<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 19, 1998
FPA Medical Management, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-24276 33-0604264
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3636 Nobel Drive
Suite 200
San Diego, CA 92122
(Address of principal executive offices) (Zip Code)
(619) 453-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 3. Bankruptcy or Receivership.
On July 18, 1998, the Registrant's Board of Directors formally
endorsed the terms of a prenegotiated plan of reorganization (the "Plan") and
authorized the commencement of reorganization cases under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") to implement the Plan. In summary,
the Plan provides for the Registrant to convert substantially all of its secured
debt to equity, discharge its other debt obligations, provide warrants for new
common stock for its unsecured creditors and cancel the current common stock
interests in the Registrant as of the effective date of the Plan. The Plan of
Reorganization Term Sheet and exhibits are attached hereto as Exhibit 2.
On July 19, 1998, the Registrant and 89 of its subsidiaries
and affiliates (collectively, the "Debtors") filed for protection under Chapter
11 in the United States District Court for the District of Delaware. The cases
have been consolidated for the purpose of joint administration and have been
assigned to Chief United States Bankruptcy Judge Peter J. Walsh. The
consolidated caption is: In re FPA Medical Management, Inc., et. al., Debtors.,
Case Nos. 98-1596 through 98-1685. At a first day hearing conducted on July 20,
1998, the Bankruptcy Court entered nineteen first day orders granting authority
to the Debtors to, among other things: honor prepetition payroll obligations;
pay certain prepetition claims relating to hospital contracts and to continue
ordinary course practices with respect thereto; pay certain prepetition claims
of medical care providers continuing to provide postpetition services to the
Debtors' core businesses; direct payors to make postpetition capitation and
other payments to the Debtors; and continue to pay refunds to managed care
enrollees for both prepetition and postpetition claims.
The Bankruptcy Court also approved, on an interim basis, the
Debtors' $50 million debtor-in-possession financing facility and authorized the
Debtors to use up to $34 million of the facility (including repayment of an
earlier $22 million bridge facility) pending a final hearing which will be held
on August 10, 1998 in the United States District Court for the District of
Delaware. The Bankruptcy Court also directed that the Debtors file their formal
disclosure statement and plan of reorganization in connection with the Plan by
September 30, 1998 and scheduled a disclosure statement hearing for October 28,
1998 and a confirmation hearing for December 9, 1998.
Copies of the first day orders and other pleadings filed in
the case may be obtained for a nominal cost directly from (i) IKON Office
Solutions at 901 North Market Street, Suite 718, Wilmington, Delaware 19801
(telephone (302) 777-4500, facsimile (302) 777-5155); and (ii) Lason Systems,
Inc., Delaware Legal Copy Division, at One Rodney Square, Suite 505, Wilmington,
Delaware 19801 (telephone (302) 426-1500; fax (302) 426-1503).
On July 20, 1998, the Registrant issued the press release
attached hereto as Exhibit 99 announcing the accord on the Plan reached with the
Registrant's largest creditors and the commencement of the Registrant's Chapter
11 cases.
<PAGE> 3
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
2 Plan of Reorganization Term Sheet, together
with Exhibits A, B and C thereto.
99 Press Release dated July 20, 1998.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
FPA MEDICAL MANAGEMENT, INC.
By:/s/ Stephen J. Dresnick
Date: July 22,1998 ------------------------------------
Stephen J. Dresnick
Chairman and Chief Executive Officer
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EXHIBIT INDEX
Number Exhibit
2 Plan of Reorganization Term Sheet, together with Exhibits A, B
and C thereto.
99 Press Release dated July 20, 1998.
<PAGE> 1
PLAN OF REORGANIZATION
TERM SHEET(1)
I. Preconfirmation Events
As a prerequisite to confirmation of a Plan of
Reorganization, the following will occur:
A. DIP Working Capital Facility. To fund the working capital
needs of FPA Medical Management, Inc. and its subsidiaries and
affiliates (including affiliated professional corporations and
associations) ("FPA", the "Subsidiaries" and the "Professional
Corporations", respectively, and collectively, the "Debtors"),
certain parties (the "DIP Lenders") to FPA's Prepetition
Credit Agreement (defined below) will provide revolving credit
facility not to exceed $[50] million (the "DIP Facility")
inclusive of amounts required to repay the Sterling Facility
(defined below). The obligations owed pursuant to the DIP
Facility shall be (i) granted a superpriority administrative
claim and (ii) secured by superpriority liens and security
interests in and to all of the Debtors' assets with priority
over the liens and security interests of the Prepetition Bank
Group (defined below), both subject to the Carve-Out (as
defined in the DIP term sheet which is attached hereto).
Annexed as Exhibit A hereto is a term sheet for the proposed
DIP Facility.
- --------
(1) The Debtors, in conjunction with the Prepetition Bank Group, are
currently in the process of analyzing the tax consequences that will
result from the corporate reorganizations and distributions
contemplated hereby. This analysis has not yet been completed and,
accordingly, such considerations have not been taken into account in
developing the proposals contained herein. The Debtors, after
consultation with the Prepetition Bank Group, may amend this Term Sheet
as may be necessary to carry out the intent and purpose hereof in the
most tax efficient manner possible.
For Settlement Purposes Only July 17, 1998
Page -1-
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B. Payment of Sterling Loan Facility. A portion of the DIP
Facility will be used to retire the obligations under the
prepetition loan facility (the "Sterling Loan Facility")
provided pursuant to that certain Credit Agreement dated as of
June 30, 1998 by and among Sterling Healthcare Group, Inc.,
BankBoston, N.A., as Sterling Agent, and the various lenders
party thereto.
C. Payment of Prepetition Claims of Physician Providers Related
to Go-Forward Businesses. Continued cooperation from salaried
physicians, physicians who provide services to the FPA Network
on an independent contractor basis and physicians employed by
independent physician associations (collectively, the
"Physician Provider(s)") is crucial to the Debtors'
restructuring efforts. Therefore, as a part of the initial
relief sought in the bankruptcy cases, the Debtors will file
an application seeking to pay past due amounts owed to the
Physician Providers who perform services for the go-forward
business operations. Such payments will be made in
installments during the pendency of the cases and will be
conditioned upon a Physician Provider's agreement to continue
to provide services to the Debtors. A breach of such an
agreement would give rise to a disgorgement claim against the
Physician Provider.
D. Implementation of Employee Retention Program. The Debtors will
file an application with the Bankruptcy Court on or about the
"first day" of the bankruptcy cases seeking approval of a
program designed to retain employees of the go-forward
business operations during the bankruptcy reorganization
process (the "Employee Retention Pro gram"). The Employee
Retention Program will be substantially similar to the draft
proposal distributed to the Prepetition Bank Group, provided
that (i) payments to employees under the Employee Retention
Program will not exceed $3,500,000 in the aggregate inclusive
of those amounts set forth on Exhibit C annexed hereto and
(ii) the amounts to be paid will be payable as follows: (a)
25% of the total retention amount payable to an eligible
employee (a "Retention Amount" and an "Eligible Employee,"
respectively) will be paid on October 31, 1998 and (b) 75% of
the Retention Amount will be payable to each Eligible Employee
on the earlier of consummation of the Plan or termination of
such Eligible Employee without cause. Amounts payable pursuant
to the Employee Retention Program will be funded with proceeds
from the DIP Facility and/or the Exit Financing
For Settlement Purposes Only July 17, 1998
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Facility (defined below), as the case may be. During the
initial stages of the cases, the Debtors will also seek
approval of long term agreements for certain key members of
management including the Debtors' current chief executive
officer and executive vice presidents.
II. Plan Implementation
With respect to implementation of the Plan of Reorganization,
the following will occur:
A. Plan of Reorganization. A joint plan of reorganization
proposed by each of the Debtors (the "Plan") containing
substantially the terms out lined herein will be proposed,
confirmed and consummated on or before December 31, 1998.
B. Realignment of Corporate Structure.
1. Purpose. The current corporate structure will be
realigned and simplified. The realignment will
provide management with financial flexibility, create
operating units which have similar business
characteristics and which, on an individual reporting
basis, will be demonstrably viable in the eyes of
providers, payors and regulators.
2. Structure. The Plan will provide for creation of a
traditional multi-tiered holding company structure
(with FPA as the ultimate parent), enabling
individual business units to be purchased and sold
with minimal impact on other operations,
substantially in the form of the chart annexed hereto
as Exhibit B. The corporate structure shall be in
form and substance reasonably acceptable to the
Debtors and the Prepetition Bank Group.
3. Implementation. In order to implement the
realignment, new entities will be created and/or
certain of the existing Debtors will be merged into
one another and others will be liquidated. All
existing equity interests in the Debtors will be
cancelled and new interests will be issued as set
forth on Exhibit B.
For Settlement Purposes Only July 17, 1998
Page -3-
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C. Reorganization Securities.
1. New Common Stock. Reorganized FPA will authorize up
to 40,000,000 shares of new common stock (the "New
Common Stock") which will be listed with a nationally
recognized stock exchange as soon as reasonably
practicable. As described below, on the Effective
Date, only 20,000,000 shares of those authorized to
be issued will be available for distribution to
creditors of the Debtors and to certain employees,
members of management and directors of the
Reorganized Debtors.
2. Warrants. Reorganized FPA will also issue warrants to
purchase an aggregate of 3.0% of New Common Stock on
a fully diluted basis (the "Warrants") to be
distributed to the General Unsecured Creditors
(including the Debentureholders (defined below)) in
the manner described below.
D. Exit Financing Facility. Prior to filing of the Plan
containing the terms of this Term Sheet (and as a condition to
the Company's agreement to file the Plan), a commitment for an
exit financing facility will be obtained by Reorganized FPA
(the "Exit Financing Facility") from the Prepetition Lenders
and/or the DIP Lenders, or such other mutually agreeable
lending source, on terms mutually agreeable to the Debtors and
the Prepetition Lenders. The Exit Financing Facility will be
used to (i) repay any non-ordinary course administrative
claims including amounts outstanding under the DIP Facility
and (ii) for the Reorganized Debtors' working capital needs
subsequent to consummation of the Plan.
For Settlement Purposes Only July 17, 1998
Page -4-
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E. Other Plan Provisions.
1. Corporate Governance. The initial Board of Directors
of Reorganized FPA shall be identified prior to the
hearing on confirmation of the Plan and shall consist
of Stephen J. Dresnick, M.D., one additional member
to be selected by Dr. Dresnick, and five other
candidates chosen by the Prepetition Bank Group.
2. Employee and Management Incentive Stock Options.
Pursuant to the Plan, a Stock Option Program shall be
implemented to provide incentives for employees and
members of management of Reorganized FPA to return
the Debtors to profitability and to maximize values
for their stakeholders. The management stock options
granted on the Effective Date (defined below) shall
be as follows:
a. Options to purchase, in the aggregate, 3% of
the shares of New Common Stock on a fully
diluted basis. These options would vest on
the Effective Date. The exercise price of
such options shall be equal to the price per
share of the New Common Stock being issued
to the Prepetition Bank Group on the
Effective Date (the "Effective Date Share
Price").
b. Options to purchase, in the aggregate, an
additional 2% of the shares of New Common
Stock on a fully diluted basis. These
options would vest on the 18 month
anniversary of the Effective Date. The
exercise price of such options shall be
equal to 115% of the Effective Date Share
Price.
c. Options to purchase, in the aggregate, an
additional 3% of the shares of New Common
Stock on a fully diluted basis. These
options would vest on the 36 month
anniversary of the Effective Date. The
exercise price of such options shall be
equal to 130% of the Effective Date Share
Price.
For Settlement Purposes Only July 17, 1998
Page -5-
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The management stock options will have customary
terms and conditions regarding vesting (other than as
to the date of vesting, which is set forth above),
including the acceleration of vesting upon a change
of control or the occurrence of other specified
events. These options are in addition to and not in
lieu of ordinary and customary employee and
management bonus plans which the Board of Directors,
in its discretion, may approve.
Reorganized FPA shall also establish an incentive
bonus pro gram for certain of the Physician Providers
who agree to per form services for the Reorganized
Debtors for a specified period of time after
substantial consummation of the Plan (hereafter, the
"Effective Date") which bonus program shall provide
cash and/or equity payments in such amounts and upon
such terms as may be determined by Reorganized FPA's
Board of Directors.
3. Severability of Joint Plans. A determination by the
Court that the Plan, as it applies to any particular
Debtor, is not confirm able shall not limit or effect
either (i) the confirmability of the Plan as it
applies to any other Debtor or (ii) the Debtors'
ability to modify the Plan, as it applies to any
particular Debtor, to satisfy the confirmation
requirements of section 1129 of the Bankruptcy Code.
III. Plan Distributions
A. Prepetition Bank Group. The claims of the various entities
(the "Prepetition Bank Group") who are party to that certain
Credit Agreement dated June 30, 1997, as amended (the
"Prepetition Credit Agreement"), by and among FPA, Lehman
Commercial Paper Inc., as Arranger and Syndication Agent,
BankBoston, N.A., as Administrative Agent, and the various
institutions who are parties thereto (which claims are in the
approximate amount of $315 million) are secured by
substantially all of the assets of each of the Debtors. On the
Effective Date, in exchange for these obligations and the
release of the liens secured thereby, 100% of the shares of
New Common Stock shall be distributed to the Prepetition Bank
Group (to be distributed pro rata among them).
For Settlement Purposes Only July 17, 1998
Page -6-
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Alternatively, the Prepetition Bank Group will receive a
combination of debt and equity securities, the composition of
which will be deter mined after an evaluation of the Debtors'
debt capacity (beyond the Exit Financing Facility) and, in any
event, mutually acceptable to the Debtors and the Prepetition
Bank Group.
B. General Unsecured Creditors (including Debentureholders). On
the Effective Date, the General Unsecured Creditors (including
holders of 6.50% Subordinated Debentures due 2001(the
"Debentureholders")) shall receive the Warrants to be
distributed among them on a pro rata basis. The Warrants shall
be exercisable over a five-year period after the Effective
Date. The exercise price for the Warrants shall be equal to
110% of the product of (a) the claims of the Prepetition Bank
Group as of the Effective Date (including, without limitation,
all accrued and unpaid interest, costs and other charges
through such date, and determined as if the Bankruptcy Cases
had not been filed) divided by, (b) 20,000,000.
C. Existing Common Equity Interests. The interests of existing
equity holders will be cancelled.
For Settlement Purposes Only July 17, 1998
Page -7-
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EXHIBIT A
CONFIDENTIAL
Outline for Terms and Conditions for Priming
Revolving Credit Facility
in the Amount of $50.0 million
(the "DIP Facility")
Borrower: FPA Medical Management, Inc., a Delaware Corporation, as
Debtor-in-Possession in a case (the "Case") pending under
Chapter 11 of the Bankruptcy Code (the "Borrower").
Guarantors: The obligations of the Borrower shall be guaranteed by the
direct and indirect subsidiaries of the Borrower listed on
Schedule 1 hereto (including affiliated professional
corporations and associations), each of which shall be a
Debtor-in-Possession in a case (together with the Debtor's
Case, the "Cases") pending under Chapter 11 of the Bankruptcy
Code (each a "Guarantor" and collectively the "Guarantors").
Agent/Arranger: BankBoston, N.A. ("BankBoston") shall serve as the
Administrative Agent and Lehman Commercial Paper, Inc.
("Lehman") as the Syndication Agent and Arranger for the DIP
Facility (BankBoston and Lehman together, the "DIP Agents").
Lenders: A syndicate of financial institutions to be arranged by
Lehman to include BankBoston and Lehman (the "DIP
Lenders").
Commitment: The DIP Facility will be a revolving credit facility and the
credit agreement for the DIP Facility (the "DIP Credit
Agreement") will provide for a total commitment (the
"Commitment") of up to $50.0 million.
For Settlement Purposes Only July 18, 1998
<PAGE> 9
Use of Proceeds: The Commitment shall be used by the Borrower
and Guarantors for general corporate purposes relating to
post-petition operations in accordance with the Budget (as
defined below) and to pay certain prepetition amounts
including, but not limited to: (i) payment on the Closing Date
(as defined below) of amounts outstanding under the
pre-petition loan facility provided pursuant to the Credit
Agreement dated as of June 30, 1998 (the "Sterling Credit
Agreement") by and among Sterling Healthcare Group, Inc.,
BankBoston, N.A. as Sterling Agent and the various lenders
party thereto; and (ii) payment of certain prepetition claims
as may be authorized by the Bankruptcy Court and as
contemplated by the Budget; provided that no portion of the DIP
Facility shall be used to fund the commencement or prosecution
of any contested matter or adversary proceeding challenging
the claims or liens of the Prepetition Bank Group or the
lenders party to the Sterling Credit Agreement.
Borrower shall prepare and distribute to the DIP Agents
projections covering a six month period beginning on or around
the Petition Date (defined below) (to be depicted weekly for
the first three months and monthly thereafter) (the "Budget").
No later than 10 days prior to the end of each calendar month,
the Borrower shall update the Budget to depict cash flow
projections on a weekly basis for the next three months.
Term: Borrowings shall be repaid in full and the Commitment shall
terminate at the earliest of: (i) February 1, 1999 (the
"Maturity Date"); (ii) the 30th day following the commencement
of the Cases (the "Petition Date") in the event the final
approval by the Bankruptcy Court of the DIP Facility has not
occurred; (iii) substantial consummation of a plan of
reorganization (the "Plan"); and (iv) acceleration of the
loans outstanding under the Commitment upon an Event of Default
(each of which, the "Termination Date")
For Settlement Purposes Only July 18, 1998
2
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Priority and Liens: All borrowings and all guarantees of the foregoing
by the Guarantors shall at all times:
(a) be entitled to Superpriority claim status in the Cases
pursuant to Bankruptcy Code Section 364(c)(1), subject
to the Carve-Out (defined below), having a
Superpriority over any and all administrative expenses
of the kind specified in Bankruptcy Code Sections
503(b) or 507(b);
(b) be secured pursuant to Bankruptcy Code Sections
364(c)(2) and (3), subject to the Carve-Out, by a
second priority perfected lien on, and security
interest in, all present and after acquired property of
the Borrower and the Guarantors subject to valid and
perfected existing liens (other than those described in
clause (c) below);
(c) be secured pursuant to Bankruptcy Code Section
364(d)(1), subject to the Carve-Out, by a perfected
first priority, senior priming lien on all of the
property of the Borrower and the Guarantors that
secures the obligations of the Borrower and the
Guarantors under or in connection with the Credit
Agreement dated as of June 30, 1997 among the Borrower,
BankBoston, Lehman and the lenders party thereto (the
"FPA Credit Agreement" and the "Prepetition Bank
Group," respectively), all of which existing liens
(the "Primed Liens") shall be primed by and made
subject and subordinate to the perfected first priority
liens to be granted to the DIP Agents and the DIP
Lenders.
The property referred to in the preceding clauses (i),
(ii) and (iii) is collectively referred to as the "DIP
Collateral".
Upon the occurrence of a default or Event of Default,
the Superpriority claim status and the liens granted
hereunder shall be subject to prior payment of (i)
allowed and/or
For Settlement Purposes Only July 18, 1998
3
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unpaid professional fees and disbursements incurred by
the Borrower, the Guarantors and any statutory commit
tees appointed in the Cases in an amount not to exceed
$3.0 million and (ii) payment of fees of the clerk of
the Bankruptcy Court and fees pursuant to 28 USC
Section 1930 (together, the "Carve-Out")
So long as no Event of Default shall have occurred or
be continuing after giving effect to any applicable
cure period, compensation and reimbursement of expenses
allowable and payable under USC Section 330 and 331 may
be made, as the same may be due and payable. Any
amounts paid, invoiced, allowed, incurred or otherwise
payable prior to such time shall not reduce the Carve
Out.
Conditions to
Priming
and Use of Cash
Collateral: The holders of obligations secured by the Primed Liens
shall be granted Superpriority claims and liens and
security interests in property of the Borrowers and the
Guarantors acquired after the Petition Date subordinate
only to the Superpriority claims and liens and security
interests granted to secure obligations owed pursuant
to the DIP Facility and prior and superior to all other
interests therein.
Interest Rate: BankBoston Base Rate (the "Base Rate") plus
2.00%. Interest on Base Rate loans shall be payable
monthly in arrears and on the Termination Date.
Default Interest: Upon the occurrence and during the continuance
of any default in the payment of principal, interest or
other amounts due under the Agreement, interest shall
be payable on demand at 2.00% above the then applicable
rate.
Facility Fee: 2.00% of the Commitment.
Administrative Fee: [To be discussed]
For Settlement Purposes Only July 18, 1998
4
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Commitment Fee: 1/2 of 1% per annum on the unused amount of the
Revolving Credit Commitment, payable monthly in
arrears to the DIP Agent during the term of the DIP
Facility.
Borrowing Borrowing requests shall be made in $1.0
Requests: million increments.
Mandatory Prepay-
ments and Cash
Collateralization: If either the Borrower or any of the Guarantors
receives "Net Cash Proceeds" (to be defined
substantially as defined in the Sterling Credit
Agreement) from the sale or other disposition of DIP
Collateral outside of the ordinary course of business,
the Borrower and/or Guarantor, as the case may be,
shall apply such Net Cash Proceeds to the payment of
all outstanding amounts owed pursuant to the DIP
Facility which amounts may be reborrowed in a manner
consistent with the terms of the DIP Facility and the
Budget.
Optional
Prepayment: Amounts outstanding under the DIP Facility may be
prepaid in full prior to maturity without penalty.
Closing Date: The date upon which all conditions
precedent to the making of the initial extensions of
credit are satisfied (the "Closing Date").
Conditions
Precedent to Initial
Extension of Credit: The DIP Credit Agreement shall contain conditions
precedent to the occurrence of the Closing Date and the
making of the initial extension of credit reasonably
required by the DIP Agents in the context of the pro
posed DIP Financing, including, without limitation:
(a) Entry of an order or orders of the Bankruptcy Court
(the "Approval Order") collectively authorizing
and approving the transactions contem-
For Settlement Purposes Only July 18, 1998
5
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plated by the DIP Credit Agreement and which is
otherwise in form and substance satisfactory to the
DIP Agents;
(b) Receipt of closing documents reasonably
satisfactory in form and substance to the DIP
Agents;
(c) The delivery to, and approval by, the DIP Agents of
the Budget;
(d) Payment of all fees owed to the DIP Lenders and the
DIP Agents as contemplated hereby;
(e) All of the "first day orders" entered at the time
of the commencement of the cases shall be in form
and substance reasonably satisfactory to the DIP
Agents; and
(f) Resolutions of the Boards of Directors of the
Debtors in form and substance satisfactory to the
DIP Lenders, authorizing and approving the DIP
Facility and the Plan of Reorganization Term Sheet.
For Settlement Purposes Only July 18, 1998
6
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Conditions
Precedent to Each
Extension of Credit: The DIP Credit Agreement shall contain conditions
precedent to each extension of credit (including the
initial extension of credit) reasonably required by the
DIP Agents in the context of the proposed DIP
Financing, including, without limitation:
(a) No default or Event of Default exists;
(b) All representations and warranties shall be true
and correct in all material respects including
that there shall not have occurred and material
adverse change since the Closing Date in the
financial condition, business, prospects,
operations, properties or performance of the
Borrower or the Guarantors, taken as a whole;
(c) The delivery of a borrowing certificate of an
executive officer of the Borrower to the effect
that (i) the proposed loan is necessary, after
utilization and application of the available cash
of the Borrower and the Guarantors, in order to
satisfy the Borrower's or any Guarantors's
obligations (subject to the restrictions on use of
loan proceeds contemplated hereby, including
compliance with the Budget), (ii) to the best of
such officer's knowledge, the Borrower and/or the
Guarantors, as applicable, has observed or per
formed all of their covenants and other agree
ments, and satisfied in all material respects
every condition, contained in the DIP Credit
Agreement to be observed, performed or satisfied
by such party, and (iii) that such officer has no
knowledge of any default or Event of Default;
(d) Payment of all fees and other amounts then due and
payable.
For Settlement Purposes Only July 18, 1998
7
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Representations and
Warranties: Those representations and warranties appropriate in the
context of the proposed DIP Facility including, without
limitation, representations and warranties concerning:
the Borrower's and Guarantors' financial condition and
absence of material undisclosed liabilities; corporate
existence and compliance with law; corporate power and
authority; enforceable obligations; no conflict with
law or contractual obligations; Federal Reserve
regulations; taxes; subsidiaries; ownership of property
and liens; ERISA; intellectual property; environmental
matters; Investment Company Act; accuracy of
disclosure; and franchise agreement.
Covenants: Covenants to apply to the Borrower and the Guarantors
shall be customary for debtor-in-possession financings,
including but not limited to the following:
(a) Preparation and maintenance of books in accordance
with GAAP
(b) Monthly delivery of financial statements for the
Borrower and the Guarantors on a consolidated
basis;
(c) Delivery of the updated Budget;
(d) Payment of all postpetition taxes and other
obligations;
(e) Maintenance of adequate insurance;
(f) Restrictions on indebtedness;
(g) Restrictions on liens;
(h) Restrictions on sales of assets;
(i) Restrictions on dividends and other distributions
on equity;
For Settlement Purposes Only July 18, 1998
8
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(j) Satisfaction of the financial ratios and other
tests as more specifically set forth on Schedule 2
hereto;
(k) Restrictions on payment of pre-petition
obligations and amendment of pre-petition
agreements, except as otherwise permitted pursuant
to the terms hereto;
(l) Restrictions on capital expenditures;
(m) Restrictions on mergers, acquisitions and
divestitures;
(n) Restrictions on transactions with affiliates;
(o) Restrictions on investments, including a
restriction on all intercompany transfers after
the Clos ing Date, except for (i) transfers from
the Borrower to its subsidiaries for purposes
consistent with the Budget, (ii) transfers from
subsidiaries of the Borrower to the Borrower, the
proceeds of which are used to repay outstanding
amounts under the DIP Facility, (iii) transfers in
the ordinary course of business consistent with
past practice between the Borrower and any of its
subsidiaries in connection with their consolidated
cash management and (iv) at anytime prior to July
31, 1998, transfers described on a schedule to the
DIP Facility and delivered before the Closing
Date; and
(p) Restrictions on change in business.
Events of Default: Those typical in debtor-in-possession financings
including:
(a) Failure of the Borrower to pay (i) interest or
fees when due and such default shall continue for
For Settlement Purposes Only July 18, 1998
9
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more than two business days and (ii) principal
when due;
(b) In any Case, appointment of a Trustee or a
responsible person having enlarged powers relating
to the operations of the businesses of the
Borrower or the Guarantors;
(c) The entry of an order dismissing any of the Cases
or converting any of the Cases to a Chapter 7
case;
(d) Unless the Required DIP Lenders otherwise agree,
the entry of an order granting any other
Superpriority claim or lien equal or superior to
that granted to the DIP Lenders;
(e) Material breach by the Borrower or any Guarantor
of any negative covenant;
(f) Material breach by the Borrower or any Guarantor
of any other covenant or agreement which breach
shall continue unremedied for more than ten
business days;
(g) Any representation or warranty made by the
Borrower or a Guarantor shall prove to have been
incorrect in any material respect when made;
(h) Payment of any pre-petition indebtedness or
obligations, other than as provided herein;
(i) Entry by the Bankruptcy Court of an order grant
ing relief from the automatic stay to any person,
such that said person could foreclose on assets of
the Borrower and/or any Guarantor having an
aggregate value in excess of $1,000,000; and
(j) (i) The failure to file by September 30, 1998, the
Plan (containing terms consistent in all material
For Settlement Purposes Only July 18, 1998
10
<PAGE> 18
respects with the Plan of Reorganization Term
Sheet dated July 17, 1998); (ii) failure to obtain
approval of a Disclosure Statement by November 15,
1998; and (iii) failure to consummate the Plan by
December 31, 1998.
Upon the occurrence of an Event of Default, the
Required DIP Lenders may terminate the Commitments,
declare the obligations in respect of the extensions of
credit to be immediately due and payable and exercise
all rights and remedies under the DIP Credit Agreement
and/or any orders of the court.
Voting and Amendments: "Required DIP Lenders" shall mean, as of any date of
determination, at least two DIP Lenders who in the
aggregate hold 66 2/3% of the Commitments (or if the
Commitments shall have terminated, 66 2/3% of the loans
outstanding under the DIP Facility) as of such date.
The DIP Credit Agreement may be amended, supplemented
or otherwise modified, or non-compliance with
provisions thereof may be waived, by the Required DIP
Lenders; provided that (a) the consent of all of the
DIP Lenders shall be required to (i) amend the
definition of "Required DIP Lenders" or (ii) amend,
supplement or modify the section of the DIP Credit
Agreement relating to amendments and (b) the consent of
each DIP Lender affected thereby shall be required to
(i) extend the time for payment (including the final
maturity) of any principal amount of the DIP Loans,
(ii) modify the amount of any DIP Lender's Commitment
or the amount of interest payable to any DIP Lender or
(iii) modify the Superpriority claim status of the DIP
Lenders in respect of any DIP Lender's extensions of
credit.
Assignments and
Participations: The DIP Lenders shall be permitted to assign and sell
participation in their DIP Loans and Commitments,
provided that no such assignment to an assignee (i)
shall be in an aggregate principal amount of less than
For Settlement Purposes Only July 18, 1998
11
<PAGE> 19
$1,000,000 (other than in the case of an assignment of
all of a DIP Lender's interests under the DIP
Facility); (ii) shall be to any assignee who, after
giving effect to such assignment, does not (together
with any affiliate or other entity for which it acts as
agent) hold obligations under the Prepetition Credit
Agreement in an aggregate principal amount equal to at
least twice the principal amount of the DIP Loans
and/or that portion of the Commitment held by such
assignee; and (iii) shall be effective if, after giving
effect to such assignment, the assigning DIP Lender
(together with any affiliate or other entity for which
it acts as agent) would not hold obligations under the
Prepetition Credit Agreement in an aggregate principal
amount equal to at least twice the principal amount of
the DIP Loans and/or that portion of the Commitment
held by such DIP Lender.
Governing Law: New York except as governed by the Bankruptcy Code.
For Settlement Purposes Only July 18, 1998
12
<PAGE> 20
Schedule 1
FPA MEDICAL MANAGEMENT, INC.
AHI HEALTHCARE SYSTEMS, INC.
AHI (TEXAS) HEALTHCARE SYSTEMS, INC.
AMG MANAGEMENT COMPANY
AMERICAN HEALTH MEDICAL GROUP, DOWNEY, INC.
AVANTI HEALTH SYSTEMS OF TEXAS, INC.
BEVERLY HILLS/WEST LOS ANGELES MEDICAL NETWORK, A MEDICAL GROUP, INC.
BHP IPA, INC.
CENTURY FAMILY MEDICAL GROUP, INC.
CINCINNATI HEALTH PARTNERS, INC.
COMPREHENSIVE PRIMARY CARE MSO, INC.
CONNEKT, LLC
CORNERSTONE PHYSICIANS CORPORATION
CORNERSTONE PHYSICIANS OF PHOENIX, INC.
FHC IPA, INC.
FHMG/TDMC MEDICAL GROUP, A PROFESSIONAL CORPORATION
FAMILY PRACTICE ASSOCIATES OF SOUTHERN CALIFORNIA, A MEDICAL CORPORATION
FPA ACQUISITION CORP.
FPA AXMINSTER MEDICAL GROUP, INC.
FPA HOLDING COMPANY OF CALIFORNIA, INC.
FPA INDEPENDENT PRACTICE ASSOCIATION, A MEDICAL CORP.
FPA MEDICAL GROUP OF CALIFORNIA, INC.
FPA MEDICAL GROUP OF FLORIDA, INC.
FPA MEDICAL GROUP OF GEORGIA, P.C.
FPA MEDICAL GROUP OF KENTUCKY, INC.
FPA MEDICAL GROUP OF NORTHERN CALIFORNIA, INC.
FPA MEDICAL GROUP OF TEXAS, A TEXAS PROFESSIONAL ASSOCIATION
FPA MEDICAL GROUP OF THE GREATER BAY AREA, INC.
FPA MEDICAL GROUP, P.A.
FPA MEDICAL MANAGEMENT OF ARIZONA, INC.
FPA MEDICAL MANAGEMENT OF FLORIDA, INC.
FPA MEDICAL MANAGEMENT OF GEORGIA, INC.
FPA MEDICAL MANAGEMENT OF ILLINOIS, INC.
FPA MEDICAL MANAGEMENT OF KENTUCKY, INC.
FPA MEDICAL MANAGEMENT OF LOUISIANA, INC.
FPA MEDICAL MANAGEMENT OF MISSOURI, INC.
FPA MEDICAL MANAGEMENT OF NORTH CAROLINA, INC.
FPA MEDICAL MANAGEMENT OF SOUTH CAROLINA, INC.
FPA MEDICAL MANAGEMENT OF TENNESSEE, INC.
FPA MEDICAL MANAGEMENT OF TEXAS, INC.
FPA MEDICAL MANAGEMENT OF THE MID-ATLANTIC, INC.
FPA SURGICAL CENTER, INC.
FPA WOMEN'S CARE OF GEORGIA, INC.
FPA OF GEORGIA, INC.
FOUNDATION HEALTH IPA, A PROFESSIONAL MEDICAL CORP.
G.P.M. IPA, INC.
<PAGE> 21
GATEWAY IPA, INC.
GATEWAY PHYSICIANS SERVICES, INC.
GOTHAM MANAGEMENT, INC.
GOTHAM MID-TOWN MANAGEMENT, INC.
HAYWARD VESPER MEDICAL GROUP, INC.
HEALTH ONE ASSOCIATES, INC.
HEALTH PARTNERS, INC.
HEALTHCAP, INC.
HEALTHCAP-MISSOURI, INC.
HEALTHCAP-NEVADA, INC.
INTERGROUP IPA, P.C.
MID-LEVEL PRACTITIONERS, INC.
MONTEBELLO PHYSICIANS MEDICAL GROUP, INC.
NOVA HEALTHCARE MEDICAL GROUP, INC.
NOVA PHYSICIANS MEDICAL CORPORATION, INC.
OB-GYN MANAGEMENT, INC.
PHYSICIAN NETWORK OF WHITTIER MEDICAL ASSOCIATES, INC.
PHYSICIANS MEDICAL GROUP OF FLORIDA, INC.
PRIMARY CARE MEDICAL GROUP AT LITTLE COMPANY OF MARY HOSPITAL, INC.
PRIVATE PHYSICIANS GROUP AT STANFORD, A MEDICAL GROUP, INC.
SAN ANTONIO HEALTH PARTNERS, INC.
ST. FRANCIS CARE MEDICAL GROUP
STERLING ANESTHESIA, INC.
STERLING CREDENTIALS VERIFICATION SERVICES, INC.
STERLING EMERGENCY MEDICAL CARE, INC.
STERLING EMERGENCY TREATMENT ASSOCIATES, INC.
STERLING HEALTHCARE GROUP, INC.
STERLING HEALTHCARE MEDICAL CORP.
STERLING HEALTHCARE OF TEXAS, P.A.
STERLING MEDICAL GROUP OF MICHIGAN, INC.
STERLING MEDICAL GROUP OF MICHIGAN, P.C.
STERLING MEDNET EMERGENCY SERVICES, INC.
STERLING MIAMI, INC.
STERLING MICHIGAN, P.C.
STERLING PROFESSIONAL EMERGENCY PHYSICIANS, LLC
STERLING RADIOLOGY, INC.
STERLING REGIONAL EMERGENCY SERVICES, INC.
STERLING SUB TEXAS, INC.
THE DOCTORS OFFICENTER MEDICAL GROUP OF HOUSTON, P.A.
THE DOCTORS OFFICENTER MEDICAL GROUP OF DALLAS, P.A.
THOMAS-DAVIS MEDICAL CENTERS, P.C.
VIP IPA, A PROFESSIONAL MEDICAL CORPORATION
VIRGINIA HEALTH PARTNERS, INC.
VMS MEDICAL IPA, INC.
2
<PAGE> 22
Schedule 2
Minimum EBITDA. The Borrower shall not permit cumulative
aggregate EBITDA of all of the "Core Businesses" for the period from August 1,
1998 through the last day of any fiscal month set forth below to be less than
the amount set forth opposite such fiscal month:
Cumulative
EBITDA
------
August, 1998 $1,000,000
September, 1998 $3,000,000
October, 1998 $5,500,000
November, 1998 $8,000,000
December, 1998 $10,000,000
Minimum Net Cash Flow From Operations. The Borrower and the
Guarantors shall not permit actual cumulative Net Cash Flow from Operations of
(a) the Borrower and the Guarantors, taken as a whole, (b) each Core Business,
and (c) the Borrowers and the Guarantors that are not part of a Core Business,
for the period from the Petition Date through each of (i) July 31, 1998, (ii)
August 28, 1998, (iii) September 25, 1998, (iv) October 31, 1998, (v) November
30, 1998 and (vi) December 31, 1998, to be less than 85% of the projected Net
Cash Flow from Operations if cumulative Net Cash Flow from operations is a
positive number or not to exceed 115% of cumulative Net Cash Flow from
Operations if cumulative Net Cash Flow from Operations is a negative number for
all applicable entities, all as set forth for each such period on the Budget
delivered on the Closing Date.
Minimum Receipts; Maximum Transition Cost Disbursements. The
Borrower and the Guarantors shall not permit actual aggregate cash receipts of
(a) the Borrower and the Guarantors, taken as a whole, (b) each Core Business,
and (c) the Borrowers and the Guarantors that are not part of a Core Business
for the period from the Petition Date through each of (i) July 31, 1998, (ii)
August 28, 1998, (iii) September 25, 1998, (iv) October 31, 1998, (v) November
30, 1998 and (vi) December 31, 1998, to be less than 85% of its projected
aggregate cash receipts for the applicable entities as set forth for each such
period on the Budget delivered on the Closing Date, provided that payments made
by payors to third party claimants on
<PAGE> 23
behalf of the Borrower or any Guarantor, as the case may be, and transfers made
prior to July 31, 1998 as permitted by part (o)(iv) of the Covenants section
herein, shall be deemed to be cash receipts for purposes of this provision, and
provided further that the failure to receive past-due Sterling Medicare
Receivables when scheduled shall not be violative of this provision.
For purposes hereof:
(a) "EBITDA" means, for any period, all as determined in
accordance with GAAP, the aggregate consolidated net income (or net loss) for
the Core Businesses for such period, plus (a) the sum of (i) depreciation
expense, (ii) amortization expense, (iii) other non-cash charges, (iv) gains or
losses form assets sales, (v) net total Federal, state and local income tax
expense, (vi) gross interest expense for such period less gross interest income
for such period, (vii) extraordinary losses, (viii) any non-recurring charge or
restructuring charge which in accordance with GAAP is excluded form operation
income, (ix) the cumulative effect of any change in accounting principles, (x)
"Chapter 11 expenses" (or "administrative costs reflecting Chapter 11 expenses")
as shown on the Borrower's consolidated statement of income for such period and
(xi) obligations incurred pursuant to the retention bonus program, less (b)
extraordinary gains plus or minus (c) the amount of cash received or expended in
such period in respect of any amount which, under clause (iii) or (viii) above,
was taken in to account in determining EBITDA for such or any prior period;
(b) "Core Business(es)" mean the retained businesses of each
of Sterling Healthcare Group, Inc., Health Partners, Inc., the FPA Florida
Medical Groups, Cornerstone, Meridian, Axminster and Gonzaba and their
respective subsidiaries and affiliates as described in the Budget and Retained
Core Business Unit Normalized Revenue/EBITDA Analysis.
(c) "Net Cash Flow from Operations" means, as to the Borrower
or any Guarantor, the difference between cash receipts and cash disbursements
for such entity and its consolidated subsidiaries, without regard to (i)
financing costs, (ii) retention costs, (iii) utility company deposits, (iv)
professional fee retainers, (v) professional fees, (vi) proceeds of asset sales
and (vii) borrowings or repayments under the DIP Facility, determined in a
manner consistent with the manner in which the line item "Net Cash Flow from
Operations" was determined on the Budget for the Borrower or any such Guarantor,
as the case may be, delivered on the Closing Date.
2
<PAGE> 24
EXHIBIT B
DRAFT - Subject to Change
FPA Medical Management, Inc.
(Parent)
----------------------------
/
/
/
FMMI Holding Co.
(Intermediate Level Holding Company)
---------------------------------------------------------
/ / /
/ / /
/ / /
Sterling Healthcare Primary Care Physician Shared Services
Group, Inc. Practice Entities Company
------------------------------------
/ /
/ /
/ /
Western Region Eastern Region
Holding Co. Holding Co.
------------------------- ------------------------
/ / / /
/ / / /
/ / / /
e.g., Axminster e.g., Arizona (MC) e.g., Meridian e.g., Health Partners
Only selected business units shown. Others would be laterally
situated under their respective regional holding companies
<PAGE> 25
EXHIBIT C
EMPLOYEE RETENTION PROGRAM (INDIVIDUAL ANALYSES)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Retention 25% 75%
Name Title Annual Salary % Amount Installment Installment
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. President & $850,000.00 125 $1,062,500.00 $265,625.00 $796,875.00
Dresnick CEO
- ------------------------------------------------------------------------------------------------------------------------------
Jack Greenman EVP 395,000.00 75 296,250.00 74,062.50 222,187.50
- ------------------------------------------------------------------------------------------------------------------------------
James Lebovitz EVP & General 395,000.00 75 296,250.00 74,062.50 222,187.50
Counsel
- ------------------------------------------------------------------------------------------------------------------------------
Kevin Ellis EVP & Chief 345,000.00 75 258,750.00 64,687.50 194,062.50
Medical Officer
- ------------------------------------------------------------------------------------------------------------------------------
Chip Phillips SVP Operations 262,500.00 50 131,250.00 32,812.50 98,437.50
- ------------------------------------------------------------------------------------------------------------------------------
Charles Sanders Pres. Southwest 190,000.00 50 95,000.00 23,750.00 71,250.00
Division
- ------------------------------------------------------------------------------------------------------------------------------
John Seitz Pres. Physicians 195,000.00 50 97,500.00 24,375.00 73,125.00
Services
- ------------------------------------------------------------------------------------------------------------------------------
Jonathan Klein National MIS 107,000.00 25 26,750.00 6,687.50 20,062.50
Director
- ------------------------------------------------------------------------------------------------------------------------------
Judy Baum VP-HR 150,000.00 15 22,500.00 5,625.00 16,875.00
- ------------------------------------------------------------------------------------------------------------------------------
Chris Lutes SVP-Operations 140,000.00 25 35,000.00 8,750.00 26,250.00
Sterling
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Retention 25% 75%
Name Title Annual Salary % Amount Installment Installment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alfred Damus SVP & Chief 90,000.00 25 22,500.00 5,625.00 16,875.00
Medical Off-
Sterling
- -----------------------------------------------------------------------------------------------------------------------
Mark Price SVP & New 175,000.00 25 43,750.00 10,937.50 32,812.50
Business
Develp.-Sterling
- -----------------------------------------------------------------------------------------------------------------------
Greg Norton Regional 120,000.00 25 30,000.00 7,500.00 22,500.00
Controller
- -----------------------------------------------------------------------------------------------------------------------
Thomas Brophy CFO-HPI 140,000.00 25 35,000.00 8,750.00 26,250.00
- -----------------------------------------------------------------------------------------------------------------------
Russel National Risk 122,000.00 15 18,300.00 4,575.00 13,725.00
O'Donnell Manager
- -----------------------------------------------------------------------------------------------------------------------
Brian Wenzel VP-Business 140,000.00 25 35,000.00 8,750.00 26,250.00
Development-
HPI
- -----------------------------------------------------------------------------------------------------------------------
Jan Bennett Regional Risk 85,000.00 25 21,250.00 5,312.50 15,937.50
Manager
- -----------------------------------------------------------------------------------------------------------------------
Carol Young Corporate 68,000.00 15 10,200.00 2,550.00 7,650.00
Counsel
- -----------------------------------------------------------------------------------------------------------------------
Steven Jones Counsel 100,000.00 15 15,000.00 3,750.00 11,250.00
- -----------------------------------------------------------------------------------------------------------------------
Nancy Watkin Regional 122,000.00 25 30,500.00 7,625.00 22,875.00
Counsel
- -----------------------------------------------------------------------------------------------------------------------
Zaffar Havat Asst. Controller 59,200.00 25 14,800.00 3,700.00 11,100.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 27
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Retention 25% 75%
Name Title Annual Salary % Amount Installment Installment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kal Mistry Regional HR 99,500.00 25 24,875.00 6,218.75 18,656.25
Director
- -----------------------------------------------------------------------------------------------------------------------
Karen Marsh SVP-Sterling 97,000.00 25 24,250.00 6,062.50 18,187.50
- -----------------------------------------------------------------------------------------------------------------------
Mike Fain RVP-Sterling 111,500.00 15 16,725.00 4,181.25 12,543.75
- -----------------------------------------------------------------------------------------------------------------------
DuWane RVP-Sterling 103,034.00 15 15,455.10 3,863.78 11,591.33
Hooper
- -----------------------------------------------------------------------------------------------------------------------
Susan Klasic Operations- 64,985.50 15 9,747.75 2,436.94 7,310.81
Sterling
- -----------------------------------------------------------------------------------------------------------------------
JoAnn Hooker Operations- 72,100.00 15 10,800.00 2,700.00 8,100.00
Sterling
- -----------------------------------------------------------------------------------------------------------------------
Ron Sale NBD-Sterling 117,100.00 15 17,565.00 4,391.25 13,173.75
- -----------------------------------------------------------------------------------------------------------------------
Joe Walsh HPI-Dir.Bus. 100,000.00 25 25,000.00 6,250.00 18,750.00
Development
- -----------------------------------------------------------------------------------------------------------------------
Tony Colker FPA-Texas 85,000.00 15 12,750.00 3,187.50 9,562.50
- -----------------------------------------------------------------------------------------------------------------------
Tim Molyneux Operations- 70,000.00 15 10,500.00 2,625.00 7,875.00
Sterling
- -----------------------------------------------------------------------------------------------------------------------
Mary Granolf FPA-Southeast 66,000.00 15 9,900.00 2,475.00 7,425.00
- -----------------------------------------------------------------------------------------------------------------------
Greg Miller Meridian 160,000.00 15 24,000.00 6,000.00 18,000.00
- -----------------------------------------------------------------------------------------------------------------------
Jim Clemmons FPA-Southeast 70,000.00 25 17,500.00 4,375.00 13,125.00
- -----------------------------------------------------------------------------------------------------------------------
Don Booth Operations- 68,500.00 15 10,275.00 2,548.75 7,706.25
Sterling
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 28
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Retention 25% 75%
Name Title Annual Salary % Amount Installment Installment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lee Harris FPA-Southeast 95,000.00 15 14,250.00 3,502.50 10,687.50
- -----------------------------------------------------------------------------------------------------------------------
Dr. A. Ginosy FPA-Southeast 178,200.00 15 26,730.00 6,682.50 20,047.50
- -----------------------------------------------------------------------------------------------------------------------
Richard Collado FPA-Southeast 115,000.00 15 17,250.00 4,312.50 12,937.50
- -----------------------------------------------------------------------------------------------------------------------
J. Garcia FPA-Southeast 85,000.00 15 12,750.00 3,187.50 9,562.50
- -----------------------------------------------------------------------------------------------------------------------
M. Justice Operations- 55,025.00 15 8,373.75 2,093.44 6,280.31
Sterling - CME
- -----------------------------------------------------------------------------------------------------------------------
Ed Henry FPA-Southeast 72,600.00 15 10,890.00 2,722.50 8,167.50
- -----------------------------------------------------------------------------------------------------------------------
Miguel Gamann Operations- 54,960.00 15 8,244.00 2,061.00 6,183.00
Sterling
- -----------------------------------------------------------------------------------------------------------------------
M. Drori Consumer 49,143.00 15 7,371.45 1,842.86 5,528.59
Programs
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $2,933,252.05 $733,313.01 2,199,939.04
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 1
Exhibit 99
Contact: Sitrick And Company
Sandra Sternberg
Ann Julsen
800-248-3870
Michael Sitrick
310-788-2850
FOR IMMEDIATE RELEASE
- ---------------------
FPA REACHES RESTRUCTURING ACCORD WITH LARGEST CREDITORS;
FILES PLAN OF REORGANIZATION TERM SHEET ALONG WITH CHAPTER 11 PETITION TO
FACILITATE RESTRUCTURING; OBTAINS $50 MILLION IN DIP FINANCING; EXPECTS TO EXIT
CHAPTER 11 BEFORE END OF YEAR
SAN DIEGO, CALIF. -- JULY 20, 1998 -- FPA Medical Management (Nasdaq:
FPAM) today announced that it has reached agreement with its largest creditors
on a restructuring of the Company and that, to facilitate the restructuring, it
has filed a term sheet for a plan of reorganization along with petitions to
reorganize under Chapter 11 of the Bankruptcy Code. The Company said it expects
to file a disclosure statement and full reorganization plan by September 30,
1998, and that it expects to successfully exit Chapter 11 by December 31, 1998.
Stephen J. Dresnick, M.D., FACEP, Chairman and Chief Executive Officer
of FPA, said he was gratified by the confidence shown in the Company and its new
management by FPA's largest creditors.
"The restructuring agreement reached with the Company's largest
creditors allows us to both recapitalize FPA and to implement our strategic plan
to return the Company to profitability," he said. "Our fast-track exit plan is
indicative of how viable we and our largest creditors believe our new core
businesses are, how far along we are in the recovery process, and how soon we
expect to return to profitability."
Dr. Dresnick said that in conjunction with the filing, FPA received a
commitment from a syndicate of its prepetition lenders led by BankBoston, N.A.
for up to $50 million in debtor-in-possession (DIP) financing. The post-petition
financing, which is subject to Court approval, will be used, along with
projected cash flow from the Company's new core businesses, to fund all
post-petition provider, supplier and employee obligations, as well as certain
prepetition claims. The Company has also asked the Court to approve the payment
of certain prepetition claims of physicians and other healthcare providers that
provide service to the Company going forward.
Under the terms of the agreement, the largely pre-negotiated plan of
reorganization provides for the cancellation of existing equity holder
interests; warrants to be distributed to general unsecured creditors, including
holders of the Company's 6.5% Subordinated Debentures
<PAGE> 2
due 2001; and securities to be issued on a pro-rata basis to members of the
prepetition bank group in exchange for the outstanding debt. Other key terms of
the plan include the:
-- Realignment and simplification of the current corporate
structure; consolidation of headquarters staff to Miami,
Florida, by the end of the year.
-- Authorization of up to 40 million shares of new common stock
which will be listed with a nationally recognized stock exchange
as soon as practicable. Twenty million shares of those
authorized to be issued will be available for distribution to
senior creditors.
-- Issuance of warrants to purchase an aggregate of 3 percent of
new common stock to be distributed to general unsecured
creditors.
-- A Stock Option Program for management to purchase, in the
aggregate, 8 percent of the shares of the new common stock of
the Company on a fully diluted basis, thereby providing
incentives to return the Company to profitability and maximize
stakeholder value.
-- The cancellation of the interests of existing equity holders.
Dr. Dresnick said that the Company's strategic plan involves exiting
markets and shedding facilities that are either unprofitable or fall outside
FPA's core business areas, refining and strengthening remaining businesses and
facilities, and reducing costs wherever possible. The Company's core businesses
include Axminster Medical Group, Cornerstone, Health Partners, Meridian Medical
Group, Gonzaba Medical Group, Sterling Healthcare Group, and certain medical
clinics and networks in California, Florida, North Carolina and Texas.
Dr. Dresnick continued, "We have said for some time now that we are
confident that, given the time and cooperation of our physician and hospital
client base, payor partners, employees, lenders and other constituents, the
strategic plan new management has developed would restore FPA to profitability.
We are pleased our major creditors, after reviewing the plan, have come to the
same conclusion. To date, actions we have taken and programs we have implemented
have resulted in annual cost savings in excess of $25 million. We expect
additional savings and cost improvements from the 50 facilities closed or
identified for closure earlier this month."
Dr. Dresnick said that while the Company completes its restructuring,
daily operations at FPA will continue as usual. "With the protection afforded by
Chapter 11 and the $50 million in post-petition financing, we are confident that
the Company's relationships with its payors, healthcare providers and creditors,
and its business in general, will not only continue as before, but improve." Dr.
Dresnick pointed out that the Company has asked the Court for approval to pay
certain prepetition claims of physician, physician assistant and nurse
practitioner providers
2
<PAGE> 3
with whom it will do business on a going forward basis. Additionally, the
Company has asked the Court for permission to continue the prepetition practice
of paying refunds to enrollees and third-party payors, including Medicare and
Medicaid.
Dr. Dresnick said that, despite the filing, "As far as the Company's
physician and hospital emergency department clients and payor partners are
concerned, we expect to be able to provide them with as good or better service
levels than before." He noted that employees at FPA's continuing operations
should notice little, if any, difference in their jobs. Paychecks will be issued
as before. Vendors will be paid for goods received after the filing date and
transactions that occur during the normal course of business will continue as
they did prior to the filing.
FPA Medical Management, Inc. is a national physician practice
management organization that organizes and manages primary care physician
networks to contract with HMOs and other prepaid insurance plans to provide
physician and related health care services and provides contract management
support services to hospital emergency departments.
FPA Medical Management, Inc. and its subsidiaries filed petitions under
Chapter 11 of the U.S. Bankruptcy Court for the District of Delaware in
Wilmington on Sunday, July 19, 1998.
This press release contains statements which constitute
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995. "Forward-looking statements" in this press
release include the intent, belief or current expectations of the Company and
members of its senior management team with respect to the timing of, completion
of and scope of the current restructuring, reorganization plan strategic
business plan, bank financing, and debt and equity market conditions and the
Company's future liquidity, as well as the assumptions upon which such
statements are based. While the Company believes that its expectations are based
on reasonable assumptions within the bounds of its knowledge of its business and
operations, prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance, and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. Important factors currently
known to management that could cause actual results to differ materially from
those contemplated by the forward-looking statements in this press release
include, but are not limited to, further adverse developments with respect to
the Company's liquidity position or operations of the Company's various
businesses, adverse developments in the Company's efforts to renegotiate its
funding and adverse developments in the bank financing or public or private
markets for debt or equity securities, or adverse developments in the timing or
results of the Company's current strategic business plan (including the time
line to emerge from Chapter 11), the difficulty in controlling health care costs
and integrating new operations, the ability of the Company to realize the
anticipated general and administrative expense savings and overhead reductions
presently contemplated, the ability of the Company to return the Company's
operations to profitability, the level and nature of any restructuring and other
one-time charges, the difficulty in estimating costs relating to exiting certain
markets and consolidating and closing certain operations, and the possible
negative effects of prospective health care reform. Additional factors that
would cause actual results to differ materially from those contemplated within
this press release can also be found in the Company's Form 8-K periodic filings
during 1998, Form 10-Q for the quarter ended March 31, 1998, and the Company's
Form 10-K for the year ended December 31, 1997.
3
