Item 1.01 Entry into a Material Definitive Agreement.
On October 30, 2016, Team Health Holdings, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”), by and among the Company, Tennessee Parent, Inc., a Delaware corporation (“Parent”) and Tennessee Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to
which Merger Sub will be merged with and into the Company (the “Merger”) with the Company surviving the Merger as a wholly owned subsidiary of Parent.
The Board of Directors of the Company (the “Board of Directors”) unanimously determined that the transactions contemplated by the
Merger Agreement, including the Merger, are in the best interests of the Company and its stockholders, and approved the Merger Agreement and the transactions contemplated thereby, and unanimously resolved to recommend that the Company’s
stockholders vote to adopt and approve the Merger Agreement and the Merger.
At the effective time of the Merger (the “Effective
Time”), each share of the Company’s common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (other than shares of the Company’s common stock held by Parent, Merger Sub or any other
direct or indirect wholly-owned subsidiary of Parent, shares owned by the Company (including shares held in treasury) or any of its direct or indirect wholly-owned subsidiaries, and shares owned by stockholders who have properly made and not
withdrawn or lost a demand for appraisal rights under Delaware law) will be converted into the right to receive $43.50 in cash, without interest and subject to applicable withholding taxes (the “Merger Consideration”).
Pursuant to the Merger Agreement, (i) each outstanding Company stock option will immediately vest and be cancelled and converted into the
right to receive an amount in cash equal to the product of (x) the total number of shares of Company common stock subject to each Company stock option multiplied by (y) the excess, if any, of the Merger Consideration over the per share exercise
price under such Company stock option and (ii) each outstanding Company restricted stock unit or similar stock right (other than Company performance share units and market stock units, each a “Company stock unit”) will be cancelled and
converted into the right to receive an amount in cash equal to the product of (x) the number of shares of Company common stock subject to such Company stock unit multiplied by (y) the Merger Consideration. Each outstanding Company performance share
unit will be cancelled at the Effective Time, and the holder of such Company performance share unit will be entitled to receive an amount in cash equal to the product of (x) the number of shares of Company common stock subject to such Company
performance share unit (assuming performance resulted in a payout at the target level award) multiplied by (y) the Merger Consideration. Performance options will vest to the extent the relevant performance vesting thresholds are achieved based on
the per share Merger Consideration and, with respect to market share units, a holder of market share units will be entitled to receive an amount in cash equal to the product of (x) the MSU End Price (as set forth in his applicable award agreement)
and (y) the relevant performance multiplier (as set forth in his applicable award agreement) that is determined by reference to the per share Merger Consideration. The cash payments in respect of the cancelled equity awards will generally be paid as
soon as reasonably practicable after the Effective Time, subject to potential delayed payment in the case of any equity awards subject to existing deferral elections.
The stockholders of the Company will be asked to vote on the adoption of the Merger Agreement and the Merger at a special stockholder meeting
that will be held on a date to be announced as promptly as practicable following the customary Securities and Exchange Commission (the “SEC”) review process. The closing of the Merger is subject to a condition that the Merger Agreement be
adopted by the affirmative vote of the holders of a majority of all of the outstanding shares of the Company’s common stock entitled to vote thereon at such meeting (the “Company Stockholder Approval”). Consummation of the Merger is
also subject to (i) the absence of any law, injunction or other order that prohibits the consummation of the Merger, (ii) the expiration or early termination of the applicable waiting period
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under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (iii) other customary closing conditions, including the accuracy of each party’s representations and
warranties, and each party’s compliance with its covenants and agreements contained in the Merger Agreement (subject in the case of this clause (iii) to certain materiality qualifiers).
Parent has obtained equity financing and debt financing commitments to finance the transactions contemplated by the Merger Agreement and pay
related fees and expenses. Blackstone Capital Partners VII, L.P. (“Blackstone”) has committed to provide capital to Parent with an equity contribution of $2.7 billion, subject to the terms and conditions set forth in an equity commitment
letter. JPMorgan Chase Bank, N.A., Barclays Bank PLC, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc. and PSP Investments Credit USA LLC have agreed to provide committed acquisition
debt financing of $4.015 billion, consisting of a $400 million senior secured revolving credit facility, a $2,600 million senior secured term facility and a $1,015 million senior unsecured bridge facility. The obligations of the lenders to provide
debt financing under the debt commitment letter are subject to a number of customary conditions.
The Merger Agreement contains
representations and warranties customary for transactions of this type. The Company has agreed to various customary covenants and agreements, including, among others, (i) agreements to conduct its and its subsidiaries’ and affiliated
entities’ businesses in the ordinary and usual course of business during the period between the execution of the Merger Agreement and the Effective Time and not to engage in certain kinds of transactions during this period, and (ii) to call a
special meeting of the stockholders to adopt the Merger Agreement (the “Stockholder Meeting”).
During the period from October
30, 2016 and continuing until 12:01 A.M. (New York time) on December 10, 2016 (the “Go-Shop Period”), the Company is permitted to solicit, initiate or encourage any Company acquisition proposal and engage in, enter into, continue or
otherwise participate in any discussions or negotiations with respect to any acquisition proposal. At the end of the Go-Shop Period, the Company will cease such activities, and will be subject to customary “no-shop” restrictions on its
ability to solicit third party proposals relating to alternative transactions or to provide information to and engage in discussions with a third party (other than any Excluded Party, as described below) in relation to an alternative transaction,
subject to certain customary exceptions to permit the Board of Directors to comply with its fiduciary duties. However, until the tenth business day following the expiration of the Go-Shop Period (the “Cut-off Date”), the Company may
continue to engage in the foregoing activities with any third party that made an acquisition proposal prior to the end of the Go-Shop Period that the Board of Directors has determined in good faith, after consultation with outside counsel and its
financial advisors, is or could reasonably be expected to result in a superior proposal as defined in the Merger Agreement (each, an “Excluded Party”), but only for so long as such third party is an Excluded Party.
The Board of Directors has unanimously resolved to recommend that stockholders vote to adopt the Merger Agreement. Prior to obtaining the
Company Stockholder Approval, under specified circumstances the Board of Directors may change its recommendation that stockholders vote to adopt the Merger Agreement if the Board of Directors determines in good faith after consultation
with its outside legal counsel and, in the case of a superior proposal, its financial advisor that the failure to make a change of recommendation would be inconsistent with its fiduciary duties as a result of (i) an event, fact, development,
circumstance or occurrence (other than an alternative proposal or superior proposal) that materially improves the business, assets, operations or prospects of the Company and its subsidiaries that was not known and was not reasonably foreseeable (or
the implications and effects of which were not fully known and the consequences of which were not reasonably foreseeable to the Board of Directors as of the date of the Merger Agreement) to the Company or the Board of Directors as of the date of the
Merger Agreement (an “Intervening Event”) or (ii) an unsolicited acquisition proposal that did not result from a material breach of the “no-shop” restrictions and which the Board of Directors determines in good faith would
constitute a superior proposal if consummated (in which latter case the Company may also
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terminate the Merger Agreement to enter into such superior proposal upon payment of the termination fee, as described below). Before the Board of Directors may change its recommendation in
connection with an Intervening Event or a superior proposal, or terminate the Merger Agreement to accept a superior proposal, the Company must provide Parent with a three business day period (subject to an additional two business day period in the
event of material changes in respect of the Intervening Event or the superior proposal) during which the Company will negotiate in good faith with Parent to make adjustments to the Merger Agreement so that the failure to make a change of
recommendation with respect such Intervening Event would not be inconsistent with its fiduciary duties or the competing proposal ceases to be a superior proposal and failure to terminate the Merger Agreement to accept a superior proposal would not
be inconsistent with its fiduciary duties, as applicable.
The Merger Agreement contains certain termination rights for the Company and
Parent, including the right of the Company to terminate the Merger Agreement to accept a superior proposal, subject to specified limitations, and provides that, upon termination of the Merger Agreement by the Company or Parent upon specified
conditions, the Company will be required to pay Parent a termination fee of $50.4 million under specified conditions where the Company terminates the Merger Agreement in connection with its entry into a superior proposal with an Excluded Party and
of $100.8 million under other specified conditions.
The Merger Agreement also provides that Parent will be required to pay the Company a
reverse termination fee of $201.7 million (the “Reverse Termination Fee”) upon the termination of the Merger Agreement by the Company under specified conditions. Blackstone has entered into a limited guarantee with the Company to guarantee
Parent’s obligation to pay Company the Reverse Termination Fee and make certain other specified payments to the Company, subject to the terms and conditions set forth in the limited guarantee.
In addition to the foregoing termination rights, and subject to certain limitations, either party may terminate the Merger Agreement if the
Merger is not consummated by April 30, 2016 (as such date may be extended, the “End Date”).
Simultaneously with the execution
and delivery of the Merger Agreement, JANA Partners LLC (“JANA”) entered into a voting agreement with Parent (the “Voting Agreement”), pursuant to which JANA agreed to vote its shares of the Company’s common stock: (i) in
favor of the approval of the Merger Agreement and the approval of the Merger and the other transactions contemplated by the Merger Agreement; (ii) against any acquisition proposal, or any other transaction, proposal, agreement or action made in
opposition to adoption of the Merger Agreement; and (iii) against (x) any action or agreement which could reasonably be expected to impede, interfere, delay discourage or adversely affect the Merger Agreement, the Merger or the Voting Agreement, (y)
any acquisition proposal and (z) any action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of JANA under the Voting
Agreement. JANA will be permitted to initiate, solicit or encourage any Company acquisition proposal and engage in, enter into, continue or otherwise participate in any discussions or negotiations with respect to any acquisition proposal to the
extent that the Company is permitted to take such actions, and/or not prohibited from taking, such actions pursuant to the Merger Agreement.
JANA currently owns approximately 8% of the outstanding shares of the Company’s common stock. The Voting Agreement terminates
automatically, among other things, upon the termination of the Merger Agreement.
A copy of the Merger Agreement has been included to
provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company. In particular, the representations and warranties contained in the Merger Agreement were made only for the
purposes of the Merger Agreement as of the specific dates therein, and were solely for the benefit of the parties to the Merger Agreement. The representations and warranties contained in the Merger Agreement
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may be subject to limitations agreed upon by the parties to the Merger Agreement and are qualified by information in confidential disclosure schedules provided in connection with the signing of
the Merger Agreement. These confidential disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, certain representations and
warranties in the Merger Agreement may be subject to a standard of materiality provided for in the Merger Agreement and have been used for the purpose of allocating risk among the parties, rather than establishing matters of fact. Investors are not
third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its
subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the
Company’s public disclosures.
If the Merger is consummated, the Company’s common stock will be delisted from the New York Stock
Exchange and deregistered under the Securities Exchange Act of 1934. The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the
full text of the Merger Agreement, attached hereto as Exhibit 2.1 to this Current Report on Form 8-K, which is incorporated into this Item 1.01 by reference.
