-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MlZiLR32msKSiigHMbxQpqgNG+mJGdznFrB3eLM/T5o3jfP6LmI88nDuVwwdBtmo RLG7Vm3qF0H46h9OaNh5mg== 0000950144-97-009447.txt : 19970828 0000950144-97-009447.hdr.sgml : 19970828 ACCESSION NUMBER: 0000950144-97-009447 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970820 DATE AS OF CHANGE: 19970827 SROS: AMEX SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: TALBERT MEDICAL MANAGEMENT HOLDINGS CORP CENTRAL INDEX KEY: 0001027131 STANDARD INDUSTRIAL CLASSIFICATION: 8093 IRS NUMBER: 330730363 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-51023 FILM NUMBER: 97667381 BUSINESS ADDRESS: STREET 1: 3540 HOWARD WAY CITY: COSTA MESA STATE: CA ZIP: 92626-1417 BUSINESS PHONE: 7144364800 MAIL ADDRESS: STREET 1: 3540 HOWARD WAY CITY: COSTA MESA STATE: CA ZIP: 92626-1417 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MEDPARTNERS INC CENTRAL INDEX KEY: 0001000736 STANDARD INDUSTRIAL CLASSIFICATION: 8093 IRS NUMBER: 631151076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 3000 GALLERIA TOWER STREET 2: STE 1000 CITY: BIRMINGHAM STATE: AL ZIP: 35244 BUSINESS PHONE: 2057338996 MAIL ADDRESS: STREET 1: 3000 GALLERIA TOWER STREET 2: SUITE 1000 CITY: BIRMINGHAM STATE: AL ZIP: 35244 FORMER COMPANY: FORMER CONFORMED NAME: MEDPARTNERS INC /DE/ DATE OF NAME CHANGE: 19960912 FORMER COMPANY: FORMER CONFORMED NAME: MEDPARTNERS MULLIKIN INC DATE OF NAME CHANGE: 19950915 SC 14D1 1 MEDPARTNERS, INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION (Name of Subject Company) TALMED MERGER CORPORATION MEDPARTNERS, INC. (Bidders) COMMON STOCK, PAR VALUE $.01 PER SHARE (together with associated Junior Participating Preferred Stock purchase rights) (Title of Class of Securities) 874121-10-6 (Cusip Number of Class of Securities) --------------------- J. BROOKE JOHNSTON, JR., ESQ. SENIOR VICE PRESIDENT AND GENERAL COUNSEL MEDPARTNERS, INC. 3000 GALLERIA TOWER, SUITE 1000 BIRMINGHAM, ALABAMA 35244 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidders) --------------------- COPY TO: ROBERT E. LEE GARNER, ESQ. HASKELL SLAUGHTER & YOUNG, L.L.C. 1200 AMSOUTH/HARBERT PLAZA 1901 SIXTH AVENUE NORTH BIRMINGHAM, ALABAMA 35203 --------------------- CALCULATION OF FILING FEE Transaction Valuation*: $200,025,630 Amount of Filing Fee**: $40,005.13 * For purposes of calculating the fee only. This amount assumes the purchase of 3,175,010 shares of common stock, par value $.01 per share (the "Shares"), of the subject company for $63.00 cash per Share, based on the number of Shares represented by the subject company as outstanding as of August 14, 1997, and the number of Shares issuable upon exercise of all outstanding options under the subject company's stock option plan. ** The amount of the filing fee, calculated in accordance with Rule 0-11(d) under the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate of the cash offered by the bidders. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount Previously Paid: Not Applicable Filing Party: Not Applicable Form or Registration No.: Not Applicable Date Filed: Not Applicable
2 14D-1 CUSIP NO. 874121-10-6 1. Name of Reporting Persons S.S. or I.R.S. Identification Nos. of Above Persons TALMED MERGER CORPORATION 2. Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ ] 3. SEC Use Only 4. Sources of Funds BK, WC, AF 5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or 2(f) [ ] 6. Citizenship or Place of Organization DELAWARE 7. Aggregate Amount Beneficially Owned by Each Reporting Person 0 8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares [ ] 9. Percent of Class Represented by Amount in Row 7 0% 10. Type of Reporting Person CO 3 14D-1 CUSIP NO. 874121-10-6 1. Name of Reporting Persons S.S. or I.R.S. Identification Nos. of Above Persons MEDPARTNERS, INC. TAX ID #63-1151076 2. Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ ] 3. SEC Use Only 4. Sources of Funds BK, WC, OO 5. Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or 2(f) [ ] 6. Citizenship or Place of Organization DELAWARE 7. Aggregate Amount Beneficially Owned by Each Reporting Person 0 8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares [ ] 9. Percent of Class Represented by Amount in Row 7 0% 10. Type of Reporting Person CO 4 SCHEDULE 14D-1 This Tender Offer Statement on Schedule 14D-1 relates to the offer by Talmed Merger Corporation (the "Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation ("MedPartners"), to purchase all of the outstanding shares of common stock, par value $.01 per share (the "Shares"), of Talbert Medical Management Holdings Corporation at a purchase price of $63.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 20, 1997 and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"), copies of which are attached as Exhibits (a)(1) and (a)(2) hereto, respectively. The item numbers and responses thereto below are in accordance with the requirements of Schedule 14D-1. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Company"). The address of the Company's principal executive offices is 3540 Howard Way, Costa Mesa, California 92626. (b) The class of equity securities to which this Schedule 14D-1 relates is common stock, par value $.01 per share, together with the associated rights to purchase shares of preferred stock, par value $.01 per share, designated as "Junior Participating Preferred Stock," of the Company. The information set forth in the Offer to Purchase under "Introduction" is incorporated herein by reference. (c) The information set forth in the Offer to Purchase under "Introduction" and in Section 6 ("Price Range of Shares; Dividends") is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d), (g) This Statement is being filed by the Subsidiary and MedPartners. The information set forth in the Offer to Purchase under "Introduction," in Section 8 ("Certain Information Concerning the Subsidiary and MedPartners") and in Schedule I to the Offer to Purchase is incorporated herein by reference. (e)-(f) During the last five years, neither the Subsidiary, MedPartners nor, to the best of their knowledge, any of the persons listed in Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth in the Offer to Purchase under "Introduction," in Section 10 ("Background of the Offer; Contacts with the Company") and in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(b) The information set forth in the Offer to Purchase in Section 9 ("Source and Amount of Funds") is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(c) The information set forth in the Offer to Purchase under "Introduction," in Section 10 ("Background of the Offer; Contacts with the Company") and in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") is incorporated herein by reference. 5 (d) The information set forth in the Offer to Purchase in Section 10 ("Background of the Offer; Contacts with the Company") and in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") is incorporated herein by reference. (e)-(g) The information set forth in the Offer to Purchase in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") and in Section 12 ("Effect of the Offer on the Market for the Shares, Exchange Act Registration and Margin Regulations") is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in the Offer to Purchase under "Introduction," in Section 8 ("Certain Information Concerning the Subsidiary and MedPartners"), in Section 10 ("Background of the Offer; Contacts with the Company") and in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") is incorporated herein by reference. (b) The information set forth in the Offer to Purchase in Section 10 ("Background of the Offer; Contacts with the Company") is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Offer to Purchase under "Introduction," in Section 8 ("Certain Information Concerning the Subsidiary and MedPartners"), in Section 9 ("Source and Amount of Funds"), in Section 10 ("Background of the Offer; Contacts with the Company") and in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Offer to Purchase under "Introduction" and in Section 15 ("Fees and Expenses") is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in the Offer to Purchase in Section 8 ("Certain Information Concerning the Subsidiary and MedPartners") is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in the Offer to Purchase in Section 11 ("Purpose of the Offer; Merger Agreement; Plans for the Company") is incorporated herein by reference. (b)-(e) The information set forth in the Offer to Purchase under "Introduction," in Section 12 ("Effect of the Offer on the Market for the Shares, Exchange Act Registration and Margin Regulations") and in Section 14 ("Certain Legal Matters and Regulatory Approvals") is incorporated herein by reference. (f) The information set forth in the Offer to Purchase and the related Letter of Transmittal, copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, is incorporated herein by reference in its entirety. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase dated August 20, 1997. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter from the Information Agent to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. 2 6 (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of summary advertisement, dated August 20, 1997. (a)(8) Text of joint press release issued by MedPartners and the Company on August 14, 1997. (b)-1 Credit Agreement, dated September 5, 1996, by and among MedPartners, Inc., NationsBank, National Association (South), as administrative agent for the Lenders, The First National Bank of Chicago, as Documentation Agent for the Lenders, and the Lenders thereto, filed as Exhibit (10)-17 to the Company's Registration Statement on Form S-1 (Registration No. 333-12465), is hereby incorporated herein by reference. (b)-2 Amendment No. 1 to Credit Agreement and Consent, dated September 5, 1996, by and among MedPartners, Inc., NationsBank, National Association (South), as administrative agent for the Lenders, The First National Bank of Chicago, as Documentation Agent for the Lenders, and the Lenders thereto, filed as Exhibit (10)-18 to the Company's Registration Statement on Form S-1 (Registration No. 333-12465), is hereby incorporated herein by reference. (c)(1) Agreement and Plan of Merger, dated as of August 14, 1997, by and among MedPartners, the Subsidiary and the Company. (c)(2) Form of Physician Warrant Agreement, filed as Exhibit 8 to the Talbert Medical Management Holdings Corporation Schedule 14D-9 filed August 20, 1997, is hereby incorporated herein by reference. (c)(3) Letter Agreement Regarding Management Incentive Program Bonus, filed as Exhibit 6 to the Talbert Medical Management Holdings Corporation Schedule 14D-9 filed August 20, 1997, is hereby incorporated herein by reference. (c)(4) Letter Agreement Regarding Transition Bonus, filed as Exhibit 7 to the Talbert Medical Management Holdings Corporation Schedule 14D-9 filed August 20, 1997, is hereby incorporated herein by reference. (d) Not applicable. (e) Not applicable. (f) Not applicable. 3 7 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 20, 1997 TALMED MERGER CORPORATION By /s/ LARRY R. HOUSE ------------------------------------ Its President ------------------------------------ MEDPARTNERS, INC. By /s/ LARRY R. HOUSE ------------------------------------ Its Chairman and Chief Executive Officer ------------------------------------ 4 8 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - - ------- ----------- (a)(1) -- Offer to Purchase dated August 20, 1997. (a)(2) -- Letter of Transmittal. (a)(3) -- Notice of Guaranteed Delivery. (a)(4) -- Letter from the Information Agent to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(5) -- Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Form of summary advertisement, dated August 20, 1997. (a)(8) -- Text of joint press release issued by MedPartners and the Company on August 14, 1997. (b)(1) -- Credit Agreement, dated September 5, 1996, by and among MedPartners, Inc., NationsBank, National Association (South), as administrative agent for the Lenders, The First National Bank of Chicago, as Documentation Agent for the Lenders, and the Lenders thereto, filed as Exhibit (10)-17 to the Company's Registration Statement on Form S-1 (Registration No. 333-12465), is hereby incorporated herein by reference. (b)(2) -- Amendment No. 1 to Credit Agreement and Consent, dated September 5, 1996, by and among MedPartners, Inc., NationsBank, National Association (South), as administrative agent for the Lenders, The First National Bank of Chicago, as Documentation Agent for the Lenders, and the Lenders thereto, filed as Exhibit (10)-18 to the Company's Registration Statement on Form S-1 (Registration No. 333-12465), is hereby incorporated herein by reference. (c)(1) -- Agreement and Plan of Merger, dated as of August 14, 1997, by and among MedPartners, the Purchaser and the Company. (c)(2) -- Form of Physician Warrant Agreement, filed as Exhibit 8 to the Talbert Medical Management Holdings Corporation Schedule 14D-9 filed August 20, 1997, is hereby incorporated herein by reference. (c)(3) -- Letter Agreement Regarding Management Incentive Program Bonus, filed as Exhibit 6 to the Talbert Medical Management Holdings Corporation Schedule 14D-9 filed August 20, 1997, is hereby incorporated herein by reference. (c)(4) -- Letter Agreement Regarding Transition Bonus, filed as Exhibit 7 to the Talbert Medical Management Holdings Corporation Schedule 14D-9 filed August 20, 1997, is hereby incorporated herein by reference.
5 EX-99.A(1) 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (TOGETHER WITH THE ASSOCIATED JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION AT $63.00 NET PER SHARE IN CASH BY TALMED MERGER CORPORATION A WHOLLY-OWNED SUBSIDIARY OF MEDPARTNERS, INC. --------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED. --------------------- THE BOARD OF DIRECTORS OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION (THE "COMPANY") HAS BY UNANIMOUS VOTE OF THOSE PRESENT APPROVED THE OFFER AND THE MERGER, DETERMINED THAT THE OFFER DESCRIBED HEREIN IS IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT ALL STOCKHOLDERS TENDER THEIR SHARES. --------------------- THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES REPRESENTING AT LEAST FIFTY-ONE PERCENT OF THE OUTSTANDING SHARES OF THE COMPANY, ASSUMING CERTAIN EXERCISES (THE "MINIMUM CONDITION"). THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 13. --------------------- THE OFFER IS NOT CONDITIONED UPON MEDPARTNERS OR THE SUBSIDIARY OBTAINING FINANCING. --------------------- IMPORTANT ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S SHARES SHOULD EITHER (I) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF TRANSMITTAL AND MAIL OR DELIVER THE LETTER OF TRANSMITTAL (OR SUCH FACSIMILE) TOGETHER WITH THE CERTIFICATE(S) EVIDENCING THE TENDERED SHARES AND ANY OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY, OR TENDER SUCH SHARES PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER SET FORTH IN SECTION 3; OR (II) REQUEST SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER. A STOCKHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH STOCKHOLDER DESIRES TO TENDER SHARES SO REGISTERED. A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES EVIDENCING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH THE PROCEDURES FOR BOOK-ENTRY TRANSFER DESCRIBED IN THIS OFFER TO PURCHASE ON A TIMELY BASIS, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN SECTION 3. QUESTIONS AND REQUESTS FOR ASSISTANCE, OR FOR ADDITIONAL COPIES OF THIS OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL OR OTHER OFFER MATERIALS, MAY BE DIRECTED TO THE INFORMATION AGENT AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE. STOCKHOLDERS MAY ALSO CONTACT BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES FOR ASSISTANCE CONCERNING THE OFFER. AUGUST 20, 1997 2 TABLE OF CONTENTS
PAGE ---- 1 INTRODUCTION............................................................. Section 1. Terms of the Offer; Expiration Date......................... 2 Section 2. Acceptance for Payment and Payment for Shares............... 4 Section 3. Procedure for Tendering Shares.............................. 5 Section 4. Withdrawal Rights........................................... 8 Section 5. Certain U.S. Federal Income Tax Matters..................... 9 Section 6. Price Range of the Company's Common Stock; Dividends........ 9 Section 7. Certain Information Concerning the Company.................. 10 Section 8. Certain Information Concerning the Subsidiary and MedPartners................................................. 11 Section 9. Source and Amount of Funds.................................. 14 Section 10. Background of the Offer; Contacts with the Company.......... 14 Section 11. Purpose of the Offer; Merger Agreement; Plans for the Company..................................................... 16 Section 12. Effect of the Offer on the Market for the Shares, Exchange Act Registration and Margin Regulations..................... 23 Section 13. Certain Conditions to the Offer............................. 24 Section 14. Certain Legal Matters and Regulatory Approvals.............. 25 Section 15. Fees and Expenses........................................... 28 Section 16. Miscellaneous............................................... 28 Schedule I Information Concerning the Directors and Executive Officers of MedPartners and the Subsidiary........................... S-1
3 TO: THE HOLDERS OF COMMON STOCK OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION INTRODUCTION Talmed Merger Corporation (the "Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation ("MedPartners"), hereby offers to purchase all of the outstanding shares of common stock, par value $.01 per share, together with the associated rights to purchase shares of preferred stock, par value $.01 per share, designated as "Junior Participating Preferred Stock" (the "Shares"), of Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Company"), at a purchase price of $63.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to the Offer. The Subsidiary will pay all fees and expenses of ChaseMellon Shareholder Services, L.L.C., as Depositary (the "Depositary") and Georgeson & Company, Inc. as Information Agent (the "Information Agent"), incurred in connection with the Offer. See Section 15. The Offer is conditioned upon, among other things, there having been validly tendered and not properly withdrawn prior to the expiration of the Offer a number of Shares which constitutes at least fifty-one percent (51%) of the Company's outstanding voting power (assuming the exercise of all outstanding options and rights to purchase shares of Common Stock) (the "Minimum Condition"). The Company has informed the Subsidiary that as of August 14, 1997, there were 3,000,758 Shares issued and outstanding, and 174,252 shares of Common Stock reserved for issuance under the Company's stock option plan, and that, except as otherwise disclosed in the Merger Agreement, no other stock of the Company is outstanding or committed to be issued. Based on this information, and assuming all outstanding options to purchase shares of Common Stock will have been accelerated so as to be fully exercisable prior to the consummation of the Offer, the Subsidiary believes that the Minimum Condition will be satisfied if the Subsidiary acquires at least 1,619,256 Shares in the Offer. MedPartners does not directly or indirectly hold any Shares. Certain other conditions to the Offer are described in Section 13. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of August 14, 1997 (the "Merger Agreement"), by and among MedPartners, the Subsidiary and the Company. The Merger Agreement provides, among other things, that not later than the second business day after satisfaction or, waiver of all the conditions to the Merger, the Subsidiary will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation of the Merger and as a wholly-owned subsidiary of MedPartners. Thereupon, each outstanding Share (other than Shares owned directly or indirectly by the Company, MedPartners or any subsidiary of the Company or MedPartners, and other than Shares held by stockholders, if any, who have properly exercised appraisal rights) will be converted into and represent the right to receive $63.00 in cash, or any higher price that may be paid per Share in the Offer, without interest. See Section 11. THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS" OR THE "BOARD") HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AND HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER (INCLUDING THE OFFER PRICE OF $63.00 PER SHARE IN CASH) IS IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Company has advised MedPartners that Smith Barney Inc. ("Smith Barney"), financial advisor to the Company, has delivered to the Board of Directors a written opinion dated August 14, 1997 to the effect that, as of such date and based upon and subject to certain matters stated in such opinion, the $63.00 per Share cash consideration to be received by the holders of Shares (other than MedPartners and its affiliates) 4 in the Offer and the Merger, taken together, was fair from a financial point of view to such holders. A copy of the written opinion of Smith Barney dated August 14, 1997, which sets forth the assumptions made, matters considered and limitations on the review undertaken by Smith Barney, is attached as Exhibit 15 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders concurrently herewith and should be carefully read in its entirety. Smith Barney's opinion is directed only to the fairness, from a financial point of view, of the cash consideration to be received in the Offer and the Merger by holders of the Shares (other than MedPartners and its affiliates) and is not intended to constitute, and does not constitute, a recommendation as to whether any stockholder should tender Shares pursuant to the Offer. HOLDERS OF THE SHARES ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY. The Merger Agreement provides that promptly upon the purchase of Shares by the Subsidiary pursuant to the Offer, seven of the Company's nine directors will resign, and MedPartners will designate three replacements for appointment or election to the Company's Board of Directors. The Company will, upon request of the Subsidiary, use its best efforts promptly to cause MedPartners' designees to be so appointed or elected. The remaining two directors (and any successors appointed or elected before the Effective Time) are referred to as the "Original Directors." The Company will promptly take all actions required by Section 14(f) of the Exchange Act and related Rule 14f-1 as is necessary to enable MedPartners' designees to be elected to the Company's Board of Directors. MedPartners or the Subsidiary will supply the Company in writing, and be solely responsible for, any information with respect to either of them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1. Once MedPartners' designees constitute a majority of the Company's Board of Directors, any amendment of the Merger Agreement, any termination of the Merger Agreement by the Company, any extension of time for performance of any of the obligations of MedPartners or the Subsidiary thereunder, any waiver of any condition or any of the Company's rights thereunder or other action by the Company thereunder may be effected only by the joint action of the Original Directors. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including, if required by law, the approval and adoption of the Merger Agreement by the requisite vote of the stockholders of the Company. See Section 11 and Section 13. Under the Company's Certificate of Incorporation and the General Corporation Law of the State of Delaware ("the DGCL"), the holders of Shares have one vote for each Share owned by them of record. Under the Company's Certificate of Incorporation and the DGCL, a majority vote of the then outstanding Shares is required to approve and adopt the Merger Agreement and the Merger. Consequently, if the Minimum Condition is satisfied, the Purchaser will have sufficient voting power to approve and adopt the Merger Agreement and the Merger without the vote of any other stockholder. Under the DGCL, if the Subsidiary acquires, pursuant to the Offer or otherwise, at least 90% of the then outstanding Shares, the Subsidiary will be able to consummate the Merger without a vote of the Company's stockholders. In such event, MedPartners and the Subsidiary will take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition without a meeting of the Company's stockholders. If, however, the Subsidiary does not acquire at least 90% of the then outstanding Shares pursuant to the Offer or otherwise, and a vote of the Company's stockholders is required under the DGCL, a longer period of time will be required to effect the Merger. See Section 11. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the Subsidiary will accept for payment and pay for all Shares validly tendered on or prior to the Expiration Date and not properly withdrawn as permitted by Section 4 below. For purposes of the Offer, the term "Expiration Date" means 12:00 midnight, New York City time, on Friday, September 19, 1997, unless and until the Purchaser, in its sole discretion (subject to the terms of the Merger Agreement), 2 5 has extended the period of time during which the Offer is open, in which event the term "Expiration Date" will mean the latest time and date at which the Offer, as so extended by the Subsidiary, shall expire. The Offer is conditioned upon, among other things, satisfaction of the Minimum Condition and the expiration or termination of all waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder (the "HSR Act"). The Offer is also subject to certain other conditions set forth in Section 13 below. If these or any of the other conditions referred to in Section 13 are not satisfied or any events specified in Section 13 have occurred or are determined by the Subsidiary to have occurred prior to the Expiration Date, the Subsidiary reserves the right (but is not obligated), subject to the terms of the Merger Agreement and whether or not any shares have theretofore been accepted for payment, (i) to decline to purchase any of the Shares tendered in the Offer, terminate the Offer and return all tendered Shares to the tendering stockholders, (ii) to waive or amend any or all conditions to the Offer, to the extent permitted by applicable law and the provisions of the Merger Agreement, and, subject to complying with applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), purchase all Shares validly tendered, (iii) to extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares which have been tendered during the period or periods for which the Offer is extended or (iv) to delay acceptance for payment or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer. In the event that the Subsidiary waives any of the conditions set forth in Section 13, the Commission may, if the waiver is deemed to constitute a material change to the information previously provided to the stockholders, require that the Offer remain open for an additional period of time and/or that the Subsidiary disseminate information concerning such waiver. The Subsidiary will, subject to the conditions specified in Section 13, accept for payment and pay for Shares which have been validly tendered and not withdrawn pursuant to the Offer as soon as it is permitted to do so under applicable law; provided that, if the number of Shares that have been validly tendered and not withdrawn represent more than 75% but less than 90% of the Company's outstanding voting power (calculated assuming the exercise of all outstanding options and rights to purchase shares of Common Stock), the Subsidiary may extend the Offer up to the tenth business day following the date on which all conditions to the Offer shall first have been satisfied or waived. If any of the conditions specified in Section 14 are not satisfied on the initial Expiration Date, the Subsidiary may extend (and re-extend) the Offer through October 20, 1997, to provide time to satisfy such conditions. During such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw its Shares. See Section 4. The Merger Agreement provides that the Subsidiary may modify the terms of the Offer except that, without the written approval of the Company, the Subsidiary will not (i) reduce the number of Shares subject to the Offer; (ii) decrease the price per Share paid in the Offer, (iii) modify or add to the conditions set forth in Section 13 herein; (iv) allow the Offer to expire prior to September 19, 1997; (v) extend the Offer beyond October 20, 1997; (vi) change the form of consideration payable in the Offer; or (vii) make any other modifications to the Offer that are otherwise materially adverse to the holders of the Shares. Subject to the applicable regulations of the Commission, the Subsidiary also reserves the right, in its sole discretion, at any time and from time to time, (i) to delay acceptance for payment of or, regardless of whether such Shares were theretofore accepted for payment, payment for any Shares pending receipt of any regulatory approval specified in Section 14 below or in order to comply in whole or in part with any other applicable law, (ii) to terminate the Offer (whether or not any Shares have theretofore been accepted for payment) if any of the conditions referred to in Section 13 has not been satisfied or upon the occurrence of any of the events specified in Section 13 and (iii) to waive any condition or otherwise amend the Offer in any respect in any manner that is not prohibited as described above, in each case by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary and by making a public announcement thereof. The Subsidiary acknowledges that (i) Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Subsidiary to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer and (ii) the Subsidiary may not delay acceptance for payment of, or payment for (except as provided in clause (i) of the preceding sentence), any Shares upon the 3 6 occurrence of any of the conditions specified in Section 13 without extending the period of time during which the Offer is open. Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, with such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Except as provided by applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1(d) under the Exchange Act, which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which the Subsidiary may choose to make any public announcement, the Subsidiary shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If the Subsidiary makes a material change in the terms of the Offer or if it waives a material condition of the Offer, the Subsidiary will extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1(d) under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances, including the materiality, of the changes. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought, a minimum ten business day period from the day of such change is generally required to allow for adequate dissemination to stockholders and investor response. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or a federal holiday and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time. The Company has provided the Subsidiary with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Subsidiary will accept for payment and will pay for all Shares validly tendered and not properly withdrawn on or prior to the Expiration Date promptly after the Expiration Date provided that the conditions of the Offer set forth in Section 13, including, without limitation, the expiration or termination of the waiting period applicable to the acquisition of Shares pursuant to the Offer under the HSR Act, have been satisfied or waived prior to the Expiration Date. In addition, subject to applicable rules of the Commission, the Subsidiary expressly reserves the right to delay acceptance for payment of, or payment for, Shares pending receipt of any other regulatory approvals specified in Section 14. On August 15, 1997, MedPartners filed with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") a Premerger Notification and Report Form under the HSR Act with respect to the Offer. The waiting period under the HSR Act applicable to the Offer would expire at 11:59 p.m., New York City time, on August 30, 1997, unless prior to the expiration or termination of the waiting period the FTC or the Antitrust Division extends the waiting period by requesting additional information or documentary material from MedPartners. If such a request is made, the waiting period applicable to the Offer will expire on the tenth calendar day after the date of substantial compliance by MedPartners with such request. Thereafter, the waiting period may be extended by court order or with the consent of MedPartners. The waiting period under the HSR Act may be terminated by the FTC and the Antitrust Division prior to its expiration. See Section 14. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates"), or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares, 4 7 if such procedure is available, into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message from a Book-Entry Transfer Facility transmitted to, and received by, the Depositary forming a part of a Book-Entry Confirmation, which states that (i) the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that are the subject of the Book-Entry Confirmation, (ii) the participant has received and agrees to be bound by the terms of the Letter of Transmittal and (iii) the Purchaser may enforce such agreement against the participant. For purposes of the Offer, the Subsidiary will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn if, as and when the Subsidiary gives oral or written notice to the Depositary of the Subsidiary's acceptance of such Shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Subsidiary and transmitting those payments to stockholders whose Shares have been accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If for any reason whatsoever acceptance for payment of or payment for any Shares tendered pursuant to the Offer is delayed or the Subsidiary is unable to accept for payment or pay for Shares tendered pursuant to the Offer, then, without prejudice to the Subsidiary's rights set forth herein, the Depositary may nevertheless, on behalf of the Subsidiary, retain tendered Shares, and those Shares may not be withdrawn except to the extent that the tendering stockholder is entitled to exercise and duly exercises withdrawal rights as described in Section 4, subject, however, to the Subsidiary's obligation under Rule 14e-1(c) under the Exchange Act to pay for Shares tendered or return those Shares promptly after termination or withdrawal of the Offer. If any tendered Shares are not accepted for payment pursuant to the Offer for any reason or if Share Certificates are submitted for more Shares than are tendered, Share Certificates evidencing unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), without expense to the tendering stockholder, as promptly as practicable following the expiration, termination or withdrawal of the Offer. If, prior to the Expiration Date, the Subsidiary increases the consideration offered to stockholders pursuant to the Offer, such increased consideration will be paid to all stockholders whose Shares are purchased pursuant to the Offer, regardless of whether those Shares were tendered prior to the increase in consideration. The Subsidiary reserves the right to transfer or assign, in whole at any time or in part from time to time, to one or more of the Subsidiary's affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Subsidiary of its obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. SECTION 3. PROCEDURE FOR TENDERING SHARES. Valid Tender. Except as set forth below, in order for Shares to be validly tendered pursuant to the Offer, (i) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses 5 8 set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, and (ii) either (a) Share Certificates evidencing tendered Shares must be received by the Depositary at such address, or the Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case on or prior to the Expiration Date, or (b) the tendering stockholder must comply with the guaranteed delivery procedures described below. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) must accompany each delivery. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of any Book-Entry Transfer Facility may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's transfer procedures. However, although delivery of Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by the Letter of Transmittal, must in any case be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. Delivery of documents to a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. Signature Guarantees. Signatures on Letters of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Signature Guarantee Program or by any other "eligible guarantor institution," as defined in Rule 17A(b)-15 under the Exchange Act (each of the foregoing, an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share Certificate is registered in the name of a person other than the person who signs the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appears on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed as provided above. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available, time will not permit all required documents to reach the Depositary on or prior to the Expiration Date, or a stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, then such stockholder's Shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser herewith, is received by the Depositary as provided below on or prior to the Expiration Date; and (iii) the Share Certificates evidencing all tendered Shares, in proper form for transfer, or a Book-Entry Confirmation, together with the Letter of Transmittal (or a facsimile thereof) properly completed and duly executed with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal, are received by the 6 9 Depositary within three Nasdaq National Market trading days after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution and a representation that the stockholder owns the Shares tendered within the meaning of, and that the tender of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act, each in the form set forth in the Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (i) Share Certificates evidencing such Shares or a Book-Entry Confirmation of the delivery of such Shares (if available), (ii) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message, and (ii) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering stockholders at the same time and will depend upon when Share Certificates are received by the Depositary or Book-Entry Confirmations of tendered Shares are received in the Depositary's account at a Book-Entry Transfer Facility. The method of delivery of Share Certificates and all other required documents, including through any Book-Entry Transfer Facility, is at the option and risk of the tendering stockholder and the delivery will be deemed made only when actually received by the Depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares pursuant to any of the procedures described above will be determined by the Subsidiary, in its sole discretion, which determination shall be final and binding on all parties. The Subsidiary reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. The Subsidiary also reserves the absolute right to waive any defect or irregularity in any tender of Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of the Subsidiary, MedPartners, any of their affiliates or assigns, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Subsidiary's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Appointment as Proxy. By executing a Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints the Purchaser, its officers and its designees, and each of them, as the stockholder's attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser (and with respect to any and all other Shares or other securities issued or issuable in respect of the Shares on or after August 14, 1997). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective if, when and only to the extent that, the Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by the stockholder with respect to the Shares (and such other Shares and securities) will, without further action, be revoked, and no subsequent powers of attorney, proxies or written consents may be given or executed (and if given or executed will not be deemed effective with respect thereto by the stockholder). The Subsidiary, its officers and its designees will, with respect to the Shares (and such other Shares and securities) for which such appointment is effective, be empowered to exercise all voting and other rights of the stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The 7 10 Subsidiary reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Subsidiary's payment for such Shares, the Subsidiary must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the "backup withholding" provisions of federal income tax law, the Depositary may be required to withhold 31% of the amount of any payments of cash pursuant to the Offer. In order to avoid backup withholding, each stockholder surrendering Shares in the Offer to the extent not previously provided must provide the payor of such cash with the stockholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that the stockholder is not subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service ("IRS") may impose a penalty on the stockholder and payment of cash to the stockholder pursuant to the Offer may be subject to backup withholding. All stockholders surrendering Shares pursuant to the Offer should complete and sign the Substitute Form W-9 included in the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Depositary). Non-corporate foreign stockholders should complete and sign a Form W-8, Certificate of Foreign Status (a copy of which may be obtained from the Depositary), in order to avoid backup withholding. See Instruction 9 of the Letter of Transmittal. Other Requirements. The Subsidiary's acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and the Subsidiary upon the terms and subject to the conditions of the Offer, including the tendering stockholder's representation and warranty that such stockholder is the owner of the Shares within the meaning of, and that the tender of the Shares complies with, Rule 14e-4 under the Exchange Act. SECTION 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and unless already accepted for payment by the Subsidiary pursuant to the Offer, may also be withdrawn at any time after October 20, 1997. If the Subsidiary is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then, without prejudice to the Subsidiary's rights under the Offer, tendered Shares may be retained by the Depositary on behalf of the Subsidiary, and may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 4; subject, however, to the Subsidiary's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay for the tendered Shares or return those Shares promptly after termination or withdrawal of the Offer. Any such delay will be accompanied by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Subsidiary, in its sole discretion, whose determination will be final and binding. None of the Subsidiary, MedPartners, any of their affiliates or assigns, the Depositary, the Information Agent or any other 8 11 person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. SECTION 5. CERTAIN U.S. FEDERAL INCOME TAX MATTERS. The summary of tax consequences set forth below is for general information only and is based on the law as currently in effect, including modifications made by the Taxpayer Relief Act of 1997. The tax treatment of each stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, persons who are not citizens or residents of the United States, stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation and persons who received payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS. The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for federal income tax purposes under the Internal Revenue Code of 1986, as amended, and may also be a taxable transaction under applicable state, local, foreign income or other tax laws. Generally, a tendering stockholder will recognize gain or loss in an amount equal to the difference between the cash received by the stockholder pursuant to the Offer or the Merger and the stockholder's adjusted tax basis in the Shares tendered and purchased pursuant to the Offer or the Merger. Gain or loss is computed separately for each block of Shares (Shares which were purchased at the same time and price) sold. For federal income tax purposes, such gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder meets one of the holding periods set forth below as of the date the Subsidiary accepts such Shares for payment pursuant to the Offer or the effective date of the Merger, as the case may be. There are significant limitations on the deductibility of capital losses by individuals or corporations. Capital losses can offset capital gains on a dollar-for-dollar basis and, in the case of an individual stockholder, capital losses in excess of capital gains can be deducted to the extent of $3,000 annually. An individual can carry forward unused capital losses indefinitely. A corporation can utilize capital losses only to offset capital gain income; a corporation's unused capital losses can be carried back three years and forward five years. Pursuant to the Tax Relief Act of 1997, long-term capital gains recognized after July 28, 1997, on marketable securities such as the Shares, will be taxable at a maximum rate of 20% for individuals if the individual's holding period is more than 18 months and 28% if the holding period is more than one year but not more than 18 months, and 35% for corporations. Ordinary income is taxable at a maximum rate of 39.6% for individuals and 35% for corporations. SECTION 6. PRICE RANGE OF THE COMPANY'S COMMON STOCK; DIVIDENDS. Shares of the Company's common stock are traded in the Nasdaq National Market under the symbol "TMMC." At August 18, 1997 there were 77 holders of record. The Company went public through an offering of rights to purchase the common stock. Each such right entitled the holder to purchase one share of Common Stock at a price of $21.50. The rights were traded in the Nasdaq National Market from April 21, 1997 to May 20, 1997. The rights closed at $20.50 on the initial day of trading, reached a high closing price of $20.50 and a low closing sale price of $13.63. Shares of common stock began trading in the Nasdaq National Market on May 21, 1997, and closed at a sale price of $40.94 per share. Based on information provided by the Company, the following table sets forth, for the periods indicated, the high and low closing sale price per share of 9 12 common stock subsequent to the day trading commenced. The sale prices per share of common stock set forth below are as reported in published financial sources and do not include commissions.
HIGH LOW ------ ------ Fiscal Year Ending December 31, 1997: First Quarter(1)............................................ -- -- Second Quarter(1)........................................... $48.00 $40.94 Third Quarter (through August 19, 1997)..................... $62.38 $45.00
- - --------------- (1) The Common Stock was not publicly traded prior to May 21, 1997. The Company has not paid any cash dividends since its formation. On August 13, 1997, the last full day of trading prior to the public announcement of the execution of the Merger Agreement, the reported closing sale price per Share as reported on the Nasdaq National Market was $57.00. On August 18, 1997, two trading days prior to commencement of the Offer, the reported closing sale price per share as reported on the Nasdaq was $62.25. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public services. Neither MedPartners nor the Subsidiary assumes any responsibility for the accurateness or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to MedPartners or the Subsidiary. General. The Company is a Delaware corporation with its headquarters located at 3540 Howard Way, Costa Mesa, California, 92626. The telephone number of the Company at such offices is (714) 436-4800. The Company, through its wholly-owned physician practice management subsidiary, Talbert Medical Management Corporation ("TMMC"), organizes and manages physician and dental practice groups that contract with health maintenance organizations and other payors to provide health care services to their members. Financial Information. Set forth below is certain selected financial information with respect to the Company and its subsidiaries, excerpted or derived from the information contained in the audited financial statements for the years ended December 31, 1996, 1995 and 1994 contained in the Company's Prospectus (the "Prospectus") dated April 21, 1997, as filed with the Commission under Rule 424(b) under the Securities Act of 1933, as amended, on April 18, 1997, and the unaudited financial statements for the six months ended June 30, 1997 contained in the Company's Quarterly Report on Form 10-Q filed with the Commission on August 12, 1997. 10 13 TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, SIX MONTHS ------------------------------ ENDED 1994 1995 1996 JUNE 30, 1997 -------- -------- -------- ------------- (AUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Total revenue....................................... $455,787 $495,699 $460,546 $206,624 Loss before income tax benefit...................... (27,681) (48,362) (12,066) (19,370) Net loss............................................ (16,332) (28,608) (7,979) (17,647) PER SHARE DATA: Loss per common and common equivalent share(1)...... $ (5.45) $ (9.55) $ (2.66) $ (5.79) BALANCE SHEET DATA: Working capital..................................... $(18,742) $(18,638) $(16,110) $ 30,295 Total assets........................................ 23,087 23,178 86,699 103,370 Long-term obligations............................... -- -- -- -- Stockholders' equity (deficit)...................... (18,113) (17,886) (5,537) 44,433
- - --------------- (1) Loss per common and common equivalent share is computed based on 2,996,104 common equivalent shares for the years ended December 31, 1994, 1995 and 1996, and 3,044,555 common equivalent shares for the six months ended June 30, 1997. Available Information. The Common Stock and associated rights are registered under the Exchange Act. Accordingly, the Company is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in such proxy statements and distributed to the Company's stockholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at prescribed rates at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. In addition, such material should also be available for inspection at Talbert Medical Management Holdings Corporation, 3540 Howard Way, Costa Mesa, California, 92626. A copy of this Offer to Purchase, and certain of the agreements referred to herein, are attached to the Subsidiary's Tender Offer Statement on Schedule 14D-1, dated August 20, 1997 (the "Schedule 14D-1"), which has been filed with the Commission. The Schedule 14D-1 and the exhibits thereto, along with such other documents as may be filed by the Subsidiary with the Commission, may be examined and copied from the offices of the Commission in the manner set forth above. SECTION 8. CERTAIN INFORMATION CONCERNING THE SUBSIDIARY AND MEDPARTNERS. General. The Subsidiary, a newly incorporated Delaware corporation and a wholly-owned subsidiary of MedPartners, was organized in connection with the Offer and has not carried on any activities to date other than in connection with the Offer and the Merger Agreement. The principal executive office of the Subsidiary is located at 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244, and the telephone number at such office is (205) 733-8996. The principal executive office of MedPartners is located at 11 14 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244, and the telephone number at such office is (205) 733-8996. MedPartners. MedPartners is the largest physician practice management ("PPM") company in the United States, based on revenues. MedPartners develops, consolidates and manages comprehensive integrated healthcare delivery systems, consisting of primary care and specialty physicians, as well as the nation's largest group of physicians engaged in the delivery of emergency medicine and other hospital-based services. MedPartners provides services to prepaid managed care enrollees and fee-for-service patients in 34 states through its network of over 12,400 affiliated physicians. As an integral part of the PPM business, MedPartners operates one of the nation's largest independent pharmacy benefit management ("PBM") programs and provides disease management services and therapies for patients with certain chronic conditions. MedPartners affiliates with physicians who are seeking the resources necessary to function effectively in healthcare markets that are evolving from fee-for-service to managed care payor systems. MedPartners enhances clinic operations by centralizing administrative functions and introducing management tolls, such as clinical guidelines, utilization review and outcomes measurement. MedPartners provides affiliated physicians with access to capital and advanced management information systems. In addition, MedPartners contracts with health maintenance organizations and other third-party payors that compensate MedPartners and its affiliated physicians on a prepaid basis (collectively, "HMOs"), as well as hospitals and outside providers on behalf of its affiliated physicians. These relationships provide physicians with the opportunity to operate under a variety of payor arrangements and increase their patient flow. MedPartners also operates the largest hospital-based physician ("HBP") group in the country with over 2,200 physicians providing emergency medicine, radiology, anesthesiology, primary care and other hospital-based physician services. In addition, MedPartners provides comprehensive medical care for inmates at various correctional institutions and for military personnel and their dependents at facilities owned by the Department of Defense. MedPartners manages outpatient prescription drug benefit programs for clients throughout the United States, including corporations, insurance companies, unions, government employee groups and managed care organizations. MedPartners dispenses over 44,000 prescriptions daily through four mail service pharmacies and manages patients' immediate prescription needs through a network of retail pharmacies. MedPartners is in the process of integrating its PBM program with the PPM business by providing pharmaceutical services to affiliated physicians, clinics and HMOs. MedPartners' disease management services are intended to meet the healthcare needs of individuals with chronic diseases or conditions. These services include the design, development and management of comprehensive programs that comprise drug therapies, physician support and patient education. MedPartners currently provides therapies and services for individuals with such conditions as hemophilia, growth disorders, immune deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis. Financial Information. Set forth below is certain selected consolidated financial information relating to MedPartners and its subsidiaries for MedPartners' last five fiscal years. More comprehensive financial information (including management's discussion and analysis of financial condition and results of operations) is included in the reports and other documents filed by MedPartners with the Commission. The following financial information is qualified in its entirety by reference to such reports and other documents, including the financial statements and related notes contained therein. 12 15 MEDPARTNERS, INC. SELECTED CONSOLIDATED FINANCIAL DATA
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------- ----------------------- 1992 1993 1994 1995 1996 1996 1997 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues....................... $1,484,027 $1,980,967 $2,909,024 $3,908,717 $5,222,019 $2,524,407 $3,028,533 Income (loss) from continuing operations....................... 25,351 55,017 63,510 32,189 (76,790) 42,393 46,445 Income (loss) from discontinued operations....................... 5,858 30,808 25,902 (136,528) (68,698) (68,698) (75,434) Net income (loss).................. 31,209 85,825 89,412 (104,339) (145,488) (26,305) (28,989) Income (loss) per share from continuing operations(1)......... 0.24 0.42 0.43 0.20 (0.44) 0.25 0.25 Income (loss) per share from discontinued operations(1)....... 0.05 0.24 0.18 (0.86) (0.39) (0.40) (0.40) Net income (loss) per share(1)..... 0.29 0.66 0.61 (0.66) (0.83) (0.15) (0.15) Number of shares used in net income (loss) per share................. 107,460 130,903 146,773 158,109 174,269 171,889 187,192
DECEMBER 31, --------------------------------------------------------------- JUNE 30, 1992 1993 1994 1995 1996 1997 ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and cash equivalents...................... $ 40,249 $ 44,852 $ 101,101 $ 87,581 $ 127,397 $ 134,162 Working capital................................ 158,634 251,736 180,198 286,166 226,409 277,766 Total assets................................... 832,671 1,117,557 1,682,345 1,964,130 2,423,120 2,661,509 Long-term debt, less current portion........... 92,873 177,141 394,811 541,391 715,996 926,524 Total stockholders' equity..................... 395,441 496,455 663,974 674,442 837,408 853,061
- - --------------- (1) Income (loss) per share amounts are computed by dividing income (loss) by the number of common equivalent shares outstanding during the periods presented in accordance with the applicable rules of the Commission. All stock options issued have been considered as outstanding common equivalent shares for all periods presented, even if anti-dilutive, under the treasury stock method. Shares of Common Stock issued in February 1995 upon conversion of the then outstanding convertible preferred stock are assumed to be common equivalent shares for all periods presented. The name, citizenship, business address, principal occupation or employment and five year employment history of each of the directors and executive officers of the Subsidiary and MedPartners are set forth in Schedule I to this Offer to Purchase. None of the Subsidiary, MedPartners nor, to the best knowledge of the Subsidiary and MedPartners, any of the persons listed on Schedule I or any associate or wholly-owned or majority-owned subsidiary of the Subsidiary, MedPartners or any of the persons so listed, beneficially owns or has a right to acquire directly or indirectly any Shares. None of the Subsidiary, MedPartners nor, to the best knowledge of the Subsidiary and MedPartners, any of the persons or entities referred to above, or any of the respective executive officers, directors or subsidiaries of any of the foregoing, has effected any transactions in the Shares during the past sixty (60) days. Except as described in this Offer to Purchase, none of the Subsidiary, MedPartners or, to the best knowledge of the Subsidiary and MedPartners, any of the persons listed on Schedule I, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including but not limited to contracts, arrangements, understandings or relationships concerning the transfer or voting of such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, none of the Subsidiary, MedPartners or, to the best knowledge of the Subsidiary and MedPartners, any of the persons listed on Schedule I, has had any business relationships or transactions with the Company or any of its executive officers, directors or affiliates that are required to be reported under the rules and 13 16 regulations of the Commission applicable to the Offer. Except as set forth in this Offer to Purchase, there have been no contacts, negotiations or transactions between any of MedPartners, the Subsidiary or, to the best knowledge of the Subsidiary and MedPartners, any of the persons listed on Schedule I, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Available Information. MedPartners is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file certain information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning MedPartners' directors and officers, their remuneration, stock options granted to them, the principal holders of MedPartners' securities and any material interests of such persons in transactions with MedPartners is contained in that information. This information may be inspected and copies may be obtained from the offices of the Commission in the same manner as set forth with respect to information about the Company in Section 7. Such information concerning MedPartners can be inspected at the offices of The New York Stock Exchange, 20 Broad Street, New York, New York 10005. SECTION 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by the Subsidiary and MedPartners to consummate the Offer and the Merger (including the cash out of stock options as described in Section 11) and to pay related fees and expenses (approximately $2 million) is estimated to be approximately $200 million. The Subsidiary will obtain all necessary funds through capital contributions or advances to be made by MedPartners. MedPartners has sufficient funds available to it, from cash on hand and from available credit under its existing $1.0 billion credit facility ("Credit Facility") with NationsBank, National Association, as administrative agent to a group of lenders and other sources, to fund fully all of its requirements and the Subsidiary's requirements in connection with the Offer and the Merger. MedPartners may borrow up to an aggregate amount of $1.0 billion under the Credit Facility for general corporate purposes, including transactions contemplated by the Offer. At MedPartners' option, pricing on the Credit Facility is based on either a debt to cash flow test or MedPartners' senior debt ratings. No principal is due on the facility until its maturity date of September 2001. As of June 30, 1997, there was $383 million outstanding under the facility. The Credit Facility contains affirmative and negative covenants which include requirements that MedPartners maintain certain financial ratios (including minimum net worth, minimum fixed charge coverage ratio and maximum indebtedness to cash flow), and establishes certain restrictions on investments, mergers and sales of assets. Additionally, MedPartners is required to obtain bank consent for acquisitions with an aggregate purchase price in excess of $75 million and for which more than half of the consideration is to be paid in cash. The Credit Facility is unsecured but provides a negative pledge on substantially all assets of MedPartners. As of June 30, 1997, MedPartners was in compliance with the covenants in the Credit Facility. MedPartners anticipates that any indebtedness incurred through borrowings under the Credit Facility will be repaid from a variety of sources, which may include, but may not be limited to, funds generated internally by MedPartners and its affiliates (including, following the Merger, funds generated by the Surviving Corporation). No decision has been made concerning the method MedPartners will employ to repay such indebtedness. Such decision will be made based on MedPartners' review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions and such other factors as MedPartners may deem appropriate. THE OFFER IS NOT CONDITIONED UPON THE SUBSIDIARY OBTAINING FINANCING. SECTION 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. Background. The Company was separated from FHP International Corporation ("FHP") in May 1997 in conjunction with the merger of FHP and PacifiCare Health Services, Inc. (the "FHP Merger"). In connection with MedPartners ongoing expansion of its PPM business, MedPartners management kept it 14 17 informed as to the progress of the FHP Merger and after the Company became a publicly traded company, developed an interest in a possible combination. On July 11, 1997, Larry R. House, Chairman of the Board and Chief Executive Officer of MedPartners, met with Jack D. Massimino, the Company's President and Chief Executive Officer. Mr. House and Mr. Massimino discussed generally the operations and business strategy of the two companies and the potential desirability of a combination. The pricing phase of their discussion focused on consideration of an all cash tender offer at a substantial premium to the Company's market price. On July 18, 1997 Mark L. Wagar, the President and Chief Operating Officer of MedPartners, and Kent Marquardt, the Chief Operating Officer for West Coast Operations of MedPartners, met with Mr. Massimino and Kenneth S. Ord, the Company's Executive Vice President and Chief Financial Officer. The parties discussed information concerning, among other matters, the Company's medical center locations and certain financial performance information. On July 23, 1997, the Company and MedPartners executed the Confidentiality Agreement. On July 24, 1997, representatives of MedPartners began due diligence at the offices of the Company's outside counsel. On July 25, 1997, Mr. Ord and Walter R. Stone, the Company's Vice President of Finance, met with representatives of MedPartners to discuss the Company's financial performance, and on July 26, 1997, a meeting was held in which members of the senior management of the Company answered questions from representatives of MedPartners. Informational discussions and meetings continued during the week of July 28. On July 29, 1997, Mr. Massimino and Mr. Ord met with Mr. Wagar in person and Michael S. Faulkner, Vice President of Finance, Mergers and Acquisitions, of MedPartners by telephone and discussed the potential terms of a transaction. On August 1, 1997, the Company received a non-binding letter of intent from MedPartners proposing to acquire all outstanding Shares of the Company for $63.00 per share, subject to legal and financial due diligence. On August 5, 1997, at a special meeting of the Company's Board of Directors, the directors reviewed the letter from MedPartners and reviewed with Smith Barney, the Company's financial advisor, certain matters relating to the financial aspects of the proposal from MedPartners. The Board authorized the Company's management to pursue a definitive agreement with MedPartners to present to the Board. From August 5, 1997 until August 13, 1997, due diligence continued and members of the Company's management met with MedPartners' representatives to answer questions and explain material documents. On August 4, 1997, MedPartners provided the Company and its counsel with a draft form of the Merger Agreement. Between August 8, 1997 and August 13, 1997, the Company's counsel had a series of meetings with J. Brooke Johnston, Jr., Senior Vice President and General Counsel of the Parent, to negotiate the terms of a definitive agreement. On August 12, the Company's Board of Directors met to hear reports from the management and outside counsel concerning the status of discussions with MedPartners. Counsel for MedPartners and the Company concluded negotiating the definitive agreements on August 13, 1997. That evening at a special meeting of the Board of Directors of the Company, the Board of Directors approved the Offer and the Merger by unanimous vote of the directors present. The parties executed the Merger Agreement and announced such execution prior to the opening of securities market trading on August 14, 1997. To the extent any of the foregoing background describes events to which MedPartners was not a party, it is based upon information provided by the Company. 15 18 SECTION 11. PURPOSE OF THE OFFER; MERGER AGREEMENT; PLANS FOR THE COMPANY. Purpose of the Offer. The purpose of the Offer, the Merger and the Merger Agreement is to enable MedPartners to acquire control of the entire equity interest of the Company. Upon consummation of the Merger, the Company will become a wholly-owned subsidiary of MedPartners. The Offer is being made pursuant to the Merger Agreement. Merger Agreement. The following is a summary of certain provisions of the Merger Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is incorporated herein by reference and a copy of which has been filed with the Commission as an exhibit to the Schedule 14D-1. In particular, when the term material adverse effect is used herein it has the meaning as defined in the Merger Agreement. The Merger Agreement may be examined and copies may be obtained at the place and in the manner set forth in Section 7 of this Offer to Purchase. The Offer. The Merger Agreement provides that the Subsidiary will commence the Offer not later than the fifth business day from the public announcement of the execution of the Merger Agreement. The obligation of the Subsidiary to commence the Offer and pay for any Shares tendered is subject to certain conditions. See "-- Conditions to the Offer." The Merger Agreement provides that the Subsidiary may in its sole discretion modify the terms and conditions of the Offer, or waive certain conditions to the Offer. However, without the Company's prior written consent, the Subsidiary cannot reduce the per Share amount, change the form of consideration payable in the Offer, reduce the number of Shares subject to the Offer, allow the Offer to expire before September 19, 1997, add to or modify the conditions to the Offer set forth in the Merger Agreement, or make any other modifications that are otherwise materially adverse to the holders of Shares. The Subsidiary may, without the consent of the Company, extend the term of the Offer on one or more occasions beyond the scheduled expiration date if any of the conditions to the Subsidiary's obligation to consummate the Offer have not been satisfied or waived by that date, provided that the Subsidiary may not extend the Offer for a total of more than 60 days from the commencement of the Offer. The Subsidiary may also extend the Offer for a period not to exceed ten business days, notwithstanding that all conditions to the Offer are satisfied as of that date, if the number of Shares tendered at that date equal more than 75% but less than 90% of the outstanding Shares. The Minimum Condition. One of the conditions to the Offer is that there must be validly tendered and not withdrawn at least 51% (determined on a fully diluted basis) of the outstanding Shares (the "Minimum Condition"). The Company has informed the Subsidiary that, as of August 14, 1997, there were 3,000,758 Shares issued and outstanding, of which 174,252 shares of Common Stock were reserved for future issuance pursuant to outstanding stock options, and that, except as otherwise disclosed in the Merger Agreement, no other stock of the Company is outstanding or committed to be issued. Based on this information and assuming all outstanding options to purchase shares of Common Stock will have been accelerated so as to be fully exercisable prior to the consummation of the Offer, the Subsidiary believes that the Minimum Condition will be satisfied if the Subsidiary acquires at least 1,619,256 Shares in the Offer. MedPartners does not directly or indirectly hold any Shares. 16 19 Conditions to the Offer. The Subsidiary is not required to accept for payment or (subject to any applicable rules and regulations of the Commission) to pay for Shares tendered pursuant to the Offer unless (i) the Minimum Condition is satisfied, and (ii) any applicable waiting period under the HSR Act has expired or been terminated. In addition, the Subsidiary is not obligated to consummate the Offer if, at any time on or after the date of the Merger Agreement and before the acceptance of Shares for payment, any of the following events has occurred (other than as a result of the action or inaction of MedPartners or any of its subsidiaries that constitutes a breach of the Merger Agreement): (a) any order, injunction, judgment or ruling in any legal proceeding is entered that (i) makes illegal or otherwise restrains or prohibits the acquisition by MedPartners or the Subsidiary of any Shares under the Offer or the making or consummation of the Offer or the Merger, the performance by the Company of any of its obligations under the Merger Agreement or the consummation of any purchase of Shares contemplated thereunder, (ii) prohibits or limits the ownership or operation by the Company, MedPartners or any of their respective subsidiaries of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or MedPartners and its subsidiaries, taken as a whole, or compels the Company or MedPartners to dispose of or hold separate any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or MedPartners and its subsidiaries, taken as a whole, as a result of the Offer or the Merger, (iii) imposes material limitations on the ability of MedPartners or the Subsidiary to acquire or hold, or exercise full rights of ownership of, any Shares accepted for payment pursuant to the Offer including, without limitation, the right to vote such Shares on all matters properly presented to the stockholders of the Company or (iv) prohibits MedPartners or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company and its subsidiaries, taken as a whole; or (b) any law is enacted, entered, enforced or deemed applicable to the Offer or the Merger, or any other action is taken by any governmental entity, other than the application to the Offer or the Merger of applicable waiting periods under the HSR Act, that results in any of the consequences referred to in paragraph (a) above; or (c) any material adverse change to the Company occurs; or (d) (i) the Board of Directors of the Company or any committee thereof withdraws or modifies in a manner adverse to MedPartners or the Subsidiary its approval or recommendation of the Offer, the Merger or the Merger Agreement, or approves or recommends any other acquisition proposal or (ii) the Company enters into any agreement to consummate any acquisition proposal; or (e) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality are not true and correct or any such representations and warranties that are not so qualified are not true and correct in any respect that is reasonably likely to have a material adverse effect, in each case at the date of the Merger Agreement and at the scheduled expiration of the Offer; or (f) the Company fails to perform in any material respect any material obligation or to comply in any material respect with any material agreement or material covenant of the Company to be performed or complied with by it under the Merger Agreement; or (g) there has occurred and continues for three business days (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) commencement of a war or armed hostilities or other national or international calamity involving the United States which is reasonably expected to have a material adverse effect or to materially adversely affect the Parent's or the Subsidiary's ability to complete the Offer or the Merger or materially delay the consummation of the Offer, the Merger or both or (iv) in case of any of the foregoing existing on the date of the Merger Agreement, material acceleration or worsening thereof occurs and continues to exist for at least three business days; or 17 20 (h) the Merger Agreement terminates in accordance with its terms. For purposes of the Merger Agreement, "material adverse change" or "material adverse effect" means with reference to a party any change, effect, event or occurrence that has or is reasonably likely to have a material adverse impact on the business or financial position of such party and its subsidiaries and other controlled entities, taken as a whole. However, the meaning of "material adverse change" or "material adverse effect" excludes (i) changes in generally accepted accounting principles, (ii) changes in applicable law, (iii) changes or effects of any kind that impact the party's industry generally, or, as to the Company, Southern California, (iv) changes in Medicare reimbursement rates, (v) changes or effects arising from the announcement of the Merger Agreement or from any party's performance under the Merger Agreement, and (vi) any changes resulting from any restructuring or other similar charges or write-offs taken by the Company with the consent of MedPartners. The Merger. The Merger Agreement provides that, subject to the terms and conditions thereof, and in accordance with the DGCL, the Subsidiary will be merged with and into the Company not later than the second business day after the satisfaction or waiver of the conditions set forth in the Merger Agreement. The Merger will become effective upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware (the "Effective Time"). As a result of the Merger, the separate corporate existence of the Subsidiary will cease, and the Company will continue as the surviving corporation (the "Surviving Corporation"). In the Merger, each issued and outstanding Share (other than Shares owned directly or indirectly by MedPartners or any of its subsidiaries or by the Company as treasury stock, and other than Shares owned by stockholders who have properly exercised rights of appraisal under the DGCL) will be converted into the right to receive $63.00 per Share, without interest, and each issued and outstanding share of common stock of the Subsidiary will be converted into one fully paid and nonassessable shares of common stock of the Surviving Corporation (which will constitute the only issued and outstanding capital stock of the Surviving Corporation). The Merger Agreement provides that the Certificate of Incorporation and By-laws of the Subsidiary at the Effective Time will be the certificate of incorporation and by-laws of the Surviving Corporation until amended in accordance with applicable law. The Merger Agreement also provides that the directors and officers of the Subsidiary at the Effective Time will be the directors and officers of the Surviving Corporation. The Company's Board of Directors. The Merger Agreement provides that promptly upon the purchase of Shares by the Subsidiary pursuant to the Offer, seven of the Company's nine directors will resign, and MedPartners will designate three replacements for appointment or election to the Company's Board of Directors. The Company will, upon request of the Subsidiary, use its best efforts promptly to cause MedPartners' designees to be so appointed or elected. The remaining two directors (and any successors appointed or elected before the Effective Time) are referred to as the "Original Directors." Once MedPartners' designees constitute a majority of the Company's Board of Directors, any amendment of the Merger Agreement, any termination of the Merger Agreement by the Company, any extension of time for performance of any of the obligations of MedPartners or the Subsidiary thereunder, any waiver of any condition or any of the Company's rights thereunder or other action by the Company thereunder may be effected only by the joint action of the Original Directors. In connection with the appointment of MedPartners' designees to the Board of Directors, the Company has agreed to comply with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Rights Agreement. Pursuant to the Merger Agreement, the Rights Agreement was amended so that the Rights will not be distributed and do not become exercisable as a consequence of the execution, announcement or consummation of the transactions contemplated by the Merger Agreement. Recommendation. In the Merger Agreement, the Company states that its Board of Directors has, by unanimous vote of those present, (i) determined that the Offer and the Merger are fair to and in the best interests of the stockholders of the Company and (ii) resolved to recommend acceptance of the Offer and approval and adoption of the Merger Agreement and the Merger by the stockholders of the Company. 18 21 Interim Operations. In the Merger Agreement, the Company has agreed to use its commercially reasonable best efforts to preserve the business organization of the Company intact, to keep available the services of the present employees of the Company, and to preserve the goodwill of the suppliers, customers and others having business relations with the Company. In addition, other than as contemplated by the Merger Agreement and the related documents (including the schedules thereto) or without the prior written consent of MedPartners, which consent will not be unreasonably withheld, each of the Company and its subsidiaries will not (other than in the ordinary course of business and consistent with past practice or with respect to binding commitments entered into before the date of the Merger Agreement): (a) Encumber any material asset or enter into any material transactions or make any material contract or commitment relating to the properties, assets and business of the Company. (b) Enter into any employment contract which is not terminable upon notice of 30 days or less, at will, and without penalty to the Company. (c) Enter into any contract or agreement (i) which cannot be performed within three months or less, or (ii) which involves the expenditure of over $100,000. (d) Make any payment or distribution to the trustee under any bonus, pension, profit-sharing or retirement plan or incur any obligation to make any such payment or contribution which is not in accordance with the Company's usual past practice, or, except as required pursuant to the Employee Benefits and Compensation Allocation Agreement dated as of February 14, 1997 between the Company and FHP, make any payment or contributions or incur any obligation pursuant to or in respect of any other plan or contract or arrangement providing for bonuses, executive incentive compensation, pensions, deferred compensation, retirement payments, profit-sharing or the like, establish or enter into any such plan, contract or arrangement, or terminate any plan. (e) Extend credit to anyone. (f) Guarantee the obligation of any person, firm or corporation. (g) Amend its Certificate of Incorporation or By-laws. (h) Discharge or satisfy any material lien or encumbrance, or pay or satisfy any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the unaudited balance sheet dated June 30, 1997 included in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 (the "Company Balance Sheet") or (ii) liabilities incurred or due since the date of the Company Balance Sheet in the ordinary course of business, which discharge or satisfaction would have a material adverse effect on the Company. (i) Increase or establish any reserve for taxes or any other liability on its books or otherwise provided therefor which would have a material adverse effect on the Company, except as may have been required due to income or operations of the Company since the date of the Company Balance Sheet. (j) Mortgage, pledge or subject to any material lien, charge or other encumbrance any of the assets, tangible or intangible, which assets are material to the business or financial condition of the Company. (k) Sell or transfer any of the assets material to the consolidated business of the Company, cancel any material debts owed to the Company or claims reflected as assets on the Company Balance Sheet, or waive any material rights, except in the ordinary course of business. (l) Grant any general or uniform increase in the rates of pay of employees or any material increase in salary payable or to become payable by the Company to any officer or employee, consultant or agent (other than normal increases consistent with past practices), or by means of any bonus or pension plan, contract or other commitment, increased in a material respect the compensation of any officer, employee, consultant or agent. 19 22 (m) Except for the Merger Agreement and any other agreement executed and delivered pursuant to the Merger Agreement, enter into any material transaction other than in the ordinary course of business or permitted under other sections of the Merger Agreement. (n) Issue any stock (other than pursuant to the Stock Incentive Plans, as defined in the Merger Agreement), bonds or other securities or any options or rights to purchase any of its securities. No Solicitation. In the Merger Agreement, the Company has agreed not to directly or indirectly furnish information and access, in response to unsolicited requests, to any third party, participate in discussions and negotiate with such third party concerning any proposal to acquire such party upon a merger, purchase of assets, purchase of or tender offer for shares of its Common Stock or similar transaction (an "Acquisition Transaction"). However, if prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors, after receiving advice from outside legal counsel to the Company, determines that a failure to act would be inconsistent with its fiduciary duties to the Company's stockholders under applicable law, the Company may (i) furnish information about and access to the Company to any third party in response to an unsolicited request pursuant to a confidentiality agreement with terms and conditions similar to the Confidentiality Agreement (as defined below), (ii) participate in discussions and negotiations regarding any potential Acquisition Transaction, and/or (iii) terminate the Merger Agreement. The Company will notify the Parent of any unsolicited request for information and access in connection with a possible Acquisition Transaction involving a third party, which notification will include the identity of the third party and the proposed material terms of the possible Acquisition Transaction. Directors' and Officers' Insurance; Indemnification. For a period of four years after the Effective Time, MedPartners has agreed to cause the Surviving Corporation to maintain in effect directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy on terms (including coverage amounts) comparable to those now applicable under the current Company policy, subject to certain prescribed limits on premiums. The Merger Agreement provides that all rights to indemnification for acts and omissions occurring prior to the Effective Time existing as of the date of the Merger Agreement in favor of the current or former directors, officers, employees and agents (the "Indemnified Parties") of the Company and its subsidiaries as provided in their respective certificates of incorporation and bylaws (or similar organizational documents) will survive the Merger and continue for at least six years after the Effective Time. Additionally, for not less than six years after the Effective Time, MedPartners will, and will cause the Subsidiary to, (i) indemnify and hold harmless the Indemnified Parties to the full extent they may be indemnified by applicable law, their respective certificates of incorporation or by-laws (or similar organizational documents) or pursuant to indemnification agreements in effect as of the date of the Merger Agreement for acts or omissions occurring prior to the Effective Time, and (ii) advance litigation expenses incurred by the Indemnified Parties in connection with defending any action arising out of such acts or omissions to the extent permitted by law or as otherwise provided by such certificates of incorporation, by-laws, similar organizational documents or indemnification agreements. Share Repurchase. The Merger Agreement provides that, after the consummation of the Offer but before the consummation of the Merger, the Company will repurchase, from any current or former director or officer of the Company who is terminated during such period, all Shares held by any such individual who desires to sell such Shares. Stock Incentive Plan. The Merger Agreement provides that the Company will take all actions to provide that each outstanding stock option to purchase shares of Common Stock (an "Option") under the Talbert Medical Management Holdings Corporation 1996 Stock Incentive Plan (the "Stock Incentive Plan") will be accelerated so as to be fully exercisable on or prior to the consummation of the Offer. Options (other than Options granted under Article 7 of the Stock Incentive Plan) therefore may be exercised, and the corresponding Common Stock tendered pursuant to this Offer, except to the extent that such tender could result in short-swing profit liability under Section 16(b) of the Exchange Act. Options granted under Article 7 of the Stock Incentive Plan (other than Options granted within six months of the termination of such Option) will be fully exercisable upon consummation of the Offer and prior to any of the resignations of the current 20 23 directors of the Company pursuant to the Merger Agreement. With respect to each Option that remains outstanding immediately after the consummation of the Offer, the Company, immediately after the consummation of the Offer, but prior to any termination or resignation of the holder of such Option pursuant to the Merger Agreement will pay to each such holder in connection with the surrender and termination or settlement of such Options an amount in cash equal to the product of (x) the number of shares of Common Stock then subject to the Option multiplied by (y) the excess of the per Share amount over the per share exercise price of the Option, less all applicable tax withholding. The Stock Incentive Plan will terminate as of the Effective Time. Management Incentive Program. In March 1997, the Company implemented an executive bonus program (the "Management Incentive Program") for the year ending December 31, 1997. Bonuses to participants are based on the achievement of budgeted objectives and improvements to the quality of services provided to members. Pursuant to the Merger Agreement and a letter agreement dated August 14, 1997 among MedPartners, the Subsidiary and the Company, MedPartners will cause the Company and the Surviving Corporation to pay at the time of the consummation of the Offer to each corporate-level employee currently participating in the Company's Management Incentive Program cash awards equivalent to the award that would have been received by the participants in such program if calculated as of June 30, 1997. A copy of such letter agreement is filed as Exhibit 6 to the Company's Schedule 14D-9 and incorporated herein by reference. Transition Bonus. Certain employees of the Company who do not participate in the Company's Management Incentive Program will receive cash bonuses in the amounts agreed to between the Company and MedPartners in another letter agreement dated August 14, 1997. A copy of such letter agreement is filed as Exhibit 7 to the Company's Schedule 14D-9 and incorporated herein by reference. The bonuses will be paid from a $923,000 contribution from MedPartners. The purpose of these cash bonuses is to reward such employees for remaining with the Company in order to facilitate the transactions contemplated by the Merger Agreement. The bonuses will be paid on January 1, 1998 to the listed employees who are then employed by the Surviving Corporation or any of its affiliates. If any listed employee is terminated before January 1, 1998 other than for cause, the employee will be paid the designated amount on the effective date of termination. Other Provisions Relating to Employee Benefits. The Merger Agreement provides that all service credited to each employee by the Company through the Effective Time will be recognized by MedPartners for all purposes, including eligibility, vesting and benefit accruals, under any employee benefit plan provided by MedPartners or the Surviving Corporation for the benefit of the employees. MedPartners further agrees not to take any action, or fail to take any action, that would cause the Surviving Corporation not to honor (without modification) and assume the employment agreements, executive termination agreements and individual benefit arrangements of the Company. Physician Warrant Agreements. In connection with the Merger, MedPartners has agreed to enter into nontransferable warrant agreements (the "Physician Warrant Agreements") with certain physicians (the "Physicians") who are employed by the medical groups managed by Talbert Medical Management Corporation ("TMMC"), a wholly-owned subsidiary of the Company. Each Physician Warrant Agreement provides that MedPartners will grant to the Physician party to such agreement warrants with respect to an aggregate of 2,000 shares of the common stock, par value $.001 per share, of MedPartners (the "Warrants"). Each Warrant entitles the Physician to purchase one share of MedPartners' common stock. The exercise price of the Warrants will be the average closing price of MedPartners' common stock for the ten trading days preceding the date which is two days before the Effective Time. A copy of the form of the Physician Warrant Agreement is filed as Exhibit 8 to the Company's Schedule 14D-9 and incorporated herein by reference. 21 24 Conditions to the Merger. The Merger Agreement provides that the respective obligations of the Company, MedPartners and the Subsidiary to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions (any of which may be waived in writing by MedPartners, the Purchaser and the Company, to the extent permitted by applicable law): (i) None of MedPartners, the Subsidiary or the Company nor any of their respective subsidiaries will be subject to any order, decree or injunction by a United States federal or state court of competent jurisdiction which prevents the consummation of the Merger. (ii) No statute, rule or regulation will have been enacted or promulgated by the government or any governmental agency of the United States or any state that prohibits the consummation of the Merger. (iii) The Subsidiary will have purchased and paid for the Shares pursuant to the Offer. (iv) Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act will have expired or been terminated. (v) If required by law, the holders of shares of the Company's Common Stock will have approved the adoption of the Merger Agreement. Representations and Warranties. In the Merger Agreement, the Company has made customary representations and warranties to the Parent and the Subsidiary with respect to, among other things, its organization, good standing, capitalization, ownership of subsidiaries, foreign qualification, corporate power, Commission reports and financial information, contracts, properties, legal proceedings, events since June 30, 1997, accounts receivable, tax matters, employee benefit plans, compliance with laws, regulatory approvals, and commissions and fees. MedPartners and the Subsidiary have made customary representations and warranties to the Company with respect to, among other things, organization, good standing, corporate power, brokers, legal proceedings, available funds, other transactions, and ownership of Shares. Employment Agreements. The Company has entered into Change in Control Employment Agreements with Jack D. Massimino, Kenneth S. Ord, Gloria L. Austin, Becky J. Behlendorf, Jennifer M. Gutzmore, Regina B. Lightner, Peter W. McKinley, Russell D. Phillips, Jr. and Walter R. Stone (the "Employment Agreements"). In connection with the Merger, MedPartners has agreed to amend the Employment Agreements (i) to remove certain contingent provisions relating to the vesting of stock options which could have caused the vesting of a portion of the executive's outstanding stock options to be deferred under certain conditions and (ii) to revise the consideration that would be forfeited in the event the executive does not enter into an agreed form of non-compete covenant and settlement agreement. In addition, the Employment Agreements with Mr. Massimino and Ms. Austin will be further amended by adding certain contingent provisions relating to taxes, which provisions could result in certain payments by MedPartners of certain additional amounts to Mr. Massimino and Ms. Austin not to exceed $4,000,000. Termination; Fees. The Merger Agreement may be terminated at any time prior to the purchase of Shares pursuant to the Offer (i) by mutual written consent of the Company, the Subsidiary and MedPartners; (ii) by either MedPartners or the Company if a court of competent jurisdiction or governmental entity issues a nonappealable final order, decree or ruling or takes any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the Offer (or acceptance of or payment for Shares) or the Merger (provided that the party seeking to terminate the Merger Agreement has used all reasonable efforts to remove the order, decree or ruling or the taking of such action); (iii) by either MedPartners or the Company if, before the purchase of Company Shares in the Offer, there is, or is discovered, a material breach by the other party of any representation, warranty, covenant or other agreement contained in the Merger Agreement that cannot be or has not been cured within 10 days after the occurrence or discovery of such breach by the breaching party, whichever is later (a "Material Breach") (provided that the terminating party is not then in Material Breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement); (iv) by the Company if MedPartners and the Subsidiary fail to commence the Offer in accordance with the Merger Agreement, or if the Offer expires without the purchase of Shares pursuant to the Offer; or (v) by the Company in response to a proposal from a third party for an Acquisition Transaction. 22 25 If the Company terminates the Merger Agreement in response to a proposal from a third party for an Acquisition Transaction, the Company will pay to MedPartners, in immediately available funds, the sum of $8 million and will promptly reimburse upon demand (up to a maximum amount of $2 million) all documented out-of-pocket expenses incurred by MedPartners and the Subsidiary in connection with the transactions contemplated by the Merger Agreement. In the event Shares are not purchased pursuant to the Offer, MedPartners will pay to the Company, in immediately available funds, the sum of $8 million and will promptly reimburse upon demand therefore (up to a maximum amount of $2 million) all documented out-of-pocket expenses incurred by the Company in connection with the transactions contemplated by the Merger Agreement, unless such failure to purchase Shares is attributable solely to (i) a court or other governmental entity issuing an order or taking any other action permanently enjoining, restraining or otherwise prohibiting the Offer or the Merger, which order has become final and nonappealable (provided that the order or action is not the result of any action or inaction by MedPartners or the Subsidiary that constitutes a breach of the Merger Agreement and the party seeking to terminate the Merger Agreement has used all reasonable efforts to remove the order or other action), (ii) MedPartners' valid termination of the Merger Agreement by reason of the Company's breach of a representation, warranty, covenant or agreement set forth in the Merger Agreement, or (iii) a failure of a condition set forth in the Merger Agreement by reason of any act, event or circumstance that is beyond the control of MedPartners and the Subsidiary. All other costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring the expense. Plans for the Company. MedPartners intends, upon acquiring control of the Company, to continue to focus on the development of a national integrated health care delivery system and continue to grow the markets in which the Company already operates. SECTION 12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE ACT REGISTRATION AND MARGIN REGULATIONS. Depending upon the aggregate market value and per Share price of any Shares not purchased pursuant to the Offer, following the Offer the common stock may no longer meet the standards for continued listing on the Nasdaq National Market, which requires an issuer to have at least 100,000 publicly held shares with an aggregate market value of at least $5,000,000. common stock held by directors and officers (or their immediate families) of the Company and other concentrated holdings of 10% or more of the common stock outstanding generally will not be considered to be publicly held for the purpose of the foregoing standards. In the event that the common stock were no longer quoted on the Nasdaq National Market, it is possible that the common stock could continue to trade in the over-the-counter market and that quotations would continue to be reported through other sources. The extent of the public market for the common stock and the availability of such quotations would, however, depend upon the number of stockholders remaining at such time, the interest in maintaining a market in the common stock on the part of securities firms, the possible termination of registration of the common stock under the Exchange Act, as described below, and other factors. The Shares are currently registered under the Exchange Act. Such registration of the Shares may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange or quoted on Nasdaq National Market and there are fewer than 300 holders of record of the Shares. Deregistration of the Shares under the Exchange Act would reduce substantially the information required to be furnished by the Company to holders of Shares and to the Commission and would render inapplicable certain of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of Section 14(a) that the Company furnish stockholders with proxy materials in connection with stockholders' meetings and the requirements of Rule 13e-3 promulgated under the Exchange Act with respect to "going private" transactions. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company might be deprived of the ability to dispose of Shares pursuant to Rule 144 or Rule 144A promulgated under the Securities Act of 1933, as amended (the "Securities Act"). If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities." It is the current intention of MedPartners to cause the Company to deregister the Shares after the consummation of the Offer if the requirements for termination of registration are met. 23 26 The Shares currently are "margin securities" under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that following the Offer, the Shares would cease to constitute "margin securities" for the purpose of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for margin loans made by brokers. SECTION 13. CERTAIN CONDITIONS TO THE OFFER. The Subsidiary is not required to accept for payment or (subject to any applicable rules and regulations of the Commission) to pay for any Shares tendered pursuant to the Offer unless (i) the Minimum Condition has been satisfied, and (ii) any applicable waiting period under the HSR Act at any time prior to the Expiration Date, has not expired or been terminated. In addition, the Subsidiary is not obligated to consummate the Offer if, at any time on or after August 14, 1997 and before the acceptance of Shares for payment, any of the following events has occurred (other than as a result of any action or inaction of MedPartners or any of its subsidiaries which constitutes a breach of the Merger Agreement): (a) any order, injunction, judgment or ruling in any legal proceeding that (i) makes illegal or otherwise directly or indirectly restrains or prohibits the acquisition by MedPartners or the Subsidiary of any Shares under the Offer or the making or consummation of the Offer or the Merger, the performance by the Company of any of its obligations under the Merger Agreement or the consummation of any purchase of Shares contemplated thereunder, (ii) prohibits or limits the ownership or operation by the Company, MedPartners or any of their respective subsidiaries of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or MedPartners and its subsidiaries, taken as a whole, or compels the Company or MedPartners to dispose of or hold separate any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or MedPartners and its subsidiaries, taken as a whole, as a result of the Offer or the Merger, (iii) imposes material limitations on the ability of MedPartners or the Subsidiary to acquire or hold, or exercise full rights of ownership of, any Shares accepted for payment pursuant to the Offer including, without limitation, the right to vote such Shares on all matters properly presented to the stockholders of the Company or (iv) prohibits MedPartners or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company and its subsidiaries, taken as a whole; or (b) any law is enacted, entered, enforced or deemed applicable to the Offer or the Merger, or any other action is taken by any governmental entity, other than the application to the Offer or the Merger of applicable waiting periods under the HSR Act, that results, in any of the consequences referred to in paragraph (a) above; or (c) any material adverse change to the Company occurs; or (d) (i) the Board of Directors of the Company or any committee thereof withdraws or modifies in a manner adverse to MedPartners or the Subsidiary its approval or recommendation of the Offer, the Merger or the Merger Agreement, or approves or recommends any other acquisition proposal or (ii) the Company enters into any agreement to consummate any acquisition proposal; or (e) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality are not true and correct or any such representations and warranties that are not so qualified are not true and correct in any respect that is reasonably likely to have a material adverse effect, in each case at the date of the Agreement and at the scheduled expiration of the Offer; or (f) the Company fails to perform in any material respect any material obligation or to comply in any material respect with any material agreement or material covenant of the Company to be performed or complied with by it under the Merger Agreement; or (g) there has occurred and continues to exist for at least three business days (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in 24 27 the United States, (iii) commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which in any case is reasonably expected to have a material adverse effect or to materially adversely affect MedPartners' or the Subsidiary's ability to complete the Offer or the Merger or materially delay the consummation of the Offer, the Merger or both or (iv) in case of any of the foregoing existing on the date of the Merger Agreement, material acceleration or worsening thereof; or (h) the Merger Agreement terminates in accordance with its terms. For purposes of the Offer and the Merger Agreement, "material adverse change" or "material adverse effect" means with reference to a party any change, effect, event or occurrence that has or is reasonably likely to have a material adverse impact on the business or financial position of such party and its subsidiaries and other controlled entities, taken as a whole. However, the meaning of "material adverse change" or "material adverse effect" excludes changes in generally accepted accounting principles, (ii) changes in applicable law, (iii) changes in effects of any kind that impact the party's industry generally, or, as to the Company, Southern California, (iv) changes in Medicare reimbursement rates, (v) changes or effects arising from the announcement of the Merger Agreement or from any party's performance under the Merger Agreement, and (iv) any charges resulting from any restructuring or other similar charges or write-offs taken by the Company with the consent of MedPartners. The foregoing conditions are for the sole benefit of MedPartners or may, subject to the terms of the Merger Agreement, be waived by the Subsidiary and MedPartners in whole or in part at any time and from time to time in their sole discretion. The failure by MedPartners at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. The Offer is not subject to obtaining any consents from third parties. A public announcement will be made of a material change in, or waiver of, such conditions to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act, and the Offer will be extended in connection with any such change or waiver to the extent required by such rules. SECTION 14. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. General. Except as otherwise disclosed herein, based upon an examination of publicly available information filed by the Company with the Commission, neither the Subsidiary nor MedPartners is aware of (i) any license or other regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Subsidiary's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) pursuant to the Offer or the Merger, or (ii) any filings, approvals or other actions by or with any domestic (federal or state), foreign or supranational governmental authority or administrative or regulatory agency that would be required prior to the acquisition of Shares (or the indirect acquisition of the stock of the Company's subsidiaries) by the Subsidiary as contemplated herein. Should any such approval or other action be required, it is the Subsidiary's present intention to seek such approval or action. However, the Subsidiary does not presently intend to delay the purchase of Shares tendered pursuant to the Offer pending the receipt of any such approval or the taking of any such action (subject to the Subsidiary's right to delay or decline to purchase Shares if any of the conditions in Section 13 has occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, MedPartners or the Subsidiary or that certain parts of the businesses of the Company, MedPartners or the Subsidiary might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or, in the event that such approval was not obtained or such other action was not taken, any of which could cause the Subsidiary to elect to terminate the Offer without the purchase of the Shares thereunder. The Subsidiary's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 14. See Section 13. 25 28 State Takeover Laws. The Company is incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL prevents an "interested stockholder" (generally a person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock, or an affiliate or associate thereof) from engaging in a "business combination" (defined to include mergers and certain other transactions) with a Delaware corporation for a period of three (3) years following the date such person became an interested stockholder unless, among other things, prior to such date the board of directors of the corporation approved either the business combination or the transaction in which the interested stockholder became an interested stockholder. In connection with the review of the proposed transaction, the Company's Board of Directors prior to the execution of the Merger Agreement (i) by unanimous vote of those present approved the Offer and the Merger and (ii) determined that the terms of the Offer and the Merger including the Offer price of $63.00 per Share in cash, are in the best interest of, the stockholders of the Company, and (iii) recommended that the stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. Accordingly, the Subsidiary and MedPartners believe that Section 203 of the DGCL is inapplicable to the Merger Agreement, the Offer and the Merger because its provisions have been satisfied. A number of other states have also adopted takeover laws and regulations which purport to varying degrees to be applicable to attempts to acquire securities of corporations which are incorporated in such states or which have or whose business operations have substantial economic effects in such states, or which have substantial assets, security holders, principal executive offices or principal places of business therein. To the extent that certain provisions of certain of these state takeover statutes purport to apply to the Offer, the Subsidiary believes that such laws conflict with federal law and constitute an unconstitutional burden on interstate commerce. In 1982, the Supreme Court of the United States, in Edgar v. MITE Corp., invalidated on constitutional grounds the Illinois Business Takeovers Act, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States held that the State of Indiana could, as a matter of corporate law and in particular those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Subsequently, a number of federal courts have ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted takeover laws. The Subsidiary does not know whether any of these laws will, by their terms, apply to the Offer or the Merger and has not taken any action to comply with any such laws. Should any person seek to apply any state takeover law, the Subsidiary will take reasonable efforts to resist such application, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Merger, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, the Subsidiary might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Subsidiary might be unable to accept for payment or pay for any Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer and the Merger. In such case, the Subsidiary may not be obligated to accept for payment, or pay for, any Shares tendered. See Section 13. Short-Form Merger. The DGCL would permit the Merger to occur without a vote of the Company's stockholders (a "short-form merger") if the Purchaser were to acquire at least 90% of the outstanding Shares. If, however, the purchase does not acquire at least 90% of the then outstanding Shares pursuant to the Offer or otherwise, and a vote of the Company's stockholders is required under the DGCL, a longer period of time will be required to effect the Merger. Appraisal Rights. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders of the Company would have certain rights to dissent and demand appraisal of their Shares under Section 262 of the DGCL. Dissenting stockholders who comply with the requisite statutory procedures under the DGCL would be entitled to a judicial determination and payment of the "fair value" of their Shares as of the close of business on the day prior to the date of stockholder authorization of the Merger, together with interest thereon, at such rate as the court finds equitable, from the date the Merger is 26 29 consummated until the date of payment. Under the DGCL, in fixing the fair value of the Shares, a court would consider the nature of the transaction giving rise to the stockholders' right to receive payment for Shares and its effects on the Company and its stockholders, the concepts and methods then customary in the relevant securities and financial markets for determining fair value of shares of a corporation engaging in a similar transaction under comparable circumstances, and all other relevant factors. The foregoing summary of the rights of objecting stockholders does not purport to be a complete statement of the procedures to be followed by stockholders desiring to exercise any available dissenters' rights. The preservation and exercise of dissenters' rights require strict adherence to the applicable provisions of the DGCL. Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information and documentation has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by the Subsidiary pursuant to the Offer is subject to the HSR Act requirements. See Section 2. Under the provisions of the HSR Act applicable to the purchase of Shares pursuant to the Offer, such purchase may not be made until the expiration of a 15-calendar day waiting period following the required filing of a Pre-merger Notification and Report Form under the HSR Act by MedPartners, which MedPartners filed on August 15, 1997. The waiting period under the HSR Act will expire at 11:59 p.m., New York City time, August 30, 1997, unless early termination of the waiting period is granted or MedPartners receives a request from the Antitrust Division or the FTC for additional information or documentary material prior thereto. If such a request were made, the waiting period applicable to the Offer would expire on the tenth calendar day after the date of substantial compliance by MedPartners with such request. The waiting period under the HSR Act may be terminated by the FTC and the Antitrust Division prior to its expiration. Accordingly, pursuant to the HSR Act each of MedPartners and the Company have requested early termination of the waiting period applicable to the Offer. There can be no assurance, however, that the 15-day HSR Act waiting period will be terminated early. Shares will not be accepted for payment or paid for pursuant to the Offer until the expiration or earlier termination of the applicable waiting period under the HSR Act. See Section 2. Subject to Section 4, any extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. If the Purchaser's acquisition of Shares is delayed due to a request by the Antitrust Division or the FTC for additional information or documentary material pursuant to the HSR Act and all other conditions to the Offer have been satisfied, the Offer may be extended (and re-extended) until at least October 20, 1997, and may, with the consent of MedPartners, the Subsidiary and the Company, be extended beyond that date. No separate HSR Act requirements with respect to the Merger or the Merger Agreement will apply if the 15-day waiting period relating to the Offer (as described above) has expired or been terminated. However, if the Offer is withdrawn or if the filing relating to the Offer is withdrawn prior to the expiration or termination of the 15-day waiting period relating to the Offer, the Merger may not be consummated until 30 calendar days after receipt by the Antitrust Division and the FTC of the Pre-merger Notification and Report Forms of both MedPartners and the Company, unless the 30-day period is earlier terminated by the Antitrust Division and the FTC. Within such 30-day period, the Antitrust Division or the FTC may request additional information or documentary materials from MedPartners and/or the Company, in which event, the acquisition of Shares pursuant to the Merger may not be consummated until 20 days after both MedPartners and the Company substantially comply with such requests. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by the Subsidiary pursuant to the Offer. At any time before or after the purchase by the Subsidiary of Shares pursuant to the Offer, either the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by the Subsidiary or the divestiture of substantial assets of MedPartners, the Company or any of their respective subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. 27 30 Although the Subsidiary believes that the acquisition of Shares pursuant to the Offer would not violate the antitrust laws, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the outcome will be. SECTION 15. FEES AND EXPENSES. Except as set forth below, neither MedPartners nor the Subsidiary will pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders of Shares pursuant to the Offer. The Subsidiary has also retained Georgeson & Company, Inc. to act as the Information Agent and Chase Mellon Shareholder Services, L.L.C. to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telegraph and personal interview and may request brokers, dealers and other nominee stockholders to forward the Offer materials to beneficial owners. The Information Agent and the Depositary will receive reasonable and customary compensation for their services relating to the Offer and will be reimbursed for certain out-of-pocket expenses. The Subsidiary and MedPartners have also agreed to indemnify the Information Agent and the Depositary against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by the Subsidiary for customary mailing and handling expenses incurred by them in forwarding the Offer materials to their customers. SECTION 16. MISCELLANEOUS. The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Subsidiary is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Subsidiary becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Subsidiary will make a good faith effort to comply with any such state statute or seek to have such statute declared inapplicable to the Offer. If after such good faith effort, the Subsidiary cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Subsidiary by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. A copy of this Offer to Purchase, and certain of the agreements referred to herein, are attached to the Schedule 14D-1, which has been filed with the Commission. The Schedule 14D-1 and the exhibits thereto, along with such other documents as may be filed by the Subsidiary and MedPartners with the Commission, may be examined and copied from the offices of the Commission in the manner set forth in Section 7. No person has been authorized to give any information or to make any representation on behalf of the Subsidiary or MedPartners not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. TALMED MERGER CORPORATION August 20, 1997 28 31 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. THE DEPOSITARY FOR THE OFFER IS: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Overnight Courier: By Hand: Post Office Box 3305 85 Challenger Road-Mail Drop Reorg 120 Broadway - 13(th) Floor South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 New York, NY 10271 Attn: Reorganization Dept. Attention: Reorganization Dept. Attention: Reorganization Dept.
By Facsimile Transmission: 201-329-8936 Confirmation of Fax: 201-296-4860 29 32 SCHEDULE I INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF MEDPARTNERS AND THE SUBSIDIARY 1. DIRECTORS AND EXECUTIVE OFFICERS OF MEDPARTNERS. Set forth in the table and paragraphs below are the name and the present principal occupations or employment and the name, principal business and address of any corporation or other organization in which such occupation or employment is conducted, and the five-year employment history of each of the directors and executive officers of MedPartners. MedPartners owns 100% of the equity interest in the Subsidiary. Unless otherwise indicated, each person identified below is employed by MedPartners. The principal business address of MedPartners and, unless otherwise indicated, the business address of each person identified below is 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244.
NAME AGE POSITIONS WITH MEDPARTNERS - - ---- --- -------------------------- Larry R. House..................... 53 Chairman of the Board and Chief Executive Officer and Director Mark L. Wagar...................... 45 President and Chief Operating Officer John J. Gannon..................... 58 President -- Physician Practice Management H. Lynn Massingale, M.D............ 44 President -- Team Health Harold O. Knight, Jr............... 39 Executive Vice President and Chief Financial Officer Tracy P. Thrasher.................. 34 Executive Vice President and Chief Administrative Officer and Corporate Secretary Edward J. Novinski................. 38 Executive Vice President -- Managed Care John M. Deane...................... 42 Executive Vice President -- Information Services J. Brooke Johnston, Jr............. 57 Senior Vice President and General Counsel Charles C. Clark................... 47 Senior Vice President and Chief Tax Officer Peter J. Clemens, IV............... 32 Vice President of Finance and Treasurer Mark S. Weeks...................... 34 Vice President of Finance and Controller Richard M. Scrushy................. 44 Director Larry D. Striplin, Jr.(1).......... 67 Director Charles W. Newhall III(1).......... 52 Director Ted H. McCourtney(2)............... 58 Director Walter T. Mullikin, M.D............ 79 Director John S. McDonald, J.D.(1).......... 64 Director Rosalio J. Lopez, M.D.............. 44 Chief Medical Officer and Director C.A. Lance Piccolo (2)............. 56 Director Roger L. Headrick (1).............. 60 Director Harry M. Jansen Kraemer, Jr........ 42 Director
- - --------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Larry R. House has been Chief Executive Officer of MedPartners since August 1993, and has been Chairman of the Board since January 1993. Mr. House also served as President from August 1993 until June 1997. From 1985 to 1992, he was Chief Operating Officer of HEALTHSOUTH Rehabilitation Corporation, now HEALTHSOUTH Corporation ("HEALTHSOUTH"). From 1992 to 1993, Mr. House was President of HEALTHSOUTH International, Inc. Mr. House is a member of the Board of Directors of each of HEALTHSOUTH, Capstone Capital Corporation, a publicly traded real estate investment trust ("Capstone"), the American Sports Medicine Institute, UAB Research Foundation and Monitor MedX. Mark L. Wagar has been President and Chief Operating Officer of MedPartners since June 1997. Form January 1996 until June 1997, Mr. Wagar was President -- Western Operations of MedPartners. From January 1995 through December 1995, Mr. Wagar was Chief Operating Officer of MME, from March 1994 to December 1994, he was the President of CIGNA HealthCare of California, a healthcare plan serving S-1 33 enrollees in California, Oregon and Washington, from January 1993 through February 1994, was a Vice President of CIGNA HealthCare of California, an HMO. From November 19898 to December 1992, he was the President of Managed Care Partners, Inc., a private consulting management company specializing in managed care services. He has been involved in healthcare management for over 20 years, including 10 years in managed care companies. John J. Gannon has been President -- Physician Practice Management of MedPartners since June 1997. From July 1996 to June 1997, Mr. Gannon was President -- Eastern Operations. For 23 years, Mr. Gannon was a Partner with KPMG Peat Marwick. His most recent position with KPMG was that of National Partner-in-Charge of Strategy and Marketing, Healthcare and Life Sciences. He served as one of the firm's designated industry review specialists for healthcare financial feasibility studies. H. Lynn Massingale, M.D. has been President of Team Health since its formation in March 1994. Dr. Massingale has served as President of Southeastern Emergency Physicians, Inc., a subsidiary of Team Health, since 1981. A graduate of the University of Tennessee Center for Health Sciences in Memphis, Dr. Massingale is certified by the National Board of Medical Examiners, Tennessee Board of Medical Examiners and American Board of Emergency Medicine. Dr. Massingale's professional memberships include the Knoxville Academy of Medicine, Tennessee Medical Association, American Medical Association and American College of Emergency Physicians. Harold O. Knight, Jr. has been Executive Vice President and Chief Financial Officer of MedPartners since November 1994. Mr. Knight was Senior Vice President of Finance and Treasurer of MedPartners from August 1993 to November 1994, and from March 1993 to August 1993, Mr. Knight served as Vice President of Finance of MedPartners. From 1980 to 1993, Mr. Knight was with Ernst & Young LLP, most recently as Senior Manager. Mr. Knight is a member of the Alabama Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Tracy P. Thrasher was named Chief Administrative Officer of MedPartners in June 1997 and has been Executive Vice President of MedPartners since November 1994 and Corporate Secretary since March 1994. Ms. Thrasher was Senior Vice President of Administration from March 1994 to November 1994, and from January 1993 to March 1994, she served as Corporate Comptroller and Vice President of Development. From 1990 to 1993, Ms. Thrasher was the Audit and Health Care Management Advisory Service Manager with Burton, Canady, Moore & Carr, P.C. independent public accountants. Ms. Thrasher began her career with Ernst & Young LLP in 1985, and became a certified public accountant in 1986. Edward J. Novinski has been Executive Vice President of Managed Care for MedPartners since September 1996. Prior to joining MedPartners, Mr. Novinski was most recently Vice President of Network Management for United HealthCare Corporation in their corporate office and held various positions from August 1986 to August 1996. Mr. Novinski was responsible for United HealthCare's network strategies for physician and hospital relationships with supported United HealthCare's diverse managed care product line. From 1977 to 1986, Mr. Novinski was with Lutheran General Health System in managerial and administrative positions including Director of Physician Practice Management for a large multi-specialty group. John M. Deane has been Executive Vice President, Information Services of MedPartners since January 1997. From January 1995 through December 1996, Mr. Deane was Vice President Information Services and CIO of Caremark Pharmaceutical Services Group, based in Northbrook, Illinois. Prior to 1985, Mr. Deane was Director, Information Services -- Planning and Consulting for the Whirlpool Corporation and a Senior Manager on large IS projects for Price Waterhouse's Management Consulting Services practice in the Midwest, where he led large IS engagements for various Fortune 100 companies. J. Brooke Johnston, Jr. has been Senior Vice President and General Counsel of MedPartners since April 1996. Prior to that, Mr. Johnston was a senior principal of the law firm of Haskell Slaughter Young & Johnston, Professional Association, Birmingham, Alabama, where he practiced corporate and securities law for over seventeen years. Prior to that Mr. Johnston was engaged in the practice of law in New York, New York and at another firm in Birmingham. Mr. Johnston is a member of the Alabama State Bar and the New S-2 34 York and American Bar Associations. Mr. Johnston is a member of the Board of Directors of United Leisure Corporation, a publicly traded leisure time services company. Charles C. Clark has been Senior Vice President and Chief Tax Officer of MedPartners since January 1997. Prior to that, Mr. Clark was a Partner with KPMG Peat Marwick, having served as Tax Partner in Charge of the Birmingham, Alabama office and leader of tax services for the Health Care & Life Sciences practice in the Southeast. Mr. Clark was with KPMG Peat Marwick for 21 years. Mr. Clark is a Certified Public Accountant holding memberships in the American Institute of Certified Public Accountants and the Alabama and Mississippi Societies of Certified Public Accountants. Peter J. Clemens, IV has been Vice President of Finance and Treasurer of MedPartners since April 1995. From 1991 to 1995, Mr. Clemens worked in Corporate Banking with Wachovia Bank of Georgia, N.A. Mr. Clemens began his career with AmSouth Bank, N.A. in 1987, and received a Masters Degree in Business Administration from Vanderbilt University in 1991. Mark S. Weeks has been Vice President of Finance and Controller of MedPartners since June 1994. From 1985 to 1994, Mr. Weeks was with Ernst & Young LLP, most recently as Senior Manager. Mr. Weeks is a certified public accountant and a member of the American Institute of Certified Public Accountants. Richard M. Scrushy has been a member of MedPartners' Board of Directors since January 1993. Since 1984, Mr. Scrushy has been Chairman of the Board and Chief Executive Officer of HEALTHSOUTH. Mr. Scrushy is also a member of the Board of Directors of Capstone. Larry D. Striplin, Jr. has been a member of MedPartners' Board of Directors since January 1993. Since December 1995, Mr. Striplin has been the Chairman and Chief Executive Officer of Nelson-Brantley Glass Contractors, Inc. and Chairman and Chief Executive Officer of Clearview Properties, Inc. Until December 1995, Mr. Striplin had been Chairman of the Board and Chief Executive Officer of Circle "S" Industries, Inc., a privately owned bonding wire manufacturer. Mr. Striplin is a member of the Board of Directors of Kulicke & Suffa, Inc., a publicly traded manufacturer of electronic equipment, and of Capstone. Charles W. Newhall III has been a member of MedPartners' Board of Directors since September 1993. He has been a general partner of New Enterprise Associates, a venture capital firm, since 1978. Mr. Newhall is a member of the Board of Directors of HEALTHSOUTH, Integrated Health Services, Inc. and OPTA Food Ingredients, Inc., all publicly traded companies. He is a founder and Chairman of the Mid-Atlantic Venture Association, which was organized in 1988. Ted H. McCourtney has been a member of MedPartners' Board of Directors since August 1993. He has been a general partner of Venrock Associates, a venture capital firm, since 1970. Mr. McCourtney is a member of the Board of Directors of Cellular Communications, Inc., Cellular Communications of Puerto Rico, Inc., Cellular Communications International, Inc., International CabelTel Incorporated, SBSF, Inc. and Structural Dynamics Research Corporation, each of which is publicly traded. Walter T. Mullikin, M.D., a surgeon, has been a member of MedPartners' Board of Directors since November 1995. Dr. Mullikin was a Chairman of the Board of the general partner of MME from 1989 to 1995. He founded Pioneer Hospital and the predecessors to MME's principal professional corporation in 1957. He was also the Chairman of the Board, President and a stockholder of Mullikin Independent Practice Association ("MIPA"), until November 1995. Dr. Mullikin is a member of the Board of Directors of HealthNet, a publicly traded HMO, and was one of the founders and a past chairman of the United Medical Group Association. John S. McDonald, J.D. has been a member of MedPartners Board of Directors since November 1995. Mr. McDonald was the Chief Executive Officer of the general partner of MME from March 1994 to 1995, and he was an executive of Pioneer Hospital and their related entities since 1967. Mr. McDonald was also a director, the Secretary and a stockholder of MME's general partner. Mr. McDonald is on the Board of Directors of the Truck Insurance Exchange and is a past president of the United Medical Group Association. Rosalio J. Lopez, M.D. has been a member of MedPartners' Board of Directors since November 1995 and became Chief Medical Officer of MedPartners in June 1997. Dr. Lopez has been a director of the general S-3 35 partner of MME since 1989. Dr. Lopez joined MME's principal professional corporation in 1984 and serves as the Chairman of its Medical Council and Family Practice and Managed Care committees. He also acted as a director and a Vice President of MME's principal professional corporation. He is also a director and stockholder of MIPA. C.A. Lance Piccolo has been a member of MedPartners' Board of Directors since September 1997. From August 1992 to September 1996, he was Chairman of the Board of Directors and Chief Executive Officer of Caremark. From 1987 until November 1992, Mr. Piccolo was an Executive Vice President of Baxter and from 1988 until November 1992, he served as a director of Baxter. Mr. Piccolo also serves as a director of Crompton & Knowles Corporation ("CKC"), which is publicly traded. Roger L. Headrick has been a member of MedPartners' Board of Directors since September 1996 and has been President and Chief Executive Officer of the Minnesota Vikings Football Club since 1991. Additionally, since June 1989, Mr. Headrick has been President and Chief Executive Officer of ProtaTek International, Inc., a bio-process and biotechnology company that develops and manufactures animal vaccines. Prior to 1989, he was Executive Vice President and Chief Financial Officer of The Pillsbury Company, a food manufacturing and processing company. Mr. Headrick also serves as a director of CKC. Harry M. Jansen Kraemer, Jr. has been a member of MedPartners' Board of Directors since September 1996, and is President of Baxter, having served in that capacity since April 1997. Mr. Kraemer served as Senior Vice President and Chief Financial Officer of Baxter from November 1993 to April 1997. He was promoted to Baxter's three-member Office of the Chief Executive in June 1995, and appointed to Baxter's Board of Directors in November 1995. Mr. Kraemer has been an employee of Baxter since 1982, serving in a variety of positions, including Vice President, Group Contoller for Baxter's hospital and alternate-site businesses, president of Baxter's Hospitex Division and Vice President Finance and Operations for Baxter's global-business group. 2. DIRECTORS AND EXECUTIVE OFFICERS OF THE SUBSIDIARY. Set forth in the table and paragraphs below are the name and the present principal occupations or employment and the name, principal business and address of any corporation or other organization in which such occupation or employment is conducted, and the five-year employment history of each of the directors and executive officers of the Subsidiary. Each person identified below is employed by MedPartners and is a director of the Subsidiary. The principal business address of the Subsidiary and of each person identified below is 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244.
NAME AGE OFFICES WITH THE SUBSIDIARY ---- --- --------------------------- Larry R. House....................... 53 President Harold O. Knight, Jr................. 39 Vice President and Treasurer Tracy P. Thrasher.................... 34 Vice President and Secretary
Larry R. House has been Chief Executive Officer of MedPartners since August 1993, and has been Chairman of the Board since January 1993. Mr. House also served as President from August 1993 until June 1997. From 1985 to 1992, he was Chief Operating Officer of HEALTHSOUTH. From 1992 to 1993, Mr. House was President of HEALTHSOUTH International, Inc. Mr. House is a member of the Board of Directors of each of HEALTHSOUTH, Capstone, the American Sports Medicine Institute, UAB Research Foundation and Monitor MedX. Harold O. Knight, Jr. has been Executive Vice President and Chief Financial Officer of MedPartners since November 1994. Mr. Knight was Senior Vice President of Finance and Treasurer of MedPartners from August 1993 to November 1994, and from March 1993 to August 1993, Mr. Knight served as Vice President of Finance of MedPartners. From 1980 to 1993, Mr. Knight was with Ernst & Young LLP, most recently as Senior Manager. Mr. Knight is a member of the Alabama Society of Certified Public Accountants and the American Institute of Certified Public Accountants. S-4 36 Tracy P. Thrasher was named Chief Administrative Officer of MedPartners in June 1997 and has been Executive Vice President of MedPartners since November 1994 and Corporate Secretary since March 1994. Ms. Thrasher was Senior Vice President of Administration from March 1994 to November 1994, and from January 1993 to March 1994, she served as Corporate Comptroller and Vice President of Development. From 1990 to 1993, Ms. Thrasher was the Audit and Health Care Management Advisory Service Manager with Burton, Canady, Moore & Carr, P.C. independent public accountants. Ms. Thrasher began her career with Ernst & Young LLP in 1985, and became a certified public accountant in 1986. Any questions and requests for assistance or additional copies of the Offer to Purchase, the Letter of Transmittal and related materials may be directed to the Information Agent at the address and telephone number set forth below. Stockholders may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [GEORGESON & COMPANY INC. LOGO] Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: 212-440-9800 All Others Call Toll Free: 1-800-223-2064 S-5 EX-99.A(2) 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 20, 1997 BY TALMED MERGER CORPORATION A WHOLLY-OWNED SUBSIDIARY OF MEDPARTNERS, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Overnight Courier: By Hand: Post Office Box 3305 85 Challenger Road- 120 Broadway - 13(th) Floor South Hackensack, NJ 07606 Mail Drop Reorg New York, NY 10271 Attn: Reorganization Dept. Ridgefield Park, NJ 07660 Attention: Reorganization Dept. Attention: Reorganization Dept.
By Facsimile Transmission: 201-329-8936 Confirmation of Fax: 201-296-4860 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders either if certificates evidencing Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in Section 2 of the Offer to Purchase) is utilized, if tenders of Shares are to be made by book-entry transfer into the account of ChaseMellon Shareholder Services, L.L.C., as Depositary (the "Depositary"), at The Depository Trust Company or the Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders." Holders of Shares whose certificates evidencing such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. 2 - - ---------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - - ---------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED CERTIFICATION) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - - ---------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES NUMBER SHARE CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ TOTAL SHARES - - ---------------------------------------------------------------------------------------------------------------------- * Need not be completed by Book-Entry Shareholders. ** Unless otherwise indicated, all Shares represented by certificates delivered to the Depositary will be deemed to have been tendered. See Instruction 4. - - ---------------------------------------------------------------------------------------------------------------------- [ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution: -------------------------------------------------------------------------------------------------------------------- Check box of Book-Entry Transfer Facility (check one): [ ] The Depository Trust Company Account Number: -------------------------------------------------------------------------------------------------------------------- [ ] Philadelphia Depository Trust Company Transaction Code Number: -------------------------------------------------------------------------------------------------------------------- [ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): -------------------------------------------------------------------------------------------------------------------- Window Ticket Number (if any): -------------------------------------------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: -------------------------------------------------------------------------------------------------------------------- Name of Institution that Guaranteed Delivery: -------------------------------------------------------------------------------------------------------------------- If delivered by Book-Entry Transfer, check box of Book-Entry Transfer Facility (check one): [ ] The Depository Trust Company Account Number: -------------------------------------------------------------------------------------------------------------------- [ ] Philadelphia Depository Trust Company Transaction Code Number: --------------------------------------------------------------------------------------------------------------------
2 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Talmed Merger Corporation (the "Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation ("MedPartners"), the above-described shares of common stock, par value $.01 per share, together with associated rights to purchase shares of preferred stock, par value $.01 per share, designated as "Junior Participating Preferred Stock" (the "Shares"), of Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Company"), at a purchase price of $63.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 20, 1997 (the "Offer to Purchase") and in this Letter of Transmittal (which, together with any supplements and amendments, collectively constitute the "Offer"), receipt of which is hereby acknowledged. The undersigned understands that the Subsidiary reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer. Upon the terms and conditions of the Offer and subject to, and effective upon, acceptance for payment for the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Subsidiary all right, title and interest in and to all of the Shares that are being tendered hereby and any and all dividends, distributions (including additional Shares) or rights declared, paid or issued with respect to the tendered Shares on or after August 14, 1997 and payable or distributable to the undersigned on a date prior to the transfer to the name of the Subsidiary or nominee or transferee of the Subsidiary on the Company's stock transfer records of the Shares tendered herewith, and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Share Certificates (as defined herein) or transfer ownership of such Shares on the account books maintained by a Book-Entry Transfer Facility, together in either case with all accompanying evidences of transfer and authenticity, to the Depositary for the account of the Subsidiary upon receipt by the Depositary of the purchase price, (b) present such Shares for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms and subject to the conditions of the Offer. The undersigned irrevocably appoints the Subsidiary, its officers and its designees, and each of them, the attorneys-in-fact and proxies of the undersigned, with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Subsidiary and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after August 14, 1997. This proxy and power of attorney is coupled with an interest in the Shares tendered hereby and is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by the Subsidiary in accordance with the terms of the Offer. Upon such acceptance for payment, all prior proxies given by such stockholder with respect to such Shares (and such other shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective) with respect thereto by the undersigned. The Subsidiary, its officers and its designees will, with respect to the Shares (and such other securities) tendered, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. The Subsidiary reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Subsidiary's payment for such Shares the Subsidiary must be able to exercise full voting rights with respect to such Shares and other securities, including voting at any meeting of stockholders. The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and (b) when the Shares are accepted for payment by the Subsidiary, the Subsidiary will acquire good, marketable and unencumbered title to the Shares, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse 3 4 claim. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or the Subsidiary to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date (as defined in the Offer to Purchase) and, unless theretofore accepted for payment by the Subsidiary pursuant to the Offer, may also be withdrawn at any time after October 20, 1997. See Section 4 of the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto and acceptance for payment of such Shares will constitute a binding agreement between the undersigned and the Subsidiary upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation that the undersigned owns the Shares being tendered. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or issue or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated herein under "Special Delivery Instructions," please mail the check for the purchase price and/or any certificate(s) for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificate(s) for Shares not tendered or accepted for payment in the name of, and deliver such check and/or such certificates to, the person or persons so indicated. The undersigned recognizes that the Subsidiary has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if the Subsidiary does not accept for payment any of the Shares so tendered. 4 5 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above, or (b) if such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Signature Guarantee Program (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Subsidiary, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery. If Share Certificates are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased (unless you are tendering all of the Shares you own). All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 5 6 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (NOT APPLICABLE TO BOOK-ENTRY STOCKHOLDERS) If fewer than all of the Shares evidenced by any Share Certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such a case, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you (unless otherwise provided in the appropriate box on this Letter of Transmittal) as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or not purchased are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the certificate(s) for such Shares. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, the Subsidiary will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder(s), if a transfer tax is imposed for any reason other than the sale or transfer of Shares to Subsidiary pursuant to the Offer, or if tendered certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or an exemption therefrom is submitted. EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price of any Shares purchased is to be issued in the name of, or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal or if the check or any 6 7 certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer may request that Shares not purchased be credited to such account at any of the Book-Entry Transfer Facilities as such stockholder may designate under "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facilities designated above. 8. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by the Subsidiary in whole or in part at any time and from time to time in its sole discretion. 9. 31% BACKUP WITHHOLDING, SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN"), generally the stockholder's social security or federal employer identification number, on Substitute Form W-9 below. Failure to provide the information on the form may subject the tendering stockholder to 31% federal income tax withholding on the payment of the purchase price. The box in Part 3 of the form may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 3 is checked and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% of all payments of the purchase price thereafter until a TIN is provided to the Depositary. Under the federal income tax law, a stockholder whose tendered Shares are accepted for purchase is required by law to provide the Depositary (as payer) with such stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is an individual, the TIN is his or her social security number. If a stockholder fails to provide a TIN to the Depositary, such stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery 7 8 may also be obtained from the Information Agent at the address and telephone number set forth below, or from brokers, dealers, commercial banks or trust companies. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate evidencing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Information Agent. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. 8 9 PAYER'S NAME: CHASE MELLON SHAREHOLDERS SERVICES, L.L.C. - - ------------------------------------------------------------------------------------------------------------- Social Security Number --------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT OR FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW --------------------- Employer Identification Number ----------------------------------------------------------------------- PART 2 -- For Payees exempt from backup withholding, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as instructed therein. Certification -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number Department of the Treasury, (or I am waiting for a number to be issued to me) and (2) I am not Internal Revenue Service subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. ----------------------------------------------------------------------- PAYER'S REQUEST FOR TAXPAYER CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you IDENTIFICATION NUMBER (TIN) have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were PART 3 subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item 2). (Also see instructions in the enclosed Awaiting TIN [ ] Guidelines.) SIGNATURE __________________________DATE _____________________________ - - -------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number by the time of payment, 31% of all reportable payments made to me will be withheld. , 1997 - - ------------------------------------------------------------ ---------------------------------------------------- Signature: Date:
9 10 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue: [ ] check and/or [ ] certificates to: - - ------------------------------------------------------ NAME -- (PLEASE PRINT) - - ------------------------------------------------------ ADDRESS - - ------------------------------------------------------ (INCLUDE ZIP CODE) - - ------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9) [ ] Credit unpurchased Shares tendered by book-entry transfer to the account set forth below: Name of Account Party ------------------------------------------------------------ - - -------------------------------------------------------------------------------- Account Number at --------------------------------------------------------------- [ ] The Depository Trust Company [ ] Philadelphia Depository Trust Company SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that appearing under "DESCRIPTION OF SHARES TENDERED." Issue: [ ] check and/or [ ] certificates to: - - ------------------------------------------------------------------------------- NAME -- (PLEASE PRINT) - - ------------------------------------------------------------------------------- ADDRESS - - ------------------------------------------------------------------------------- (INCLUDE ZIP CODE) - - ------------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) 10 11 - - -------------------------------------------------------------------------------- SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 -------------------------------------------------------------------------- -------------------------------------------------------------------------- (SIGNATURE OF HOLDER(S)) Dated: ______________________, 1997 (Must be signed by the registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and See Instruction 5.) Name(s) -------------------------------------------------------------------------- -------------------------------------------------------------------------- (PLEASE PRINT) Capacity (Full Title) -------------------------------------------------------------------------- Address -------------------------------------------------------------------------- -------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number -------------------------------------------------------------------------- Tax Identification or Social Security No. -------------------------------------------------------------------------- (SEE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5) Authorized Signature -------------------------------------------------------------------------- Name -------------------------------------------------------------------------- Name of Firm -------------------------------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number -------------------------------------------------------------------------- Dated: ------------------------, 1997 -------------------------------------------------------------------------- 12 THE INFORMATION AGENT FOR THE OFFER IS: LOGO Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 ALL OTHERS CALL TOLL FREE: 1-800-223-2064 August 20, 1997 EX-99.A(3) 4 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION As set forth in Section 3 of the Offer to Purchase described below, this instrument or one substantially equivalent hereto must be used to accept the Offer (as defined below) if (i) certificates evidencing Shares of common stock, par value $.01 per share, together with associated rights to purchase shares of preferred stock, par value $.01 per share, designated as "Junior Participating Preferred Stock" (the "Shares") are not immediately available, (ii) the certificates evidencing Shares and all other required documents cannot be delivered to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or (iii) the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This instrument may be transmitted by facsimile transmission or delivered by hand or mail to the Depositary. THE DEPOSITARY FOR THE OFFER IS: ChaseMellon Shareholders Services, L.L.C. CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Overnight Courier: By Hand: Post Office Box 3305 85 Challenger Road-Mail Drop Reorg 120 Broadway - 13(th) Floor South Hackensack, NJ 07606 Ridgefield Park, NJ 07660 New York, NY 10271 Attn: Reorganization Dept. Attention: Reorganization Dept. Attention: Reorganization Dept.
By Facsimile Transmission: 201-329-8936 Confirmation of Fax: 201-296-4860 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, the signature guarantee must appear on the applicable space provided in the signature box in the Letter of Transmittal. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. 2 Ladies and Gentlemen: The undersigned hereby tender(s) to Talmed Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 20, 1997 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any supplements and amendments, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares indicated below of Talbert Medical Management Holdings Corporation, a Delaware corporation, pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. (PLEASE TYPE OR PRINT) Signature(s) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Name(s) of Record Holders - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Address(es) - - -------------------------------------------------------------------------------- - - ----------------------------------------------------------------- Zip Code - - -------------------------------------------------------------------------------- - - ----------------------------------------------------------------- Zip Code Area Code and Telephone No.(s) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Number of Shares Certificate No.(s) (If Available) - - -------------------------------------------------------------------------------- Check one box if Shares will be tendered by book-entry transfer [ ] The Depository Trust Company [ ] Philadelphia Depository Trust Company Account Number - - -------------------------------------------------------------------------------- Dated_____________, 1997 2 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that the tender of those Shares complies with Rule 14e-4, (c) guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at the book entry facility identified above (each a "Book-Entry Transfer Facility"), in either case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three Nasdaq National Market trading days after the date hereof. (PLEASE TYPE OR PRINT) Name of Firm - - -------------------------------------------------------------------------------- Authorized Signature - - -------------------------------------------------------------------------------- Title - - -------------------------------------------------------------------------------- Address - - -------------------------------------------------------------------------------- - - ------------------------------------------------------------------ Zip Code Area Code and Telephone No. - - -------------------------------------------------------------------------------- Dated_________, 1997 NOTE: DO NOT SEND CERTIFICATES EVIDENCING SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.A(4) 5 LETTER FROM DEALER, BROKER 1 [GEORGESON & COMPANY INC. LOGO] Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 ALL OTHERS CALL TOLL FREE: 1-800-223-2064 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION AT $63.00 NET PER SHARE BY TALMED MERGER CORPORATION A WHOLLY-OWNED SUBSIDIARY OF MEDPARTNERS, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED August 20, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been engaged by Talmed Merger Corporation (the "Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation ("MedPartners"), to act as Information Agent in connection with the Subsidiary's offer to purchase for cash all of the outstanding shares of common stock, par value $.01 per share, of Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Company"), (the "Shares") at a purchase price of $63.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer") enclosed herewith. Holders of Shares whose certificates evidencing such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary (as defined below) prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. The Offer is subject to there being validly tendered and not properly withdrawn prior to the expiration of the Offer a number of Shares which constitutes at least fifty-one percent (51%) of the outstanding Shares of the Company, assuming certain exercises. The Offer is also subject to other terms and conditions. See the Introduction and Section 13 of the Offer to Purchase. 2 Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated August 20, 1997. 2. The BLUE Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. The GREY Notice of Guaranteed Delivery for Shares to be used to accept the Offer if Share Certificates are not immediately available, if such certificates and all other required documents cannot be delivered to ChaseMellon Shareholder Services (the "Depositary") by the Expiration Date, or if the procedure for book-entry transfer cannot be completed by the Expiration Date. 4. A YELLOW printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining your clients' instructions with regard to the Offer. 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding. 6. A return envelope addressed to ChaseMellon Shareholder Services, L.L.C. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Subsidiary will be deemed to have accepted for payment, and will pay for, all Shares validly tendered and not properly withdrawn prior to the Expiration Date when, as and if the Subsidiary gives oral or written notice to the Depositary of the Subsidiary's acceptance of such Shares for payment pursuant to the Offer. Payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as described in the Offer to Purchase)), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (unless, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) is utilized) and any other documents required by the Letter of Transmittal. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery of Shares, and any other required documents should be sent to the Depositary, and (ii) Share Certificates representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at one of the Book-Entry Transfer Facilities (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Share Certificates or other required documents on or prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. The Subsidiary will not pay any commissions or fees to any broker, dealer or other person (other than the Depositary and the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. The Subsidiary will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. The Subsidiary will pay or cause to be paid any stock transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. 2 3 Any inquiries you may have with respect to the Offer should be addressed to us, the Information Agent. VERY TRULY YOURS, AS INFORMATION AGENT NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE SUBSIDIARY, MEDPARTNERS, THE COMPANY, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A(5) 6 LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION AT $63.00 NET PER SHARE IN CASH BY TALMED MERGER CORPORATION A WHOLLY-OWNED SUBSIDIARY OF MEDPARTNERS, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED. August 20, 1997 TO OUR CLIENTS: Enclosed for your consideration is an Offer to Purchase dated August 20, 1997 (the "Offer to Purchase") and the related Letter of Transmittal relating to an offer by Talmed Merger Corporation (the "Purchaser"), a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation ("MedPartners"), to purchase all of the outstanding shares of common stock, par value $.01 per share, together with associated rights to purchase shares of preferred stock, par value $.01 per share, designated as "Junior Participating Preferred Stock" (the "Shares"), of Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Company"), at a purchase price of $63.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). We are the holder of record of Shares held by us for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, pursuant to the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The offer price is $63.00 per Share, net to the seller in cash, without interest thereon. 2. The Offer is being made for all outstanding Shares. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Friday September 19, 1997, unless the Offer is extended. 4. The Offer is conditioned upon, among other things, there being validly tendered and not properly withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) a number of Shares which constitutes at least fifty-one percent (51%) of the outstanding Shares of the Company assuming certain exercises. The Offer is also subject to other terms and conditions. See the Introduction and Section 13 of the Offer to Purchase. 5. The Board of Directors of the Company has unanimously approved the Offer. 2 6. Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. However, federal income tax backup withholding at a rate of 31% may be required, unless a exemption is provided or unless the required taxpayer identification information is provided. See Instruction 9 of the Letter of Transmittal. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Subsidiary is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Subsidiary becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Subsidiary will make a good faith effort to comply with any such state statute or seek to have such statute declared inapplicable to the Offer. If after such good faith effort, the Subsidiary cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Subsidiary by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. If you wish to have us tender any or all of the Shares held by us for your account, please instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope to return your instructions to us is enclosed. If you authorize a tender of your Shares, all such Shares will be tendered unless otherwise specified in such instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. Holders of Shares whose Share Certificates (as defined in the Offer to Purchase) are not immediately available or who cannot deliver their Certificates and all other required documents to ChaseMellon Shareholder Services, L.L.C., as depositary (the "Depositary"), or complete the procedures for book-entry transfer prior to the Expiration Date must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Payment for Shares purchased pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) Share Certificates or timely confirmation of the book-entry transfer of such Shares into the account maintained by the Depositary at The Depository Trust Company or Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedure set forth in Section 3 of the Offer to Purchase, (b) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery, and (c) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering shareholders at the same time depending upon when Share Certificates for or confirmation of book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility are actually received by the Depositary. 2 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION The undersigned acknowledge(s) receipt of your letter enclosing the Offer to Purchase dated August 20, 1997 (the "Offer to Purchase") and the related Letter of Transmittal pursuant to an offer by Talmed Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation, to purchase all outstanding shares of common stock, par value $0.01 per share, together with associated rights to purchase shares of preferred stock, par value $.01 per share, designated as "Junior Participating Preferred Stock", of Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Shares"). This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal furnished to the undersigned. Number of Shares to be Tendered*: SIGN HERE Shares - - --------------------------------- ---------------------------- Account Number -------------------------- ---------------------------- Dated, 1997 Signature(s) ------------- ---------------------- Please type or print name(s) Address --------------------------- Area Code and Telephone Number ---------------------------------- Tax Identification or Social Security Number ------------------ * Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered. 3 EX-99.A(6) 7 GUIDELINES FOR CERTIFICATION 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYOR--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 000-000000. The table below will help determine the number to give the payor.
- - ----------------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - - ----------------------------------------------------------- 1. An individual's account. The individual The actual owner of 2. Two or more individuals (joint the account or, if account) combined funds, any one of the individuals(1) The actual owner of 3. Husband and wife (joint the account or, if account) joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person 7. a. The usual revocable savings The grantor- trustee(1) trust account (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under State law 8. Sole proprietorship account The owner(s) - - -----------------------------------------------------------
- - ----------------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - - ----------------------------------------------------------- 9. A valid trust, estate, or Legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district or prison) that receives agricultural program payments - - -----------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution - An organization exempt from tax under section 501(a), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenants bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBERS. -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.A(7) 8 FORM OF SUMMARY ADVERTISEMENT 1 [Form of Advertisement] THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SHARES. THE OFFER IS BEING MADE SOLELY BY THE OFFER TO PURCHASE DATED AUGUST 20, 1997 AND THE RELATED LETTER OF TRANSMITTAL AND IS BEING MADE TO ALL HOLDERS OF SHARES. THE SUBSIDIARY IS NOT AWARE OF ANY STATE WHERE THE MAKING OF THE OFFER IS PROHIBITED BY ADMINISTRATIVE OR JUDICIAL ACTION PURSUANT TO ANY VALID STATE STATUTE. IF THE SUBSIDIARY BECOMES AWARE OF ANY VALID STATE STATUTE PROHIBITING THE MAKING OF THE OFFER OR THE ACCEPTANCE OF SHARES PURSUANT THERETO, THE SUBSIDIARY WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH STATE STATUTE OR SEEK TO HAVE SUCH STATUTE DECLARED INAPPLICABLE TO THE OFFER. IF, AFTER SUCH GOOD FAITH EFFORT, THE SUBSIDIARY CANNOT COMPLY WITH SUCH STATE STATUTE, THE OFFER WILL NOT BE MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) THE HOLDER OF SHARES IN SUCH STATE. IN ANY JURISDICTION WHERE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF THE SUBSIDIARY BY ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION AT $63.00 NET PER SHARE IN CASH BY TALMED MERGER CORPORATION A WHOLLY-OWNED SUBSIDIARY OF MEDPARTNERS, INC. Talmed Merger Corporation (the "Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of MedPartners, Inc., a Delaware corporation ("MedPartners"), hereby offers to purchase all of the outstanding shares of common stock, par value $.01 per share, of Talbert Medical Management Holdings Corporation, a Delaware corporation (the "Company"), including the associated Junior Participating Preferred Stock purchase rights ("Shares") at a purchase price of $63.00 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, SEPTEMBER 19, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO EXPIRATION OF THE OFFER A NUMBER OF SHARES REPRESENTING AT LEAST FIFTY-ONE PERCENT (51%) OF THE SHARES OUTSTANDING, ASSUMING CERTAIN EXERCISES. 2 The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of August 14, 1997 (the "Merger Agreement"), by and among MedPartners, the Subsidiary and the Company pursuant to which, following the consummation of the Offer, the Subsidiary will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation of the Merger and as a wholly-owned subsidiary of MedPartners. At the effective time of the Merger, each outstanding Share (other than treasury Shares, Shares held by MedPartners, the Subsidiary or any other subsidiary of MedPartners, and Shares held by stockholders, if any, who properly exercise appraisal rights under Delaware law) will be converted into and represent the right to receive $63.00 in cash, without interest. THE BOARD OF DIRECTORS OF THE COMPANY HAS, BY UNANIMOUS VOTE OF THOSE PRESENT, APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT, HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, the Subsidiary will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when the Subsidiary gives oral or written notice to the Depositary (as defined in the Offer to Purchase) of the Subsidiary's acceptance of such Shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from the Subsidiary and transmitting such payments to stockholders whose Shares have been accepted for payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares (or timely Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase) with respect to such Shares), (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed with any required signature guarantees (or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer), and (iii) all other documents required by the Letter of Transmittal. Under no circumstances will interest on the purchase price for Shares be paid, regardless of any delay in making such payment. The term "Expiration Date" means 12:00 Midnight, New York City time on Friday, September 19, 1997, unless and until the Subsidiary, in accordance with the terms of the Offer and the Merger Agreement, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Subsidiary, shall expire. Subject to the terms of the Merger Agreement, the Subsidiary expressly reserves the right, at any time and from time to time, to extend the period of time during which the Offer is open for any reason, including the occurrence of any of the events specified in Section 13 of the Offer to Purchase, by giving written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement to be made not later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date and, unless theretofore accepted for payment by the Subsidiary pursuant to the Offer, may also be withdrawn at any time after October 20, 1997. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of the addresses set forth in the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If certificates evidencing the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice 2 3 of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility (as defined in Section 2 of the Offer to Purchase) to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Subsidiary, in its sole discretion, whose determination will be final and binding. Any Shares properly withdrawn will be deemed not validly tendered for purposes of the Offer, but may be re-tendered at any subsequent time prior to the Expiration Date by following any of the procedures described in Section 3 of the Offer to Purchase. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided the Subsidiary with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the Letter of Transmittal and other relevant materials will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Information Agent as set forth below. Requests for copies of the Offer to Purchase, the related Letter of Transmittal and other tender offer materials also may be directed to the Information Agent, and copies will be furnished promptly at the Subsidiary's expense. Neither MedPartners nor the Subsidiary will pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent and the Depositary) in connection with the solicitation of tenders of Shares pursuant to the Offer. THE INFORMATION AGENT FOR THE OFFER IS: LOGO Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: ALL OTHERS CALL TOLL FREE: 1-800- August 20, 1997 3 EX-99.A(8) 9 TEXT OF JOINT PRESS RELEASE 1 EXHIBIT (a)(8) MedPartners(TM) - - ------------------------------------------------------------------------------ NEWS RELEASE For Immediate Release - Contacts For MedPartners: For Talbert Medical: Larry R. House Kenneth S. Ord Chairman of the Board, CEO 714-436-4852 205-733-8996 Investor Relations: Randy Pittman 205-733-8996 Media Relations: Thomas Dingledy 205-733-8996 MedPartners Announces Acquisition of Talbert Medical Management --------------------------------------------------------------- Birmingham, Alabama - August 14, 1997 - MedPartners, Inc. (NYSE:MDM) today announced it has entered into a definitive agreement to acquire Talbert Medical Management Holdings Corporation (NASDAQ:TMMC) of Costa Mesa, California, pursuant to a tender offer followed by a merger, for $63 per share in cash, or about $200 million. Talbert Medical Management is a physician practice management company representing 282 primary and specialty care physicians and operating 52 clinics in five Southwestern states. The acquisition will give Medpartners the opportunity to broaden Talbert's patient and clinic base through MedPartners' agreements with payors and existing clinic network. Efficiencies will also be gained in corporate overhead expenses and other areas. MedPartners said the acquisition will be accounted for as a purchase transaction with MedPartners assuming all assets and liabilities of Talbert. The transaction is contingent on receiving approval from the Federal Trade Commission under the provisions of the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976. -more- 2 Add 1 MedPartners/Talbert Talbert Medical Management, founded in 1961 as part of the FHP Health Maintenance Organization (HMO), went public through an initial stock offering in April 1997. FHP International merged with PacifiCare Health Systems, Inc. (NASDAQ:PHYSA and PHYSB) in February 1997. Since then, Talbert has added enrollees from other HMO companies and payors, although PacifiCare still represents a significant portion of the 270,000 patients in the network; 88,000 of Talbert's patients are senior enrollees. "Talbert Medical Management represents an excellent source of highly-respected primary and specialty care physicians in the Southwest, and dovetails with our existing network of providers extremely well," said Larry R. House, MedPartners' chairman and chief executive officer. "It also gives us an entree' into three new markets, Salt Lake City/Provo, Tucson, and Albuquerque which are among the major markets in the United States that we have targeted for entry or expansion. Their eight clinics in Phoenix and 24 in Southern California will also significantly increase our presence in these markets." "All of us at PacifiCare are supportive of this affiliation of Talbert with MedPartners," said Alan Hoops, president and chief executive officer of PacifiCare. "Because of the long-standing relationship we have with MedPartners, we are confident that the contractual agreements between our company and Talbert will be addressed in a manner which protects all parties' interests." Jack D. Massimino, president and chief executive officer of Talbert, noted "Talbert has always strived to achieve excellence in patient care and patient satisfaction. This makes for an excellent fit with MedPartners, which shares the same philosophy. This partnership gives our existing patients an even broader spectrum of physicians and services to choose from. It will also enhance the services received by current MedPartners clients by giving them access to our network of physicians and clinics. We are excited to be associated with MedPartners' more than 13,000 physicians, and have the benefit of their business and clinical expertise. MedPartners' Medical Advisory Committee is on the leading edge of medicine, allowing for the sharing of best clinical and administrative practices across the entire organization. Their physician-led, patient-centered approach is a model for the industry." -more- 3 Add 2 MedPartners/Talbert MedPartners, based in Birmingham, Alabama, is the nation's largest manager of physician practices, and after the Talbert acquisition will operate in 39 states. The company develops, consolidates and manages healthcare delivery systems. Through the company's network of affiliated group and IPA physicians, MedPartners provides primary and specialty healthcare services to prepaid managed care enrollees and fee-for-service patients. After the acquisition, the company will be affiliated with 13,410 physicians, which includes 3,270 group physicians, 7,688 IPA physicians, 2,211 hospital-based physicians, and 241 correctional and military care physicians. MedPartners also manages the nation's largest independent prescription benefits management (PBM) company. Through the PBM, the company dispenses 53 million prescriptions annually. -30- EDITOR'S NOTE: The attached charts show selected statistical information for MedPartners, Talbert and the combined companies. More information on MedPartners is available on the World Wide Web at http:// www.medpartners.com. Information may also be obtained by calling PR Newswire Company News on Call at 1-800-758-5804 extension 106751. 4 MEDPARTNERS/TALBERT COMBINED STATISTICAL DATA
MEDPARTNERS TALBERT COMBINED ----------- ------- -------- Physicians Group 2,988 282 3,270 IPA 7,688 -0- 7,688 Hospital-Based 2,211 -0- 2,211 Government Services 241 -0- 241 --------- ------- ------ Total 13,128 282 13,410 Capitated Lives Professional Only 998,380 270,090 1,268,470 Global 959,135 -0- 959,135 --------- ------- --------- Total 1,957,515 270,090 2,227,605 Payor Type (Lives) Commercial 1,583,470 182,090 1,765,560 Senior 163,531 88,000 251,531 Other 210,514 -0- 210,514 --------- ------- --------- Total 1,957,515 270,090 2,227,605 Practive Locations 659 52 711 Hospital-Based Contracts 327 -0- 327 Government Services Contracts 60 -0- 60
5 PHYSICIANS AND ENROLLEES IN SELECTED WESTERN STATES: MedPartners -----------
Group Commercial Senior Other Total State Physicians Sites Enrollees Enrollees Enrollees Enrollees - - ----- ---------- ----- ---------- --------- --------- --------- Arizona 15 5 13,000 1,000 1,000 15,000 California 1,286 174 1,111,000 104,000 112,000 1,327,000 Nevada 16 5 13,000 1,000 -0- 14,000 New Mexico -0- -0- -0- -0- -0- -0- Utah -0- -0- -0- -0- -0- -0- TOTAL 1,317 184 1,137,000 106,000 113,000 1,356,000
Talbert Medical Management --------------------------
Group Commercial Senior Other Total State Physicians Sites Enrollees Enrollees Enrollees Enrollees - - ----- ---------- ----- ---------- --------- --------- --------- Arizona 31 14 15,000 18,000 -0- 33,000 California 151 24 70,000 45,000 -0- 115,000 Nevada 4 2 1,000 2,000 -0- 3,000 New Mexico 23 5 12,000 12,000 -0- 24,000 Utah 73 7 84,000 11,000 -0- 95,000 TOTAL 282 52 182,000 88,000 -0- 270,000
EX-99.C(1) 10 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT (C)-1 ================================================================================ AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 14, 1997 AMONG MEDPARTNERS, INC., TALMED MERGER CORPORATION AND TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION ================================================================================ 2 TABLE OF CONTENTS AGREEMENT AND PLAN OF MERGER AMONG MEDPARTNERS, INC., TALMED MERGER CORPORATION AND TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
Page ---- Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Company Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3. Effect of the Merger on the Capital Stock of the Constituent Corporations; Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2 Payment of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.3 Certificate of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . 8 3.4 By-laws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.5 Directors and Officers of Surviving Corporation . . . . . . . . . . . . . . . . . . . . 8 Section 4. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . 9 4.1 Organization, Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . 9 4.2 Company Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.4 Foreign Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.5 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.6 SEC Filings; Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
i 3 4.7 Contracts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.8 Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.9 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.10 Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.11 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.12 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.13 Employee Benefit Plans; Employment Matters . . . . . . . . . . . . . . . . . . . . . . . 15 4.14 Compliance with Laws in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.15 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.16 Commissions and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.17 No Untrue Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.18 Amendment of Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.19 14D-1 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5. Representations and Warranties of the Parent and the Subsidiary . . . . . . . . . . . . 18 5.1 Organization, Existence and Good Standing of the Parent and Subsidiary . . . . . . . . . 18 5.2 Power and Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.3 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.4 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.5 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 No Contracts or Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.7 Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.8 The Parent to Cause Subsidiary to Perform . . . . . . . . . . . . . . . . . . . . . . . 19 5.9 Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.10 14D-9 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.11 Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 6. Access to Information and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.2 Return of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.3 Effect of Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 7. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7.1 Preservation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7.2 Material Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7.3 Exemption from State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.4 Public Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.5 Resignation of Company Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.6 Notice of Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.7 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.8 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.9 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.10 Additional Agreements Regarding Benefit Plans . . . . . . . . . . . . . . . . . . . . . 23 7.11 Physician Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ii 4 7.12 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.13 Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.14 Share Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 8. Termination, Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.5 Procedure for Termination, Amendment, Extension or Waiver . . . . . . . . . . . . . . . 27 8.6 Termination Fee; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 9. Conditions to the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.1 Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.1 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 29 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.5 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.6 Material Adverse Change or Material Adverse Effect . . . . . . . . . . . . . . . . . . . 30 10.7 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.12 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.13 No Rule of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Exhibit 1.1 Conditions of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 Exhibit 7.11 Nontransferable Warrant Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
iii 5 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of August 14, 1997 (the "Agreement"), among MEDPARTNERS, INC., a Delaware corporation (the "Parent"), TALMED MERGER CORPORATION, a Delaware corporation (the "Subsidiary"), and TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION, a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, the respective Boards of Directors of the Parent, the Company and the Subsidiary have each determined that it is in the best interests of their respective stockholders for the Parent to acquire the Company upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, the Parent proposes to cause the Subsidiary to make a tender offer (as it may be amended from time to time as permitted under this Agreement, the "Offer") to purchase all the outstanding shares of Common Stock, par value $.01 per share, of the Company and associated Rights, as defined in Section 4.2 ("Company Common Stock" or "Company Shares"), at a purchase price of US$63.00 per share (such amount, or any greater amount to be paid per share of Company Common Stock in the Offer, being referred to as the "Per Share Amount"), net to the seller in cash, upon the terms and subject to the conditions set forth in this Agreement and in the Offer; and the Board of Directors of the Company has unanimously approved the Offer and is recommending that the Company's stockholders accept the Offer and tender their shares of Company Common Stock pursuant to the Offer; WHEREAS, in furtherance of such acquisition, the respective Boards of Directors of the Parent, the Company and the Subsidiary have approved the merger of the Subsidiary with and into the Company (the "Merger") upon the terms and subject to the conditions set forth in this Agreement and in accordance with the provisions of the Delaware General Corporation Law (the "DGCL"), whereby each share of Company Common Stock, other than shares owned directly or indirectly by the Parent or by the Company and other than Dissenting Shares (as defined in Section 3.1(d)), will be converted into the right to receive the Per Share Amount; and WHEREAS, each of the Parent, the Subsidiary and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and also to prescribe various conditions to the Offer. NOW, THEREFORE, in consideration of the premises, and the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: 1 6 SECTION 1. THE OFFER 1.1 The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable, but in no event later than five business days after the date of the public announcement of this Agreement, the Subsidiary shall, and the Parent shall cause the Subsidiary to, commence the Offer. The obligation of the Subsidiary to, and of the Parent to cause the Subsidiary to, commence the Offer and accept for payment, and pay for, any shares of Company Common Stock tendered pursuant to the Offer shall be subject to the conditions set forth in Exhibit 1.1 (any and all of which may, except as limited by the following sentence, be waived in whole or in part by the Subsidiary in its sole discretion), and to the terms and conditions of this Agreement. The Subsidiary expressly reserves the right to modify the terms and conditions of the Offer, except that, without the prior written consent of the Company or as expressly permitted by this Agreement, the Subsidiary shall not (i) reduce the number of shares of Company Common Stock subject to the Offer, (ii) reduce the Per Share Amount, (iii) modify or add to the conditions set forth in Exhibit 1.1, (iv) allow the Offer to expire prior to September 19, 1997; (v) except as provided in the following sentence, extend the term of the Offer, (vi) change the form of consideration payable in the Offer or (vii) make any other modifications that are otherwise materially adverse to holders of Company Common Stock. Notwithstanding the foregoing, the Subsidiary may, without the consent of the Company, (A) extend the term of the Offer on one or more occasions beyond any scheduled expiration date of the Offer if, at any such scheduled expiration date, any of the conditions to the Subsidiary's obligation to accept for payment, and pay for, shares of Company Common Stock tendered pursuant to the Offer shall not have been satisfied or waived (provided, however, that the Subsidiary may not extend the Offer under this subsection (A) for a total of more than 60 days from the commencement of the Offer), (B) extend the Offer for a period not to exceed 10 business days, notwithstanding that all conditions to the Offer are satisfied as of such expiration date of the Offer, if, immediately prior to that expiration date (as it may be extended), the Company Shares validly tendered and not withdrawn pursuant to the Offer equal more than 75% but less than 90% of the outstanding Company Shares, and (C) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer or any other applicable law. (b) The Per Share Amount shall, subject to applicable withholding of taxes, be net to the seller in cash, upon the terms and subject to the conditions of the Offer. Subject to the terms and conditions of the Offer and this Agreement, the Subsidiary shall, and the Parent shall cause the Subsidiary to, pay for all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer promptly after the expiration of the Offer. The Parent shall provide or cause to be provided to the Subsidiary on a timely basis the funds necessary to pay for any shares of Company Common Stock that the Subsidiary becomes obligated to accept for payment, and pay for, pursuant to the Offer or this Agreement. (c) On the date of commencement of the Offer, the Parent and the Subsidiary shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule 14D-1 and the documents included therein pursuant to which the Offer will be 2 7 made, together with any supplements or amendments thereto, the "Offer Documents"). The Parent and the Subsidiary agree that the Offer Documents shall comply as to form in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder and, on the date filed with the SEC and when first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Parent or the Subsidiary with respect to information supplied by the Company for inclusion in the Offer Documents or incorporated therein by reference to any statement, report or other document filed by or on behalf of the Company with the SEC. Each of the Parent, the Subsidiary and the Company agrees to correct promptly any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of the Parent and the Subsidiary further agrees to take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given reasonable opportunity to review and comment upon the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. The Parent and the Subsidiary agree to provide the Company and its counsel any comments the Parent, the Subsidiary or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments and shall provide the Company and its counsel an opportunity to participate in the response of the Parent and/or the Subsidiary to such comments. 1.2 Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that the Board of Directors of the Company, at a meeting duly called and held, has by unanimous vote of those present adopted resolutions (i) approving this Agreement, the Offer and the Merger, (ii) determining that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company's stockholders, and (iii) recommending that the Company's stockholders accept the Offer, tender their shares pursuant to the Offer and approve this Agreement. Subject to the fiduciary duties of the Board under applicable law as advised by independent counsel (which may be the Company's regularly engaged outside counsel) ("Independent Counsel"), the Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Board described in the immediately preceding sentence. The Company has been advised by each of its directors and executive officers that, subject to their fiduciary and contractual obligations, they intend to tender all shares of Company Common Stock beneficially owned by them to the Subsidiary pursuant to the Offer, unless to do so would potentially subject them to short-swing liability under Section 16 of the Exchange Act. (b) On the date the Offer Documents are filed with the SEC, or as soon thereafter as is practicable, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") containing, subject to the fiduciary duties of the Board under 3 8 applicable law as advised by Independent Counsel, the recommendation described in Section 1.2(a) and shall mail the Schedule 14D-9 to the stockholders of the Company. The Company agrees that the Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and when first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by the Parent or the Subsidiary for inclusion in the Schedule 14D-9. Each of the Company, the Parent and the Subsidiary agrees to correct promptly any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. The Parent and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide the Parent and its counsel with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments and shall provide the Parent and its counsel an opportunity to participate in the response of the Company to such comments. (c) In connection with the Offer, the Company shall cause its transfer agent to furnish the Subsidiary promptly with mailing labels containing the names and addresses of the record holders of Company Common Stock as of the most recent practicable date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Company Common Stock, and shall furnish to the Subsidiary such information and assistance (including updated lists of stockholders, security position listings and computer files) as the Parent may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, the Parent and the Subsidiary shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will, upon request, deliver to the Company all copies of such information then in their possession or control. 1.3 Directors. (a) Promptly upon the purchase of Company Shares by the Subsidiary pursuant to the Offer, seven of the Company's nine directors will resign, and the Parent shall designate three replacements for appointment or election to the Company's Board of Directors. The Company shall, upon request of the Subsidiary, use its best efforts promptly to cause the Parent's designees to be so appointed or elected. The remaining two directors (and any successors appointed or elected before the Effective Time, as defined in Section 2.3 below, 4 9 which successors shall not be affiliated with the Parent) are referred to as the "Original Directors." The Company shall promptly take all actions required by Section 14(f) of the Exchange Act and related Rule 14f-1 in order to fulfill its obligations under this Section 1.3(a), including mailing to stockholders the required information (or, at the Parent's request, furnishing such information to the Parent for inclusion in the Offer Documents initially filed with the SEC and distributed to the stockholders of the Company) as is necessary to enable the Parent's designees to be elected to the Company's Board of Directors. The Parent or the Subsidiary will supply the Company in writing, and be solely responsible for, any information with respect to either of them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1 as is necessary in connection with the appointment of any of the Parent's designees under Section 1.3(a). (b) Once the Parent's designees constitute a majority of the Company's Board of Directors, any amendment of this Agreement, any termination of this Agreement by the Company, any extension of time for performance of any of the obligations of the Parent or the Subsidiary hereunder, any waiver of any condition or any of the Company's rights hereunder or other action by the Company hereunder may be effected only by the joint action of the Original Directors. SECTION 2. THE MERGER 2.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, the Subsidiary shall be merged with and into the Company at the Effective Time (as defined in Section 2.3). Following the Effective Time, the separate corporate existence of the Subsidiary shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") as a business corporation incorporated under the laws of the State of Delaware under a name to be designated by the Parent and shall succeed to and assume all the rights and obligations of the Subsidiary and the Company in accordance with the DGCL. 2.2 The Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. Central Time on a date to be specified by the parties (the "Closing Date"), which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Section 9.1, at the offices of Haskell Slaughter & Young, L.L.C., Birmingham, Alabama, unless another date or place is agreed to in writing by the parties hereto. 2.3 Effective Time. Subject to the provisions of this Agreement, the Company and the Subsidiary shall file a Certificate of Merger (the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL, and shall make all other filings or recordings required under the DGCL to effect the Merger on the Closing Date. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware, or at such other time as the Parent, the Subsidiary and the Company shall agree should be specified in the Certificate of Merger (the "Effective Time"). 5 10 2.4 Effect of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. Without limiting the generality of the foregoing, and subject thereto and any other applicable laws, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and the Subsidiary shall vest in the Surviving Corporation, and all debts, liabilities, restrictions, disabilities and duties of the Company and the Subsidiary shall become the debts, liabilities, restrictions, disabilities and duties of the Surviving Corporation. SECTION 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; MERGER CONSIDERATION 3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of any holder of the Company Shares or any shares of capital stock of the Subsidiary: (a) Subsidiary Common Stock. Each share of Common Stock, par value $.01 per share, of the Subsidiary issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Cancellation of Certain Shares of Company Common Stock. Each share of Company Common Stock that is owned by the Company, the Parent or by any subsidiary of the Company or the Parent shall automatically be canceled and retired and shall cease to exist, and no cash or other consideration shall be delivered in exchange therefor. (c) Conversion of the Company Shares. At the Effective Time, each Company Share (other than the Company Shares to be canceled in accordance with Section 3.1(b)) issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive the Per Share Amount (the "Merger Consideration"). Upon such conversion, all such Company Shares shall be canceled and cease to exist, and each holder thereof shall cease to have any rights with respect thereto other than the right to receive the Merger Consideration paid in exchange therefor in accordance with the terms provided herein. (d) No Conversion of Dissenting Shares. Notwithstanding Section 3.1(c), if dissenters rights are available in connection with the Merger pursuant to Section 262 of the DGCL, shares of Company Common Stock held by a holder who has not voted in favor of the Merger and who, subject to and in accordance with Section 262 of the DGCL, has demanded and perfected such holder's right to an appraisal of such holder's shares of Company Common Stock and has not effectively withdrawn or lost the right to such appraisal ("Dissenting Shares"), shall not be converted into a right to receive the Merger Consideration, unless such holder withdraws or otherwise loses the right to appraisal for such holder's shares of Company Common Stock. If after the Effective Time such holder withdraws or loses the right to appraisal for such holder's shares of Company Common Stock, such shares of Company Common Stock shall be treated as if they had been converted as of the Effective Time into the right to receive the Merger 6 11 Consideration payable in respect of such shares of Company Common Stock pursuant to Section 3.1(c). 3.2 Payment of Merger Consideration. (a) Payment Agent. Prior to the expiration date of the Offer, the Parent shall designate a bank or trust company reasonably acceptable to the Company to act as payment agent in the Merger (the "Payment Agent"), and, from time to time, prior to or after the Effective Time, the Parent shall make available, or cause the Surviving Corporation to make available, to the Payment Agent cash in amounts and at the times necessary for the payment of the Merger Consideration (the "Payment Fund") upon surrender of certificates representing Company Common Stock as part of the Merger pursuant to Section 3.1. (b) Exchange Procedure. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause the Payment Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the "Certificates"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Payment Agent and shall be in such form and have such other provisions as the Parent may specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Payment Agent or to such other agent or agents as may be appointed by the Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Parent that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 3.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the shares of Company Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 3.1. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. (c) Termination of Payment Fund. If any portion of the Payment Fund remains undistributed to the holders of the Certificates for six months after the Effective Time, the Parent may require the Payment Agent to deliver such portion to the Parent, and any holders of the Certificates who have not theretofore complied with this Section 3 shall thereafter look only to the Parent for payment of the Merger Consideration. 7 12 (d) No Liability. None of the Parent, the Surviving Corporation or the Payment Agent shall be liable to any person in respect of any of the Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (e) Investment of Payment Fund. The Payment Agent shall invest such portions of the Merger Consideration as the Parent directs (it being understood that any and all interest earned on funds made available to the Payment Agent pursuant to this Agreement shall be the property of, and shall be turned over to, the Parent), provided that such investments shall be in obligations of or guaranteed by the United States of America or of any agency thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Services, Inc. or Standard & Poor's Corporation, respectively, or in deposit accounts, certificates of deposit or banker's acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from, commercial banks with capital, surplus and undivided profits aggregating in excess of US$100 million (based on the most recent financial statements of such bank which are then publicly available at the SEC or otherwise). The Merger Consideration shall not be used for any other purpose, except as provided in this Agreement. (f) No Further Ownership Rights in Company Common Stock. All cash paid upon the surrender of Certificates in accordance with this Section 3 shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock theretofore represented by such Certificates, and, from and after the Effective Time, there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Payment Agent for any reason, they shall be cancelled and exchanged as provided in this Section 3. 3.3 Certificate of Incorporation of Surviving Corporation. The Certificate of Incorporation of the Subsidiary, effective immediately following the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation from and after the Effective Time and until thereafter amended as provided by law and such Certificate of Incorporation; provided, however, that at the Effective Time of the Merger such Certificate of Incorporation shall be amended to change the Surviving Corporation's name as contemplated by Section 2.1. 3.4 By-laws of Surviving Corporation. The By-laws of the Subsidiary shall be the By-laws of the Surviving Corporation from and after the Effective Time and until thereafter altered, amended or repealed in accordance with the DGCL, the Certificate of Incorporation of the Surviving Corporation and the said By-laws. 3.5 Directors and Officers of Surviving Corporation. The directors and officers of the Subsidiary immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation. 8 13 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Parent and the Subsidiary as follows: 4.1 Organization, Existence and Good Standing. The Company is a Delaware corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all necessary corporate power to own its properties and assets and to carry on its business as presently conducted. 4.2 Company Capital Stock. The Company's authorized capital consists of 15 million shares of Common Stock and 1.2 million shares of preferred stock, no par value (the "Preferred Stock") of which 3,000,758 shares of Common Stock and no shares of Preferred Stock are issued and outstanding as of the date of this Agreement. Pursuant to a Rights Agreement, dated as of May 21, 1997, as amended, by and between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agreement"), the Company has issued to its stockholders certain rights (the "Rights") to purchase shares of Junior Participating Cumulative Preferred Stock of the Company, which Junior Participating Cumulative Preferred Stock is, under certain circumstances, convertible into Company Common Stock. There were 174,252 shares of Company Common Stock reserved for issuance upon exercise of outstanding Stock Options (as defined in Section 7.10) as of the date of this Agreement. All of the issued and outstanding Company Shares are duly and validly issued, fully paid and nonassessable. Except for the Rights Agreement or as set forth in Exhibit 4.2 to the Disclosure Schedule delivered to the Parent and the Subsidiary by the Company at the time of the execution and delivery of this Agreement (the "Company Disclosure Schedule"), there are no options, warrants, or similar rights granted by the Company or any other agreements to which the Company is a party providing for the issuance or sale by it of any additional securities which would remain in effect after the Effective Time. There is no liability for dividends declared or accumulated but unpaid with respect to any of the Company Shares. 4.3 Subsidiaries. (a) Exhibit 4.3 to the Company Disclosure Schedule lists all of the Company's subsidiaries (the "Company Subsidiaries") and states with respect to each Company Subsidiary, its jurisdiction of incorporation, its authorized and outstanding capital stock, and the ownership of its outstanding voting securities. Other than the Company Subsidiaries and except as described in such Exhibit 4.3, the Company does not own stock in and does not control, directly or indirectly, any other corporation, association or business organization, nor does the Company own an equity interest in, or control, directly or indirectly, any other joint venture or partnership. (b) Each Company Subsidiary is duly organized in its jurisdiction of organization, is validly existing and in good standing in that jurisdiction, and has all necessary corporate power to own its properties and assets and to carry on its business as presently conducted. (c) Except as set forth in Exhibit 4.3 to the Company Disclosure Schedule, (i) all of the issued and outstanding shares of each Company Subsidiary are duly and validly issued, fully paid and nonassessable, and held of record and beneficially by the Company, and (ii) there are 9 14 no options, warrants, or similar rights granted by the Company or any Company Subsidiary, or any other agreements to which the Company or any Company Subsidiary is a party, providing for the issuance or sale by the Company or any Company Subsidiary of any Company Subsidiary securities and which would remain in effect after the Effective Time. 4.4 Foreign Qualifications. The Company and each Company Subsidiary is qualified to do business and is in good standing in each jurisdiction where the nature or character of the property owned, leased or operated by it or the nature of the business transacted by it makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect on its business or operations. 4.5 Power and Authority. Subject to the satisfaction of the conditions precedent set forth herein, the Company has the corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered or to be executed and delivered by it pursuant to this Agreement, and, subject to the satisfaction of the conditions precedent set forth herein has taken all action required by its Certificate of Incorporation, By-laws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. Except as set forth in Exhibit 4.5 to the Company Disclosure Schedule, the execution and delivery of this Agreement does not and, subject to the receipt of required regulatory approvals (and, in the case of the Merger if less than 90% of the Company Shares are purchased in the Offer, Company stockholder approval) and any other required third-party consents or approvals, the consummation of the Offer and Merger will not, violate any provisions of the Certificate of Incorporation or By-laws of the Company or any provisions of, or result in the acceleration of any obligation under, any mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree, to which the Company is a party, or by which it is bound, or violate any restrictions of any kind to which they are subject which, if violated or accelerated would have a material adverse effect on the Company. 4.6 SEC Filings; Financial Information. (a) The Company has filed with the SEC and made available to the Parent all forms, reports and documents required to be filed with the SEC (the "Company SEC Reports"). The Company SEC Reports (i) were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not at the time of filing (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports was prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), and each fairly presents in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as at the respective dates thereof and the consolidated statements of income and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal 10 15 and recurring year-end adjustments. The unaudited Balance Sheet dated June 30, 1997 included in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997 is referred to as the "Company Balance Sheet." 4.7 Contracts, etc. Exhibit 4.7 to the Company's Disclosure Schedule lists all of the Company's "Material Contracts," defined as all agreements to which the Company or any Company Subsidiary is a party or by which any of them is bound, and which, as of the date of this Agreement, (i) would be required to be filed as "material contracts" with the SEC pursuant to the Exchange Act, or (ii) under which the consequences of a default, nonrenewal or termination would have a material adverse effect on the Company (collectively, the "Material Contracts"). The Company has made the Material Contracts available to the Parent. Except as set forth in Exhibit 4.7 to the Company Disclosure Schedule, to the Company's knowledge: (a) All Material Contracts are (i) legally valid and binding in accordance with their terms, (ii) in full force and effect, and (iii) do not violate any federal, state or local law, rule, regulation or ordinance, and the Company has provided the Parent and the Subsidiary with copies of all such documents. All parties to the Material Contracts have complied with the provisions of the Material Contracts, except for such failures as do not, individually or in the aggregate, have a material adverse effect on the Company. No party is in default under any Material Contract, and no event has occurred which, but for the passage of time or the giving of notice or both, would constitute a default thereunder, except, in each case, where the invalidity of the Material Contract or the default or breach thereunder or thereof would not, individually or in the aggregate, have a material adverse effect on the Company. As of the date hereof, the Company has not received any notice of termination or cancellation or a request to renegotiate any Material Contract. (b) No Material Contract will, by its terms, terminate as a result of the transactions contemplated hereby or require any consent from any obligor thereto in order to remain in full force and effect immediately after the Effective Time, except for contracts or agreements which, if terminated, would not have a material adverse effect on the Company. (c) The Company has not granted any right of first refusal or similar right in favor of any third party with respect to any material portion of its properties or assets (excluding liens described in Section 4.8) or entered into any non-competition agreement or similar agreement restricting its ability to engage in any business in any location. 4.8 Properties and Assets. The Company or one of the Company Subsidiaries owns or leases all of the real and personal property included in the Company Balance Sheet (except assets recorded under capital lease obligations and such property as has been disposed of during the ordinary course of the Company's business since the date of the Company Balance Sheet), free and clear of any liens, claims, charges, exceptions or encumbrances, except for those if any, which in the aggregate are not material and which do not materially affect the continued use of such property. 11 16 4.9 Legal Proceedings. Except as listed in Exhibit 4.9 to the Company Disclosure Schedule, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against the Company, at law or in equity, relating to or affecting the Company, that would reasonably be expected to have a material adverse effect on the Company or the transactions contemplated by this Agreement. 4.10 Subsequent Events. Except as set forth in Exhibit 4.10 to the Company Disclosure Schedule or as contemplated by this Agreement, the Company has not, since the date of the Company Balance Sheet: (a) Incurred any material adverse change. (b) Discharged or satisfied any material lien or encumbrance, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the Company Balance Sheet or (ii) liabilities incurred or due since the date of the Company Balance Sheet in the ordinary course of business, which discharge or satisfaction would have a material adverse effect on the Company. (c) Increased or established any reserve for taxes or any other liability on its books or otherwise provided therefor which would have a material adverse effect on the Company, except as may have been required due to income or operations of the Company since the date of the Company Balance Sheet. (d) Mortgaged, pledged or subjected to any material lien, charge or other encumbrance any of the assets, tangible or intangible, which assets are material to the business or financial condition of the Company. (e) Sold or transferred any of the assets material to the consolidated business of the Company, canceled any material debts owed to the Company or claims reflected as assets on the Company Balance Sheet, or waived any material rights, except in the ordinary course of business. (f) Granted any general or uniform increase in the rates of pay of employees or any material increase in salary payable or to become payable by the Company to any officer or employee, consultant or agent (other than normal increases consistent with past practices), or by means of any bonus or pension plan, contract or other commitment, increased in a material respect the compensation of any officer, employee, consultant or agent. (g) Except for this Agreement and any other agreement executed and delivered pursuant to this Agreement, entered into any material transaction other than in the ordinary course of business or permitted under other sections of this Agreement. 12 17 (h) Issued any stock (other than pursuant to the Stock Incentive Plans, as defined in Section 7.10), bonds or other securities or any options or rights to purchase any of its securities. 4.11 Accounts Receivable. Since the date of the Company Balance Sheet, the Company has not changed any principle or practice with respect to the recordation of accounts receivable or the calculation of reserves therefor, or any material collection, discount or write-off policy or procedure. The Company is in compliance with the terms and conditions of all third-party payor arrangements relating to its accounts receivable, except to the extent that such noncompliance would not have a material adverse effect on the Company. 4.12 Tax Matters. Except as set forth in Exhibit 4.12 to the Company Disclosure Schedule: (a) Prior to its separation from FHP International Corporation ("FHP") on February 14, 1997, the responsibility for filing the Tax Returns of each of the Talbert Entities (as defined below in this Section 4.12) was administered by FHP, and subsequently by PacifiCare Health Systems, Inc. ("PacifiCare"). Except for any tax periods prior to February 15, 1997, and based upon the best knowledge of the officers of the Company: (i) Each of the Talbert Entities (as defined below in this Section 4.12) has filed all Tax Returns (as defined below in this Section 4.12) that it was required to file. All such Tax Returns were materially correct and materially complete in all respects. All material Taxes (as defined below in this Section 4.12) owed by any of the Talbert Entities (whether or not shown on any Tax Return) have been paid. None of the Talbert Entities currently is the beneficiary of any extension of time within which to file any Tax Return. No material claim has ever been made by an authority in a jurisdiction where any of the Talbert Entities does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no material security interests on any of the assets of any of the Talbert Entities that arose in connection with any failure (or alleged failure) to pay any Tax. (ii) Each of the Talbert Entities has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party. (iii) There is no material dispute or claim concerning any Tax liability of any of the Talbert Entities either (A) claimed or raised by any authority in writing or (B) as to which any of the officers (and employees responsible for Tax matters) of the Talbert Entities has knowledge based upon personal contact with any agent of such authority. 13 18 (iv) None of the Talbert Entities has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (v) None of the Talbert Entities has filed a consent under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code") concerning collapsible corporations. None of the Talbert Entities has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). Except as set forth on Exhibit 4.12(a) to the Company Disclosure Schedule, none of the Talbert Entities is a party to any Tax allocation or sharing agreement. Except as set forth on such Exhibit 4.12(a), none of the Talbert Entities has any liability for the Taxes of any person (other than any of the Talbert Entities) under Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) The unpaid Taxes of the Talbert Entities (A) did not, as of June 30, 1997, materially exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth in the Company Balance Sheet (or in any notes thereto) and (B) do not materially exceed that reserve as adjusted for the passage of time through the consummation of the Offer in accordance with the past custom and practice of the Talbert Entities in filing their Tax Returns. (vii) As of February 28, 1997, the Company and the Company Subsidiaries did not have any receivables from or any liabilities payable to any of the other Talbert Entities. (viii) As discussed in Section 6, the Company has made or will make available to the Parent all Tax Returns and tax records of the Talbert Entities (or copies of such returns or records) currently in possession of any of the Talbert Entities. (b) With respect to the June 30, 1996 Tax Returns filed by FHP, the officers of the Company are not aware of any failure by FHP to include the Talbert Entities in its: (i) consolidated federal income tax return as members of an affiliated group within the meaning of Code Section 1504(a), (ii) California unitary return as members of a unitary group, (iii) Arizona combined return as members of a unitary business or (iv) combined Utah return as members of a unitary group. (c) The officers of the Company are not aware of any material unrecorded liabilities for Taxes for any of the Talbert Entities nor any material 14 19 unrecorded liabilities to FHP under the Tax Allocation Agreement listed in Exhibit 4.12 to the Company Disclosure Schedule for the periods preceding February 15, 1997. (d) The officers of the Company are not aware of any Tax Returns due for the Talbert Entities for Tax periods preceding February 15, 1997 which FHP has not timely filed or caused to be filed. (e) The Company shall use its reasonable efforts to obtain copies of all Tax returns (or portions of returns related to any of the Talbert Entities) filed on behalf of the Talbert Entities that are in the possession of PacifiCare or its related entities and shall make such available to the Parent prior to the Closing Date. (f) Prior to February 14, 1997, the Company was dormant and had no material operations. (g) To the Company's knowledge, FHP has never owned of record any shares of common stock of the Company. (h) Definitions: "Talbert Entities" means the Company, Talbert Medical Management Corporation, Talbert Health Services Corporation. Robert Anderson, DDS, Inc. (CA), (dba Talbert Dental Group); James Brodahl, DDS, Inc. (CA), (dba Talbert Dental Group); Larry Kaban, DDS, Inc. (CA), (dba Talbert Dental Group); John Whitley, DDS, Inc. (CA), (dba Talbert Dental Group); Talbert Medical Group, Inc. (CA), (dba Talbert Medical Group); Talbert Medical Group, LTD. (NV); Talbert Dental Group, P.C. (AZ); Talbert Medical Group, P.C. (AZ); Talbert Dental Group, Inc. (UT); and Talbert Medical Group, Inc. (UT). "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 4.13 Employee Benefit Plans; Employment Matters. (a) Except as set forth in Exhibit 4.13(a) to the Company Disclosure Schedule, the Company has neither established nor 15 20 maintained nor is obligated to make contributions to or under or otherwise participate in (i) any bonus or other type of incentive compensation plan, program or arrangement (whether or not set forth in a written document), (ii) any pension, profit-sharing, retirement or other plan, program or arrangement, or (iii) any other employee benefit plan, fund or program, including, but not limited to, those described in Section 3(3) of ERISA. To the Company's knowledge, all such plans listed in such Exhibit 4.13(a) (individually, a "Company Plan" and collectively, the "Company Plans") have been operated and administered in all material respects in accordance with, as applicable, ERISA, the Code, the Age Discrimination in Employment Act of 1967, as amended, and the related rules and regulations adopted by those federal agencies responsible for the administration of such laws. To the Company's knowledge, no act or failure to act by the Company has resulted in a "prohibited transaction" (as defined in ERISA) with respect to the Company Plans that is not subject to a statutory or regulatory exception and that could have a material adverse effect on the Company. No "reportable event" (as defined in ERISA, but excluding any event for which notice is waived under the ERISA regulations) has occurred with respect to any of the Company Plans which is subject to Title IV of ERISA. The Company has not previously made, is not currently making, and is not obligated in any way to make, any contributions to any multi-employer plan within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980. (b) Except as set forth in Exhibit 4.13(b) to the Company Disclosure Schedule, the Company is not a party to any oral or written (i) union, guild or collective bargaining agreement which agreement covers employees in the United States (nor is it aware of any union organizing activity currently being conducted in respect to any of its employees), (ii) agreement with any executive officer or other key employee the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction of the nature contemplated by this Agreement and which provides for the payment of in excess of Twenty-Five Thousand Dollars ($25,000.00), or (iii) agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement (except as set forth in this Agreement). 4.14 Compliance with Laws in General. Except as set forth in Exhibit 4.14 to the Company Disclosure Schedule, the Company has not received any notices of, nor to the best of its knowledge, have there been any, violations of any federal, state and local laws, regulations and ordinances relating to its business and operations that would have a material adverse effect on the Company, including, without limitation, the Occupational Safety and Health Act, the Americans with Disabilities Act, the Medicare or applicable Medicaid statutes and regulations, including billing and coding, and any Environmental Laws, and no notice of any pending inspection or violation of any such law, regulation or ordinance has been received by the Company which, if it were determined that a violation had occurred, would have a material adverse effect on the Company. 16 21 4.15 Regulatory Approvals. Except as set forth in Exhibit 4.15 to the Company Disclosure Schedule, to the knowledge of the Company, the Company holds all licenses, certificates of need and other regulatory approvals required or necessary to be applied for or obtained in connection with its business as presently conducted or as proposed to be conducted, except where the failure to obtain such license, certificate of need or regulatory approval would not have a material adverse effect on the Company. All such licenses, certificates of need and other regulatory approvals relating to the business, operations and facilities of the Company are in full force and effect, except where any failure of such license, certificate of need or regulatory approval to be in full force and effect would not have a material adverse effect on the Company. Any and all past litigation concerning such licenses, certificates of need and regulatory approvals, and all claims and causes of action raised therein, has been finally adjudicated. No such license, certificate of need or regulatory approval has been revoked, conditioned (except as may be customary) or restricted, and no action (equitable, legal or administrative), arbitration or other process is pending, or to the best knowledge of the Company, threatened, which in any way challenges the validity of, or seeks to revoke, condition or restrict any such license, certificate of need, or regulatory approval. Subject to compliance with applicable securities laws and the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), the consummation of the Merger will not violate any law or restriction to which the Company is subject which, if violated, would have a material adverse effect on the Company. 4.16 Commissions and Fees. There are no valid claims for brokerage commissions or finder's or similar fees in connection with the transactions contemplated by this Agreement which may be now or hereafter asserted against the Parent or the Company resulting from any action taken by the Company or its officers, Directors or agents, or any of them, except for fees owed to Smith Barney Inc. 4.17 No Untrue Representations. No representation or warranty by the Company in this Agreement, and no Exhibit or certificate issued by the Company and furnished or to be furnished to the Parent and the Subsidiary pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact in response to the disclosure requested, or omits or will omit to state a material fact necessary to make the statements or facts contained therein in response to the disclosure requested not misleading in light of all of the circumstances then prevailing. 4.18 Amendment of Rights Agreement. The Rights Agreement has been duly and validly amended to the extent necessary to permit the Parent and the Subsidiary to perform their obligations under this Agreement and consummate the transactions contemplated hereby. 4.19 14D-1 Information. The information supplied, and to be supplied to, the Parent in writing by the Company for inclusion in the Parent's Schedule 14D-1 shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 17 22 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUBSIDIARY Each of the Parent and the Subsidiary hereby, jointly and severally, represent and warrant to the Company as follows: 5.1 Organization, Existence and Good Standing of the Parent and Subsidiary. (a) The Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Parent has all necessary corporate power and authority to own its properties and assets and to carry on its business as presently conducted. The Parent is qualified to do business and is in good standing in each jurisdiction where the nature or character of the property owned, leased or operated by it or the nature of the business transacted by it makes such qualification necessary, except where the failure to be so qualified or be in good standing would not have a material adverse effect. (b) The Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Subsidiary's authorized capital consists of 1,000 shares of Common Stock, par value $.01 per share, all of which shares are validly issued and outstanding, fully paid and registered in the name of and owned by the Parent free and clear of all liens, claims and encumbrances. The Subsidiary has all necessary corporate power and authority to own its properties and assets and to carry on its business as presently conducted. The Subsidiary is qualified to do business and is in good standing in each jurisdiction where the nature or character of the property owned, leased or operated by it or the nature of the business transacted by it makes such qualification necessary, except where the failure to be so qualified or be in good standing would not have a material adverse effect. 5.2 Power and Authority; Non-Contravention. (a) Each of the Parent and the Subsidiary has all necessary corporate power and authority to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered, or to be executed and delivered, by it pursuant to this Agreement, and, subject to the satisfaction of the conditions precedent set forth herein, has taken all actions required by law, its Certificate of Incorporation, its By-laws or otherwise, to authorize the execution and delivery of this Agreement and such related documents. The Agreement has been duly and validly executed and delivered by the Parent and the Subsidiary and, assuming the due authorization, execution and delivery by the Company, constitutes the legal, valid and binding obligation of each of them, enforceable in accordance with its terms. (b) The execution and delivery of this Agreement does not and, subject to compliance with the HSR Act, the consummation of the transactions contemplated hereby will not, violate any provisions of the Certificate of Incorporation or By-laws of either the Parent or the Subsidiary, or any agreement, instrument, order, judgment or decree to which the Parent or the Subsidiary is a party or by which either is bound, violate any restrictions of any kind to which the Parent or the Subsidiary is subject, or result in the creation of any lien, charge or encumbrance upon any of the property or assets of the Subsidiary. 18 23 5.3 Brokers. There are no claims for brokerage commissions, investment bankers' fees or finder's fees in connection with the transaction contemplated by this Agreement resulting from any action taken by either the Parent or the Subsidiary or any of its officers, directors or agents, except for fees owed to NationsBanc Capital Markets, Inc. 5.4 No Subsidiaries. The Subsidiary does not own stock in, and does not control directly or indirectly, any other corporation, association or business organization. The Subsidiary is not a party to any joint venture or partnership. 5.5 Legal Proceedings. There are no actions, suits or proceedings pending or threatened against either the Parent or the Subsidiary, that could reasonably be expected to have a material adverse effect on the ability of the Parent or the Subsidiary to consummate the transactions contemplated by this Agreement. 5.6 No Contracts or Liabilities. The Subsidiary was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. Other than the obligations created under this Agreement, the Subsidiary has no obligations or liabilities (contingent or otherwise) under any contracts, claims, leases, loans or otherwise. 5.7 Available Funds. The Parent has funds available sufficient to consummate the Offer and the Merger on the terms contemplated by this Agreement. The Parent and the Subsidiary acknowledge, however, that they are in any case obligated to accept for payment and promptly pay for all Company Shares validly tendered pursuant to the Offer, subject to the conditions of the Offer, and to consummate the Merger as contemplated by this Agreement. 5.8 The Parent to Cause Subsidiary to Perform. The Parent shall cause the Subsidiary to fulfill the Subsidiary's covenants and obligations under this Agreement. 5.9 Other Transactions. The Parent and its affiliates are not engaged in, or intending to engage in or announce, prior to the Effective Time, any other acquisition or similar transaction in the markets served by the Company and the Company Subsidiaries. 5.10 14D-9 Information. The information supplied, and to be supplied, to the Company in writing by the Parent and the Subsidiary for inclusion in the Company's Schedule 14D-9 shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 5.11 Company Shares. Neither the Parent nor any of its affiliates holds as of the date of this Agreement, or shall hold at any time prior to the consummation of the Offer, any Company Shares. 19 24 SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS 6.1 Access to Information. Between the date hereof and the Closing Date, the Company will give to the Parent and its counsel, accountants and other representatives reasonable access to all the Company's properties, documents, contracts, personnel files and other records and shall furnish the Parent with copies of such documents and with such information with respect to the Company's affairs as the Parent may from time to time reasonably request. The Company will disclose and make available to the Parent and its representatives all books, contracts, accounts, personnel records, letters of intent, papers, records, communications with regulatory authorities and other documents relating to the business and operations of the Company. In addition, the Company shall make available to the Parent all such banking, investment and financial information as shall be necessary to allow for the efficient integration of the Company's banking, investment and financial arrangements with those of the Parent at the Effective Time. 6.2 Return of Records. If the transactions contemplated hereby are not consummated and this Agreement terminates, each party agrees to promptly return all documents, contracts, records or properties of the other party, all copies thereof furnished pursuant to this Section 6 or otherwise, and all copies thereof made by or for the receiving party, and agrees to promptly destroy any analyses, evaluations, compilations or other materials derived from such documents. All information disclosed by any party or any affiliate or representative of any party shall be deemed to be "Evaluation Material" under the terms of the Confidentiality Agreement, dated July 23, 1997, between the Company and the Parent (the "Confidentiality Agreement"). 6.3 Effect of Access. Nothing contained in this Section 6 shall be deemed to create any duty or responsibility on the part of either party to investigate or evaluate the value, validity or enforceability of any contract, lease or other asset included in the assets of the other party. With respect to matters as to which any party has made express representations or warranties herein, the parties shall be entitled to rely upon such express representations and warranties irrespective of any investigations made by such parties, except to the extent that such investigations result in actual knowledge of the inaccuracy or falsehood of particular representations and warranties. SECTION 7. COVENANTS 7.1 Preservation of Business. From the date of this Agreement, the Company will use its commercially reasonable best efforts to preserve the business organization of the Company intact, to keep available to the Parent and the Surviving Corporation the services of the present employees of the Company, and to preserve for the Parent and the Surviving Corporation the goodwill of the suppliers, customers and others having business relations with the Company. 7.2 Material Transactions. Prior to the Effective Time, the Company will not (other than as contemplated by the terms of this Agreement and the related documents, other than in 20 25 the ordinary course of business and consistent with prior practice, and other than with respect to transactions for which binding commitments have been entered into prior to the date hereof and transactions described in Exhibit 7.2 to the Company Disclosure Schedule which do not vary materially from the terms set forth on such Exhibit 7.2), without first obtaining the written consent of the Parent, which consent shall not be unreasonably withheld: (a) Encumber any material asset or enter into any material transaction or make any material contract or commitment relating to the properties, assets and business of the Company, other than in the ordinary course of business or as otherwise disclosed herein. (b) Enter into any employment contract which is not terminable upon notice of 30 days or less, at will, and without penalty to the Company except as provided herein. (c) Enter into any contract or agreement (i) which cannot be performed within three months or less, or (ii) which involves the expenditure of over One Hundred Thousand Dollars ($100,000). (d) Make any payment or distribution to the trustee under any bonus, pension, profit-sharing or retirement plan or incur any obligation to make any such payment or contribution which is not in accordance with the Company's usual past practice, or, except as required pursuant to the Employee Benefits and Compensation Allocation Agreement dated as of February 14, 1997 between the Company and FHP, make any payment or contributions or incur any obligation pursuant to or in respect of any other plan or contract or arrangement providing for bonuses, executive incentive compensation, pensions, deferred compensation, retirement payments, profit-sharing or the like, establish or enter into any such plan, contract or arrangement, or terminate any plan. (e) Extend credit to anyone, except in the ordinary course of business consistent with prior practices. (f) Guarantee the obligation of any person, firm or corporation other than the Talbert Entities, except in the ordinary course of business consistent with prior practices. (g) Amend its Certificate of Incorporation or By-laws. (h) Take any action described in Section 4.10(b) to 4.10(h), inclusive. 7.3 Exemption from State Takeover Laws. The Company shall take all reasonable steps necessary and within its power to exempt the Offer and the Merger from the requirements of any state takeover statute or other similar state law which would prevent or impede the consummation of the transactions contemplated hereby. 21 26 7.4 Public Disclosures. The Parent and the Company will consult with each other before issuing any press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation except as may be required by applicable law or requirements of the NYSE or NASDAQ. The parties shall issue a joint press release, mutually acceptable to the Parent and the Company, promptly upon execution and delivery of this Agreement. 7.5 Resignation of Company Directors. At the Effective Time, the Original Directors shall be deemed to have resigned. 7.6 Notice of Subsequent Events. Each party hereto shall notify the other parties of any changes, additions or events of which they have knowledge which would cause any material change in or material addition to any Exhibit to its Disclosure Schedule delivered by the notifying party under this Agreement, promptly after the occurrence of the same. If the effect of such change or addition would, individually or in the aggregate with the effect of changes or additions previously disclosed pursuant to this Section 7.6, constitute a material adverse effect on the notifying party, the non-notifying party may, within ten days after receipt of such notice and so long as Company Shares have not been purchased in the Offer, elect to terminate this Agreement. If the non-notifying party does not give written notice of such termination within such 10-day period, the non-notifying party shall be deemed to have consented to such change or addition and shall not be entitled to terminate this Agreement by reason thereof. 7.7 No Solicitations. The Company shall not, directly or indirectly, furnish information and access, in response to unsolicited requests therefor, to any corporation, partnership, person or other entity or group, participate in discussions and negotiate with such corporation, partnership, person or other entity or group concerning any proposal to acquire such party upon a merger, purchase of assets, purchase of or tender offer for shares of its Common Stock or similar transaction (an "Acquisition Transaction"). Notwithstanding the foregoing, if prior to the acceptance for payment of Company Shares pursuant to the Offer, the Board of Directors, after receiving advice from outside legal counsel to the Company, determines that a failure to act would be inconsistent with its fiduciary duties to the Company's stockholders under applicable law, the Company may (i) furnish information about and access to the Company to any third party in response to an unsolicited request pursuant to a confidentiality agreement with terms and conditions similar to the Confidentiality Agreement, (ii) participate in discussions and negotiations regarding any potential Acquisition Transaction, and/or (iii) terminate this Agreement. The Company shall notify the Parent of any unsolicited request for information and access in connection with a possible Acquisition Transaction involving such party, such notification to include the identity of such third party and the proposed material terms of such possible Acquisition Transaction. 7.8 Other Actions. Subject to the provisions of Section 7.6 hereof, none of the Company, the Parent and the Subsidiary shall knowingly or intentionally take any action, or omit to take any action, if such action or omission would, or reasonably might be expected to, result in any of its representations and warranties set forth herein being or becoming untrue in any 22 27 material respect, or in any of the conditions to the Offer set forth in this Agreement not being satisfied, or (unless such action is required by applicable law) which would materially adversely affect the ability of the Company or the Parent to obtain any consents or approvals required for the consummation of the Offer or the Merger without imposition of a condition or restriction which would have a material adverse effect on the Surviving Corporation or (unless such action is permitted by Section 7.7) which would otherwise materially impair the ability of the Company or the Parent to consummate the Offer and the Merger in accordance with the terms of this Agreement or materially delay such consummation. 7.9 Cooperation. (a) The Parent, the Subsidiary and the Company shall together, or pursuant to an allocation of responsibility agreed to between them, (i) cooperate with one another in determining whether any filings required to be made or consents required to be obtained in any jurisdiction prior to the Effective Time in connection with the consummation of the transactions contemplated hereby and cooperate in making any such filings promptly and in seeking to obtain timely any such consents, (ii) cooperate with one another in coordinating the plan devised by the Parent for the swift integration of the Company and the Company Subsidiaries with the operations of the Parent as soon as practicable after the Effective Time, (iii) use their respective best efforts to cause to be lifted any injunction prohibiting the Merger, or any part thereof, or the other transactions contemplated hereby, and (iv) furnish to one another and to one another's counsel all such information as may be required to effect the foregoing actions. (b) Subject to the terms and conditions herein provided, and unless this Agreement shall have been validly terminated as provided herein, each of the Parent, the Subsidiary and the Company shall use all reasonable efforts (i) to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements which may be imposed on such party (or any subsidiaries or affiliates of such party) with respect to this Agreement and to consummate the transactions contemplated hereby and (ii) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any governmental entity and/or any other public or private third party which is required to be obtained or made by such party or any of its subsidiaries or affiliates in connection with this Agreement and the transactions contemplated hereby. Each of the Parent, the Subsidiary and the Company will promptly cooperate with and furnish information to the other in connection with any such burden suffered by, or requirement imposed upon, either of them or any of their subsidiaries or affiliates in connection with the foregoing. 7.10 Additional Agreements Regarding Benefit Plans. (a) As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Incentive Plans (as defined below)) shall adopt such resolutions or take such other actions (if any) as are required to provide that each outstanding stock option to purchase shares of Company Common Stock (a "Stock Option") heretofore granted under any stock option or stock purchase plan, program or arrangement or other option agreement or contingent stock grant plan of the Company or any of its subsidiaries (collectively, the "Stock Incentive Plans") shall be accelerated so as to be fully exercisable on or prior to the consummation of the Offer, and the Company shall assure that (i) any Stock Options (other than 23 28 options granted under Article 7 of the Talbert Medical Management Holdings Corporation 1996 Stock Incentive Plan) may be exercised and the corresponding Company Common Stock be available to be tendered pursuant to the Offer, except to the extent that such tender could result in short-swing profit liability under Section 16 of the Exchange Act, (ii) Stock Options granted under Article 7 of the Talbert Medical Management Holdings Corporation 1996 Stock Incentive Plan, except for any Stock Option granted within six months of the termination of such Stock Option, shall be fully exercisable on consummation of the Offer and prior to any of the resignations contemplated pursuant to Section 1.3, and (iii) any Stock Options not tendered that remain outstanding immediately after the consummation of the Offer shall no later than immediately prior to the consummation of the Merger, be converted into, surrendered in exchange or otherwise settled for an amount in cash from the Company, payable at the time of such conversion, exchange or settlement, equal to the product of (x) the number of shares of Company Common Stock then subject to the Stock Option and (y) the excess of the Per Share Amount over the per share exercise price of the Stock Option, subject, in each case to any applicable withholding taxes. A listing of all outstanding Stock Options as of August 14, 1997, showing the portions of such Stock Options that are exercisable as of such date, the dates upon which such Stock Options expire and the exercise price of such Stock Options, is set forth in Exhibit 7.10 of the Company Disclosure Schedule. (b) All Stock Incentive Plans shall terminate as of the Effective Time, and the Company shall use its best efforts to ensure that following the Effective Time no holder of a Stock Option or any participant in any Stock Incentive Plan shall have any right thereunder to acquire any capital stock of the Company, the Parent or the Subsidiary. (c) All service credited to each employee by the Company through the Effective Time shall be recognized by the Parent for all purposes, including for purposes of eligibility, vesting and benefit accruals under any employee benefit plan provided by the Surviving Corporation or the Parent for the benefit of the employees; provided, however, that, to the extent necessary to avoid duplication of benefits, amounts payable under employee benefit plans provided by the Surviving Corporation or the Parent may be reduced by amounts payable under similar Company plans with respect to the same periods of service. (d) The Parent hereby agrees not to take any action, or omit to take any action, that would cause the Surviving Corporation not to honor (without modification) and assume the employment agreements, executive termination agreements and individual benefit arrangements listed in Exhibit 4.13(a) to the Company Disclosure Schedule, all as in effect on the date hereof or as amended after the date hereof with the Parent's consent pursuant to Section 7.2. (e) To provide bonuses for certain employees who do not participate in the Company's Management Incentive Program, and to reward them for staying with the Company to facilitate the transactions contemplated by this Agreement, the Parent shall contribute US $923,000 to be paid to the employees, and in the amounts, listed in the schedule attached to the letter agreement of even date herewith between the Company and the Parent. These respective amounts shall be paid on January 1, 1998 to the listed employees then employed by the Surviving Corporation or any of its affiliates. If any listed employee is terminated before 24 29 January 1, 1998, other than for cause, he or she will be paid the designated amount on the effective date of termination. (f) The Parent hereby agrees to cause the Company and the Surviving Corporation to pay, at the time of the consummation of the Offer, to each employee currently participating in the Company's Management Incentive Program cash awards in the amounts listed on the schedule attached to the letter agreement of even date herewith between the Company and the Parent. 7.11 Physician Warrants. As soon as possible following the purchase of Company Shares pursuant to the Offer, the Parent shall offer to those physicians who are employed by Talbert Medical Group, Inc. (CA) (dba Talbert Medical Group), Talbert Medical Group, Ltd. (NV), Talbert Medical Group, P.C. (AZ), or Talbert Medical Group, Inc. (UT) and who are designated by the Company before such purchase warrants to purchase the common stock of the Parent (the "Warrants"). The Warrants shall be issued pursuant to Warrant Agreements in substantially the form attached as Exhibit 7.11. Promptly following the purchase of Company Shares in the Offer, the Parent shall cause the offer and sale of the Warrants to be registered under the Securities Act of 1933. 7.12 Indemnification and Insurance. (a) The Parent and the Subsidiary agree that all rights to indemnification for acts or omissions occurring prior to the Effective Time now existing in favor of the current or former directors, officers, employees and agents (the "Indemnified Parties") of the Company and its subsidiaries as provided in their respective articles of incorporation or by-laws (or similar organizational documents) shall survive the Merger and shall continue in full force and effect in accordance with their terms for a period of not less than six years. From and after the Effective Time and for a period of not less than six years thereafter, the Parent shall, and shall cause the Surviving Corporation to, indemnify and hold harmless any and all Indemnified Parties to the full extent such persons may be indemnified under applicable law, their respective certificates of incorporation or by-laws (or similar organizational documents) or pursuant to indemnification agreements as in effect on the date of this Agreement for acts or omissions occurring at or prior to the Effective Time, and the Parent shall, or shall cause the Surviving Corporation to, advance litigation expenses incurred by such persons in connection with defending any action arising out of such acts or omissions to the extent permitted by law or as otherwise provided by the respective terms and provisions of such certificates of incorporation, by-laws, similar documents or indemnification agreements as in effect on the date hereof. (b) For not less than four years from the Effective Time, the Parent shall cause to be maintained in effect directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy (a copy of which has been heretofore delivered to the Parent) on terms (including coverage amounts) comparable to those now applicable under the current Company policy; provided, however, that in no event shall the Parent be required to pay a premium in any one year in an amount in excess of 175% of the annual premium paid by the Company (which annual premium the Company represents and warrants to be approximately US$282,000); and provided further that 25 30 if the annual premiums of such insurance coverage exceed such amount, the Parent shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (c) This Section 7.12 shall survive the consummation of the Merger, is intended to benefit the Company, the Parent, the Surviving Corporation and the Indemnified Parties, and shall be binding on all successors and assigns of the Parent and the Surviving Corporation. 7.13 Antitrust. The Parent, the Subsidiary and the Company shall take such actions as may be necessary to obtain any governmental consents, orders or approvals required for the consummation of the Offer and the Merger, or to avoid the imposition of any prohibition or the seeking of any restraining order or similar act. Such actions may include the making of filings and requests for extensions and waivers. Such actions may also include the sale or other disposition of assets. 7.14 Share Repurchase. Before the Closing Date and after the purchase of Company Shares pursuant to the Offer, the Company shall, and the Parent shall cause the Company to, purchase, for a cash consideration equal to the Per Share Amount, from any current or former director or officer of the Company whose service with the Company is terminated for any reason between the consummation of the Offer and the Closing Date, all shares of Company Common Stock held by any such individual who desires so to sell such shares, promptly upon delivery to the Company of the certificates therefor for cancellation. SECTION 8. TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. This Agreement may be terminated at any time prior to the purchase of Company Shares pursuant to the Offer: (a) by mutual written consent of the Parent, the Subsidiary and the Company; (b) by either the Parent or the Company; (i) if a United States federal or state court of competent jurisdiction or other United States federal or state governmental entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Offer (or the acceptance of or payment for Company Shares) or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; provided, that the party seeking to terminate this Agreement shall have used all reasonable efforts to remove such order, decree, ruling or other action; (ii) if, before the purchase of Company Shares in the Offer, there is, or is discovered, a material breach by the other party of any representation, warranty, covenant or other agreement contained in this Agreement that cannot 26 31 be or has not been cured within 10 days after the occurrence or discovery of such breach by the breaching party, whichever is later (a "Material Breach") (provided that the terminating party is not then in Material Breach of any representation, warranty, covenant or other agreement contained in this Agreement); (c) by the Company if the Parent and the Subsidiary fail to commence the Offer in accordance with this Agreement, or if the Offer expires without the purchase of Company Shares pursuant to the Offer; or (d) by the Company under the circumstances described in the second sentence of Section 7.7. 8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of any party, other than the provisions of Sections 6.2, 7.4, 8.2 and 8.6, and except to the extent that such termination results from the willful and material breach by a party of any of its representations, warranties, covenants or other agreements set forth in this Agreement. 8.3 Amendment. This Agreement may be amended by the parties at any time before or after any required approval of matters presented in connection with the Merger by the holders of the Company Shares; provided, however, that after such approval, there shall be made no amendment that pursuant to Section 251(d) of the DGCL requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. 8.4 Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.3, waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 8.5 Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.1, an amendment of this Agreement pursuant to Section 8.3, or an extension or waiver pursuant to Section 8.4 shall, in order to be effective, require in the case of each of the Parent, the Subsidiary and the Company, action by its Board of Directors or the duly authorized designee of the Board of Directors. Once the Subsidiary's designees are appointed or elected to the Board of Directors of the Company as provided in Section 1.3, the affirmative vote of the Original Directors shall be required for the Company to agree to any such termination, amendment, extension or waiver. 27 32 8.6 Termination Fee; Expenses. In the event of a termination of this Agreement by the Company pursuant to Section 8.1(d), the Company shall pay to the Parent, in immediately available funds, the sum of $8 million and shall promptly reimburse upon demand therefor (up to a maximum amount of $2 million) all documented out-of-pocket expenses incurred by Parent and Subsidiary in connection with the transactions contemplated by this Agreement. In the event that Company Shares are not purchased pursuant to the Offer, the Parent shall pay to the Company, in immediately available funds, the sum of $8 million and shall promptly reimburse upon demand therefor (up to a maximum amount of $2 million) all documented out-of-pocket expenses incurred by the Company in connection with the transactions contemplated by this Agreement, unless such failure to purchase Company Shares is (i) attributable solely to an event of the kind described in Section 8.1(b)(i) that is not the result of any action or inaction by the Parent or the Subsidiary which constitutes a breach of this Agreement, (ii) attributable solely to Parent's valid termination of this Agreement pursuant to Section 8.1(b)(ii) by reason of the Company's breach of a representation, warranty, covenant or agreement set forth in this Agreement, or (iii) attributable solely to a failure of a condition set forth in Exhibit 1.1 by reason of any act, event or circumstance that is beyond the control of the Parent and the Subsidiary. Notwithstanding this Section 8.2, no payment of the fee contemplated by this Section 8.6 shall relieve any party to this Agreement from liability to another for its willful and material breach of any of its representations, warranties, covenants or other agreements set forth in this Agreement. Except as otherwise required by the preceding sentences of this Section 8.6, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. SECTION 9. CONDITIONS TO THE CLOSING 9.1 Mutual Conditions. The respective obligations of each party to effect the Merger shall be subject to the satisfaction, at or prior to the Closing Date, of the following conditions (any of which may be waived in writing by the Parent, the Subsidiary and the Company, to the extent permitted by applicable law): (a) None of the Parent, the Subsidiary or the Company nor any of their respective subsidiaries shall be subject to any order, decree or injunction by a United States federal or state court of competent jurisdiction which prevents the consummation of the Merger. (b) No statute, rule or regulation shall have been enacted or promulgated by the government or any governmental agency of the United States or any state that prohibits the consummation of the Merger. (c) The Subsidiary shall have purchased and paid for Company Shares pursuant to the Offer. (d) Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. 28 33 (e) If required by law, the holders of shares of the Company Common Stock shall have approved the adoption of this Agreement. SECTION 10. MISCELLANEOUS 10.1 Nonsurvival of Representations and Warranties. None of the Company's representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the purchase of Company Shares in the Offer. All covenants and agreements set forth in this Agreement shall survive in accordance with their terms. 10.2 Notices. Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery or by facsimile and overnight courier to the parties hereto at the following addresses, or at such other address as a party may advise the other in writing from time to time: If to the Parent or the Subsidiary: MedPartners, Inc. 3000 Galleria Tower Suite 1000 Birmingham, Alabama 35244 Attention: President Fax: (205) 733-4154 with a copy to: Haskell Slaughter & Young, L.L.C. 1200 AmSouth/Harbert Plaza 1901 Sixth Avenue North Birmingham, Alabama 35244 Attention: Robert E.L. Garner, Esq. Fax: (205) 324-1133 If to the Company: Talbert Medical Management Holdings Corporation 3540 Howard Way Costa Mesa, California 92626 Attention: President Fax: 714-436-4860 29 34 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071 Attention: C. James Levin, Esq. Fax: 213-669-6407 All such communications shall be deemed to have been delivered on the date of hand delivery or on the next business day following the deposit of such communications with the overnight courier. 10.3 Further Assurances. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. 10.4 Governing Law. This Agreement shall be interpreted, construed and enforced with the laws of the State of Delaware, applied without giving effect to any conflicts-of-law principles. 10.5 Knowledge. "To the knowledge", "to the best knowledge, information and belief", or any similar phrase shall be deemed to refer to the knowledge of the Chief Executive Officer or Chief Financial Officer of a party and to include the assurance that such knowledge is based upon a reasonable investigation, unless otherwise expressly provided. 10.6 Material Adverse Change or Material Adverse Effect. "Material adverse change" or "material adverse effect" means, when used in this Agreement or Exhibit 1.1 hereto in connection with the Company or the Parent, any change, effect, event or occurrence that has, or is reasonably likely to have, individually or in the aggregate, a material adverse impact on the business or financial position of such party and its subsidiaries and other controlled entities identified herein or in any Schedule or Disclosure Schedule delivered pursuant to this Agreement, including the subsidiaries and other entities, taken as a whole; provided, however, that "material adverse change" and "material adverse effect" shall be deemed to exclude the impact of (i) changes in generally accepted accounting principles, (ii) changes in applicable law, (iii) changes or effects of any kind that impact the party's industry generally or, as to the Company, Southern California, (iv) changes in Medicare reimbursement rates, (v) changes or effects that are reasonably expected to have only short-term impacts on the party, (vi) changes or effects arising from the announcement of this Agreement or from any party's performance under this Agreement, and (vii) any changes resulting from any restructuring or other similar charges or write-offs taken by the Company with the consent of the Parent. 10.7 Hazardous Materials. The term "Hazardous Materials" means any material which has been determined by any applicable governmental authority to be harmful to the health or safety of human or animal life or vegetation, regardless of whether such material is found on or below the surface of the ground, in any surface or underground water, airborne in ambient 30 35 air or in the air inside any structure built or located upon or below the surface of the ground or in building materials or in improvements of any structures, or in any personal property located or used in any such structure, including, but not limited to, all hazardous substances, imminently hazardous substances, hazardous wastes, toxic substances, infectious wastes, pollutants and contaminants from time to time defined, listed, identified, designated or classified as such under any Environmental Laws (as defined in Section 10.8 regardless of the quantity of any such material). 10.8 Environmental Laws. The term "Environmental Laws" means any federal, state or local statute, regulation, rule or ordinance, and any judicial or administrative interpretation thereof, regulating the use, generation, handling, storage, transportation, discharge, emission, spillage or other release of Hazardous Materials or relating to the protection of the environment. 10.9 Captions. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. 10.10 Entire Agreement. This Agreement, the Company Disclosure Schedule, the Exhibits attached hereto and the Confidentiality Agreement contain the entire agreement of the parties and supersede any and all prior or contemporaneous agreements between the parties, written or oral, with respect to the transactions contemplated hereby. 10.11 Counterparts. This Agreement may be executed in several counterparts, each of which, when so executed, shall be deemed to be an original, and such counterparts shall, together, constitute and be one and the same instrument. 10.12 Binding Effect. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto, and their respective successors and assigns, and, except as contemplated by Sections 1.3(b), 7.10, 7.11, 7.12 and 7.14, no other person shall acquire or have any right under or by virtue of this Agreement. No party may assign any right or obligation hereunder without the prior written consent of the other parties. 10.13 No Rule of Construction. The parties agree that, because all parties participated in negotiating and drafting this Agreement, no rule of construction shall apply to this Agreement which construes ambiguous language in favor of or against any party by reason of that party's role in drafting this Agreement. 31 36 IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have caused this Agreement to be executed by their respective duly authorized officers, all as of the day and year first above written. MEDPARTNERS, INC. By /s/ LARRY R. HOUSE --------------------------------------- Larry R. House Chairman and Chief Executive Officer TALMED MERGER CORPORATION By /s/ LARRY R. HOUSE --------------------------------------- Larry R. House Chairman of the Board TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION By /s/ JACK D. MASSIMINO --------------------------------------- Jack D. Massimino President and CEO 32 37 EXHIBIT 1.1 CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer or the Agreement, the Subsidiary shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Subsidiary's obligation to pay for or return tendered shares of Company Common Stock after the termination or withdrawal of the Offer), to pay for any shares of Company Common Stock tendered pursuant to the Offer unless (i) there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of shares of Company Common Stock which would constitute not less than 51% (determined on a fully diluted basis) of the outstanding shares of Company Common Stock (the "Minimum Condition"), and (ii) any waiting period under the HSR Act applicable to the purchase of shares of Company Common Stock pursuant to the Offer shall have expired or been terminated. Furthermore, notwithstanding any other terms of the Offer or the Agreement, the Subsidiary shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Company Common Stock not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of the Agreement and before the acceptance of such shares for payment, any of the following events shall occur (other than as a result of any action or inaction of the Parent or any of its subsidiaries which constitutes a breach of the Agreement): (a) there shall have been entered any order, preliminary or permanent injunction, decree, judgment or ruling in any suit, action or proceeding that (i) makes illegal or otherwise directly or indirectly restrains or prohibits the acquisition by the Parent or the Subsidiary of any shares of Company Common Stock under the Offer or the making or consummation of the Offer or the Merger, the performance by the Company of any of its obligations under this Agreement or the consummation of any purchase of Company Common Stock contemplated hereby, (ii) prohibits or limits the ownership or operation by the Company, the Parent or any of their respective subsidiaries of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or the Parent and its subsidiaries, taken as a whole, or compels the Company or the Parent to dispose of or hold separate any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or the Parent and its subsidiaries, taken as a whole, as a result of the Offer or the Merger, (iii) imposes material limitations on the ability of the Parent or the Subsidiary to acquire or hold, or exercise full rights of ownership of, any shares of Company Common Stock accepted for payment pursuant to the Offer including, without limitation, the right to vote such Company Common Stock on all matters properly presented to the stockholders of the Company or (iv) prohibits the Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company and its subsidiaries, taken as a whole; or A-1 38 (b) there shall be any law enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger, or any other action shall be taken by any governmental entity, other than the application to the Offer or the Merger of applicable waiting periods under the HSR Act, that results, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above; or (c) there shall have occurred any material adverse change to the Company; or (d) (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to the Parent or the Subsidiary its approval or recommendation of the Offer, the Merger or this Agreement, or approved or recommended any other acquisition proposal or (ii) the Company shall have entered into any agreement to consummate any acquisition proposal; or (e) any of the representations and warranties of the Company set forth in the Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any respect that is reasonably likely to have a material adverse effect, in each case at the date of the Agreement and at the scheduled expiration of the Offer; or (f) the Company shall have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or material covenant of the Company to be performed or complied with by it under this Agreement; or (g) there shall have occurred and be continuing to exist for at least three business days (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which in any case is reasonably expected to have a material adverse effect or to materially adversely affect the Parent's or the Subsidiary's ability to complete the Offer or the Merger or materially delay the consummation of the Offer, the Merger or both or (iv) in case of any of the foregoing existing on the date of this Agreement, material acceleration or worsening thereof; or (h) the Agreement shall have been terminated in accordance with its terms. A-2 39 Subject to the provisions of the Agreement, the foregoing conditions are for the sole benefit of the Parent and may, subject to the terms of the Agreement, be waived by the Subsidiary and the Parent in whole or in part at any time and from time to time in their sole discretion. The failure by the Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. Terms used but not defined herein shall have the meanings assigned to such terms in the Agreement to which this Exhibit 1.1 is a part. A-3 -----END PRIVACY-ENHANCED MESSAGE-----