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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-19480
MEDAPHIS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 58-1651222
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 CUMBERLAND PARKWAY, SUITE 300
ATLANTA, GEORGIA 30339
---------------------------------------- -------------------
(Address of principal executive offices) (Zip code)
(770) 319-3300
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares of stock outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May, 8 1996
----------------------- --------------------------
Common Stock
$0.01 PAR VALUE 64,953,205 SHARES
Non-voting Common Stock
$0.01 PAR VALUE 0 SHARES
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MEDAPHIS CORPORATION
FORM 10-Q
MARCH 31, 1996
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
Page
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<S> <C>
Part I: Financial Information
Consolidated Statements of Income (Loss) for the three
months ended March 31, 1996 and 1995.................... 3
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995.................... 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995.............. 5
Notes to Consolidated Financial Statements.............. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 12
Part II: Other Information
Submission of Matters to a Vote of Security Holders..... 20
Exhibits and Reports on Form 8-K........................ 20
Index to Exhibits....................................... 25
</TABLE>
This Form 10-Q contains certain forward-looking statements, including, but not
limited to, statements regarding the anticipated results of operations of the
Company's physician billing operations, the status and future prospects of the
Company's re-engineering and consolidation project, the results of operations
of the Company's technology systems division and anticipated cash flows from
operations in future periods. The actual results that the Company achieves may
differ materially from such forward-looking statements due to risks and
uncertainties set forth herein and in the other reports and registration
statements filed by the Company under the Securities Act of 1933 and the
Securities Exchange Act of 1934, including the information included under the
caption "Risk Factors" in the Registration Statement on Form S-4 (File No.
333-2506) filed by the Company on March 19, 1996.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Revenue $136,582 $110,085
Salaries and wages 69,517 59,456
Other operating expenses 34,966 26,320
Depreciation 4,151 2,828
Amortization 3,927 3,324
Interest expense, net 2,117 3,728
Restructuring and other charges 150 31,750
-------- --------
Total expenses 114,828 127,406
Income (loss) before income taxes 21,754 (17,321)
Income taxes 8,556 (9,119)
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Net income 13,198 (8,202)
Pro forma adjustments, principally income taxes - (3,679)
-------- --------
Pro forma net income (loss) $ 13,198 $(11,881)
======== ========
Pro forma net income (loss) per common share $ 0.23 $ (0.27)
======== ========
Weighted average shares outstanding 58,142 43,812
======== ========
</TABLE>
See notes to consolidated financial statements.
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,141 $ 4,140
Restricted cash 16,473 15,340
Accounts receivable, billed 84,649 67,496
Accounts receivable, unbilled 77,760 74,225
Other 17,911 14,510
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Total current assets 199,934 175,711
Property and equipment 114,443 90,957
Intangible assets 462,170 447,410
Other 3,419 4,363
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$779,966 $718,441
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,598 $ 16,447
Accrued compensation 26,127 19,753
Accrued expenses 54,269 62,892
Current portion of long-term debt 9,327 9,444
-------- --------
Total current liabilities 98,321 108,536
Long-term debt 184,867 144,264
Other obligations 17,524 18,901
Deferred income taxes 24,074 15,615
Convertible subordinated debentures - 63,375
-------- --------
Total liabilities 324,786 350,691
Stockholders' Equity:
Common stock, voting, $.01 par value, 100,000
authorized in 1996 and 1995; issued and
outstanding 55,938 in 1996 and 50,645 in 1995 559 506
Common stock, nonvoting, $.01 par value, 600
authorized; none issued - -
Paid-in capital 432,471 362,109
Retained earnings 22,150 5,135
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Total stockholders' equity 455,180 367,750
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$779,966 $718,441
======== ========
</TABLE>
See notes to consolidated financial statements.
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended March 31, 1996 1995
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,198 $ (8,202)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,078 6,152
Impairment loss on property and equipment - 5,030
Deferred income taxes 8,556 (9,239)
Changes in assets and liabilities, excluding effects of acquisitions:
Increase in accounts receivable, billed (17,960) (10,786)
Increase in accounts receivable, unbilled (4,008) (1,670)
(Decrease) increase in accounts payable (7,934) 4,016
Increase in accrued compensation 5,843 757
(Decrease) increase in accrued expenses (10,191) 24,160
Other, net (2,001) (4,259)
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Net cash (used for) provided by operating activities (6,419) 5,959
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (5,722) (26,822)
Purchases of property and equipment (19,166) (7,078)
Software development costs (12,497) (3,915)
-------- --------
Net cash used for investing activities (37,385) (37,815)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 7,210 1,274
Proceeds from borrowings 39,141 32,699
Principal payments of long-term debt (7,364) (1,308)
Dividends to shareholders of acquired companies - (1,816)
Other 3,818 -
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Net cash provided by financing activities 42,805 30,849
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CASH:
Net change (999) (1,007)
Balance at beginning of period 4,140 12,417
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Balance at end of period $ 3,141 $ 11,410
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest $ 3,423 $ 4,516
Income taxes 612 132
Non-cash investing and financing activities:
Liabilities assumed in acquisitions 2,103 949
Additions to capital lease obligations 9,190 3,295
Common stock issued in conjunction with acquisitions - 459
</TABLE>
See notes to consolidated financial statements.
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MEDAPHIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
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NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Medaphis
Corporation ("Medaphis" or the "Company") are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those made in the Company's audited year-end financial statements.
Accordingly, for further information, the reader of this Form 10-Q may wish to
refer to the audited consolidated financial statements of the Company for the
year ended December 31, 1995 incorporated by reference in the Company's Annual
Report on Form 10-K.
The unaudited financial information has been prepared in accordance with
the Company's customary accounting policies and practices. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
considered necessary for a fair presentation of results for the interim period,
have been included.
NOTE 2 - Legal Matters
The United States Attorney's Office for the Central District of California
is conducting an investigation (the "Federal Investigation") of Medaphis'
billing and collection practices in its offices located in Calabasas and
Cypress, California (the "Designated Offices"). Medaphis first became aware of
the Federal Investigation when it received search warrants and grand jury
subpoenas on June 13, 1995. Although the precise scope of the Federal
Investigation is not known at this time, Medaphis believes that the U.S.
Attorney's Office is investigating allegations of billing fraud and that the
inquiry is focused upon Medaphis' billing and collection practices in the
Designated Offices. Numerous federal and state civil and criminal laws govern
medical billing and collection activities. In general, these laws provide for
various fines, penalties, multiple damages, assessments and sanctions for
violations, including possible exclusion from Medicare, Medicaid and certain
other federal and state healthcare programs. Although the Designated Offices
represent less than 2% of Medaphis' annual revenue, there can be no assurance
that the Federal Investigation will be resolved promptly, that additional
subpoenas or warrants will not be received by Medaphis or that the Federal
Investigation will not have a material adverse effect upon the Company. The
Company recorded a charge of $12 million in 1995 solely for the administrative
fees, costs and expenses it anticipates incurring in connection with the
Federal Investigation and the putative class action lawsuits described below.
The charge is intended to cover only the anticipated administrative expenses of
the Federal Investigation and the lawsuits and does not include any provision
for fines, penalties, damages, assessments, judgments or sanctions that may
arise out of such matters.
Following the announcement of the Federal Investigation, Medaphis, various
of its officers and directors and the lead underwriters associated with
Medaphis' public offering of common stock in
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April 1995 were named as defendants in putative shareholder class action
lawsuits filed in the Federal District Court for the Northern District of
Georgia. In general, these lawsuits allege violations of the federal
securities laws in connection with Medaphis' filings under the federal
securities acts, including the registration statement filed in connection with
Medaphis' public offering of common stock in April 1995. On October 13, 1995,
the named plaintiffs in these lawsuits filed a consolidated class action
complaint (the "Consolidated Complaint"). On January 3,1996, the court denied
defendants' motion to dismiss the Consolidated Complaint which argued that the
complaint failed to state a claim upon which relief may be granted. On April
11, 1996, certain of the named plaintiffs to the Consolidated Complaint
voluntarily dismissed with prejudice all of their claims. As a result of these
dismissals, the Consolidated Complaint no longer contains any claims based on
the Securities Act of 1933, and the Company's underwriters and outside
directors are no longer named as defendants. The Company believes that it has
meritorious defenses to this action and intends to assert them vigorously.
NOTE 3 - Recent Acquisitions and Other Matters
On February 1, 1996, the Company acquired the outstanding capital stock of
CBT Financial Services, Inc. ("CBT"). CBT provides collection and billing
services primarily to hospitals.
On February 12, 1996, the Company acquired the outstanding capital stock
of Medical Management Computer Services, Inc. ("MMCS"). MMCS provides billing
and accounts receivable management services primarily to emergency room
physicians.
Each of the foregoing acquisitions was recorded using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair market
value at the date of the acquisition. The operating results of CBT and MMCS
are included in the Company's Consolidated Statement of Income from the
respective dates of acquisition.
On February 29, 1996, the Company exchanged shares of its common stock for
all of the outstanding shares of common stock of Intelligent Visual Computing,
Inc. ("IVC"). IVC provides systems integration and work flow engineering
systems and services to clients in the healthcare and other industries. This
transaction has been accounted for under the pooling-of-interests method of
accounting. However, due to the immateriality of IVC's operations, no
restatement of historical financial statements has been made.
In 1995, the Company acquired the Automation Atwork Companies ("Atwork"),
Healthcare Recoveries, Inc. ("HRI"), Consort Technologies, Inc. ("Consort") and
Medical Management Sciences, Inc. ("MMS") in acquisitions accounted for as
poolings-of-interests. A reconciliation of revenue, pro forma net income and
pro forma net income per common share of the Company, as previously reported
(which includes Atwork), HRI, Consort, MMS and Combined, including the pro
forma provision for "S" Corporation income taxes, is as follows (in thousands,
except per share data):
7
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<TABLE>
<CAPTION>
Three months
ended
March 31, 1995
--------------
<S> <C>
Revenue:
Medaphis, as previously reported $ 99,356
HRI 4,801
Consort 792
MMS 5,136
---------
Combined $ 110,085
=========
Pro forma net income (loss):
Medaphis, as previously reported $ (13,494)
HRI 602
Consort 222
MMS 1,496
Pro forma provision for "S"
Corporation income taxes (707)
---------
Combined $ (11,881)
=========
Pro forma net income (loss) per common share:
Medaphis, as previously reported $ (0.35)
=========
Combined $ (0.27)
=========
</TABLE>
On April 3, 1996, the Company exchanged approximately 1.1 million shares
of its common stock for all of the outstanding shares of common stock of Rapid
Systems Solutions, Inc. ("Rapid Systems"). Rapid Systems is a client
server/systems integration company whose core competencies include: network
design integration and management; database design and development; graphical
user interface application design, development and implementation; and
strategic systems engineering and computer security. During 1995, Rapid Systems
had revenue of $14.7 million. As a result of the pooling-of-interests
accounting treatment for the Rapid Systems merger, the Company expects to
record a charge of approximately $900,000 in the second quarter of 1996 related
to fees, costs and expenses incurred in connection with the merger.
On April 16, 1996, the Company acquired the outstanding capital stock of
The MEDICO Group, Ltd. ("MEDICO"). MEDICO provides billing and accounts
receivable management services primarily to anesthesiologists. This
transaction will be accounted for using the purchase method of accounting.
On May 6, 1996, the Company exchanged approximately 7.5 million shares of
its common stock for all of the outstanding shares of common stock of BSG
Corporation ("BSG"). In addition, the Company assumed BSG stock options
representing approximately 2.3 million additional shares of the Company's
common stock. BSG provides information technology and change management
services to organizations seeking to transform their operations through the
strategic use of client/server and other advanced technologies. During 1995,
BSG had revenue of $69.7 million. As a result of the pooling-of-
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interests accounting treatment for the BSG merger, the Company expects to
record a charge of approximately $6.5 million in the second quarter of 1996
related to fees, costs and expenses incurred in connection with the merger.
The following unaudited pro forma financial information presents the
results of operations of the Company for the three months ended March 31, 1996
and 1995 as if the acquisitions of Medical Management, Inc. (March 1995),
Medical Billing Services (April 1995), Computers Diversified, Inc. (April
1995), The Receivables Management Division and related consulting services of
MedQuist, Inc. (December 1995), Rapid Systems (April 1996) and BSG (May 1996)
had occurred on January 1, 1995. The acquisitions of Decision Support Group
(January 1995), Medical Office Consultants (May 1995), Billing and Professional
Services, Inc. (October 1995), The Halley Exchange, Inc. (December 1995), CBT
(February 1996), MMCS (February 1996), IVC (February 1996) and MEDICO (April
1996) have been excluded from the unaudited pro forma financial information as
they are not considered material for pro forma presentation purposes.
The pro forma information presented below does not purport to be
indicative of the results that would have been obtained if the operations had
actually been combined for the periods presented and is not necessarily
indicative of operating results to be expected in future periods (in thousands,
except per share data).
<TABLE>
<CAPTION>
Pro Forma
Three months ended
-------------------
March 31 March 31
1996 1995
-------------------
<S> <C> <C>
Revenue $159,473 $138,527
Net income (loss) 12,697 (10,320)
Net income (loss) per share $ 0.18 $ (0.19)
</TABLE>
In February 1996, the Company, through its wholly owned indirect
subsidiary, Imonics GMBH, entered into a joint venture ("JV") with an indirect
subsidiary of Bertelsmann AG, a German corporation. The JV was formed in order
to provide customer-service related work flow applications throughout Europe.
Each partner holds a 50% interest in the JV. During the quarter ended March
31, 1996, the JV signed an agreement with a German telecommunications entity to
provide systems integration and work flow engineering systems and services over
a multi-year contract. Included in revenue in the accompanying Consolidated
Statement of Income for the quarter ended March 31, 1996, is approximately
$12.5 million relating to the Company's share of net earnings of the JV.
NOTE 4 - Financing Transactions
In 1995, the Company gave notice of its intent to redeem its 6 1/2 %
convertible subordinated debentures due January 1, 2000. The debentures were
convertible into shares of the Company's common stock at a conversion price of
$14.00 per share. All of the debenture holders exercised their conversion
right effective January 1, 1996, and as a result, approximately 4.5 million
shares of common stock were issued in the conversion.
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NOTE 5 - Restructuring and Other Charges
Restructuring and other charges for the quarter ended March 31, 1996,
included costs and benefits associated with the merger with IVC, the Company's
ongoing re-engineering and consolidation project and the re-evaluation of
liabilities associated with several pooling-of-interests transactions
consummated in 1995.
In the quarter ended March 31, 1995, management of the Company approved a
restructuring plan relating to the consolidation of the Company's data
processing function in its operating subsidiary, Medaphis Physician Services
Corporation ("MPSC"). Substantially all of MPSC's local business offices at
the commitment date were leased. Business offices will be exited in accordance
with the guidelines established in the Company's restructuring plan. The
Company will negotiate lease buyouts and subleasing arrangements with lessors,
where possible, to mitigate its remaining contractual obligations under lease
agreements. In the quarter ended March 31, 1995, the Company recorded a
reserve for the exit costs associated with the restructuring plan of
approximately $15.0 million.
A description of the type and amount of exit costs incurred in the quarter
ended March 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Reserve Incurred Reserve
Balance through Balance
12/31/95 3/31/96 3/31/96
-------- -------- -------
<S> <C> <C> <C>
Lease termination costs $ 5,990 $ (479) $ 5,511
Incremental costs associated
with discontinued client contracts 4,691 (669) 4,022
Other 1,788 (193) 1,595
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$ 12,469 $(1,341) $11,128
======== ======= =======
</TABLE>
In the quarter ended March 31, 1995, MPSC formalized an involuntary
severance benefit plan and the Company recorded a charge of approximately $5.0
million to reflect the expense for employees' rights to involuntary severance
benefits that have accumulated to date. Involuntary severance costs charged
against the liability were approximately $453,000 for the three-month period
ended March 31, 1996.
In January 1995, the Company assessed the recoverability of its long lived
assets and recorded an impairment loss of approximately $5.0 million related to
property and equipment that will be disposed of as a result of the
restructuring plan.
In connection with the Atwork merger, the Company incurred transaction
fees, costs and expenses of approximately $6.0 million. In accordance with the
pooling-of-interests accounting treatment, these costs have been reflected in
the operating results for the three months ended March 31, 1995.
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NOTE 6 - Income Taxes
In 1995, the Company acquired Atwork, Consort and MMS in merger
transactions which were accounted for under the pooling-of-interests method of
accounting. As a result of the Atwork merger, the Company recorded a tax
benefit of approximately $2.9 million related to Atwork's change in tax status
from an "S" Corporation to a "C" Corporation in the first quarter of 1995. Pro
forma net loss and pro forma net loss per common share are presented in the
consolidated statements of income as if Atwork, Consort and MMS had been "C"
Corporations during the quarter ended March 31, 1995.
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PART I:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Medaphis is a leading provider of business management systems and
services to the healthcare industry. Medaphis' systems and services are
designed to assist its clients with the business management functions
associated with the delivery of healthcare services, thereby permitting
physicians and hospitals to focus on providing quality medical services to
their patients. The Company also provides subrogation and related recovery
services primarily to healthcare payors, scheduling and information management
systems to hospitals and emerging integrated healthcare delivery systems and
systems integration and work flow engineering systems and services. The
Company's scheduling and information systems are designed to improve
efficiency by automating certain scheduling and related management functions
within a healthcare facility and its systems integration and work flow
engineering systems and services are designed to increase flexibility, improve
end-user access to information and increase decision making capabilities
through the strategic use and development of client/server, imaging and other
advanced technologies. The Company currently provides business management
systems and services to approximately 19,700 physicians and over 2,200
hospitals in all 50 states, subrogation and recovery services to healthcare
plans covering in excess of 24 million people throughout the United States and
systems integration and work flow engineering systems and services in the
United States and abroad.
Medaphis' business is impacted by trends in the U.S. healthcare industry.
As healthcare expenditures have grown as a percentage of the U.S. gross
national product, public and private healthcare cost containment measures have
applied pressure to the margins of healthcare providers. Historically, some
payors have willingly paid the prices established by providers while other
payors, notably the government and managed care companies, have paid far less
than established prices (in many cases less than the average cost of providing
the services). As a consequence, prices charged to payors willing to pay
established prices have increased in order to recover the cost of services
purchased by the government and others but not paid by them (i.e., "cost
shifting"). Increasing complexity in the reimbursement system and assumption
of greater payment responsibility by individuals have caused healthcare
providers to experience increased receivables and bad debt levels and higher
business office costs. Providers historically have addressed these pressures
on profitability by increasing their prices, by relying on demographic changes
to support increases in the volume and intensity of medical procedures, and by
cost shifting. Notwithstanding the foregoing, management of the Company
believes that the revenue recognized by the Company's clients continues to be
adversely affected by increased managed care and other industry factors
impacting healthcare providers in the United States. At the same time, the
process of submitting healthcare claims for reimbursement to third party
payors in accordance with applicable industry and regulatory standards
continues to grow in complexity and become more costly. Management of the
Company believes that the decline in revenue experienced by the Company's
clients, the increasing complexity and costs associated with providing billing
and accounts receivable management services to healthcare providers and the
Company's on-going re-engineering and consolidation project have placed
pressure on the rate of revenue growth and margins in the Company's physician
operations which are the subject of such re-engineering and consolidation
project. Due to these revenue and margin pressures, Medaphis Physician
Services Corporation ("MPSC") did not
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significantly contribute to the Company's operating profit for the second half
of 1995. During the first quarter of 1996, the Company's services division
had revenue of $106.1 million and contributed positively to the operating
results of the Company. However, MPSC adversely affected the results of
operations of the services division for the quarter ended March 31, 1996.
Management of the Company does not expect this trend to improve materially
until further progress is made with, among other things, the Company's
re-engineering and consolidation project and overall operations of the
business. The re-engineering and consolidation project was commenced in
earnest in early 1995 and has been designed to reduce costs, increase
consistency and quality of services and enhance operating margins in the
Company's transaction processing services operations through office
consolidation and the strategic use and deployment of scanning, imaging, work
flow engineering and client/server distributed computing technology and
services. The Company has implemented its new technology and best practices
at a large Information Processing Center in Pittsburgh and is in the process
of deploying such technology and services at its Charleston Information
Processing Center. Ultimately, the Company intends to further develop and
refine such technology and practices, and then to deploy such technology and
practices at up to eight additional Information Processing Centers.
Management of the Company currently anticipates that the re-engineering and
consolidation project will be substantially completed during 1997.
To date, the Company has been able to offset the margin and revenue
pressures experienced at MPSC through expanded growth in its systems
integration and information management operations. Much of this growth has
come from the signing of new systems integration contracts which have included
significant initial license fees and through strategic acquisitions. Given
the size and complexity of the large-scale systems integration contracts
entered into by the Company and the license fees associated therewith,
management of the Company believes that the results of operations for the
Company's technology systems division may be subject to significant quarterly
fluctuations based upon the timing of receipt of large-scale re-engineering
contracts. However, management also anticipates that the episodic nature of
the Company's existing systems integration operations should be partially
offset over time by the results of operations of BSG and Rapid Systems, which
historically have had a larger number of smaller systems integration projects
which have not included initial license fees.
The U.S. healthcare industry continues to experience tremendous change as
both federal and state governments, as well as private industry, work to bring
more efficiency and effectiveness to the healthcare system. Medaphis
continues to evaluate governmental and industry reform initiatives in an
effort to position itself to take advantage of the opportunities created
thereby.
RESULTS OF OPERATIONS
The following table shows the percentage of certain items reflected in
the Company's statements of income (loss) to revenue.
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<TABLE>
<CAPTION>
Three months
ended March 31
1996 1995
-------- --------
<S> <C> <C>
Revenue 100.0% 100.0%
Salaries and wages 50.9 54.0
Other operating expenses 25.6 23.9
Depreciation 3.0 2.6
Amortization 2.9 3.0
Interest expense, net 1.6 3.4
Restructuring and other charges 0.1 28.8
-------- --------
Income (loss) before income taxes 15.9 (15.7)
Income taxes (6.2) 8.2
-------- --------
Net income (loss) 9.6 (7.5)
Pro forma adjustments - (3.3)
-------- --------
Pro forma net income (loss) 9.6 (10.8)
======== ========
</TABLE>
Revenue. Revenue increased 24.1% to $136.6 million in the first quarter
of 1996 as compared with $110.1 million in the first quarter of 1995. Revenue
growth results from: (i) acquisitions; (ii) increases in the number of
business management services clients; and (iii) increases in sales to
information management and systems integration clients. The Company has
consummated 14 business combinations during the period from January 1, 1995,
through March 31, 1996.
Revenue of the Company's services division was $106.1 million and $98.1
million, respectively, for the quarters ended March 31, 1996 and 1995. A
substantial portion of the revenue in the Company's services division is
recurring, representing approximately 70% of consolidated revenue. Revenue of
the Company's technology systems division was $30.9 million and $12.3 million,
respectively, for the quarters ended March 31, 1996 and 1995. The Company's
overall internal revenue growth during the quarter ended March 31, 1996 was
approximately 19.5%.
Salaries and Wages. Salaries and wages decreased to 50.9% of revenue in
the first quarter of 1996 from 54.0% in the first quarter of 1995. The
decrease resulted primarily from the continued growth in the Company's
information management and systems integration businesses which are less
labor-intensive.
Other Operating Expenses. Other operating expenses increased to 25.6% of
revenue in the first quarter of 1996 compared to 23.9% in the first quarter of
1995. Other operating expenses are primarily comprised of postage, facility
and equipment rental, telecommunications, travel, outside consulting services
and office supplies.
Depreciation. Depreciation expense was $4.2 million in the first quarter
of 1996 as compared with $2.8 million in the first quarter of 1995. This
increase reflects the Company's investment in property and equipment to support
growth in its business, including acquisitions.
The Company has commenced a comprehensive re-engineering and consolidation
project in its operating subsidiary, MPSC. As part of this project, management
anticipates consolidating the
14
<PAGE> 15
processing function currently being performed in over 300 local business
offices into approximately ten regional processing centers. In addition, new
computer equipment and proprietary software will be installed in MPSC and
possibly other of the services division's operations. Management anticipates
increases in depreciation expense in 1996 and thereafter as a result of the
project's scheduled completion in 1997.
Amortization. Amortization of intangible assets, which are primarily
associated with the Company's acquisitions and internally developed software,
was $3.9 million in the first quarter of 1996 as compared with $3.3 million in
the first quarter of 1995. The increase is primarily due to increased
amortization of the Company's software products. Management anticipates that
amortization expense in 1996 and thereafter will increase upon the completion
of its re-engineering and consolidation project. The Company intends to
amortize the software developed in connection with this project over its
estimated useful life of seven years.
Interest. Net interest expense was $2.1 million in the first quarter of
1996 as compared with $3.7 million in the first quarter of 1995. The decrease
is primarily due to the conversion of the Company's subordinated debentures
into common stock on January 1, 1996. Management anticipates that future
interest expense will be impacted by interest rate fluctuations, increased
borrowings under the Senior Credit Facility to finance future acquisitions and
continued investment in the Company's re-engineering and consolidation project.
Restructuring and Other Charges. The Company has commenced a
comprehensive re-engineering and consolidation project in MPSC in order to
enhance its ability to provide more effective and efficient business management
services to its clients. This project is designed to further enhance the
Company's long-term operating efficiency and client service capability. MPSC
will consolidate its billing and accounts receivable processing function, which
is currently operated out of approximately 300 local business offices, into
approximately ten regional processing centers. It is currently anticipated
that the project will be substantially completed during 1997. As a result of
this project, the Company recorded restructuring and other charges of
approximately $25 million in the first quarter of 1995, consisting primarily of
exit costs ($15.0 million), involuntary severance benefits ($5.0 million) and
impairment losses associated with the disposition of property and equipment
($5.0 million).
In connection with the Atwork merger, the Company incurred transaction
fees, costs and expenses of approximately $6.0 million. In accordance with the
pooling-of-interests accounting treatment, the costs associated with the Atwork
merger have been reflected in the operating results of the Company in the first
quarter of 1995.
Restructuring and other charges for the quarter ended March 31, 1996,
included costs and benefits associated with the merger with IVC, the Company's
ongoing re-engineering and consolidation project and the re-evaluation of
liabilities associated with several pooling-of-interests transactions
consummated in 1995.
Income (Loss) Before Income Taxes. The Company's income before income
taxes was 15.9% of revenue in the first quarter of 1996 as compared with a loss
of (15.7)% of revenue in the first
15
<PAGE> 16
quarter of 1995. The increase is primarily the result of charges recorded in
the first quarter of 1995 relating to the re-engineering and consolidation
project and the Atwork merger and the results of the Company's technology
systems operations in the quarter ended March 31, 1996. During the first
quarter of 1996, the Company's income before income taxes was positively
impacted by fees derived from the Company's systems integration operations
reflecting the higher margin nature of these operations when compared to the
Company's business management services operations.
Income Taxes. The Company's historical effective income tax rates were
39.3% and a benefit of 52.6% for the quarters ended March 31, 1996 and 1995,
respectively. The decrease in tax rates between quarters results from (i) the
treatment of Atwork, Consort and MMS as "C" Corporations in the current year as
compared with "S" Corporations in the prior year, (ii) the tax benefit
associated with Atwork's change in tax status from "S" Corporation to "C"
Corporation in the quarter ended March 31, 1995 and (iii) the offsetting impact
of non-deductible merger costs incurred in the quarter ended March 31, 1995.
On a pro forma basis, assuming Atwork, Consort and MMS were "C" Corporations
for the quarter ended March 31, 1995, the Company's pro forma effective tax
rate would have been a benefit of 28.5%. The increase in the Company's pro
forma effective tax rate for the quarter ended March 31, 1996 resulted
primarily from the aforementioned non-deductible merger costs in the first
quarter of 1995.
Pro Forma Net Income (Loss). The Company's net income for the quarter
ended March 31, 1996, was $13.2 million as compared with a pro forma net loss
of $11.9 million in the year-earlier period. The increase in pro forma net
income from the year-earlier period is primarily a result of charges recorded
in the first quarter of 1995 relating to the re-engineering and consolidation
project and the Atwork merger and the results of the Company's technology
systems operations in the quarter ended March 31, 1996.
Pro Forma Net Income (Loss) Per Common Share. The weighted average
shares outstanding were 58,142,000 and 43,812,000 for the quarters ended March
31, 1996 and 1995, respectively. Pro forma net income (loss) per common share
was $0.23 and $(0.27) for the quarters ended March 31, 1996 and 1995,
respectively. The increase in the first quarter ended March 31, 1996, as
compared with the prior period is primarily the result of the charges recorded
in the first quarter of 1995 relating to the re-engineering and consolidation
project and the Atwork merger and the results of the Company's technology
systems operations in the quarter ended March 31, 1996.
RECENT ACQUISITIONS AND JOINT VENTURE
On February 1, 1996, the Company acquired the outstanding capital stock of
CBT. CBT provides collection and billing services primarily to hospitals.
On February 12, 1996, the Company acquired the outstanding capital stock
of MMCS. MMCS provides billing and accounts receivable management services
primarily to emergency room physicians.
Each of the foregoing acquisitions was recorded using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair market
value at the date of the acquisitions.
16
<PAGE> 17
On February 29, 1996, the Company exchanged shares of its common stock for
all of the outstanding shares of common stock of IVC. IVC provides systems
integration and work flow engineering systems and services to clients in the
healthcare and other industries. This transaction has been accounted for using
the pooling-of-interests method of accounting.
On April 3, 1996, the Company exchanged approximately 1.1 million shares
of its common stock for all of the outstanding shares of common stock of Rapid
Systems. Rapid Systems is a client server/systems integration company whose
core competencies include: network design, integration and management;
database design and development; graphical user interface application design,
development and implementation; and strategic systems engineering and computer
security. During 1995, Rapid Systems had revenue of $14.7 million. As a
result of the pooling-of-interests accounting treatment for the Rapid Systems
merger, the Company expects to record a charge of approximately $900,000 in the
second quarter of 1996 related to fees, costs and expenses incurred in
connection with the merger.
On April 16, 1996, the Company acquired the outstanding capital stock of
MEDICO which provides billing and accounts receivable management services
primarily to anesthesiologists. This transaction will be accounted for using
the purchase method of accounting.
On May 6, 1996, the Company exchanged approximately 7.5 million shares of
its common stock for all of the outstanding shares of common stock of BSG. In
addition, the Company assumed BSG stock options representing approximately 2.3
million additional shares of the Company's common stock. BSG provides
information technology and change management services to organizations seeking
to transform their operations through the strategic use of client/server and
other advanced technologies. During 1995, BSG had revenue of $69.7 million.
As a result of the pooling-of-interests accounting treatment for the BSG
merger, the Company expects to record a charge of approximately $6.5 million in
the second quarter of 1996 related to fees, costs and expenses incurred in
connection with the merger.
In February 1996, the Company, through its wholly owned indirect
subsidiary, Imonics GMBH, entered into a joint venture with an indirect
subsidiary of Bertelsmann AG, a German corporation. The JV was formed in order
to provide customer-service related work flow applications throughout Europe.
Each partner holds a 50% interest in the JV. During the quarter ended March
31, 1996, the JV signed an agreement with a German telecommunications entity to
provide systems integration and work flow engineering systems and services over
a multi-year contract. Included in revenue in the accompanying Consolidated
Statement of Income for the quarter ended March 31, 1996 is approximately $12.5
million related to the Company's share of net earnings of the JV.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $101.6 million at March 31, 1996,
including $3.1 million of cash.
Management believes additional working capital is not required to meet
its current liquidity needs before acquisitions, internal growth of the
business and investments in the Company's re-engineering and consolidation
project. The Company used $6.4 million in cash for operating
17
<PAGE> 18
activities (excluding the effects of restructuring, merger and other charges,
the Company generated operating cash flow of approximately $4.2 million) in the
quarter ended March 31, 1996. The decrease in the Company's operating cash
flows resulted from the increased levels of working capital committed to the
Company's technology systems operations, expenditures related to
restructuring, merger and other charges, and the ongoing revenue and margin
pressures at MPSC. Management of the Company expects the continued use of
cash to fund restructuring and merger costs, growth of the Company's
technology systems operations and to support operations of MPSC until further
progress is made in the Company's re-engineering and consolidation project and
the improvement of MPSC's overall operations. Management expects to fund such
cash requirements through cash flows from its operations and, to the extent
necessary, through amounts available for borrowing under the Senior Credit
Facility.
At March 31, 1996, approximately $162.2 million of borrowings were
outstanding under the Company's $250 million Senior Credit Facility. Amounts
available for borrowing under the Senior Credit Facility may be used for future
acquisitions, expansion of the Company's business and general corporate
purposes.
In December 1995, the Company gave notice of its intent to redeem its 6
1/2 % convertible subordinated debentures due January 1, 2000. The debentures
were convertible into shares of the Company's common stock at a conversion
price of $14.00 per share. All of the debenture holders exercised their
conversion right effective January 1, 1996, and as a result, approximately 4.5
million shares of common stock were issued in the conversion.
The Company estimates that each one million dollars of internal growth
requires no more than $500,000 of additional capital. If the current rate of
internal growth continues at historical operating margins, the Company
estimates that its cash flow from operations before restructuring, merger and
other changes will be adequate to meet its capital requirements for internal
growth. Internal growth may also be funded by the Company's Senior Credit
Facility. Management estimates that, at historical operating margins, any
borrowings that are incurred for internal growth purposes can be repaid within
two years by operating cash flow. Management also believes the Senior Credit
Facility will be sufficient to meet any seasonal cash requirements.
The Company has commenced a comprehensive re-engineering and
consolidation project. As part of this project, the Company anticipates
consolidating the processing function currently being performed in
approximately 300 local business offices into approximately ten regional
processing centers. The Company anticipates obtaining additional computer
equipment for approximately $16 million by the end of 1997, and incurring
software development costs of approximately $17 million in 1996. Additionally,
the Company anticipates incurring lease buy-out and termination payments,
involuntary severance benefits, and other cash expenditures of approximately
$12 to $17 million by the end of 1997 relating to this project. The remaining
costs related to the project are expected to be financed through the Company's
Senior Credit Facility, future operating cash flows and capital lease
financing. During the three months ended March 31, 1996, the Company
capitalized approximately $12 million of software development costs associated
with the development or enhancement of software to be used in the processing
function of the Company's business management services or otherwise sold
externally by the Company.
18
<PAGE> 19
Substantially all the Company's capital expenditures have related either
to acquisitions of healthcare business management service companies and
technology companies or to the expansion, improvement, or maintenance of
existing facilities. The Company has financed its growth through cash flows
from operations, the issuance of debt and equity securities and borrowings.
Management believes anticipated cash flow from operations and borrowing
capacity under the Senior Credit Facility will provide adequate capital
resources to support the Company's anticipated long-term financing needs.
OTHER MATTERS
The United States Attorney's Office for the Central District of California
is conducting an investigation (the "Federal Investigation") of Medaphis'
billing and collection practices in its offices located in Calabasas and
Cypress, California (the "Designated Offices"). Medaphis first became aware of
the Federal Investigation when it received search warrants and grand jury
subpoenas on June 13, 1995. Although the precise scope of the Federal
Investigation is not known at this time, Medaphis believes that the U.S.
Attorney's Office is investigating allegations of billing fraud and that the
inquiry is focused upon Medaphis' billing and collection practices in the
Designated Offices. Numerous federal and state civil and criminal laws govern
medical billing and collection activities. In general, these laws provide for
various fines, penalties, multiple damages, assessments and sanctions for
violations, including possible exclusion from Medicare, Medicaid and certain
other federal and state healthcare programs. Although the Designated Offices
represent less than 2% of Medaphis' annual revenue, there can be no assurance
the Federal Investigation will be resolved promptly, that additional subpoenas
or warrants will not be received by Medaphis or that the Federal Investigation
will not have a material adverse effect upon Medaphis. The Company recorded a
charge of $12 million in 1995 for the administrative fees, costs and expenses
it anticipates incurring in connection with the Federal Investigation and the
putative class action lawsuits described below. The charge is intended to
cover only the anticipated administrative expenses of the Federal Investigation
and the lawsuits and does not include any provision for fines, penalties,
damages, assessments, judgments or sanctions that may arise out of such
matters.
Following the announcement of the Federal Investigation, Medaphis, various
of its officers and directors and the lead underwriters associated with
Medaphis' public offering of common stock in April 1995 were named as
defendants in putative shareholder class action lawsuits filed in the Federal
District Court for the Northern District of Georgia. In general, these
lawsuits allege violations of the federal securities laws in connection with
Medaphis' filings under the federal securities acts, including the registration
statement filed in connection with Medaphis' public offering of common stock in
April 1995. On October 13, 1995, the named plaintiffs in these lawsuits filed a
consolidated class action complaint (the "Consolidated Complaint"). On January
3, 1996, the court denied defendants' motion to dismiss the Consolidated
Complaint which argued that the Complaint failed to state a claim upon which
relief may be granted. On April 11, 1996, certain of the named plaintiffs to
the Consolidated Complaint voluntarily dismissed with prejudice all of their
claims. As a result of these dismissals, the Consolidated Complaint no longer
contains any claims based on the Securities Act of 1933, and the Company's
underwriters and outside directors are no longer named as defendants. The
Company believes that it has meritorious defenses to this action and intends to
assert them vigorously.
19
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders, held on May 1, 1996, the
stockholders of the Company voted to:
(a) elect the Company's Board of Directors: Randolph G. Brown,
Chairman (44,225,140 affirmative votes and 25,994 votes withheld);
Dennis A. Pryor, Vice Chairman (44,225,140 affirmative votes and
25,994 votes withheld); Robert C. Bellas, Jr., Director (44,225,140
affirmative votes and 25,994 votes withheld); John A. Downer,
Director (44,225,140 affirmative votes and 25,994 votes withheld);
David R. Holbrooke, MD., Director (44,225,140 affirmative votes and
25,994 votes withheld); and Richard H. Stowe, Director (44,225,140
affirmative votes and 25,994 votes withheld);
(b) approve an amendment to the Company's Amended and Restated
Certificate of Incorporation pursuant to which the number of shares
of Common Stock of the Company that the Company would be authorized
to issue would be increased from 100,000,000 shares to 200,000,000
(41,440,836 affirmative votes, 2,688,072 negative votes and 122,226
abstentions);
(c) approve an amendment to the Company's Amended and Restated
Non-qualified Stock Option Plan (the "Stock Option Plan") to increase
the number of shares of Common Stock reserved for issuance under such
Stock Option Plan from 6,456,456 to 7,956,456 and to approve certain
other amendments to such plan (34,682,236 affirmative votes,
9,368,345 negative votes, 131,876 abstentions and 68,677 broker
no-votes);
(d) approve the proposed Medaphis Employee Stock Purchase Plan
(43,684,644 affirmative votes, 373,524 negative votes, 124,289
abstentions and 68,677 broker no-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement, dated as of March 15,
1996, by and among Registrant, BSGSub, Inc. and
BSG Corporation (incorporated by reference to
Exhibit 2.1 to Registration Statement on Form S-4,
file No. 333-2506).
2.2 Merger Agreement, dated as of March 12,
1996, by and among Registrant, Rapid Systems
Solutions, Inc. and RipSub, Inc. (incorporated by
reference to Exhibit 2.19 to Annual Report on Form
10-K for the year ended December 31, 1995, File
No. 000-19480).
20
<PAGE> 21
3.1 Amended and Restated Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.1 of Registrant's
Registration Statement on Form S-1, File No.
33-42216).
3.2 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period Ended
March 31, 1993).
3.3 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form 8-A/A, filed on
March 28, 1995).
3.4 Certificate of Amendment of Amended and
Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 4.4
to the Registration Statement on Form S-8, File No.
333-03213).
3.5 Amended and Restated By-Laws of Registrant
(incorporated by reference to Exhibit 3.2 of
Registrant's 1992 Form 10-K, File No. 000-19480).
10.1 Form of Medaphis Corporation Employee Stock
Purchase Plan (incorporated by reference to Exhibit
10.19 of the Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 000-19480).
10.2 Fourth Modification of Amended and Restated
Credit Agreement among the Registrant and the Lenders
named therein, dated January 31, 1996 (incorporated
by reference to Exhibit 10.34 of the Annual Report
on Form 10-K for the year ended December 31, 1995,
File No. 000-19480).
10.3 Equipment Lease, dated January 31, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.61 of the Annual Report
on Form 10-K for the year ended December 31, 1995,
File No. 000-19480).
10.4 Equipment Lease dated February 29, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.62 of the Annual Report
on Form 10-K for the year ended December
31, 1995, File No. 000-19480).
21
<PAGE> 22
10.5 Medaphis Corporation Re-engineering,
Consolidation and Business Improvement Cash
Incentive Plan, dated February 21, 1996
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-4, File No.
333-2506).
10.6 Limited Partnership Agreement of Bertelsmann --
Imonics GMBH & Co. KG, dated March 13, 1996
(incorporated by reference to Exhibit 10.65 of the
Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 000-19480).
10.7 Agreement for Collection Services between
AssetCare, Inc. and Galen Health Care, Inc., dated
March 28, 1996.
10.8 Amendment No. 1 to the Master Equipment Lease
Agreement Intended for Security with Nationsbanc
Leasing Corporation of North Carolina, dated March
29, 1996.
11 Statement regarding Computation of Earnings Per
Share.
27 Financial Data Schedule (for SEC use only)
22
<PAGE> 23
(b) Reports on Form 8-K
The following reports on Form 8-K and 8-K/A have been filed by the Company
during the quarter ended March 31, 1996:
<TABLE>
<CAPTION>
Financial
Statements Date of File
Item Reported Filed Report Date
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisitions of MMS and the Receivables Yes (1) December 29, 1995 January 19, 1996
Management Division of Medquist, Inc.
and update of the status of outstanding
putative shareholder suits.
Restatement of quarterly consolidated Yes (2) February 8, 1996 February 12, 1996
statements of income of the Company to
give effect for the mergers with MMS
and Consort
Restatement of Supplemental Consolidated Yes (3) February 29, 1996 February 29, 1996
Financial Statements of the Company to
give effect for the merger with MMS
</TABLE>
(1) Financial Statements of MMS for the years ended December 31, 1994, 1993,
and 1992 (audited) and the Receivables Management Division of MedQuist,
Inc. for the year ended December 31, 1994 (audited) and the nine months
ended September 30, 1995 (unaudited) were filed.
(2) Supplemental Quarterly Consolidated Statements of Income of the Company
(unaudited) for each of the four quarters in the year ended December 31,
1995 were filed.
(3) Supplemental Consolidated Financial Statements of the Company (audited)
for the years ended December 31, 1994, 1993, and 1992 were filed.
- - ---------------------------------------------
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
MEDAPHIS CORPORATION
--------------------------------
(Registrant)
Date: May 14, 1996 /s/ Michael R. Cote
------------ --------------------
Michael R. Cote
Senior Vice President - Finance,
Chief Financial Officer and
Assistant
Secretary
Date: May 14, 1996 /s/ James S. Douglass
------------ ----------------------
James S. Douglass
Vice President - Corporate
Controller and Chief Accounting
Officer (Principal Accounting
Officer)
</TABLE>
24
<PAGE> 25
Index to Exhibits
- - --------------------------------------------------------------------------------
Exhibit Page No.
------- --------
2.1 Merger Agreement, dated as of March 15,
1996, by and among Registrant, BSGSub, Inc. and
BSG Corporation (incorporated by reference to
Exhibit 2.1 to Registration Statement on Form
S-4, file No. 333-2506).
2.2 Merger Agreement, dated as of March 12,
1996, by and among Registrant, Rapid Systems
Solutions, Inc. and RipSub, Inc. (incorporated by
reference to Exhibit 2.19 to Annual Report on
Form 10-K for the year ended December 31, 1995,
File No. 000-19480).
3.1 Amended and Restated Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.1 of Registrant's
Registration Statement on Form S-1, File No.
33-42216).
3.2 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3 of Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period
Ended March 31, 1993).
3.3 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form 8-A/A, filed on
March 28, 1995).
3.4 Certificate of Amendment of Amended and
Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-8, File No.
333-03213).
3.5 Amended and Restated By-Laws of Registrant
(incorporated by reference to Exhibit 3.2 of
Registrant's 1992 Form 10-K, File No. 000-19480).
10.1 Form of Medaphis Corporation Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 10.19 of the Annual Report on Form
10-K for the year ended December 31, 1995, File
No. 000-19480).
25
<PAGE> 26
10.2 Fourth Modification of Amended and Restated
Credit Agreement among the Registrant and the Lenders
named therein, dated January 31, 1996
(incorporated by reference to Exhibit 10.34 of the
Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 000-19480).
10.3 Equipment Lease, dated January 31, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.61 of the Annual Report
on Form 10-K for the year ended December
31, 1995, File No. 000-19480).
10.4 Equipment Lease dated February 29, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.62 of the Annual Report
on Form 10-K for the year ended December
31, 1995, File No. 000-19480).
10.5 Medaphis Corporation Re-engineering,
Consolidation and Business Improvement Cash
Incentive Plan, dated February 21, 1996
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-4, File No.
333-2506).
10.6 Limited Partnership Agreement of Bertelsmann
-- Imonics GMBH & Co. KG, dated March 13, 1996
(incorporated by reference to Exhibit 10.65 of the
Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 000-19480).
10.7 Agreement for Collection Services between
AssetCare, Inc. and Galen Health Care, Inc., dated
March 28, 1996.
10.8 Amendment No. 1 to the Master Equipment Lease
Agreement Intended for Security with Nationsbanc
Leasing Corporation of North Carolina, dated March
29, 1996.
11 Statement regarding Computation of Earnings Per
Share.
27 Financial Data Schedule (for SEC use only)
26
<PAGE> 1
EXHIBIT 10.7
AGREEMENT FOR COLLECTION SERVICES
BETWEEN
ASSETCARE, INC.
AND
GALEN HEALTH CARE, INC.
DATED
MARCH 28, 1996
<PAGE> 2
AGREEMENT FOR COLLECTION SERVICES
THIS AGREEMENT by and between GALEN HEALTH CARE, INC., an indirect
subsidiary of COLUMBIA HEALTHCARE CORPORATION, a Delaware corporation
(hereinafter, "Columbia"), by and on behalf of itself and its managed
affiliated and subsidiary corporations (hereinafter, "Columbia Manager") and
ASSETCARE, INC., a Georgia corporation (hereinafter, "AssetCare") is entered
into this 28th day of March 1996.
WHEREAS, it is to the parties' mutual advantage to enter into an
arrangement for the collection of unpaid patient accounts receivable assigned
to AssetCare by Columbia affiliated hospitals (each a "Facility" and
collectively the "Facilities");
THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. Services. AssetCare agrees to undertake the collection of certain patient
accounts receivable (the "Accounts") placed with AssetCare by the Columbia
Manager. AssetCare will use due diligence and employ such lawful means,
methods and procedures as in its judgment, discretion and experience it
believes will best effectuate the collection of the Accounts in accordance with
the terms and conditions of this Agreement (the "Services"). In addition,
AssetCare will use its best efforts to perform the Services in a manner that
will minimize patient complaints regarding such Services.
2. Monthly Fee.
(a) In consideration for the Services, Columbia will pay AssetCare a
contingency fee in an amount equal to a percentage of all monies actually
collected and received on the Accounts during the previous month (the "Monthly
Fee"), such percentage to be determined on a per Facility basis in accordance
with the following schedule:
<TABLE>
<CAPTION>
Fee Percentage for
Percentage of Total Dollar Fee Percentage for Accounts Referred
Volume Placements From Facility Standard Accounts for Legal Action
-------------------------------- ------------------ ------------------
<S> <C> <C>
50% (minimum) 14.45% 24.9%
100% 14.35% 24.9%
</TABLE>
(b) The Monthly Fee, any court costs advanced by AssetCare and any
interest or other charges incidental to the principal amount of the Accounts
(the "Net Amounts") will be deducted each month from those amounts remitted
directly to AssetCare, with the remaining balance of such remittances to be
forwarded to the Columbia Manager on the fifteenth (15th) day of the month
immediately following the month in which the collections to which the Monthly
Fee pertains were received by AssetCare. In the event that the Net Amounts in
any month exceed the amounts remitted to AssetCare for such month, AssetCare
will credit the entire amount of remittances against the Net Amounts and deduct
the remainder from remittances for the next month.
3. Term and Termination.
(a) The initial term of this Agreement (the "Initial Term") will commence
on April 15, 1996 (the "Effective Date"), and will continue until terminated in
accordance with the terms and conditions of this Agreement. Within ten (10)
days of the date of execution of this Agreement, AssetCare will provide to
Columbia an agreement executed on behalf of Medaphis Corporation, AssetCare's
ultimate parent corporation, guaranteeing the obligations of AssetCare created
by this Agreement, which agreement will be in form and substance acceptable to
the parties.
(b) This Agreement may not be terminated without cause during the first
twelve (12) months of the Guaranty Period (as defined below) or the Extension
(as defined below). This Agreement may be terminated by either party
1
<PAGE> 3
without cause after the first twelve (12) months of the Guaranty Period or the
Extension, upon thirty (30) days' prior written notice to the other party;
provided, however, that upon any such termination without cause during the
Guaranty Period or the Extension, the terminating party will pay the other
party, in cash, a lump sum termination penalty in the amount of One Million
Dollars ($1,000,000), said sum representing liquidated damages and not a
penalty.
(c) Either party will have the right to terminate this Agreement
immediately upon written notice to the other if (i) the other party defaults on
any of its obligations under this Agreement and such party has not begun to
cure such default within thirty (30) days after written notice of such default
is delivered and does not pursue such cure to completion; (ii) a court having
appropriate jurisdiction enters a decree or order for relief in respect of the
other party in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, and such case is not dismissed
within thirty (30) days; or (iii) the other party commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect
(d) Upon any termination of this Agreement in accordance with the terms
and conditions hereof (other than pursuant to Sections 3(c)(ii) or (iii)
above), AssetCare will be entitled to continue to perform the Services with
respect to those Accounts placed with AssetCare prior to the date of such
termination for a period of one hundred fifty (150) days; provided, however,
that AssetCare will continue providing Services with respect to Accounts that
have been referred to an attorney for legal action and Accounts with respect to
which payment arrangements are being met according to agreed upon terms. In
addition, if this Agreement is terminated by either party during the Guaranty
Period or the Extension, the guaranty and bonus provisions set forth in Section
4 below will continue in force with respect to the Guaranteed Accounts (as
defined below) placed with AssetCare prior to the date of termination.
4. Net Back Guaranty.
(a) Initial Guaranty - AssetCare will guarantee to Columbia a Net Back
Return Rate equal to nine and one-tenth percent (9.1%) with respect to Accounts
placed with AssetCare during the Guaranty Period (the "Guaranteed Accounts").
"Net Back Return Rate" will mean the percentage determined by dividing (i) all
monies collected with respect to the Guaranteed Accounts through the
Reconciliation Date, less the Monthly Fees paid or owing to AssetCare with
respect to such collections, by (ii) the aggregate face value of the Guaranteed
Accounts. "Guaranty Period" will mean the period commencing on the Effective
Date and continuing through the end of the twenty-four (24) month period that
commences one hundred and twenty (120) days after the first (1st) month in
which AssetCare receives Twenty-five Million Dollars ($25,000,000) in Account
placements. "Reconciliation Date" will mean the date that is one hundred fifty
(150) days after the end of the Guaranty Period.
(b) Placement Adjustments - The following Accounts will not be included in
the definition of Guaranteed Accounts or any calculations made with respect to
the Net Back Return Rate:
(i) Accounts that the Facility is authorized to recall pursuant to the
Columbia Facility Account Recall Policies and Procedures attached
hereto as Exhibit A;
(ii) Accounts that are legally uncollectible for reasons that may
include, but are not limited to, Medicare allowances, bankruptcy,
Medicaid residual balances, third party discounts, contractual
allowances, audit write-offs, past statute of limitations, and amounts
relieved pursuant to a release executed by the Facility;
(iii) Accounts with respect to which the debtor is deceased and there
are no assets or an estate or other liable party;
(iv) Accounts that are classified by AssetCare as charity or indigent
accounts within ninety (90) days of placement, to the extent such
classification does not conflict with any Columbia policy relating to
charity or indigent accounts;
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<PAGE> 4
(v) Accounts that are written-off for administrative reasons,
including Accounts with respect to which a request not to contact has
been received, but which do not warrant legal action, and Accounts
with respect to which a debtor complaint has been received; and
(vi) Accounts with respect to which the Facility fails to provide
information necessary to AssetCare's performance of the Services
within sixty (60) days of AssetCare's request therefor, unless
AssetCare otherwise is allowed access to such information.
AssetCare will provide the Columbia Manager with reports on a monthly basis
identifying (A) those charity and indigent Accounts that are excluded pursuant
to clause (iv) above, and (B) those Facilities, by division, that have placed
Accounts that are excluded pursuant to clause (vi) above.
(c) Change in Legislation - In the event of any change in legislation or
Columbia's business after the date of this Agreement which either party, in the
exercise of reasonable discretion, determines alters substantially the
assumptions upon which the Monthly Fee or the guaranteed Net Back Return Rate
was based, such party may propose a change in the Monthly Fee and/or the
guaranteed Net Back Return Rate that is reasonably related to such change in
assumptions. In addition, in the event AssetCare, in the exercise of
reasonable discretion, determines that any such change in legislation or
Columbia's business materially affects AssetCare's ability to perform the
Services in accordance with the Guidelines (as defined below), AssetCare may,
at its option, propose a change in the Monthly Fee and/or the guaranteed Net
Back Return Rate that is reasonably related to such change.
(d) Projections and Escrow - At the end of each six (6) month period
during the Guaranty Period, AssetCare will compare the Net Back Return Rate as
of the date of determination to the targeted Net Back Return Rate for such
date, and using the model attached as Exhibit B determine the projected Net
Back Return Rate for the Guaranty Period. If any such projection indicates
that AssetCare will be required under the guaranty to pay to Columbia One
Million Dollars ($1,000,000) or more, this amount (i.e., the amount that
AssetCare would be required to pay to Columbia) will be deposited into an
escrow account established by AssetCare with an escrow agent approved by the
Columbia Manager (the "Escrow Account"). Funds deposited into the Escrow
Account will remain on deposit until (i) a projection indicates that the amount
AssetCare will be required to pay to Columbia under the guaranty is less than
One Million Dollars ($1,000,000), or it is determined that Columbia is not
entitled to receive from AssetCare any amounts under the guaranty, at which
time the funds will be released to AssetCare, or (ii) it is determined that
Columbia is entitled to receive from AssetCare amounts payable under the
guaranty, at which time the funds will be released to the Columbia Manager up
to the amount AssetCare is required to pay to Columbia under the guaranty, with
the remainder to be released to AssetCare.
(e) Acquisition or Sale of a Facility - In the event that Columbia
purchases a Facility that places an average of One Million Dollars
($1,000,000.00) of accounts receivable per month with third parties for the
performance of primary collection services during the final twelve (12) months
of the Guaranty Period, AssetCare may, at its option, elect to exclude such
Accounts from the definition of Guaranteed Accounts or any calculations made
with respect to the Net Back Return Rate. AssetCare will also have the right
to exclude from the definition of Guaranteed Accounts or any calculations made
with respect to the Net Back Return Rate, any Accounts placed with AssetCare by
any Facility that is purchased by Columbia during the last six (6) months of
the Guaranty Period. In addition, in the event that Columbia sells any
Facility that has placed Accounts with AssetCare and in connection with such
sale Accounts are transferred to the purchaser of the Facility, AssetCare may,
at its option, elect to exclude such transferred Accounts from the definition
of Guaranteed Accounts or any calculations made with respect to the Net Back
Return Rate. Notwithstanding the foregoing, any Accounts that are excluded
from the definition of Guaranteed Accounts or any calculations made with
respect to the Net Back Return Rate pursuant to this Section 4(e), will remain
subject to all other terms and conditions of this Agreement with respect to the
collection of such Accounts.
(f) Payment of Guaranty or Bonus - On the Reconciliation Date, the actual
Net Back Return Rate will be compared to the guaranteed Net Back Return Rate
(i.e., 9.1%), and (i) if it is less than the guaranteed Net Back Return
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Rate, AssetCare will pay to Columbia an amount equal to the product of (A) the
guaranteed Net Back Return Rate less the actual Net Back Return Rate,
multiplied by (B) the aggregate face value of the Guaranteed Accounts, and (ii)
if it is ten and one-tenth percent (10.1%) or greater, Columbia will pay to
AssetCare a bonus equal to a percentage of the total monies collected through
the Reconciliation Date with respect to the Guaranteed Accounts for all
Facilities taken as a whole, such percentage to be determined in accordance
with the following schedule:
<TABLE>
<CAPTION>
Net Back Return Rate Bonus Percentage
-------------------- ----------------
<S> <C>
10.1%-11.0% 1%
11.1%-12.0% 2%
12.1%-13.0% 3%
13.1% or greater 4%
</TABLE>
In the event a bonus is owing to AssetCare, AssetCare will provide the Columbia
Manager with an invoice, prorated by Facilities placing Accounts, for such
bonus and Columbia agrees that the bonus will be paid to AssetCare within
thirty (30) days of the date of invoice. In addition, in the event the actual
Net Back Return Rate is equal to or greater than the guaranteed Net Back Return
Rate, AssetCare will pay to Columbia an amount equal to fifty percent (50%) of
the interest incidental to the principal amount of the Accounts that was
collected by AssetCare through legal proceedings during the Guaranty Period.
In the event AssetCare is obligated to pay any amounts to Columbia pursuant to
this Section 4(f), AssetCare will be entitled to retain any such interest.
(g) Extension - In the event that on the Reconciliation Date the actual
Net Back Return Rate is equal to or greater than the guaranteed Net Back Return
Rate (i.e., 9.1%), the parties may, upon mutual agreement, within thirty (30)
days of the Reconciliation Date, elect to extend the guaranty provisions for an
additional term of twenty-four (24) months (the "Extension"), during which
AssetCare will guarantee to Columbia a Net Back Return Rate equal to the sum of
(i) the Net Back Return Rate as of the Reconciliation Date, up to ten and
one-tenth percent (10.1%), plus (ii) one-half (1/2) of the amount by which the
actual Net Back Return Rate exceeds ten and one-tenth percent (10.1%). For
example, if the Net Back Return Rate on the Reconciliation Date is ten and
seven-tenths percent (10.7%), the guaranteed net back return rate during the
Extension will be ten and four-tenths percent (10.4%), which is the sum of (i)
ten and one-tenth percent (10.1%), plus (ii) three-tenths of one percent
(0.3%) (one-half (1/2) of the amount by with the actual Net Back Return Rate
exceeds ten and one-tenth percent (10.1%)). Other than the Net Back Return
Rate guaranteed, all of the other terms and conditions set forth in subsections
(a), (b), (c), (d), (e), and (f) above regarding the determination of the
guaranty and the bonus will apply during the Extension. For purposes of
determining those percentages applicable to the bonus calculation, the initial
threshold for a bonus will be one percentage point (1%) greater than the Net
Back Return Rate guaranteed during the Extension, and all other thresholds set
forth in the schedule of bonus percentages set forth in subsection (e) above
will be increased proportionately. In addition, for purposes of calculating
the guaranty or bonus during the Extension, the Guaranty Period will be deemed
to be the period commencing on the day immediately following the initial
Guaranty Period and ending on the last day of the Extension.
5. Placements.
(a) During the Guaranty Period and the Extension, the Columbia Manager
will place with AssetCare for the performance of the Services not less than
fifty percent (50%) of the total dollar volume of the Facilities' individual
patient accounts receivable assigned to third parties for the performance of
primary placement collection services (i.e., those accounts receivable that
have not previously been assigned to a company utilizing a third party name for
primary placement collection services).
(b) The Columbia Manager will use its best efforts to place not less than
forty percent (40%) of the total dollar volume of placements required by
subsection (a) above during the first twelve (12) months of the final
twenty-four (24) months of the Guaranty Period or the Extension, as the case
may be.
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<PAGE> 6
(c) In order to effect the assignment of the volume of Accounts set forth
in subsection (a) above, the Columbia Manager will, through the issuance of a
company-wide policy, direct the Facilities to assign to AssetCare, or the
primary collection agency for that Facility:
(i) all one hundred percent (100%) self-pay Accounts for which there
have been no payments or promises to pay, no later than one hundred
fifty (150) days after the date of discharge of the patient to whom
the Account relates (excluding any Accounts with respect to which
payment arrangements have been made with the Facility or through
internal or external "early-out" programs);
(ii) all self-pay Accounts for which third party payments have been
received, no later than one hundred fifty (150) days after the last
such payment (excluding any Accounts with respect to which payment
arrangements have been made with the Facility or through internal or
external "early-out" programs); and
(iii) all self-pay Accounts with respect to which monthly payment
arrangements have been made, no later than sixty (60) days after the
patient's failure to make any such payment.
AssetCare will periodically provide the Columbia Manager with aged reporting by
Facility, which will be used by the Columbia Manager to monitor and enforce
this policy. The Columbia Manager will not assign any Account to AssetCare if
it knows there is no legal right to collect such Account.
(d) Account placements will be based (i) on a fifty percent (50%) alpha
split, or (ii) on an exclusive basis by Facility, so long as the collectibility
of Accounts placed with AssetCare is equal to or exceeds that of the accounts
receivable placed with other parties for the performance of primary placement
collection services, as determined on a group by group basis.
6. Remitting of Amounts Collected.
(a) Each remittance of collections will be accompanied by a detailed
description of the Monthly Fees deducted by AssetCare relative to the
collections remitted that month for each Account.
(b) The Columbia Manager will provide AssetCare with information on all
direct payments received by the Facilities on Accounts within ten (10) days of
receipt of such payments.
(c) Collections made by AssetCare, and remitted to the Columbia Manager,
on which a check is returned by the bank unpaid, will be reported on the
remittance advice as a negative payment and negative Monthly Fee. The Columbia
Manager will notify AssetCare when a check is returned by the bank unpaid on a
payment made directly to a Facility on which AssetCare has deducted the Monthly
Fee. AssetCare will list such returned checks on the next monthly remittance
advice as a negative payment and negative Monthly Fee.
(d) In no event will the Columbia Manager be required to pay a Monthly Fee
to AssetCare with respect to amounts received by the Facility during the period
of seven (7) business days following the assignment of an Account. AssetCare
will include all such payments on the next monthly remittance advice as "no
commission" collections. AssetCare will be entitled to the Monthly Fee with
respect to any amounts received by AssetCare during such seven (7) business day
period. In addition, AssetCare will be entitled to the Monthly Fee with
respect to all payments received during the period of seven (7) business days
following the return of any Account.
7. Return of Accounts.
(a) AssetCare will return to the Facilities:
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<PAGE> 7
(i) Accounts placed in error when AssetCare is so notified by the
Facility;
(ii) Accounts that are paid in full or that have a remaining unpaid
balance of less than the Facilities' small balance write-off amount
(which will not be less than $4.99);
(iii) Accounts that have been placed with AssetCare for one hundred
fifty (150) days; provided, however, that Accounts on which no
payments or promises to pay have been received within one hundred
twenty (120) days from either the date that the Account was placed
with AssetCare, or the date the last payment or promise to pay was
received, whichever is later, will be returned to the Facility at the
end of such one hundred twenty (120) day period; and
(iv) Accounts with respect to which it is determined that the debtor
is deceased and there are no assets or an estate or any other liable
party.
(b) Notwithstanding subsection (a) above, Accounts placed in litigation
will not be returned to the Facility until the litigation is settled and/or the
balance due is paid. In addition, Accounts that have been identified as
bankrupt will not be returned to the Facility until the bankruptcy proceedings
are completed or as otherwise directed by the Facility. A copy of the
bankruptcy notice will be provided to the Facility unless the Facility notified
AssetCare of the bankruptcy. Where there are assets and estate proceedings
have been or will be commenced within a reasonable period of time with respect
to a deceased debtor, AssetCare will not return the Account unless otherwise
requested by the Facility.
(c) Upon receipt by AssetCare of the Facility's request to return an
Account (regardless of whether litigation has been initiated), such Account
will be returned; provided, however, that if litigation has been initiated, the
Facility will assume responsibility for managing such litigation pursuant to
the prior arrangement between the attorney and AssetCare with respect to such
litigation.
(d) On a monthly basis, AssetCare will provide a magnetic tape detailing
the Accounts that are being canceled and returned and the appropriate reason
code as defined below:
Reason for Return
-----------------
01 - Uncollectible
02 - Canceled - Facility Request
03 - Paid in Full
04 - Payment activity indicated Account will not payout within two years
05 - Legal Account - Do not refer to Secondary Agency
06 - Uncollected - Special Handling
07 - Bankruptcy/Settled
08 - Deceased/No estate
(e) With respect to all Accounts that are required to be returned
hereunder and only when requested by the Facility in writing, AssetCare will,
at its own expense, document the status of the Account in sufficient detail so
that the Facility or another collection agency can determine the particular
actions taken on the Account while placed with AssetCare. AssetCare will also
indicate any special knowledge that it has gained with respect to particular
debtors or Accounts that may relate to collection methods to employ in order to
achieve maximum collection with respect to such Account.
(f) As Accounts are closed and returned to the Columbia Manager,
AssetCare will transmit Account information and other appropriate collection
information via magnetic media in AssetCare's standard format with respect to
Accounts to a secondary collection agency as directed by the Columbia Manager.
AssetCare agrees to
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<PAGE> 8
cooperate with the Facility in providing information with respect to the
Accounts which are returned to any secondary collection agency designated by
the Facility. This agreement includes cooperation after the Account has been
forwarded to a secondary collection agency with respect to communicating status
or answering questions of personnel of the Facility with respect to particular
Accounts; provided that such requests are reasonable and do not materially
interfere with the AssetCare's business activities.
8. Electronic Capabilities. AssetCare hereby represents that it has, or will
provide at its sole cost and expense, the technology required to provide the
Services including the following:
(a) AssetCare's offices are automated and the technology available to
AssetCare's employees is in conformance with the collection technology commonly
used in the industry.
(b) AssetCare has the means to develop an electronic interface with the
Facilities to (i) provide the Facilities with access to AssetCare's network via
computer modem or similar program so that any personnel at the Facility can
check, at any particular time, the status of any particular Account of that
Facility, and (ii) facilitate the transfer of payments between AssetCare and
the Facility with respect to the Accounts.
(c) AssetCare has available to it for use a "Predictive Dialer."
9. Work Plan/Standards. AssetCare has developed detailed collection
guidelines and philosophies in cooperation with and with the approval of the
Columbia Manager (the "Guidelines"), which are attached as Exhibit C.
AssetCare agrees that it will adhere to the Guidelines in its performance of
the Services; provided, however, that AssetCare will not adhere to Guidelines
if to so do would violate any federal, state or local statutes, regulations, or
ordinances affecting collection activities, including, without limitation, the
Fair Debt Collection Practices Act and the Fair Credit Reporting Act. No
changes will be made to the Guidelines without the written approval of the
Columbia Manager.
10. Party Representatives.
(a) Each of the parties will designate one person (the "Party
Representative") to be available during regular business hours to consult with
the other Party Representative with respect to service issues. The initial
Party Representative for AssetCare will be James F. Richards, its President,
and the initial Party Representative for Columbia will be Lisa Cobb its
Assistant Vice President, Operations Support. A Party Representative will not
be changed without the prior written consent of the other party, which consent
will not be unreasonably delayed, conditioned or withheld.
(b) Each of the parties will also designate individuals who will meet on a
quarterly basis, alternating between AssetCare's site and Columbia's site, to
review AssetCare's performance of the Services.
(c) Each Facility will designate one person to correspond and communicate
with AssetCare with respect to any questions that AssetCare or the Facility may
have with respect to any of the Accounts (the "Facility Representative") and
the Facility Representative will be the person to whom all reports and other
correspondence to the Facility are directed.
(d) AssetCare will provide to each Facility the name of one person to
correspond and communicate with the Facility with respect to any questions that
AssetCare or the Facility may have with respect to any of the Accounts (the
"Customer Service Representative") and the Customer Service Representative will
be the person to whom all correspondence to AssetCare from the Facility are
directed.
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<PAGE> 9
11. Insurance and Bonding. AssetCare will, at its sole cost and expense,
procure and maintain in full force and effect during the term of this
Agreement, the following insurance at the respective limits listed:
(a) Personal injury liability insurance, including contractual liability
($1,000,000);
(b) Workman's compensation and occupational disease insurance,
including employer's liability insurance (statutory limits);
(c) Automobile liability insurance for owned and non-owned vehicles
($1,000,000);
(d) Fidelity and crime insurance ($1,000,000); and
(e) Errors and omissions liability insurance ($1,000,000).
AssetCare agrees to furnish to the Columbia Manager upon request, certificates
evidencing the above coverage. All such certificates and policies will provide
that the insuring company will give the Columbia Manager thirty (30) days prior
written notice of any intent to cancel or to alter the coverage contained in
any of the above policies. AssetCare will demonstrate that it meets all
licensing, liability and bonding standards, if any, imposed by any particular
state in which a Facility or debtor is located.
12. Settlement Policy. AssetCare will not settle any Account without first
obtaining authorization for settlement from the Facility at which the Account
was generated. When an Account is settled and the settlement is fully paid,
AssetCare will return the Account to such Facility accordingly, the remaining
balance will be closed, and AssetCare will notify the Facility that the Account
was settled.
13. Legal Action.
(a) Columbia hereby authorizes AssetCare to initiate legal action or
proceedings to collect an Account without obtaining further specific
authorization or acknowledgment from Columbia, the Columbia Manager, or the
Facility. All legal actions instituted by AssetCare will be brought in the
name of the Facility, or where appropriate, in the name of AssetCare, and will
be subject to the additional terms of this Section.
(b) The Facility will be solely responsible for the payment of court costs
of any litigation to collect Accounts. AssetCare will apply amounts received
through litigation first to court costs and will return such amounts to the
Facility with the monthly remittance advice next following AssetCare's receipt
of such amounts. Any such court costs returned to the Facility will not be
included in any calculations made with respect to the Net Back Return Rate
(c) Necessary documentation required for litigation will be provided on
Accounts when requested by AssetCare.
(d) Any attorneys' fees and other expenses of litigation (excluding court
costs) relating to legal actions or proceedings are the sole responsibility of
AssetCare and AssetCare will at no time represent to any attorney hired by it
that the Facility will pay any attorneys' fees and such other expenses. The
parties hereby agree that the attorneys' fees are included within the
contingency fee to be paid for Legal Accounts.
(e) AssetCare will inform the Facilities of any Account that it intends to
forward to an attorney for legal action not less than fifteen (15) days prior
to such forwarding, and the Facility will have the right to request the return
of any such Account during such fifteen (15) day period.
14. Reports. AssetCare will provide the following reports in connection with
rendering the Services. The reports will set forth the required information in
the form provided by the Facility upon the commencement of the Initial Term or
as revised from time to time thereafter. AssetCare represents that the
information contained in each report will be true and accurate in all respects
and acknowledges and agrees that the information will be used by the Facility
to evaluate the quality of performance of the Services.
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<PAGE> 10
(a) Facility Reports. AssetCare will submit to each Facility the
following reports on or before the fifteenth (15) day of the month following
the end of the respective period requiring a report:
(i) An acknowledgment report setting forth the Accounts placed with
AssetCare;
(ii) A monthly summary of the status of placements, recoveries,
commissions, by month of placement, along with other management
information and statistics as agreed upon between AssetCare and the
Facility;
(iii) Upon request, a listing of Accounts that have been assigned to
AssetCare for six (6) months or more, on which no payment has been
received, and have not yet been returned to the Facility. AssetCare
will indicate the reason why such Accounts have not been returned to
the Facility.
(iv) A monthly listing of all Accounts being returned during such
month. These Accounts will be segregated by Medicare and
Non-Medicare, according to the reason for return. This report also
will show any Accounts returned at the Facility's request.
(b) Corporate Reports. AssetCare will submit to the Group Vice President,
Division Vice President and Business Office Support Services of Columbia (all
names and addresses of such persons and offices to be provided to AssetCare by
the Facility) the following reports on or before the fifteenth (15) day of the
month following the end of the respective period requiring a report:
(i) A monthly consolidated report by company, by group, by division,
and by Facility, covering all collection activity for Accounts placed
with AssetCare by the Columbia Manager. Such report will consolidate
all such information for all of the Facilities. In no event will such
report be provided to any Facility unless specifically approved by the
Group Vice President.
(ii) Upon the written request of the referenced personnel (or
offices), a monthly summary of the status of placements, recoveries,
commissions, by month of placement, along with other management
information and statistics similar to that required to be provided to
the Facilities under subsection (a)(ii), above except that this report
will consolidate all such information for all of the Facilities.
15. Facility Surveys. The Columbia Manager will cause each Facility to
complete and return to AssetCare a quality assurance survey prepared by
AssetCare to assist AssetCare in monitoring its performance of the Services
16. Credit Reporting. The Columbia Manager hereby authorizes AssetCare, in its
sole discretion and at its sole expense, to report Accounts to one or more
credit reporting services, in a manner consistent with the Guidelines and the
Fair Credit Reporting Act.
17. Training. As requested by the Columbia Manager, AssetCare will provide
education and training of Facility personnel at the sole cost and expense of
AssetCare (other than reasonable travel and lodging expenses approved by the
Columbia Manager in advance, for which AssetCare will be promptly reimbursed)
with respect to collection issues, including, without limitation, collection
training and legal updates.
18. Compliance with Laws and Procedures. AssetCare will perform the Services
in compliance with all federal, state and local statutes, regulations, and
ordinances affecting collection activities, including, without limitation, the
Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
19. Taxes. All taxes and other levies in the nature of sales, use or excise
taxes resulting from the Services provided hereunder will be the sole
responsibility of Columbia. Columbia will have no responsibility for taxes
levied upon or assessed against or with respect to the income of AssetCare.
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<PAGE> 11
20. Confidentiality. AssetCare agrees to maintain strict confidentiality of
all files, data, and any other materials provided by Columbia to AssetCare, and
will restrict the use thereof by its employees, and agents, solely to the
purposes provided under this Agreement and will utilize such files, data, or
other materials in no other manner. Without limiting the foregoing, AssetCare
agrees not to divulge or use any of such information for purposes of analyzing
claims data.
21. Omnibus Reconciliation Act. To comply with Section 952 of the Omnibus
Reconciliation act of 1980 (Public Law 96, 499) and regulations thereunder,
AssetCare hereby agrees to make available to the Secretary of Health and Human
Services ("HHS"), the Comptroller General of the Government Accounting Office
("GAO"), or their authorized representatives, all contracts, books, documents
and records relating to the nature and extent of the costs hereunder for a
period of four (4) years after the furnishing of services hereunder. In
addition, AssetCare hereby agrees, if services are to be provided by
subcontract with a value of $10,000 or more over a twelve (12) month period
with a related individual or organization, to require by contract that such
subcontractor make available to HHS and GAO or their authorized representatives
all contracts, books, documents and records relating to the nature and extent
of the costs thereunder for a period of four (4) years after the furnishing of
services thereunder.
22. Indemnification. AssetCare hereby covenants and agrees to indemnify and
hold harmless Columbia, the Columbia Manager and the Facilities, their
successors and assigns, from and against all damage, costs, loss and expense
arising out of, in connection with or pursuant to this Agreement, including,
but not limited to, any reasonable attorney's fees, that the Columbia Manager
or any Facility may suffer or incur to the extent such damage, costs, loss or
expense is caused by the negligent acts or omissions of AssetCare. The
Columbia Manager represents that the information furnished to AssetCare
regarding the identity of the debtors, the balance of the Accounts and the
payments and credits due the Facilities will be accurately taken from the
Facilities' books and records. The Columbia Manager hereby covenants and
agrees to indemnify and hold harmless AssetCare, its successors and assigns,
from and against all damage, costs, loss and expense including, but not limited
to, any reasonable attorney's fees, that AssetCare may suffer or incur to the
extent such damage, costs, loss or expense is caused by the inaccuracy of the
foregoing representation.
23. Disclaimer of Warranties. In no event will AssetCare be liable for lost
profits or other incidental or consequential damages or for the
uncollectability of any Account under any circumstances.
24. Audits. Account records at AssetCare's site and other related materials
generated by AssetCare or the Facility may be reviewed by the Columbia Manager
at AssetCare's site for purposes of verification and audit no more than once
per calendar year unless the Facility believes a special audit is required.
AssetCare may review any Account information at the Facility for purposes of
verification, and reconciliation, upon ten (10) days' prior written notice to
the Facility, no more than twice per calendar year. All verification and
reconciliation will be conducted during normal business hours in a manner so as
not to unduly disrupt operations.
25. Independent Contractor. AssetCare will perform the Services as an
independent contractor and will not be deemed to be a joint venturer, partner,
employee or agent of Columbia. Neither party will have any authority to bind
the other without the other's express written consent and then only insofar as
such authority is conferred by such express written consent.
26. Assignment. Neither party will assign this Agreement without the prior
written consent of the other, which consent will not by unreasonably delayed,
conditioned or withheld; provided, however, that each party hereby consents to
any assignment to an affiliate of such party; and further provided, however,
that AssetCare hereby consents to any assignment to a successor of the Columbia
Manager due to acquisition, merger, consolidation or reorganization.
27. Governing Law. This Agreement will be governed by the laws of the State of
Tennessee.
10
<PAGE> 12
28. Notices and Consents. Notices to be given hereunder will be given by U.S.
Mail, postage prepaid, certified mail, return receipt requested to:
If to Columbia:
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37202
Attn.: Mr. James Fitzgerald, Jr., Vice President, Operations Support
with a copy to:
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37202
Attn.: Columbia Legal Department
If to AssetCare:
AssetCare, Inc.
2700 Cumberland Parkway, Ste. 300
Atlanta, Georgia 30339
Attn.: Mr. James F. Richards, President
with a copy to:
Medaphis Corporation
2700 Cumberland Parkway, Ste. 300
Atlanta, Georgia 30339
Attn.: General Counsel
29. Counterparts. This Agreement may be executed in duplicate originals which
will constitute one Agreement.
30. Miscellaneous. This Agreement is the entire agreement between the parties
relating to the subject matter hereof and is binding upon and will inure to the
benefit of their successors and permitted assigns. This Agreement supersedes
all prior written and oral agreements and understandings between AssetCare and
Columbia pertaining to the collection of patient accounts receivable for the
Facilities; provided however, that all placements of accounts with AssetCare
prior to the date hereof under any existing agreement with any Facility that
remain in effect as of the date hereof will be governed by the terms of any
such existing agreements until such time as said outstanding placements are
returned to the Facility, collected, settled or otherwise resolved in
accordance with the terms of such agreements. This Agreement can only be
modified by written instrument executed by the party against whom enforcement
of such modification is sought. The non-exercise or non-waiver of any right
under this Agreement will not adversely affect any subsequent exercise of the
same right or any right for the same or subsequent breach or threatened breach.
11
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
ASSETCARE, INC.
(CORPORATE SEAL)
By: /s/ Dennis R. Byerly
------------------------------------------------------
Dennis R. Byerly, Chairman and Chief Executive Officer
Attest: /s/ Peggy Sherman
-------------------
Title: Assistant Secretary
-------------------
GALEN HEALTH CARE, INC.
(CORPORATE SEAL)
By: /s/ James Fitzgerald, Jr.
------------------------------------------------------
Title: Vice President
------------------------------------------------------
Attest: /s/ Peggy Sherman
-------------------
Title: Assistant Secretary
-------------------
12
<PAGE> 14
EXHIBIT A
COLUMBIA FACILITY ACCOUNT RECALL/RETURN POLICY
- - --------------------------------------------------------------------------------
I. Grace Period
A. Policy - To allow for payments generated by the facility prior
to placement, a seven (7) business day (Monday - Friday) grace
period has been established on all payments received at the
facility. All payments received at the facility within seven
(7) business days from the assigned date will be generated as
a non-commission payment.
Procedure - The agency will validate all payments received
from the facilities against the assigned date of the account.
Any direct payments received within the allocated grace period
will be generated as a non-commission transaction to correct
affect the balance.
B. Policy - Payments received at the agency location will be
commission transactions.
C. Policy - To allow for payments generated by the agency, a
grace period of seven (7) business days from the cancellation
date has been established.
Procedure - The agency will validate the date paid against the
date canceled prior to generating a commission transaction.
II. Paid/Settled
A. Policy - Accounts that have been paid in full, carrying a
credit balance, or have a remaining balance of $4.99 or less
will be returned via the cancellation tape as paid in full.
Procedure - Set system parameters to comply with policy.
Cancel back to client with cancellation code "03 Paid in
full".
B. Policy - Accounts that have paid the settlement amount will be
reported as settled in full, carrying a zero balance and
indicating the dollar amount to write off.
Procedure - Settlement accounts will have a settlement flag
which will zero the balance on our system, report the write
off amount on the cancellation tape and notify the credit
bureau of the settlement. Cancel back to client with
cancellation code "07 settled".
<PAGE> 15
EXHIBIT A
- - --------------------------------------------------------------------------------
III. Not Legally Collectable
A. Policy - Accounts that are determined not legally collectible
will be returned to the facility as a recall. These types of
accounts may include but not be limited to:
1. Medicare Allowances
2. Bankruptcy
3. Medicaid residual balances (where applicable)
4. Third party discounts
5. Contractuals
6. Audit write offs
7. To late to file claim
Procedure - Accounts identified as not legally collectible
will be returned on the cancellation tape as code "06"
Uncollected - Special Handling and will be handled as a
recall.
IV. Deceased/No estate
A. Policy - If an estate is not present and all other avenues
have been exhausted, these accounts will be canceled using
code "08" - Deceased/No estate" and be considered a recall.
V. Charity Write Off
A. Policy - An account is determined to be charity by the
facility or the agency for one of the following reasons,
based on criteria established by the facility.
1. Indigent
2. Institute
3. Hardship
Procedure - These accounts will be validated by a member of
management and canceled using cancellation code "06 -
Uncollected - Special Handling".
<PAGE> 16
EXHIBIT A
- - --------------------------------------------------------------------------------
VI. Administrative Write Off-Facility Request
A. Policy - In the event it is necessary to recall an account for
an administrative write off, the account will be canceled
using code "02- Facility Request". These reasons could include
but not be limited to:
1. Letter of no contact received from the debtor or
debtor's attorney, account not suit worthy.
2. Dissolving the balance due to administrative
complain/decision.
3. Doctor or VIP as patient.
4. Threat of legal action due to quality of medical
care.
Procedure - The facility should contact their designated
"Client Service Representative" with the necessary data to
properly close and return the account. The Customer Service
Representative will be responsible to ensure that the Recall
Form is completed and the account is appropriately statused to
return to the facility.
VII. Efforts Exhausted
A. Policy - Accounts that have not received a payment or a
promise to pay within 150 days from the assign date or the
date of the last payment or promise to pay, whichever is
later, shall be returned to the facility at the end of 150
days. Litigation/Suit pending is the exception to this policy.
B. Procedure - The system parameter shall be set on each
Columbia/HCA facility to ensure that all accounts not in
litigation and without payment or promise data at the end of
150 days will be automatically canceled using cancellation
code "01 - Uncollectable".
VIII. Hold Collection Action
A. Policy - The facility shall call the agency at any time to
request a "Hold" be put on any account. The most common
reasons are:
1. Dispute/Researching account
2. Rebilling third Party Insurance
3. Payment Arrangements Approved by the facility
Procedure - A Client Hold form should be completed stating the
reason for the hold. The account must be fully documented to
comply with the nature and duration of the client hold.
<PAGE> 17
EXHIBIT B
Agreed-Upon Liquidation Schedule
(GRAPH)
<TABLE>
<CAPTION>
Liquidation Liquidation Liquidation
Month Monthly Cumulative Month Monthly Cumulative Month Monthly Cumulative
----- ------- ---------- ----- ------- ---------- ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 4.4% 4.4% 11 2.6% 70.6% 21 1.6% 93.4%
2 9.5% 14.0% 12 2.6% 73.3% 22 1.3% 94.6%
3 12.1% 26.0% 13 2.6% 75.9% 23 1.1% 95.7%
4 10.0% 36.1% 14 2.6% 78.4% 24 0.9% 96.6%
5 7.8% 43.9% 15 2.6% 81.0% 25 0.8% 97.4%
6 6.1% 50.0% 16 2.5% 83.6% 26 0.6% 98.0%
7 5.6% 55.6% 17 2.4% 85.9% 27 0.5% 98.5%
8 4.9% 60.5% 18 2.1% 88.0% 28 0.5% 99.0%
9 4.1% 64.6% 19 1.9% 90.0% 29 0.5% 99.5%
10 3.4% 68.0% 20 1.8% 91.8% 30 0.5% 100.0%
</TABLE>
<PAGE> 18
EXHIBIT C
COMPREHENSIVE WORK PLAN/STANDARDS
- - --------------------------------------------------------------------------------
DEDICATED COLUMBIA/HCA WORK GROUPS
AssetCare has established a dedicated Columbia/HCA Manager and team of
collectors at each of the work locations as outlined under our field locations.
We absolutely believe that specialized teams and focused managers will maximize
our overall return for each hospital.
<PAGE> 19
COMPREHENSIVE WORK PLAN FOR THE COLLECTION OF COLUMBIA ACCOUNTS
At the end of the Work Plan, we have included a corresponding flowchart.
Upon loading the Hospital's accounts into AssetCare's collection systems, the
following activities will take place.
A. An initial notice will be sent to all accounts notifying the patient
that their account has been placed with AssetCare for collection.
This notice also informs the patient of their rights as described by the Fair
Debt Collection Practices Act. All notices will be sent out within 72 hours of
the account being placed.
B. After the initial notice is sent, the account will be placed in a
"Strategic Account Area".
The Strategic Account Areas are as follows:
1. Letters Only ($0-$50) = This area is designed for accounts with
balances under $50.00. This effectively allows us to liquidate these
accounts, via the combination of outgoing letters and the handling of
inbound telephone calls.
2. Predictive Dialer Low Balance ($50-$200)
3. Predictive Dialer Medium Balance ($201-$450)
4. Predictive Dialer Large Balance ($451-$750)
This area is designed for working accounts through the use of our ITC
Predictive Dialer.
These accounts are normally smaller balance self pay accounts that
through the use of the dialer, we can make more frequent attempts to
contact the patient, resulting in increased recovery. See the
Predictive Dialer Work Standards at the end of this section.
5. Large Balance ($751-over) = These accounts will go directly to our
Patient Collection representatives. Studies have shown that by clearly
defining our minimum expectations to our staff we greatly improve our
productivity level. Therefore, balances over $750 are routed directly
to our experienced Patient Collection Representatives and are broken
into three strategic areas with defined work standards and minimum
expectation requirements. Their mission is to immediately resolve the
account by:
* discovering third party reimbursement
* collecting the balance in full
* arranging the best possible payment terms
* locating assets to pursue litigation
To help our patient representatives meet our Work Standards, we also have 6
support units to assist in handling special areas of receivable management.
<PAGE> 20
1. Inbound/Skiptracing = This area is designed to handle inbound calls
from our predictive dialer as well as working with the patient
representatives by researching and documenting information in order to
help locate a patient. Experience has proven that having nearbys and
same last name electronically reproduced on accounts produce the best
results.
2. PPA = This area is designed to monitor and ensure that patients who
are set up on weekly or monthly payments fulfill their obligation on a
timely basis.
3. Billing = Our collection systems have electronic billing capabilities.
As we discover and verify third party coverage, we key the claim into
the terminal that edits the claim so that on-line corrections can be
made. The claim is then transmitted by modem to a clearing house for
appropriate distribution to all third party payors that will accept
electronic claims.
4. Claims Resolution = Over the years, AssetCare has received thousands
of medical accounts over $10,000 which were placed as self pay
accounts. Due to the balances involved, the majority of patients must
pay their accounts over an extremely long period of time by making
monthly payments.
AssetCare has developed a unique collection service to recover money
quickly on these larger balance accounts. We first determine if the
account was originally to be paid by a third party but was denied
benefits. If the claim was denied for what appears to be an
irrefutable reason our specialists work to overturn the denial and get
the third party insurance company to pay. Our Claims Analysts are
ex-claims managers from large insurance companies as well as
individuals with paralegal experience.
Some of the seemingly irrefutable denial reasons are:
- Pre-existing condition
- Medical necessity
- Maximum benefits paid
- Disputed coverage
- Psychiatric and chemical dependency limitations or exclusions
Upon receiving the account, our Claims Analysts will:
- Determine if the third party can substantiate the denial
- File a formal appeal
- If necessary, interpret medical records to establish a
position of challenge
- Ensure that the third party abides by the quoted benefits
<PAGE> 21
- Demand that the claim action be reviewed by the third party
attorney for conformance to state statutes and case law
- Interpret third party contract language to reveal ambiguities
True self pay accounts produce a substantially lower return, although
these are very worthwhile recoveries as we discover previously unknown
coverage.
5. Legal = AssetCare has relationships with attorneys across the country
to provide legal services.
- Because the FDCPA stipulates giving the debtors thirty days to
dispute the debt, attorneys only file the law suit after the
30th day. Therefore, we instruct the attorney to file the law
suit within 45 days of receiving the account.
- When a request is made by the attorney for documents or a
witness, the legal department will make request from the
clients within 3 working days.
- When a debtor files an answer and includes the equivalent of a
counter-suit, or if a counter-suit is filed, the legal
department will request the attorney cease working the
account until the client has been notified of the pending
counter action. We will immediately contact the client and
inform them of the situation and ask for instructions.
- Once the account enters the court system, the time elements
are governed by state law. It is the responsibility of the
legal department to monitor the attorneys to insure that
pleadings and motions are filed and followed-up on in a timely
manner.
- In the event that post-judgment debt becomes uncollectible,
the attorney will place a lien on the debtor's real estate and
await further developments. (i.e. the debtor returning to work
of any other developments that would aid in acquiring funds
for the client)
<PAGE> 22
WORK STANDARDS
Our projected Work Standards Report for the handling of your receivables is
included on the following pages. These reports represent the "minimum"
requirements by strategic area. If a patient representative determines that
more work is needed to properly bring the account to a conclusion, this work is
expected to be done. These Work Standards are reviewed on a regular basis to
ensure the activity being required is producing the proper results.
<PAGE> 23
PREDICTIVE DIALER
WORK STANDARDS
Client Name: Columbia/HCA Healthcare
Client#: 123456789
Projected Account Breakout by Strategic Area
<TABLE>
<S> <C> <C> <C> <C>
Small Balance 5% = 4,000 # of accounts
Dialer 58% = 46,400 # of accounts
Low Balance 19% = 15,200 # of accounts
Medium Balance 9% = 7,200 # of accounts
Large Balance 8% = 6,400 # of accounts
Balance over 10K 1% = 800 # of accounts
=== ======
TOTAL 100% = 80,000 # of accounts
</TABLE>
Minimum Activity Requirements
<TABLE>
<CAPTION>
Dialer Dialer Dialer
Strategic Area Low Balance Medium Balance Large Balance
Balance Range $51-$200 $201-$450 $451-$750
<S> <C> <C> <C>
1st Activity Req. (days from plcmt) 5 3 2
Work Frequency (days) 14 10 7
# of Contacts 2 2 2
# of Notices 5 5 5
Notice Frequency (days) 21 21 21
Maximum File Size N/A N/A N/A
</TABLE>
Minimum Skiptracing Activity
<TABLE>
<S> <C> <C> <C>
Directory Assistance (411) Yes Yes Yes
Same Last Name (SLN) - # N/A Yes 3 Yes 5
Nearby's - # N/A Yes 3 Yes 5
Asset Search, CC, Library No No No
Credit Bureau Report No No No
Skiptracing completed by (days) N/A N/A N/A
</TABLE>
<PAGE> 24
COLUMBIA WORKPLAN
<TABLE>
<CAPTION>
Days Days Days Days Days
0 45 90 120 150
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
Acct Balances
$0-$50 21 Days C
L
Letter Letter O
#1 #2 S
E
- - ------------------------------------------------------------------------------------------------
&
Accounts Attempted Every 14 days
$51 - $200 Balance R
E
Accounts Loaded Accounts Attempted Every 10 days T
Predictive Dealer $201 - $450 Balance U
R
Accounts Attempted Every 7 days N
$451 - $750 Balance
- - ------------------------------------------------------------------------------------------------
Accounts called every 7 days, letter mailed every 21 days
$751 - $1500 Balance
AssetCare Accounts called every 7 days, letter mailed every 21 days
Regional Offices $1501 - $5000 Balance
Accounts called every 7 days, letter mailed every 21 days
$5001 + Balance
- - ------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
Claims Resolution
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Legal
---------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.8
MASTER EQUIPMENT LEASE AGREEMENT INTENDED FOR SECURITY
AMENDMENT NO. 1
THIS MASTER EQUIPMENT LEASE AGREEMENT INTENDED FOR SECURITY AMENDMENT
NO. 1, dated as of March 29, 1996, (the "Master Equipment Lease Amendment No.
1") is by and between:
MEDAPHIS CORPORATION, a Delaware corporation with its principal place
of business located in Atlanta, Georgia (the "Lessee"); and
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina
corporation with its principal place of business located in Charlotte, North
Carolina (the "Lessor").
RECITALS
A. The Lessee and Lessor entered into a Master Equipment Lease
Agreement Intended for Security dated as of May 31, 1995, (the "Lease").
B. The Lessee and Lessor desire to amend certain provisions of the
Lease as more specifically set forth hereinafter.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. The sixth sentence of SECTION 1 of the Lease is hereby amended to
read in its entirety as follows:
"The total Lessor's Cost of Equipment subject to this Lease
shall not exceed $27,000,000.00 (the "Total Commitment"), and no Lease
Commencement Date (as defined in paragraph 4 of a Lease Schedule) shall occur
after October 31, 1996 (the "Final Commencement Date")."
2. The seventh sentence of SECTION 1 of the Lease is hereby deleted in
its entirety.
3. The third sentence of SECTION 4 of the Lease is hereby amended to
read in its entirety as follows:
"For each Lease Schedule, the Lease Interest Rate shall be
indexed at one and sixty-five one hundredths percent (1.65%) over the
interpolated generic 1.7 year U.S. Treasury yield as quoted by the Dow
Jones/Telerate Inc. system at the opening of business in Charlotte, North
Carolina five (5) business days prior to the Lease Commencement Date for such
Lease Schedule."
<PAGE> 2
4. The address of Lessor in SECTION 18 of the Lease is hereby
amended to be as follows:
if to Lessor, at:
NationsBanc Leasing Corporation of North Carolina
NationsBank Plaza, NC1-002-38-20
101 South Tryon Street
Charlotte, North Carolina 28255
Attention: Manager, Corporate Lease Administration
Telephone: (704)386-7783
Telecopier: (704)386-0892
5. SECTION 23 of the Lease is hereby amended to read in its entirety
as follows:
"Lessee agrees, whether or not the transaction contemplated
hereby is consummated, to pay the reasonable expenses of Lessor, including but
not limited to the reasonable fees and expenses of Fennebresque, Clark, Swindell
& Hay, Lessor's special counsel, all filing and registration fees and all
appraisal costs incurred in connection with the preparation and negotiation of
this Lease and the documents related thereto, such expenses not to exceed
$45,000.00. In addition, Lessee agrees to pay Lessor's reasonable attorney's
fees and expenses with respect to any modification or enforcement of this Lease
or any provision thereof."
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto, as of the day and year above written,
have caused this Master Equipment Lease Amendment No. 1 to be executed in their
respective corporate names by their duly authorized officers.
MEDAPHIS CORPORATION
(Lessee)
By: /s/ Caryn Dickerson
---------------------------------
Name: Caryn Dickerson
-------------------------------
Title: VICE PRESIDENT/TREASURER
------------------------------
NATIONSBANC LEASING CORPORATION
OF NORTH CAROLINA
(Lessor)
By: /s/ M. Randall Ross
--------------------------------
Name: M. Randall Ross
-------------------------------
Title: SENIOR VICE PRESIDENT
-----------------------------
-3-
<PAGE> 1
EXHIBIT 11
MEDAPHIS CORPORATION
COMPUTATION OF PRIMARY PRO FORMA EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
DESCRIPTION 1996 1995
- - ---------------------------------------- ------- --------
<S> <C> <C>
Weighted average shares outstanding
during the period 55,635 43,812
Shares issuable upon assumed exercise
of stock options, less amounts assumed
repurchased under the treasury stock
method 2,507 -
------- --------
Total weighted average common stock
and common stock equivalents outstanding
during the period 58,142 43,812
======= ========
Pro forma net income (loss) $13,198 $(11,881)
======= ========
Pro forma net income (loss) per common share $ 0.23 $ (0.27)
======= ========
</TABLE>
Fully diluted pro forma net income per share is not presented as it is the same
as primary pro forma net income per common share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEDAPHIS CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,141
<SECURITIES> 0
<RECEIVABLES> 162,409<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 199,934
<PP&E> 114,443<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 779,966
<CURRENT-LIABILITIES> 98,321
<BONDS> 0
0
0
<COMMON> 559
<OTHER-SE> 454,621
<TOTAL-LIABILITY-AND-EQUITY> 779,966
<SALES> 136,582
<TOTAL-REVENUES> 136,582
<CGS> 0<F2>
<TOTAL-COSTS> 0<F2>
<OTHER-EXPENSES> 112,711<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,117
<INCOME-PRETAX> 21,754
<INCOME-TAX> 8,556
<INCOME-CONTINUING> 13,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,198
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
<FN>
<F1>Receivables and PP&E are shown net of allowances for doubtful accounts and
accumulated depreciation, respectively.
<F2>The Company presents a one-step income statement and cost of revenues is not
separately determinable from the historical financial statements.
<F3>Includes salaries and wages, other operating expenses, depreciation and
amortization and restructing and other charges.
</FN>
</TABLE>
