TAX ALLOCATION AGREEMENT
This Tax Allocation Agreement is entered into as of February 14,
1997, between FHP International Corporation, a Delaware corporation ("FHP"),
Talbert Medical Management Corporation ("TMMC"), Talbert Health Services
Corporation, a Delaware corporation ("THSC"), and Talbert Medical Management
Holdings Corporation, a Delaware corporation ("Holdings").
RECITALS
WHEREAS, in connection with FHP's merger (the "FHP Merger") with
PacifiCare Health Systems, Inc. ("PacifiCare"), Holdings intends to acquire
FHP's shares of the common stock of TMMC and THSC (the "Acquisition") in
exchange for subscription rights to purchase shares of Holdings' common stock
(the "Rights"), which Rights are to be distributed to FHP's stockholders as a
portion of the consideration in the FHP Merger (the "Offering").
WHEREAS, TMMC and THSC have previously been parties to the FHP
International Corporation and Subsidiaries Amended and Restated Tax Allocation
Agreement (the "Existing Tax Allocation Agreement").
WHEREAS, if upon expiration of the Rights (the "Expiration Date"), FHP
holds less than a majority of the shares of Holdings' common stock, Holdings
(including TMMC and THSC) will not be a subsidiary of FHP.
WHEREAS, in light of the Acquisition and the Offering, TMMC, THSC,
Holdings (collectively, "Talbert") and FHP have agreed that it is appropriate
and desirable to terminate the Existing Tax Allocation Agreement as to TMMC and
THSC and set forth herein the principles of their relationship and
responsibilities going forward regarding Taxes and other related Tax matters.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
of the parties contained herein, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to the terms defined in the
text hereof, for the purpose of this Agreement the following terms will have the
following meanings:
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"Agreement" means this Tax Allocation Agreement between FHP and
Talbert as amended or supplemented.
"Closing Date" means the date on which the closing of the Acquisition
occurs.
"FHP" means FHP International Corporation and all of its subsidiaries
after the Closing Date.
"Return" means any return, report, form or similar statement or
document (including, without limitation, any related or supporting information
or schedule attached thereto and any information return, claim for refund, amend
return and declaration of estimated tax) that has been or is required to be
filed with any Taxing Authority or that has been or is required to be furnished
to any Taxing Authority in connection with the determination, assessment or
collection of any Taxes or the administration of any laws, regulations or
administrative requirements to any Taxes.
"Tax" (and, with correlative meanings, "Taxes" and "Taxable") means,
without limitation, and as determined on a jurisdiction-by-jurisdiction basis,
each foreign or U.S. federal, state, local or municipal income, alternative or
add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or any other tax, custom, tariff, impost, levy,
duty, governmental fee or other like assessment or charge or any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount related thereto, imposed by any Taxing Authority.
"Taxing Authority" means any Governmental Authority or any
subdivision, agency, commission or authority thereof, or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or other imposition of Taxes.
"Talbert" means TMMC, THSC, Holdings and all of their respective
subsidiaries after the Closing Date.
ARTICLE 2. TAX ALLOCATION FOLLOWING THE TMMC ACQUISITION
SECTION 2.1 SETTLEMENT OF ACCOUNTS. Prior to the Closing Date, the
parties will settle their accounts with respect to Tax matters under the
Existing Tax Allocation Agreement for all periods prior to the Closing Date, and
will agree as to their respective Tax Liabilities for any Taxable periods
beginning before, and ending after, the Closing Date.
SECTION 2.2 TERMINATION OF EXISTING TAX ALLOCATION AGREEMENT. Upon
the completion of the Acquisition, the Existing Tax Allocation Agreement will be
terminated with respect to TMMC and THSC, and any and all obligations and
responsibilities of
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TMMC, THSC and FHP under the Existing Tax Allocation Agreement for all
periods commencing prior to the Closing Date will be terminated. There will
be no further adjustments to Taxes with respect to such prior Taxable periods
following the Closing Date, PROVIDED, HOWEVER, that Talbert will indemnify
and hold harmless FHP against any adverse adjustment, or receive from FHP the
benefit of any favorable adjustment, of an FHP Return by a Governmental
Authority to the extent that the adjustment (a) relates to a Taxable period
commencing prior to the Acquisition, (b) arises out of Talbert's activities,
and (c) when combined with all other such adjustments that have occurred,
exceeds $2 million but does not exceed $4 million. To the extent any such
adjustment, when combined with all other such adjustments that have occurred,
exceed $4 million, Talbert and FHP will share equally the liability for, or
benefit of, such an adjustment to the extent that it exceeds $4 million.
SECTION 2.3 FHP RETURNS. FHP agrees to file all Returns with respect
to, and to pay all Taxes imposed upon or attributable to, FHP and its affiliates
(other than Talbert for periods described in Section 2.4) for all Taxable
periods, including all Taxes incurred in connection with the Acquisition.
SECTION 2.4 TALBERT RETURNS. Talbert agrees to file all Returns with
respect Talbert for all Taxable periods ending after the Closing Date and to pay
all Taxes imposed upon or attributable to Talbert for all Taxable periods ending
after the Closing Date.
ARTICLE 3. GENERAL
SECTION 3.1 COOPERATION. FHP and Talbert will, each at its own
expense, cooperate with each other in any matters relating to Taxes and, in
connection therewith, will (i) maintain appropriate books and records as
required by the Internal Revenue Code of 1986, for any and all Taxable periods
or any portion of a Taxable period; (ii) provide to each other such information
as may be necessary or useful in the filing of any such Return; (iii) execute
and deliver such consents, elections, powers of attorney and other documents
that may be required or appropriate for the proper filing of any such Return;
and (iv) make available for responding to inquiries of any other party or any
Taxing Authority, appropriate employees and officers of and advisors retained by
FHP or Talbert.
SECTION 3.2 GOVERNING LAW. To the extent not preempted by any
applicable foreign or U.S. federal, state, or local Tax law, this Agreement will
be governed by and construed and interpreted in accordance with the laws of the
State of California, disregarding conflict of law provisions.
SECTION 3.3 AFFILIATES. Each of the parties hereto will cause to be
performed, and hereby guarantees the performance of all actions, agreements and
obligations set forth herein to be performed by any affiliate of such party.
SECTION 3.4 NOTICES. Unless specifically provided otherwise in this
Agreement, all notices or other communications under this Agreement will be in
writing and will be deemed to be duly given when delivered in person, sent by
facsimile, deposited in the United States mail, postage prepaid and sent
certified mail, return
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receipt requested or deposited in private express mail, postage prepaid,
addressed as follows:
If to FHP to:
FHP INTERNATIONAL CORPORATION
3120 Lake Center Drive
Santa Ana, CA 92704
Attn: Secretary
Facsimile: (714) 825-5710
With copies to:
KONOWIECKI & RANK
First Interstate World Center
633 W. 5th Street
Los Angeles, CA 90071-2007
Attn: Joseph Konowiecki
Facsimile: (213) 229-0992
If to TMMC, THSC or Holdings:
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
3540 Howard Way
Costa Mesa, CA 92626-1417
Attn: President
Facsimile: (714) 436-4860
With copies to:
O'MELVENY & MYERS LLP
400 South Hope Street
Los Angeles, CA 90071
Attn: C. James Levin, Esq.
Facsimile: (213) 669-6407
Any party may, by written notice to the other parties, change the address to
which such notices are to be given.
SECTION 3.5 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding of the parties hereto, and incorporates all prior
and contemporaneous discussions, agreements and understandings between the
parties with respect to the subject matter hereof.
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SECTION 3.6 CONFLICTING OR INCONSISTENT PROVISIONS. In the event
that any provision or term of this Agreement conflicts or is inconsistent with
any provision or term of any other agreement between or among FHP or any other
member of the FHP group and/or Talbert or any other member of the Talbert group,
as the case may be, which is in effect on or prior to the date hereof, the
provision or term of this Agreement will control and apply and the provision or
term of any other agreement will, to the extent of such conflict or
inconsistency, be inoperative and inapplicable.
SECTION 3.7 SEVERABILITY. The parties agree that each provision to
this Agreement will be construed independent of any other provision of this
Agreement. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof. This Agreement
will be construed in all respects as if such invalid or unenforceable provision
were omitted.
SECTION 3.8 DURATION. Notwithstanding anything in this Agreement to
the contrary, the provisions of this Agreement will survive for the full period
of all applicable statutes of limitations (giving effect to any waiver,
mitigation or extension thereof).
SECTION 3.9 AMENDMENT AND MODIFICATIONS. No amendment or other
modification to this Agreement will be binding upon any party unless executed in
writing by all of the parties hereto.
SECTION 3.10 WAIVER. No waiver by any party of any of the provisions
of this Agreement will be deemed, or will constitute, a waiver of any other
provision, whether similar, nor will any waiver constitute a continuing waiver.
No waiver will be binding unless executed in writing by the party making the
waiver.
SECTION 3.11 CAPTIONS. All captions in this Agreement are intended
solely for the convenience of the parties, and none will be deemed to affect the
meaning and construction of any provision of this Agreement.
SECTION 3.12 COUNTERPARTS. This Agreement and any amendment hereto
may be executed in one or more counterparts and by different parties in separate
counterparts. Such counterparts will constitute one and the same agreement and
will become effective when the counterparts have been signed by each party and
delivered to the other party.
SECTION 3.13 EFFECTIVENESS. If FHP holds in excess of 50% of the
outstanding shares of Holdings' common stock upon completion of the Offering,
this Agreement will be null and void.
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IN WITNESS WHEREOF, the parties hereto have caused this Tax Allocation
Agreement to be executed by their duly authorized representatives.
FHP INTERNATIONAL CORPORATION
By: /s/ Westcott W. Price III
--------------------------------
Westcott W. Price III
President and Chief Executive Officer
TALBERT MEDICAL MANAGEMENT
CORPORATION
By: /s/ Jack D. Massimino
--------------------------------
Jack D. Massimino
President and Chief Executive
Officer
TALBERT HEALTH SERVICES
CORPORATION
By: /s/ Jack D. Massimino
--------------------------------
Jack D. Massimino
President and Chief Executive
Officer
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
By: /s/ Jack D. Massimino
--------------------------------
Jack D. Massimino
President and Chief Executive
Officer
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