricted have the registration
rights discussed under "Description of Capital Stock -- Registration Rights."
2
<PAGE> 1
EXHIBIT 5
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
1996 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration and Authorization; Power and Procedure . . . . . . . . . . . . . . . . . 1
1.3 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Shares Available for Awards; Share Limits . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Grant of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Award Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Limitations on Exercise and Vesting of Awards . . . . . . . . . . . . . . . . . . . . . 4
1.8 No Transferability; Limited Exception to Transfer
Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Limitations on Grant and Terms of Incentive Stock Options . . . . . . . . . . . . . . . 6
2.4 Limits on 10% Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Cancellation and Regrant/Waiver of Restrictions . . . . . . . . . . . . . . . . . . . . 7
2.6 Options and Rights in Substitution for Stock Options
Granted by Other Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Exercise of Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Return to the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Grants of Performance Share Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Special Performance-Based Share Awards . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Grants of Stock Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 Deferred Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Rights of Eligible Persons, Participants and
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Adjustments; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.3 Effect of Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.5 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Plan Amendment, Termination and Suspension . . . . . . . . . . . . . . . . . . . . . . . 16
6.7 Privileges of Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.8 Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.9 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.10 Governing Law/Construction/Severability . . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.12 Effect of Change of Subsidiary Status . . . . . . . . . . . . . . . . . . . . . . . . . 18
7. NON-EMPLOYEE DIRECTOR OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Annual Option Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Option Period and Exercisability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Termination of Directorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.6 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.7 Acceleration Upon a Change in Control Event . . . . . . . . . . . . . . . . . . . . . . 21
8. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
ii
<PAGE> 4
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
1996 STOCK INCENTIVE PLAN
1. THE PLAN.
1.1 Purpose.
The purpose of this Plan is to promote the success of the
Company by providing an additional means through the grant of Awards to attract,
motivate, retain and reward key employees, including officers, whether or not
directors, of the Company with awards and incentives for high levels of
individual performance and improved financial performance of the Company and to
attract, motivate and retain experienced and knowledgeable independent directors
through the benefits provided under Article 7. "Corporation" means Talbert
Medical Management Holdings Corporation, and "Company" means the Corporation and
its Subsidiaries, collectively. These terms and other capitalized terms are
defined in Article 8.
1.2 Administration and Authorization; Power and Procedure.
(a) Committee. This Plan shall be administered by and all
Awards to Eligible Persons shall be authorized by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by unanimous written consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee.
Subject to the express provisions of this Plan, the Committee shall have the
authority:
(i) to determine from among those persons eligible
the particular Eligible Persons who will receive any Awards;
(ii) to grant Awards to Eligible Persons, determine
the price at which securities will be offered or awarded and the amount
of securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of such
Awards;
(iii) to approve the forms of Award Agreements
(which need not be identical either as to type of award or among
Participants);
<PAGE> 5
(iv) to construe and interpret this Plan and any
agreements defining the rights and obligations of the Company and
Participants who are granted Awards under Articles 2, 3, 4 or 5 of this
Plan, further define the terms used in this Plan, and prescribe, amend
and rescind rules and regulations relating to the administration of this
Plan;
(v) to cancel, modify, or waive the Corporation's
rights with respect to, or modify, discontinue, suspend, or terminate any
or all outstanding Awards held by Eligible Persons, subject to any
required consent under Section 6.6;
(vi) to accelerate or extend the exercisability or
extend the term of any or all such outstanding Awards within the maximum
ten-year term of Awards under Section 1.6; and
(vii) to make all other determinations and take
such other action as contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the effectuation of its
purposes.
Notwithstanding the foregoing, the provisions of Article 7 relating to
Non-Employee Director Awards shall be automatic and, to the maximum extent
possible, self-effectuating.
(c) Binding Determinations. Any action taken by, or
inaction of, the Corporation, any Subsidiary, the Board or the Committee
relating or pursuant to this Plan shall be within the absolute discretion of
that entity or body and shall be conclusive and binding upon all persons. No
member of the Board or Committee, or officer of the Corporation or any
Subsidiary, shall be liable for any such action or inaction of the entity or
body, of another person or, except in circumstances involving bad faith, of
himself or herself. Subject only to compliance with the express provisions
hereof, the Board and Committee may act in their absolute discretion in matters
within their authority related to this Plan.
(d) Reliance on Experts. In making any determination or
in taking or not taking any action under this Plan, the Committee or the Board,
as the case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Corporation. No director, officer or
agent of the Company shall be liable for any such action or determination taken
or made or omitted in good faith.
(e) Delegation. The Committee may delegate ministerial,
non-discretionary functions to a third-party administrator or to individuals who
are officers or employees of the Company.
2
<PAGE> 6
1.3 Participation.
Awards may be granted by the Committee only to those persons
that the Committee determines to be Eligible Persons. An Eligible Person who
has been granted an Award may, if otherwise eligible, be granted additional
Awards if the Committee shall so determine.
1.4 Shares Available for Awards; Share Limits.
(a) Shares Available. Subject to the provisions of Section
6.2, the capital stock that may be delivered under this Plan shall be shares of
the Corporation's authorized but unissued Common Stock and any shares of its
Common Stock held as treasury shares. The shares may be delivered for any
lawful consideration.
(b) Share Limits. The maximum number of shares of Common
Stock that may be delivered pursuant to all Awards granted under this Plan shall
not exceed 180,000 shares (the "Share Limit"). The maximum number of shares of
Common Stock that may be delivered pursuant to Options qualified as Incentive
Stock Options granted under Article 2 of this Plan is 50,000 shares. The
maximum number of shares of Common Stock that may be delivered to Non-Employee
Directors under the provisions of Article 7 shall not exceed 60,000 shares. The
maximum number of shares subject to Options and Stock Appreciation Rights that
are granted during any calendar year to any individual shall be limited to
50,000. Each of the four foregoing numerical limits shall be subject to
adjustment as contemplated by this Section 1.4 and Section 6.2.
(c) Share Reservation; Replenishment and Reissue of Unvested
Awards. No Award may be granted under this Plan unless, on the date of grant,
the sum of (i) the maximum number of shares issuable at any time pursuant to
such Award, plus (ii) the number of shares that have previously been issued
pursuant to Awards granted under this Plan, other than reacquired shares
available for reissue consistent with any applicable legal limitations, plus
(iii) the maximum number of shares that may be issued at any time after such
date of grant pursuant to Awards that are outstanding on such date, does not
exceed the Share Limit. Shares that are subject to or underlie Awards which
expire or for any reason are cancelled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under this Plan, as well
as reacquired shares, shall again, except to the extent prohibited by law, be
available for subsequent Awards under the Plan. Except as limited by law, if an
Award is or may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
3
<PAGE> 7
1.5 Grant of Awards.
Subject to the express provisions of this Plan, the Committee
shall determine the number of shares of Common Stock subject to each Award, the
price (if any) to be paid for the shares or the Award and, in the case of
Performance Share Awards, in addition to matters addressed in Section 1.2(b),
the specific objectives, goals and performance criteria (such as an increase in
sales, market value, earnings or book value over a base period, the years of
service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
Performance Share Award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
The Award Agreement shall set forth the material terms and conditions of the
Award established by the Committee consistent with the specific provisions of
this Plan.
1.6 Award Period.
Each Award and all executory rights or obligations under the
related Award Agreement shall expire on such date (if any) as shall be
determined by the Committee, but in the case of Options or other rights to
acquire Common Stock not later than ten (10) years after the Award Date.
1.7 Limitations on Exercise and Vesting of Awards.
(a) Provisions for Exercise. Unless the Committee
otherwise expressly provides, no Award shall be exercisable or shall vest until
at least 12 months after the initial Award Date, and once exercisable an Award
shall remain exercisable until the expiration or earlier termination of the
Award.
(b) Procedure. Any exercisable Award shall be deemed to be
exercised when the Secretary of the Corporation receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a) or 7.4, as the case may be.
(c) Fractional Shares/Minimum Issue. Fractional share
interests shall be disregarded, but may be accumulated. The Committee, however,
may determine in the case of Eligible Persons that cash, other securities, or
other property will be paid or transferred in lieu of any fractional share
interests. No fewer than 100 shares may be purchased on exercise of any Award at
one time unless the number purchased is the total number at the time available
for purchase under the Award.
4
<PAGE> 8
1.8 No Transferability; Limited Exception to Transfer
Restrictions.
(a) Limit on Exercise and Transfer. Unless otherwise
expressly provided in (or pursuant to) this Section 1.8, by applicable law and
by the Award Agreement, as the same may be amended, (i) all Awards are
non-transferable and shall not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; Awards
shall be exercised only by the Participant; and (ii) amounts payable or shares
issuable pursuant to an Award shall be delivered only to (or for the account of)
the Participant.
(b) Exceptions. The Committee may permit Awards to be
exercised by and paid to certain persons or entities related to the Participant
pursuant to such conditions and procedures as the Committee may establish. Any
permitted transfer shall be subject to the condition that the Committee receive
evidence satisfactory to it that the transfer is being made for estate and/or
tax planning purposes or a gratuitous or donative basis and without
consideration (other than nominal consideration). Notwithstanding the
foregoing, Incentive Stock Options and Restricted Stock Awards shall be subject
to any and all applicable transfer restrictions under the Code.
(c) Further Exceptions to Limits On Transfer. The exercise
and transfer restrictions in Section 1.8(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive
benefits in the event of the Participant's death or, if the Participant
has died, transfers to or exercise by the Participant's beneficiary, or,
in the absence of a validly designated beneficiary, transfers by will or
the laws of descent and distribution,
(iii) transfers pursuant to a QDRO order,
(iv) if the Participant has suffered a disability,
permitted transfers or exercises on behalf of the Participant by his or
her legal representative, or
(v) the authorization by the Committee of
"cashless exercise" procedures with third parties who provide financing
for the purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable laws and the express authorization of the
Committee.
Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock
Awards shall be subject to all applicable transfer restrictions under the Code.
5
<PAGE> 9
2. OPTIONS.
2.1 Grants.
One or more Options may be granted under this Article to any
Eligible Person. Each Option granted shall be designated in the applicable
Award Agreement by the Committee as either an Incentive Stock Option subject to
Section 2.3, or a Non-Qualified Stock Option.
2.2 Option Price.
(a) Pricing Limits. The purchase price per share of the
Common Stock covered by each Option shall be determined by the Committee at the
time of the Award, but in the case of Incentive Stock Options shall not be less
than 100% (110% in the case of a Participant described in Section 2.4) of the
Fair Market Value of the Common Stock on the date of grant.
(b) Payment Provisions. The purchase price of any shares
purchased on exercise of an Option granted under this Article shall be paid in
full at the time of each purchase in one or a combination of the following
methods: (i) in cash or by electronic funds transfer; (ii) by check payable to
the order of the Corporation; (iii) by notice and third party payment in such
manner as may be authorized by the Committee; or (iv) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such shares. Shares of
Common Stock used to satisfy the exercise price of an Option shall be valued at
their Fair Market Value on the date of exercise.
2.3 Limitations on Grant and Terms of Incentive Stock Options.
(a) $100,000 Limit. To the extent that the aggregate Fair
Market Value of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to Incentive Stock Options under this Plan and
stock subject to incentive stock options under all other plans of the Company or
any parent corporation, such options shall be treated as Nonqualified Stock
Options. For this purpose, the Fair Market Value of the stock subject to
options shall be determined as of the date the options were awarded. In
reducing the number of options treated as incentive stock options to meet the
$100,000 limit, the most recently granted options shall be reduced first. To
the extent a reduction of simultaneously granted options is necessary to meet
the $100,000 limit, the Committee may, in the manner and to the extent permitted
by law, designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an Incentive Stock Option.
6
<PAGE> 10
(b) Option Period. Each Option and all rights thereunder
shall expire no later than ten years after the Award Date.
(c) Other Code Limits. Incentive Stock Options may only be
granted to Eligible Employees who are actually employed by the Corporation or a
Subsidiary and that satisfy the other eligibility requirements of the Code.
There shall be imposed in any Award Agreement relating to Incentive Stock
Options such other terms and conditions as from time to time are required in
order that the Option be an "incentive stock option" as that term is defined in
Section 422 of the Code.
2.4 Limits on 10% Holders.
No Incentive Stock Option may be granted to any person who, at
the time the Option is granted, owns (or is deemed to own under Section 424(d)
of the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
2.5 Cancellation and Regrant/Waiver of Restrictions.
Subject to Section 1.4 and Section 6.6 and the specific
limitations on Awards contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for the benefit of any
Eligible Person any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or the term of,
an Award granted under this Article by cancellation of an outstanding Award and
a subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result among other changes in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original
Award or prior Award, provide for a greater or lesser number of shares subject
to the Award, or provide for a longer or shorter vesting or exercise period.
2.6 Options and Rights in Substitution for Stock Options Granted
by Other Corporations. Options and Stock Appreciation Rights may be granted to
Eligible Persons under this Plan in substitution for employee stock options
granted by other entities to persons who are or who will become Eligible
Persons in respect of the Company, in connection with a distribution, merger or
reorganization by or with the granting entity or an affiliated entity, or the
acquisition by the Company, directly or indirectly, of all or a substantial
part of the stock or assets of the other entity.
7
<PAGE> 11
3. STOCK APPRECIATION RIGHTS.
3.1 Grants.
In its discretion, the Committee may grant a Stock Appreciation
Right to any Eligible Person either concurrently with the grant of another Award
or in respect of an outstanding Award, in whole or in part, or independently of
any other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
3.2 Exercise of Stock Appreciation Rights.
(a) Exercisability. Unless the Award Agreement or the
Committee otherwise provides, a Stock Appreciation Right related to another
Award shall be exercisable at such time or times, and to the extent, that the
related Award shall be exercisable.
(b) Effect on Available Shares. To the extent that a Stock
Appreciation Right is exercised, the number of underlying shares of Common Stock
theretofore subject to a related Award shall be charged against the maximum
amount of Common Stock that may be delivered pursuant to Awards under this Plan.
The number of shares subject to the Stock Appreciation Right and the related
Option of the Participant shall be reduced by the number of underlying shares as
to which the exercise related, unless the Award Agreement otherwise provides.
(c) Stand-Alone SARs. A Stock Appreciation Right granted
independently of any other Award shall be exercisable pursuant to the terms of
the Award Agreement but in no event earlier than six months after the Award
Date, except in the case of death or Total Disability.
3.3 Payment.
(a) Amount. Unless the Committee otherwise provides, upon
exercise of a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant shall be entitled to
receive payment of an amount determined by multiplying
(i) the difference obtained by subtracting the
exercise price per share of Common Stock under the related Award (if
applicable) or the initial share value specified in the Award from the
Fair Market Value of a share of Common Stock on the date of exercise of
the Stock Appreciation Right, by
8
<PAGE> 12
(ii) the number of shares with respect to which the
Stock Appreciation Right shall have been exercised.
(b) Form of Payment. The Committee, in its sole
discretion, shall determine the form in which payment shall be made of the
amount determined under paragraph (a) above, either solely in cash, solely in
shares of Common Stock (valued at Fair Market Value on the date of exercise of
the Stock Appreciation Right), or partly in such shares and partly in cash,
provided that the Committee shall have determined that such exercise and payment
are consistent with applicable law. If the Committee permits the Participant to
elect to receive cash or shares (or a combination thereof) on such exercise, any
such election shall be subject to such conditions as the Committee may impose.
4. RESTRICTED STOCK AWARDS.
4.1 Grants.
The Committee may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Person. Each Restricted Stock Award
Agreement shall specify the number of shares of Common Stock to be issued to the
Participant, the date of such issuance, the consideration for such shares (but
not less than the minimum lawful consideration under applicable state law) by
the Participant, the extent to which the Participant shall be entitled to
dividends, voting and other rights in respect of the shares prior to vesting and
the restrictions imposed on such shares and the conditions of release or lapse
of such restrictions. Such restrictions shall not lapse earlier than 12 months
after the Award Date, except to the extent the Committee may otherwise provide.
Stock certificates evidencing shares of Restricted Stock pending the lapse of
the restrictions ("restricted shares") shall bear a legend making appropriate
reference to the restrictions imposed hereunder and shall be held by the
Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance
of the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.
4.2 Restrictions.
(a) Pre-Vesting Restraints. Except as provided in Section
4.1 and 1.8, restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until the restrictions on such shares have
lapsed and the shares have become vested.
9
<PAGE> 13
(b) Dividend and Voting Rights. Unless otherwise provided
in the applicable Award Agreement, a Participant receiving a Restricted Stock
Award shall be entitled to cash dividend and voting rights for all shares issued
even though they are not vested, provided that such rights shall terminate
immediately as to any restricted shares which cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or
received cash (including any dividends) in connection with the Restricted Stock
Award, the Award Agreement shall specify whether and to what extent such cash
shall be returned (with or without an earnings factor) as to any restricted
shares which cease to be eligible for vesting.
4.3 Return to the Corporation.
Unless the Committee otherwise expressly provides, restricted
shares that remain subject to restrictions at the time of termination of
employment or are subject to other conditions to vesting that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and on such terms as the
Committee shall therein provide.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 Grants of Performance Share Awards.
The Committee may, in its discretion, grant Performance Share
Awards to Eligible Persons based upon such factors as the Committee shall deem
relevant in light of the specific type and terms of the award. An Award
Agreement shall specify the maximum number of shares of Common Stock (if any)
subject to the Performance Share Award, the consideration (but not less than the
minimum lawful consideration) to be paid for any such shares as may be issuable
to the Participant, the duration of the Award and the conditions upon which
delivery of any shares or cash to the Participant shall be based. The amount of
cash or shares or other property that may be deliverable pursuant to such Award
shall be based upon the degree of attainment over a specified period (a
"performance cycle") as may be established by the Committee of such measure(s)
of the performance of the Company (or any part thereof) or the Participant as
may be established by the Committee. The Committee may provide for full or
partial credit, prior to completion of such performance cycle or the attainment
of the performance achievement specified in the Award, in the event of the
Participant's death, or Total Disability, a Change in Control Event or in such
other circumstances as the Committee consistent with Section 6.10(c)(2), if
applicable, may determine.
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5.2 Special Performance-Based Share Awards.
Without limiting the generality of the foregoing, and in
addition to Options and Stock Appreciation Rights granted under other provisions
of this Plan which are intended to satisfy the exception for "performance-based
compensation" under Section 162(m) of the Code (with such Awards hereinafter
referred to as a "Qualifying Option" or a "Qualifying Stock Appreciation Right,"
respectively), other performance-based awards within the meaning of Section
162(m) of the Code ("Performance-Based Awards"), whether in the form of
restricted stock, performance stock, phantom stock, Cash-Based Awards, or other
rights, the grant, vesting, exercisability or payment of which depends on the
degree of achievement of the Performance Goals relative to preestablished
targeted levels for the Corporation or the Corporation and one or more of its
Subsidiaries, may be granted under this Plan. Any Qualifying Option or
Qualifying Stock Appreciation Right shall be subject only to the requirements of
subsections (a) and (c) below in order for such Awards to satisfy the
requirements for Performance-Based Awards under this Section 5.2. With the
exception of any Qualifying Option or Qualifying Stock Appreciation Right, an
Award that is intended to satisfy the requirements of this Section 5.2 shall be
designated as a Performance-Based Award at the time of grant.
(a) Eligible Class. The eligible class of persons for
Performance-Based Awards under this Section shall be the executive officers of
the Corporation.
(b) Performance Goal Alternatives. The specific
performance goals for Performance-Based Awards granted under this Section (other
than Qualifying Options and Qualifying Stock Appreciation Rights) shall be, on
an absolute or relative basis, one or more of the Performance Goals, as selected
by the Committee in its sole discretion. The Committee shall establish in the
applicable Award Agreement the specific performance target(s) relative to the
Performance Goal(s) which must be attained before the compensation under the
Performance-Based Award becomes payable. The specific targets shall be
determined within the time period permitted under Section 162(m) of the Code
(and any regulations issued thereunder) so that such targets are considered to
be preestablished and so that the attainment of such targets is substantially
uncertain at the time of their establishment. The applicable performance
measurement period may not be less than one nor more than 10 years.
(c) Maximum Performance-Based Award. Notwithstanding any
other provision of the Plan to the contrary, the maximum number of shares of
Common Stock which may be delivered pursuant to options, stock appreciation
rights, restricted stock or other share-based awards that are granted as
Performance-Based Awards to any Participant in any calendar year shall not
exceed 100,000 shares, either individually or in the aggregate, subject to
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adjustment as provided in Section 6.2. Awards that are cancelled during the
year shall be counted against this limit to the extent required by Section
162(m) of the Code. In addition, the aggregate amount of compensation to be
paid to any Participant in respect of any Cash-Based Awards that are granted
during any calendar year as Performance-Based Awards shall not exceed
$1,000,000.
(d) Committee Certification. Before any Performance-Based
Award under this Section 5.2 (other than Qualifying Options or Qualifying Stock
Appreciation Rights) is paid, the Committee must certify in writing that the
Performance Goal(s) and any other material terms of the Performance-Based Award
were satisfied; provided, however, that a Performance-Based Award may be paid
without regard to the satisfaction of the applicable Performance Goal in the
event of a Change in Control Event in accordance with Section 6.2(d).
(e) Terms and Conditions of Awards. The Committee will
have the discretion to determine the restrictions or other limitations of the
individual Awards granted under this Section 5.2 including the authority to
reduce Awards, payouts or vesting or to pay no Awards, in its sole discretion,
if the Committee preserves such authority at the time of grant by language to
this effect in its authorizing resolutions or otherwise.
(f) Adjustments for Changes in Capitalization and other
Material Changes. In the event of a change in corporate capitalization, such
as a stock split or stock dividend, or a corporate transaction, such as a
merger, consolidation, spinoff, reorganization or similar event, or any partial
or complete liquidation of the Corporation, or any similar event consistent with
regulations issued under Section 162(m) of the Code including, without
limitation, any material change in accounting policies or practices affecting
the Corporation and/or the Performance Goals or targets, then the Committee may
make adjustments to the Performance Goals and targets relating to outstanding
Performance-Based Awards to the extent such adjustments are made to reflect the
occurrence of such an event; provided, however, that adjustments described in
this subsection may be made only to the extent that the occurrence of an event
described herein was unforeseen at the time the targets for a Performance-Based
Award were established by the Committee.
5.3 Grants of Stock Bonuses.
The Committee may grant a Stock Bonus to any Eligible Person to
reward exceptional or special services, contributions or achievements in the
manner and on such terms and conditions (including any restrictions on such
shares) as determined from time to time by the Committee. The number of shares
so awarded shall be determined by the Committee. The Award may be granted
independently or in lieu of a cash bonus.
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5.4 Deferred Payments.
The Committee may authorize for the benefit of any Eligible
Person the deferral of any payment of cash or shares that may become due or of
cash otherwise payable under this Plan, and provide for accredited benefits
thereon based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
6. OTHER PROVISIONS.
6.1 Rights of Eligible Persons, Participants and
Beneficiaries.
(a) Employment Status. Status as an Eligible Person shall
not be construed as a commitment that any Award will be made under this Plan to
an Eligible Person or to Eligible Persons generally.
(b) No Employment Contract. Nothing contained in this Plan
(or in any other documents related to this Plan or to any Award) shall confer
upon any Eligible Person or other Participant any right to continue in the
employ or other service of the Company or constitute any contract or agreement
of employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall
be payable in shares or from the general assets of the Corporation, and no
special or separate reserve, fund or deposit shall be made to assure payment of
such Awards. No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock, except as expressly otherwise provided) of the Company by reason
of any Award hereunder. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment pursuant to any
Award hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
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6.2 Adjustments; Acceleration.
(a) Adjustments. If there shall occur any extraordinary
dividend or other extraordinary distribution in respect of the Common Stock
(whether in the form of cash, Common Stock, other securities, or other
property), or any reclassification, recapitalization, stock split (including a
stock split in the form of a stock dividend), reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the
Corporation, or there shall occur any other like corporate transaction or event
in respect of the Common Stock or a sale of substantially all the assets of the
Corporation as an entirety, then the Committee shall, in such manner and to such
extent (if any) as it deems appropriate and equitable (1) proportionately adjust
any or all of (i) the number and type of shares of Common Stock (or other
securities) which thereafter may be made the subject of Awards (including the
specific numbers of shares set forth elsewhere in this Plan), (ii) the number,
amount and type of shares of Common Stock (or other securities or property)
subject to any or all outstanding Awards, (iii) the grant, purchase, or exercise
price of any or all outstanding Awards, (iv) the securities, cash or other
property deliverable upon exercise of any outstanding Awards, or (v) the
performance standards appropriate to any outstanding Awards, or (2) in the case
of an extraordinary dividend or other distribution, recapitalization,
reclassification, merger, reorganization, consolidation, combination, sale of
assets, split up, exchange, or spin off, make provision for a cash payment or
for the substitution or exchange of any or all outstanding Awards or the cash,
securities or property deliverable to the holder of any or all outstanding
Awards based upon the distribution or consideration payable to holders of the
Common Stock of the Corporation upon or in respect of such event; provided,
however, in each case, that with respect to Awards of Incentive Stock Options,
no such adjustment shall be made which would cause the Plan to violate Section
424(a) of the Code or any successor provisions thereto without the written
consent of holders materially adversely affected thereby. In any of such
events, the Committee may take such action sufficiently prior to such event if
necessary to permit the Participant to realize the benefits intended to be
conveyed with respect to the underlying shares in the same manner as is
available to shareholders generally.
(b) Acceleration of Awards Upon Change in Control. As to
any Participant, unless prior to a Change in Control Event the Committee
determines that, upon its occurrence, there shall be no acceleration of benefits
under Awards or determines that only certain or limited benefits under Awards
shall be accelerated and the extent to which they shall be accelerated, and/or
establishes a different time in respect of such Change in Control Event for such
acceleration, then upon the occurrence of a Change in Control Event (i) each
Option and Stock Appreciation Right shall become immediately exercisable, (ii)
Restricted Stock shall immediately vest free of restrictions, and (iii) each
Performance Share Award shall become payable to the Participant; provided,
however, that in no
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event shall any Award be accelerated as to any Section 16 Person to a date
less than six months after the Award Date of such Award. The Committee may
override the limitations on acceleration in this Section 6.2(b) by express
provision in the Award Agreement and may accord any Eligible Person a right to
refuse any acceleration, whether pursuant to the Award Agreement or otherwise,
in such circumstances as the Committee may approve. Any acceleration of Awards
shall comply with applicable regulatory requirements, including without
limitation Section 422 of the Code.
(c) Possible Early Termination of Accelerated Awards. If
any Option or other right to acquire Common Stock under this Plan (other than
under Article 7) has been fully accelerated as permitted by Section 6.2(b) but
is not exercised prior to (i) a dissolution of the Corporation, or (ii) an event
described in Section 6.2(a) that the Corporation does not survive, or (iii) the
consummation of an event described in Section 6.2(a) that results in a Change in
Control Event approved by the Board, such Option or right shall thereupon
terminate, subject to any provision that has been expressly made by the
Committee for the survival, substitution, exchange or other settlement of such
Option or right.
6.3 Effect of Termination of Employment.
The Committee shall establish in respect of each Award granted
to an Eligible Person the effect of a termination of employment on the rights
and benefits thereunder and in so doing may make distinctions based upon the
cause of termination. In addition, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than discharge
for cause, the Committee may, in its discretion, increase the portion of the
Participant's Award available to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the Committee
shall determine and expressly set forth in or by amendment to the Award
Agreement.
6.4 Compliance with Laws.
This Plan, the granting and vesting of Awards under this Plan
and the offer, issuance and delivery of shares of Common Stock and/or the
payment of money under this Plan or under Awards granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the
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Corporation as the Corporation may deem necessary or desirable to assure
compliance with all applicable legal requirements.
6.5 Tax Withholding.
Upon any exercise, vesting, or payment of any Award or upon
the disposition of shares of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Company shall have the right at its
option to (i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the amount of
any taxes which the Company may be required to withhold with respect to such
Award event or payment or (ii) deduct from any amount payable in cash the amount
of any taxes which the Company may be required to withhold with respect to such
cash payment. In any case where a tax is required to be withheld in connection
with the delivery of shares of Common Stock under this Plan, the Committee may
in its sole discretion grant (either at the time of the Award or thereafter) to
the Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their then Fair Market Value, to satisfy such
withholding obligation.
6.6 Plan Amendment, Termination and Suspension.
(a) Board Authorization. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this Plan, in whole or
in part. No Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction as to
Awards then outstanding in accordance with the terms of this Plan.
(b) Shareholder Approval. Any amendment that would (i)
materially increase the benefits accruing to Participants under this Plan, (ii)
materially increase the aggregate number of securities that may be issued under
this Plan, or (iii) materially modify the requirements as to eligibility for
participation in this Plan, shall be subject to stockholder approval only to the
extent then required by Section 425 of the Code or applicable law, or deemed
necessary or advisable by the Board.
(c) Amendments to Awards. Without limiting any other
express authority of the Committee under but subject to the express limits of
this Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Eligible Persons that the Committee in the prior
exercise of its discretion has imposed, without the consent of a Participant,
and may make other changes to the terms and conditions of Awards that do not
affect in any manner
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materially adverse to the Participant, his or her rights and benefits under an
Award.
(d) Limitations on Amendments to Plan and Awards. No
amendment, suspension or termination of the Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant, affect in
any manner materially adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any Award granted under this
Plan prior to the effective date of such change. Changes contemplated by
Section 6.2 shall not be deemed to constitute changes or amendments for purposes
of this Section 6.6.
6.7 Privileges of Stock Ownership.
Except as otherwise expressly authorized by the Committee or
this Plan, a Participant shall not be entitled to any privilege of stock
ownership as to any shares of Common Stock not actually delivered to and held of
record by him or her. No adjustment will be made for dividends or other rights
as shareholders for which a record date is prior to such date of delivery.
6.8 Effective Date of the Plan.
This Plan shall be effective as of November 21, 1996, the date
of Board approval, subject to shareholder approval within 12 months thereafter.
6.9 Term of the Plan.
No Award shall be granted more than ten years after the
effective date of this Plan (the "termination date"). Unless otherwise
expressly provided in this Plan or in an applicable Award Agreement, any Award
granted prior to the termination date may extend beyond such date, and all
authority of the Committee with respect to Awards hereunder, including the
authority to amend an Award, shall continue during any suspension of this Plan
and in respect of outstanding Awards on the termination date.
6.10 Governing Law/Construction/Severability.
(a) Choice of Law. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the state of incorporation of the
Corporation.
(b) Severability. If any provision shall be held by a
court of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.
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(c) Plan Construction.
(1) Rule 16b-3. It is the intent of the Corporation
that transactions in and affecting Awards in the case of Participants who are or
may be subject to Section 16 of the Exchange Act satisfy any then applicable
requirements of Rule 16b-3 so that such persons (unless they otherwise agree)
will be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act in respect of these transactions and will not be
subjected to avoidable liability thereunder. If any provision of this Plan or
of any Award would otherwise frustrate or conflict with the intent expressed
above, that provision to the extent possible shall be interpreted so as to avoid
such conflict. If the conflict remains irreconcilable, the Committee may
disregard the provision if it concludes that to do so furthers the interest of
the Corporation and is consistent with the purposes of this Plan as to such
persons in the circumstances.
(2) Section 162(m). It is the further intent of the
Company that Options or Stock Appreciation Rights with an exercise or base price
not less than Fair Market Value on the date of grant and Performance Share
Awards under Section 5.2 of this Plan that are granted to or held by a Section
16 Person shall qualify as performance-based compensation under Section 162(m)
of the Code, and this Plan shall be interpreted consistent with such intent.
6.11 Captions.
Captions and headings are given to the sections and subsections
of this Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
6.12 Effect of Change of Subsidiary Status.
For purposes of this Plan and any Award hereunder, if an entity
ceases to be a Subsidiary a termination of employment and service shall be
deemed to have occurred with respect to each Eligible Person in respect of such
Subsidiary who does not continue as an Eligible Person in respect of another
entity within the Company.
6.13 Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
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7. NON-EMPLOYEE DIRECTOR OPTIONS.
7.1 Participation.
Awards under this Article 7 shall be made only to Non-Employee
Directors and shall be evidenced by Award Agreements substantially in the form
of Exhibit A hereto.
7.2 Annual Option Grants.
(a) Time of Initial Award. Subject to approval by the
stockholders of the Corporation, (i) the Chairman of the Board at the date of
the Plan's adoption on November 21, 1996 shall be granted without further action
a Nonqualified Stock Option dated as of September 17, 1996 to purchase 6,000
shares of Common Stock; (ii) each person who is the chairman of the Audit
Committee, Finance Committee or Compensation Committee of the Board at the date
of the Plan's adoption on November 21, 1996 shall be granted without further
action a Nonqualified Stock Option dated as of September 17, 1996 to purchase
5,000 shares of Common Stock and (iii) each person who is a Non-Employee
Director in office on November 21, 1996 and who is not described in clause (i)
or (ii) shall be granted without further action a Nonqualified Stock Option
dated as of September 17, 1996 to purchase 3,000 shares of Common Stock. After
approval of this Plan by the stockholders of the Corporation on November 21,
1996, if any person who is not then an officer or employee of the Company shall
become a director of the Corporation, there shall be granted automatically to
such person (without any action by the Board or Committee) a Nonqualified Stock
Option (the Award Date of which shall be the date such person takes office) to
purchase 3,000 shares of Common Stock.
(b) Subsequent Annual Awards. With respect to each
Non-Employee Director, as of each anniversary of the date of his or her initial
option grant under Section 7.2(a), there shall be granted automatically (without
any action by the Committee or the Board) a Nonqualified Stock Option (the Award
Date of which shall be such anniversary date) to purchase 1,000 shares of Common
Stock provided that the Non-Employee Director continues to serve in office on
such date.
(c) Maximum Number of Shares. Annual grants that would
otherwise exceed the maximum number of shares under Section 1.4(a) shall be
prorated within such limitation. A Non-Employee Director shall not receive more
than one Nonqualified Stock Option under this Section 7.2 in any calendar year.
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7.3 Option Price.
The purchase price per share of the Common Stock covered by
each Option granted pursuant to Section 7.2 hereof shall be 100 percent of the
Fair Market Value of the Common Stock on the Award Date. The exercise price of
any Option granted under this Article shall be paid in full at the time of each
purchase in cash or by check or in shares of Common Stock valued at their Fair
Market Value on the date of exercise of the Option, or partly in such shares and
partly in cash, provided that any such shares used in payment shall have been
owned by the Participant at least six months prior to the date of exercise.
7.4 Option Period and Exercisability.
Each Option granted under this Article 7 and all rights or
obligations thereunder shall expire ten years after the Award Date and shall be
subject to earlier termination as provided below. Each Option granted under the
first sentence of Section 7.2(a) shall become exercisable as follows: (i) at
the rate of 25% on the later of 90 days after the Award Date or 60 days after
the date of commencement of trading of the Common Stock on a national securities
exchange (the "Initial Award Date") and (ii) at the rate of 25% per annum
commencing on the first anniversary of the Initial Award Date and each of the
next two anniversaries thereof. Each other Option granted under Section 7.2
shall become exercisable at the rate of 25% per annum commencing on the first
anniversary of the Award Date and each of the next three anniversaries thereof.
7.5 Termination of Directorship.
If a Non-Employee Director's services as a member of the Board
of Directors terminate by reason of death or Total Disability, an Option granted
pursuant to this Article held by such Participant shall immediately become and
shall remain exercisable for two years after the date of such termination or
until the expiration of the stated term of such Option, whichever first occurs.
If a Non-Employee Director fails to be renominated or re-elected to the Board of
Directors, the Options granted pursuant to this Article shall immediately become
vested and shall remain exercisable for ninety (90) days from the date such
Non-Employee Director ceases to be renominated or re-elected as a member of the
Board of Directors. If a Non-Employee Director who has unvested Options ceases
to be a member of the Board by reason of resignation and such Non-Employee
Director is re-elected to the Board during the 180-day period following his
termination from service, the Non-Employee Director's Options will continue to
vest on the same schedule and with the same pricing that existed prior to the
Non-Employee Director's resignation. If a Non-Employee Director's services as a
member of the Board of Directors terminate for any other reason, any portion of
an Option granted pursuant to this Article which is not then exercisable shall
terminate and any portion of such Option which is then exercisable may be
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exercised for ninety (90) days after the date of such termination or until the
expiration of the stated term whichever first occurs.
7.6 Adjustments.
Options granted under this Article 7 shall be subject to
adjustment as provided in Section 6.2, but only to the extent that (a) such
adjustment and the Committee's actions in respect thereof satisfy any applicable
criteria under Rule 16, (b) such adjustment in the case of a Change in Control
Event is effected pursuant to the terms of a reorganization agreement approved
by shareholders of the Corporation, and (c) such adjustment is consistent with
adjustments to Options held by persons other than executive officers or
directors of the Corporation.
7.7 Acceleration Upon a Change in Control Event.
Upon the occurrence of a Change in Control Event, each Option
granted under Section 7.2 hereof shall become immediately exercisable in full;
provided, however, that none of the Options granted under Section 7.2 shall be
accelerated to a date less than six months after the Award Date of such Option.
To the extent that any Option granted under this Article 7 is not exercised
prior to (i) a dissolution of the Corporation or (ii) a merger or other
corporate event that the Corporation does not survive, and no provision is (or
consistent with the provisions of Section 7.7 can be) made for the assumption,
conversion, substitution or exchange of the Option, the Option shall terminate
upon the occurrence of such event.
8. DEFINITIONS.
8.1 Definitions.
(a) "Award" shall mean an award of any Option, Stock
Appreciation Right, Restricted Stock, Stock Bonus, Performance Share Award,
Performance-Based Award, Cash-Based Award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
(b) "Award Agreement" shall mean any writing setting forth
the terms of an Award that has been authorized by the Committee.
(c) "Award Date" shall mean the date upon which the
Committee took the action granting an Award or such later date as the Committee
designates
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as the Award Date at the time of the Award or, in the case of Awards under
Article 7, the applicable dates set forth therein.
(d) "Award Period" shall mean the period beginning on an
Award Date and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust or
trusts designated by a Participant or, in the absence of a designation, entitled
by will or the laws of descent and distribution, to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is designated and able to act under the circumstances.
(f) "Board" shall mean the Board of Directors of the
Corporation.
(g) "Cash-Based Awards" shall mean Awards that, if paid,
must be paid in cash and that are neither denominated in nor have a value
derived from the value of, nor an exercise or conversion privilege at a price
related to, shares of Common Stock.
(h) "Cash Flow" shall mean cash and cash equivalents
derived from either (i) net cash flow from operations or (ii) net cash flow from
operations, financings and investing activities, as determined by the Committee
at the time an Award is granted.
(i) "Change in Control Event" shall mean any of the
following:
(1) Approval by the shareholders of the
Corporation of the dissolution or liquidation of the Corporation;
(2) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act (a "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 Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Corporation entitled to
vote generally in the election of directors (the "Outstanding Corporation
Voting Securities"); provided, however, that for purposes of this
subsection (2), the following acquisitions shall not constitute a Change
in Control Event: (i) any acquisition directly from the Corporation,
(ii) any acquisition by the Corporation, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any entity controlled by the Corporation or (iv) any
acquisition by any
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corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (4) below; or
(3) Individuals who, as of the effective date of
the Plan, 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 Corporation's
stockholders, 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 a
Person other than the Board; or
(4) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Corporation (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 Corporation Common Stock and Outstanding
Corporation 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 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 Corporation or all or substantially all of the Corporation'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 Corporation Common Stock
and Outstanding Corporation Voting Securities, as the case may be, (ii)
no Person (excluding any employee benefit plan (or related trust) of the
Corporation 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.
23
<PAGE> 27
(j) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(k) "Commission" shall mean the Securities and Exchange
Commission.
(l) "Committee" shall mean the Board or a committee
appointed by the Board to administer this Plan, which committee shall be
comprised only of two or more directors or such greater number of directors as
may be required under applicable law, each of whom, in respect of any decision
at a time when the Participant affected by the decision may be subject to
Section 162(m) of the Code, shall be an "outside" director within the meaning of
Section 162(m) of the Code.
(m) "Common Stock" shall mean the Common Stock of the
Corporation and such other securities or property as may become the subject of
Awards, or become subject to Awards, pursuant to an adjustment made under
Section 6.2 of this Plan.
(n) "Company" shall mean, collectively, the Corporation and
its Subsidiaries.
(o) "Corporation" shall mean Talbert Medical Management
Holdings Corporation, a Delaware corporation, and its successors.
(p) "Disinterested" shall mean disinterested within the
meaning of any applicable regulatory requirements, including Rule 16b-3.
(q) "Eligible Employee" shall mean an officer (whether or
not a director) or key employee of the Company, or, prior to the time that the
Corporation's Common Stock is registered on a Registration Statement on Form
S-8, any person who has agreed to commence serving in any such capacity within
120 days of the date of grant.
(r) "Eligible Person" means an Eligible Employee, or any
Other Eligible Person, as determined by the Committee in its discretion.
(s) "EPS" shall mean earnings per common share on a fully
diluted basis determined by dividing (i) net earnings, less dividends on
preferred stock of the Corporation by (ii) the weighted average number of common
shares and common shares equivalents outstanding.
(t) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
24
<PAGE> 28
(u) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
(v) "Fair Market Value" on any date shall mean (i) if the
stock is listed or admitted to trade on a national securities exchange, the
closing price of the stock on the Composite Tape, as published in the Western
Edition of The Wall Street Journal, of the principal national securities
exchange on which the stock is so listed or admitted to trade, on such date, or,
if there is no trading of the stock on such date, then the closing price of the
stock as quoted on such Composite Tape on the next preceding date on which there
was trading in such shares; (ii) if the stock is not listed or admitted to trade
on a national securities exchange, the last price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization if
the NASD is no longer reporting such information; (iii) if the stock is not
listed or admitted to trade on a national securities exchange and is not
reported on the National Market Reporting System, the mean between the bid and
asked price for the stock on such date, as furnished by the NASD or a similar
organization; or (iv) if the stock is not listed or admitted to trade on a
national securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by the NASD
or a similar organization, the value as established by the Committee at such
time for purposes of this Plan.
(w) "Incentive Stock Option" shall mean an Option which is
intended, as evidenced by its designation, as an incentive stock option within
the meaning of Section 422 of the Code, the award of which contains such
provisions (including but not limited to the receipt of shareholder approval of
this Plan, if the Award is made prior to such approval) and is made under such
circumstances and to such persons as may be necessary to comply with that
section.
(x) "Nonqualified Stock Option" shall mean an Option that
is designated as a Nonqualified Stock Option and shall include any Option
intended as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.
(y) "Non-Employee Director" shall mean a member of the
Board of Directors of the Corporation who is not an officer or employee of the
Company.
(z) "Non-Employee Director Participant" shall mean a
Non-Employee Director who holds an outstanding Award under the provisions of
Article 7.
25
<PAGE> 29
(aa) "Option" shall mean an option to purchase Common Stock
granted under this Plan. The Committee shall designate any Option granted to an
Eligible Person as a Nonqualified Stock Option or an Incentive Stock Option.
Options granted under Article 8 shall be Nonqualified Stock Options.
(ab) "Other Eligible Person" shall mean any Non-Employee
Director or any individual consultant or advisor who renders or has rendered
bona fide services (other than services in connection with the offering or sale
of securities of the Company in a capital raising transaction) to the Company,
and who is selected to participate in this Plan by the Committee. A
non-employee agent providing bona fide services to the Company (other than as an
eligible advisor or consultant) may also be selected as an Other Eligible Person
if such agent's participation in this Plan would not adversely affect (i) the
Corporation's eligibility to use Form S-8 to register under the Securities Act
of 1933, as amended, the offering of shares issuable under this Plan by the
Company or (ii) the Corporation's compliance with any other applicable laws.
(ac) "Participant" shall mean an Eligible Person who has
been granted an Award under this Plan and a Non-Employee Director who has
received an Award under Article 7 of this Plan.
(ad) "Performance-Based Award" shall mean an Award of a
right to receive shares of Common Stock or other compensation (including cash)
under Section 5.2, the issuance or payment of which is contingent upon, among
other conditions, the attainment of performance objectives specified by the
Committee.
(ae) "Performance Goals" shall mean EPS or ROE or Cash Flow
or Total Stockholder Return, and "Performance Goals" means any combination
thereof.
(af) "Performance Share Award" shall mean an Award of a
right to receive shares of Common Stock made in accordance with Section 5.1, the
issuance or payment of which is contingent upon, among other conditions, the
attainment of performance objectives specified by the Committee.
(ag) "Personal Representative" shall mean the person or
persons who, upon the disability or incompetence of a Participant, shall have
acquired on behalf of the Participant, by legal proceeding or otherwise, the
power to exercise the rights or receive benefits under this Plan and who shall
have become the legal representative of the Participant.
(ah) "Plan" shall mean this 1996 Stock Incentive Plan.
(ai) "QDRO" shall mean a qualified domestic relations order
as defined in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA
(to
26
<PAGE> 30
the same extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(aj) "Restricted Stock Award" shall mean an award of a fixed
number of shares of Common Stock to the Participant subject, however, to payment
of such consideration, if any, and such forfeiture provisions, as are set forth
in the Award Agreement.
(ak) "Restricted Stock" shall mean shares of Common Stock
awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting and such transfer and
other restrictions as are established in or pursuant to this Plan, for so long
as such shares remain unvested under the terms of the applicable Award
Agreement.
(al) "ROE" shall mean consolidated net income of the
Corporation (less preferred dividends), divided by the average consolidated
common shareholders equity.
(am) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by
the Commission pursuant to the Exchange Act, as amended from time to time.
(an) "Section 16 Person" shall mean a person subject to
Section 16(a) of the Exchange Act.
(ao) "Securities Act" shall mean the Securities Act of 1933,
as amended from time to time.
(ap) "Stock Appreciation Right" shall mean a right to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common Stock
that is authorized under this Plan.
(aq) "Stock Bonus" shall mean an Award of shares of Common
Stock granted under this Plan for no consideration other than past services and
without restriction other than such transfer or other restrictions as the
Committee may deem advisable to assure compliance with law.
(ar) "Subsidiary" shall mean any corporation or other entity
a majority of whose outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Corporation.
(as) "Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code and (except in
the
27
<PAGE> 31
case of a Non-Employee Director) such other disabilities, infirmities,
afflictions or conditions as the Committee by rule may include.
(at) "Total Stockholder Return" shall mean with respect to
the Corporation or other entities (if measures on a relative basis), the (i)
change in the market price of its common stock (as quoted in the principal
market on which it is traded as of the beginning and ending of the period) plus
dividends and other distributions paid, divided by (ii) the beginning quoted
market price, all of which is adjusted for any changes in equity structure,
including but not limited to stock splits and stock dividends.
28
<PAGE> 32
EXHIBIT A
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the _____ day of _____________, 19__,
between Talbert Medical Management Holdings Corporation, a Delaware corporation
(the "Corporation"), and ________________ (the "Director").
W I T N E S S E T H
WHEREAS, the Corporation has adopted and the shareholders of the
Corporation have approved a Talbert Medical Management Holdings Corporation
1996 Stock Incentive Plan (the "Plan").
WHEREAS, pursuant to Article 7 of the Plan, the Corporation has
granted an option (the "Option") to the Director upon the terms and conditions
evidenced hereby, as required by the Plan, which Option is not intended as and
shall not be deemed to be an incentive stock option within the meaning of
Section 422 of the Code.
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Director, the Corporation and the Director agree to the terms
and conditions set forth herein as required by the terms of the Plan.
1. Option Grant. This Agreement evidences the grant to the
Director, as of ___________, ____ (the "Option Date"), of an Option to purchase
an aggregate of _____ shares of Common Stock, par value _____ per share, under
Article 7 of the Plan, subject to the terms and conditions and to adjustment as
set forth herein or in pursuant to the Plan.
2. Exercise Price. The Option entitles the Director to purchase
(subject to the terms of Sections 3 through 5 below) all or any part of the
Option shares at a price per share of $_______, which amount represents the
Fair Market Value of the shares on the Option Date.
3. Option Exercisability and Term. Subject to adjustment
pursuant to Section 7.6 of the Plan, the Option shall first become and remain
exercisable as to ______________ of the shares on ___________________ and as to
an additional _________ shares on each of the following dates: ______________,
A-1
<PAGE> 33
199_, __________, 199_ and _____________, 199_, in each case subject to
adjustments under Section ____ of the Plan and acceleration under Section 7.7
of the Plan. The Option shall terminate on ____________, 19__,* unless earlier
terminated in accordance with the terms of Sections 7.7 of the Plan.
4. Service and Effect of Termination of Service. The Director
agrees to serve as a director in accordance with the provisions of the
Corporation's Articles of Incorporation, bylaws and applicable law. If the
Director's services as a member of the Board shall terminate, this Option shall
terminate at the times and to the extent set forth in Section 7.5 of the Plan.
5. General Terms. The Option and this Agreement are subject to,
and the Corporation and the Director agree to be bound by, the provisions of
the Plan that apply to the Option. Such provisions are incorporated herein by
this reference. The Director acknowledges receiving a copy of the Plan and
reading its applicable provisions. Capitalized terms not otherwise defined
herein shall have the meaning assigned to such terms in the Plan.
6. Nontransferability. The grant of the Option is intended to
constitute an exempt transaction under Rule 16b-3. In furtherance thereof, the
Option shall be non-transferable to the fullest extent required by Rule
16b-3(a)(2) as in effect on the date of adoption of this Plan or during the
transition period by former Rule 16b-3(d)(1)(ii), incorporated herein by this
reference.
______________
*insert day before tenth anniversary of date of grant.
A-2
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
(a Delaware corporation)
By:
-------------------------------------
Title:
-------------------------------------
Optionee Director
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Address)
---------------------------------------------
(City, State, Zip Code)
In consideration of the execution of the foregoing Stock Option
Agreement by Talbert Medical Management Holdings Corporation, I,
_________________, the spouse of the Director therein named, do hereby agree to
be bound by all of the terms and provisions thereof and of the Plan.
DATED: , 19 .
--------------- --
---------------------------------------------
Signature of Spouse
A-3
<PAGE> 1
EXHIBIT 6
August
14th
1 9 9 7
Talbert Medical Management
Holdings Corporation
3540 Howard Way
Costa Mesa, California 95656
Re: Cash Awards
Ladies and Gentlemen:
Pursuant to Section 7.10(f) of the Agreement and Plan of
Merger, dated as of August 13, 1997, among the undersigned and you (the "Merger
Agreement"), we hereby agree with you that we will, at the time of consummation
of the Offer, pay, or cause the Surviving Corporation to pay, cash awards to
the persons, and in the amounts, specified on the attached schedule.
We represent and warrant that the execution, delivery and
performance of this letter has been duly authorized by each of the undersigned
and that this letter constitutes the legally binding agreement of each of the
undersigned, enforceable against each of the undersigned in accordance with its
terms.
All capitalized terms used but not defined in this letter
agreement shall have the meanings given to them by the Merger Agreement.
Very truly yours,
MEDPARTNERS, INC.
By: /s/ J. BROOKE JOHNSTON, JR.
-------------------------------
Its: Senior VP and General Counsel
-------------------------------
<PAGE> 2
Page 2 - Talbert Medical Management - August 14, 1997
Holdings Corporation
TALMED MERGER CORPORATION
By: /s/ J. BROOKE JOHNSTON, JR.
-------------------------------
Its: Senior Vice President
-------------------------------
Accepted and Agreed
as of August 14, 1997:
Talbert Medical Management
Holdings Corporation
By: /s/ JACK D. MASSIMINO
-----------------------------------
Its: President and CEO
-----------------------------------
<PAGE> 1
EXHIBIT 7
August
14th
1 9 9 7
Talbert Medical Management
Holdings Corporation
3540 Howard Way
Costa Mesa, California 95656
Re: Stay Bonuses
Ladies and Gentlemen:
Pursuant to Section 7.10(e) of the Agreement and Plan of
Merger, dated as of August 14, 1997, among the undersigned and you (the "Merger
Agreement"), we hereby agree with you that we will, at the time or times
specified in that section, pay, or cause the Surviving Corporation to pay, cash
stay bonuses to the persons, and in the amounts, specified on the attached
schedule.
We represent and warrant that the execution, delivery and
performance of this letter has been duly authorized by each of the undersigned
and that this letter constitutes the legally binding agreement of each of the
undersigned, enforceable against each of the undersigned in accordance with its
terms.
All capitalized terms used but not defined in this letter
agreement shall have the meanings given to them by the Merger Agreement.
Very truly yours,
MEDPARTNERS, INC.
By: /s/ J. BROOKE JOHNSTON, JR.
-------------------------------
Its: Senior VP and General Counsel
-------------------------------
<PAGE> 2
Page 2 - Talbert Medical Management - August 14, 1997
Holdings Corporation
TALMED MERGER CORPORATION
By: /s/ J. BROOKE JOHNSTON, JR.
-------------------------------
Its: Senior Vice President
-------------------------------
Accepted and Agreed
as of August 14, 1997:
Talbert Medical Management
Holdings Corporation
By: /s/ JACK D. MASSIMINO
-----------------------------------
Its: President and CEO
-----------------------------------
<PAGE> 1
EXHIBIT 8
- - --------------------------------------------------------------------------------
MEDPARTNERS, INC.
NONTRANSFERABLE WARRANT AGREEMENT
TALBERT MEDICAL GROUP PHYSICIANS
Dated as of __________, 1997
- - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Sections Page(s)
<S> <C> <C>
SECTION 1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4. Term of Warrants; Exercise of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1. Term of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2. Exercise of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 6. Nontransferability; Limited Exceptions to Transfer Restrictions . . . . . . . . . . . . . . 4
6.1. Limits on Exercise and Transfer . . . . . . . . . . . . . . . . . . . . . 4
6.2. Exceptions to Limits on Transfer . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. Effect of Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1. Forfeiture after Certain Events . . . . . . . . . . . . . . . . . . . . . 5
7.2. Return of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3. Termination Without Cause Following Change in Control Event . . . . . . . 5
SECTION 8. Effect of Death, Total Disability or Retirement . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 9. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 10. Reservation of Warrant Shares; Purchase and Cancellation of Warrants . . . . . . . . . . . 6
10.1. Reservation of Warrant Shares . . . . . . . . . . . . . . . . . . . . . . 6
10.2. Governmental Approvals and Listings . . . . . . . . . . . . . . . . . . . 6
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares . . . . . . . . . . . . . . . . . 7
11.1. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Stock Dividends, Splits, etc. . . . . . . . . . . . . . . . . . . . 7
(b) Distributions of Assets . . . . . . . . . . . . . . . . . . . . . . 7
(c) Computation of Market Price . . . . . . . . . . . . . . . . . . . . 8
(d) Minimum Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Warrant Share Adjustment . . . . . . . . . . . . . . . . . . . . . . 9
(f) Notice of Adjustment . . . . . . . . . . . . . . . . . . . . . . . . 9
(g) Definition of Common Stock . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(h) Company May Reduce Exercise Price or Increase Number
of Warrant Shares Purchasable . . . . . . . . . . . . . . . . . . . 9
11.2. No Adjustment for Dividends . . . . . . . . . . . . . . . . . . . . . . . 9
11.3. Preservation of Purchase Rights and Adjustment of Exercise
Price upon Merger, Consolidation, etc. . . . . . . . . . . . . . . . . . . 9
11.4. No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 12. No Rights as Stockholders; Notices to Warrant Holders . . . . . . . . . . . . . . . . . . . 10
SECTION 13. Purchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 15. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 17. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PURCHASE FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
ii
<PAGE> 4
THIS NONTRANSFERABLE WARRANT AGREEMENT dated as of the _____
day of __________, 1997, is between MEDPARTNERS, INC., a Delaware corporation
(the "Company"), and _________________, an individual (the "Physician").
W I T N E S S E T H
WHEREAS, pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of August 12, 1997 among the Company, Talmed
Merger Corporation, a Delaware corporation (the "Subsidiary"), and Talbert
Medical Management Holdings Corporation, a Delaware corporation ("Talbert"),
the Company has proposed to cause the Subsidiary to make a tender offer to
purchase all the outstanding shares of common stock of Talbert, together with
their associated rights (the "Offer"), and subsequently to merge the Subsidiary
with and into Talbert (the "Merger").
WHEREAS, the Physician is employed by one of the Talbert
Medical Groups affiliated with Talbert Medical Management Corporation, a
Delaware corporation ("TMMC"), which is a subsidiary of Talbert.
WHEREAS, the Merger Agreement provides that the Company will
issue to certain physicians employed by the Talbert Medical Groups and
designated by Talbert warrants to purchase its Common Stock, par value $.001
per share (the "Common Stock"); and
WHEREAS, the Company wishes to issue to the Physician,
effective as of the Effective Time (as defined in the Merger Agreement), such
warrants upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration the foregoing and the mutual
promises made herein and the mutual benefits to be derived therefrom, the
parties agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms used herein and
not otherwise defined herein shall have the meaning assigned to such terms in
the Merger Agreement. For the purposes of this Agreement, the following terms
shall have the meanings set forth below.
"Beneficiary" means the person, persons, trust or trusts
designated by the Physician or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits of this
Agreement in the event of the Physician's death, and shall mean the Physician's
executor or administrator if no other Beneficiary is designated and able to act
under the circumstances.
"Change in Control Event" means any of the following:
(1) Approval by the stockholders of the Company of the
dissolution or liquidation of the Company;
<PAGE> 5
(2) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"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 (2), the following acquisitions shall not constitute a
Change in Control Event: (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 entity
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
(4) below; or
(3) Individuals who, as of the effective date of this
Agreement, constitute the Board of Directors of the Company (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
stockholders, 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 a Person other than the Board; or
(4) 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 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
2
<PAGE> 6
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.
"Personal Representative" means the person or persons who,
upon the disability or incompetence of a Physician, shall have acquired on
behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Agreement and who shall have
become the legal representative of the Physician.
"QDRO" means a qualified domestic relations order as defined
in Section 414(p) of the Internal Revenue Code of 1986 or Title I, Section
206(d)(3) of the Employee Retirement Income Security Act of 1974, as amended,
or the applicable rules thereunder.
"Subsidiary" means any corporation or other entity a majority
of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company, or any professional corporation or other
legal entity operating as a medical group and affiliated within the Company or
one of its subsidiaries.
"Total Disability" means a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986 and
such other disabilities, infirmities, afflictions or conditions as the Company
may include.
SECTION 2. GRANT. Subject to the terms of this Agreement,
the Company grants to the Physician warrants with respect to an aggregate of
2,000 shares of Common Stock, par value $.001 per share (the "Warrants"). Each
Warrant entitles the Physician to purchase one share of Common Stock (each
share of Common Stock purchasable upon the exercise of a Warrant being referred
to herein as a "Warrant Share").
SECTION 3. EXERCISE PRICE. The price per share at which
Warrant Shares shall be purchasable upon exercise of each Warrant (the
"Exercise Price") shall be the Market Price (as defined in subsection 11.1(c))
of the Common Stock at the date of the Effective Time, subject to adjustment
pursuant to Section 11 hereof.
SECTION 4. TERM OF WARRANTS; EXERCISE OF WARRANTS.
4.1. Term of Warrants. With respect to those Warrants that
have vested and subject to the terms of this Agreement, the Physician shall
have the right until 5:00 P.M., New York time, on __________, 2007 (the tenth
anniversary of the Effective Time) (the "Expiration Date"), to purchase from
the Company the number of fully paid and nonassessable Warrant Shares which the
Physician may at the time be entitled to purchase on exercise of such vested
Warrants.
4.2. Exercise of Warrants. Warrant Shares may be purchased
upon delivery to the Company at its principal office of the form attached
hereto as Exhibit A (the "Purchase Form") of election to purchase duly filled
in and signed for the number of
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<PAGE> 7
Warrant Shares in respect of which such Warrants are then being exercised.
Payment of the aggregate Exercise Price shall be made by certified or cashier's
check, or by any combination thereof.
Upon such delivery of the Purchase Form and payment of the
Exercise Price, the Company shall issue and cause to be delivered, with all
reasonable dispatch, to or upon the written order of the Physician and in such
name or names as the Physician may designate, a certificate or certificates for
the number of Warrant Shares so purchased upon the exercise of such Warrants.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such Warrant Shares as of the date of the delivery of the
Purchase Form and payment of the Exercise Price; provided, however, that if
such Purchase Form is surrendered, and the Exercise Price is paid, on a
Saturday, Sunday or other day on which banking institutions in the City of New
York are authorized or obligated by law or executive order to close, or on a
day when the Common Stock transfer books of the Company are closed, the
certificates for the Warrant Shares in respect of which such Warrants are then
exercised shall be issuable as of the next succeeding Monday, Tuesday,
Wednesday, Thursday or Friday on which such banking institutions are not so
authorized or obligated to close (whether before or after the Expiration Date)
and which is a day on which the Common Stock transfer books of the Company are
open. The rights of purchase represented by the Warrants shall be exercisable,
at the election of the Physician, either in full or from time to time in part.
SECTION 5. VESTING. The Warrants shall vest and will be
exercisable with respect to one-fifth of the total number of Warrant Shares
(subject to adjustment as set forth in Section 11 below) on each of the first,
second, third, fourth and fifth anniversaries of the Effective Time, so that
Warrants with respect to the total number of Warrant Shares shall have vested
by __________, 2003.
SECTION 6. NONTRANSFERABILITY; LIMITED EXCEPTIONS TO
TRANSFER RESTRICTIONS.
6.1. Limits on Exercise and Transfer. Unless otherwise
expressly provided by applicable law (i) all Warrants are nontransferable and
shall not be subject in any manner to sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge; (ii) Warrants shall be exercised
only by the Physician; and (iii) amounts payable or shares issuable pursuant to
the exercise of a Warrant shall be delivered only to (or for the account of)
the Physician.
6.2. Exceptions to Limits on Transfer. The exercise and
transfer restrictions in subsection 6.1 shall not apply to:
(i) transfers to the Company,
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<PAGE> 8
(ii) the designation of a Beneficiary to receive benefits
in the event of the Physician's death or, if the Physician has died,
transfers to or exercise by the Physician's Beneficiary, or, in the
absence of a validly designated Beneficiary, transfers by will or the
laws of descent and distribution,
(iii) transfers pursuant to a QDRO order, or
(iv) if the Physician has suffered a Total Disability,
permitted transfers or exercises on behalf of the Physician by his or
her Personal Representative.
SECTION 7. EFFECT OF TERMINATION OF EMPLOYMENT.
7.1. Forfeiture after Certain Events. Except as provided
in subsection 7.3 and Section 8, the Warrants shall be forfeited to the extent
such Warrants have not become vested upon the date the Physician's employment
with the Company or one of its Subsidiaries is terminated for Cause or by
reason of the termination of the Physician's employment by the Physician upon
retirement or otherwise. If the Physician's employment with the Company is
terminated without Cause, the Warrants shall not be forfeited, but shall vest
and be exercisable as described in Section 5, and the Physician shall retain
all other rights under this Agreement as if such termination had not occurred.
For purposes of this Agreement, "Cause" shall mean that the Company, acting in
good faith based upon the information then known to it, determines that the
Physician has: (a) failed to perform in a material respect the duties
associated with his or her position without proper cause, (b) been convicted of
a felony, (c) committed a material act of fraud, dishonesty or gross misconduct
that is materially injurious to the Company, or (d) not maintained in good
standing the necessary professional licenses or certifications required by
state and federal law in connection with the Physician's practice of medicine.
"Retirement" shall mean termination of the Physician's employment by the
Physician (i) with the consent of the Company, (ii) after age 55 with 10 years
of service, or (iii) after age 65.
7.2. Return of Warrants. Upon the occurrence of any
forfeiture of Warrants hereunder, such unvested, forfeited Warrants shall,
without payment of any consideration by the Company for such transfer, be
automatically transferred to the Company, without any other action by the
Physician. The Company may take any action necessary or advisable to evidence
such transfer. The Physician shall deliver any additional documents of
transfer that the Company may request to confirm the transfer of such unvested,
forfeited Warrants to the Company.
7.3. Termination Without Cause Following Change in Control
Event. If following a Change in Control Event, the Physician's employment with
the Company is terminated other than for Cause, then any Warrants that have not
previously vested shall thereupon vest.
SECTION 8. EFFECT OF DEATH, TOTAL DISABILITY OR RETIREMENT.
If the Physician dies while employed by the Company, then any Warrants that
have not previously
5
<PAGE> 9
vested shall thereupon vest. If the Physician incurs a Total Disability while
employed by the Company, the Warrants shall not be forfeited, but shall vest
and be exercisable as described in Section 5, and the Physician shall retain
all other rights under this Agreement as if such Total Disability had not
occurred. If the Physician retires from employment by the Company, the Company
may, on a case-by-case basis and in its sole discretion, provide for partial or
complete vesting prior to retirement of the Warrants that have not previously
vested.
SECTION 9. PAYMENT OF TAXES. The Company will pay all
documentary stamp taxes, if any, attributable to the issuance of certificates
for Warrant Shares issuable upon the exercise of Warrants; provided, however,
that the Company shall not be required to pay, and the Physician shall pay, any
tax or taxes that may be payable in respect of any transfer involved in the
issue or delivery of any certificates for Warrant Shares in a name other than
that of the Physician and the Company shall not be required to issue or deliver
such certificates for Warrant Shares unless or until the persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
SECTION 10. RESERVATION OF WARRANT SHARES; PURCHASE AND
CANCELLATION OF WARRANTS.
10.1. Reservation of Warrant Shares. There have been
reserved, and the Company shall at all times keep reserved out of its
authorized Common Stock, a number of shares of Common Stock sufficient to
provide for the exercise of the right of purchase represented by the
outstanding Warrants. The Company covenants that all Warrant Shares will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable.
Before taking any action that would cause an adjustment reducing the Exercise
Price below the then par value, if any, of the shares of Common Stock issuable
upon exercise of the Warrants, the Company shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Common Stock, at such adjusted Exercise Price. The transfer agent for the
Common Stock and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be requisite for such
purpose. The Company will keep a copy of this Agreement on file with the
transfer agent for the Common Stock and with every subsequent transfer agent
for any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Warrants.
10.2. Governmental Approvals and Listings. The Company
will as promptly as practicable take all action which may be necessary to
obtain and keep effective (a) any and all permits, consents and approvals of
governmental agencies and authorities, and will make any and all filings under
federal and state securities laws, necessary in connection with the issuance
and distribution of the Warrants to the Physician, the exercise of the Warrants
by the Physician, and the issuance, sale, transfer and delivery of Warrant
Shares and (b) if any
6
<PAGE> 10
of the Warrant Shares have been listed on any securities exchange, the listing
of the Warrant Shares on any securities exchange on which the Common Stock may
be listed (it being understood that the Company has no obligation to list any
Warrant Shares with any securities exchange).
SECTION 11. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
WARRANT SHARES.
11.1. Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Stock Dividends, Splits, etc. In case the Company
shall at any time after the date of this Agreement (w) pay a dividend
or make a distribution on its Common Stock, which is paid or made (A)
in Common Stock or other shares of the Company's capital stock or (B)
in rights to purchase Common Stock or other capital stock of the
Company if such rights are not exercisable, or separable from the
Common Stock except upon the occurrence of a contingency, (x)
subdivide its outstanding Common Stock into a greater number of shares
of Common Stock, (y) combine its outstanding shares into a smaller
number of shares of Common Stock or (z) issue by reclassification of
its Common Stock other securities of the Company, then, in any such
event the number of Warrant Shares purchasable upon exercise of each
Warrant immediately prior thereto shall be adjusted so that the
Physician shall be entitled to receive upon exercise of such Warrant
the kind and number of shares of the Company and rights to purchase
Common Stock or other securities of the Company (or, in the event of
the redemption of any such rights, any cash paid in respect of such
redemption) that he or she would have owned or have been entitled to
receive after the happening of any of the events described above had
such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately
after the opening of business on the next business day following the
record date in the case of dividends or other distributions and shall
become effective immediately after the opening of business on the next
business day following the effective date in the case of a subdivision
or combination.
(b) Distributions of Assets. In case the Company shall
at any time after the date of this Agreement distribute to all holders
of its Common Stock evidences of indebtedness of the Company or assets
of the Company (including cash dividends or distributions out of
retained earnings other than cash dividends or distributions made on a
quarterly or other periodic basis) or warrants to subscribe for
securities of the Company (excluding those referred to in paragraph
(a) above), then in each case the Exercise Price shall be adjusted to
a price determined by multiplying the Exercise Price in effect
immediately prior to such distribution by a fraction, of which the
numerator shall be the then current market price per share of Common
Stock (as defined in paragraph (c) below) on the record date for
determination of stockholders entitled to receive such distribution,
less the then fair value (as determined in good
7
<PAGE> 11
faith by the Board of Directors of the Company, whose determination
shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or warrants
which are applicable to one share of Common Stock, and of which the
denominator shall be such market price per share of Common Stock;
provided, however, that if the then current market price per share of
Common Stock on the record date for determination of stockholders
entitled to receive such distribution is less than the then fair value
of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights or warrants which are
applicable to one share of Common Stock, the foregoing adjustment of
the Exercise Price shall not be made and in lieu thereof the Physician
shall be entitled to receive upon exercise of such Warrant in addition
to the Common Stock the kind and number of assets, evidences of
indebtedness, subscription rights and warrants (or, in the event of
the redemption of any such evidences of indebtedness, subscription
rights and warrants, any cash paid in respect of such redemption) that
he or she would have owned or have been entitled to receive after the
happening of such distribution had such Warrant been exercised
immediately prior to the record date for such distribution. Such
adjustment shall be made successively whenever such a record date is
fixed, and in the event that such distribution is not so made, the
Exercise Price shall again be adjusted to be the Exercise Price which
would then be in effect if such record date had not been fixed.
(c) Computation of Market Price. For the purpose of any
computation under this Agreement, the current market price per share
of Common Stock at any date shall be deemed to be the average of the
daily Market Price (as defined below) per share for the 10 consecutive
Trading Days (as defined below) immediately prior to the date which is
2 days before the date in question. "Market Price" is defined as the
closing sale price (or, if no closing sale price is reported, the
closing bid price) for the Common Stock on the New York Stock
Exchange. If Market Price cannot be established as described above,
Market Price shall be the fair market value of the Common Stock as
determined in good faith by the Board of Directors. "Trading Day"
shall mean a Monday, Tuesday, Wednesday, Thursday or Friday on which
banking institutions in the City of Los Angeles and the State of
California or New York, New York, are not authorized or obligated by
law or executive order to close or, if the Common Stock is listed or
admitted to trading on a national securities exchange, a day on which
the principal national securities exchange on which the Common Stock
is listed or admitted to trading is open for the transaction of
business.
(d) Minimum Adjustment. No adjustment in the number of
Warrant Shares purchasable hereunder or the Exercise Price shall be
required unless such adjustment would require an increase or decrease
of at least one per cent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant, or the Exercise Price,
as the case may be; provided, however, that any adjustments which by
reason of this paragraph (d) 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 the nearest ten-thousandth of a share, as the case may be
8
<PAGE> 12
(e) Warrant Share Adjustment. Upon each adjustment of
the Exercise Price as a result of the calculations made in paragraph
(a) or (b) above, each Warrant outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares
(calculated to the nearest ten-thousandth) obtained by (i) multiplying
(x) the number of shares covered by a Warrant immediately prior to
such adjustment of the Exercise Price by (y) the Exercise Price in
effect immediately prior to such adjustment of the Exercise Price and
(ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(f) Notice of Adjustment. Whenever the number of Warrant
Shares purchasable upon the exercise of Warrants or the Exercise Price
of such Warrant Shares is adjusted, as herein provided, the Company
shall promptly mail by first class mail, postage prepaid, to the
Physician notice of such adjustment or adjustments.
(g) Definition of Common Stock. For the purpose of this
subsection 11.1, the term "Common Stock" shall mean (i) the class of
stock designated as the Common Stock of the Company at the date of
this Agreement or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares consisting
solely of changes in par value, or from par value to no par value or
from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to paragraph (a) above, the
Physician shall become entitled to purchase any securities of the
Company other than Common Stock, thereafter the number of such other
securities so purchasable upon exercise of each Warrant and the
Exercise Price of such securities shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares
contained in this subsection 11.1 and subsections 11.2 and 11.3,
inclusive, with respect to the Warrant Shares, shall apply on like
terms to any such other securities.
(h) Company May Reduce Exercise Price or Increase Number
of Warrant Shares Purchasable. The Company may, at its sole option,
at any time during the term of the Warrants, reduce the then current
Exercise Price, or increase the number of Common Shares purchasable
upon exercise of each Warrant, to any amount deemed appropriate by the
Board of Directors of the Company.
11.2. No Adjustment for Dividends. Except as provided in
subsection 11.1, no adjustment in respect of any dividends made on a quarterly
or other periodic basis out of retained earnings shall be made during the term
of a Warrant or upon the exercise of a Warrant.
11.3. Preservation of Purchase Rights and Adjustment of
Exercise Price upon Merger, Consolidation, etc. In case the Company shall
consolidate or merge with or into any other corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
each share of Common Stock outstanding immediately prior to
9
<PAGE> 13
such consolidation or merger is to remain outstanding immediately after such
consolidation or merger and no cash, securities or other property is
distributed with respect to such shares) or shall sell or transfer all or
substantially all of its assets to any corporation, the Company or such
successor or purchasing corporation, as the case may be (collectively, the
"acquiring corporation"), the Physician shall have the right thereafter upon
payment of the Exercise Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities, cash and other property that he or she would have owned or have
been entitled to receive after the happening of such consolidation, merger or
sale had such Warrant been exercised immediately prior to such action (assuming
that such Physician, as a holder of Common Stock prior to such action, would
not have exercised any rights of election as a holder of Common Stock as to the
kind or amount of securities, cash or other property receivable upon such
consolidation, merger or sale; provided, that if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger
or sale is not the same for each non-electing share of Common Stock, then the
kind and amount of securities, cash or other property receivable shall be
deemed to be the kind and amount so receivable by a plurality of the
non-electing shares). The Company shall mail by first-class mail, postage
prepaid, to the Physician, notice of the execution of any agreement with an
acquiring corporation as provided in the first sentence of this subsection
11.3. In addition to any adjustments required by this subsection 11.3, such
agreement shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 11. The
provisions of this subsection 11.3 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
11.4. No Fractional Shares. The Company will not issue
fractions of Warrant Shares. In lieu of such fractional Warrant Shares, the
Company will pay to the Physician to whom such fractional Warrant Shares would
otherwise be issuable an amount in cash equal to the product of such fraction
of a Warrant Share multiplied by the current Market Price per share of Common
Stock.
SECTION 12. NO RIGHTS AS STOCKHOLDERS; NOTICES TO WARRANT
HOLDERS.
Nothing contained in this Agreement or in any of the Warrants
shall be construed as conferring upon the Physician the right to vote
or to receive dividends or to consent or to receive notice as
stockholders in respect of any meeting of stockholders for the
election of directors of the Company or any other matter, or any
rights whatsoever as stockholders of the Company. If prior to the
expiration of the Warrants:
(a) the Company shall declare a dividend or other
distribution on its Common Shares, other than (i) in cash as described
in subsection 11.2, (ii) in other shares of Common Stock, or (iii) in
rights to purchase shares of Common Stock or other securities of the
Company of the character described in paragraph (a) of subsection
11.1; or
10
<PAGE> 14
(b) the Company shall authorize the issuance to all
holders of its Common Stock of rights or warrants entitling them to
subscribe for or purchase any Common Stock or any other subscription
rights or warrants (other than rights of the character described in
paragraph (a) of subsection 11.1); or
(c) there shall occur a reclassification of the capital
stock of the Company (other than a subdivision or combination of its
outstanding Common Stock); or
(d) the Company shall propose to effect any consolidation
or merger into or with, or to effect any sale or other transfer
requiring an adjustment pursuant to subsection 11.3; or
(e) the Company shall take an action ("Adjustment
Action") which would cause an adjustment pursuant to Section 11 hereof
of the number or kind of Common Stock (or other securities)
purchasable upon the exercise of each Warrant or of the Exercise Price
that would have the effect of reducing the price payable for a share
of the Company's capital stock by the Physician upon exercise of a
Warrant to an amount which is less than the current value of such
share; or
(f) a voluntary or involuntary dissolution, liquidation
or winding up of the Company shall be proposed;
then, in any such event, the Company shall cause to be mailed to the Physician
in the manner provided in Section 14 hereof, at least 20 days prior to the
applicable record or effective date hereinafter specified, a notice stating (i)
the date as of which the holders of record of Common Stock to be entitled to
such dividend, distribution, rights or warrants are to be determined, or (ii)
the date on which such reclassification, Adjustment Action, consolidation,
merger, sale, transfer, dissolution, liquidation, or winding up is expected to
become effective, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to exchange their shares of securities
or other property, if any, deliverable upon such reclassification, Adjustment
Action, consolidation, merger, sale, transfer, dissolution, liquidation or
winding up. Such notice shall also state whether such transaction will result
in any adjustment of the number or kind of Common Stock (or other securities)
purchasable upon the exercise of a Warrant or of the Exercise Price and, if so,
shall set forth the nature thereof and the date upon which it will become
effective. In the event the Company gives notice to the holders of its Common
Stock of the declaration or distribution of rights to purchase Common Stock or
other securities of the Company of the character described in paragraph (a) of
subsection 11.1, the Company will give concurrently a similar notice to the
Holders in the manner provided in Section 14 hereof. The failure to give the
notices required by this Section 12, or any defect therein, shall not affect
the legality or validity of any such dividend, distribution, right, warrant,
reclassification, Adjustment Action, dissolution, liquidation or winding up or
other action, or the vote on any action authorizing the same.
11
<PAGE> 15
SECTION 13. PURCHASE RIGHTS. If at any time or from time to
time on or after the date of the Agreement, the Corporation shall give notice
(a "Purchase Rights Notice") pursuant to paragraph (b) of Section 12 of an
issuance of rights or warrants, (the "Purchase Rights") to all record holders
of Common Stock, such issuance shall not result in an adjustment of the
Exercise Price or the number of Warrants under Section 11 hereof to the extent
that the Physician is granted the right to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which the Physician
could have acquired if he or she had held the number of shares of Common Stock
acquirable upon exercise of the Warrants immediately before the record date for
the grant, issuance, or sale of such Purchase Rights. The Purchase Rights
Notice shall describe the Purchase Rights and their availability to the
Physician.
SECTION 14. NOTICES. Any notice to be given under the terms
of this Agreement shall be in writing and addressed to the Company at its
principal office located at 3000 Galleria Tower, Suite 1000, Birmingham,
Alabama, to the attention of the Corporate Secretary and to the Physician at
the address given beneath the Physician's signature hereto. Each party hereto
may from time to time change the address to which notices to it are to be
delivered or mailed hereunder by notice in writing to the other party.
SECTION 15. APPLICABLE LAW. This Agreement and each Warrant
issued hereunder shall be deemed to be a contract made under the internal laws
of the State of New York (without reference to conflicts of law principles) and
for all purposes shall be construed in accordance with the laws of said State.
SECTION 16. 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 17. CAPTIONS. The captions of the Sections and
subsections of this Agreement have been inserted for convenience only and shall
have no substantive effect.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
MEDPARTNERS, INC.
By
-------------------------------------
Name:
Title:
PHYSICIAN
By
-------------------------------------
(Signature)
-------------------------------------
(Print name)
-------------------------------------
(Address)
-------------------------------------
(City, State, Zip Code)
Instruction: Sign and complete two copies of this Agreement and return one
in the enclosed, addressed envelope to the Company.
S-1
<PAGE> 17
CONSENT OF SPOUSE
In consideration of the execution of the foregoing
Nontransferable Warrant Agreement by MedPartners, Inc., I, __________________,
the spouse of the Physician therein named, do hereby join with my spouse in
executing the foregoing Nontransferable Warrant Agreement and do hereby agree
to be bound by all of the terms and provisions thereof.
Dated: , 1997.
---------------
-------------------------------------
Signature of Spouse
<PAGE> 18
MEDPARTNERS, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the
right of purchase granted under the Agreement with respect to ______ shares of
Common Stock and requests that certificates for such shares of Common Stock be
issued in the name of:
Name:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Social Security or Taxpayer's
Identification Number:
-------------------------------------------------------
-------------------------------------
(Signature)
-------------------------------------
(Print name)
-------------------------------------
(Address)
-------------------------------------
(City, State, Zip Code)
A-1
<PAGE> 1
EXHIBIT 9
FORM OF EMPLOYMENT AGREEMENT
(MASSAMINO AND AUSTIN)
AGREEMENT by and between Talbert Medical Management Holdings
Corporation, a Delaware corporation (the "Company"), and ____________________
(the "Executive"), dated as of the 7th day of January, 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
<PAGE> 2
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.
(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
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(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 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
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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 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.
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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.
(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
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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;
(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
having either received or given the notice requesting
arbitration, the other shall appoint the second arbitrator.
If the two arbitrators fail to appoint the umpire within 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
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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.
(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
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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
(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
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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
(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,
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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
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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.
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 PAYMENTS BY THE COMPANY
(a) Notwithstanding anything to the contrary in this
Agreement, in the event that any payment, grant of securities or distribution
by Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 11) ("Payment") is determined to be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code (the "Code") (or any
similar provision) and/or any taxes incurred in connection with delivering
documents contemplated by Section 11(e) (such excise and other tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise and Other Tax"), then the Company shall
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pay to Executive an additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise and Other Tax imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise and Other Tax imposed
upon the Payments.
(b) Subject to later additional adjustment pursuant to
Section 11(c), all determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Deloitte and Touche or such other certified
public accounting firm as may be designated by Executive and which is
satisfactory to the Company (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and Executive within 15
business days of the receipt of request from Executive or the Company. All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 11(b), shall be
paid by the Company to Executive within five days of the receipt of the
Accounting Firm's determination. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 11(c) and Executive thereafter is required to make a payment of any
Excise and Other Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which Executive gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies Executive in writing
prior to the expiration of such period that it desires to contest such claim,
Executive shall:
(i) Give the Company any information reasonably
requested by the Company relating to such claim,
(ii) Take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including,
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without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the
Company,
(iii) Cooperate with the Company in good faith in
order to contest such claim effectively, and
(iv) Permit the Company to participate in any
proceedings relating to such claim;
provided, however, the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise and Other Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 11(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise and Other Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 11(c), Executive becomes entitled
to receive any refund with respect to such claim, Executive shall (subject to
the Company's complying with the requirements of Section 11(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section 11(c), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such
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advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
(e) Notwithstanding anything to the contrary in this
Section 11, if any payment made to Executive pursuant to this Agreement or
otherwise would constitute an excess parachute payment within the meaning of
Section 280(G) of the Code, Executive shall forfeit (to the extent necessary to
avoid such excess parachute payment) (i) first, cash receivable hereunder under
Sections 6(a)(i) and 6(a)(v), (ii) next, shares of Common Stock of the Company
received under that certain Stock Purchase Agreement dated as of March 15,
1996, between Executive, certain other individuals, Talbert Medical Management
Corporation and FHP International Corporation, as amended (the "Purchase
Agreement") that are subject to restrictions under paragraphs 5.3.(c) thereof
and that are not yet free of restrictions on the sale thereof that are
applicable until July 1, 1998, and (iii) lastly, shares of Common Stock of the
Company received under the Purchase Agreement that are not yet free of
restrictions on the sale thereof that are applicable until July 1, 1999;
provided, however, that none of the foregoing forfeitures shall take place if
Executive, within 30 days after the Date of Termination shall have executed and
delivered to the Company (i) a Covenant Not to Compete in substantially the
form of "EXHIBIT A" hereto (as amended to provide that such Covenant Not to
Compete shall terminate on September 18, 1999 and the references to Section
11(c) are revised to Section 11(e)), and (ii) a Settlement and Release
Agreement in substantially the form of "EXHIBIT B" hereto.
(f) Notwithstanding anything to the contrary in this
Section 11, the Company's obligation to pay a Gross Up Payment shall not exceed
$4,000,000, when taken together with its obligations to pay Gross Up Payments to
[insert name of other Key Executive].
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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<PAGE> 15
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.
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<PAGE> 16
(h) This Agreement shall be void and without further
force and effect unless executed and delivered by the Executive to Russell D.
Phillips, Jr., Assistant Secretary of the Company, at least 48 hours prior to
the Effective Time of the merger contemplated by the Amended and Restated
Agreement and Plan of Reorganization among PacifiCare Health Systems, Inc., N-T
Holdings, Inc., Neptune Merger Corp., Tree Acquisition Corp., and FHP, dated as
of November 11, 1996.
(i) This Agreement shall be void and without further
force and effect if FHP holds in excess of 50% of the Company's Common Stock as
a result of the Rights Offering.
(j) In the event that as a result of the Rights Offering,
FHP holds less than 50% of the Company's Common Stock, then in consideration
of: (a) the Company, a majority-owned subsidiary of FHP, approving this
Agreement; and (b) FHP authorizing this Agreement, Executive hereby releases
FHP from all its duties and obligations under the Employment Agreement between
the Executive and FHP dated as of February 1, 1996 (the "FHP Agreement").
However, in the event that as a result of the Rights Offering, FHP holds in
excess of 50% of the Company's Common Stock, the FHP Agreement shall remain in
full force and effect.
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<PAGE> 17
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
----------------------------------------------
Executive
17
<PAGE> 18
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 7th day of January, 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
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<PAGE> 19
the notice or a waiver of any other right hereunder. The failure of the
Company at any time or from time 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.
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<PAGE> 20
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
Its: President and Chief Executive Officer
----------------------------------------------
Executive
20
<PAGE> 21
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 7th day of January, 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,
21
<PAGE> 22
whether such claim be based upon 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.
22
<PAGE> 23
(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 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.
23
<PAGE> 24
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:
----------------------------------------
24
<PAGE> 1
EXHIBIT 10
FORM OF EMPLOYMENT AGREEMENT
(OTHERS)
AGREEMENT by and between Talbert Medical Management Holdings
Corporation, a Delaware corporation (the "Company"), and ____________________
(the "Executive"), dated as of the 7th day of January, 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
<PAGE> 2
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.
(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
2
<PAGE> 3
(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 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
3
<PAGE> 4
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
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.
4
<PAGE> 5
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.
(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
5
<PAGE> 6
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;
(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 having either received or given the
notice requesting arbitration, the other shall appoint the second
arbitrator. If the two arbitrators fail to appoint the umpire
within 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
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<PAGE> 7
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.
(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
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<PAGE> 8
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
(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
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<PAGE> 9
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 (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,
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<PAGE> 10
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
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<PAGE> 11
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.
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 PAYMENTS BY THE COMPANY
(a) If any payment made to Executive pursuant to this Agreement or
otherwise would constitute an excess parachute payment within the meaning of
Section 280(G) of the Code, Executive shall forfeit (to the extent necessary to
avoid such excess parachute payment) (i) first, cash receivable hereunder under
Sections 6(a)(i) and 6(a)(v), (ii) next, shares of Common Stock of the Company
received under that certain Stock Purchase Agreement dated as of March 15, 1996,
between Executive, certain other individuals, Talbert Medical Management
Corporation and FHP International Corporation, as amended (the "Purchase
Agreement") that are subject to restrictions under paragraphs 5.3.(c) thereof
and that are not yet free of restrictions on the sale thereof that are
applicable until July 1, 1998,
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<PAGE> 12
and (iii) lastly, shares of Common Stock of the Company received under the
Purchase Agreement that are not yet free of restrictions on the sale thereof
that are applicable until July 1, 1999; provided, however, that none of the
foregoing forfeitures shall take place if Executive, within 30 days after the
Date of Termination shall have executed and delivered to the Company (i) a
Covenant Not to Compete in substantially the form of "EXHIBIT A" hereto (as
amended to provide that such Covenant Not to Compete shall terminate on
September 18, 1999 and the references to Section 11(c) are revised to Section
11(a)), and (ii) a Settlement and Release Agreement in substantially the form of
"EXHIBIT B" hereto.
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:
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
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<PAGE> 13
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 executed and delivered by the Executive to Russell D. Phillips,
Jr., Assistant Secretary of the Company, at least 48 hours prior to the
Effective Time of the merger contemplated by the Amended and Restated Agreement
and Plan of Reorganization among PacifiCare Health Systems, Inc., N-T Holdings,
Inc., Neptune Merger Corp., Tree Acquisition Corp., and FHP, dated as of
November 11, 1996.
(i) This Agreement shall be void and without further force and
effect if FHP holds in excess of 50% of the Company's Common Stock as a result
of the Rights Offering.
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<PAGE> 14
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
------------------------
Executive
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<PAGE> 15
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 7th day of January, 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
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<PAGE> 16
the notice or a waiver of any other right hereunder. The failure of the Company
at any time or from time 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.
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<PAGE> 17
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
-------------------------
Executive
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<PAGE> 18
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 7th day of January, 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,
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<PAGE> 19
whether such claim be based upon 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.
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<PAGE> 20
(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 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.
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<PAGE> 21
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: ___________________________
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<PAGE> 1
EXHIBIT 11
July 28, 1997
Jim Wade
20792 Skimmer Lane
Huntington Beach, CA 92646
Re: Settlement Agreement
--------------------
Dear Jim:
In the event of a change of control of Talbert Medical Management
Holdings Corporation (TMMHC), causing or the termination of your employment with
Talbert Medical Management Corporation (TMMC) on a "not for cause" basis, you
will receive the following:
a) Bi-weekly salary continuation at your then current base rate of pay and
executive auto allowance for the twelve (12) months following your
separation from TMMC;
b) TMMC Medical Coverage continuation for the twelve months following your
separation from TMMC;
c) TMMC Dental Coverage continuation for the twelve (12) months following
your separation from TMMC;
d) Outplacement services consistent with TMMC's outplacement policy for a
person at the job classification of "Vice President";
e) Continued eligibility to fully participate in TMMC's Retirement Plans for
the twelve (12) months following your separation from TMMC; and
f) Payment effective upon separation of all accrued vacation, holiday and
personal leave days.
TMMC reserves the right to deduct from any applicable sum those amounts required
by law. Any monies owned to TMMC may be deducted from the amounts payable
pursuant to this paragraph. None of the aforementioned payments and benefits
will be reduced or eliminated if you gain employment elsewhere during the twelve
(12) month period in which you are entitled to receive those benefits.
<PAGE> 2
For the purpose of this letter agreement, a "Change of Control" shall mean:
a) The acquisition by any individual, entity or group (within the
meaning of the Securities Exchange Act of 1934, as amended, of beneficial
ownership of 20% or more of either (i) the then outstanding shares of
common stock of TMMHC, or (ii) the combined voting power of the then
outstanding voting securities of TMMC entitled to vote generally in the
election of directors.
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 TMMHC'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 TMMHC (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 TMMHC
Common Stock and outstanding TMMHC 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 election of directors, as the case may
be, of the corporation resulting from such Business Combination.
d) Approval by the shareholders of TMMHC of a complete liquidation or
dissolution of TMMHC.
The terms and conditions of this severance arrangement will be memorialized and
incorporated in a Severance Agreement and General Release, which will be
presented to you for consideration and acceptance in the event of your
termination "not for cause" after a Change of Control.
2
<PAGE> 3
Please indicate your acknowledgement and acceptance of this letter agreement by
signing and dating this document in the space indicated below, and returning it
to me. A photocopy will be provided to you for your records.
Sincerely,
/s/ JACK MASSIMINO
Jack Massimino
President and CEO
Talbert Medical Management Holdings Corporation
By: /s/ JIM WADE
----------------------------
Date: 7/29/97
--------------------------
3
<PAGE> 1
EXHIBIT 12
[LETTERHEAD OF TALBERT MEDICAL]
July 23, 1997
Mr. Kent Marquardt
Chief Operating Officer - Western Region
MedPartners, Inc.
5000 Airport Plaza Drive
Long Beach, CA 90815
Dear Mr. Marquardt:
In connection with your and our consideration of a possible transaction
(the "Transaction") between us and/or our shareholders and you and/or your
shareholders, you have requested information concerning us and we have requested
information concerning you. For the purposes of this letter agreement
("Agreement"), you or we may each sometimes hereinafter be referred to as the
"Receiving Party" when the recipient of information, or the "Providing Party"
when the provider of information, as the context may require. As a condition to
the Receiving Party being furnished information from the Providing Party, the
Receiving Party agrees to treat any information which is furnished by, or on
behalf of the Providing Party before or after the date of this letter, and all
notes, analyses, compilations, studies or other documents, whether prepared by
the Providing Party or others, which contain or otherwise reflect such
information (collectively, the "Evaluation Material") in accordance with the
provisions of this Agreement and to take or to abstain from taking certain other
actions set forth in this Agreement.
The term Evaluation Material does not include information which (i) is
already in the possession of the Receiving Party, provided that such information
was not supplied to the Receiving Party by, or on behalf of, the Providing
Party, and provided further that such information is not known to the Receiving
Party to be subject to another confidentiality agreement with or other
obligation of secrecy or a fiduciary obligation to the Providing Party or to
another party, or (ii) is or becomes generally available to the public other
than directly or indirectly as a result of disclosure by the Receiving Party or
any of the directors, officers, employees, agents, advisers or representatives
(collectively, "Representatives") of the Receiving Party in violation of this
Agreement.
1. Confidentiality. The Receiving Party agrees that the
Evaluation Material will be used solely for the purpose of evaluating the
possible Transaction, and that such
<PAGE> 2
Mr. Kent Marquardt
July 23, 1997
Page 2
information will be kept strictly confidential by the Receiving Party, provided
that any of such information may be disclosed by the Receiving Party to its
Representatives who need to know such information for the purpose of evaluating
the possible Transaction (it being understood that such Representatives will be
informed by the Receiving Party of the confidential nature of such information
and will agree, and be directed by the Receiving Party, to keep such
information strictly confidential and that the Receiving Party will be
responsible if they should fail to comply with the terms of this Agreement).
2. Confidentiality of Discussions. In addition, you and we agree
not to disclose, and will cause our respective Representatives not to disclose
to any person, without the prior written consent of the other party, either the
fact that you and we are considering any possible Transaction or that
information has been provided to you or us, or that discussions or negotiations
are taking place concerning any possible Transaction, or any of the terms,
conditions or other facts with respect to any possible Transaction, including
the status thereof. The term "person" as used in this Agreement means without
limitation any corporation, company, group, partnership, individual or other
entity. The foregoing does not prohibit disclosures of the status of any
discussions between you and us required (in the written opinion of counsel
independent of the disclosing party and acceptable to the other party
("Independent Counsel")) by federal or state securities laws, but in such event
each of us will consult with the other party and its counsel in advance of such
disclosure about the need for, and the exact text of, any such disclosure.
3. Requests for Disclosure. If either of us is requested or
required by applicable law (by interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process) to disclose
any Evaluation Material, such party will provide the other party with immediate
notice of the existence, terms and circumstances surrounding such request or
requirement so that the other party may consider seeking a protective order or
other appropriate relief (and will provide such cooperation in connection
therewith as may be reasonably requested by the other party) and/or waive
compliance with this Agreement. If in absence of a protective order or the
receipt of a waiver hereunder either of us is nonetheless, in the written
opinion of Independent Counsel, compelled to disclose any Evaluation Material
to any tribunal or any other person or else stand liable for contempt or suffer
other material censure or penalty, such party may disclose such information to
such tribunal or other party without liability hereunder, provided that such
party agrees to furnish only that portion of the Evaluation Material which it
is advised by written opinion of Independent Counsel is legally required and
that it will use its best efforts to obtain assurance that confidential
treatment will be accorded to any Evaluation Material that is disclosed.
4. Insider Trading Laws. You and we hereby acknowledge that you
and we are aware, and that you and we will advise our respective
Representatives who are informed as to the matters which are the subject of
this letter, that federal and many state
<PAGE> 3
Mr. Kent Marquardt
July 23, 1997
Page 3
securities laws prohibit any person who has received from an issuer material,
non-public information concerning the matters which are the subject of this
letter from purchasing or selling securities of such issuer or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell
such securities.
5. No Improper Use of Evaluation Material. For a period
commencing on the date hereof and ending two years from the date hereof, each
of us and our respective affiliates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will not (and
we and they will not assist or encourage others to or request permission to),
directly or indirectly, unless specifically requested in writing in advance by
the other party's Board of Directors:
(i) acquire or agree, offer, seek or propose to acquire (or request
permission to do so), ownership (as defined in Rule 13d-3 under the Exchange
Act) of any of the other party's assets or businesses or any securities issued
by the other party, or any rights or options to acquire such ownership
(including from a third party); or
(ii) seek or propose to influence or control the management or policies of
the other party; or
(iii) enter into any discussions, negotiations, arrangements or understanding
with any third party with respect to any of the foregoing.
If at any time during such period either of us is approached by any
third party concerning participation in a transaction involving the assets or
businesses or securities issued by the other party, such party will promptly
inform the other party of the nature of such contract and the parties thereto.
6. No Representation. Although each of us will endeavor to
include in the Evaluation Material information which we believe to be relevant
for the purpose of investigation of the other party, each of us acknowledges
that neither of us nor any or our respective Representatives or advisers has
made or makes any representation or warranty as to the accuracy or
completeness of the Evaluation Material. Subject to the terms of this Agreement
and of any definitive agreement we may reach, each of us agrees that neither
party nor our respective directors, officers, employees, agents,
representatives or advisers will have any liability to the other party or any
of its representatives or advisers resulting from the use of the Evaluation
Material.
7. Return of Materials. If we do not proceed with a Transaction
in a reasonable time or if either of us so requests, the Receiving Party will
promptly redeliver to the Providing Party all copies of extracts or other
reproductions of Evaluation Material
<PAGE> 4
Mr. Kent Marquardt
July 23, 1997
Page 4
delivered to the Receiving Party and will destroy all memoranda, notes,
analyses, compilations and other materials (whether written, electronic or
otherwise) prepared by the Receiving Party or its Representatives based on or
reflecting the information in the Evaluation Material. The Receiving Party and
its Representatives will not retain any such material in any form whatsoever.
Following such redelivery or destruction, the Receiving Party will deliver to
the Providing Party, upon request, a certification in writing by an officer of
the Receiving Party who has supervised such redelivery or destruction.
8. No Solicitation. Until the earliest to occur of (a) the execution
by you and us of a definitive agreement with respect to the Transaction; (b) an
acquisition of either of us by a third party; or (c) one year from the date of
this Agreement, each of us agrees not to initiate or maintain contact (except
for those contacts made in the ordinary course of business) with any
Representative of the other party regarding its business, operations, prospects
or finances, except with the express permission of such party. Each of us
further agrees that until the earlier of (i) an acquisition of either of us by a
third party or (ii) one year from the date of this agreement, neither of us
will solicit for hire any person employed by the other party at the time of
such solicitation with whom it has had contact during the period of
investigation except for solicitations by general advertisement.
9. Definitive Agreement. Each of us agrees that unless and until a
definitive agreement regarding the Transaction has been executed and delivered,
neither we nor you will be under any legal obligation of any kind with respect
to any Transaction by virtue of this Agreement except for such matters that are
specifically set forth herein, notwithstanding any statements made by either of
us or our respective Representatives. Neither party has any obligation to
authorize or pursue with the other party, its Representatives, or any other
party any transaction, and is not prohibited from seeking to effect any of the
transactions contemplated herein with any third party. This Agreement may be
expressly modified or waived only by a separate writing executed by both
parties.
10. Injunctive Relief. Each of us agrees that money damages would not
be sufficient remedy for any breach of this Agreement by either of us or our
Representatives because of the difficulty in ascertaining the amount of damages
suffered by the aggrieved party in the event of such breach. Therefore, each of
us agrees that the aggrieved party will be entitled to injunctive relief,
specific performance and/or any other appropriate equitable remedies for any
such breach, without having to post any bond or any other form of security,
without having to show any likelihood of irreparable harm, and without having
to prove that money damages would be an inadequate remedy. Such remedies will
not be deemed to be exclusive, but will be in addition to all other remedies
available at law or in equity, including without limitation the recovery of
damages for the period preceding such relief.
<PAGE> 5
Mr. Kent Marquardt
July 23, 1997
Page 5
11. Indemnification. Each of us agrees to indemnify and to save and
hold harmless the other for any and all damages, claims, liabilities and
expenses (without duplication of the expenses referred to in the following
paragraph) arising out of any breach or failure to comply with any term of this
Agreement by any of our respective Representatives.
12. Attorney's Fees. In the event that either party should
institute proceedings to enforce any provision of this Agreement, the party
that substantially prevails in such proceedings will be entitled to recover all
expenses relating to the enforcement of this Agreement, including reasonable
attorney's fees and costs in addition to any other remedies.
13. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired or in any way invalidated by such court action.
14. Law to Govern; Jurisdiction. This Agreement will be governed by
and construed in accordance with the internal laws of the State of California
without regard to the rules of conflict of laws of such state. Each of us
hereby agrees to submit to the exclusive jurisdiction of any court of the State
of California for the purpose of any suit, action or other proceeding arising
out of this Agreement, or of the Transaction contemplated hereby.
15. No Waiver. No failure or delay by either of us in exercising
any right, power or privilege will operate as a waiver thereof nor will any
single or partial exercise preclude any other or further exercise of any right,
power or privilege.
If you are in agreement with the foregoing, please so indicate by
signing and returning one copy of this Agreement, whereupon it will become a
binding agreement. This Agreement may be executed by telecopy with original to
follow.
Very truly yours,
By: /s/ JACK D. MASSIMINO
------------------------------------
Jack D. Massimino
President and Chief Executive Officer
<PAGE> 6
Mr. Kent Marquardt
July 23, 1997
Page 6
Confirmed and agreed to as
of the date of this letter:
MEDPARTNERS, INC.
By: /s/ KENT MARQUARDT
-----------------------------------------
Kent Marquardt
Chief Operating Officer -- Western Region
<PAGE> 1
EXHIBIT 13
MEDPARTNERS ANNOUNCES ACQUISITION OF TALBERT MEDICAL MANAGEMENT
BIRMINGHAM, ALA., AUG. 14/PRNEWSWIRE -- MedPartners, Inc. (NYSE: MDM) today
announced it has entered into a definitive agreement to acquire Talbert Medical
Management Holdings Corporation (Nasdaq: TMMC) of Costa Mesa, California,
pursuant to a tender offer followed by a merger, for $63 per share in cash, or
about $200 million. Talbert Medical Management is a physician practice
management company representing 282 primary and specialty care physicians and
operating 52 clinics in five Southwestern states. The acquisition will give
MedPartners the opportunity to broaden Talbert's patient and clinic base through
MedPartners' agreements with other payors and existing clinic network.
Efficiencies will also be gained in corporate overhead expenses and other areas.
MedPartners said the acquisition will be accounted for as a purchase
transaction with MedPartners assuming all assets and liabilities of Talbert. The
transaction is contingent on receiving approval from the Federal Trade
Commission under the provisions of the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976.
Talbert Medical Management, founded in 1961 as part of the FHP Health
Maintenance Organization (HMO), went public through an initial stock offering in
April 1997. FHP International merged with PacificCare Health Systems, Inc.
(Nasdaq: PHSYA PHSYB) in February 1997. Since then, Talbert has added enrollees
from other HMO companies and payors, although PacificCare still represents a
significant portion of the 270,000 patients in the network; 88,000 of Talbert's
patients are senior enrollees.
"Talbert Medical Management represents an excellent source of
highly-respected primary and specialty care physicians in the Southwest, and
dovetails with our existing network of providers extremely well," said Larry R.
House, MedPartners' chairman and chief executive officer. "It also gives us an
entree into three new markets, Salt Lake City/Provo, Tucson, and Albuquerque
which are among the major markets in the United States that we have targeted for
entry or expansion. Their eight clinics in Phoenix and 24 in Southern California
will also significantly increase our presence in these markets."
"All of us at PacifiCare are supportive of this affiliation of Talbert with
MedPartners," said Alan Hoops, president and chief executive officer of
PacificCare. "Because of the long-standing relationship we have with
MedPartners, we are confident that the contractual agreements between our
company and Talbert will be addressed in a manner which protects all parties'
interests."
Jack D. Massimino, president and chief executive officer of Talbert, noted,
"Talbert has always strived to achieve excellence in patient care and patient
satisfaction. This makes for an excellent fit with MedPartners, which shares the
same philosophy. This partnership gives our existing patients an even broader
spectrum of physicians and services to choose from. It will also enhance the
services received by current MedPartners clients by giving them access to our
network of physicians and clinics. We are excited to be associated with
MedPartners' more than 13,000 physicians, and have the benefit of their business
and clinical expertise. MedPartners' Medical Advisory Committee is on the
leading edge of medicine, allowing for the sharing of best clinical and
administrative practices across the entire organization. Their physician-led,
patient-centered approach is a model for the industry.
MedPartners, based in Birmingham, Alabama, is the nation's largest manager
of physician practices, and after the Talbert acquisition will operate in 39
states. The company develops, consolidates and manages healthcare delivery
systems. Through the company's network of affiliated group and IPA physicians,
MedPartners provides primary and specialty healthcare services to prepaid
managed care enrollees and fee-for-service patients. After the acquisition, the
company will be affiliated with 13,410 physicians, which includes 3,270 group
physicians, 7,688 IPA physicians, 2,211 hospital-based physicians, and 241
correctional and military care physicians. MedPartners also manages the nation's
largest independent prescription benefits management (PBM) company. Through the
PBM, the company dispenses 53 million prescriptions annually.
NOTE: The following charts show selected statistical information for
MedPartners, Talbert and the combined companies. More information on MedPartners
is available on the World Wide Web at http://www.medpartners.com. Information
may also be obtained by calling PR Newswire Company News on Call at
1-800-758-5804 extension 106751.
<PAGE> 2
MEDPARTNERS/TALBERT
COMBINED STATISTICAL DATA
<TABLE>
<CAPTION>
MEDPARTNERS TALBERT COMBINED
----------- ------- ---------
<S> <C> <C> <C>
Physicians Group........................................ 2,988 282 3,270
IPA................................................... 7,688 (0) 7,688
Hospital-Based........................................ 2,211 (0) 2,211
Government Services................................... 241 (0) 241
Total......................................... 13,128 282 13,410
Capitated Lives....................................... 998,380 270,090 1,268,470
Professonal Only
Global................................................ 959,135 (0) 959,135
Total......................................... 1,957,515 270,090 2,227,605
Payor Type (Lives)
Commercial............................................ 1,583,470 182,090 1,765,560
Senior................................................ 163,531 88,000 251,531
Other................................................. 210,514 (0) 210,514
Total......................................... 1,957,515 270,090 2,227,605
Practice Locations.................................... 659 52 711
Hospital-Based Contracts.............................. 327 (0) 327
Government Services Contracts......................... 60 (0) 60
</TABLE>
PHYSICIANS AND ENROLLEES IN SELECTED
WESTERN STATES:
MEDPARTNERS
<TABLE>
<CAPTION>
GROUP COMMERCIAL SENIOR OTHER TOTAL
STATE PHYSICIANS SITES ENROLLEES ENROLLEES ENROLLEES ENROLLEES
- - ------------------------------ ---------- ----- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arizona....................... 15 5 13,000 1,000 1,000 15,000
California.................... 1,286 174 1,111,000 104,000 112,000 1,327,000
Nevada........................ 16 5 13,000 1,000 (0) 14,000
New Mexico.................... (0) (0) (0) (0) (0) (0)
Utah.......................... (0) (0) (0) (0) (0) (0)
TOTAL............... 1,317 184 1,137,000 106,000 113,000 1,356,000
</TABLE>
TALBERT MEDICAL MANAGEMENT
<TABLE>
<CAPTION>
GROUP COMMERCIAL SENIOR OTHER TOTAL
STATE PHYSICIANS SITES ENROLLEES ENROLLEES ENROLLEES ENROLLEES
- - ------------------------------------------ ---------- ----- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arizona................................... 31 14 15,000 18,000 (0) 3,000
California................................ 151 24 70,000 45,000 (0) 115,000
Nevada.................................... 4 2 1,000 2,000 (0) 3,000
New Mexico................................ 23 5 12,000 12,000 (0) 24,000
Utah...................................... 73 7 84,000 11,000 (0) 95,000
TOTAL........................... 282 52 182,000 88,000 (0) 270,000
</TABLE>
Copyright 1997, PR Newswire.
CONTACT: Larry R. House, Chairman of the Board, CEO; Investor Relations: Randy
Pittman or Media Relations: Thomas Dingledy, all of MedPartners, 205-733-8996 or
Kenneth S. Ord, Talbert Medical, 714-436-4852.
<PAGE> 1
EXHIBIT 14
[TALBERT LOGO]
3540 Howard Way
Costa Mesa, CA 92626
August 20, 1997
TO THE STOCKHOLDERS OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
Dear Stockholder:
I am pleased to report that on August 14, 1997, Talbert Medical Management
Holdings Corporation ("Talbert") entered into a merger agreement with
MedPartners, Inc., a Delaware corporation ("MedPartners"), and its wholly-owned
subsidiary, Talmed Merger Corporation, a Delaware corporation (the
"Subsidiary"), that provides for the acquisition of all of the Common Stock of
Talbert by the Subsidiary at a price of $63.00 per share, net to the seller.
Under the terms of the proposed transaction, the Subsidiary has commenced a
tender offer for all outstanding shares of Talbert Common Stock (together with
their associated rights) at $63.00 per share. The tender offer is currently
scheduled to expire at 12:00 midnight (New York City time) on September 19,
1997.
Following the successful completion of the tender offer, upon approval by
stockholder vote, if required, the Subsidiary will be merged with and into
Talbert, and all shares not purchased in the tender offer will be converted in
the right to receive $63.00 per share in cash, net to seller, without interest.
YOUR BOARD OF DIRECTORS HAS, BY A UNANIMOUS VOTE OF THE DIRECTORS PRESENT,
APPROVED THE OFFER AND DETERMINED THAT THE TERMS OF THE OFFER AND THE RELATED
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, TALBERT STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS, BY A UNANIMOUS VOTE OF THE DIRECTORS
PRESENT, HAS RECOMMENDED THAT ALL TALBERT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors. The factors considered by the Board of
Directors are more fully described in the Solicitation/Recommendation Statement
on Schedule 14D-9 (the "Schedule 14D-9") filed by Talbert with the Securities
and Exchange Commission and enclosed with this letter. We urge you to read
carefully the Schedule 14D-9 in its entirety so that you will be fully informed
as to the Board's recommendations.
Also accompanying this letter is a copy of the Offer to Purchase and related
materials, including a Letter of Transmittal for use in tendering shares. These
documents set forth the terms and conditions of the offer and provide
instructions as to how to tender your shares. We urge you to read each of the
enclosed materials carefully.
The management and directors of Talbert thank you for the support you have given
Talbert.
On behalf of the Board of Directors,
Sincerely,
/s/ JACK D. MASSIMINO
- - -----------------------------------
Jack D. Massimino
President and Chief Executive Officer
<PAGE> 1
Exhibit 15
[SMITH BARNEY LETTERHEAD]
CONFIDENTIAL
August 14, 1997
The Board of Directors
Talbert Medical Management Holdings Corporation
3540 Howard Way
Costa Mesa, California 92626
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Talbert Medical Management Holdings
Corporation ("Talbert") of the consideration to be received by such holders
pursuant to the terms and subject to the conditions set forth in the Agreement
and Plan of Merger, dated as of August 14, 1997 (the "Merger Agreement"), among
MedPartners, Inc. ("MedPartners"), Talmed Merger Corporation, a wholly owned
subsidiary of MedPartners ("Subsidiary"), and Talbert. As more fully described
in the Merger Agreement, (i) MedPartners will cause Subsidiary to commence a
tender offer to purchase all outstanding shares of the common stock, par value
$0.01 per share, of Talbert (the "Talbert Common Stock") at a purchase price of
$63.00 per share, net to the seller in cash (the "Tender Offer") and (ii)
subsequent to the Tender Offer, Subsidiary will be merged with and into Talbert
(the "Merger" and, together with the Tender Offer, the "Transaction") and each
outstanding share of Talbert Common Stock not previously tendered will be
converted into the right to receive $63.00 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Talbert and certain senior officers and other representatives of
MedPartners concerning the business, operations and prospects of Talbert. We
examined certain publicly available business and financial information relating
to Talbert as well as certain financial forecasts and other information and data
for Talbert which were provided to or otherwise discussed with us by the
management of Talbert. We reviewed the financial terms of the Merger as set
forth in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of Talbert Common Stock; the
historical and projected earnings and other operating data of Talbert; and the
capitalization and financial condition of Talbert. We considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected which we considered relevant in evaluating the Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of Talbert. In addition to the
foregoing, we conducted such other analyses and examinations and considered such
other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of Talbert that such forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Talbert as to the future
financial performance of Talbert. We have not made or been
<PAGE> 2
The Board of Directors
Talbert Medical Management Holdings Corporation
August 14, 1997
Page 2
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Talbert nor have we made any physical
inspection of the properties or assets of Talbert. In connection with our
engagement, we were not requested to, and did not, solicit third party
indications of interest in a possible acquisition of Talbert. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Smith Barney has been engaged to render financial advisory services to Talbert
in connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Transaction. We also will receive a fee upon the delivery of this opinion.
In the ordinary course of our business, we and our affiliates may actively trade
or hold the securities of Talbert and MedPartners for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. We have in the past provided investment banking
services to affiliates of Talbert and to MedPartners unrelated to the proposed
Transaction, for which services we have received compensation. In addition, we
and our affiliates (including Travelers Group Inc. and its affiliates) may
maintain relationships with Talbert, MedPartners and their respective
affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Talbert in its evaluation of the
proposed Transaction, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to whether or not such
stockholder should tender shares of Talbert Common Stock in the Tender Offer or
how such stockholder should vote on the proposed Merger. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Smith Barney be made, without our prior written consent; provided, that this
opinion letter may be included in its entirety in the
Solicitation/Recommendation Statement of Talbert relating to the proposed
Transaction.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the cash consideration to be received in
the Transaction by the holders of Talbert Common Stock (other than MedPartners
and its affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ SMITH BARNEY INC.
- - --------------------------
SMITH BARNEY INC.
