<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number: 0-25062
ENVOY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TENNESSEE
(State or Other Jurisdiction of Incorporation or Organization)
62-1575729
(I.R.S. Employer Identification Number)
TWO LAKEVIEW PLACE, 15 CENTURY BLVD.
SUITE 600, NASHVILLE, TN 37214
(Address of Principal Executive Offices)
(615) 885-3700
(Registrant's Telephone Number, Including Area Code)
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 outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
SHARES OUTSTANDING AS OF MAY 3, 1998:
21,101,783
CLASS:
COMMON STOCK, NO PAR VALUE PER SHARE
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
ENVOY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 18,336 $ 8,598
ACCOUNTS RECEIVABLE - NET 34,268 33,510
INVENTORIES 2,791 2,585
DEFERRED INCOME TAXES 1,797 1,797
OTHER 1,879 1,811
------------ ------------
TOTAL CURRENT ASSETS 59,071 48,301
PROPERTY AND EQUIPMENT, NET 19,125 19,508
OTHER ASSETS 64,460 69,714
------------ ------------
TOTAL ASSETS $ 142,656 $ 137,523
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES $ 33,794 $ 30,011
CURRENT PORTION OF LONG-TERM DEBT 70 263
------------ ------------
TOTAL CURRENT LIABILITIES 33,864 30,274
LONG-TERM DEBT, LESS CURRENT PORTION 231 527
OTHER NON-CURRENT LIABILITIES 8,594 9,163
SHAREHOLDERS' EQUITY:
PREFERRED STOCK -- No par value; authorized,
12,000,000 shares; issued 2,800,000 and 3,730,233 in 1998 and in 30,100 40,100
1997, respectively
COMMON STOCK -- No par value; authorized, 48,000,000 shares;
issued, 21,100,783 and 20,075,822 in 1998 and 1997, respectively 124,953 114,652
ADDITIONAL PAID-IN CAPITAL 7,208 7,208
RETAINED DEFICIT (62,294) (64,401)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 99,967 97,559
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 142,656 $ 137,523
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 3
ENVOY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES $ 42,524 $ 30,763
OPERATING COSTS AND EXPENSES:
COST OF REVENUES 20,019 15,222
SELLING, GENERAL AND ADMINISTRATIVE 10,218 7,760
DEPRECIATION AND AMORTIZATION 6,993 6,073
WRITE OFF OF ACQUIRED IN-PROCESS 0 3,000
TECHNOLOGY ---------- ----------
OPERATING INCOME (LOSS) 5,294 (1,292)
OTHER INCOME (EXPENSE)
INTEREST INCOME 145 453
INTEREST EXPENSE (437) (386)
---------- ----------
(292) 67
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 5,002 (1,225)
INCOME TAX PROVISION 2,744 739
---------- ----------
NET INCOME (LOSS) $ 2,258 $ (1,964)
========== ==========
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ 0.11 $ (0.10)
========== ==========
DILUTED $ 0.09 $ (0.10)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 20,691 18,976
========== ==========
DILUTED 25,102 18,976
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
ENVOY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---------- -----------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 12,703 $ (197)
INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT (1,298) (1,610)
INCREASE IN OTHER ASSETS (58) (2,665)
PAYMENTS FOR BUSINESSES ACQUIRED 0 (4,000)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,356) (8,275)
FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF COMMON 301 787
STOCK
CAPITAL DISTRIBUTIONS OF EXPRESSBILL COMPANIES (141) (64)
PROCEEDS FROM SHORT-TERM AND LONG-
TERM DEBT 0 653
PAYMENTS ON SHORT-TERM AND LONG-TERM
DEBT (1,769) (31)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (1,609) 1,345
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,738 (7,127)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 8,598 36,737
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,336 $ 29,610
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
ENVOY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of ENVOY
Corporation (the "Company" or "ENVOY") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
As more fully discussed in Note B, on February 27, 1998, the Company completed
business combinations with Professional Office Services, Inc. ("POS"), XpiData,
Inc. ("XpiData") and Automated Revenue Management, Inc. ("ARM") (collectively
referred to as the "ExpressBill Companies"). These transactions have been
accounted for as poolings of interests and the Company's historical consolidated
financial statements have been restated to include the accounts and results of
operations of the ExpressBill Companies.
These financial statements, footnote disclosures and other information should be
read in conjunction with the restated audited financial statements and the
accompanying notes thereto in the Company's Current Report on Form 8-K/A, filed
on May 5, 1998.
B. POOLING WITH EXPRESSBILL COMPANIES
On February 27, 1998, the Company completed business combinations with the three
companies operating the ExpressBill patient statement processing and printing
services businesses, for an aggregate of 3,500,000 shares of ENVOY Common Stock.
Shareholders of XpiData, based in Scottsdale, Arizona, received 1,365,000 shares
and shareholders of POS and its affiliated company, ARM, both of which are based
in Toledo, Ohio, received an aggregate of 2,135,000 shares. The ExpressBill
patient statement services include electronic data transmission and formatting,
statement printing and mailing services for health care providers and practice
management system vendors. These transactions have been accounted for as
poolings of interests. Accordingly, the Company's historical consolidated
financial statements have been restated to include the accounts and results of
operations of the ExpressBill Companies. A reconciliation of previously reported
revenues and earnings for the three months ended March 31, 1997 appears below:
5
<PAGE> 6
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997
---------------------
(in thousands,
except per share data)
<S> <C>
Revenues:
Previously reported $ 26,092
ExpressBill Companies 4,671
----------
Restated $ 30,763
----------
Net income (loss)
Previously reported $ (2,233)
ExpressBill Companies 269
----------
Restated $ (1,964)
----------
Net loss per common share
Previously reported $ (.14)
Restated $ (.10)
</TABLE>
C. SUBSEQUENT EVENT
On May 6, 1998, the Company acquired all the issued and outstanding capital
stock of Synergy Healthcare, Inc. ("Synergy"), which provides health care
information products and services to participants in the health care market, for
$10,000,000 in cash. This acquisition will be accounted for under the purchase
method of accounting, and, as a result, the Company will record the assets and
liabilities of Synergy at their estimated fair values with the excess of the
purchase price over these amounts being recorded as goodwill. Synergy's products
and services include health care data warehousing and analysis, performance
tracking, patient studies and disease management support.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included herein will
prove to be accurate. There are many factors that may cause actual
results to differ materially from those indicated by the forward-looking
statements, including, among others, competitive pressures, changes in
pricing policies, delays in product development, business conditions in
the marketplace, general economic conditions and the various risk
factors set forth in the Company's periodic reports filed with the
Securities and Exchange Commission (the "Commission"). In light of the
significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be
regarded as a representation by the Company that the objectives and
plans of the Company will be achieved. The following discussion and
analysis should be read in conjunction with, and is qualified in its
entirety by, the Unaudited Consolidated Financial Statements, including
the notes thereto.
RECENT DEVELOPMENT
On May 6, 1998, the Company acquired all the issued and outstanding capital
stock of Synergy Healthcare, Inc. ("Synergy"), which provides health care
information products and services to participants in the health care market, for
$10,000,000 in cash. This acquisition will be accounted for under the purchase
method of accounting, and, as a result, the Company will record the assets and
liabilities of Synergy at their estimated fair values with the excess of the
purchase price over these amounts being recorded as goodwill. Synergy's products
and services include health care data warehousing and analysis, performance
tracking, patient studies and disease management support.
OVERVIEW
The Company is a leading provider of EDI and transaction processing
services to participants in the health care market, including pharmacies,
physicians, hospitals, dentists, billing services, commercial insurance
companies, managed care organizations, state and federal government agencies and
others.
On February 27, 1998, the Company completed business combinations with
Professional Office Services, Inc., XpiData, Inc. and Automated Revenue
Management, Inc. (collectively, the "ExpressBill Companies") pursuant to
separate agreements and plans of merger for an aggregate of 3.5 million shares
of ENVOY Common Stock. These combinations have been accounted for as poolings of
interests, and the historical financial statements of the Company for all
periods have been restated to include the accounts and results of operations of
the ExpressBill Companies.
The Company also made two acquisitions in 1997. Healthcare Data
Interchange Corporation ("HDIC") was acquired in August 1997 and Diverse
Software Solutions, Inc. ("DSS") was acquired in March 1997 (collectively, the
"Acquired Businesses"). These acquisitions were accounted for under the purchase
method of accounting and, as a result, the Company has recorded the assets and
liabilities of the Acquired Businesses at their estimated fair values, with the
excess of the purchase price over these amounts being recorded as goodwill. The
financial statements for all periods reflect the operations of the Acquired
Businesses for the periods after their respective dates of acquisition.
The Company's revenues principally have been derived from EDI and
transaction processing services to the health care market which generally are
paid for by the health care providers or third-party payors. Revenues generally
are earned on a per transaction basis. In addition, total revenues include
non-transaction based revenues. These revenues includes maintenance, licensing
and support activities, as well as the sale of ancillary software and hardware
products and, in the case of the ExpressBill Companies, certain printing
services.
The Company's revenues generally are comprised of the following types of
transaction processing services: (i) pharmacy EDI, (ii) medical and other EDI
and (iii) patient statements. The table below shows the number of transactions
processed by the Company for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Pharmacy EDI............................. 146,662 178,512
Medical and other EDI.................... 46,164 71,647
Patient statements....................... 19,546 33,637
------- -------
Totals......................... 212,372 283,796
======= =======
</TABLE>
The transactions reflected above include the transactions of the Acquired
Businesses from the date of acquisition, and include the transactions of the
ExpressBill Companies for all periods.
While pharmacy EDI transactions currently represent a majority of the
Company's total transactions, the fees associated with these transactions are
significantly less than those received for medical EDI and patient statement
transactions. As a result, pharmacy EDI revenue constituted less than 17% of the
Company's total revenues in the first quarter of 1998. For 1997, the pharmacy
EDI business grew at less than half the rate experienced in the Company's other
businesses based on the number of transactions processed. As a result of this
trend, the Company expects its pharmacy EDI business as presently conducted to
represent a decreasing portion of the Company's total revenues in the future. As
the mix of the Company's business changes, a decline in the growth rates
associated with the Company's medical and other EDI and patient statement
business could have a material adverse effect on the financial condition and
operating results of the Company. There can be no assurance that the mix of the
Company's business or growth rates will continue at their current level.
7
<PAGE> 8
The Company continues to actively pursue the acquisition of health care
information businesses and other companies complementary to its business. The
Company's ability to successfully negotiate and close acquisitions will
materially impact the financial condition and operating results of the Company.
There can be no assurance that the Company will find attractive acquisition
candidates, be able to successfully finance and complete the acquisitions,
consolidate and integrate such businesses following the acquisition or
successfully operate them on a going forward basis.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship certain statements of operations items bear to revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1997 1998
----- -----
<S> <C> <C>
Revenues.................................................. 100.0% 100.0%
Cost of revenues.......................................... 49.5 47.1
Selling, general and administrative expenses.............. 25.2 24.0
Depreciation and amortization............................. 19.7 16.4
Merger and facility integration costs..................... -- --
Write-off of acquired in-process technology............... 9.8 --
EMC losses................................................ -- --
----- -----
Operating income (loss)................................... (4.2) 12.5
Interest income........................................... 1.5 0.4
Interest expense.......................................... (1.3) (1.1)
----- -----
Income (loss) from continuing operations before
income taxes and loss in investee....................... (4.0) 11.8
Provision (benefit) for income taxes...................... 2.4 6.5
Loss in investee.......................................... -- --
----- -----
Income (loss) from continuing operations.................. (6.4)% 5.3%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Revenues. Revenues for the quarter ended March 31, 1998 were $42.5 million
compared to $30.8 million for the same period last year, an increase of $11.7
million or 38.0%. The increase is attributable to internal growth of transaction
volume and additional revenues generated from the Acquired Businesses.
Cost of Revenues. Cost of revenues includes the cost of communications,
computer operations, operating supplies, product development and customer
support, as well as the cost of hardware sales and rebates to third parties for
transaction processing volume. Cost of revenues in the first quarter of 1998 was
$20.0 million compared to $15.2 million for the first quarter of 1997, an
increase of $4.8 million or 31.6%. The dollar increase is attributable to the
additional costs associated with the increased transaction volume and increases
in rebates paid to third parties in connection with medical EDI transactions.
The increase in rebates paid to third parties primarily results from an increase
in the mix of claims received from large third party vendors and claim
clearinghouses. If the mix of revenues continues to shift toward larger vendors
and clearinghouses, the Company expects rebates to represent an increasing
portion of its costs of revenues. As a percentage of revenues, cost of revenues
continued to improve to 47.1% in the first quarter of 1998 compared to 49.5% in
the first quarter of 1997. The improvement primarily is attributable to the
Company's ability to spread certain fixed costs of revenue over a larger base of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include marketing, finance, accounting and
administrative costs. Selling, general and administrative expenses for the three
months ended March 31, 1998 were $10.2 million compared to $7.8 million in the
same period in 1997, an increase of 30.8%. As a percentage of revenues, however,
selling, general and administrative expenses were 24.0% for the first quarter of
1998 compared to 25.2% for the first quarter of 1997. The improvement is
attributable to the Company's ability to spread its infrastructure costs over a
larger base of revenues. Transaction costs related to the business combinations
with the ExpressBill Companies totaled $780,000 in the first quarter of 1998 and
are included in selling, general and administrative expenses. Excluding these
transaction costs, selling, general and administrative expenses as a percentage
of revenues for the first quarter of 1998 would have been 22.1%.
8
<PAGE> 9
Depreciation and Amortization. Depreciation and amortization expense
relates primarily to host computers, communications equipment and goodwill and
identifiable intangible assets related to acquisitions. Depreciation and
amortization expense for the first quarter of 1998 was $7.0 million compared to
$6.1 million for the comparable period in 1997. The increase is primarily the
result of the amortization of goodwill and identifiable intangible assets
related to the Acquired Businesses. At March 31, 1998, the Company had net
goodwill of $29.2 million remaining to be amortized over periods of three to 15
years following the acquisitions. In addition, the Company had net identifiable
intangible assets of $21.0 million remaining to be amortized over two to nine
year time periods, as applicable.
Write-off of Acquired In-Process Technology. The Company incurred a
one-time write-off of acquired in-process technology of $3.0 million in
connection with the March 1997 acquisition of DSS. Such amount was charged to
expense because this amount related to research and development that had not
reached technological feasibility and for which there was no alternative future
use.
Net Interest Income (Expense). The Company recorded net interest expense
of $292,000 for the three months ended March 31, 1998 compared to net interest
income of $67,000 for the first quarter in 1997. Interest income decreased from
$453,000 in the first quarter of 1997 to $145,000 in the first quarter of 1998.
In August 1997, the Company acquired HDIC for approximately $36.4 million in
cash and the assumption of certain liabilities associated with unfavorable
contracts. Following this acquisition, the Company had less cash available for
investment, accounting for the reduction in interest income in the first quarter
of 1998. Interest expense increased from $386,000 in the first quarter of 1997
to $437,000 in the first quarter of 1998. Interest expense in the first quarter
of 1998 resulted primarily from interest expense that is required to be imputed
in order to account for the unfavorable long-term contracts assumed in the HDIC
acquisition. Interest expense in the three months ended March 31, 1997 resulted
primarily from the Company's $10.0 million 9% convertible subordinated notes
issued in June 1995 (the "Convertible Notes"). In a series of transactions
completed during 1996 and 1997, all of the Convertible Notes were converted into
shares of Common Stock and, therefore, were not outstanding during the first
quarter of 1998.
Income Tax Provision. The Company's income tax provision for the first
quarter of 1998 was $2.7 million compared to $739,000 in the comparable period
in 1997. Amortization of certain goodwill and identifiable intangible assets is
not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in recent years primarily as a
result of the write-off of acquired in-process technology related to the
Acquired Businesses, together with substantial non-cash depreciation and
amortization charges. During the three months ended March 31, 1998, however,
operations generated positive cash flows of $12.7 million. For the three months
ended March 31, 1997, operations used cash of $197,000.
Investing activities consist primarily of payments for acquired businesses
and purchases of property and equipment. Investing activities used cash of $1.4
million in the three months ended March 31, 1998 and cash of $8.3 million in the
three months ended March 31, 1997.
Financing activities consist primarily of proceeds from the issuance of
capital stock, and proceeds from and payments on debt. Financing activities used
cash of $1.6 million in the three months ended March 31, 1998 and provided $1.3
million of cash in the three months ended March 31, 1997.
On May 6, 1998, the Company completed the acquisition of Synergy for $10.0
million in cash. Following this acquisition and as of May 6, 1998, the Company
had available cash and cash equivalents of approximately $7.0 million.
The Company purchases additional computer hardware and software products
from time to time as required to support the Company's business. The Company
incurred capital expenditures of $1.3 million and $1.6 million for the three
month periods ended March 31, 1998 and 1997, respectively, primarily for
computer hardware and software products. The Company currently estimates that
total capital expenditures for 1998 will be approximately $8 to $9 million.
The Company is expensing as incurred all costs associated with system
changes related to its Year 2000 compliance project. The Company estimates that
the total cost of the Year 2000 expenses will be approximately $4.0 million, of
which approximately $2.5 million will be incurred during 1998. These costs are
being funded with available cash.
At May 6, 1998, the Company had no amounts outstanding under its $50
million revolving credit facility. Any future borrowings made under the credit
facility would bear interest at a rate equal to the Base Rate (as defined in the
credit facility) or an index tied to LIBOR. Any future borrowings under the
credit facility would be due and payable in full on June 30, 2000. The credit
facility contains financial covenants applicable to the Company and its
subsidiaries, including ratios of debt to capital, annualized EBITDA to
annualized interest expense and certain other financial covenants customarily
included in a credit facility of this type. The Company and its subsidiaries
also are subject to certain restrictions relating to payment of dividends,
acquisitions, incurrence of debt and other restrictive provisions. The credit
facility is secured by substantially all of the assets of the Company and its
subsidiaries.
9
<PAGE> 10
In February 1998, the Company issued 3.5 million shares of Common Stock in
connection with the ExpressBill Companies' business combinations. Also in
February 1998, 930,233 shares of the Company's Series B Convertible Preferred
Stock were converted into an equal number of shares of Common Stock. As a result
of these transactions, the number of shares of Common Stock outstanding
increased by approximately 4.4 million shares, or 27%, to 21.1 million shares.
From time to time, the Company has engaged and will continue to engage in
acquisition discussions with health care information businesses and other
companies complementary to its business. In the event the Company engages in
such acquisitions in the future, its currently available capital resources may
not be sufficient for such purposes and the Company may be required to incur
additional indebtedness or issue additional capital stock, which could result in
increased interest expense or dilution to existing investors.
Based on current operations, anticipated capital needs to fund known
expenditures and current acquisitions, the Company believes its available cash,
cash flow from operations and the $50.0 million revolving credit facility will
provide the capital resources necessary to meet its liquidity and cash flow
requirements over the next 12 months, including the Company's current short-term
obligations. The Company believes that present funding sources will provide the
ability to meet long-term obligations as they mature. The Company's available
cash is invested in interest bearing securities with maturities of up to 30
days.
SEASONALITY
The Company's business is to some extent seasonal, with more revenues being
generated from September through March as a result of a greater number of
pharmaceutical claims arise in those months, while operating expenses tend to
remain relatively constant over the course of the year.
10
<PAGE> 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be a party to legal proceedings incidental to
its business but believes that none of these proceedings is material to its
business at the present time.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10 Employment Agreement between the Company and Sheila H. Schweitzer
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on February 25, 1998 pursuant to
Item 5 thereof with the Commission to announce the execution of the definitive
merger agreements with the ExpressBill Companies.
The Company filed a Current Report on Form 8-K on March 9, 1998 (as amended by
Form 8-K/A, filed on May 5, 1998) pursuant to Item 2 thereof to report the
closing of the business combinations with the ExpressBill Companies and to
include certain financial statements of the ExpressBill Companies and the
Company.
11
<PAGE> 12
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.
ENVOY CORPORATION
Date: May 12, 1998 By: /s/ Fred C. Goad, Jr.
------------------------------------
Fred C. Goad, Jr.
Chairman and Co-Chief Executive Officer
Date: May 12, 1998 By: /s/ Kevin M. McNamara
------------------------------------
Kevin M. McNamara
Senior Vice President and
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Name
- ----------- ----
<S> <C>
10 Employment Agreement of Sheila H. Schweitzer
27 Financial Data Schedule (for SEC use only)
</TABLE>
13
<PAGE> 1
EXHIBIT 10
EMPLOYMENT AGREEMENT
OF
SHEILA H. SCHWEITZER
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between ENVOY
Corporation, a Tennessee corporation ("Company"), and Sheila H. Schweitzer
("Executive"), effective as of January 1, 1998 (the "Effective Date"). The
Company and the Executive are sometimes referred to herein as the "Parties".
In consideration of the mutual covenants contained in this Agreement
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, the parties hereby agree
as follows:
1. Employment: The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon terms and conditions set forth
herein.
2. Duties and Responsibilities:
2.1 Extent of Service: The Executive shall, during the term of this
Agreement, devote such of her entire time, attention, energies and business
efforts ("Business Efforts") to her duties as an Executive of the Company as are
reasonably necessary to carry out her duties specified in Paragraph 2.2 below.
The Executive shall not, during the term of this Agreement, engage in any other
business activity (whether or not such business activity is pursued for gain,
profit or other pecuniary advantage) if such business activity would impair the
Executive's ability to carry out her duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Executive from investing her
personal assets as a passive investor.
2.2 Position and Duties: The Executive shall serve the Company as
Senior Vice President of Operations; and shall perform, faithfully and
diligently, the services and functions relating to such office or otherwise
reasonably incident to such office as may be designated from time to time by the
Board of Directors of the Company; provided that all such services and functions
shall be reasonable and within the Executive's area of expertise; and provided
further that the Executive shall be physically capable of performing the same.
2.3 Place of Employment: During the term of this Agreement, the
Executive's primary place of employment shall be in Nashville, Tennessee, unless
otherwise mutually
<PAGE> 2
agreed by the Company and Executive. During the term of this Agreement, the
Company will provide the Executive with a private office and other customary
staff support services, all as are commensurate with the services and functions
to be performed by her hereunder.
3. Salary and Other Benefits: Subject to the terms and conditions of this
Agreement:
3.1 Salary: As compensation for her services under and during the
term of her employment under this Agreement, the Executive shall be paid an
annual salary of not less than $140,000, payable in accordance with the then
current payroll policies of the Company. Such salary shall be subject to
increase by the Board of Directors of the Company (or the appropriate committee
thereof) at the beginning of each calendar year, or otherwise as consistent with
the timing of employee pay increases. The annual salary shall be payable
pursuant to this Paragraph 3.1 in accordance with the Company's regular payroll
practices from time to time (hereinafter sometimes referred to as her "Base
Salary").
3.2 Other Benefits: As long as the Executive is employed by the
Company, the Executive shall be entitled to receive the following benefits in
addition to her Base Salary:
(a) The Executive shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) and stock and other incentive plans (including without
limitation stock option, stock appreciation or other similar stock
based plans), all in accordance with the Company's regular practices
with respect to its senior management employees.
(b) The Executive shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by her in the
course of the performance of her duties hereunder.
(c) The Company shall pay Executive an annual bonus, payable
during the first quarter of each year based on the previous year's
performance of up to 25% of Base Salary subject to performance criteria
established by the Board of Directors.
(d) The Executive shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are consistent with the
Company's other senior management employees.
4. Term: The term of this Agreement shall be for an initial period of
three (3) years following the Effective Date (the "Initial Term"), and shall
thereafter automatically be extended for additional periods of one year on a
yearly basis, unless on or before 30 days prior to the expiration of any
subsequent year period, either the Executive or the Company
<PAGE> 3
gives the other party notice that the term of this Agreement will not be so
extended, in which case the term of this Agreement will end at the end of such
period as designated in the notice.
5. Termination and Resignation: During the Initial Term, the Company shall
have the right to terminate the Executive's employment hereunder at any time
only for Cause. Following the Initial Term, the Company shall have the right to
terminate Executive's employment hereunder at any time and for any reason. Upon
any termination by the Company, the Executive shall be entitled to receive from
the Company prompt payment of the amounts determined pursuant to Paragraph 6.
The Executive shall have the right to terminate her employment hereunder at any
time by resignation, and she shall thereupon be entitled to receive from the
Company prompt payment of the amount determined pursuant to Paragraph 6 below.
6. Payments Upon Termination and Resignation:
6.1 Pro Rata Payments: If (a) the Company at any time terminates
the Executive's employment for Cause (as defined in Section 6.3 below) or (b)
the Executive voluntarily resigns for any reason other than because of an
uncured material breach by the Company of any term of this Agreement, then in
each case the Executive shall be entitled to receive only her Base Salary and
any other accrued benefits due Executive in accordance with Paragraph 3.2(a) on
a pro rata basis to the date of termination plus reimbursement of expenses
through the date of termination in accordance with Paragraph 3.2(b). If the
Executive at any time dies or becomes disabled (being defined as the inability
of the Executive to perform her normal employment duties for the remainder of
the term of this Agreement because of either physical or mental incapacity), the
Executive shall be entitled to receive only her Base Salary plus Bonus and any
other accrued benefits due Executive in accordance with Paragraph 3.2(a) on a
pro rata basis and reimbursement of expenses in accordance with Paragraph 3.2(b)
to the date of termination or resignation. For purposes of this Paragraph 6.1,
"pro rata" shall mean the product of the Executive's annual Base Salary and
Bonus that would have been payable had the Executive's employment not terminated
multiplied by a fraction the denominator of which is 365 and the numerator of
which is the number of days during the calendar year that have passed through
the date of the termination of the Executive's employment.
6.2 Base Salary Payment: If (a) the Company terminates this
Agreement or the Executive's employment without Cause following the Initial Term
or (b) the Executive resigns because of the uncured material breach by the
Company of any term of this Agreement, then in each case the Executive shall be
entitled to receive her Base Salary for a period of six months following such
termination in accordance with the Company's regular payroll practices.
Furthermore, if Executive has not secured regular full-time employment within
the six month period following the termination date, the Company will
<PAGE> 4
continue to pay her current Base Salary for up to an additional eighteen months
or until such time as Executive secures regular full-time employment, whichever
is the earlier to occur. The additional eighteen months pay will be evaluated on
a monthly basis. Following such termination and in furtherance hereof, Executive
agrees to actively seek new regular full-time employment, to provide the Company
evidence of her efforts to secure new regular full-time employment and to
promptly notify the Company if she secures such employment.
6.3 Definition of Cause: Termination by the Company of the
Executive's employment for "Cause" shall mean termination (a) upon the willful
misappropriation of funds or properties of the Company; (b) the willful
contravention of the standards referred to in the last sentence of Paragraph 7
below; (c) Executive's gross negligence in the performance of her duties
hereunder, intentional nonperformance or misperformance of such duties, or
refusal to abide by or comply with the directives of the Board of Directors, her
superior officers, the Company's policies and procedures, which actions continue
for a period of at least five days after receipt by the Executive of written
notice of the need to cure or cease; (d) Executive's willful dishonesty, fraud,
or misconduct with respect to the business or affairs of the Company; and (e)
Executive's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Company.
7. Preservation of Business; Fiduciary Responsibility: The Executive shall
use her reasonable best efforts to preserve the business and organization of the
Company, to keep available to the Company the services of present employees and
to preserve the business relations of the Company with suppliers, distributors,
customers and others. The Executive shall not commit any act, or in any way
assist others to commit any act, which could reasonable be expected to injure
the Company in any material respect. So long as the Executive is employed by the
Company, the Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon her service and office.
8. Restrictive Covenants:
8.1 Covenants Against Competition: Executive acknowledges that (a) the
business of the Company and its affiliates is as described in the Company's
annual report on Form 10-K as filed with the Securities and Exchange Commission
for its fiscal year ended December 31, 1997, and thereafter as described in each
successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Executive's work relating to Company Business will bring her
into close contact with many confidential matters not readily available to the
public.
<PAGE> 5
8.2 Non-Compete: During the term of this Agreement and for a period of
two (2) years following the termination of Executive's employment with the
Company (including any renewal periods as provided in Paragraph 4), whether
Executive's employment terminates pursuant to the provisions of Paragraph 5 of
this Agreement or otherwise (collectively, the "Restricted Period"), Executive
covenants and agrees that she will not, without the express approval of the
Board of Directors, anywhere in the continental United States engage in any
business, as an individual, partner, shareholder, officer, director, principal,
agent, employee, trustee, consultant or in any other relationship or capacity,
if such business is competitive with the Company Business; provided, however,
that Executive may own, directly or indirectly, solely as an investment,
securities of any entity if Executive (a) is not a controlling person with
respect to such entity and (b) does not, directly or indirectly, own five
percent or more of any class of the securities of such entity.
8.3 Trade Secrets; Confidential Information: Executive covenants and
agrees that at all times during and after the Restricted Period, she shall keep
secret and not disclose to others or appropriate to her own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company or any of its
affiliates including without limitation trade know-how, trade secrets,
consultant contracts, customer lists, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans, business
acquisition plans, new personnel acquisition plans, technical processes, designs
and design projects, inventions and research projects. Information shall not be
deemed confidential or secret for purposes of this Agreement if it is generally
known in the industry.
8.4 Executives of the Company: During the Restricted Period, Executive
shall not directly or indirectly hire away or solicit to hire away from the
Company or any of its affiliates any employee of the Company Business or its
affiliates.
8.5 Property of the Company: All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Executive relating
to the Company Business or made available to Executive during her employment by
the Company concerning the business or affairs of the Company Business or any of
its affiliates, other than any of such which may also pertain personally to
Executive, shall be the exclusive property of the Company and shall be delivered
to the Company promptly upon the termination of Executive's employment with the
Company or at any other time on request by the Board of Directors of the Company
or such affiliates.
8.6 Rights and Remedies Upon Breach: If Executive breaches, or
threatens to commit a breach of, any of the provisions of Paragraphs 8.2 through
8.5 of this Agreement (collectively, the "Restrictive Covenants"), the Company
shall have the following rights and remedies, each of which shall be independent
of the other and severally enforceable, and all of which shall be in addition
to, and not in lieu of, any other rights and remedies
<PAGE> 6
available to the Company: (a) the right and remedy to have any of the
Restrictive Covenants specifically enforced by any court having jurisdiction and
in Tennessee by an arbitration panel as provided in Paragraph 11 of this
Agreement, it being hereby acknowledged and agreed by Executive that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company; and (b)
the right and remedy to require Executive to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other
benefits derived or received by Executive as a result of any transactions
constituting a breach of any of the Restrictive Covenants, and Executive shall
account for and pay over such benefits to the Company.
8.7 Severability of Restrictive Covenants: If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the arbitration panel making such determination shall have the power
to reduce the duration, area or scope of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
9. Notice: All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
given when delivered in person, by facsimile or other electronic transmission or
when mailed, by certified mail (return receipt requested), postage prepaid,
addressed as follows (or to such other address as a party may specify by notice
pursuant to this provision):
(a) To the Company:
ENVOY Corporation
15 Century Boulevard, Suite 600
Two Lakeview Place
Nashville, Tennessee 37214
Attn: Gregory T. Stevens
Vice President, General Counsel and Secretary
Facsimile: (615) 321-4965
<PAGE> 7
(b) To Executive:
Sheila H. Schweitzer
------------------------------
------------------------------
10. Controlling Law and Performability: The execution, validity,
interpretation and performance of this Agreement shall be governed by the laws
of the State of Tennessee.
11. Arbitration: Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration in Nashville, Tennessee. In
the proceeding, the Executive shall select one arbitrator, the Company shall
select one arbitrator and the two arbitrators so selected shall select a third
arbitrator. The decision of a majority of the arbitrators shall be binding on
the Executive and the Company. Should one party fail to select an arbitrator
within five days after notice of the appointment of an arbitrator by the other
party or should the two arbitrators selected by the Executive and the Company
fail to select an arbitrator within ten days after the date of the appointment
of the last of such two arbitrators, any person sitting as a Judge of the United
States District Court for the Middle District of Tennessee, Nashville Division,
upon application of the Executive or the Company, shall appoint an arbitrator to
fill such space with the same force and effect as though such arbitrator had
been appointed in accordance with the second sentence of this Paragraph 11. Any
arbitration proceeding pursuant to this Paragraph 11 shall be conducted in
accordance with the rules of the American Arbitration Association. Judgment may
be entered on the arbitrators' award in any court having jurisdiction.
12. Additional Instruments: The Parties shall execute and deliver any and
all additional instruments and agreements that may be necessary or proper to
carry out the purposes of this Agreement.
13. Entire Agreement and Amendments: This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This Agreement may be changed only by
an agreement in writing signed by the Party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
14. Severability: If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of any arbitrator or by decree of a court of last
resort, the Parties shall promptly meet and negotiate substitute provisions for
those rendered or declared illegal or unenforceable to preserve the original
intent of this Agreement to the extent legally possible, but all other
provisions of this Agreement shall remain in full force and effect.
<PAGE> 8
15. Assignments: The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Executive, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Executive under this Agreement are
personal to her, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
16. Effect of Agreement: Subject to the provisions of Paragraph 15 with
respect to assignments, this Agreement shall be binding upon the Executive and
his heirs, executors, administrators, legal representatives and assigns and upon
the Company and respective successors and assigns.
17. Execution: This Agreement may be executed in multiple counterparts each
of which shall be deemed an original and all of which shall constitute one and
the same instrument.
18. Waiver of Breach: The waiver by either Party of a breach of any
provision of the Agreement by the other Party shall not operate or be construed
as a waiver by such Party of any subsequent breach by such other Party.
<PAGE> 9
IN WITNESS WHEREOF, the Parties have executed this Agreement on this 20th
day of April, 1998.
ENVOY CORPORATION
By: /s/ Jim Kever
-----------------------------
Name: Jim D. Kever
-----------------------------
Title: President and Co-CEO
-----------------------------
EXECUTIVE:
/s/ Sheila H. Schweitzer
----------------------------------
SHEILA H. SCHWEITZER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ENVOY CORPORATION FOR THE PERIOD ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 18,336
<SECURITIES> 0
<RECEIVABLES> 38,770
<ALLOWANCES> 4,502
<INVENTORY> 2,791
<CURRENT-ASSETS> 59,071
<PP&E> 42,381
<DEPRECIATION> 23,256
<TOTAL-ASSETS> 142,656
<CURRENT-LIABILITIES> 33,864
<BONDS> 231
0
30,100
<COMMON> 124,953
<OTHER-SE> (55,086)
<TOTAL-LIABILITY-AND-EQUITY> 142,656
<SALES> 0
<TOTAL-REVENUES> 42,524
<CGS> 0
<TOTAL-COSTS> 20,019
<OTHER-EXPENSES> 17,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437
<INCOME-PRETAX> 5,002
<INCOME-TAX> 2,744
<INCOME-CONTINUING> 2,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,258
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.09
</TABLE>
