FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission file number 0-14796
FHP INTERNATIONAL CORPORATION
a Delaware Corporation
I.R.S. Employer Identification No. 33-0072502
9900 Talbert Avenue, Fountain Valley, CA 92708-8000
(Address of principal executive offices) (Zip Code)
(714) 963-7233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No ___.
The registrant had 40,681,947 shares of common stock, par
value $0.05 per share, outstanding at May 7, 1996.
The Exhibit Index Appears on Page _20___
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
FHP INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
(amounts in thousands, March 31, June 30,
except share data) 1996 1995
____________ ___________
Cash and cash equivalents $ 148,340 $299,144
Short-term investments 161,411 157,220
Accounts receivable, net 148,702 141,840
Prepaid expenses and other
current assets 123,774 44,091
Deferred income taxes 35,581 31,984
__________ __________
Total current assets 617,808 674,279
Property and equipment, net 229,239 229,765
Assets held for sale (Note 6) 79,128 138,164
Long-term investments 46,687 71,492
Restricted investments 95,780 105,482
Goodwill and other intangibles, net 1,036,047 1,059,507
Other assets, net 37,418 37,127
__________ __________
Total assets $2,142,107 $2,315,816
============ ============
__________
See accompanying notes to consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(amounts in thousands, March 31, June 30,
except share data) 1996 1995
____________ ___________
Current portion of long-term
obligations $ 30,098 $30,168
Accounts payable 58,730 64,762
Medical claims payable 369,171 341,222
Accrued salaries and employee
benefits 52,749 77,716
Unearned premiums 71,397 207,961
Income taxes payable and other
current liabilities (Note 5) 34,596 30,829
__________ __________
Total current liabilities 616,741 752,658
Long-term obligations 285,274 337,817
Other liabilities 92,819 85,200
__________ __________
Total liabilities 994,834 1,175,675
__________ __________
Commitments and contingencies (Note 4)
Stockholders' equity:
Series A Convertible and Series B
Preferred Stock, $0.05 par value;
40,000,000 shares authorized (Note 3) 1,052 1,056
Common Stock, $0.05 par value;
100,000,000 shares authorized;
40,616,564 and 40,220,941 shares issued
issued and outstanding at March 31, 1996
and June 30, 1995, respectively 2,031 2,011
Paid-in capital 932,314 927,882
Unrealized holding loss on available-
for-sale investments, net of tax
effect of $1,438 at
March 31, 1996 and $1,232 at
June 30, 1995 (1,688) (1,446)
Retained earnings 213,564 210,638
__________ __________
Total stockholders' equity 1,147,273 1,140,141
__________ __________
Total liabilities and
stockholders' equity $2,142,107 $2,315,816
============ ============
__________
See accompanying notes to consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For The
(amounts in thousands, Three Months Ended
except per share data) March 31,
1996 1995
____________ ____________
Revenues $1,061,395 $1,001,062
__________ __________
Expenses:
Primary health care 860,162 791,100
Other health care 32,069 31,683
General, administrative and
marketing 129,873 127,319
OPM reserve charge (Note 5) 45,000
__________ __________
Total expenses 1,067,104 950,102
__________ __________
Operating income (loss) (5,709) 50,960
Interest income 9,738 7,939
Interest expense (5,404) (6,286)
__________ __________
Income (loss) before income taxes (1,375) 52,613
Provision for income taxes 3,757 24,202
__________ __________
Net income (loss) (5,132) 28,411
Preferred Stock dividends 6,575 6,596
__________ __________
Net income (loss) attributable to
Common Stock $ (11,707) $ 21,815
============ ============
Primary earnings (loss) per share
attributable to Common Stock (Note 2) $ (0.28) $ 0.53
============ ============
Weighted average number of common
shares and common share equivalents 41,949 41,210
============ ============
Fully diluted earnings per share
(Note 2) - $ 0.49
============ ============
Fully diluted weighted average number
of common shares and common share
equivalents - 58,447
============ ============
__________
See accompanying notes to consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For The
(amounts in thousands, Nine Months Ended
except per share data) March 31,
1996 1995
____________ ____________
Revenues $3,081,774 $2,909,809
__________ __________
Expenses:
Primary health care 2,510,204 2,314,095
Other health care 92,779 87,387
General, administrative and
marketing 382,750 381,471
OPM reserve charge (Note 5) 45,000
Restructuring charges (Note 6) 9,659
__________ __________
Total expenses 3,040,392 2,782,953
__________ __________
Operating income 41,382 126,856
Interest income 28,037 22,474
Interest expense (17,791) (18,852)
__________ __________
Income before income taxes 51,628 130,478
Provision for income taxes 28,912 60,020
__________ __________
Net income 22,716 70,458
Preferred Stock dividends 19,790 18,731
__________ __________
Net income attributable to
Common Stock $ 2,926 $ 51,727
============ ============
Primary earnings per share
attributable to Common Stock (Note 2) $ 0.07 $ 1.26
============ ============
Weighted average number of common
shares and common share equivalents 41,438 41,099
============ ============
Fully diluted earnings per share (Note 2) - $ 1.21
============ ============
Fully diluted weighted average number
of common shares and common share
equivalents - 58,364
============ ============
__________
See accompanying notes to consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For The
Nine Months Ended
(amounts in thousands) March 31,
1996 1995
____________ ____________
Operating Activities
Net income $ 22,716 $ 70,458
Adjustments to reconcile
net income to net cash
provided by operating activities:
OPM reserve charge 45,000
Restructuring charges 9,659
Depreciation and amortization 54,166 61,894
Increase in allowance for doubtful
accounts 586 11,661
Loss on disposal of equipment 951 1,893
Deferred income taxes 187 (3,532)
Effect on cash of changes
in operating assets and
liabilities:
Accounts receivable (7,448) (43,383)
Prepaid expenses and other
current assets 6,317 (8,255)
Other assets (4,385)
Accounts payable (6,032) (39,927)
Medical claims payable 27,949 48,150
Accrued salaries and
employee benefits (24,967) (23,382)
Deferred premiums (136,564) 147,080
Other liabilities (61,587) (38,292)
__________ __________
Net cash (used in) provided by
operating activities (73,452) 184,365
__________ __________
Investing Activities
Purchases of available-for-sale
investments (203,543) (375,444)
Proceeds from sales/maturities
of available-for-sale investments 234,630 443,072
Gain on sale of available-for-sale
investments (1,479) (641)
Loss on sale of available-for-sale
investments 260 781
Purchases of property and equipment (40,846) (40,992)
Purchase of Colorado HMO
(net of cash acquired) (755)
Proceeds from sales of assets held
for sale 1,581
__________ __________
Net cash (used in) provided by
investing activities (9,397) 26,021
__________ __________
<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)
(unaudited)
For The
Nine Months Ended
(amounts in thousands) March 31,
1996 1995
____________ ____________
Financing Activities
Proceeds from issuance of
long-term obligations 15,000
Payments on long-term
obligations (52,613) (25,116)
Exercise of stock options 6,428 5,872
Cash dividends paid to preferred
shareholders (19,790) (19,713)
Redemption of Series B Preferred
Stock (1,980)
__________ __________
Net cash used in
financing activities (67,955) (23,957)
__________ __________
(Decrease) increase in cash and
cash equivalents (150,804) 186,429
Cash and cash equivalents at
beginning of period 299,144 60,571
__________ __________
Cash and cash equivalents at end
of period $148,340 $247,000
============ ============
Supplemental cash flow information:
Interest payments $ 18,115 $ 19,547
Income tax payments (net of
refunds) $ 43,873 $ 63,869
__________
See accompanying notes to consolidated financial statements.
FHP INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. Organization and Accounting Policies
FHP International Corporation (the "Company"), through its
direct and indirect subsidiaries, delivers managed health care
services and sells indemnity medical, group life, and
workers' compensation insurance.
Interim periods are viewed as an integral part of the
annual period of the Company. Accordingly, the results for the
interim periods reported are based on the accounting principles and
practices followed by the Company as presented in its Annual Report
on Form 10-K for the year ended June 30, 1995. In the opinion of
management, all adjustments necessary to fairly present the financial
position and the results of operations for the nine months ended
March 31, 1996 and 1995 are included in these consolidated financial
statements.
NOTE 2. Earnings Per Share
Primary earnings per share attributable to common stock for the
three months and the nine months ended March 31, 1996 and 1995 are
computed by dividing net income after preferred stock dividends by the
weighted average number of common shares and dilutive common stock
options (using average market price), which are considered common
share equivalents, outstanding during the periods.
Fully diluted earnings per share for the three months and the nine
months ended March 31, 1995 assume the conversion of the Series A
Cumulative Convertible Preferred Stock, the elimination of the related
Preferred Stock dividend requirement and market price as of the end of
the period for dilutive common stock options.
NOTE 3. Preferred Stock
The issued and outstanding, and aggregate liquidation preference
of the Company's two series of preferred stock are as follows:
March 31, 1996 June 30, 1995
----------------------- -----------------------
Series B
Series A Series A Adjustable
Cumulative Cumulative Rate
Convertible Convertible Cumulative
----------- ------------ ----------
Issued and outstanding 21,040,307 21,040,307 79,218
Aggregate liquidation
preference $526,031,000 $526,027,000 $1,999,000
The Company redeemed all of its outstanding Series B Preferred
Stock at stated value in December 1995.
NOTE 4. Commitments and Contingencies
During the ordinary course of business, the Company and its
subsidiaries have become a party to pending and threatened legal
actions and proceedings, a significant number of which involve alleged
claims of medical malpractice. Management is of the opinion, taking
into account its insurance coverage and reserves that have been
established, that the outcome of the currently known legal actions and
proceedings will not, singly or in the aggregate, have a material
effect on the consolidated financial position or results of operations
or cash flows of the Company and its subsidiaries.
NOTE 5. OPM
In the third quarter of fiscal year 1996, the Company increased
reserves by recording a pretax charge of $45 million in anticipation
of negotiations to address potential governmental claims for the years
1987 through 1991, discussed below, which may be asserted in relation
to the Company's contracts with the United States Office of Personnel
Management ("OPM") and for possible OPM claims for subsequent years
through 1995. The addition to reserves resulted in a third quarter
charge to earnings of $0.68 per primary share.
The Company's HMO subsidiaries have contracts with OPM to provide
or arrange managed health care services under the Federal Employees
Health Benefits Program ("FEHBP")for federal employees, annuitants and
their dependents. Periodically, the Company's HMO subsidiaries are
subject to audits by the Government to, among other things, verify
that premiums charged under OPM contracts are established in
compliance with community rating and other requirements under the
FEHBP. Final reports from such audits may recommend that OPM seek
monetary recoveries from the Company for amounts that may be
substantial. As previously disclosed, in May 1993, after conducting
an audit of the Company's FEHBP contracts covering primarily the years
1987 through 1991, OPM sent a draft audit report to the Company
alleging certain defective rating practices in certain regions.
Following its evaluation of the draft audit report, the Company
indicated to OPM certain areas where it believed the report to be
inaccurate or based on misconceptions. Also, the Company evaluated
the availability of offsets and established reserves pending issuance
of a final audit report or further correspondence from OPM. A final
audit report has not been issued as of the date hereof and the Company
received no further correspondence from the Government regarding the
draft audit report until the third quarter of fiscal year 1996.
In the third quarter of fiscal year 1996, the United States
Department of Justice notified the Company that based on the OPM draft
audit report and discussions with OPM personnel, the Government
believed that the Company may have violated the False Claims Act in
its certifications to OPM that the FEHBP received community rates for
health care services provided in certain regions during 1987 through
1991. No action has been commenced by the Government, although the
Government asserted in correspondence with the Company dated April
25,1996 that, at that time, the Government believed its actual damages
to be approximately $15 million. In False Claims Act actions, the
Government may seek trebled damages, and a civil penalty of not less
than $5,000 nor more than $10,000 for each separate alleged false
claim. The Government has indicated that it does not have any
information that would lead it to believe that the Company violated
any criminal laws.
NOTE 6. Restructuring Charge
In June, 1995, the Company's Board of Directors approved a
restructuring plan involving the discontinuance of services and
programs that do not meet the Company's strategic and economic return
objectives, a reduction in workforce, and the creation of a subsidiary
physician practice management company, Talbert Medical Management
Corporation ("TMMC"). TMMC became operational January 1, 1996.
The Board of Directors also decided to sell the Company's Fountain
Valley, California hospital campus and its Salt Lake City, Utah
hospital campus and other nonproductive real estate. The Company sold
its Fountain Valley, California hospital campus for gross proceeds of
$87 million. The gross proceeds were deposited in escrow and were
released to the Company April 1, 1996. The receivable created by this
escrow has been included in prepaid expenses and other current assets
in the Consolidated Balance Sheet, as of March 31, 1996.
During the six months ended December 31, 1995, the Company
recorded a pretax restructuring charge of approximately $9.7 million
($6.0 million, net of tax) in the accompanying Consolidated Statements
of Income. No additional charge was recorded in the three months
ended March 31, 1996. Assets identified as those to be sold as part
of the restructuring have been reclassified as assets held for sale in
the accompanying Consolidated Balance Sheets as of March 31, 1996, and
June 30, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Restructuring
In June, 1995, FHP International Corporation ("FHP" or the
"Company") announced an internal restructuring (the "Restructuring
Plan") of its operations. The Restructuring Plan was formulated in
response to the intensely competitive environment in the HMO industry
and continued declining membership in its Company operated medical
facilities. The Restructuring Plan consisted of the sale or other
disposition of the Company's owned and operated hospitals and other in
patient facilities; certain nonproductive real estate and other
assets; a reduction in the Company's work force; and the creation of
three distinct business segments: 1) a physician practice management
company, Talbert Medical Management Corporation ("TMMC"); 2) the
contract model health maintenance organization ("HMO"); and 3) the
Company's group life, health and accident and workers' compensation
insurance and related products (collectively, the "Insurance Group").
Costs associated with restructuring, including administrative facility
closure costs and employee separation costs, resulted in pretax
charges against earnings of approximately $75.1 million in the fourth
quarter of fiscal year 1995, and $5.8 million and $3.9 million in the
first and second quarters of fiscal year 1996, respectively. Net
proceeds available from the sales of assets are being used for various
corporate purposes including the reduction of indebtedness.
The Company has made the following progress with regard to the
Restructuring Plan:
Disposition of Assets
Proceeds of approximately $87 million for the sale of the
Company's Fountain Valley, California, hospital campus were
released from escrow on April 1, 1996. The transaction was
recorded in the second quarter of fiscal year 1996 and had no
material affect on operating results for the second quarter.
The campus includes primary and specialty care
medical clinics and other buildings. The transaction
included the lease of the primary and specialty care clinics by
TMMC.
In April, 1996, the Company signed an agreement for the sale of
its acute care hospital and surrounding campus located in Salt
Lake City, Utah for approximately $70 million, which
approximates its recorded value. The campus includes a
specialty care medical clinic, which will be leased by TMMC. The
transaction is scheduled to close in the fourth quarter of
fiscal year 1996, subject to receipt of all regulatory
approvals and the completion of certain ancillary
agreements.
The Company transferred the operations of its two sub acute in-
patient facilities to other operators during the second
and third quarters of fiscal year 1996. Progress has been
made on sales of other assets and certain vacant land;
however, some real estate and undeveloped land may remain
unsold at year end.
Work Force Reductions
Between June, 1995, and March, 1996, the Company reduced its
workforce by approximately 2,000 employees. The reductions
included approximately 200 employees at sub-acute facilities
transferred to other operators and approximately 700
employees as a result of the sale of the Company's Fountain
Valley hospital.
TMMC
The Restructuring Plan included the creation of TMMC,
operational January 1, 1996, as a new subsidiary of the
Company, together with the creation of several new
professional corporations (the "PCs"). Approximately 4,100
of the Company's employees, including health care
professionals, became employees of TMMC or of the PCs on
January 1, 1996. Also: 1) TMMC leased or subleased all of
the Company's medical centers and related assets located in
California, Arizona, Utah, New Mexico and Nevada; and 2) the
Company's HMO contracted with the PCs to provide health care
services to approximately 20% of the Company's HMO members
who were already receiving health care in the medical
centers. The contractual arrangements between the Company's
HMO and the PCs are financially similar to existing
contracts between the HMO and other contract health care
providers. Also, the PCs have entered into long-term
practice management agreements with TMMC, thereby enabling
the PCs and TMMC to do business with other payors and HMOs,
as well as with the Company's HMO. These third party
arrangements allow TMMC to utilize excess capacity in the
medical centers.
Three Months Ended March 31, 1996
Compared to the Three Months Ended March 31, 1995
Revenue and Membership
The Company generates substantially all of its revenue from
premiums received for health care services provided to the HMO members
of its wholly-owned subsidiaries. Total revenue for the three-month
period ended March 31, 1996, was $1,061 million increasing 6.0% over
revenue of $1,001 million for the same period in the previous year.
The Company's commercial and senior enrollment each generate
approximately half of the Company's HMO revenue. The Company's
ability to increase its commercial HMO premium rates during the last
two fiscal years and the first three fiscal quarters of fiscal year
1996 has been adversely impacted by intense competition in all the
Company's major markets, particularly in California. In addition,
certain large employer groups and other purchasers of health care
services continue to demand minimal increases or reductions in premium
rates. Downward pressure on premium rates is expected to continue in
fiscal year 1996 in all of the Company's major service areas. A
substantial portion of the Company's HMO commercial premium rate
increases becomes effective in January of each year.
Total HMO membership grew 6.6% to approximately 1,902,000 at
March 31, 1996, from approximately 1,784,000 at March 31, 1995. The
membership growth rate of 6.6% shows improvement over the quarterly
year-over-year growth rates of the Company's membership for the first
and second quarters of fiscal year 1996, of 4.5% and 5.1%,
respectively. (Notwithstanding, the Company's growth rate is slower
than the HMO industry in general.)
From March 31, 1995, to March 31, 1996, total commercial
membership increased by 97,000 or 6.9% from approximately 1,414,000 to
approximately 1,511,000. The Company's ability to increase its
commercial membership during the last two fiscal years and the first
nine months of fiscal year 1996 has been adversely impacted by intense
competition in all the Company's major markets, particularly in
California.
Senior membership grew by 21,000 or 5.7% to approximately 391,000
at March 31, 1996, from approximately 370,000 at March 31, 1995. In
the third quarter of fiscal year 1996, the Company experienced slight
declines from the second quarter of fiscal year 1996 in senior
membership in California and Utah, offset by gains in other markets
(primarily Arizona, Colorado and Texas). Almost all of the Company's
senior HMO revenue is generated from premiums paid to the Company by
the Health Care Financing Administration ("HCFA"). Revenue per senior
member is substantially higher than revenue per commercial member
because senior members use substantially more health care services.
In September of each year, HCFA announces the annual Medicare rate
increases that will become effective on January 1 of the subsequent
year. These rate increases vary geographically and become the basis
for determining the amounts that HCFA will pay to the Company. For
calendar year 1996, the Company received an average 5.1% rate increase
(for calendar year 1995, the Company received an average 5.8% rate
increase).
Cost of Health Care
Health care costs grew 8.4% to $892 million for the three months
ended March 31, 1996, from $823 million for the three months ended
March 31, 1995, due to operational growth and cost increases. Health
care costs increased as a percentage of revenue by 1.9 percentage
points, to 84.1% from 82.2% for the same three month period in the
prior fiscal year. The increase as a percent of revenue resulted
primarily from lower average commercial premium rates in almost all
states in which the Company operates and higher pharmacy and hospital
costs.
General, Administrative and Marketing Costs
General, administrative and marketing ("G & A") expenses grew by
$3 million or 2.4% to $130 million for the three month period ended
March 31, 1996, from $127 million for the three month period ended
March 31, 1995. The increase is primarily the result of higher sales
and marketing costs, offset by cost savings from earlier workforce
reductions and other cost controls. Further reductions in the
Company's work force may take place in the fourth quarter of fiscal
year 1996. G & A expenses for the three month period ended March 31,
1996, decreased as a percentage of revenue to 12.2% from 12.7% for the
same period in the prior fiscal year.
OPM
Background
In the third quarter of fiscal year 1996, the Company increased
reserves by recording a pretax charge of $45 million in anticipation
of negotiations to address potential governmental claims for the years
1987 through 1991, discussed below, which may be asserted in relation
to the Company's contracts with the United States Office of Personnel
Management ("OPM") and for possible OPM claims for subsequent years
through 1995. The addition to reserves resulted in a third quarter
charge to earnings of $0.68 per primary share.
The Company's HMO subsidiaries have contracts with OPM to provide
or arrange managed health care services under the Federal Employees
Health Benefits Program ("FEHBP")for federal employees, annuitants and
their dependents. Periodically, the Company's HMO subsidiaries are
subject to audits by the Government to, among other things, verify
that premiums charged under OPM contracts are established in
compliance with community rating and other requirements under the
FEHBP. Final reports from such audits may recommend that OPM seek
monetary recoveries from the Company for amounts that may be
substantial. As previously disclosed, in May 1993, after conducting
an audit of the Company's FEHBP contracts covering primarily the years
1987 through 1991, OPM sent a draft audit report to the Company
alleging certain defective rating practices in certain regions.
Following its evaluation of the draft audit report, the Company
indicated to OPM certain areas where it believed the report to be
inaccurate or based on misconceptions. Also, the Company evaluated
the availability of offsets and established reserves pending issuance
of a final audit report or further correspondence from OPM. A final
audit report has not been issued as of the date hereof and the Company
received no further correspondence from the Government regarding the
draft audit report until the third quarter of fiscal year 1996.
In the third quarter of fiscal year 1996, the United States
Department of Justice notified the Company that based on the OPM draft
audit report and discussions with OPM personnel, the Government
believed that the Company may have violated the False Claims Act in
its certifications to OPM that the FEHBP received community rates for
health care services provided in certain regions during 1987 through
1991. No action has been commenced by the Government, although the
Government asserted in correspondence with the Company dated April
25,1996 that, at that time, the Government believed its actual damages
to be approximately $15 million. In False Claims Act actions, the
Government may seek trebled damages, and a civil penalty of not less
than $5,000 nor more than $10,000 for each separate alleged false
claim. The Government has indicated that it does not have any
information that would lead it to believe that the Company violated
any criminal laws.
OPM
Outlook
The Company intends to negotiate with the Government to determine
whether it is possible to resolve these matters without litigation.
While there is no assurance that negotiations will be concluded
satisfactorily or that additional liability will not be incurred,
management does not believe that additional liability incurred, if
any, in excess of reserves established in connection with the ultimate
outcome of these matters is likely to have a material adverse effect
on the consolidated financial position or results of operations or
cash flows of the Company. In addition, the Company's management
currently does not believe that the allegations will have a material
effect on future relations with OPM.
In addition, OPM has opened two audits for years as far back as
1990 at two of the Company's other HMO subsidiaries. Based on
positions taken by the Government with respect to the 1987-1991 draft
audit report, management believes that the two open audits may allege
defective rating practices and result in claims for adjustments from
OPM and management believes other possible future audits may allege
defective rating practices and result in claims for adjustments from
OPM. Such claims could be for substantial amounts. Management cannot
determine if such claims would result in further referrals to the
Department of Justice and further False Claims Act claims.
The Company's reserves reflect management's recognition that FEHBP
rate audits, and claims based thereon are being handled differently by
the Government than in the past and reflect the extent of business the
Company has conducted with OPM over many years. Based on management's
understanding of the Government's current interpretation of the
community rating standard requirements in the context of the 1987-1991
draft OPM audit report, the Company believes that it has established
adequate reserves to settle any claims that may arise from present or
future FEHBP rate audits for past years, or that if any amount in
excess of reserves is necessary to settle any such claims, the amounts
would not be such as to have a material adverse effect on the
consolidated financial position or results of operations or cash flows
of the Company.
The preceding paragraphs in this section headed "OPM - Outlook"
consist of forward looking statements. The actual outcome of any OPM
audits, claims for adjustments and/or False Claim Act claims, the
manner in which and amounts for which any such claims will be
resolved, and the adequacy of reserves may differ materially from
management's current expectation. Factors that could cause the
resolution of these matters to differ materially from management's
current expectation include the presentation by the Government of new
interpretations of FEHBP requirements, the presentation of new data
relating to the determination of applicable rates changes in the
manner in which the Government seeks to apply the False Claims Act to
such situations, and/or a change in the Government's position toward
negotiated settlements of False Claim Act claims.
Interest Income
Net interest income was $4 million for the three month period
ended March 31, 1996, as compared to $2 million for the three month
period ended March 31, 1995. Net interest income increased year-over
year because of growth in the Company's investment portfolio, lower
outstanding debt and higher interest rates earned on investments.
Nine Months Ended March 31, 1996
Compared to the Nine Months Ended March 31, 1995
Revenue and Membership
Revenue for the nine month period ended March 31, 1996, totaled
$3,082 million, increasing 5.9% over revenue of $2,910 million for the
same period in the previous fiscal year. Membership and revenue
growth have both been constrained by intense competition in all the
Company's major markets and by downward pressure on commercial premium
rate increases.
Cost of Health Care
Health care costs grew 8.4% to $2,603 million for the nine-month
period ended March 31, 1996, from $2,401 million for the comparable
nine-month period ended March 31, 1995. Health care costs during the
nine-month period ended March 31, 1996, increased to 84.5% of total
revenue from 82.5% of total revenue for the same period last year.
Cost of health care has been increasing relative to revenues as
competitive pressures have slowed the growth of the Company's
revenues. Also, the Company has been experiencing higher health care
costs in almost all its major markets.
General, Administrative and Marketing Costs
G & A expenses grew 0.5% to $383 million for the nine-month period
ended March 31, 1996, from $381 million for the same period in the
previous year. The small increase was primarily due to operational
growth offset by cost reductions resulting from the Company's
Restructuring Plan. G & A expenses were 12.4% of total revenue for
the nine-month period ended March 31, 1996, versus 13.1% of total
revenue for the comparable period in the previous year.
Interest Income
Net interest income was $10 million for the nine-month period
ended March 31, 1996, compared to $4 million for the same period in
the previous fiscal year. Net interest income increased $6 million
year-over-year primarily as the result of growth in the Company's
investment portfolio, lower outstanding debt and higher interest rates
earned on investments.
Liquidity and Capital Resources
The Company's consolidated cash, cash equivalents and short-term
investments decreased by $146 million to $310 million at March 31,
1996, from $456 million at June 30, 1995. The decrease reflects the
impact of timing differences in receipt of HCFA premiums. The
Company's June 30, 1995 cash balances included the early receipt of
approximately $152 million of premiums from HCFA for medical services
to be provided to senior members in July, 1995. The Company's cash
balances at March 31, 1996, did not include any early receipt of HCFA
premiums. The early receipt of HCFA premiums in June and the normal
receipt of HCFA premiums in April caused the Company to be an apparent
net cash user during the period. Sources of cash during the nine month
period ended March 31, 1996, included $79 million from operations
(excluding the effect of timing differences in receipt of HCFA
premiums), $6 million from the sale of substantially all of the assets
of Ultralink, Inc. and net transfers of $7 million from long-term and
restricted investments. Uses of cash during the period included $41
million for capital expenditures, $20 million for preferred stock
dividends, and $53 million of debt repayment. On March 29, 1996, the
Company sold the operations of Ultralink, Inc., an indirect subsidiary
which coordinated managed health care for national commercial accounts
through a network of HMOs. The transaction had no material impact on
earnings. On April 1, 1996, the Company received approximately $87
million of proceeds from escrow for the sale of its Fountain Valley,
California, hospital campus. The funds were used primarily for the
reduction of debt.
The Company entered into a $350 million Credit Agreement in March,
1994. The Credit Agreement, as amended, provides for a $200 million
Revolving Credit Loan and a $150 million Term Loan. The Company
borrows at rates based on LIBOR rate borrowings which currently range
between 5.8% and 6.1%. The Term Loan is repayable at the rate of $15
million every six months, with the final repayment due March 31, 2000.
The Credit Agreement contains financial and other covenants, including
limitations on indebtedness, liens, dividends, sale and lease-back
transactions, and certain other transactions.
The Company's ability to make a payment on, or repayment of, its
obligations under ten-year Senior Notes carrying interest at 7% issued
in 1993 (the "Notes"), the Credit Agreement and its Preferred Stock is
significantly dependent upon the receipt of funds by the Company from
the Company's direct and indirect subsidiaries. These subsidiary
payments represent: (a) fees for management services rendered by the
Company to the subsidiaries; and (b) cash dividends by the
subsidiaries to the Company. Nearly all of the subsidiaries are
subject to HMO regulations or insurance regulations (the "Regulated
Subsidiaries"). Each of the Regulated Subsidiaries must meet or
exceed various fiscal standards imposed by HMO regulations or
insurance regulations. These fiscal standards may, from time to time,
impact the amount of funds paid by one or more of the Regulated
Subsidiaries to the Company.
The Company believes the payments referred to above by the
Regulated Subsidiaries, together with other financing sources,
including the Credit Agreement, should be sufficient to enable the
Company to meet its payment obligations under the Notes, the Credit
Agreement and the Company's Preferred Stock. The Company believes
that cash flow from operations, the Credit Agreement and existing cash
balances will be sufficient to continue to fund operations and capital
expenditures for the foreseeable future.
The anticipated sale of the Company's Salt Lake City, Utah,
hospital in the fourth quarter of fiscal year 1996 for approximately
$70 million will generate additional net cash to the Company. These
proceeds, should be available to the Company before the end of fiscal
year 1996. Cash generated from sales under the Restructuring Plan is
being used for various corporate purposes including the reduction of
indebtedness.
Effects of Regulatory Changes and Inflation
Effective January 1, 1996, the Company received an average premium
rate increase from HCFA of approximately 5.1% for its senior HMO
members. Over calendar years 1994 and 1995, annual senior premium
increases from HCFA were approximately 2.0% and 5.8%, respectively.
The Company evaluates the effects of HCFA premium adjustments on its
liquidity and capital resources, and incorporates the actual and
anticipated impact of such adjustments into its planning process.
The Company has been experiencing significant downward pressures
on commercial HMO premium rates, due to intense competition and
counter-inflationary measures by large commercial employers attempting
to hold their costs down. There can be no assurances that the Company
will be able to obtain premium rate increases in the commercial sector
in the short term. Also, the Company is experiencing some competitive
pressures in its senior markets, including California.
In recent years health care costs have been rising at a rate
higher than that for consumer goods as a whole, as a result of
inflation, new technology and medical advances. The Company believes
that internal cost control measures and financial risk-sharing
arrangements with its contract medical providers help to mitigate the
effects of inflation on its operations; however, there can be no
assurance that the Company's efforts to reduce the impact of the
increasing cost of health care will be as successful in the future as
they have been in the past.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Information relating to certain litigation as set forth in
Note 4 of Notes to Consolidated Financial Statements in Part I of
this report is incorporated herein by this reference.
In the third quarter of fiscal year 1996, the United States
Department of Justice notified the Registrant that, based on a
draft United States Office of Personnel Management ("OPM") audit
report of certain of the Registrant's contracts with OPM
covering primarily the years 1987 through 1991 and on
discussions with OPM personnel, the Government believed that the
Registrant may have violated the False Claims Act in its
certifications to OPM during certain contract years. No action
has been commenced by the Government, although the Government
asserted in correspondence with the Registrant dated April 26,
1996 that, at the time, the Government believed its actual
damages to be approximately $15 million. In False Claims Act
actions, the Government may seek trebled damages and civil
penalty of not less than $5,000 nor more than $10,000 for each
separate alleged false claim. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - OPM"
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
During the quarter ended March 31, 1996, the Registrant
terminated the employment agreements, dated as March 12, 1994,
between the Registrant and certain key executives. The
Registrant entered into employment agreements, dated as of
February 1, 1996, with the following executives: Gloria L.
Austin, Robert N. Franklin, Gary E. Goldstein, Burke F.
Gumbiner, R. Judd Jessup, Jeffrey H. Margolis, Jack D.
Massimino, Kenneth S. Ord, Westcott W. Price III, Eric D. Sipf
and Michael J. Weinstock. The form of employment agreement is
filed as Exhibit 10.1 to this Form 10-Q.
The Registrant has entered into a stock purchase agreement (the
"Agreement"), dated as of March 15, 1996, with Talbert Medical
Management Corporation ("TMMC") and 14 management investors
which provides for the issuance of restricted TMMC stock to the
management investors. The Agreement is currently in the
process of being amended. Both the Agreement and form of
Amendment No. 1 to the Agreement are filed as Exhibits Nos.
10.2 and 10.3 to this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Index to Exhibits at page 20 of this report.
(b) Reports on Form 8-K. None filed during the third quarter
of fiscal 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FHP INTERNATIONAL CORPORATION
Dated: May 10, 1996 By: /s/ Kenneth S. Ord
Senior Vice President and
Chief (Principal) Financial Officer
INDEX TO EXHIBITS
Exhibit Number
4.1 Registrant agrees to furnish to the Commission upon
request a copy of each instrument with respect to issues of
long-term debt of the Registrant, the authorized principal
amount of which does not exceed 10% of total assets of
Registrant.
10.1 Form of Employment Agreement, dated as of February 1,
1996, by and between the Registrant and Gloria L. Austin,
Robert N. Franklin, Gary E. Goldstein, Burke F. Gumbiner, R.
Judd Jessup, Jeffrey H. Margolis, Jack D. Massimino, Kenneth
S. Ord, Westcott W. Price III, Eric D. Sipf and Michael J.
Weinstock.
10.2 Stock Purchase Agreement, dated as of March 15, 1996,
by and among the Registrant, Talbert Medical Management
Corporation, Kathryn M. Adair, Gloria L. Austin, William P.
Bracciodieta, Larry L. Georgopolous, Gary E. Goldstein,
Richard M. Jacobs, R. Judd Jessup, Jack D. Massimino,
Barbara C. McNutt, Kenneth S. Ord, Westcott W. Price III,
Walter R. Stone, Margaret Van Meter and Michael J.
Weinstock.
10.3 Form of Amendment No. 1 dated as of May __, 1996, to
Stock Purchase Agreement dated as of March 15, 1996, by and
among the Registrant, Talbert Medical Management
Corporation, Kathryn M. Adair, Gloria L. Austin, William P.
Bracciodieta, Larry L. Georgopolous, Gary E. Goldstein,
Richard M. Jacobs, R. Judd Jessup, Jack D. Massimino,
Barbara C. McNutt, Kenneth S. Ord, Westcott W. Price III,
Walter R. Stone, Margaret Van Meter and Michael J.
Weinstock.
10.4 Third Amendment, dated as of May 2, 1996, to Credit
Agreement dated March 24, 1994.
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT by and between FHP International Corporation, a
Delaware corporation (the "Company") and (the "Executive"),
dated as of the 1st day of February, 1996. 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 employ-
ment.
(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;
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")) (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 (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
(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 pur-
pose, 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
(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 Combi-
nation, (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 Secu-
rities, 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 the third
anniversary of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding
the Effective Date.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. To the extent that any
such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the
highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used
in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the
Company.
(ii) Other Benefits. During the Employment Period, the Executive
shall be entitled to participate in all incentive, savings, retirement,
welfare benefit, vacation and sick leave plans, practices, policies and
programs applicable generally to other peer executives of the Company
and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal rep-
resentative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the
manner in which the Board or Chief Executive Officer believes that
the Executive has not substantially performed the Executive's duties,
or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer
or a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i)the assignment to the Executive of any duties inconsistent in
any material respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in material diminution
in such position, authority, duties or responsibilities;
(ii)any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(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 on Orange County, California, in accordance with the
following:
(v) Each party shall appoint its own arbitrator and the two
arbitrators shall choose a third, impartial arbitrator as umpire before
the date set for the hearing. If a party fails to appoint its arbitrator
within 30 days after have either received or given the notice
requesting arbitration, the other shall appoint the second arbitrator.
If the two arbitrators fail to appoint the umpire without 30 days after
their appointments, either party may apply to the Orange County
Superior Court of the State of California to appoint an impartial
umpire. The umpire shall promptly notify all parties to the arbitration
of his selection.
(vi) The arbitration shall be conducted pursuant to the provisions
of the California Code of Civil Procedure, including the rules
pertaining to discovery.
(vii) Within a reasonable time after completion of the arbitration,
the arbitrators shall prepare a written opinion, a copy of which shall
be provided to each party.
(viii) The parties shall share equally the expenses of arbitration,
including the arbitrator's fee, provided, however, that the arbitrators,
in their discretion, may award costs to the prevailing party.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 12(c)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision
in this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated
and (iii) if the Date of Termination (as defined below) is other than the date
of receipt of such notice, specifies the termination date (which date shall
be not more than thirty days after the giving of such notice). The failure by
the Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or Cause shall
not waive any right of the Executive or the Company, respectively, hereunder
or preclude the Executive or the Company, respectively, from asserting such
fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability,
the Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of Death or Disability, the Date of Termination shall be
the date of Death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company or Executive upon Termination.
(a)Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, Death or Disability or the Executive shall
terminate employment for Good Reason, such termination, for purposes of this
Section 6(a), shall constitute separation from, and cessation of duties for, the
Company as of the Date of Termination. Under such circumstances, the
Company shall pay to the Executive the following payments and benefits:
(i)Bi-weekly salary continuation at the Executive's Annual Base
Salary as if the Executive had remained employed through the end of
the Employment Period;
(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 FHP
International Employee Stock Ownership Plan (the "ESOP") and the
FHP 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 unpaid incentive compensation that Executive
earned through the Date of Termination in accordance with the terms
of any applicable incentive compensation plan.
The Company reserves the right to deduct from any applicable sum
those amounts required by law. Any monies owed to the Company by
Executive may be deducted from the Amounts payable pursuant to this Section
6(a). All accruals of vacation, holiday and personal leave days shall end
effective the Date of Termination. The payments called for in this Section 6(a)
shall be in lieu of and discharge any obligations of Company to Executive for
compensation, accrued vacation, accrued personal leave days, accrued holidays,
incentive compensation, car allowances or any other expectations of
remuneration or benefit on the part of the Executive.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of accrued obligations and the
timely payment or provision of other benefits under any plan, program, policy
or practice of the Company in accordance with the terms of such plan,
program, policy or practice (the "Other Benefits"). Accrued obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than for
payment of accrued obligations and the timely payment or provision of Other
Benefits. Accrued obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously
deferred by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for accrued obligations and the timely payment or provision of Other
Benefits. In such case, all accrued obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) Acceleration of Options. The Board of Directors has determined
that the events described in Section 2 hereof will constitute a "Change of
Control of the Company" for purposes of Section 13(e) 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 Option Rights under, and as defined in, the FHP
International Corporation Amended and Restated Executive 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, 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 Rights
granted to the Executive which are or become exercisable as of the Date of
Termination shall terminate 90 days after the Date of Termination.
(f)Duty to Cooperate. During the Employment Period and thereafter,
Executive agrees to cooperate with and assist the Company, upon reasonable
notice, in the defense of any litigation or governmental investigation arising
from events which occurred while Executive was employed by the Company.
Such cooperation and assistance shall include, but not be limited to,
Executive's full participation in locating, producing, collecting, analyzing and
preparing documents and other informational materials; in preparing for and
participating in depositions, hearings and trials; and in responding to
document production requests, interrogatories, and other discovery. If it
becomes necessary for Executive to testify in any judicial or administrative
proceedings, the Company shall reimburse Executive for any reasonable travel
expenses (including transportation, food and lodging) which are incurred (or
are to be incurred) in connection with such testimony (including preparation
therefor). The Company shall not be required to pay Executive any additional
consideration, including, but not limited to, consulting or witness fees, in
connection with any cooperation, assistance or testimony required of or
provided by Executive pursuant to this Agreement. In addition, from the Date
of Termination to the end of the Employment Period, the Executive shall
devote a reasonable amount of time cooperating with and assisting the
Company in maintaining and improving its relationships with its customers.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. Except as stated herein, the Company's obligation to
make the payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the provisions
of this Agreement and such amounts shall not be reduced whether or not the
Executive obtains other employment.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than
the Company and those designated by it.
10. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
11.Certain Reduction of Payments by the Company.
(a)Notwithstanding anything to the contrary in Section 6 of this
Agreement or the Incentive Plan (as defined in Section 6(e) above), in no event
shall an Option Right become immediately exercisable or the risks of forfeiture
and restrictions relating to Restricted Stock terminate under the Incentive
Plan upon the Executive's Date of Termination if such acceleration would
(i) cause any payment made to the Executive, whether pursuant to the terms of
this Agreement or otherwise (a "Payment") to constitute an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), or (ii) disqualify the transaction
constituting the Change of Control from being accounted for as a "pooling of
interests" within the meaning of APB No. 16, which would qualify for such
accounting treatment in the absence of such acceleration (the
"Disqualification"). In the event acceleration of any Option Rights would
cause any Payment to constitute an excess parachute payment, or would cause a
Disqualification, the Compensation Committee of the Company's Board of
Directors shall select the Option Rights which shall remain unexercisable so
that no Payment shall constitute an excess parachute payment and/or no
Disqualification shall occur. Any Option Rights which remain unexercisable
upon the Executive's Date of Termination by reason of this Section 11(a) shall
become exercisable as set forth in Section 11(c) below. Any shares of
Restricted Stock which do not become vested by reason of this Section 11(a)
shall be forfeited upon the Executive's Date of Termination.
(b)All determinations required to be made under this Section 11 as
to whether a Payment or benefit would be deductible by the Company shall be
made by the Company's independent auditors (the "Accounting Firm") which
shall provide detailed supporting information both to the Company and the
Executive within 30 business days following the Date of Termination or such
earlier time as is requested by the Company. A determination as to whether
a Disqualification would occur shall be made by the Accounting Firm at least
10 days prior to a Change of Control. Any such determination by the
Accounting Firm shall be binding upon the Company and the Executive.
(c)In the event that any Option Right which is outstanding on the
Executive's Date of Termination has not become exercisable because of the
application of this Section 11, such Option Right shall become exercisable in
such manner and at such times as the Option Right would have become
exercisable if the Executive had not terminated employment, and the portion
of any such Option Right which becomes exercisable pursuant to this Section
11(c) shall remain exercisable until the earlier of the date which is 90 days
following the date on which the Option Right first becomes exercisable or the
original expiration date of the Option Right.
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 con-
flict 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:
FHP International Corporation
9900 Talbert Avenue
Fountain Valley, California 92708
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c)The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) As stated, the Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e)The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(iv) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f)The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company
is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date,
the Executive's employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement.
(g)From and after the Effective Date, this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof entered into prior to the date hereof.
(h)This Agreement shall be void and without further force and effect
unless approved or ratified by the Company's Board of Directors.
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.
FHP INTERNATIONAL CORPORATION
By
Westcott W. Price III
President and Chief
Executive Officer
DOCS\RP0202.doc
<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
by and among
FHP International Corporation
and
Talbert Medical Management Corporation,
on the one hand,
and
Kathryn M. Adair,
Gloria L. Austin,
William P. Bracciodieta,
Larry L. Georgopolous,
Gary E. Goldstein, M.D.,
Richard D. Jacobs,
R. Judd Jessup,
Jack D. Massimino,
Barbara C. McNutt,
Kenneth S. Ord,
Westcott W. Price III,
Walter R. Stone,
Margaret Van Meter,
and
Michael J. Weinstock,
on the other hand
March 15, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions. . . . . . . . . . . . . . . . . . 2
1.1 Accounting Terms. . . . . . . . . . . . 2
1.2 Terms Generally . . . . . . . . . . . . 2
2. Purchase and Sale of Stock . . . . . . . . . . 2
2.1 Purchase and Sale . . . . . . . . . . . 2
2.2 Closing and Closing Date. . . . . . . . 3
3. Restrictions . . . . . . . . . . . . . . . . . 3
3.1 . . . . . . . . . . . . . . . . . . . . 3
3.2 . . . . . . . . . . . . . . . . . . . . 3
4. Additional Securities. . . . . . . . . . . . . 3
5. FHP Options to Purchase. . . . . . . . . . . . 4
5.1 Options Related to Termination of Employment 4
5.2 Unrestricted Option . . . . . . . . . . 4
5.3 Performance Options . . . . . . . . . . 4
5.4 Mechanics of Option Exercise. . . . . . 6
5.5 Certain Adjustments . . . . . . . . . . 6
6. Drag-Along Rights and Tag-Along Rights . . . . 6
6.1 Drag-Along Rights . . . . . . . . . . . 6
6.2 Tag-Along Rights. . . . . . . . . . . . 7
6.3 Same Terms and Conditions . . . . . . . 7
7. Registration Rights. . . . . . . . . . . . . . 8
7.1 Certain Definitions . . . . . . . . . . 8
7.2 Incidental Registration . . . . . . . . 8
(a) Right to Include Registrable Securities 8
(b) Priority in Incidental Registrations 8
(c) Seller Information; Suspension. . 9
7.3 Underwritten Offerings; Lockup. . . . . 9
7.4 Indemnification/Indemnification Agreements 9
7.5 Termination of Registration Rights. . . 10
7.6 Registration Expenses . . . . . . . . . 10
8. Withholding. . . . . . . . . . . . . . . . . . 10
9. Representations, Warranties and Agreements . . 10
9.1 Authorization . . . . . . . . . . . . . 10
9.2 Investment Representations. . . . . . . 10
9.3 Legends; Stop Transfer. . . . . . . . . 12
10. Certain Covenants. . . . . . . . . . . . . . . 13
10.1 Right of First Refusal. . . . . . . . . 13
11. Miscellaneous. . . . . . . . . . . . . . . . . 15
11.1 Remedies. . . . . . . . . . . . . . . . 15
11.2 Attorneys' Fees. . . . . . . . . . . . 15
11.3 Notices. . . . . . . . . . . . . . . . 15
11.4 No Third Party Beneficiaries . . . . . 17
11.5 Assignment by FHP. . . . . . . . . . . . 17
11.6 Time is of the Essence . . . . . . . . . 17
11.7 Entire Agreement; Amendments . . . . . . 17
11.8 Severability . . . . . . . . . . . . . . 18
11.9 Counterparts . . . . . . . . . . . . . . 18
11.10 Governing Law. . . . . . . . . . . . . . 18
11.11 Waiver of Jury Trials; Consent to Jurisdiction 18
11.12 Waiver . . . . . . . . . . . . . . . . . 18
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made
and entered into as of March 15, 1996, by and among FHP International
Corporation, a Delaware corporation ("FHP"), Talbert Medical Management
Corporation, a Delaware corporation (the "Company"), Kathryn M. Adair
("Adair"), Gloria L. Austin ("Austin"), William P. Bracciodieta
("Bracciodieta"), Larry L. Georgopolous ("Georgopolous"), Gary E. Goldstein,
M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup ("Jessup"),
Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"), Kenneth S. Ord
("Ord"), Westcott W. Price III ("Price"), Walter R. Stone ("Stone"), Margaret
Van Meter ("Van Meter"), and Michael J. Weinstock ("Weinstock"). In this
Agreement, Adair, Austin, Bracciodieta, Georgopolous, Goldstein, Jacobs, Jessup,
Massimino, McNutt, Ord, Price, Stone, Van Meter and Weinstock are referred
to individually as a "Management Investor" and collectively as the
"Management Investors."
A. WHEREAS, FHP has formed the Company to function as
a physician practice management company to provide practice management
services to certain professional corporations; and
B. WHEREAS, FHP has acquired 9,100,000 shares of the Class A
Voting Common Stock of the Company, par value $.01 (one cent) per share
(the "Class A Common Stock"), which shares of Class A Common Stock
comprise all of the issued and outstanding shares of Class A Common Stock
of the Company, for consideration in the amount of $91,000.00; and
C. WHEREAS, the Company and FHP regard the services provided
to the Company by the Management Investors as valuable to the Company and
FHP, and have determined that it would be to the advantage and in the best
interests of the Company and FHP to provide for the issuance of shares of
Class B Common Stock of the Company, par value $.01 (one cent) per share
(the "Class B Common Stock," with the Class A Common Stock and the Class
B Common Stock collectively referred to herein as the "Common Stock"), to the
Management Investors as provided for in this Agreement (i) as an inducement
to remain in the service of the Company and FHP, and (ii) as an incentive for
increased efforts during such service; and
D. WHEREAS, FHP desires to provide for the issuance of shares of
Class B Common Stock of the Company to the Management Investors, and the
Management Investors wish to acquire such shares from the Company, all on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties to this Agreement mutually agree as
follows:
1. Definitions.
1.1 Accounting Terms. In this Agreement, "GAAP" means
generally accepted accounting principles, consistently applied. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
1.2 Terms Generally. The definitions in this Agreement
shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by
the phrase "without limitation" if such phrase does not actually appear.
The headings of Sections are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. Unless the context shall otherwise
require, any reference to any agreement or other instrument or statute
or regulation is to it as amended and supplemented from time to time
(and, in the case of a statute or regulation, to any successor provision).
Any reference in this Agreement to a "day" or a number of "days"
(without the explicit qualification of "business") shall be interpreted as
a reference to a calendar day or number of calendar days. If any action
or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a business day, then such action or notice shall
be deferred until, or may be taken or given, on the next business day.
2. Purchase and Sale of Stock.
2.1 Purchase and Sale. Subject to the terms and conditions
of this Agreement, each of the Management Investors, severally and not
jointly, agrees to purchase, and FHP agrees to cause the Company to,
and the Company agrees to, issue, sell and transfer to each of the
Management Investors, severally and not jointly, at the Closing (as
defined below), for consideration in the amount of $.01 (one cent) per
share, the following: as to each such Management Investor, the number
of shares of the Class B Common Stock of the Company (the "Stock") set
forth in that certain schedule signed by each of FHP, the Company, and
such Management Investor (each, a "Management Investor Schedule").
The aggregate number of shares of Stock issued to the Management
Investors shall be 900,000, and the Stock issued to the Management
Investors, collectively, initially shall comprise 9% of the total
outstanding Common Stock of the Company (the "Management Stock").
Stock certificates evidencing the Management Stock, in addition to
blank stock powers executed by each Management Investor, initially
shall be held by the Assistant Secretary of FHP (the "Escrow Holder"),
and shall continue to be held by the Escrow Holder for the periods set
forth in Section 3 below, subject to the rights and limitations set forth
in this Agreement. All shares of Management Stock shall be fully paid
and nonassessable shares. Except as otherwise provided in this
Agreement, each Management Investor shall have all rights of a
shareholder with respect to the Management Stock, including rights to
vote, to receive dividends (including stock dividends), to participate in
stock splits or other recapitalizations, and to exchange such shares in
a merger, consolidation or other reorganization or exchange of shares.
2.2 Closing and Closing Date. The closing of the
transactions contemplated by this Agreement (the "Closing") shall take
place on the date ten (10) days following the date of the execution of this
Agreement.
3. Restrictions. Subject to other limitations contained in this
Agreement, the Management Investors shall not have any right to sell, give,
pledge, hypothecate or otherwise transfer or dispose of any Management Stock
(the "Restrictions") until the Restrictions lapse as provided in this Section
3. Prior to the lapse of the Restrictions, and subject to the provisions of
Section 3.1 below, the Management Stock shall continue to be held in escrow
by the Escrow Holder and shall be deemed to be "Restricted Securities." The
Restrictions shall lapse, and the Management Stock (and a proportional
amount of any Additional Securities (as defined herein)) shall vest, during the
period commencing on the date of the Closing and ending on July 1, 1999 (the
"Vesting Period") as follows:
3.1 The Restrictions imposed on the Restricted Securities
under this Section 3 shall lapse as to 25% of the shares of the
Management Stock issued to each Management Investor on July 1 of
each year during the Vesting Period. Upon the lapse of the Restrictions
on shares of the Management Stock, such shares shall cease to be
Restricted Securities. Within thirty (30) days after the lapse of the
Restrictions on shares of the Management Stock, the Escrow Holder
shall, upon receiving confirmation from the Company that the
Management Investor's withholding obligations, if any, under Section 8
of this Agreement have been satisfied, transmit to the Management
Investor the certificates evidencing those shares of Management Stock
with respect to which the Restrictions have lapsed; provided, however,
that certificates representing shares of Management Stock which are
subject to a Performance Purchase Option under Section 5.3, below,
shall not be released from escrow until such time as the applicable
Performance Purchase Option has expired without having been
exercised.
3.2 The occurrence of a change in control of the Company or
FHP shall not be an event which causes Restrictions imposed upon and
remaining applicable to Management Stock to terminate.
4. Additional Securities. Any securities received as the result of
ownership of Restricted Securities ("Additional Securities"), including, without
limitation, securities received as a stock dividend or stock split, or as a
result of a merger, consolidation, recapitalization or reorganization, shall
be held by the Escrow Holder in the same manner and subject to the same
conditions as the Restricted Securities with respect to which they were
issued. Each Management Investor shall be entitled to direct the Escrow
Holder to exercise any warrant or option received as Additional Securities
upon supplying the funds necessary to do so, in which event the securities
so purchased shall constitute Additional Securities. In the event any
Restricted Securities or Additional Securities consist of a security by its
terms or otherwise convertible or exchangeable for another security at the
election of the holder thereof, each Management Investor may exercise any such
right or conversion or exchange, and any securities so acquired shall be deemed
Additional Securities.
5. FHP Options to Purchase. Notwithstanding the foregoing, the
Management Stock held by the Management Investors shall be subject to the
following terms:
5.1 Options Related to Termination of Employment. Prior
to the lapse of the Restrictions on any Restricted Securities, and upon
such time as a Management Investor ceases to be employed by one of
the Company, FHP, or an Affiliate (as defined below) of FHP, FHP shall
have the option to purchase from such Management Investor, and such
Management Investor shall be obligated to sell to FHP, for consideration
in the amount of $.01 (one cent) per share (subject to Section 5.5, below),
all or any portion of such Restricted Securities (including any Additional
Securities issued in respect of such Restricted Securities) at the date of
such termination of employment. As used herein, an "Affiliate" of a
Person (as defined in Section 9.2(a), below) shall mean a Person
controlling, under common control with or controlled by such Person.
5.2 Unrestricted Option. At any time prior to October 1,
1999, FHP shall have the option to purchase from any Management
Investor(s), and such Management Investor(s) shall be obligated to sell
to FHP, any or all of the Management Stock, together with any
Additional Securities issued in respect of such Management Stock, of
such Management Investor(s), at a price per share of $30.00 (subject to
Section 5.5, below).
5.3 Performance Options. FHP shall have the option to
purchase from any Management Investor(s), and such Management
Investor(s) shall be obligated to sell to FHP, for consideration in the
amount of $.01 (one cent) per share (subject to Section 5.5, below),
certain amounts of the Management Stock, together with any Additional
Securities issued in respect of such Management Stock, under the
following circumstances (the "Performance Purchase Options"):
(a) If the Company fails to meet the Financial Goal,
as adjusted, for the fiscal year 1996, as approved by the Audit
Committee of FHP's Board of Directors (the "Audit Committee") in
accordance with the procedures outlined in Section 5.3(d) below, FHP
shall have the option to purchase from each Management Investor that
portion of the Management Stock with respect to which the Restrictions
lapsed on July 1, 1996 comprising 20% of the total amount of such
Management Stock.
(b) If the Company fails to meet the Financial Goal,
as adjusted, for the fiscal year 1997, as approved by the Audit
Committee in accordance with the procedures outlined in Section 5.3(d)
below, FHP shall have the option to purchase from each Management
Investor that portion of the Management Stock with respect to which
the Restrictions lapsed on July 1, 1997 comprising 20% of the total
amount of such Management Stock.
(c) If the Company fails to meet the Financial Goal,
as adjusted, for the fiscal year 1998, as approved by the Audit
Committee in accordance with the procedures outlined in Section 5.3(d)
below, FHP shall have the option to purchase from each Management
Investor up to an additional 20% of the total amount of Management
Stock pursuant to the following formula: for every $100,000 below the
amount which is $4 million below the Financial Goal, FHP shall have
the option to purchase from each Management Investor 0.5% of the total
amount of such person's Management Stock. For example, if the
Company's fiscal year 1998 results are $7 million below the Financial
Goal for the fiscal year 1998, FHP may purchase additionally that
portion of the Management Stock with respect to which the Restrictions
lapsed on July 1, 1998 comprising 15% of the total amount of such
Management Stock.
(d) The Financial Goals for the fiscal years 1996, 1997
and 1988 shall be as approved by the Audit Committee in accordance
with the following guidelines: The Financial Goal for fiscal year 1996
will be a pretax loss of $21,784,000 (after allocation of FHP corporate
charges and after net interest income or expense). This pretax loss
assumes that the Fountain Valley Hospital, Salt Lake City Hospital,
and Westminster subacute facility (collectively the "Hospitals") were sold
on July 1, 1995. The Financial Goal for fiscal year 1996 will be adjusted
to reflect the following: (i) an adjustment will be made to include the
budget of daily operating expenses for every day the Hospitals are not
sold during the fiscal year (the daily expenses to be added to budget are
as follows: Fountain Valley - $35,271, Utah Hospital - $21,271, and
Westminster subacute - $10,000); (ii) an adjustment will be made to
reflect interest on any debt incurred in connection with the formation of
the Company or lease expenses in excess of depreciation for assets
leased from FHP or its subsidiaries. The Financial Goal for fiscal year
1997 will be equivalent to the Financial Goal for fiscal year 1996 (a
pretax loss of $21,784,000) adjusted to reflect (x) the annual impact of
adjustments under clause (ii) above and (y) an improvement of
$20,000,000. The Financial Goal for fiscal year 1998 will be the
Financial Goal for fiscal year 1997 plus an improvement of $20,000,000.
The determination of the Financial Goal for fiscal year 1996 will be
approved by the Audit Committee, and the initial determination of the
Financial Goals for fiscal year 1997 and 1998 will be approved by the
Audit Committee prior to July 1, 1996, and July 1, 1997, respectively.
The Audit Committee may, in its sole discretion exercised in good faith,
adjust the Financial Goals if it determines that such adjustment is
necessary or desirable to accomplish the purposes of this Agreement.
The determination as to whether the Company has met the Financial
Goal for any particular fiscal year shall be made by the Audit
Committee within 90 days after the end of such fiscal year (as to each
fiscal year, the "Determination Date"). The determinations of the Audit
Committee shall be conclusive and binding upon the parties in all
respects.
5.4 Mechanics of Option Exercise.
(a) An option granted under Sections 5.1 or 5.2 hereof
shall be exercised by FHP upon 30 days' prior written notice to such
effect to the Management Investor(s) whose shares are subject to the
option.
(b) With respect to each Performance Purchase Option
granted under Section 5.3 hereof, FHP shall have 90 days from the
Determination Date for such fiscal year within which to exercise the
Performance Purchase Option for that fiscal year.
(c) In the event that an option under this Section 5
is exercised, the total purchase price for such shares shall be paid by
bank check at the time the certificate or certificates evidencing the
shares involved are delivered. Delivery of the certificate or certificates
evidencing the shares involved, properly endorsed, shall be made,
against payment therefor, immediately after the date of exercise of the
option granted under this Section 5, or such other time as may be
agreed upon by the parties to such transaction.
5.5 Certain Adjustments. The Audit Committee may, in its
sole discretion exercised in good faith, adjust the number of shares of
Management Stock that may be purchased by FHP at any time upon the
exercise of the options provided in this Section 5, and the purchase price per
share pursuant thereto, if it determines that such adjustment is equitably
required to prevent the dilution or enlargement of the rights of FHP or the
Management Investors, as appropriate, that otherwise would result from any
stock dividend, stock split, combination of shares, recapitalization or other
change in capital structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities, or any other corporate transaction or event having an
effect similar to any of the foregoing.
6. Drag-Along Rights and Tag-Along Rights. The provisions of this
Section 6 shall expire at such time as there has been sold or distributed to the
public in a spin-off or in one or more underwritten public offerings pursuant
to one or more Registration Statements (as defined in Section 7) filed with, and
declared effective by, the Commission under the Securities Act (both as defined
in Section 7) an aggregate number of shares of the Common Stock of the
Company equal to at least twenty percent (20%) of the Common Stock of the
Company outstanding after the last such public offering.
6.1 Drag-Along Rights. If FHP proposes a transaction which
would involve the sale or other transfer for consideration by FHP of an
amount of shares of Common Stock of the Company, which, if completed,
would result in a person or entity (other than FHP or its direct or
indirect subsidiaries or affiliates) acquiring 80% or more of the shares
of the outstanding Common Stock of the Company held by FHP (a
"Proposed Transaction"), then FHP shall give written notice (a
"Transaction Notice") to the Management Investors describing the
material terms of the Proposed Transaction. FHP shall be entitled to
require each Management Investor to include in such Proposed
Transaction all of such Management Investor's shares of Management
Stock; provided, however, that no Management Investor shall be
required to enter into any Proposed Transaction pursuant to this
Section 6.1 unless the terms and conditions of the Proposed Transaction
provide that either (a) such Management Investor will not be required
to participate in any indemnification of the buyer or buyers, or (b) if
such Management Investor will participate in such indemnification, (i)
such Management Investor's liability will be several and not joint and
several, and (ii) such Management Investor's liability will be capped at
the market value, determined at the time of receipt, of the net pre-tax
proceeds to be received by such Management Investor pursuant to the
terms of the Proposed Transaction.
6.2 Tag-Along Rights. In connection with any Proposed
Transaction, each Management Investor shall have a right to include in
such Proposed Transaction up to the number of shares of Management
Stock computed by multiplying (i) the total number of shares of
Common Stock of the Company proposed to be sold or otherwise
disposed of by FHP pursuant to the Proposed Transaction by (ii) a
fraction, the numerator of which shall equal the aggregate number of
shares of Management Stock owned by such Management Investor and
which are no longer subject to the Restrictions provided for in Section 3
or the Performance Options provided for in Section 5.3 as of the close of
business on the day immediately preceding the date of the Transaction
Notice and the denominator of which shall equal the sum of the
aggregate number of shares of the Common Stock of the Company
issued and outstanding on a fully diluted basis on such date. Any
Management Investor desiring to exercise his or her tag-along right
must deliver a written notice of exercise to FHP within 10 days after the
date FHP gives the Transaction Notice to such Management Investors.
6.3 Same Terms and Conditions. In the case of both the
drag-along rights described in Section 6.1 and the tag-along rights
described in Section 6.2, a sale of Management Stock by a Management
Investor shall be at the same price per share (in both amount and
purchase medium) applicable to the sale of the shares of Common Stock
of the Company by FHP and otherwise shall be on terms and conditions
at least as favorable as those applicable to FHP.
7. Registration Rights.
7.1 Certain Definitions. As used in this Section 7 and
elsewhere in this Agreement, the following terms shall have the
following respective meanings: (a) "Commission" shall mean the
Securities and Exchange Commission or any other Federal agency at the
time administering the Securities Act; (b) "Exchange Act" shall mean
the Securities Exchange Act of 1934, or any similar Federal statute, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time; (c) "Registrable Securities" shall mean all
Management Stock and Additional Securities held by the Management
Investors which are no longer subject to the restrictions specified in
Section 3 or the purchase options granted to FHP under Section 5; (d)
"Securities Act" shall mean the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time; and (e) The
terms "register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement or similar
document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
7.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the
Company proposes to register any of its Common Stock under the
Securities Act (other than by a registration on Form S-4 or S-8 or any
successor or similar forms or filed in connection with an exchange offer
or any offering of securities solely to the Company's existing
stockholders), whether or not for sale for its own account, the Company
will each such time give written notice thereof to all Management
Investors and, upon the written request of any Management Investor
made within 20 days after the receipt of any such notice, the Company
will use its best efforts to effect the registration under the
Securities Act of the Registrable Securities for which the Management
Investor(s) has requested registration thereof; provided, however, that
if the Company shall determine for any reason (i) not to register such
securities, then the Company shall be relieved of its obligation to use
best efforts to effect registration of the Registrable Securities, or
(ii) to delay registration of such securities, then the Company shall be
permitted to delay registering any Registrable Securities.
(b) Priority in Incidental Registrations. If a
registration pursuant to this Section 7 involves an underwritten
offering, and the managing underwriter shall advise the Company that,
in its opinion, the number of securities requested and otherwise
proposed to be included in such registration exceeds the number which
can be sold in such offering within a price range acceptable to the
Company, the Company will include in such registration, to the extent
of the number which the Company is so advised can be sold in such
offering, (i) first, all securities proposed to be sold by the Company,
(ii) second, all securities proposed to be sold by FHP, and (iii) third,
the number of Registrable Securities requested to be included in such
registration by the Management Investors and securities of other
persons requested to be included in such registration that, in the opinion
of such managing underwriter, can be sold, such amount to be allocated
among all such Management Investors and other persons pro rata based
upon the respective number of securities each such person has requested
to be included in such registration.
(c) Seller Information; Suspension. The Company
may require each seller of Registrable Securities to furnish the Company
such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request.
Notwithstanding any other provision of this Agreement, the
Management Investors understand that there may be periods during
which the Company may determine, in good faith, that it is in the best
interest of the Company and its stockholders to defer disclosure of any
material facts regarding the Company business which the Company
requires for reasonable business purposes to remain confidential
(collectively, "Non-Public Information"), until such information has
reached a more advanced stage and that during such periods sales of
Registrable Securities and the effectiveness of any registration
statement covering Registrable Securities may be suspended or delayed.
Each Management Investor agrees by acquisition of such Registrable
Securities that upon receipt of any notice from the Company of (i) the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made, or (ii) the development of any Non-Public Information, then such
Management Investor will forthwith discontinue such Management
Investor's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities.
7.3 Underwritten Offerings; Lockup.
In connection with any distribution by one or more
underwriters of the Company's securities registered pursuant to this Section
7, to the extent not inconsistent with applicable law, each Management
Investor agrees as a condition to such Management Investor's rights under this
Agreement not to effect any public sale or distribution of any equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 under the
Securities Act (or any similar provision then in force), during such period as
may be agreed to between the Company and the underwriters, except as part
of such underwritten registration.
7.4 Indemnification/Indemnification Agreements.
Notwithstanding the foregoing, the Company may require, as a condition to
including any Management Investor's Registrable Securities in any registration
statement filed pursuant to this Sections 7, that each Management Investor
who has requested that his or her Registrable Securities be included in such
registration statement enter into an indemnification agreement with the
Company on terms and conditions customary for indemnification agreements
in connection with transactions of this type.
7.5 Termination of Registration Rights. The registration
rights granted to the Management Investors pursuant to this Section 7 shall
terminate: (a) As to any particular Registrable Securities, at the time that
such Registrable Securities can be sold by the Management Investor holding
such Registrable Securities pursuant to Rule 144 or successor rules without the
necessity for registration; (b) Upon transfer by the Management Investor of
such Registrable Securities; and (c) In any event, ten years from the date of
this Agreement.
7.6 Registration Expenses. All expenses incurred by the
Company incident to the Company's performance of or compliance with this
Section 7, including, without limitation, all registration and filing fees, fees
and expenses of compliance with state securities or blue sky laws, printing
expenses and fees and disbursements of counsel for the Company and all
independent public accountants (including the expenses of any audit), but
excluding underwriting commissions, and discounts and expenses agreed to be
paid to underwriters (all such expenses being herein called "Registration
Expenses"), shall be borne by the Company.
8. Withholding. The Management Investors acknowledge that the
Company may withhold compensation (in cash, or, at the Company's option,
in stock) to satisfy all applicable federal, state, and local income, employment
and other tax withholding requirements.
9. Representations, Warranties and Agreements.
9.1 Authorization. FHP and each Management Investor
represent and warrants that this Agreement, when executed and delivered by
each of them, will constitute a valid and legally binding obligation of each of
them, enforceable against each of them in accordance with its terms.
9.2 Investment Representations.
(a) This Agreement is made with the Management
Investors in reliance upon each Management Investor's representation
to the Company and to FHP, which by such Management Investor's
execution and delivery hereof each Management Investor hereby
confirms, that the shares of the Management Stock to be received by
such Management Investor will be acquired for investment for such
Management Investor's own account, not as a nominee or agent, and not
with a view to the sale in connection with a public distribution of any
part thereof; and (ii) such Management Investor has no present
intention of selling, granting a participation in or otherwise
distributing, and does not have any contract, undertaking, agreement or
arrangement with any natural person, corporation, partnership, association
or other entity ("Person") to sell, transfer or grant a participation to
such Person, or to any third Person, with respect to any of the shares of
the Management Stock.
(b) Each Management Investor understands that the
Management Stock has not been registered under the Securities Act on
the ground that the sale and the issuance of Management Stock
hereunder is exempt from registration under the Securities Act pursuant
to Section 4(2) thereof and regulations issued thereunder, and that
FHP's and the Company's reliance on such exemption is predicated on
the Management Investors' representations set forth herein.
(c) Each Management Investor represents that such
Management Investor is an executive officer or director of the Company
or FHP. Each Management Investor further represents that, during the
course of the transaction and prior to such Management Investor's
purchase of shares of the Management Stock, such Management
Investor had access to, the opportunity to ask questions of, and receive
answers from, representatives of FHP and the Company concerning the
terms and conditions of the offering and to obtain additional information
(to the extent FHP or the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to such Management Investor
or to which such Management Investor had access.
(d) Each Management Investor has relied solely on its
own investigations in making a decision to purchase the Management
Stock, and has received no representation or warranty from FHP or the
Company, or any of the affiliates, employees or agents of either.
(e) Each Management Investor understands that the
Management Stock may not be sold, transferred or otherwise disposed
of without registration or qualification under the Securities Act and the
California Corporate Securities Law of 1968, as amended (the "CSL") or
pursuant to an exemption therefrom, and that in the absence of an
effective registration statement and permit covering the Management
Stock or an available exemption from registration under the Securities
Act and qualification under the CSL, the Management Stock must be
held indefinitely. Each Management Investor represents that, in the
absence of such an effective registration statement and permit covering
the Management Stock, such Management Investor will sell, transfer or
otherwise dispose of the Management Stock only in a manner consistent
with his or its representations set forth herein and then only in
accordance with the provisions of this Agreement and applicable laws
and regulations.
(f) Each Management Investor agrees that, except as
specifically contemplated hereunder, in no event will such Management
Investor transfer or dispose of any of the Management Stock other than
pursuant to an effective registration statement under the Securities Act,
unless and until (i) there is compliance with all requirements contained
in other sections of this Agreement; (ii) the Management Investor shall
have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances
surrounding the disposition; (iii) if requested by the Company, at the
expense of the Management Investor or transferee, such Management
Investor shall have furnished to the Company an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such transfer
may be consummated without registration under the Securities Act; and
(iv) the transferee executes and delivers an assumption agreement, in
form and substance satisfactory to FHP, by which the transferee
assumes all obligations of a Management Investor under this
Agreement.
9.3 Legends; Stop Transfer.
(a) All certificates for shares of the Stock shall bear
a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT IN COMPLIANCE
WITH SUCH ACT AND LAWS.
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE NOT TRANSFERABLE, EXCEPT
IN ACCORDANCE WITH THE PROCEDURES AND
RESTRICTIONS SET FORTH IN THE CERTIFICATE
OF INCORPORATION AND THE STOCK PURCHASE
AGREEMENT DATED AS OF May 15, 1996 AMONG
THE COMPANY, FHP INTERNATIONAL
CORPORATION ("FHP"), KATHRYN M. ADAIR,
GLORIA L. AUSTIN, WILLIAM P. BRACCIODIETA,
LARRY L. GEORGOPOLOUS, GARY E. GOLDSTEIN,
M.D., RICHARD D. JACOBS, R. JUDD JESSUP, JACK
D. MASSIMINO, BARBARA C. MCNUTT, KENNETH
S. ORD, WESTCOTT W. PRICE III, R. WALTER R.
STONE, MARGARET VAN MATER, AND MICHAEL J.
WEINSTOCK (THE "STOCK PURCHASE
AGREEMENT"), INCLUDING BUT NOT LIMITED TO
FHP'S OPTION TO PURCHASE THE SECURITIES
REPRESENTED BY THIS CERTIFICATE PURSUANT
TO SECTION 5.2 THEREOF. COPIES OF THE STOCK
PURCHASE AGREEMENT ARE FILED AT THE
PRINCIPAL OFFICE OF THE COMPANY AND ARE
AVAILABLE TO ANY HOLDER WITHOUT CHARGE
UPON WRITTEN REQUEST THEREFOR. ANY
PURPORTED TRANSFER IN VIOLATION OF SUCH
RESTRICTIONS SHALL BE VOID AND OF NO
EFFECT. AS USED HEREIN, "TRANSFER" SHALL
MEAN SALE, EXCHANGE, ASSIGNMENT,
TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF ANY INTEREST IN A SHARE
EXCEPT BY OPERATION OF LAW IN CONNECTION
WITH A MERGER OR CONSOLIDATION OF THE
COMPANY.
THE VOTING OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS SUBJECT TO THE
PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND THE STOCK PURCHASE
AGREEMENT.
(b) The certificates for shares of the Management
Stock shall also bear any legend required by any applicable state
securities law.
(c) In addition, the Company shall make a notation
regarding the restrictions on transfer of the Management Stock in its
stock records, and shares of the Management Stock shall be transferred
on the records of the Company only if transferred or sold pursuant to an
effective registration statement under the Securities Act covering such
shares or pursuant to and in compliance with the provisions of
subsection 9.2(f) hereof.
10. Certain Covenants.
10.1 Right of First Refusal. The provisions of this Section 10
shall expire at such time as there has been sold or distributed to the
public in a spin-off or in one or more underwritten public offerings
pursuant to one or more Registration Statements filed with, and
declared effective by, the Commission under the Securities Act.
(a) Each Management Investor agrees that such
Management Investor will not sell or otherwise dispose of all or any
portion of the Management Stock held by such Management Investor
unless such sale or disposition (i) involves only those shares of
Management Stock (a) with respect to which the Restrictions have
lapsed, and (b) are no longer subject to any of the options provided in
Section 5 hereof, and (ii) is made (a) for consideration that is payable in
cash or cash equivalents at the time of sale, (b) only in strict accordance
with and after full compliance with the provisions of this Section 10.1,
and (c) pursuant to a good faith offer to purchase such Management
Stock in writing from a responsible third party. In the event of any
such proposed sale or other disposition, the Management Investor
proposing to make such sale or other disposition (the "Selling Investor")
will give notice to the Company and concurrently to FHP containing a
complete description of the transaction proposed (the "Proposal"),
including the number of shares of Management Stock proposed to be
sold or otherwise disposed of (the "Transfer Shares"), the consideration
to be paid per Transfer Share and the names of all other parties to, and
all other material terms of, the proposed transaction, and a copy of the
written offer from the third party.
(b) For a period of thirty (30) business days after
delivery of the Proposal (the "FHP Option Period"), FHP shall have the
sole and exclusive right to purchase all or any portion of the Transfer
Shares owned by the Selling Investor for the consideration stated in the
Proposal and on such other terms and conditions as those offered to the
Selling Investor as set forth in the Proposal.
(c) If within the FHP Option Period FHP does not
exercise the option provided in subsection (b) above as to all of the
Transfer Shares, then for a period of ten (10) days (the "Company
Option Period") commencing upon the expiration of the FHP Option
Period (or such earlier time as FHP has either given notice of exercise
pursuant to (e) below or has advised the Selling Investor that it does not
intend to exercise such option), the Company shall have the sole and
exclusive right to purchase all or any portion of the remaining Transfer
Shares for the consideration and on the other terms and conditions set
forth in the Proposal.
(d) After expiration of the FHP Option Period and the
Company Option Period, if FHP and the Company have not exercised
their respective options so as to purchase, in the aggregate, all of the
Transfer Shares proposed to be sold by the Selling Investor, then none
of such Transfer Shares will be sold to either of said parties, and within
a period ending sixty (60) days after the expiration of the Company
Option Period, the Selling Investor may sell or otherwise dispose of the
Transfer Shares as are the subject of the Proposal, but (i) only for cash
or cash equivalents, and (ii) only in strict accordance with the terms and
provisions set forth in the Proposal.
(e) Any option granted under this Section 10.1 may
be exercised by notice in writing to the Selling Investor and the
Company stating that such option is exercised.
(f) In the event that the options under this Section
10.1 have been exercised so as to purchase all of the Transfer Shares
proposed to be sold by the Selling Investor, delivery of the certificate or
certificates evidencing the Transfer Shares, properly endorsed, shall be
made by the Selling Investor against payment therefor within ten (10)
days after the expiration of the Company Option Period at the principal
office of the Company, unless a different time and place or both is
agreed upon by the parties to such transaction, and the total purchase
price with respect to such option shall be paid in the manner and at the
time or times specified in the Proposal.
(g) Notwithstanding anything to the contrary
contained in this Agreement, a Management Investor shall be permitted
to transfer those shares of such Management Investor's Management
Stock with respect to which the Restrictions have lapsed, to a Permitted
Transferee (as defined below) of such Management Investor. For
purposes of this Agreement, "Permitted Transferee" shall mean (i) any
member of the immediate family of such Management Investor, (ii) any
trust, all of the beneficiaries of which are members of the immediate
family of such Management Investor, or (iii) the estate or personal
representative of such Management Investor if such Management
Investor is deceased; provided, however, that any Permitted Transferee
to whom such shares of Management Stock are transferred pursuant to
this paragraph (g) shall be required, as a condition of such transfer, to
execute and deliver a written assumption agreement by which such
assignee assumes all rights and obligations of a Management Investor
under this Agreement, including but not limited to (i) the restrictions
imposed by Sections 5 hereof, and (ii) the rights and obligations of FHP
under Section 6 hereof. Any reference to a "Management Investor"
contained in this Agreement shall be deemed to include such
Management Investor's Permitted Transferees.
11. Miscellaneous.
11.1 Remedies. The parties to this Agreement acknowledge
and agree that breach of any of the covenants of FHP, the Company and the
Management Investors set forth in this Agreement may not be compensable by
payment of money damages and, therefore, that the covenants of FHP, the
Company and the Management Investors set forth in this Agreement may be
enforced in equity by a decree requiring specific performance. Without limiting
the foregoing, if any dispute arises concerning the sale or other disposition of
any of the Management Stock subject to this Agreement, the parties to this
Agreement agree that an injunction may be issued restraining the sale or other
disposition of such Management Stock or rescinding any such sale or other
disposition, pending resolution of such controversy. Such remedies shall be
cumulative and non-exclusive and shall be in addition to any other rights and
remedies the parties may have under this Agreement.
11.2 Attorneys' Fees. If any party to this Agreement brings
an action against another party to enforce its rights under this Agreement, the
prevailing party shall be entitled to recover its costs and expenses, including
without limitation reasonable attorneys' fees and costs, incurred in connection
with such action, including any appeal of such action. In the event that a
party brings such an action against more than one of the other parties to this
Agreement, any attorneys' fees awarded against such other parties shall be
equitably apportioned among such other parties in light of all of the facts and
circumstances surrounding their involvement in such action.
11.3 Notices. Notices and other communication provided for
herein shall be in writing (including wire, telex, telecopy or similar writing)
and shall be sent, delivered, telexed or telecopied to:
The Company: Talbert Medical Management Corporation
9900 Talbert Avenue
Fountain Valley, CA 92708
Attn: President
With a copy to:
FHP: FHP International Corporation
9900 Talbert Avenue
Fountain Valley, CA 92708
Attn: Secretary
With a copy to:
The Management Kathryn M. Adair
Investors: 7021 Pinebrook Road
Park City, UT 84060
Gloria L. Austin
17 Whispering Wind
Irvine, CA 92714
William P. Bracciodieta
8121 Wadebridge Circle
Huntington Beach, CA 92646
Larry L. Georgopolous
12009 Ibex Avenue N.E.
Albuquerque, NM 87111
Gary E. Goldstein, M.D.
6 Amber Sky Drive
Rancho Palos Verdes, CA 90275
Richard D. Jacobs
4176 W. Jasper
Chandler, AZ 85226
R. Judd Jessup
30962 Via Serenidad
Coto de Caza, CA 92679
Jack D. Massimino
25362 Gallup Circle
Laguna Hills, CA 92653
Barbara C. McNutt
825 Fox Tail Way
Las Vegas, NV 89123
Kenneth S. Ord
11 Emerald Glen
Laguna Niguel, CA 92677
Westcott W. Price III
1505 Emerald Bay
Laguna Beach, CA 92651
Walter R. Stone
6492 Doral Drive
Huntington Beach, CA 92648
Margaret Van Meter
#1 Cala Churcha Street
Barrigada Heights, GU 96921
Michael J. Weinstock
8 Morning Sun
Irvine, CA 92715
11.4 No Third Party Beneficiaries. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person or entity
other than the parties hereto and their successors in interest and permitted
assignees, any rights or remedies under or by reason of this Agreement unless
expressly so stated otherwise in this Agreement.
11.5 Assignment by FHP. This Agreement shall be binding
upon and inure to the benefit of any successor or successors of FHP. This
Agreement is assignable by FHP to (i) any purchaser of all or substantially all
of FHP's shares of the capital stock of the Company, (ii) any wholly-owned
subsidiary of FHP, or (iii) the Company; provided, however, that such assignee
shall execute and deliver a written assumption agreement by which such
assignee assumes all obligations of FHP under this Agreement. In the event
of an assignment by FHP pursuant to this Section 11.5, FHP shall have the
ability to delegate the functions to be performed by the Audit Committee
hereunder (including any discretionary functions) to any committee of such
assignee with substantially similar functions.
11.6 Time is of the Essence. Time is of the essence in respect
to all provisions of this Agreement in which a definite time for performance is
specified.
11.7 Entire Agreement; Amendments. This Agreement and
the Exhibits and Schedules specifically referred to herein represents the
entire, final agreement of the parties hereto with respect to the subject
matter hereof, superseding all prior agreements, understandings, discussions,
negotiations and commitments of any kind. This Agreement may not be amended or
supplemented, nor may any rights hereunder be waived, except in a writing
signed by each of the parties affected thereby.
11.8 Severability. In the event that any provision or any part
of any provision of this Agreement is held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall not affect
the validity or enforceability of any other provision or part hereof.
11.9 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.10 Governing Law. The validity, interpretation,
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without
reference to its conflicts of law rules.
11.11 Waiver of Jury Trials; Consent to Jurisdiction. WITH
RESPECT TO ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR
ANY RELATED TRANSACTION, THE PARTIES EXPRESSLY WAIVE ANY
RIGHT THEY MAY HAVE TO A JURY TRIAL AND AGREE THAT ANY
SUCH LITIGATION SHALL BE TRIED BY A JUDGE WITHOUT A JURY.
Each party agrees to non-exclusive personal jurisdiction and venue in the
United States District Court for the Central District of California (and any
California State court within that District) for that purpose, and appoints the
person set forth in Section 11.3 as its agent for service of process in such
jurisdiction.
11.12 Waiver. The waiver by any party of any instance of any
other party's noncompliance with any obligation or responsibility herein shall
not be deemed a waiver of other instances or of any party's remedies for such
noncompliance.
[the next page is the signature page]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above mentioned.
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Kathryn M. Adair
Kathryn M. Adair
/s/ Gloria L. Austin
Gloria L. Austin
/s/ William P. Bracciodieta
William P. Bracciodieta
/s/ Larry L. Georgopolous
Larry L. Georgopolous
/s/ Gary E. Goldstein
Gary E. Goldstein, M.D.
/s/ Richard D. Jacobs
Richard D. Jacobs
/s/ R. Judd Jessup
R. Judd Jessup
<PAGE>
/s/ Jack D. Massimino
Jack D. Massimino
/s/ Barbara C. McNutt
Barbara C. McNutt
/s/ Kenneth S. Ord
Kenneth S. Ord
/s/ Westcott W. Price III
Westcott W. Price III
/s/ Walter R. Stone
Walter R. Stone
/s/ Margaret Van Meter
Margaret Van Meter
/s/ Michael J. Weinstock
Michael J. Weinstock
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Kathryn M. Adair 25,000
7021 Pinebrook Road
Park City, UT 84060
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: /s/ Michael A. Montevideo
Title: Assistant Treasurer
/s/ Kathryn M. Adair
Kathryn M. Adair
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Gloria L. Austin 50,000
17 Whispering Wind
Irvine, CA 92714
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Gloria L. Austin
Gloria L. Austin
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
William P. Bracciodieta 20,000
8121 Wadebridge Circle
Huntington Beach, CA 92646
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ William P. Bracciodieta
William P. Bracciodieta
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Larry L. Georgopolous 20,000
12009 Ibex Avenue N.E.
Albuquerque, NM 87111
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Larry L. Georgopolous
Larry L. Georgopolous
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Gary E. Goldstein, M.D. 50,000
6 Amber Sky Drive
Rancho Palos Verdes, CA 90275
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner.
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Gary E. Goldstein, M.D.
Gary E. Goldstein, M.D.
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Richard D. Jacobs 25,000
4176 W. Jasper
Chandler, AZ 85226
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Richard D. Jacobs
Richard D. Jacobs
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
R. Judd Jessup 67,500
30962 Via Serenidad
Coto de Caza, CA 92679
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ R. Judd Jessup
R. Judd Jessup
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Jack D. Massimino 500,000
25362 Gallup Circle
Laguna Hills, CA 92653
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Jack D. Massimino
Jack D. Massimino
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Barbara C. McNutt 15,000
825 Fox Tail Way
Las Vegas, NV 89123
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Barbara C. McNutt
Barbara C. McNutt
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Kenneth S. Ord 10,000
11 Emerald Glen
Laguna Niguel, CA 92677
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Kenneth S. Ord
Kenneth S. Ord
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Westcott W. Price III 67,500
1505 Emerald Bay
Laguna Beach, CA 92651
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Westcott W. Price III
Westcott W. Price III
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Walter R. Stone 20,000
6492 Doral Drive
Huntington Beach, CA 92648
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Walter R. Stone
Walter R. Stone
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Margaret Van Meter 20,000
#1 Cala Churcha Street
Barrigada Heights, GU 96921
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Margaret Van Meter
Margaret Van Meter
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta ("Bracciodieta"), Larry L. Georgopolous
("Georgopolous"), Gary E. Goldstein, M.D. ("Goldstein"), Richard D. Jacobs
("Jacobs"), R. Judd Jessup ("Jessup"), Jack D. Massimino ("Massimino"),
Barbara C. McNutt ("McNutt"), Kenneth S. Ord ("Ord"), Westcott W. Price III
("Price"), Walter R. Stone ("Stone"), Margaret Van Meter ("Van Meter"), and
Michael J. Weinstock ("Weinstock").
Management Investor # of Shares
Michael J. Weinstock 10,000
8 Morning Sun
Irvine, CA 92715
FHP International Corporation,
a Delaware corporation
By: /s/ Burke F. Gumbiner
Name: Burke F. Gumbiner
Title: Senior Vice President
Talbert Medical Management Corporation,
a Delaware corporation
By: /s/ Michael A. Montevideo
Name: Michael A. Montevideo
Title: Assistant Treasurer
/s/ Michael J. Weinstock
Michael J. Weinstock
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
This AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT,
dated as of May , 1996 (the "Amendment"), is made by and among FHP
International Corporation, a Delaware corporation ("FHP"), Talbert Medical
Management Corporation, a Delaware corporation (the "Company"), Talbert
Health Services Corporation, a Delaware corporation ("THSC"), Kathryn M.
Adair, Gloria L. Austin, William P. Bracciodieta ("Bracciodieta"), Larry L.
Georgopolous, Gary E. Goldstein, M.D., Richard D. Jacobs, R. Judd Jessup,
Jack D. Massimino, Barbara C. McNutt, Kenneth S. Ord, Westcott W. Price
III, Walter R. Stone, Margaret Van Meter, and Michael J. Weinstock. Defined
terms not defined herein shall have the meanings assigned to them in the
Stock Purchase Agreement.
WHEREAS, FHP, the Company and the Management Investors are
parties to that certain Stock Purchase Agreement, dated as of March 15, 1996
(the "Stock Purchase Agreement"); and
WHEREAS, the Management Stock has not yet been issued to the
Management Investors pursuant to the Stock Purchase Agreement; and
WHEREAS, Bracciodieta is no longer in the employ of the Company; and
WHEREAS, FHP, the Company and the Management Investors desire
to amend the Stock Purchase Agreement in these and certain other respects
as set forth below.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
1. Amendments to Stock Purchase Agreement. The Stock Purchase
Agreement is hereby amended as follows:
(a) Purchase of Class A Common Stock and THSC Common
Stock.
(1) The recitals on page 1 of the Stock Purchase
Agreement are hereby amended to read as follows:
"A. WHEREAS, FHP has formed the Company
to function as a physician practice management
company to provide practice management services
to certain professional corporations; and
"B. WHEREAS, FHP has formed THSC to provide
ancillary medical services; and
"C. WHEREAS, FHP has acquired 9,100,000
shares of the Class A Voting Common Stock of the
Company, par value $.01 (one cent) per share (the
"TMMC Class A Common Stock", with the TMMC Class A
Common Stock and the Class B Common Stock of the
Company, par value $.01 (one cent) per share,
collectively referred to herein as the "TMMC Common
Stock"), which shares of TMMC Class A Common Stock
comprise all of the issued and outstanding shares of
the common stock of the Company, for consideration
in the amount of $91,000.00; and
"D. WHEREAS, FHP has acquired 500 shares of
the Common Stock of THSC, no par value (the "THSC
Common Stock"), which shares of THSC Common Stock
comprise all of the issued and outstanding shares
of the common stock of THSC, for consideration in
the amount of $1,000.00; and
"E. WHEREAS, the Company, FHP and THSC regard
the services provided to the Company by the Management
Investors as valuable to the Company, FHP, and THSC
and have determined that it would be to the advantage
and in the best interests of the Company, FHP and THSC
to provide for the issuance of shares of TMMC Class A
Common Stock and THSC Common Stock to the
Management Investors as provided for in this
Agreement (i) as an inducement to remain in the service
of the Company, FHP and THSC, and (ii) as an
incentive for increased efforts during such service; and
"F. WHEREAS, FHP desires to provide for the
issuance of shares of TMMC Class A Common Stock and
THSC Common Stock to the Management Investors, and the
Management Investors wish to acquire such shares from
the Company and from THSC, respectively, all on the
terms and subject to the conditions set forth in this
Agreement."
(2) The first two sentences of Section 2.1 of the Stock
Purchase Agreement are hereby amended to read as follows:
"Subject to the terms and conditions of this
Agreement, each of the Management Investors, severally
and not jointly, agrees to purchase, and FHP agrees to
cause the Company and THSC to, and the Company and
THSC, respectively, agree to, issue, sell and transfer to
each of the Management Investors, severally and not
jointly, at the Closing (as defined below), the following:
(i) for consideration in the amount of $.01 (one cent) per
share, as to each such Management Investor, the
number of shares of the TMMC Class A Common Stock
(the "TMMC Stock") set forth in that certain schedule
signed by each of FHP, the Company, THSC and such
Management Investor (each, a "Management Investor
Schedule"), and (ii) for consideration in the amount of
$2.00 (two dollars) per share, as to each such
Management Investor, the number of shares of the
THSC Common Stock (the "THSC Stock", with the
TMMC Stock and the THSC Stock collectively referred
to herein as the "Stock") set forth in the Management
Investor Schedules. The aggregate number of shares of
TMMC Stock issued to the Management Investors shall
be 880,000 (the "TMMC Management Stock"), and the
TMMC Stock issued to the Management Investors,
collectively, initially shall comprise approximately 8.8%
of the total outstanding common stock of the Company
(the "TMMC Management Stock"); and the aggregate
number of shares of THSC Stock issued to the
Management Investors shall be 49, and the THSC Stock
issued to the Management Investors, collectively,
initially shall comprise approximately 8.8% of the total
outstanding common stock of THSC (the "THSC
Management Stock," with the TMMC Management
Stock and the THSC Management Stock collectively
referred to herein as the "Management Stock")."
(3) Pursuant to this Amendment, (i) all rights and
obligations created under the Stock Purchase Agreement between (a) FHP and
the Management Investors with respect to the TMMC Management Stock, and
(b) the Company and the Management Investors with respect to the TMMC
Management Stock, shall hereby also create separate and identical rights and
obligations between (x) FHP and the Management Investors with respect to the
THSC Management Stock, and (y) THSC and the Management Investors with
respect to the THSC Management Stock, respectively, as if two separate and
identical sets of such rights and obligations were originally created
thereunder, (ii) all other rights and obligations created under the Stock
Purchase Agreement between (a) FHP and the Management Investors, and (b) the
Company and the Management Investors, shall hereby also create separate
and identical rights and obligations between (x) FHP and the Management
Investors, and (y) THSC and the Management Investors, respectively, as if two
separate and identical sets of such rights and obligations were originally
created thereunder, (iii) all references in the Stock Purchase Agreement to "the
Company," in so far as such references relate to such rights and obligations
created between the Management Investors and the Company described in
clauses (i)(b) and (ii)(b), shall also be references to THSC and shall relate to
such separate and identical rights and obligations between the Management
Investors and THSC as described in clauses (i)(y) and (ii)(y), above, and
(iv) all other references to "the Company" in the Stock Purchase Agreement shall
also be references to THSC; provided, however, that the foregoing clauses
(iii) and (iv) shall not apply to those references to "the Company" contained in
Sections 5.1, 5.3, 8 and 11.5 of the Stock Purchase Agreement.
(4) All references to "Common Stock" in Section 6 and
7 of the Stock Purchase Agreement are hereby amended to read "TMMC
Common Stock or THSC Common Stock, as appropriate".
(5) Section 8 of the Stock Purchase Agreement is
hereby amended to read as follows:
"8. Withholding. The Management Investors
acknowledge that the Company, FHP or THSC, as appropriate,
may withhold compensation (in cash, or, at the option
of the Company, FHP or THSC, as appropriate, in stock)
to satisfy all applicable federal, state, and local
income, employment and other tax withholding requirements."
(6) The parties hereto acknowledge that there exists
the possibility that at some future date, THSC may be merged with or into the
Company, and in the event such merger occurs, it is presently contemplated
that upon the effective time of such merger (the "Effective Time"), each
Management Investor shall receive, in exchange for the shares of THSC
Common Stock purchased by such Management Investor pursuant to the Stock
Purchase Agreement, as amended by this Amendment (or, in the event that
THSC and the Company are merged into a new entity, for the shares of the
THSC Common Stock and the shares of the TMMC Common Stock so
purchased by such Management Investor), the number of shares of TMMC
Common Stock (or shares of the common stock of the new entity) which, when
combined with the number of shares of TMMC Common Stock purchased by
such Management Investor pursuant to the Stock Purchase Agreement, as
amended by this Amendment (or which shares of the common stock of the new
entity), would result in the ownership by such Management Investor of the
same percentage of the total outstanding common stock of the Company (or of
such merged entity) immediately after the Effective Time as the percentage of
the total outstanding common stock of the Company owned by such
Management Investor immediately prior to the Effective Time. In such event,
immediately following the Effective Time:
(i) all rights and obligations created under this
Amendment between (a) FHP and the Management Investors with respect to
the THSC Management Stock, and (b) THSC and the Management Investors
with respect to the THSC Management Stock, shall become rights and
obligations between (x) FHP and the Management Investors with respect
to the TMMC Management Stock, and (y) the Company and the Management
Investors with respect to the TMMC Management Stock, respectively,
as if the separate and identical obligations created pursuant to Section
1(a)(3)(i), above, had never been created thereunder;
(ii) all other rights and obligations created
pursuant to this Amendment between (a) FHP and the Management
Investors, and (b) THSC and the Management Investors, shall
become rights and obligations between (x) FHP and the Management
Investors, and (y) the Company and the Management Investors,
respectively, as if the separate and identical sets of rights
and obligations created pursuant to Section 1(a)(3)(ii), above,
had never been created thereunder;
(iii) all references in the Stock Purchase
Agreement, as amended by this Amendment, to "the Company," in so
far as such references relate to such rights and obligations created
pursuant to Section 1(3)(a)(iii), above, between the Management
Investors and THSC, shall be references only to the Company, and
shall no longer be references to THSC, and shall relate only to
the rights and obligations between the Management Investors
and the Company as described in clauses (i)(y) and (ii)(y) of
this Section 1(a)(6); and
(iv) all other references to "the Company" in
the Stock Purchase Agreement, as amended by this Amendment, shall
be references to the Company only.
Each Management Investor hereby agrees and consents that the execution of
this Amendment by such Management Investor shall constitute an agreement
by such Management Investor to (i) consent in writing to a merger of THSC
with or into the Company pursuant to Section 228 of the Delaware General
Corporation Law, as amended (the "DGCL"), and (ii) refrain from demanding
any appraisal rights to which such Management Investor might otherwise be
entitled pursuant to Section 262 of the DGCL, or pursuant to any other
provision of applicable law, in connection with such a merger.
(b) Removal of Party to Stock Purchase Agreement. The
Stock Purchase Agreement is hereby amended to remove all references to
"William P. Bracciodieta" and "Bracciodieta" in the Stock Purchase Agreement.
Accordingly, William P. Bracciodieta shall not be a party to the Stock Purchase
Agreement.
2. Notices. Notices and other communication provided for herein or
in the Stock Purchase Agreement shall be in writing (including wire, telex,
telecopy or similar writing) and shall be sent, delivered, telexed or
telecopied, if to THSC, to:
Talbert Health Services Corporation
3540 Howard Way
Costa Mesa, CA 92626
Attn: President
3. Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Delaware, without
reference to its conflicts of law rules.
4. No Other Amendments. The Stock Purchase Agreement, as
amended by this Amendment, is and shall continue to be in full force and effect
and is hereby in all respects ratified and confirmed. Except as provided
herein, nothing in this Amendment shall waive or be deemed to waive or
modify (except as expressly set forth herein) any rights or obligations of any
of the parties under the Stock Purchase Agreement.
5. Counterparts. This Amendment 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.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Amendment as of the date first above mentioned.
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
<PAGE>
Kathryn M. Adair Jack D. Massimino
Gloria L. Austin Barbara C. McNutt
William P. Bracciodieta Kenneth S. Ord
Larry L. Georgopolous Westcott W. Price III
Gary E. Goldstein, M.D. Walter R. Stone
Richard D. Jacobs Margaret Van Meter
R. Judd Jessup Michael J. Weinstock
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Margaret Van Meter 20,000 TMMC
#1 Cala Churcha Street 1 THSC
Barrigada Heights, GU 96921
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Margaret Van Meter
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Walter R. Stone 20,000 TMMC
6492 Doral Drive 1 THSC
Huntington Beach, CA 92648
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Walter R. Stone
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Westcott W. Price III 67,500 TMMC
1505 Emerald Bay 4 THSC
Laguna Beach, CA 92651
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Westcott W. Price III
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Kenneth S. Ord 10,000 TMMC
11 Emerald Glen 1 THSC
Laguna Niguel, CA 92677
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Kenneth S. Ord
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Barbara C. McNutt 15,000 TMMC
8250 Fox Tail Way 1 THSC
Las Vegas, NV 89123
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Barbara C. McNutt
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Jack D. Massimino 500,000 TMMC
25362 Gallup Circle 27 THSC
Laguna Hills, CA 92653
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Jack D. Massimino
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
R. Judd Jessup 67,500 TMMC
30962 Via Serenidad 4 THSC
Coto de Caza, CA 92679
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
R. Judd Jessup
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Richard D. Jacobs 25,000 TMMC
4176 W. Jasper 1 THSC
Chandler, AZ 85226
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Richard D. Jacobs
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Gary E. Goldstein, M.D. 50,000 TMMC
6 Amber Sky Drive 3 THSC
Rancho Palos Verdes, CA 90275
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Gary E. Goldstein, M.D.
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Larry L. Georgopolous 20,000 TMMC
12009 Ibex Avenue N.E. 1 THSC
Albuquerque, NM 87111
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Larry L. Georgopolous
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Gloria L. Austin 50,000 TMMC
17 Whispering Wind 3 THSC
Irvine, CA 92714
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Gloria L. Austin
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Kathryn M. Adair 25,000 TMMC
7021 Pinebrook Road 1 THSC
Park City, UT 84060
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Kathryn M. Adair
<PAGE>
MANAGEMENT INVESTOR SCHEDULE
This Management Investor Schedule has been prepared pursuant to
Section 2.1 of that certain Stock Purchase Agreement, dated as of March 15,
1996, by and among FHP International Corporation, a Delaware corporation
("FHP"), Talbert Medical Management Corporation, a Delaware corporation
(the "Company"), Kathryn M. Adair ("Adair"), Gloria L. Austin ("Austin"),
William P. Bracciodieta, Larry L. Georgopolous ("Georgopolous"), Gary E.
Goldstein, M.D. ("Goldstein"), Richard D. Jacobs ("Jacobs"), R. Judd Jessup
("Jessup"), Jack D. Massimino ("Massimino"), Barbara C. McNutt ("McNutt"),
Kenneth S. Ord ("Ord"), Westcott W. Price III ("Price"), Walter R. Stone
("Stone"), Margaret Van Meter ("Van Meter"), and Michael J. Weinstock
("Weinstock"), as amended by that certain Amendment No. 1 to Stock Purchase
Agreement, dated as of May , 1996, by and among the same parties, and
Talbert Health Services Corporation, a Delaware corporation ("THSC").
Management Investor # of Shares
Michael J. Weinstock 10,000 TMMC
8 Morning Sun 1 THSC
Irvine, CA 92715
FHP International Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Medical Management Corporation,
a Delaware corporation
By:
Name:
Title:
Talbert Health Services Corporation,
a Delaware corporation
By:
Name:
Title:
Michael J. Weinstock
<PAGE>
EXHIBIT 10.4
THIRD AMENDMENT
THIRD AMENDMENT, dated as of May 2, 1996 (this "Amendment"), to
the CREDIT AGREEMENT, dated as of March 24, 1994 (as amended,
supplemented or otherwise modified from time to time, the "Credit
Agreement"), among (i) FHP INTERNATIONAL CORPORATION, a Delaware
corporation (the "Borrower"), (ii) the Lenders parties thereto (individually, a
"Lender", and collectively, the "Lenders"), (iii) CHEMICAL BANK, a New York
banking corporation, as agent for the Lenders (in such capacity, the
"Administrative Agent") and as CAF Loan Agent (in such capacity, the "CAF
Loan Agent"), and (iv) CHASE SECURITIES INC. (as successor by merger to
Chemical Securities Inc.), as arranger (in such capacity, the "Arranger").
W I T N E S E T H :
WHEREAS, the Borrower has requested that the Lenders agree to
amend the Credit Agreement in the manner provided herein.
NOW THEREFORE, in consideration of the premises, the parties hereto
hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined
in the Credit Agreement are used herein as defined therein.
2. Amendments to Credit Agreement.
(a) Subsection 1.1 of the Credit Agreement is hereby
amended by (a) deleting therefrom the definition of "Consolidated
Adjusted Net Income" in its entirety and (b) inserting therein the
following new definitions in the appropriate alphabetical order:
"'Available Prepayment Funds': with respect to any fiscal
year of the Borrower, the aggregate amount of Net Cash Proceeds
in excess of $75,000,000 received by the Borrower in such fiscal
year.";
"'Consolidated Adjusted Net Income': for any period, the
Consolidated Net Income of the Borrower and its consolidated
Subsidiaries for such period, plus the amount of income taxes,
interest expense, rental expense, depreciation, amortization, Non-
Cash Charges and the OPM Charge (if applicable to such period)
deducted from earnings of the Borrower and its consolidated
Subsidiaries for such period in determining such Consolidated
Net Income."; and
"'OPM Charge': the pre-tax amount (not in excess of
$45,000,000) deducted from earnings of the Borrower and its
consolidated Subsidiaries in determining Consolidated Net
Income for the fiscal quarter of the Borrower ending on March 31,
1996 in connection with the reserve created to address potential
claims of the United States Office of Personnel Management, as
reported in the financial statements of the Borrower and its
consolidated Subsidiaries for such fiscal quarter."
(b) Subsection 2.6(c) of the Credit Agreement is hereby
amended by deleting such subsection in its entirety and inserting in lieu
thereof a new subsection 2.6(c) to read in its entirety as follows:
"(c) Subject to the other provisions of this subsection
(other than the last sentence of paragraph (a)), if there shall
occur any Asset Sale permitted by subsection 6.7(a)(ii), then the
Borrower shall apply the Net Cash Proceeds of such Asset Sale as
follows:
first, to the prepayment of the Term Loans which
are ABR Loans, payable within five Business Days of
the receipt by the Borrower of such Net Cash Proceeds;
second, to the extent such Net Cash Proceeds
exceed the aggregate outstanding principal amount of
the Term Loans which are ABR Loans, to the
prepayment of the term Loans which are Eurodollar
Loans, payable on the last day of the Interest Period
applicable to each such Eurodollar Loan to be prepaid;
and
third, to the extent such Net Cash Proceeds
exceed the aggregate outstanding principal amount of
the Term Loans, to the permanent reduction of the
Revolving Credit Commitments (in which case, first, the
Revolving Credit Loans which are ABR Loans shall be
prepaid within five Business Days of the receipt by the
Borrower of such Net Cash Proceeds, second, the
Revolving Credit Loans which are Eurodollar Loans
shall be prepaid on the last day of the Interest Period
applicable to each such Eurodollar Loan to be prepaid;
and third, if the amount of such reduction is greater
than the aggregate principal amount of Revolving Credit
Loans outstanding, after prepayment of Revolving Credit
Loans in full the CAF Loans shall be Cash
Collateralized, in an aggregate amount so that, after
giving effect thereto, the aggregate then outstanding
principal amount of the Revolving Credit Loans and the
non-Cash Collateralized CAF Loans would not exceed
the Revolving Credit Commitments as so reduced).
Notwithstanding the foregoing, no prepayment shall be
required pursuant to this subsection 2.6(c) until the
Available Prepayment Funds not theretofore applied to
a prepayment pursuant to this subsection 2.6(c) shall
exceed $5,000,000. Prepayments of the Term Loans
pursuant to this subsection 2.6(c) shall be applied to the
installments thereof in the inverse order of scheduled
maturity."
3. Effectiveness. This Amendment shall become effective on the date
on which the Borrower and the Required Lenders shall have duly executed and
delivered to the Administrative Agent this Amendment.
4. Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement are
and shall remain in full force and effect. The amendments contained herein
shall not constitute an amendment or waiver of any other provision of the
Credit Agreement or for any purpose except as expressly set forth herein.
5. Counterparts. This Amendment may be executed by one or more
of the parties to this Amendment on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument. This Amendment may be delivered by facsimile
transmission of the relevant signature pages hereof.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
FHP INTERNATIONAL CORPORATION
By:/s/ Michael A. Montevideo
Title: Vice President and Treasurer
CHEMICAL BANK,
as Administrative Agent, as CAF Loan Agent and
as a Lender
By: /s/ Dawn Lee Lum
Title: Vice President
THE TOKAI BANK, LTD., LOS ANGELES
AGENCY
By:
Title:
THE SUMITOMO BANK, LIMITED, LOS
ANGELES BRANCH
By: /s/ G. Harai
Title: Joint General Manager
THE SANWA BANK LIMITED, ACTING
THROUGH THE LOS ANGELES BRANCH
By:
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY
By:
Title:
BANK OF HAWAII
By:
Title:
CITICORP USA, INC.
By: /s/ Margaret Brown
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Rebecca K. Levine
Title: Assistant Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Wyatt Ritchie
Title: Managing Director
<PAGE>
FIRST INTERSTATE BANK OF CALIFORNIA
(FICAL)
By: /s/ William J. Baird
Title: Senior Vice President
By: /s/ Judy A. Maahs
Title: Assistant Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Ann M. Dodd
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By: /s/ Y. Kamisawa
Title: Deputy General Manager
THE SUMITOMO TRUST & BANKING CO., LTD.,
NEW YORK BRANCH
By: /s/ Suraj P. Bhatia
Title: Senior Vice President
<PAGE>
BANKERS TRUST COMPANY
By: /s/ Mary Jo Jolly
Title: Assistant Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Brad DeSpain
Title: Vice President
KREDIETBANK N.V.
By:
Title:
By:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By: /s/ T. Nozaki
Title: Sr. Vice President & Joint General Manager
EXHIBIT 11.1
FHP INTERNATIONAL CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
For The
(amounts in thousands Three Months Ended
except per share data) March 31,
1996 1995
____________ ___________
Primary earnings (loss) per share
attributable to Common Stock:
Net income attributable to
Common Stock $ (11,707) $ 21,815
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,534 40,037
Assumed exercise of options 1,415 1,173
__________ __________
Total shares 41,949 41,210
=========== ===========
Primary earnings (loss) per share
attributable to Common Stock $ (0.28) $ 0.53
=========== ===========
Fully diluted earnings per share:
Net income (loss) attributable to
Common Stock assuming
conversion of Series A
Cumulative Convertible
Preferred Stock $ (5,132) $ 28,382
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,534 40,037
Assumed exercise of options 1,503 1,449
Assumed conversion of
Series A Cumulative
Convertible Preferred Stock 16,968 16,961
__________ __________
Total shares, assuming
full dilution 59,005 58,447
=========== ===========
Fully diluted earnings (loss) per share $ (0.09)(1) $ 0.49
=========== ===========
(1) This computation is submitted in accordance with regulation S-K,
Item 601(b)(11) although it is contrary to paragraph 40 of
Accounting Principles Board Opinion No. 15 because it produces an
anti-dilutive result.
EXHIBIT 11.1
FHP INTERNATIONAL CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
For The
(amounts in thousands, Nine Months Ended
except per share data) March 31,
1996 1995
____________ ____________
Primary earnings per share
attributable to Common Stock:
Net income attributable to
Common Stock $ 2,926 $ 51,727
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,369 39,825
Assumed exercise of options 1,069 1,274
__________ __________
Total shares 41,438 41,099
=========== ===========
Primary earnings per share
attributable to Common Stock $ 0.07 $ 1.26
=========== ===========
Fully diluted earnings per share:
Net income attributable to
Common Stock assuming
conversion of Series A
Cumulative Convertible
Preferred Stock $ 22,716 $ 70,384
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,369 39,825
Assumed exercise of options 1,550 1,578
Assumed conversion of
Series A cumulative
Convertible Preferred Stock 16,968 16,961
__________ __________
Total shares, assuming
full dilution 58,887 58,364
=========== ===========
Fully diluted earnings per share $ 0.39(1) $ 1.21
=========== ===========
(1) This computation is submitted in accordance with regulation S-K,
Item 601(b)(11) although it is contrary to paragraph 40 of
Accounting Principles Board Opinion No. 15 because it produces an
anti-dilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND CASH FLOWS OF FHP
INTERNATIONAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
MARCH 31, 1996 QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 148,340
<SECURITIES> 161,411
<RECEIVABLES> 172,905
<ALLOWANCES> 24,203
<INVENTORY> 8,205
<CURRENT-ASSETS> 617,808
<PP&E> 385,331
<DEPRECIATION> 156,092
<TOTAL-ASSETS> 2,142,107
<CURRENT-LIABILITIES> 616,741
<BONDS> 285,274
0
526,006
<COMMON> 409,391
<OTHER-SE> 211,876
<TOTAL-LIABILITY-AND-EQUITY> 2,142,107
<SALES> 3,081,774
<TOTAL-REVENUES> 3,081,774
<CGS> 2,985,733
<TOTAL-COSTS> 2,985,733
<OTHER-EXPENSES> 54,659
<LOSS-PROVISION> 586
<INTEREST-EXPENSE> 17,791
<INCOME-PRETAX> 51,628
<INCOME-TAX> 28,912
<INCOME-CONTINUING> 22,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,716
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.39
</TABLE>
