According to the Amended Stipulation Of Dismissal With Prejudice entered on November 1, 1999, a global settlement has been reached and a stipulation of settlement entered in related state court actions in Jefferson County, Alabama (the "Alabama Actions"). The Alabama Actions encompass the facts and the class alleged herein. On July 10, 1999, the Honorable William J. Wynn, Judge of the Jefferson County Circuit Court, granted final approval of the global settlement of this action and the related Alabama actions, and also on July 10, 1999, entered the Order and Final Judgment (the "Judgment") approving settlement and dismissal of the actions. Pursuant to Rule 41(a) of the Federal Rules of Civil Procedure, the action is dismissed with prejudice.
According to the Notice of Settlement for the state action, the settlement fund established was in the amount of $56 million. The Court, by Order dated May 3, 1999, has provisionally certified the Settlement Class consisting of the following classes: (i) all Persons who purchased MedPartners common stock (including but not limited to, through open market transactions, mergers or acquisitions in which MedPartners issued common stock, conversion to common stock, exchange for common stock, exercise of stock rights, acquisition pursuant to the Company's ESPP, and any other type of transaction (whether public or private) in which a Person acquired one or more shares (whether freely tradable, restricted or otherwise) of MedPartners stock in return for consideration), purchased call option contracts on MedPartners common stock, or sold put option contracts on MedPartners common stock, during the period from October 30, 1996 through January 7, 1998, inclusive (MedPartners' employees who purchased shares through the ESPP in January 1998 being deemed to have purchased their shares on December 31, 1997) (the "Common Stock and Options Class"); (ii) all Persons who purchased MedPartners' TAPS in the September 15, 1997 offering or thereafter through January 7, 1998, inclusive (the "TAPS Class"); or (iii) all Persons who tendered shares of Talbert Medical Management Holdings Corporation ("Talbert") pursuant to MedPartners' tender offer, between August 20, 1997 and September 19, 1997 (the "Tender Offer Class"). Excluded from the Settlement Class are Defendants, members of their immediate families, and any entity in which any Defendant has a controlling interest, and the legal representatives, heirs, successors or assigns of any such excluded party.
As reported in the firm's 10-K filing dated April 15, 1999, in December 1997, a putative class action was filed against MedPartners in the United States District Court for the Central District of California. The action purports to be a class action on behalf of all of the shareholders of Talbert Medical Management Holdings Corporation ("Talbert"), which was acquired by MedPartners in a cash tender offer transaction pursuant to which MedPartners paid $63 for each share of Talbert. The action alleges that MedPartners violated Rule 14d-10 under the Securities Exchange Act of 1934, the so-called "all holder, best price" rule, by reason of provisions in the employment agreements of two senior officers of Talbert which provided for a certain contingent payment under specific circumstances. The complaint requests class certification and claims damages and interest. The defendants have filed a motion to dismiss. An agreement to settle this case has been reached in principle.
On January 7, 1998, MedPartners issued a press release announcing the termination of its proposed merger with PhyCor, Inc., and a further press release announcing certain fourth quarter 1997 charges and negative earnings estimates, which were subsequently revised downward. On January 8, 1998, there was a decline in the market prices for MedPartners publicly traded securities. Thereafter, certain persons claiming to be stockholders of MedPartners filed twenty actions (collectively the "Shareholder Litigation") in either state or federal court against MedPartners and certain officers and directors of MedPartners. Nineteen of these actions seek direct recovery to the securities holders and one is a derivative action seeking recovery on behalf of the Company.
Of the nineteen direct actions, eighteen are putative class actions and one is a non-class action pursued on behalf of several individuals. Of the eighteen class actions, fourteen have been consolidated into a single proceeding in the United States District Court for the Northern District of Alabama under the caption In re MedPartners Securities Litigation. The remaining four class actions, Lauriello, et al. v. MedPartners, Inc. et al.; Schachter and Griffin, et al. v. MedPartners, Inc., et al.; Bronstein, et al. v. MedPartners, Inc., et al.; and Idlebird, et al. v. MedPartners, Inc., et al., are in state court in the Circuit Court of Jefferson County, Alabama, as are both the one non-class direct action and the derivative action.
The direct actions are brought on behalf of purchasers of common stock, Threshold Appreciation Price Securities (publicly offered in September 1997) and/or stock options. As currently stated, the class actions cover a period from spring, 1997 through early 1998, and the one non-class direct action relates to a transaction in the latter part of 1996. The actions in general assert various theories, including violation of federal and state securities laws and the common law of fraud, deceit and negligent misrepresentation, based on the public dissemination of allegedly false and misleading information about the business circumstances, assets and results of operations of MedPartners; in one of the actions, brought on behalf of participants in an employee stock purchase plan, the charges include breach of contract and fiduciary duty. The actions seek unspecified compensatory damages, and in some instances punitive damages. An agreement in broad principle has been reached to resolve all twenty cases in the Shareholder Litigation.
The SEC filing further reports that an agreement in broad principle has been reached to resolve all twenty cases
in the Shareholder Litigation, as well as the class action lawsuit relating to
the acquisition of Talbert, discussed above. However, the settlement is subject to the negotiation and execution of definitive documentation, court
approval following notice to class members and shareholders, and a hearing
before the state court in Birmingham and in other courts as necessary.
Management has entered into an excess insurance coverage agreement with
National Union pursuant to which National Union assumed financial
responsibility for the defense and ultimate resolution of the Shareholder
Litigation, and management believes that the ultimate resolution of these
matters presents no material adverse risk to the Company.
The original Complaint for the case filed on January 13, 1998, asserts claims for violation of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10B-5. Plaintiff seeks to recover losses suffered by investors who bought MedPartners securities. The lawsuit alleges that MedPartners and certain of its officers disseminated materially misleading statements and/or failed to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading. Specifically, the Complaint alleges that in order to promote its pending merger with PhyCor Inc., the defendants materially misrepresented the financial condition of MedPartners by insufficiently reserving for health care claims. The result was to artificially inflate MedPartners' reported earnings during the Class Period, and maintain artificially elevated prices in the market for MedPartners' common stock. When MedPartners' true financial condition was disclosed, MedPartners' stock plunged 50%, from over $18 per share on January 7, 1998, to $8-1/4 two days later.
The complaint originally filed on December 2, 1997, has been commenced in the United States District Court for the Southern District of California on behalf of all Talbert Medical Management Holdings Corporation ("Talbert") shareholders who tendered their shares to MedPartners, Inc. ("MedPartners") for $63 per share in cash between August 20, 1997 and September 19, 1997. Specifically, the action arises out of a tender offer by MedPartners for the common stock of Talbert for $63 per share in cash (the "Tender Offer"). Pursuant to the Tender Offer, and as an integral part of it, MedPartners allegedly agreed to pay the President, Chief Executive Officer, director and 5.7% shareholder of Talbert, and the Executive Vice President and substantial shareholder of Talbert, additional consideration of up to $4 million, which MedPartners did not offer or pay to other shareholders. MedPartners' extra payments in addition to these amounts to MedPartner’s officers were allegedly paid pursuant to the Tender Offer and were made in return for the officers endorsing the Tender Offer and cooperating with MedPartners to make its Tender Offer successful and has resulted or will result in the receiving combined additional consideration of up to $4 million above what MedPartners offered or paid to other Talbert shareholders. The payment of this extra consideration was in violation of Section 14(d)(7) of the Securities Exchange Act of 1934 and Rule 14d-10 promulgated thereunder by the Securities and Exchange Commission.
