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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1997
REGISTRATION NO. 333-41989
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FPA MEDICAL MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8049 33-0604264
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
OF INCORPORATION OR CODE NUMBER)
ORGANIZATION)
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3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
(619) 453-1000
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JAMES A. LEBOVITZ
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
FPA MEDICAL MANAGEMENT, INC.
3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
(619) 453-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
<PAGE> 2
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock ($.002 par value) 459,772(1) $18.75 $8,620,725(2) $2,542
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</TABLE>
(1) Such number represents the additional number of shares of Common Stock
being registered for resale by selling stockholders on this Amendment No. 1.
(2) Pursuant to Rule 457(c), the registration fee was computed on the basis of
the average of the high and low prices of the Registrant's Common Stock
reported on the Nasdaq National Market on December 15, 1997, the latest
practicable date prior to the filing of this Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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PROSPECTUS SUBJECT TO COMPLETION, DATED ________, 199_
8,219,623 SHARES OF COMMON STOCK
[LOGO]
FPA MEDICAL MANAGEMENT, INC.
In accordance with the applicable rules and regulations of the Securities
and Exchange Commission (the "Commission"), this Prospectus may be used in
connection with offerings of FPA Medical Management, Inc. (the "Company" or
"FPA") common stock, par value $.002 per share (the "Common Stock"). This
Prospectus relates to the resale by the holders thereof (the "Selling
Stockholders") of up to 8,219,623 shares of Common Stock. Certain of the shares
of Common Stock were issued without registration under the Securities Act of
1933, as amended (the "Securities Act"), in transactions not involving public
offerings.
The Selling Stockholders directly, through agents designated from time to
time, or through brokers, dealers or underwriters to be designated, may sell the
Common Stock from time to time on terms to be determined at the time of sale. To
the extent required, the specific number of Common Stock to be sold, the
respective purchase price and public offering price, the names of any such
agent, broker, dealer or underwriter, and any applicable commission or discount
with respect to the particular offer will be set forth in a prospectus
supplement. The Selling Stockholders and any broker, dealer, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profits on the
resale of the Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Stockholders"
and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the Common
Stock offered hereby. The Company has agreed to bear substantially all expenses
of registration of the Common Stock under federal and state securities laws,
other than commissions, fees and discounts of underwriters, brokers, dealers and
agents, and to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act. See "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"FPAM." On _______, 199_, the last reported sale price of the Common Stock was
$_______ per share.
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SEE "RISK FACTORS" COMMENCING ON PAGE _ FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS IN THE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______________, 199_.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and the regulations of
the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), and, in accordance therewith, files reports, proxy statements,
information statements and other information with the Commission. Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Seven World Trade Center,
Suite 1300, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates, or from the Commission's Internet Web site at
http://www.sec.gov. In addition, such materials also may be inspected and copied
at the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington,
D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents of the Company filed with the Commission (File No.
0-24276) are incorporated herein by reference:
1. FPA's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 filed with the Commission on March 31, 1997, as amended by Form
10-K/A filed with the Commission on April 29, 1997.
2. FPA's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997 filed with the Commission on May 15, 1997.
3. FPA's Current Report on Form 8-K dated March 17, 1997 filed with the
Commission on May 16, 1997, as amended by Form 8-K/A filed with the
Commission on May 30, 1997.
4. FPA's Current Report on Form 8-K dated July 31, 1997 filed with the
Commission on July 31, 1997, amended by Form 8-K/A filed with the Commission
on October 10, 1997.
5. FPA's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 filed with the Commission on August 14, 1997.
6. The audited combined balance sheets of Foundation Health Medical
Services (a wholly-owned subsidiary of Foundation Health Corporation) and
Affiliates as of June 30, 1995 and 1996 and the related combined statements
of operations, shareholders' deficit and cash flows for each of the three
years in the period ended June 30, 1996 contained in FPA's Registration
Statement on Form S-4 dated February 13, 1997.
7. The Pro Forma Condensed Consolidated Financial Statements (Unaudited)
of FPA as of June 30, 1997 contained in FPA's Registration Statement on Form
S-4 dated October 10, 1997.
8. FPA's Quarterly Report on From 10-Q for the quarter ended September
30, 1997 filed with the Commission on November 14, 1997.
9. FPA's Current Report on Form 8-K dated December 9, 1997 filed with
the Commission on December 10, 1997.
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In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act,
prior to the termination of the offering made hereby, shall be deemed to be
incorporated by reference into this Prospectus. Any statement included in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF
ANY OR ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE DOCUMENTS SO INCORPORATED.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO THE COMPANY AT 3636 NOBEL DRIVE,
SUITE 200, SAN DIEGO, CALIFORNIA 92122, ATTENTION: JAMES A. LEBOVITZ (TELEPHONE
NUMBER (619) 453-1000).
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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. When used in
this Prospectus, the words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. For a
discussion of such risks, see "RISK FACTORS." Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. FPA does not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and the documents
incorporated herein by reference. See "Risk Factors" for information that should
be carefully considered by prospective investors. Unless the context otherwise
requires, as used herein, the term "FPA" or the "Company" refers collectively to
FPA Medical Management, Inc. and its respective subsidiaries and affiliates.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling Stockholders.................. 8,219,623
Common Stock outstanding (1)...................................... _________
Nasdaq National Market symbol..................................... FPAM
</TABLE>
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(1) As of ________, 199_ (including Common Stock offered hereby and excludes
shares of Common Stock issuable upon exercise of stock options and other
warrants and 3,107,900 shares issuable upon conversion of FPA's 6-1/2%
Convertible Subordinated Debentures due 2001 (the "Debentures").
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time by the Selling Stockholders,
or by pledgees, donees, transferees or other successors-in-interest. Such sales
may be made in the over-the-counter market or in negotiated transactions, at
fixed prices which may be changed, at market prices prevailing at the time of
sale or at prices related to such prevailing price. The Common Stock may be sold
directly to purchasers or to or through underwriters, agents or broker-dealers
by one or more methods. Any underwriters, broker-dealers or agents may receive
compensation in form of commission, discounts or concessions from the Selling
Stockholders and/or the purchasers or such shares for which such underwriters,
broker-dealers or agents may act as agents or to whom they sell as principals,
or both (which compensation as to a particular underwriter, broker-dealer or
agent will be negotiated prior to the sale and may be in excess of customary
compensation). In addition, any securities covered by this Prospectus which
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this Prospectus. See "Selling Stockholders" and "Plan of
Distribution."
RISK FACTORS
See "Risk Factors" beginning on page 5 of this Prospectus for a discussion
of certain factors related to the Company and the Common Stock offered hereby.
THE COMPANY
FPA is a national physician practice management company which acquires,
organizes and manages primary care physician practice networks and provides
contract management services to hospital-based emergency departments. The
Company provides primary and specialty care services to prepaid managed care
enrollees and fee-for-service patients through a network of independent practice
association ("IPA") physicians and owned primary care physician groups. FPA
manages all covered primary and specialty medical care for each enrollee in
exchange for monthly risk-sharing fixed capitation payments pursuant to Payor
contracts. The Company's executive offices are located at 3636 Nobel Drive,
Suite 200, San Diego, California 92122 and its telephone number is (619)
453-1000.
RECENT DEVELOPMENTS
On October 13, 1997, FPA completed its acquisition of Health Partners, Inc.
("Health Partners") in a stock-for-stock merger accounted for as a pooling of
interests in which 5,227,273 shares of Common Stock were issued in exchange for
all outstanding shares and options of Health Partners. Health Partners is
affiliated with eight physician
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group practices and six IPAs representing 1,722 physicians in five geographic
markets including the New York City metropolitan area, northern Virginia,
Washington D.C., northern Kentucky and San Antonio, Texas, currently serve
approximately 138,000 patients under capitated or global fee arrangements.
On November 19, 1997, FPA entered into a Stock Purchase Agreement with
Avanti Corporate Health Systems, Inc. ("ACHS") to acquire all the outstanding
shares of capital stock of Avanti Health Systems of Texas, Inc. ("Avanti") for
consideration consisting of cash and Common Stock (such number of shares of
Common Stock being subject to adjustment based on the closing price of the
Common Stock prior to closing). The consummation of the transaction is subject
to receipt of all necessary regulatory approvals and other customary closing
conditions. The Stock Purchase Agreement may be terminated by either of the
parties if the transaction is not completed by December 31, 1997. In conjunction
with the Stock Purchase Agreement, FPA and NYLCare Health Plans, Inc. have
agreed to enter into a national payor agreement as of the closing of the
transaction. Avanti manages the University Medical Group clinics located at 20
sites in Dallas and Houston, Texas which serve approximately 50,000 NYLCare
members.
On November 26, 1997, FPA completed its acquisition of Cornerstone
Physicians Corporation ("Cornerstone") in a stock-for-stock merger accounted for
as a pooling of interests.
RISK FACTORS
In addition to other information contained or incorporated by reference in
this Prospectus, prospective investors should consider carefully the factors
listed below in evaluating an investment in the Common Stock offered hereby. All
information contained herein includes the financial results of AHI Healthcare
Systems, Inc. ("AHI"), HealthCap, Inc., Axminster Medical Group, Inc. and Health
Partners, Inc., for all periods from the effective dates of their respective
mergers with the Company, all of which were accounted for as poolings of
interests.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF ACQUISITIONS; EXPANDED SERVICE
OFFERING
Over the last three years, the Company has pursued an aggressive growth
strategy. The Company's growth has been achieved primarily through acquisitions,
several of which have been completed or become subject to a binding agreement
during the last six months. See "Recent Developments." Several of these
acquisitions are large transactions which involve significant risks and
uncertainties for FPA. The Company intends to continue to pursue growth through
acquisitions. The success of past and future acquisitions is largely dependent
on the ability of FPA to integrate the operations of the acquired companies into
FPA's operations in an efficient and effective manner. The process of
integrating management services, which include management information systems,
claims administration and billing services, utilization management of medical
services, care coordination and case management, quality and cost monitoring and
physician recruitment, as well as administrative functions, facilities and other
aspects of operations, while managing a larger and geographically expanded
entity, presents a significant challenge to FPA's management. In addition,
integration must be carried out so that FPA is able to control medical and
administrative costs. The ability to control such costs is key to the successful
future operations of FPA. There can be no assurance that the Company's
acquisitions will be successfully integrated on a timely basis or that the
anticipated benefits of these acquisitions, including cost savings, will be
realized. Furthermore, there can be no assurance that any cost savings which are
realized will not be offset by increases in other expenses or operating losses.
FPA will encounter similar uncertainties and risks with respect to any future
acquisitions it may make. Failure to effectively accomplish the integration of
acquired companies could have a material adverse effect on FPA's results of
operations and financial condition.
Certain of the companies recently acquired by FPA have recently or
historically operated at a loss. Other acquired companies have experienced
fluctuations in quarter-to-quarter operating results. See "--Fluctuations in
Quarterly Results." FPA has commenced the institution of certain measures
intended to reduce these losses and quarterly fluctuations and to operate the
acquired businesses profitably. However, there can be no assurance that FPA will
reverse these trends or operate these entities profitably. If there are
continuing operating losses at the acquired companies, FPA may need additional
capital to fund its business, and there can be no assurance that such additional
capital can be obtained or, if obtained, it will be on terms acceptable to FPA.
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The Company is regularly in discussions with potential acquisition
candidates and may from time to time enter into letters of intent or definitive
agreements with respect to the acquisition of such businesses. No assurance can
be given as to the Company's ability to compete successfully at favorable prices
for available acquisition candidates or to complete future acquisitions, or as
to the financial effect on the Company of any acquired business. Future
acquisitions by the Company may involve the issuance of additional shares of
Common Stock, which could have a dilutive effect on the Company's earnings per
share, or could involve significant cash expenditures and may result in
increased indebtedness and interest and amortization expenses or decreased
operating income, which could have an adverse impact on the Company's future
operating results.
The integration of acquired entities also requires the dedication of
management resources, which may distract the attention of management from the
day-to-day business of the Company. Furthermore, new acquisitions may expose
FPA's subsidiaries and affiliated professional corporations (the "Professional
Corporations"), other providers of medical services, health maintenance
organizations ("HMOs") and other prepaid health insurance plans (HMOs and
prepaid health insurance plans are together referred to as "Payors") with which
FPA has a relationship (collectively, the "FPA Network") to new Payors and
providers with which they have had no previous business experience. FPA cannot
predict whether it will be able to enroll into the FPA Network all members
currently served by physicians affiliated with newly acquired entities. Also,
there can be no assurance that there will not be substantial unanticipated costs
or other material adverse effects associated with acquisition and integration
activities, any of which could result in significant one-time charges to
earnings or otherwise adversely affect the Company's operating results.
In addition, as a result of the recent acquisition of Sterling Healthcare
Group, Inc. ("Sterling") and related businesses, FPA manages and supports
hospital-based emergency departments. The addition of these services presents
certain risks and uncertainties due to FPA's relative unfamiliarity with these
types of services and the market for such services. There can be no assurance
that FPA will be successful in developing and integrating Sterling's operations
and services.
RISKS OF FINANCIAL LEVERAGE
FPA's indebtedness is significant in relation to its stockholders' equity.
Giving effect to amounts drawn down under FPA's $275 million Credit Agreement
(including the term loan) with BankBoston, N.A., as Administrative Agent for the
lenders parties thereto dated June 30, 1997 (the "Credit Agreement") and the
issuance of the Debentures in December 1996, such debt accounts for
approximately 169% of FPA's total capitalization as of September 30, 1997.
While FPA believes it will be able to service its debt, there can be no
assurance to that effect. The degree to which FPA is leveraged could affect its
ability to service its indebtedness, make capital expenditures, respond to
market conditions and extraordinary capital needs, take advantage of certain
business opportunities or obtain additional financing. Unexpected declines in
FPA's future business, or the inability to obtain additional financing on terms
acceptable to FPA, if required, could impair FPA's ability to meet its debt
service obligations or fund acquisitions and, therefore, could materially
adversely affect FPA's business and future prospects.
GROWTH STRATEGY; DIFFICULTY IN MAINTAINING GROWTH
The future growth of FPA is largely dependent on a continued increase in the
number of new enrollees in the FPA Network. This growth may come from (i)
affiliations with, or acquisitions of, individual or group physician practices
serving enrollees of Payors in the FPA Network or of new Payors, (ii) increased
membership in plans of Payors with which the Professional Corporations or
subsidiaries of FPA have contracts and whose members are patients of physicians
in the FPA Network or (iii) agreements with Payors, physicians and hospitals in
other geographic markets. The process of identifying and consummating suitable
acquisitions of, or affiliations with, physician groups can be lengthy and
complex. The environment for such acquisitions and affiliates is subject to
increasing competitive pressures. There can be no assurance that FPA will be
successful in identifying, acquiring or affiliating with additional physician
groups or hospitals or that the Professional Corporations or subsidiaries of FPA
will be able to contract with new Payors. In addition, there can be no assurance
that the Company's acquisitions will be successfully integrated on a timely
basis or that the anticipated benefits of these acquisitions will be realized;
failure to effectively accomplish the integration of acquired entities may have
a material adverse effect on FPA's results of operations and financial
condition. FPA's ability to expand is also dependent upon its ability to comply
with legal and regulatory requirements in the jurisdictions in which it operates
or will operate and to obtain necessary regulatory approvals, certificates and
licenses.
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RISKS RELATED TO GOODWILL AND INTANGIBLE ASSETS
As a result of FPA's various acquisition transactions, goodwill and
intangible assets of approximately $408 million have been recorded as of
September 30, 1997 on FPA's balance sheet. Such goodwill and intangible assets
totaled approximately 256% of FPA's stockholders' equity as of September 30,
1997. Using amortization periods ranging from four to 30 years (with an average
amortization period of approximately 29 years), amortization expense relating to
such goodwill and intangible assets will be approximately $14.7 million per
year. Further acquisitions that result in the recognition of additional goodwill
and intangible assets would cause amortization expense to further increase. A
portion of the amortization generated by this goodwill and intangible assets is
not deductible for tax purposes.
At the time of, or following each acquisition, FPA evaluates each
acquisition and establishes an appropriate amortization period based on the
specific underlying facts and circumstances. Subsequent to such initial
evaluation, FPA periodically reevaluates such facts and circumstances to
determine if the related intangible asset continues to be realizable and if the
amortization period continues to be appropriate. As the underlying facts and
circumstances subsequent to the date of acquisition can change, there can be no
assurance that the recorded value of such intangible assets will be realized by
FPA. In the past, FPA has recorded charges for impairment of goodwill and
intangible assets, including (i) in 1995, $434,000 related to the sale and
closing of primary care centers and (ii) in 1996, $4.1 million relating to a
1995 acquisition in Arizona (as a result of continuing losses in the acquired
entity) and $14.8 million related to certain emergency room contracts (which
were terminated after acquisition of the contracting entity). Although at
September 30, 1997, the net unamortized balance of goodwill and intangible
assets acquired was not considered to be impaired, any future determination,
based on reevaluation of the underlying facts and circumstances, that a
significant impairment has occurred would require the write-off of the impaired
portion of unamortized goodwill and intangible assets, which could have a
material adverse effect on the Company's business and results of operations.
DIFFICULTY IN CONTROLLING HEALTH CARE COSTS; CAPITATED NATURE OF REVENUE
Agreements with Payors typically provide for the Professional Corporations
or certain subsidiaries of FPA to receive prepaid monthly fees per enrollee
known as "capitation" payments. FPA's profitability primarily depends upon its
ability to control costs and the ability of the Professional Corporations to
incur less in medical, hospital and administrative costs than the capitation
revenue received from Payors. Such profitability is achieved through effective
management of the provision of medical services by physicians in the FPA
Network, including controlling utilization of specialty care physicians and
other ancillary providers, purchasing services from physicians outside the FPA
Network at competitive prices and negotiating favorable rates with hospitals.
Agreements with Payors may also contain shared risk arrangements under which
additional compensation can be earned based on the provision of high-quality,
cost-effective health care to enrollees but which may require that a portion of
any loss in connection with such shared risk arrangements be assumed by FPA,
which would reduce FPA's net income. The amount of non-capitated medical and
hospital costs in any period could be affected by factors beyond the control of
the FPA Network, such as changes in treatment protocols, epidemics, disasters,
new technologies and inflation. To the extent that specialty care physicians'
fees or hospital costs have not been capitated and enrollees require more
specialty care than anticipated or have higher than anticipated hospital
utilization rates, revenue paid to the FPA Network by Payors may not be
sufficient to cover the costs the FPA Network is obligated to pay. FPA purchases
stoploss insurance protection which provides thresholds or "attachment points,"
generally $100,000 for inpatient services, at which substantially all financial
exposure for inpatient services of an enrollee beyond such threshold is
contractually shifted to the insurer up to a specified level (generally $1
million), at which point the risk of loss returns to the Company. In California
only, stoploss insurance protection thresholds are $125,000 for inpatient
services. The failure of FPA to negotiate favorable attachment points in the
future could have a material adverse effect on FPA's financial condition,
results of operations and/or liquidity. There can be no assurance that FPA will
be able to negotiate favorable stoploss attachment points in the future.
RISKS RELATED TO FULL RISK CAPITATION
Under capitation contracts generally, Professional Corporations accept
capitation payments and, as a result, accept the financial risk for the
provision of health care services, including those not normally performed and
provided by professional corporations comprised of primary care physicians under
Payor contracts (e.g., specialty
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care physician services). Under substantially all Payor contracts, the
Professional Corporations accept the financial risk for the provision of
outpatient medical services ("fully delegated" contracts). Under certain Payor
contracts, a Professional Corporation also accepts the financial risk for
hospital services. Approximately 16.2% and 16.3% of FPA's total operating
revenue for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, was generated from contracts in which the
subsidiaries and Professional Corporations accepted the financial risk for
outpatient medical and hospital services. In the event that (i) FPA is unable
to negotiate favorable prices or rates in contracts with providers of these
services on behalf of the Professional Corporations or (ii) the subsidiaries
and Professional Corporations are unable to control effectively the
utilization of these services, FPA could experience material adverse effects
on its results of operations.
RISKS RELATED TO FEE-FOR-SERVICE CONTRACTS
Sterling provides physician practice management services to hospitals under
two types of contractual arrangements: fee-for-service contracts and flat-rate
contracts. In general, under fee-for-service contracts, Sterling's revenues are
derived from amounts billed to patients and collected for the account of
Sterling. In contrast, under flat-rate contracts Sterling's revenue is derived
from payments of negotiated amounts paid by the hospital. Under fee-for-service
contracts, Sterling accepts responsibility for billing and collection, and
consequently assumes the financial risks related to changes in patient volume,
Payor mix and third party reimbursement rates. Any change in reimbursement
policies and practices, Payor mix, patient volume or covered services could
materially adversely affect the operations of FPA, particularly under
fee-for-service contracts. Sterling's fee-for-service contractual arrangements
also involve a credit risk related to uncollectibility of accounts. In addition,
fee-for-service contracts have less favorable cash flow characteristics than
flat-rate contracts due to longer collection periods. Failure to manage
adequately the collection risks and working capital demands associated with
fee-for-service contracts could have a material adverse effect on FPA.
DEPENDENCE ON GOVERNMENTAL AND OTHER THIRD PARTY PAYORS
As a result of the Sterling acquisition, a significant portion of FPA's
operating revenue is derived from payments made by government-sponsored health
care programs as well as from other third party payors. For the year ended
December 31, 1996 and the nine months ended September 30, 1997, approximately
39% and 32%, respectively, of FPA's revenues were derived from government
payors. The Medicare and Medicaid programs are subject to substantial regulation
by the federal and state governments, which are continually revising and
reviewing the programs and their regulations. In addition, funds received under
these programs are subject to audit with respect to the proper billing for
physician services and, accordingly, retroactive adjustments of revenue from
these programs may occur. While FPA seeks to comply with applicable Medicare and
Medicaid reimbursement regulations, there can be no assurance that FPA would be
found to be in compliance with such regulations should it be subject to audit.
Continuing budgetary constraints at both the federal and state level and the
rapidly escalating costs of health care and reimbursement programs have led, and
may continue to lead, to significant reductions in government and other third
party reimbursements for certain medical charges and to the negotiation of
reduced contract rates or capitated or other financial risk-shifting payment
systems by third party payors with service providers. Both the federal
government and various states are considering imposing limitations on the amount
of funding available for various health care services. In recent years, the U.S.
Congress has considered various budget proposals intended to reduce the rate of
increase in Medicare and Medicaid expenditures through cost savings and other
measures. The Balanced Budget Act of 1997, which became effective October 1,
1997, includes, among other matters, Medicare and Medicaid reform legislation.
The Medicare legislation will, among other things, (i) reduce Medicare payments
to managed care plans and alter the payment structure; (ii) require managed care
plans to make medically necessary care available 24 hours a day; (iii) prohibit
plans from restricting providers advice about medical care or treatment ("gag
clauses"); (iv) eliminate the 50/50 enrollment rule and replace it with enhanced
quality and outcome measures; (v) authorize provider-sponsored organizations to
contract directly with Medicare; and (vi) establish a medical savings account
demonstration project. The Medicaid legislation will, among other things, (i)
enable states to require Medicaid beneficiaries to enroll in managed care plans
without receiving federal waivers; (ii) repeal the 75/25 enrollment rule and
replace it with quality assurance standards; (iii) ban "gag clauses"; and (iv)
provide states with greater discretion to set reimbursement rates. FPA cannot
predict the effect that this legislation or current and future proposals
regarding government funded programs would have on its operations. Additionally,
Resource
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Based Relative Value Scale ("RBRVS"), a system of reimbursement intended to
reallocate medical reimbursement among medical specialties, took effect on
January 1, 1992 and was phased in over a four-year period. Under the regulations
relating to the RBRVS fee structure, the aggregate fee payments from Medicare
for certain emergency department procedures may be reduced in some
circumstances. There can be no assurance that the payments under governmental
and private third party payor programs will remain at levels comparable to
present levels or will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. Furthermore, changes in
reimbursement regulations, policies, practices, interpretations or statutes that
place material limitations on reimbursement amounts or practices could adversely
affect the operations of FPA.
RELIANCE ON CERTAIN PAYORS
For the year ended December 31, 1994, CareAmerica of Southern California,
Inc. ("CareAmerica") accounted for 9.7% of FPA's operating revenue. For the
year ended December 31, 1995, Foundation Health Systems, Inc. ("Foundation")
accounted for 21.8% of FPA's operating revenue. For the year ended December 31,
1996, Foundation and PCA Qualicare accounted for 13.3% and 9.3%, respectively,
of FPA's operating revenue. For the nine months ended September 30, 1997,
Foundation and PCA Qualicare accounted for 17.1% and 15.1%, respectively, of
FPA's operating revenue.
TERMINABILITY OF PAYOR CONTRACTS
Contracts with Payors generally provide for terms of one to thirty years,
may be terminated earlier without cause, upon notice and upon renewal or in a
number of other circumstances and are subject to negotiation of capitation
rates, covered benefits and other terms and conditions. At times, Payor
contracts may be continued on a month-to-month basis while the parties
renegotiate the terms of the contracts. Agreements with hospitals to provide
contract management services generally have terms of one or two years and are
renewable automatically unless either party gives written notice of its intent
not to renew at least 90 days prior to the end of the term. Many of these
agreements provide for termination by the hospital without cause on relatively
short notice. There can be no assurance that any of such contracts will not be
terminated early, will be renewed or that they will contain favorable terms.
Since January 1994, a number of Sterling's hospital services agreements have
been terminated as a result of non-renewal, termination by the hospital,
termination by Sterling or hospital closure. Future consolidation in the
healthcare industry may result in future hospital services agreements being
terminated. The loss of any Payor or hospital contract and the failure to regain
or retain such Payor's members or the related revenues without entering into new
Payor relationships or hospital contracts could have a material adverse effect
on FPA.
As of September 30, 1997, approximately 34% of FPA's membership is pursuant
to Payor agreements with Foundation. The terms of these Payor agreements are
thirty years with automatic five-year renewal periods. These agreements commit
certain FPA subsidiaries and Professional Corporations to, among other things,
contract with Foundation for all benefit programs and to maintain sufficient
medical personnel to provide reasonable and adequate access to professional
services for all benefit programs offered by Foundation, to keep care centers
open given specified levels of patients and to agree to certain pricing and
contracting parameters with Foundation. The agreements may be terminated in a
number of circumstances, including in the event of a material breach or a
violation of applicable laws, rules or regulations. A significant modification
to or termination of such agreements would have a material adverse effect on
FPA's results of operations.
DEPENDENCE ON PRIMARY CARE PHYSICIANS AND EMERGENCY MEDICINE PHYSICIANS
Primary care physicians are an integral part of the FPA Network, as they
provide and manage medical services offered to enrollees. FPA's growth depends,
in part, on its ability to retain existing and attract additional primary care
physicians to the FPA Network. There can be no assurance that physicians
presently in the FPA Network will not leave the FPA Network, that FPA will be
able to attract additional primary care physicians into the FPA Network or that
the amount of capitation or fee-for-service payments to physicians will not have
to be increased. To the extent that primary care physicians leave the FPA
Network or capitation or fee-for-service payments to physicians are increased,
FPA's results of operations may be materially adversely affected. In order to
provide management services to hospital emergency departments, FPA must recruit
and retain sufficient numbers of qualified physicians. There is a substantial
shortage of board certified emergency medicine physicians, and FPA
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competes with many types of healthcare providers, as well as teaching, research
and governmental institutions, for the services of such physicians. An inability
to recruit and retain emergency medicine physicians could adversely affect FPA's
ability to add new and retain existing hospital clients.
On December 5, 1996, the Thomas-Davis Medical Centers, P.C. ("TDMC")
physicians located in Tucson, Arizona (the "petitioners") voted to be
represented by the Federation of Physicians and Dentists (the "Union"). On
February 13, 1997, the TDMC employees located in Tucson voted to be represented
by the Union of Health and Hospital Care Employees. On September 24, 1997, a
District Court Judge for the United States District Court for the District of
Arizona granted a temporary injunction and ordered, among other things, FPA and
TDMC to recognize the Union as the exclusive bargaining agent for the
petitioners and to cease from making unilateral changes in the terms and
conditions of employment, and upon request of the Union, to recognize and
bargain in good faith with the Union as the exclusive collective bargaining
agent of the petitioners concerning wages, hours and other terms and conditions
of employment. TDMC and the Union commenced bargaining on October 1, 1997. TDMC
and FPA are in the process of appealing certain aspects related to such
representation; however, there can be no assurance as to the outcome of such
appeals. Although FPA does not expect union affiliations of its Arizona
employees to have a material adverse effect on its results of operations or
financial condition, there can be no assurance that future affiliations and/or
collective bargaining arrangements will not have a material adverse effect on
FPA's results of operations and financial condition.
RISKS RELATED TO CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS
FPA's subsidiary, Sterling, generally contracts with emergency room
physicians as independent contractors to provide services to its hospital
clients. These independent contractor physicians are paid on an hourly basis.
Pursuant to such compensation arrangements, independent contractor physicians do
not share in the profit derived by FPA from the Company's operations. Because
FPA regards its contracted physicians as independent contractors and not as
employees, FPA does not withhold federal or state income taxes, make federal or
state unemployment tax payments or provide workers' compensation insurance for
such physicians. There can be no assurance that federal or state taxing
authorities or other parties will not challenge the classification of such
independent contractor physicians and determine that such physicians should be
classified as employees. In the event that the physicians under contract with
FPA are determined to be employees, FPA will be materially and adversely
affected and FPA may be subject to retroactive taxes and penalties.
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE
In certain states in which FPA conducts or may conduct business, general
business corporations are not permitted to practice medicine, exercise control
over physicians who practice medicine or engage in certain practices such as
fee-splitting with physicians. The corporate practice of medicine refers to the
rendering directly, or through employment, of medical services by a general
business corporation. As stated in the Notes to FPA's Consolidated Financial
Statements incorporated by reference herein, FPA believes that it has perpetual
and unilateral control over the assets and operations of the various affiliated
Professional Corporations whose operations FPA consolidates. There can be no
assurance that regulatory authorities will not take the position that such
control conflicts with state laws regarding the corporate practice of medicine
or other federal or state restrictions. Although FPA believes its operations as
currently conducted are in material compliance with existing applicable laws,
there can be no assurance that the existing organization of FPA and its
contractual arrangements with affiliated physicians will not be successfully
challenged in states in which it operates as constituting the unlicensed
practice of medicine or that the enforceability of the provisions of such
arrangements, including non-competition agreements, will not be limited. In the
event of action by any regulatory authority limiting or prohibiting FPA from
carrying on its business or from expanding the operations of FPA to certain
jurisdictions, structural and organization modifications may be required, which
could have an adverse effect on FPA's business and results of operations.
Because certain state laws prohibit general business corporations from
controlling professional corporations contractually or otherwise, FPA has
structured its contracts with the Professional Corporations so that such
corporations retain the right to enter into contracts for the provision of
medical services or make other financial commitments. Such contracts allow the
Professional Corporations to make commitments which could be on terms
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which may not be advantageous to FPA. For example, a Professional Corporation
could decline to enter into Payor contracts which are negotiated for it by FPA
or, alternatively, could decide to enter into Payor contracts which FPA does not
believe are financially advantageous. Physicians who contract with these
corporations may also have the legal right to decline to use other physicians in
the FPA Network or specialists having a pre-existing, subcapitated or fixed fee
relationship with the FPA Network. These decisions, if made by a Professional
Corporation or a physician, could have a material adverse effect on FPA's
business and financial condition.
POSSIBLE NEGATIVE EFFECTS OF PROSPECTIVE HEALTHCARE REFORM
Various plans have been proposed and are being considered on federal, state
and local levels to reduce costs in healthcare spending. Although FPA believes
its management model responds to the concerns addressed by such plans, it is not
possible to assess the likelihood any of these proposals will be enacted or to
assess the impact any of these proposals may have on reimbursement to healthcare
providers. Any plan to control healthcare costs, however, could result in lower
rates of reimbursement. Lower rates of reimbursement may reduce the amount
ultimately received by FPA and, accordingly, may have a material adverse effect
on FPA's business and results of operations.
In recent years, legislation has been proposed in Congress to implement an
"any willing provider" law on a national level. These laws, which are in effect
in some states, require managed care organizations, such as HMOs, to contract
with any physician who is appropriately licensed and who meets any applicable
membership criteria. Such laws could limit the flexibility of managed care
organizations, such as FPA, to achieve efficiency by controlling the size of
their primary care provider networks and the number of specialty care providers
to whom enrollees are referred. At present, no state in which FPA Network
physicians practice has such a law although "any willing provider" laws have
been proposed in states in which FPA operates. FPA cannot predict what effect
such laws would have on its operations.
POSSIBLE NEGATIVE EFFECTS OF GOVERNMENTAL REGULATIONS
The healthcare industry is subject to extensive federal and state
regulation. Changes in the regulations or reinterpretations of existing
regulations may significantly affect the FPA Network. FPA and the Professional
Corporations are subject to federal legislation that prohibits activities and
arrangements that provide kickbacks or other economic inducements for the
referral of business under the Medicare and Medicaid programs. Noncompliance
with the federal anti-kickback legislation can result in exclusion from the
Medicare and Medicaid programs and civil and criminal penalties. The federal
government has promulgated "safe harbor" regulations that identify certain
business and payment practices which are deemed not to violate the federal
anti-kickback statute. In addition, federal legislation currently restricts the
ability of physicians to refer Medicare or Medicaid patients to certain entities
in which they have an ownership interest or compensation arrangement for health
care services, including clinical laboratory services. With respect to the
self-referral prohibitions, the entity and the referring physician are
prohibited from receiving Medicare or Medicaid reimbursement for services
rendered and civil penalties may be assessed. Many states, including states in
which FPA does business, have similar anti-kickback and anti-referral laws.
Penalties similar to those imposed by federal law are provided for violation of
state anti-kickback and anti-referral laws. FPA believes that its operations
comply with all applicable anti-kickback and anti-referral laws. In addition,
healthcare reforms may expand existing anti-kickback and anti-referral laws to
apply to all healthcare payors, not just Medicare and Medicaid. It is unclear
how any reform legislation would affect healthcare provider networks or other
types of managed care arrangements. There can be no assurance that FPA will be
able to comply with any new laws.
Furthermore, a number of states prohibit sharing professional fees (or fee
splitting) with anyone other than a member of the same profession. There can be
no assurance that such laws will ultimately be interpreted in a manner
consistent with the practices of FPA.
Federal and state laws regulate insurance companies, HMOs and other managed
care organizations. Many states also regulate the establishment and operation of
networks of health care providers. Generally, these laws do not apply to the
hiring and contracting of physicians by other health care providers. There can
be no assurance that
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regulators of the states in which FPA operates would not apply these laws to
require licensure of FPA's operations as an HMO, an insurer or a provider
network. FPA believes that it is in compliance with these laws in the states in
which it does business, but there can be no assurance that interpretations of
these laws by the regulatory authorities in these states or in the states in
which FPA may expand will not require licensure or a restructuring of some or
all of FPA's operations. In the event that FPA is required to become licensed
under these laws, the licensure process can be lengthy and time consuming and,
unless the regulatory authority permits FPA to continue to operate while the
licensure process is progressing, FPA could experience a material adverse change
in its business while the licensure process is pending. In addition, many of the
licensing requirements mandate strict financial and other requirements which FPA
may not be able to meet. Further, once licensed, FPA would be subject to
continuing oversight by and reporting to the respective regulatory agency.
Although under the laws of most states the business of insurance generally
is defined to include acceptance of financial risk and has not extended to
physician networks, the Knox-Keene Health Care Service Plan Act of 1975, as
amended (the "Knox-Keene Act"), a California statute that applies to managed
care health service plans, requires all health care service plans to be licensed
by the California Department of Corporations (the "Department"). The Department
has determined that physician management companies like the Company must apply
for and operate under a restricted Knox-Keene license. FPA's restricted license
application was approved by the Department in December 1996. The loss or
revocation of such license would have a material adverse effect on FPA.
In addition, there can be no assurance that regulatory authorities in the
other states in which FPA or its affiliates operate will not impose similar
requirements or that future interpretations of insurance laws and health care
network laws by the regulatory authorities in these states or other states will
not require licensure or a restructuring of some or all of the operations of
FPA.
The National Association of Insurance Commissioners ("NAIC") recently
adopted the Managed Care Plan Network Adequacy Model Act (the "Model Act") which
is intended to establish standards for the creation and maintenance of networks
by health carriers and establish requirements for written agreements among
health carriers offering managed care plans, participating providers and
intermediaries, like the Company, which negotiate provider contracts, regarding
the standards, terms and provisions under which a participating provider will
provide services to covered persons. The Model Act does not carry the force of
law unless it is adopted by state legislatures. The Company does not know which
states, if any, will adopt the Model Act. There can be no assurance that the
Company will be able to comply with the Model Act or any other act adopted by
NAIC if it is adopted in any state in which the Company does business or the
effect such compliance could have on FPA's operations.
ANTITRUST REGULATION
FPA's affiliated IPAs and Professional Corporations are separate legal
entities due to legal and regulatory requirements; if they are deemed to be
competitors in specified markets, they may be subject to various laws that
prohibit anti-competitive conduct, including price fixing, concerted refusals to
deal and division of market. Alternatively, if FPA's affiliated IPAs and
Professional Corporations, although separate entities, are deemed to be part of
a single entity or system, they may be subject to laws that prohibit
anti-competitive combinations or activities if the number of affiliated
physicians in specified markets exceeds certain thresholds. The Company believes
that it is in compliance with the antitrust laws, but there can be no assurance
that the Company's interpretation is consistent with that of federal or state
authorities or courts or that such circumstances will remain as the Company
grows and matures and as further regulations are promulgated and interpretations
thereof issued.
COMPETITIVE MARKET FORCES
The managed care industry is highly competitive and is subject to continuing
changes in how services are provided and how providers are selected and paid.
Increased enrollment in prepaid healthcare plans because of healthcare reform
or for other reasons, increased participation by physicians in group practices
and other factors may attract entrants into the physician practice management
services segment of the managed care industry and result in increased
competition for FPA. In addition, local physician groups and hospitals are also
trying to combine their services into integrated delivery networks. Certain of
FPA's competitors are significantly larger and better
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capitalized, provide a wider variety of services, may have greater experience
in providing physician practice management services and may have longer
established relationships with Payors. Accordingly, FPA may not be able to
continue to increase the number of providers in the FPA Network, negotiate
contracts with new Payors on behalf of the Professional Corporations or
renegotiate favorable contracts with current Payors. The inability of FPA to
increase the number of providers in the FPA Network and negotiate favorable
contracts with Payors could have a material adverse effect on FPA.
In addition, as a result of consolidation among Payors, certain Payors are
able to negotiate or are in the process of negotiating significant reductions in
the capitation payments to providers. Further, certain Payors have deleted
shared risk arrangements from their contracts with providers thereby decreasing
the amount of compensation such Payors are paying providers. To date, none of
the Payors has deleted shared risk arrangements from its contract with any
Professional Corporation or FPA subsidiary. If Payors negotiate cost reductions
with such Professional Corporations or subsidiaries or eliminate shared risk
arrangements in which the Professional Corporations or subsidiaries are
currently participating, such actions could have a material adverse effect on
the results of operations of FPA.
POTENTIAL LIABILITIES
In recent years, physicians, hospitals and other participants in the managed
health care industry have become subject to an increasing number of lawsuits
alleging medical malpractice as well as claims based on the withholding of
approval for or reimbursement of necessary medical services. Many of these
lawsuits involve large claims and substantial defense costs. The Company and
certain of its subsidiaries have been named as a party in such suits and claims
and will likely be named as a party in similar suits and claims in the future.
FPA and its subsidiaries maintain an errors and omissions policy relating to
their utilization review activities and FPA is included as a named insured on
the policies of the Professional Corporations. There can be no assurance that
insurance coverage for lawsuits brought or which may be brought against FPA will
be sufficient to cover FPA's expenses or losses. There can be no assurance that
insurance coverage will be sufficient, and, if insufficient, that such suits or
claims will not have a material adverse effect on the Company's financial
condition and results of operations. Further, FPA could be held liable for the
negligence of a contracted healthcare professional if such healthcare
professional were regarded as an employee or agent of FPA in the practice of
medicine. The Texas legislature has enacted legislation effective September 1,
1997 which provides that a health insurance carrier, health maintenance
organization or managed care entity has the duty to exercise ordinary care when
making healthcare treatment decisions and is liable for damages for harm to an
insured or enrollee proximately caused by its failure to exercise such ordinary
care or proximately caused by treatment decisions made by its employees, agents,
ostensible agents or representatives acting on its behalf and over whom it
exercises influence or control. Given the recent enactment of this legislation
and the lack of judicial interpretation thereof, FPA cannot assess the impact
this legislation may have on its operations in Texas; however, if the
legislation is utilized by patients to bring successful malpractice actions
against managed care entities such as FPA, the cost of providing healthcare as
well as the cost of insurance coverage against such actions could increase,
which could have an adverse impact on FPA's results of operations. In addition
to any potential tort liability of FPA, FPA's emergency department contracts
with hospitals generally contain provisions under which FPA agrees to indemnify
the hospital for losses resulting from the malpractice of contracted physicians.
An increasing number of healthcare providers and other entities are being
faced with lawsuits alleging fraudulent billing practices under the federal
Civil False Claims Act. The Civil False Claims Act permits a person (generally
employees or former employees of the healthcare provider or other entity) to
assert the rights of the government by initiating a qui tam action against a
healthcare provider or other entity if such person has or purports to have
information that the healthcare provider or other entity falsely and
fraudulently submitted a claim to the government for payment. Upon filing, the
government has the opportunity to intervene and assume control of the case.
Penalties of up to $10,000 for each false or fraudulent claim presented to the
government for payment may be awarded as well as treble damages. Defendants also
may be excluded permanently or for a period of time from participation in the
Medicare and Medicaid programs. Because of penalties and treble damages, many of
these lawsuits involve large monetary claims and substantial defense costs. If a
qui tam action is successfully prosecuted, no assurance can be given that such
action would not have a material adverse effect on FPA and its operations.
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AHI is a defendant in a class action securities lawsuit entitled In re AHI
Healthcare Systems, Inc. Securities Litigation filed in the United States
District Court for the Central District of California, Western Division. The
suit was initially filed on December 20, 1995 against AHI, certain of its
officers and directors, and all of the underwriters of AHI's common stock in
AHI's initial public offering. The suit asserts that AHI artificially inflated
the price of its stock by, among other things, misleading securities analysts
and by failing to disclose in its initial public offering prospectus alleged
difficulties with the acquisition of Lakewood Health Plan, Inc. and with two of
AHI's payor contracts with FHP, Inc. The plaintiffs seek unspecified damages on
behalf of the stockholders who purchased AHI's common stock between September
28, 1995 and December 19, 1995. On January 17, 1997 the district court (a)
granted AHI's motion for partial summary judgment and dismissed the class
plaintiffs' claims concerning the alleged misrepresentations regarding AHI's
intended use of initial public offering proceeds and AHI's relationship with
FHP, Inc. but (b) denied summary judgment on the claims relating to the proposed
acquisition of Lakewood Health Plan, Inc. As a result, only those claims
relating to Lakewood Health Plan and AHI's alleged liability for the public
statements of securities analysts following AHI remain in the suit. Discovery is
ongoing and a June 1998 trial date has been established. FPA intends to
vigorously defend this lawsuit and does not expect that the outcome of this
lawsuit will have a material adverse effect.
FLUCTUATIONS IN QUARTERLY RESULTS
FPA's financial statements (including interim financial statements) contain
accruals which are calculated quarterly for estimates of amounts assigned by
certain FPA subsidiaries and the Professional Corporations to FPA and paid by
Payors based upon hospital utilization ("shared risk revenues"). Quarterly
results have in the past and may in the future be affected by adjustments to
such estimates for actual costs incurred. Historically, these subsidiaries,
Professional Corporations and Payors generally reconcile differences between
actual and estimated amounts receivable or payable relating to Payor shared risk
arrangements in the second or third quarter of each year. In the event that
these subsidiaries, Professional Corporations and Payors are unable to reconcile
such differences, extensive negotiation, arbitration or litigation relating to
the final settlement of these amounts may occur. To the extent that the FPA
Network expands to include additional Payors, the timing of these adjustments
may vary; this variation in timing may cause FPA's quarterly results not to be
directly comparable to corresponding quarters in other years. FPA's financial
statements also include estimates of costs for covered medical benefits incurred
by enrollees, which costs have not yet been reported by the providers. While
these estimates are based on information available to FPA at the time of
calculation, actual costs may differ from FPA's estimates of such amounts. If
the actual costs differ significantly from the amounts estimated by FPA,
adjustments will be required and quarterly results may be affected. Quarterly
results may also be affected by movements of Payor members from one Payor to
another, particularly during periods of open enrollment for HMOs. Fluctuations
in the Company's quarterly operating results could result in significant
volatility in, and otherwise adversely affect, the market price for the Common
Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
Recently, there has been significant volatility in the market prices of
securities of companies in the healthcare industry, including the price of
Common Stock. Many factors, including announcements of new legislative proposals
or laws relating to health care reform, the performance of, and investor
expectations for, FPA, analysts' comments, the trading volume in Common Stock
and general economic and market conditions, may influence the trading price of
Common Stock. Accordingly, there can be no assurance as to the price at which
Common Stock will trade in the future.
DEPENDENCE UPON KEY PERSONNEL; EMPLOYMENT CONTRACTS
FPA is dependent upon the active participation of its executive officers and
directors, particularly Dr. Sol Lizerbram, Chairman of the Board, Dr. Seth Flam,
President and Chief Executive Officer and Dr. Stephen Dresnick, President of
Sterling. The loss to FPA of the services of Drs. Lizerbram, Flam or Dresnick
could have a material
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adverse effect upon FPA's future operations. FPA has an employment contract with
each of Drs. Lizerbram, Flam and Dresnick. FPA has not purchased key-man life
insurance on any of its key personnel.
RISKS OF DILUTION; ADDITIONAL CAPITAL NEEDS
FPA's expansion strategy includes acquisitions of, and affiliations with,
individual and group physician practices as well as organizations that provide
management services to such practices. Such acquisitions or affiliations may be
consummated using newly issued shares of Common Stock, or securities convertible
into or exercisable for the purchase of Common Stock, as consideration. The
issuance of additional shares of Common Stock may have a dilutive effect on the
net tangible book value or earnings per share of FPA following such issuance.
FPA's expansion strategy also requires substantial capital investments.
Capital is needed not only for the acquisition of the assets of physician
practices, but also for their effective integration, operation and expansion and
for the addition of medical equipment and technology. In the event that FPA
common stock does not maintain sufficient valuation, or potential acquisition
candidates are unwilling to accept FPA common stock as part of the consideration
for the sale of the assets of their businesses, FPA may be required to utilize
more of its cash resources. There can be no assurance that FPA will have
sufficient cash resources or will be able to obtain additional financing or
that, if available, such financing will be on terms acceptable to FPA. Further,
an inability to obtain additional capital through subsequent debt or equity
financings may negatively affect FPA's existing operations and its future
growth.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
conversion of the Debentures, or otherwise, or the perception that such sales
could occur, may adversely affect prevailing market prices of FPA common stock.
As of , 1997, shares of Common Stock are issued and
outstanding. In addition, as of , 1997, the Company had outstanding
options to purchase shares of Common Stock, warrants to purchase
532,163 shares of Common Stock and 3,107,900 shares of FPA common stock are
issuable upon conversion of the Debentures. The Company has granted registration
rights to certain former AHI stockholders in the event that such stockholders
are unable to sell a specified number of shares in accordance with the
provisions of Rule 144. The Company does not believe a registration statement
regarding such shares will need to be filed.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
FPA's Certificate of Incorporation, as amended, and By-laws contain certain
provisions that could have the effect of making it more difficult for a person
to acquire, or of discouraging a third party from attempting to acquire, control
of FPA. FPA's Certificate of Incorporation authorizes the Board of Directors
without the approval of the stockholders to issue shares of Preferred Stock. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging a person from acquiring a
majority of the outstanding Common Stock. There are no shares of Preferred Stock
presently outstanding and FPA has no present plans to issue any shares of
Preferred Stock.
Under the Credit Agreement, FPA may not enter into any merger or
consolidation arrangement or purchase any securities of or any assets
constituting a business unit of another person except, among other things, for
Permitted Acquisitions (as defined in the Credit Agreement). These provisions
could serve to impede or prevent a change of control of FPA or have a depressive
effect on FPA's stock price.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sales of the
Common Stock offered hereby.
DIVIDEND POLICY
15
<PAGE> 18
The Company declared no cash dividends on the Common Stock during 1995, 1996
and 1997 to date. The Company currently intends to retain earnings for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. Any payment of future dividends will be at the discretion of
the Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends (including
under the Credit Agreement and the Debentures) and other relevant factors.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 98,000,000 shares of
Common Stock, $.002 par value per share, and 2,000,000 shares of Preferred
Stock, $.001 par value per share. As of December 5, 1997, there were 41,350,138
shares of Common Stock and no shares of Preferred Stock issued and outstanding.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Common Stock do not
have cumulative voting rights and, therefore, holders of a majority of the
shares voting for the election of directors can elect all of the directors. In
such event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any agreement governing the
Company's indebtedness. The Company does not anticipate paying cash dividends in
the foreseeable future. See "Dividend Policy." In the event of the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities.
Holders of Common Stock have no preemptive, conversion or redemption rights
and are not subject to further calls or assessments by the Company. All of the
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable.
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors has the authority, without any vote or action by the
stockholders, to issue Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividend rights, dividend rate, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series. In addition, the issuance of Preferred Stock by the Board of
Directors could be utilized, under certain circumstances, as a method of
preventing a takeover of the Company at a premium above the then-prevailing
market price. See "Risk Factors -- Anti-Takeover Effect of Certain Provisions."
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("Delaware Law"). In general, Section 203
prevents an interested stockholder (defined generally as a person owning 15% or
more of a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware Corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder the board of directors of the
corporation approved the transaction or the business combination in which the
interested stockholder became an interested stockholder; (ii) upon consummation
of the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the
16
<PAGE> 19
time the transaction commenced (excluding shares owned by persons who are both
officers and directors of the corporation, and held by certain employee stock
ownership plans); or (iii) following the transaction in which such person became
an interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the corporation not owned by the interested stockholder.
The Company's Bylaws provide that the exact number of directors shall be
fixed from time to time by the Board of Directors. At each annual meeting of
stockholders, directors will be elected to succeed those directors whose terms
have expired, and each newly elected director will serve for a three-year term.
Directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware General Corporation Law, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a Director. Under current Delaware Law, liability of
a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provision of the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Bylaws provide that the Company shall indemnify its directors and
officers to the fullest extent permitted by Delaware General Corporation Law.
In addition, the Company has entered into agreements (the "Indemnification
Agreements") with certain of the directors and officers of the Company pursuant
to which the Company has agreed to indemnify such director or officer from
claims, liabilities, damages, expenses, losses, costs, penalties or amounts paid
in settlement incurred by such director or officer and arising out of his
capacity as a director, officer, employee and/or agent of the corporation of
which he is a director or officer to the maximum extent provided by applicable
law. In addition, such director or officer shall be entitled to an advance of
expenses to the maximum extent authorized or permitted by law to meet the
obligations indemnified against. The Indemnification Agreements also obligate
the Company to cover each director and officer in the event the Company
purchases and maintains insurance for the benefit and on behalf of its directors
and officers insuring against all liabilities that may be incurred by each
director or officer in or arising out of his capacity as a director, officer,
employee and/or agent of the Company.
To the extent that the Board of Directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of the Company to
indemnify directors and officers, such repeal or limitation may not be effective
as to directors and officers who are currently parties to the Indemnification
Agreements because their rights to full protection are contractually assured by
the Indemnification Agreements. It is anticipated that similar contracts may be
entered into, from time to time, with future directors and officers of the
Company.
17
<PAGE> 20
SELLING STOCKHOLDERS
The following table shows the names of the Selling Stockholders and the
number of shares of Common Stock owned by them and to be sold under this
Prospectus as of the date of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
Oxford Health Plans, Inc.(1) 2,090,109 5.1% 2,090,109
WellPoint Development Company, Inc.(1) 1,467,501 3.6 1,467,501
Charles G. Berg(1) 327,995 * 327,995
Steven Wiggins(1) 211,232 * 211,232
Charles D. Phillips(1) 35,336 * 35,336
Paul Conlin(1) 27,812 * 27,812
Bahman Bandari, M.D.(2) 43,852 * 43,852
Jarvis Gatlin, M.D.(2) 43,852 * 43,852
Stanley Golden, M.D.(2) 43,852 * 43,852
Kenneth Ho, M.D.(2) 43,852 * 43,852
Raymond Jing, M.D.(2) 43,852 * 43,852
Christopher Meilleur, M.D.(2) 43,852 * 43,852
Rosa Rodriguez-Funes, M.D.(2) 43,852 * 43,852
Elizabeth DiFiori, M.D.(2) 43,852 * 43,852
Max Shapiro, M.D.(2) 43,852 * 43,852
Huey-Jer Su, M.D.(2) 43,852 * 43,852
Spencer Wenger, M.D.(2) 43,852 * 43,852
Patrick D. Barron(3) 335,663 * 335,663
Cathryn E. Barron as trustee u/a datd May 28, 18,648 * 18,648
1997 fbo Christine E. Barron
Cathryn E. Barron as trustee u/a datd May 28, 18,648 * 18,648
1997 fbo Michelle C. Barron
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(4) 37 * 37
AAFES 401(H) Plan by Abbott Capital
Management, L.P. as Investment Manager(4) 100 * 100
Accel Internet/Strategic Technology Fund L.P.(4) 29,424 * 29,424
Accel Investors '96 L.P.(4) 13,078 * 13,078
Accel Keiretsu V L.P.(4) 4,360 * 4,360
Accel V L.P.(4) 219,597 * 219,597
Alan K. Jacobs, M.D.(4) 2,391 * 2,391
Alan R. Hoops(4) 1,925 * 1,925
Alan Rogers, M.D.(4) 192 * 192
Alan W. Crites(4) 1,961 * 1,961
Alexander M. Seaver(4) 1,996 * 1,996
Allan M. Wolfe(4) 38 * 38
Allen Family Trust dtd 10/13/81(4) 567 * 567
Andrea A. Billante(4) 188 * 188
Andrew Alcon(4) 372 * 372
Andrew Roediger(4) 107 * 107
Ann Stone(4) 2,695 * 2,695
Anne Francoeur, M.B.A.(4) 192 * 192
Arnold L. Oronsky(4) 1,857 * 1,857
Asch Family Trust(4) 700 * 700
Ashtree Corporation(4) 2,800 * 2,800
BankAmerica Capital Corporation(4) 5,976 * 5,976
Bankers Trust Company as Trustee for the Hughes
Aircraft Company Master Retirement Trust(4) 7,968 * 7,968
Benedict A. Itri(4) 36 * 36
Bonnie Holmes(4) 400 * 400
BP America Inc. Retirement Trust(4) 5,976 * 5,976
Bradley R. Kent(4) 464 * 464
Brant Heise(4) 231 * 231
Brinson Trust Company as Trustee of the Brinson
Map Venture Capital Fund III(4) 993 * 993
Brinson Venture Partnership Fund III, L.P.(4) 3,987 * 3,987
Brody Family Trust U/D/T 8/15/86(4) 284 * 284
C. Allen Batts(4) 37 * 37
C. Craig Carlson(4) 3,850 * 3,850
California State Teachers' Retirement System(4) 29,879 * 29,879
Carbel N.V.(4) 1,992 * 1,992
Charles D. Birmingham(4) 73,001 * 73,001
Charles S. and Nan Y. Strauch Living
Trust dtd 10/26/82(4) 283 * 283
Charles Scott Gibson Living Trust UA 2/20/91(4) 284 * 284
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
Church Pension Group(4) 27,717 * 27,717
Computrol Limited, BVI(4) 1,848 * 1,848
Craig Suwinski(4) 231 * 231
Crosspoint Associates (1996)(4) 62,095 * 62,095
Crosspoint Venture Partners (1993)(4) 70,000 * 70,000
Crossroads Capital IV Venture Capital Fund(4) 3,695 * 3,695
Crossroads Constitution Limited Partnership(4) 14,782 * 14,782
Cynthia Brown(4) 385 * 385
Cynthia Ringo(4) 38 * 38
Dan Klesken(4) 219 * 219
Daniel Murphy(4) 386 * 386
Davenport Family Trust UTA dtd 12/3/86(4) 284 * 284
David Bellet(4) 308 * 308
David E. Stenmark(4) 350 * 350
David Hetz(4) 438 * 438
David I. Fuente(4) 567 * 567
David L. Goldsmith(4) 107 * 107
Dean Serra(4) 7,700 * 7,700
Dench Living Trust dtd 6/16/94(4) 652 * 652
Dennis Ojanpera(4) 770 * 770
Diane Sneeden(4) 142 * 142
DMK Family Partners, Ltd.(4) 1,749 * 1,749
Douglas C. Moore(4) 274 * 274
Douglas Metz(4) 36 * 36
Edward S. Murachver and Enette S. Murachver, JTWROS(4) 1,749 * 1,749
Ellen Eichler, M.D.(4) 192 * 192
Ellmore C. Patterson Partners (4) 5,992 * 5,992
Employees' Retirement System of the County of
Milwaukee(4) 996 * 996
F. Duffield Meyercord(4) 36 * 36
F. Warren Hellman and Patricia Christina Hellman,
Trustees of the Hellman Family Revocable Trust,
Dated December 17, 1984, as the same has been
and may be amended(4) 1,992 * 1,992
Farah H. Champsi(4) 326 * 326
Fell & Nicholson Companies(4) 425 * 425
Fidelity Trust Company Ltd. Rubric: "ORIOL"(4) 5,976 * 5,976
Frank W. Birnie(4) 776 * 776
George A. Needham(4) 425 * 425
George R. Hecht(4) 1,743 * 1,743
German Lasala, M.D.(4) 192 * 192
Glen Fredenberg(4) 1,155 * 1,155
H. Berry Cash(4) 1,598 * 1,598
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
Hancock Venture Partners IV - Partnership Fund L.P.(4) 10,956 * 10,956
Heimbuck Family Trust dtd 8/13/85(4) 284 * 284
Holder Family Trust dtd 1/29/85(4) 284 * 284
Horsley Bridge Fund II, L.P.(4) 18,478 * 18,478
Horsley Bridge Fund III, L.P.(4) 25,869 * 25,869
Howard Brown, M.D.(4) 192 * 192
Howard S. Flagg(4) 37 * 37
IBM Retirement Plan Trust(4) 18,478 * 18,478
Iowa Public Employees Retirement System(4) 19,920 * 19,920
J. Leonard Lichtenfeld(4) 6,341 * 6,341
James F. Willenborg(4) 38 * 38
James F. Willenborg(4) 283 * 283
James R. Boyed, M.D.(4) 500 * 500
Jason S. Asch and Gail Krugman Asch, Trustees
Asch Family Trust(4) 700 * 700
Jeffrey M. Nash(4) 284 * 284
Jillian Cole(4) 38 * 38
Joan C. Sivley(4) 13,999 * 13,999
Joel Moncivaiz(4) *
John (Jack) Corcoran, M.D.(4) 1,161 * 1,161
John Breese Mumford and Christine Joyce Mumford
Trusts, U/D/T dtd 10/13/83(4) 14,107 * 14,107
John Friedman(4) 1,400 * 1,400
John Fuchs(4) 38 * 38
John G. McDonald(4) 205 * 205
John G. Toms(4) 350 * 350
John Keating(4) 382 * 382
John Larson(4) 205 * 205
John R. Seitz(4) 145,601 * 145,601
John Shaner, M.D.(4) 308 * 308
Joseph Firmage(4) 38 * 38
Joseph R. Bona, M.D.(4) 350 * 350
Judith Savage(4) 7,700 * 7,700
Julia Cyburt(4) 616 * 616
KANE & Co./Sears Pension Fund(4) 3,695 * 3,695
Karl Burns(4) 77 * 77
KEL Enterprises, Ltd.(4) 567 * 567
Kemper Technology fund(4) 7,391 * 7,391
Ken Fitzsimmons(4) 776 * 776
Kenneth and Roberta Eldred Revocable Trust,
U/A dtd 1/28/83(4) 567 * 567
Kenneth C. Gardner(4) 37 * 37
Kimberly A. Stickney(4) 1,992 * 1,992
Larry Levey(4) 115 * 115
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
Larry W. Weprin and Meryl J. Weprin(4) 700 * 700
Larry Weprin, M.D.(4) 233 * 233
Leeway & Co.(4) 71,813 * 71,813
Leon Leach(4) 21,805 * 21,805
Liberty Insurance Corporation(4) 598 * 598
Liberty Life Assurance of Boston(4) 1,195 * 1,195
Liberty Mutual Fire Insurance Company(4) 996 * 996
Liberty Mutual Insurance Company(4) 7,171 * 7,171
Limit & Co.(4) 19,920 * 19,920
Louisiana State Employees' Retirement System(4) 11,087 * 11,087
Luis Aguilar, M.D.(4) 192 * 192
M.C. Partners II, C.V.(4) 7,391 * 7,391
Mark Begelman(4) 37 * 37
Mark Simon(4) 326 * 326
Mary Hudson(4) 30 * 30
Matthews Family Revocable Trust dtd 10/19/93(4) 142 * 142
Medical Specialists, Inc.(4) 1,925 * 1,925
Mellon Bank N.A. as Trustee for NYNEX Master Pension
Trust as Directed by John Hancock Venture Partners(4) 9,960 * 9,960
Mellon Bank N.A. as Trustee of the General Motors Corp.
Master Trust - Hourly Rated Employees Pension Plan
as Directed by Brinson Partners, Inc.(4) 15,687 * 15,687
Mellon Bank N.A. as Trustee of the General Motors Corp.
Master Trust - Salaried Employees Non-Contributory
Retirement Plan as Directed by Brinson
Partners, Inc.(4) 14,193 * 14,193
Mellon Trust as Trustee for GMI/DRI Investment Trust(4) 3,984 * 3,984
Melvin Hector, M.D.(4) 192 * 192
Michael Dell(4) 1,134 * 1,134
Michael Fuchs, M.D.(4) 192 * 192
Michael G. McCaffery(4) 1,934 * 1,934
Michael J. Stark(4) 310 * 310
Milder Community Property Trust dtd 11/7/91(4) 16,258 * 16,258
Mildor Group, B.V.(4) 1,992 * 1,992
Misha Petkevich(4) 764 * 764
Mitchell Parker, M.D.(4) 192 * 192
Mumford Special Trust #1 dtd 12/17/87(4) 608 * 608
Mumford Special Trust #2 dtd 12/17/87(4) 608 * 608
Mumford Special Trust #3 dtd 12/17/87(4) 609 * 609
Mumford Special Trust #4 dtd 12/17/87(4) 609 * 609
Nancy J. Simons(4) 350 * 350
Neil Sandler(4) 776 * 776
New Mexico State Investment Council(4) 1,992 * 1,992
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
Nicholas L. Gault(4) 37 * 37
Northern Trust Company as Trustee for the
Illinois Municipal Retirement Fund, by Abbott
Capital Management, L.P. as Investment Manager(4) 5,976 * 5,976
NYNEX Master Pension Trust(4) 11,087 * 11,087
Orange County Employees Retirement System(4) 2,390 * 2,390
Pantheon USA Fund Limited(4) 5,976 * 5,976
Patricia Hennessey(4) 38 * 38
Patrick O'Connor(4) 77 * 77
Paul Slivon(4) 72 * 72
Perry Kalis, M.D.(4) 462 * 462
Peter J. Carr(4) 2,800 * 2,800
Peter Lindner, M.D.(4) 192 * 192
Philip T. Gianos(4) 2,228 * 2,228
Phillip E. Solomon(4) 10,780 * 10,780
Phoenix Home Life Mutual Insurance Company(4) 9,960 * 9,960
Phoenix Home Life Mutual Insurance Company
Employee Pension Plan Trust(4) 996 * 996
Rector and Visitors of The University of Virginia(4) 7,391 * 7,391
Retirement Annuity Plan for Employees of the Army
and Air Force Exchange Service Trust by Abbott
Capital Management, L.P. as Investment Manager(4) 996 * 996
Rich Shapero(4) 13,215 * 13,215
Richard C. Edwards(4) 107 * 107
Richard Cameron(4) 115 * 115
Richard I. Keeler Revocable Trust Restated dtd 7/19/94,
As May Be Amended(4) 284 * 284
Richard M. Lucas Cancer Foundation(4) 996 * 996
Richard Tompkins, M.D.(4) 21,490 * 21,490
Robert A. Hoff(4) 16,116 * 16,116
Robert C. Hawk(4) 36 * 36
Robert Grady(4) 219 * 219
Robert Johnson, M.D.(4) 394 * 394
Robert Leff, M.D.(4) 192 * 192
Robert Lending, M.D.(4) 1,002 * 1,002
Robert Linden(4) 11,777 * 11,777
Robert Nowlin(4) 326 * 326
Robert R. Momsen(4) 3,082 * 3,082
Robert W. Johnson Revocable Trust dtd 8/13/92(4) 567 * 567
Robertson Stephens & Co.(4) 155 * 155
Robin Kirk, Ph.D.(4) 350 * 350
Ron Simmons, Trustee, Simmons Family Trust(4) 700 * 700
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED NUMBER OF
----------------------- SHARES
NAME NUMBER PERCENT OFFERED
---- --------- --------- ----------
<S> <C> <C> <C>
Ronald M. Lott(4) 284 * 284
Roxanne Cooley(4) 58 * 58
Sadrudin J. Kabani(4) 1,540 * 1,540
Sanford Robertson(4) 1,934 * 1,934
Scinet Development & Holdings, Inc.(4) 996 * 996
Seth Neiman(4) 36 * 36
Seymour F. Kaufman(4) 438 * 438
Sheldon Asher(4) 142 * 142
Sheryl Eramo(4) 15 * 15
Sheryl Skolnick(4) 72 * 72
Siebel Living Trust(4) 283 * 283
St. Paul Fire and Marine Insurance Company(4) 9,960 * 9,960
State Universities Retirement System (Illinois)(4) 2,988 * 2,988
Stephanie C. Ronson and Christopher N. Ronson as
Joint Tenants with rights of survivorship(4) 996 * 996
Stradling, Yocca, Carlson & Rauth Profit Sharing Plan(4) 567 567
Stuart Stangeland(4) 115 * 115
The Jay D. Glass Trust dated February 7, 1996(4) 7,700 * 7,700
The Regents of the University of California(4) 33,862 * 33,862
The Regents of the University of Michigan(4) 9,960 * 9,960
Thomas Hodapp(4) 1,353 * 1,353
Thomas R. Testman and Jacqueline F. Testman,
Trustees of the Testman Trust, UDT dated 7/27/82(4) 7,700 * 7,700
Thomas W. Ford(4) 1,992 * 1,992
University of Washington(4) 5,976 * 5,976
Valley View Capital Corporation Retirement Savings
Trust(4) 308 * 308
Virginia Retirement System(4) 39,838 * 39,838
W. Scott Hedrick(4) 3,187 * 3,187
W. Stephen Holmes III(4) 400 * 400
Wallace R. Hawley(4) 2,629 * 2,629
Walter G. Kortschak(4) 36 * 36
Wayne McCauley(4) 7,769 * 7,769
William L. Kale(4) 350 * 350
William Oates, M.D.(4) 192 * 192
William P. Cargile(4) 1,525 * 1,525
William Wisialowski(4) 1,162 * 1,162
WS Investment Company 93C(4) 198 * 198
Yale University(4) 27,716 * 27,716
YMCA Retirement Fund(4) 11,087 * 11,087
Avanti Corporate Health Systems, Inc.(5) 1,687,500 4.1 1,687,500
</TABLE>
- ------------
* Less than one percent.
(1) Indicates a Selling Stockholder who is or was an officer and/or director
ant/or other affiliate of Health Partners, Inc., which may be deemed to be
an affiliate of the Company under the Securities Act.
(2) Indicates a Selling Stockholder who is or was an officer and/or director
and/or other affiliate of Axminster Medical Group, Inc., which may be
deemed to be an affiliate of the Company under the Securities Act.
(3) Indicates a Selling Stockholder who is or was an officer and/or director
and/or other affiliate of Emergency Medical Care Incorporated, which may be
deemed to be an affiliate of the Company under the Securities Act.
(4) Indicates a Selling Stockholder who is or was an officer and/or director
and/or other affiliate of Cornerstone Physicians Corporation, which may be
deemed to be an affiliate of the Company under the Securities Act.
(5) Prior to sale, the shares may be transferred to NYLCare Health Plans, Inc.
("NYLCare"), the direct parent company of ACHS or to New York Life
Insurance Company ("NYL"), the ultimate parent company of ACHS, and if so
transferred, the selling stockholder will be NYLCare or NYL, as applicable.
None of the Selling Stockholders listed above, except where noted, had any
position, office or material relationship within the past three years with the
Company or any of its affiliates.
24
<PAGE> 27
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time by the Selling Stockholders
or by pledgees, donees, transferees or other successors-in-interest. The Common
Stock may be sold directly to purchasers or through underwriters, brokers,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Common Stock for whom they may act as agent. The Selling
Stockholders and any such underwriters, brokers, dealers or agents who
participate in the distribution of the Common Stock may be deemed to be
"underwriters", and any profits on the sale of the Common Stock by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act.
The Common Stock offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
Common Stock may be sold by one or more of the following methods, without
limitation: (i) a block trade in which the broker or dealer so engaged will
attempt to sell the Common Stock as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (ii) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (iii) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (iv) an exchange
distribution in accordance with the rules of such exchange; (v) face-to-face
transactions between sellers and purchasers without a broker-dealer; (vi)
through the writing of options; (vii) to underwriters who will acquire the
Common Stock for their own account and resell them in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale (any public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may change from
time to time); and (viii) other. At any time a particular offer of the Common
Stock is made, a revised Prospectus or Prospectus Supplement, if required, will
be distributed which will set forth the aggregate amount and type of Common
Stock being offered and the terms of the offering, including the name or names
of any underwriters, brokers, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Stockholders, the
purchase price paid by any underwriter for Common Stock purchased from the
Selling Stockholders, any discounts, commissions or other items constituting
compensation from the Selling Stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. Such revised Prospectus or
Prospectus Supplement and, if necessary, a post-effective amendment to the
registration statement of which this Prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of the Common Stock. The Selling Stockholders may also
pledge the Common Stock registered hereunder to a broker-dealer and upon default
under such pledge the broker-dealer may effect sales of the Common Stock pledged
pursuant to this Prospectus. In addition, the Common Stock covered by this
Prospectus may be sold in private transactions or under Rule 144 rather than
pursuant to this Prospectus.
There is no assurance that any Selling Stockholder will sell any or all of
the Common Stock offered by it hereunder or that any such Selling Stockholder
will not transfer, devise or gift such Common Stock by other means not described
herein. Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating in
such transaction may receive brokerage or agent's commissions or fees.
25
<PAGE> 28
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions, if required,
only through registered or licensed brokers or dealers.
The Company will not receive any of the proceeds of the sale of the Common
Stock offered hereby. The Company has agreed to pay substantially all of the
expenses incidental to the registration, offering and sale of the Common Stock
to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. Pursuant to agreements between the Company and
certain of the Selling Stockholders, the Company and certain of the Selling
Stockholders have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters related to the validity of the Common Stock offered
hereby will be passed upon by James A. Lebovitz, Esq., Senior Vice President,
General Counsel and Secretary of FPA, San Diego, California.
EXPERTS
The consolidated financial statements of FPA incorporated in this Prospectus
by reference from FPA's Annual Report on Form 10-K, as amended by Form 10-K/A,
for the year ended December 31, 1996 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been incorporated herein by reference in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated balance sheet as of December 31, 1995 and the consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1995 and the period June 1, 1994 to December 31, 1994 of Sterling
have been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The Consolidated Financial Statements of FPA incorporated in this Prospectus
by reference from FPA's Current Report on Form 8-K dated July 31, 1997, as
amended by Form 8-K/A, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been incorporated herein by reference in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The Supplemental Consolidated Financial Statements of FPA incorporated in
this Prospectus by reference from FPA's Current Report on Form 8-K dated
November 9, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been incorporated herein by reference in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of AHI Healthcare Systems, Inc. as of
December 31, 1996 and the year then ended incorporated in this Prospectus by
reference from FPA's Current Report on Form 8-K dated March 17, 1997, as amended
by Form 8-K/A, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report which is incorporated herein by reference, and have
been incorporated herein by reference in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of AHI Healthcare Systems, Inc. as of
December 31, 1995 and for each of the two years in the period ended December 31,
1995, included in the consolidated financial statements of FPA for such periods,
which statements appear in the Current Reports on Form 8-K filed on December
10, 1997, July 31, 1997 and May 30, 1997, and incorporated herein by reference,
have been audited by Ernst & Young LLP, independent auditors, as stated in their
reports therein and incorporated herein by reference, and have been incorporated
herein by reference in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The combined financial statements of Foundation Health Medical Services (a
wholly-owned subsidiary of Foundation Health Corporation) and affiliates as of
June 30, 1995 and 1996 and for each of the three years in the period ended June
30, 1996, incorporated in this Prospectus by reference from FPA's Registration
Statement on Form S-4 filed on February 13, 1997 have been audited by Deloitte &
Touche LLP (except for the December 31, 1993 financial statements of
Thomas-Davis Medical Centers, P.C.) as stated in their report which is
incorporated herein by reference (such report expresses an unqualified opinion
and includes an explanatory paragraph referring
26
<PAGE> 29
to significant related party transactions), and have been incorporated herein by
reference in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing. The financial statements of Thomas-Davis
Medical Centers, P.C. for the year ended December 31, 1993 have been audited by
Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C., as stated in their report
incorporated herein by reference.
27
<PAGE> 30
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information ...................................................... 2
Incorporation of Certain Information by Reference .......................... 2
Prospectus Summary ......................................................... 4
Risk Factors ............................................................... 4
Use of Proceeds ............................................................ 15
Dividend Policy ............................................................ 15
Description of Capital Stock ............................................... 16
Selling Stockholders ....................................................... 18
Plan of Distribution ....................................................... 25
Legal Matters .............................................................. 26
Experts .................................................................... 26
</TABLE>
[LOGO]
FPA MEDICAL
MANAGEMENT, INC.
8,219,623 SHARES
OF COMMON STOCK
---------------
PROSPECTUS
---------------
__________, 199_
================================================================================
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the amounts of expenses in connection with the
issuance of the Individual Shares offered pursuant to this Registration
Statement which shall be borne by the Company. All of the expenses listed below,
except the Securities and Exchange Commission Registration Fee, represent
estimates only.
<TABLE>
<CAPTION>
ESTIMATED
---------
<S> <C>
Securities and Exchange Commission Registration Fee ......... $47,407
Printing and Engraving Expenses ............................. 10,000
Accounting Fees and Expenses ................................ 12,500
Legal Fees and Expenses ..................................... 7,500
Miscellaneous Fees and Expenses 2,594
Total ............................................. $80,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
that a corporation may indemnify its officers, directors, employees and agents
(or persons who have served, at the corporation's request, as officers,
directors, employees or agents of another corporation) against expenses,
including attorneys' fees, actually and reasonably incurred by any such person
in connection with the defense of any action or suit by reason of being or
having been an officer, director, employee or agent, if such person shall have
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful, except that if such action shall be by or in the right of
the corporation, no such indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery of the
State of Delaware, or the court in which the action or suit was brought, shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
FPA's Certificate of Incorporation, as amended, has the following
indemnification provisions:
"SEVENTH"
A. Each person who was or is a party or is threatened to be made a party to or
is involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Paragraph B hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article SEVENTH shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a
<PAGE> 32
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article SEVENTH or otherwise. The Corporation may, by action of its Board
of Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
B. If a claim under Paragraph A of this Article SEVENTH is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of providing such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
C. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article SEVENTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
D. The Corporation may maintain insurance, at its expense, to protect itself
and any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
FPA's By-laws similarly provide that FPA shall indemnify its officers and
directors to the fullest extent permitted by the General Corporation Law of
Delaware.
In addition, FPA has entered into individual indemnification agreements (the
"Indemnification Agreements") with each of its directors. The general effect on
directors' liabilities is set forth in the provisions of the Indemnification
Agreements summarized below:
Proceedings Other Than Proceedings by or in the Right of FPA. A director
shall be entitled to the rights of indemnification if, by reason of his position
with FPA, he is, or is threatened to be made, a party to any threatened,
pending, or completed proceeding, other than a proceeding by or in the right of
FPA. In such case, such director shall be indemnified against all expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such proceeding
or any claim, issue or matter therein, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of FPA and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
Proceedings by or in the Right of Company. Generally, a director shall be
entitled to the rights of indemnification if, by reason of his position with
FPA, he is, or is threatened to be made, a party to any threatened, pending or
completed proceeding brought by or in the right of FPA to procure a judgment in
its favor. In such case, the director shall be indemnified against all expenses
actually and reasonably incurred by him or on his behalf in connection with such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of FPA; provided, however, that if
applicable law so provides, no indemnification against such expenses shall be
made in respect of any claim, issue or matter in such proceeding as to which the
director shall have been adjudged to be liable to FPA unless and to the extent
that the Court of Chancery of the State of Delaware, or the court in which such
proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
<PAGE> 33
Indemnification for Expenses of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of the Indemnification Agreements, to the
extent that the director is, by reason of his position with FPA, a party to and
is successful, on the merits or otherwise, in any proceeding, he shall be
indemnified against all expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If the director is not wholly successful in
such proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such proceeding, FPA shall
indemnify the director against all expenses actually and reasonably incurred by
him or on his behalf in connection with each successfully resolved claim, issue
or matter.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
4.10* Registration Rights Agreement dated November 26, 1997 by and among
the Company and the stockholders of Cornerstone Physicians
Corporation
4.11* Registration Rights Agreement dated November 19, 1997 by and between
the Company and Avanti Corporate Health Systems, Inc.
5 Opinion of James A. Lebovitz, Esq.
23.1 Consent of Deloitte & Touche LLP, San Diego
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP
23.4 Consent of Deloitte & Touche LLP, Sacramento
23.5 Consent of Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C.
23.6 Consent of KPMG Peat Marwick LLP
23.7 Consent of James A. Lebovitz, Esq. (contained in Exhibit 5)
24.1 Power of Attorney (included on signature page)
</TABLE>
- ------------
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to Delaware law, the Registrant's
Bylaws or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which any offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
<PAGE> 34
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
PROVIDED, HOWEVER, that paragraphs a(1)(i) and a(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on December 19,
1997.
FPA MEDICAL MANAGEMENT, INC.
By: /s/ Seth Flam
--------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities indicated as of December 19, 1997.
SIGNATURE TITLE
/s/ Seth Flam President, Chief Executive
- --------------------------------- Officer and Director
Seth Flam (Principal Executive
Officer)
*/s/ Sol Lizerbram Director and Chairman of the
- --------------------------------- Board of Directors
Sol Lizerbram
/s/ Steven M. Lash Executive Vice President -
- --------------------------------- Chief Financial Officer and
Steven M. Lash Treasurer (Principal
Financial Officer)
/s/ Michael Morris Vice President-Finance (Principal
- --------------------------------- Accounting Officer)
Michael Morris
*/s/ Sheldon Derezin Director
- ---------------------------------
Sheldon Derezin
*/s/ Stephen J. Dresnick Director and Vice Chairman
- --------------------------------- of the Board of Directors
Stephen J. Dresnick
*/s/ Kevin Ellis Director
- ---------------------------------
Kevin Ellis
*/s/ Howard Hassman Director
- ---------------------------------
Howard Hassman
*/s/ Herbert A. Wertheim Director
- ---------------------------------
Herbert A. Wertheim
*by:/s/ James A. Lebovitz
-----------------------------
James A. Lebovitz
Attorney-in-Fact
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<S> <C>
4.10* Registration Rights Agreement dated November 26, 1997 by and among
the Company and the stockholders of Cornerstone Physicians
Corporation
4.11* Registration Rights Agreement dated November 19, 1997 by and between
the Company and Avanti Corporate Health Systems, Inc.
5 Opinion of James A. Lebovitz, Esq.
23.1 Consent of Deloitte & Touche LLP, San Diego
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP
23.4 Consent of Deloitte & Touche LLP, Sacramento
23.5 Consent of Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C.
23.6 Consent of KPMG Peat Marwick LLP
23.7 Consent of James A. Lebovitz, Esq. (contained in Exhibit 5)
24.1 Power of Attorney (included on signature page)
</TABLE>
- ----------
* Previously filed.
<PAGE> 1
EXHIBIT 5
December 19, 1997
FPA Medical Management, Inc.
3636 Nobel Drive, Suite 200
San Diego, California 92122
Re: Amendment No. 1 to Registration Statement on Form S-3
Gentlemen:
With reference to Amendment No. 1 to the Registration Statement on Form
S-3 to be filed by FPA Medical Management, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, relating to 8,219,623 shares of the Company's common stock,
par value $0.002 per share ("Common Stock"), it is my opinion that such shares
of Common Stock, when issued and sold in accordance with the terms as set forth
therein, will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit 5 to the Registration Statement.
Very truly yours,
/s/ James A. Lebovitz
Senior Vice President, General Counsel
and Secretary
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-41989 of FPA Medical Management, Inc. of our
report dated March 21, 1997, appearing in the Annual Report on Form 10-K/A of
FPA Medical Management, Inc. for the year ended December 31, 1996, our report
dated May 2, 1997 appearing in the Current Report on Form 8-K/A of FPA Medical
Management, Inc. filed on May 30, 1997, our report dated May 2, 1997, appearing
in the Current Report on Form 8-K of FPA Medical Management, Inc. filed on July
31, 1997, and our report dated May 2, 1997 (except for the 1997 poolings of
interests as described in paragraphs 5 through 7 of note 1, for which the date
is December 8, 1997), appearing in the Current Report on 8-K of FPA Medical
Management, Inc. filed on December 10, 1997.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
December 18, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Amendment No. 1 to the
Registration Statement of FPA Medical Management, Inc. on Form S-3 (File No.
333-41989) of our report dated March 15, 1996, on our audits of the consolidated
financial statements of Sterling Healthcare Group, Inc. as of December 31, 1995,
and for the year ended December 31, 1995 and for the period from June 1, 1994 to
December 31, 1994, which is included in the Annual Report on Form 10-K/A and the
Current Report on Form 8-K dated December 9, 1997. We also consent to the
reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Miami, Florida
December 18, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (No. 333-41989) on Form S-3 of FPA Medical
Management, Inc. and in the related Prospectus and to the incorporation by
reference of our report dated February 22, 1996, with respect to the 1995 and
1994 consolidated financial statements of AHI Healthcare Systems, Inc. included
in the Current Reports on Form 8-K of FPA Medical Management, Inc. filed on
December 10, 1997, July 31, 1997 and May 30, 1997, with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Los Angeles, California
December 18, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of FPA Medical Management, Inc. on Form S-3 (333-41989)
of our report dated September 30, 1996, on the combined financial statements of
Foundation Health Medical Services (a wholly-owned subsidiary of Foundation
Health Corporation) and Affiliates as of June 30, 1995 and 1996 and for each of
the three years in the period ended June 30, 1996 (such report expresses an
unqualified opinion and includes an explanatory paragraph referring to
significant related party transactions), appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Sacramento, California
December 18, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of FPA Medical Management, Inc. on Form S-3 (333-41989)
of the report of Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C. dated April
27, 1994 on the financial statements of Thomas-Davis Medical Centers, P.C. as of
December 31, 1993 and for the year then ended, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is a part of this Registration Statement.
STEVENSON, JONES & HOLMAAS, P.C.
Tucson, Arizona
December 18, 1997
<PAGE> 1
EXHIBIT 23.6
Independent Auditors' Consent
We consent to the incorporation by reference in Amendment No. 1 to the
registration statement on Form S-3 of FPA Medical Management, Inc. of our report
dated February 28, 1997, with respect to the consolidated statements of
financial position of Health Partners, Inc. and Subsidiaries as of December 31,
1994, 1995 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the Form 8-K
of FPA Medical Management, Inc. dated December 9, 1997.
We also consent to the reference to our firm under the heading "Experts" in the
Form S-3 of FPA Medical Management, Inc.
/s/ KPMG Peat Marwick LLP
White Plains, New York
December 18, 1997
