<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1996
REGISTRATION NO. 333- .
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTHPLAN SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3787901
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607 (813) 289-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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JAMES K. MURRAY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HEALTHPLAN SERVICES CORPORATION
3501 FRONTAGE ROAD
TAMPA, FLORIDA 33607
(813) 289-1000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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COPIES TO:
DAVID C. SHOBE, ESQ.
FOWLER, WHITE, GILLEN, BOGGS, VILLAREAL AND BANKER, P.A.
501 EAST KENNEDY BOULEVARD, SUITE 1700
TAMPA, FLORIDA 33602
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, par value
$0.01 per share................. 1,561,067 shares $18.625 $29,074,872.88 $8,810.57
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
1,561,067 SHARES
HEALTHPLAN SERVICES CORPORATION
COMMON STOCK
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This Prospectus relates to 1,561,067 shares (the "Shares") of common stock,
par value $0.01 per share (the "Common Stock"), of HealthPlan Services
Corporation (the "Company") held by the Selling Stockholders. See "Selling
Stockholders -- Shares Covered by this Prospectus." The Shares are being
registered for sale by the Selling Stockholders. See "Plan of Distribution." The
Company will not receive any of the proceeds from the sale of Shares by the
Selling Stockholders.
The Company's Common Stock is listed on the New York Stock Exchange and is
quoted under the symbol "HPS." On November 12, 1996, the last reported sale
price for the Common Stock as reported on the New York Stock Exchange Composite
Tape was $20.00 per share. Sales of the Shares by the Selling Stockholders may
be made on one or more exchanges, in the over-the-counter market, or otherwise
in one or more transactions at prices and at terms then prevailing or at prices
related to the then current market price, or in negotiated transactions. See
"Plan of Distribution."
---------------------
SEE "RISK FACTORS" BEGINNING AT PAGE 4 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 1996
<PAGE> 3
FORWARD-LOOKING STATEMENTS
This Prospectus includes and incorporates by reference forward-looking
statements based on current plans and expectations of the Company, relating to,
among other matters, analyses, and estimates of amounts that are not yet
determinable. Such forward-looking statements are contained in the sections
entitled "The Company," "Risk Factors," and other sections of this Prospectus
(including documents incorporated herein by reference, see "Incorporation of
Certain Documents by Reference"). Such statements involve risks and
uncertainties which may cause actual future activities and results of operations
to be materially different from those suggested in this Prospectus, including,
among others, the risks and uncertainties present in the Company's business and
the competitive health care marketplace where clients and vendors commonly
experience mergers or acquisitions, volume fluctuations, participant enrollment
fluctuations, fixed price contracts, contract disputes, contract modifications,
contract renewals and nonrenewals, various business reasons for delaying
contract closings, and the operational challenges of matching case volume with
optimum staffing, having fully trained staff, having computer and telephonic
supported operations, and managing turnover of key employees and outsourced
services to performance standards, as well as other factors described elsewhere
in this Prospectus. See "Risk Factors."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates, or through the World Wide Web (http://www.sec.gov). The
Company's Common Stock is listed on the NYSE, and such reports, proxy statements
and other information concerning the Company are available for inspection and
copying at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission under the Securities Act of 1933,
as amended, in respect of the Common Stock offered hereby. For purposes of this
Prospectus, the term "Registration Statement" means the initial Registration
Statement and any and all amendments thereto. This Prospectus omits certain
information contained in the Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained
herein concerning the contents of any document are not necessarily complete, and
in each instance, reference is made to the copy of such document filed with the
Commission as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
1-13772) are incorporated in this Prospectus by reference: (a) the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995; (b) the
Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1996, and June 30, 1996; (c) the Company's Current Report on Form 8-K filed
with the Commission on July 15, 1996, and Amendment No. 1 thereto on Form 8-K/A
filed with the Commission on September 13, 1996; and the Company's Current
Report on Form 8-K filed with the Commission on July 16, 1996, and Amendment No.
1 thereto on Form 8-K/A filed with the Commission on September 13, 1996; (d) the
description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A, dated May 21, 1995, as amended; and (e) all
documents filed by the Company pursuant to
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Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus and prior to the termination
of the Shares offered hereby.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded,
for purposes of this Prospectus, to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or verbal request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the document that this Prospectus incorporates by reference).
Requests should be directed to James K. Murray III, Chief Financial Officer,
HealthPlan Services Corporation, 3501 Frontage Road, Tampa, Florida 33607,
telephone number (813) 289-1000.
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RISK FACTORS
Prospective purchasers should carefully consider the following information
in addition to the other information contained in this Prospectus in evaluating
an investment in the shares of Common Stock offered hereby.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
RISKS RELATED TO NEW BUSINESS STRATEGY
From 1990 to 1995, the Company's annual revenues declined from
approximately $129 million to approximately $100 million. Effective September
30, 1994, the Company, formerly known as Plan Services, Inc., a division of The
Dun & Bradstreet Corporation ("D & B"), was acquired from D & B by the Noel
Group, Inc. ("Noel"), James K. Murray, Jr., the Company's current President and
Chief Executive Officer, and certain other investors. A new management team was
recruited to implement a new business strategy aimed at growing revenue through
strengthening its relationships with managed care companies, adding new payors
as customers (such as preferred provider organizations ("PPOs"), health
maintenance organizations ("HMOs"), and integrated delivery systems), and
consolidating the fragmented third party administrator industry.
The Company believes that the decline in revenue during the 1990-1995
period is attributable primarily to a slow transition by its major customers
from offering traditional "fee for service" health care plans to managed care
products. The cost of traditional health insurance increased significantly
during this period, and the Company did not expand distribution by developing
relationships with HMOs or PPOs. As a result, many of the Company's small
business customers elected to seek alternative coverage or became self-insured.
In order to combat this trend, the Company's management is committed to
expand distribution and develop client relationships with established HMOs. The
Company will seek to build economies of scale by continuing to pursue vigorously
these relationships, as well as by executing an acquisition strategy aimed at
consolidating the third party administrator industry. In addition, the Company
expects to pursue administrative services contracts with large employers to
administer their self-insured health care plans, and it may also invest in the
development of information based products for its payors and their customers.
Starting in 1994, the Company has also pursued contracts with state
sponsored health care purchasing alliances, initially in Florida, and in
1995-1996, with additional contracts in North Carolina, Kentucky, and
Washington. The Company has incurred substantial expenses in connection with the
start up of these contracts, and, to date, the alliance business has been
unprofitable. During the quarter ended December 31, 1994, the Company recorded a
pre-tax charge of approximately $3.6 million related to state sponsored and
private health care purchasing alliances. The Company has also announced that an
additional charge in the amount of $2.6 million was taken in the third quarter
of 1996. There can be no assurance that the Company will be able to recoup its
investment in developing these relationships or that these operations will
ultimately be profitable.
The implementation of this overall strategy involves substantial risks, and
there can be no assurance that this strategy will be effectively implemented. In
addition, it is likely that the Company will experience a flattening or decrease
in net margins as it pursues this aggressive expansion strategy.
RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
The Company's strategy has included the acquisition of other managed care
services companies, as well as the acquisition of blocks of health care
administrative services business. Growth through acquisition involves
substantial risks, including the risk of improper valuation of the acquired
business. In addition, the value of such an acquired business or block of
business could be impaired if the Company is not successful in integrating the
business or block of business into its existing operations. These risks are
increased when the Company elects to make such acquisitions on a leveraged
basis. In 1995, the Company acquired, in two
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separate transactions, two blocks of administrative services business for a
total consideration of $20.3 million ($5.0 million of which is being held in
escrow). On July 1, 1996, the Company acquired all of the issued and outstanding
shares of capital stock of Consolidated Group, Inc., Consolidated Group Claims,
Inc., Consolidated Health Coalition, Inc., and Group Benefit Administrators
Insurance Agency, Inc. (collectively, the "Consolidated Group") for a purchase
price of $61.9 million, subject to a post-closing adjustment based on the
balance sheet of the Consolidated Group as of June 30, 1996. Consolidated Group,
like the Company, provides distribution and administrative services to payors
interested in accessing the small group market. On July 1, 1996, the Company
acquired all of the issued and outstanding shares of capital stock of Harrington
Services Corporation ("Harrington") for a purchase price consisting of (i)
approximately $32.5 million in cash, subject to a post-closing adjustment based
on the balance sheet of Harrington as of June 30, 1996, and (ii) 1,400,110
shares of the Company's Common Stock. Harrington's principal business is the
administration of medical benefits for self-funded health care plans of
primarily large employer groups. The combined 1995 revenues of Harrington and
the Consolidated Group exceed the Company's 1995 revenues.
On September 12, 1996, the Company entered into a Plan and Agreement of
Merger (the "Merger Agreement") with HealthPlan Services Alpha Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company, and Health Risk
Management, Inc., a Minnesota corporation ("Health Risk"), which provides for
the acquisition of Health Risk by the Company in a merger transaction (the
"Health Risk Merger"). Health Risk provides comprehensive, integrated healthcare
management, information and health benefit administration services to employers,
insurance companies, unions, HMOs, PPOs, PHOs, hospitals, providers and
governmental units in the United States and Canada. The acquisition of Health
Risk will constitute the Company's third major acquisition in 1996. Consummation
of the Health Risk Merger is subject to approval by Health Risk's shareholders
and other customary closing conditions, including receipt of regulatory
approval. While the Company's management remains committed to consummating the
Health Risk Merger, there can be no assurance that the consents and approvals
required will be obtained, that the other conditions necessary for the
consummation of such acquisitions will be satisfied or that the Health Risk
Merger will otherwise be consummated. The issuance of additional shares of
Common Stock and the operation of Health Risk upon closing of the Health Risk
Merger may have a dilutive effect on earnings per share if the Company is unable
to effect meaningful synergies within an appropriate period of time, and will
have a dilutive effect on the voting rights of the holders of Common Stock.
There can be no assurance that the Company will successfully and profitably
integrate the business of Harrington, the Consolidated Group and Health Risk
into its existing operations. In addition, certain costs will be incurred to
successfully integrate these acquired companies. On September 13, 1996, the
Company announced that it has recorded approximately $18 million of
restructuring and integration related charges related to the consolidation of
Harrington and Consolidated Group, which charges include the $2.6 million
alliance charge referenced above and approximately $1.3 million taken in
relation to other contract commitments. The Company does not anticipate any
additional charges in the future as a result of these acquisitions.
The Company may compete for acquisition and expansion opportunities with
companies which have significantly greater resources than the Company. There can
be no assurance that suitable acquisition candidates will be available, that
financing for such acquisitions will be obtainable on terms acceptable to the
Company, that such acquisitions can be consummated, or that acquired businesses
or blocks of business can be integrated successfully and profitably into the
Company's operations.
SIGNIFICANT BORROWINGS
In connection with its growth strategy, the Company has incurred
significant indebtedness with relatively short-term repayment schedules under
its primary credit facility (the "Line of Credit"). On September 13, 1996, the
Company announced an expansion of its credit facility from $85 million to $175
million. First Union National Bank of North Carolina is the "agency bank," and
the participating banks are Barnett Bank, N.A., Fleet Bank N.A., The Fifth Third
Bank of Columbus, NationsBank, N.A., SouthTrust Bank of Alabama and SunTrust
Bank, Tampa Bay. After the completion of the acquisition of Health Risk, the
Company expects that its total indebtedness under the Line of Credit will be
approximately $120 million, of which approxi-
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mately 13.3% will be due on November 30, 1998. An additional 13.3% will be due
on April 30, 1999. On both November 30, 1999 and April 30, 2000, an additional
16.7% will be due. Finally, on both November 30, 2000 and April 30, 2001, an
additional 20% will be due. The Company's borrowing under the Line of Credit
will result in interest expense that will range from LIBOR plus 125 to 175 basis
points or New York prime plus 25 to 75 basis points. For 1996 and 1997, interest
expense will approximate $2.5 million and $9.0 million, respectively, based on
currently prevailing interest rates and assuming the outstanding indebtedness is
paid in accordance with the existing payment schedule without any prepayment or
additional borrowings. Such interest payments must be made regardless of the
Company's operating results. The Line of Credit is guaranteed by the Company's
subsidiaries and secured by the stock of such subsidiaries, and upon completion
of the Health Risk Merger will be guaranteed by and secured by all of the stock
of Health Risk.
On September 13, 1996, the Company entered into an interest rate swap
agreement with NationsBank, N.A. ("NationsBank"). According to the terms of the
agreement, the Company is obligated to pay NationsBank on the 17th of each
month, commencing October 17, 1996 and ending September 17, 2001, monthly
interest at a fixed per annum rate of 6.61% on the principal amount of the swap,
which is $25 million. In exchange, NationsBank will reimburse the Company based
on the prevailing one month LIBOR rate, thereby matching the floating rate index
as required on the Line of Credit.
On October 21, 1996, the Company entered into an interest rate swap
agreement with First Union National Bank of North Carolina ("First Union").
According to the terms of the agreement, the Company is obligated to pay First
Union on the 22nd of each month, commencing November 22, 1996 and ending October
22, 1999, monthly interest at a fixed per annum rate of 6.10% on the principal
amount of the swap, which is $15 million. In exchange, First Union will
reimburse the Company based on the prevailing one month LIBOR rate, thereby
matching the floating rate index as required on the Line of Credit.
RISKS RELATED TO GOODWILL
In March 1995, the Financial Accounting Standards Board issued its
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FASB 121"), which became effective for fiscal years beginning after December
15, 1995.
FASB 121 established standards for determining when impairment losses on
long-lived assets, including goodwill, have occurred and how impairment losses
should be measured. The Company is required to review long-lived assets and
certain intangibles, to be held and used, for impairment whenever events or
changes in circumstances indicate that the carrying value of such assets may not
be recoverable. In performing such a review for recoverability, the Company is
required to compare the expected future cash flows to the carrying values of the
long-lived assets and identifiable intangibles. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of such assets
and intangibles, the assets are impaired, and the assets must be written down to
their estimated fair market value.
After performing a review for impairment of goodwill related to each of the
Company's acquired businesses and applying the principles of measurement
contained in FASB 121, the Company recorded a pre-tax charge against earnings of
$19.2 million in the third quarter of 1996, representing approximately 11% of
the Company's pre-charge goodwill. The pre-tax charge is attributable to
impairment of goodwill recorded on the following acquisitions: Diversified Group
Brokerage Corporation (acquired in October 1995), $7.7 million; Third Party
Claims Management, Inc. (acquired in August 1995), $6.2 million; and
Consolidated Group (acquired in July 1996), $5.3 million.
Subsequent to the recording of this pre-tax charge, the remaining values of
goodwill were $1.7 million, $1.6 million, and $54.8 million for the acquisitions
of Diversified Group Brokerage, Third Party Claims Management, Inc., and
Consolidated Group, respectively.
The impairment of goodwill was determined based primarily on the expected
future discounted cash flows attributable to the acquired companies. Such cash
flows have declined since the effective dates of the acquisitions due primarily
to higher than expected customer attrition experienced at the acquired
companies. Recognition of this charge had no impact on cash flow.
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The Company will continue to evaluate on a regular basis whether events and
circumstances have occurred that indicate the carrying amount of goodwill of
$162.1 million at September 30, 1996, may warrant revision or may not be
recoverable. Although the net unamortized balance of goodwill is not considered
to be impaired, any such future determination requiring the write-off of a
significant portion of unamortized goodwill could adversely affect the Company's
results.
RELIANCE ON SMALL NUMBER OF PAYORS
The Company derives a significant portion of its revenues from a small
number of payors. On a pro forma basis giving effect to the acquisitions of
Harrington and the Consolidated Group prior to the completion of the Health Risk
Merger, New England Mutual Life Insurance Company ("The New England"), Celtic
Life Insurance Company, Ameritas Life Insurance Corporation and MetraHealth
Division of United Healthcare accounted for, in the aggregate, 54.8%, 53.0% and
59.7% of total revenues in 1995, 1994 and 1993, respectively. In 1995, on a pro
forma basis, The New England, Celtic Life Insurance Company, Ameritas Life
Insurance Corporation and MetraHealth Division of United Healthcare accounted
for 12.5%, 9.3%, 7.0% and 26.0%, respectively, of the Company's total revenues.
There can be no assurance that these or any other payors will continue their
contracts with the Company for any particular period of time. Typically, the
Company's insurance, PPO, HMO and managed care payors sign contracts with the
Company that are cancelable without penalty by either party upon written notice,
ranging from 90 days to one year, and are also cancelable upon a change of
ownership of the Company. Over the past several years, a number of payors have
elected to abandon or de-emphasize their involvement in the small group health
insurance market. In the third quarter of 1996, Metropolitan Life Insurance
Company completed its acquisition of The New England. The Company is unable to
predict what effect, if any, such merger will have on the Company's relationship
with The New England. The abandonment of the small group market by The New
England, Celtic Life Insurance Company, Ameritas Life Insurance Corporation or
MetraHealth Division of United Healthcare could have a material adverse effect
on the Company. In addition, a decision by any one of these payors to administer
and distribute a significant portion of its products directly to small
businesses could also have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a large degree upon the efforts of
its executive officers, the loss of whose services could have a material adverse
effect on its business and prospects. The Company does not generally enter into
employment agreements with its executive officers, and such executive officers
are generally not bound by any noncompetition agreement following termination of
their employment.
UNCERTAINTIES RELATING TO HEALTH CARE REFORM INITIATIVES
Since 1993, many competing proposals have been introduced in Congress and
various state legislatures have called for general health care insurance market
reforms to increase the access and availability of group health insurance and to
require that all businesses offer health insurance coverage to their employees.
For example, the Health Insurance Portability and Accountability Act of 1996 was
signed into law in August 1996. This law, among other things, provides for
insurance portability for individuals who lose or change jobs, limits exclusions
for pre-existing conditions, and establishes a pilot program for medical savings
accounts. It is uncertain what additional health care reform legislation, if
any, will ultimately be implemented or whether other changes in the
administration or interpretation of governmental health care programs will
occur. Although recent proposals on health care reform have focused primarily on
Medicare and Medicaid reform, it is not possible to predict if proposals calling
for broad insurance market reform will be reintroduced in Congress or in any
state legislature in the future, or if and when any such proposal may be
enacted. Additionally, the adoption of a publicly-financed, single payor,
national or state health plan not requiring the marketing, distribution and
administrative services currently delivered by the Company would have a material
adverse effect on the Company's business. It is possible that health care reform
at the federal or state level, whether implemented through legislation or
through action by federal or state administrative agencies, would require the
Company to make significant changes to the way it conducts its business.
Although it is not
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possible at this time to predict accurately the nature or effects of health care
reform or whether it will be adopted and implemented, if at all, no assurances
can be given that health care reform will not materially and adversely affect
the Company's business.
GOVERNMENT REGULATION
The Company is subject to regulation under the health care and insurance
laws and other statutes and regulations of all 50 states, the District of
Columbia and Puerto Rico. Many states in which the Company provides claims
administration services require the Company or its employees to receive
regulatory approval or licensure to conduct such business. Provider networks are
also regulated in many states, and certain states require the licensure of
companies, such as the Company, which provide utilization review services. The
Company's operations are dependent upon its continued good standing under
applicable licensing laws and regulations. Such laws and regulations are subject
to amendment or interpretation by regulatory authorities in each jurisdiction.
Generally, such authorities have relatively broad discretion when granting,
renewing, or revoking licenses or granting approvals. These laws and regulations
are intended to protect insured parties rather than stockholders, and differ in
content, interpretation and enforcement practices from state to state. Moreover,
with respect to many issues affecting the Company, there is a lack of guiding
judicial and administrative precedent. Certain of these laws could be construed
to prohibit or restrict practices which have been significant factors in the
Company's operating procedure for many years. The Company could risk major
erosion and even "rebate" exposure in these states if state regulators were to
deem the Company's practices to be impermissible.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
governs the relationships between certain health benefit plans and the
fiduciaries of those plans. In general, ERISA is designed to protect the
ultimate beneficiaries of the plans from wrongdoing by the fiduciaries. ERISA
provides that a person is a fiduciary of a plan to the extent that such person
has discretionary authority in the administration of the plan or with respect to
the plan's assets. The employers who are the customers of the Company are
fiduciaries of the plans that they sponsor, but there can also be other
fiduciaries of a plan. ERISA imposes various express obligations on fiduciaries.
These include barring a fiduciary from permitting a plan to engage in certain
prohibited transactions with parties in interest or from acting under an
impermissible conflict of interest with a plan. Generally, a party in interest
with respect to a plan includes a fiduciary of the plan and persons that provide
services to the plan. Violations of ERISA by fiduciaries can result in the
rescission of any affected agreement, the imposition of substantial civil
penalties on fiduciaries and parties in interest and the imposition of excise
taxes under the Internal Revenue Code on parties in interest.
Currently, the Company's Consolidated Group subsidiary is undergoing a
Department of Labor (the "DOL") audit in which the DOL has raised various
questions about the application of ERISA to the way that subsidiary does
business. This audit is ongoing and there can be no assurance that the DOL will
not take positions which could require changes to the way this subsidiary
operates or result in the assertion or the imposition of administrative fines
and penalties.
The application of ERISA to the operations of the Company and its customers
is an evolving area of law and is subject to ongoing regulatory and judicial
interpretations of ERISA. Although the Company strives to minimize the
applicability of ERISA to its business and to ensure that the Company's
practices are not inconsistent with ERISA, there can be no assurance that courts
or the DOL will not take positions contrary to the current or future practices
of the Company. Any such contrary positions could require changes to the
Company's business practices (as well as industry practices generally) or result
in liabilities of the type referred to above. Similarly, there can be no
assurance that future statutory changes to ERISA will not significantly affect
the Company and its industry.
COMPETITION
The Company faces competition and potential competition from traditional
indemnity insurance carriers, Blue Cross/Blue Shield organizations, PPOs, HMOs,
third party administrators, utilization review companies and health care
informatics companies. The Company competes principally on the basis of the
price and
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quality of its services. Many large insurers have actively sought the claims
administration business of self-funded programs and have begun to offer
utilization review and other managed health care services similar to the
services offered by the Company. Many of the Company's competitors and potential
competitors are considerably larger and have significantly greater resources
than the Company. There can be no assurance that the Company will be able to
compete effectively against such competitors in the future.
AUTHORIZATION OF PREFERRED STOCK; EFFECT OF DELAWARE GENERAL CORPORATION LAW
The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with such designation, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. The ability of the Company to issue preferred stock and
the application of Section 203 of the Delaware General Corporation Law could
have the effect of discouraging, delaying or preventing a change in control of
the Company. Section 203 of the Delaware General Corporation Law prohibits a
Delaware corporation from engaging in a wide range of specified transactions
with any interested stockholder, defined to include, among others, any person or
entity who in the previous three years obtained 15% or more of any class or
series of stock entitled to vote in the election of directors, unless, among
other exceptions, the transaction is approved by (i) the Board of Directors
prior to the date the interested stockholder obtained such status or (ii) the
holders of two-thirds of the outstanding shares of each class or series not
owned by the interested stockholder.
RISK OF CONTRACTING WITH GOVERNMENT AGENCIES.
An increasing number of states, including some of the principal states in
which the Company does business, are providing for the statutory creation of
health care purchasing alliances. As part of its business strategy, the Company
is aggressively seeking to provide administrative and related services to these
state-sponsored health care purchasing alliances. The competitive bidding
processes in which the Company typically is required to participate in order to
obtain this business may limit the profitability of this business and lengthen
the amount of time required to recover start-up expenses. There can be no
assurance that the health care purchasing alliance contracts obtained by the
Company will ultimately be profitable for the Company. Additionally, changes in
governmental policy could make the alliances substantially less attractive to
small businesses and could materially and adversely affect the Company's health
care purchasing alliance revenues. Also, the health care purchasing alliance
contracts currently held by the Company contain broad cancellation provisions
which enable the health care purchasing alliance to cancel the administration
contracts on relatively short notice without penalty.
CONTROL BY NOEL ET AL.
As of September 30, 1996, Noel beneficially owned approximately 38% of the
Company's Common Stock, and the Company's executive officers and directors
beneficially owned in the aggregate approximately 20% of the Common Stock. This
ownership, in all likelihood, gives Noel, together with the executive officers
and directors of the Company, the ability to control the vote on all matters
submitted to a vote of stockholders including the election of all directors.
This may have the effect of discouraging unsolicited offers to acquire the
Company.
SHARES ELIGIBLE FOR FUTURE SALE.
Sales of substantial amounts of the Company's Common Stock in the public
market under Securities Act Rule 144 ("Rule 144") or otherwise, or the
perception that such sales could occur, may adversely affect prevailing market
prices of the Common Stock and could impair the future ability of the Company to
raise capital through an offering of its equity securities. As of September 30,
1996, the Company had approximately 14,908,847 shares of Common Stock
outstanding. Of those, approximately 4,030,000 shares were freely tradable in
the public market and approximately 9,370,000 shares of the Company's Common
Stock will be eligible for sale in the public market, pursuant to Rule 144, in
the fourth quarter of 1996. In addition, certain
9
<PAGE> 11
stockholders owning approximately 3,774,511 shares, and the holders of the
1,561,067 Shares to which this Prospectus relates, have the right to have their
shares of the Company's Common Stock included in future registered public
offerings of Common Stock.
On May 21, 1996, the Board of Directors of Noel adopted a Plan of Complete
Liquidation and Dissolution of Noel (the "Plan") subject to shareholder approval
at a special meeting of shareholders of Noel to be held as soon as practicable.
If the Plan is approved by the shareholders, Noel will be liquidated (i) by the
sale of such of its assets as are not to be distributed in-kind to its
shareholders, and (ii) after paying or providing for all its claims, obligations
and expenses, by cash and in-kind distributions to its shareholders pro rata
and, if required by the Plan or deemed necessary by Noel's Board of Directors,
by distributions of its assets from time to time to one or more liquidating
trusts established for the benefit of the then shareholders, or by a final
distribution of its then remaining assets to a liquidating trust established for
the benefit of the then shareholders. Noel holds 5,595,846 shares of the
Company's Common Stock at September 30, 1996 and has announced that it currently
intends to distribute most of its shares of the Company's Common Stock to its
shareholders, but Noel may engage in a private or registered public sale of a
sufficient number of shares to raise cash to pay the taxes payable upon
distribution or sale of Noel's assets if such cash is not available from
existing cash resources or defrayed by the proceeds from the sale of other
assets. In addition, Noel may sell a portion of its holdings of the Company in
public or private sales as market conditions permit.
LEGAL PROCEEDINGS
In 1995, a complaint was filed against the Company claiming wrongful
termination of an exclusive marketing agreement and breach of contract. The
complaint asserted damages of $25,000,000. The parties to the dispute have
agreed to binding arbitration. The arbitration proceedings occurred during the
week of October 29, 1996, and the arbitration panel's decision is expected by
early December 1996. Although the Company's management believes it has
meritorious defenses against the complaint, the ultimate outcome of the matter
cannot presently be determined.
In connection with the acquisition of Harrington, the Company agreed to use
its best efforts to cause a registration statement sufficient to permit the
public offering and sale of the shares of the Company's Common Stock issued to
the Harrington stockholders in the acquisition, through the facilities of all
appropriate securities exchanges and the over-the-counter market, provided that
in all events, such registration statement shall have become effective on or
before October 31, 1996. On October 30, 1996, the Company received a letter from
Harrington's shareholders, representative notifying the Company that it was in
apparent violation of such agreement and reserving all rights under such
agreement. Due to the inability of both parties to finalize the closing balance
sheet for the transaction, and due to the disclosure requirements for the
pending Health Risk Merger, the Company was not able to have such registration
statement declared effective by October 31, 1996. While the Company believes it
has meritorious defenses against any possible claim, as of the date hereof, it
is not possible for the Company to evaluate what, if any, damages might result
from such notice.
The Company is involved in various claims arising in the normal course of
business. In the opinion of the Company's management, although the outcomes of
these claims arising in the normal course of business are uncertain, in the
aggregate they are not likely to have a material adverse effect on the Company's
business, financial condition and results of operations.
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<PAGE> 12
COMPANY SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial
information of the Company and has been derived from and should be read in
conjunction with the Company's audited consolidated financial statements,
unaudited interim consolidated financial statements, and other financial
information, including the notes thereto, incorporated by reference in this
Prospectus. See "Incorporation of Certain Documents by Reference." Unaudited
interim data reflects, in the opinion of the Company's management, all
adjustments considered necessary for a fair presentation of results for such
interim periods. Results of operations for unaudited interim periods are not
necessarily indicative of results which may be expected for any other interim or
annual period.
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY(1)
------------------------------- ------------------------------------------
NINE MONTHS ENDED PRO FORMA THREE NINE
YEAR YEAR MONTHS MONTHS
--------------------- ENDED ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
SEPT. 30, SEPT. 30, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, ------------------------------
1996(2) 1995 1995 1994(3) 1994 1994 1993 1992 1991
--------- --------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Revenues................... $129,876 $ 70,889 $100,250 $107,178 $ 25,233 $81,945 $113,863 $124,165 $123,868
Net income (loss).......... $(12,395 ) $ 6,551 $ 9,535 $ 6,467 $ 231 $ 1,747 $ 6,960 $ 11,559 $ 11,763
Dividends on redeemable
preferred stock.......... -- 285 285 -- 285
Net income (loss)
attributable to common
stock.................... $(12,395 ) $ 6,266 $ 9,250 $ 6,467 $ (54)
Pro forma net income (loss)
per share(4)............. $ (0.83 ) $ 0.49 $ 0.71 $ 0.69 $ 0.03
Pro forma weighted average
shares outstanding(4).... 14,968 13,407 13,414 9,339 9,339
Historical weighted average
net income (loss) per
share.................... $ (0.90 ) $ 0.59 $ 0.82 n/a n/a
Historical weighted average
shares outstanding....... 13,834 10,635 11,336 n/a n/a
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA DECEMBER 31,
SEPT. 30, SEPT. 30, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, ------------------------------
1996 1995 1995 1994(3) 1994 1994 1993 1992 1991
--------- --------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets............... $249,878 $112,455 $112,667 $ 53,189 $ 53,189 $27,884 $ 31,851 $ 19,853 $ 21,872
Total debt................. 67,874 1,283 1,282 1,300 1,300 1,254 1,450 -- --
Redeemable preferred stock
(Series A & B), including
accrued dividends........ -- -- -- -- 19,285 -- -- -- --
Common stockholders' equity
(divisional equity
(deficit))............... 101,548 77,923 80,966 20,292 1,007 2,170 634 (1,897) (4,404)
</TABLE>
- ---------------
(1) Represents the historical results of operations of Plan Services, Inc. -
HealthPlan Services Division (the "Predecessor Company") of The Dun &
Bradstreet Corporation ("D & B") which was purchased by the Company from D
& B on September 30, 1994 (the "Acquisition"). See "The Company." The
Company's historical financial statements reflect certain expenses,
including expenses attributable to employee benefit programs, retirement
and health plans, treasury and insurance, which were incurred by the
Predecessor Company and allocated to the Company on a pro rata basis.
(2) In the third quarter of 1996, the Company took a pre-tax charge of
approximately $18.0 million in restructuring, integration and contract
commitment expenses. Additionally, the Company recorded a pre-tax charge of
$19.2 million for the impairment of goodwill. See "Risk Factors -- Risks
Related to Goodwill."
(3) Gives effect to the Acquisition and the Recapitalization as if such
transactions had occurred on January 1, 1994.
(4) Gives effect to the recapitalization of all 19,000,000 shares of Preferred
Stock (plus the right to receive dividends accrued thereon), which were
exchanged for 1,397,857 shares of the Company's Common Stock
contemporaneously with consummation of the Company's initial public
offering on May 19, 1995 (the "Recapitalization"), for all periods
presented.
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<PAGE> 13
THE COMPANY
HealthPlan Services Corporation was incorporated in August 1994 as a
Delaware corporation. Unless the context otherwise requires, as used in this
Prospectus the "Company" refers to HealthPlan Services Corporation and its
direct and indirect wholly owned subsidiaries for periods subsequent to
September 30, 1994, and to its predecessor for prior periods. The Company's
principal executive offices are located at 3501 Frontage Road, Tampa, Florida
33607. The Company's telephone number is (813) 289-1000.
The Company's principal operating subsidiary, HealthPlan Services, Inc.,
was founded in 1970 by James K. Murray, Jr., the Company's current President and
Chief Executive Officer, Charles H. Guy, Jr., and Trevor G. Smith (the
"Founders"), each of whom currently serves as a director of the Company. D&B
purchased the business in 1978 and operated it as a division. Mr. Murray
continued to play an active role in the business until 1987, when he left to
assume roles of increasing responsibility within D&B, which included serving as
president of two of its largest operating divisions. On September 30, 1994, the
Founders, Noel Group, Inc., a publicly traded company based in New York, and
three funds in which Trinity Ventures, Ltd., a privately held venture capital
company, is the general partner, purchased the business (the "Acquisition"),
which was then called Plan Services, Inc., from D&B Plan Services Corporation, a
Delaware corporation.
The Company, along with its newly acquired operating units, Consolidated
Group, Inc. ("Consolidated Group") and Harrington Services Corporation
("Harrington"), is a leading provider of managed care services to over 120,000
small businesses and large, self-insured organizations. Its services include
distribution, enrollment, billing and collection, claims administration, and
information reports and analysis on behalf of health care payors and providers,
covering over three million members in the United States. The Company's clients
include managed care organizations (HMOs and PPOs), integrated health care
delivery systems, insurance companies, and health care purchasing alliances. The
majority of the Company's in-force business utilizes managed care products, and
substantially all of the Company's new business since October 1994 utilizes
managed care products.
On July 1, 1996, the Company completed the acquisition of Consolidated
Group, Inc, a health benefit administrator specializing in the small group
market. On July 1, 1996, the Company completed the acquisition of Harrington
Services Corporation, a large-group benefits administrator. Revenues in 1995 for
the Company, Consolidated Group, and Harrington were approximately $100 million,
$74 million, and $72 million, respectively. The two acquired companies are
operated as separate subsidiaries of the Company and maintain separate entities
and management personnel.
The Company has over 25 years of experience in providing insurance
companies, PPOs, HMOs and other managed care companies with services which
enable them to access the small employer (less than fifty employees) market in
an efficient, cost effective manner. These services include sales support to
insurance agents and, on behalf of payors, underwriting, enrollment, and other
administrative services. As a result, the Company offers an economic
"outsourcing" alternative to the payor, which otherwise would be required to
develop sufficient internal resources and services to reach the small business
market effectively. Consolidated Group, founded in 1971, provides substantially
the same set of services as the Company, and has focused on developing access to
the small business market for several major HMOs, including United Healthcare,
Kaiser, and U.S. Healthcare. Harrington Services Corporation was founded in
1953, and is a leading administrator of self-funded health care plans for large
corporations, government sector employers, Taft-Hartley plans, and associations.
In addition to providing claims administration services, Harrington also offers
its clients utilization management services and information systems services,
and workers' compensation and unemployment cost control programs.
On a pro forma basis, during 1995, the Company and Consolidated Group
collected over $300 million in health care premiums, and together, maintain
relationships with over 100,000 insurance agents. This agent relationship
provides the Company and Consolidated Group with a significant distribution
conduit to the small business market in the United States. The Company and its
principal operating units function solely as service providers generating fee
based income; none of the Company's units assume any underwriting risk.
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<PAGE> 14
STRATEGY
The Company's strategy is to grow revenue and increase earnings through new
product development, broader distribution of existing managed care products, and
the addition of new payors, such as PPOs, HMOs and other managed care providers.
The Company will seek to build economies of scale by continuing to pursue
vigorously a consolidation strategy involving the acquisition and integration of
small, less efficient administrators, and by adding administrative services
contracts with larger groups and contracts from state-sponsored and private
health care purchasing alliances. The Company also intends to further support
the development of information-based products for its payors and other
customers.
PENDING AND RECENT ACQUISITIONS
On September 12, 1996, the Company entered into a Plan and Agreement of
Merger (the "Merger Agreement") with HealthPlan Services Alpha Corporation, a
Delaware corporation and wholly-owned subsidiary of the Company, and Health Risk
Management, Inc., a Minnesota corporation ("Health Risk"), which provides for
the acquisition of Health Risk by the Company in a merger transaction (the
"Health Risk Merger"). Health Risk was incorporated in 1977. Health Risk
provides comprehensive, integrated total health plan management and information
services from diagnosis through claim payment supported by Health Risk's
QUALITYFIRST(@) clinical practice guidelines for self-funded health benefit
plans, fully insured health benefit plans, workers' compensation care and
disability care using electronic data interchange technology. Health Risk
provides these services for self-insured employers, unions, governmental
entities, insurance companies, health maintenance organizations, preferred
provider organizations, hospitals, and others to manage the quality, volume,
cost, and payment for health care. Health Risk's managed health care services
include a 24 hours per day, 7 days per week health information line; care review
management services, which apply diagnostic and utilization review; case
management services for a variety of catastrophic or long-term illnesses and
conditions; price control management services such as preferred provider
networks, fee negotiations, and audits of hospital and physician charges; claims
administration management services; and health care information management and
software services. Health Risk has developed its managed health care services
based upon proprietary clinical practice protocols (QUALITYFIRST(@) Healthcare
Practice Guidelines), Health Risk-developed medical and cost databases, and
extensive medical expertise. Health Risk employs approximately 800 people and
its principal executive offices are located in Minneapolis, Minnesota.
The Merger Agreement provides that each share of Health Risk outstanding at
the effective time of the Health Risk Merger will be converted into the right to
receive $9.68603 in cash and 0.360208 of a share of the Company's Common Stock,
which share exchange ratio is subject to possible increase or decrease as set
forth in the Merger Agreement. See "Unaudited Pro Forma Consolidated Financial
Statements." On September 12, 1996, Health Risk had 4,180,476 shares of common
stock outstanding, as represented by Health Risk in the Merger Agreement. The
Health Risk Merger will be accounted for using the purchase method of accounting
and is intended to be partially tax-free to Health Risk shareholders.
Consummation of the Health Risk Merger, which is expected to close in the first
quarter of 1997, is subject to approval by Health Risk's shareholders and other
customary closing conditions, including receipt of regulatory approval.
In the event that the Health Risk Merger is consummated, it is anticipated
that Gary T. McIlroy, M.D., will be appointed to the Board of Directors of the
Company, while remaining in his capacity of Chairman and Chief Executive Officer
of Health Risk. It is expected that all of the Company's other directors and
executive officers as of the date hereof will remain in their positions
following the pending Health Risk Merger. No assurance can be given that the
Health Risk Merger will be consummated.
On July 1, 1996 the Company acquired all the issued and outstanding stock
of Consolidated Group for approximately $62.0 million in cash, and Harrington
for $32.5 million cash and 1,400,110 shares of the Company's Common Stock.
Consolidated Group, headquartered in Framingham, Massachusetts, specializes in
providing medical benefits administration for health care plans for over 23,000
small businesses covering approximately 215,000 members. In 1995 it had revenues
of $74 million. Consolidated Group employs approximately 600 people. Harrington,
headquartered in Columbus, Ohio, provides administrative services to over 700
large self-funded plans covering approximately 1,600,000 members. Its revenues
in 1995 were
13
<PAGE> 15
$72 million. Harrington employs approximately 1,500 employees, under principal
offices in Columbus, Ohio, Chicago, Illinois, and El Monte, California.
During 1995, the Company also acquired two small administrators, Third
Party Claims Management, Inc. ("TPCM"), which serves over 300 mid-to-large sized
organizations covering a total of 140,000 members, and Diversified Group
Brokerage Corporation ("DGB"), which serves approximately 200 medium sized
businesses with 45,000 members. Both TPCM and DGB have experienced declining
revenue due to customer attrition, and the Company elected to consolidate the
operations of TPCM and DGB during 1996, resulting in the closing of the Memphis,
Tennessee office of TPCM.
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc. ("Medirisk"), a provider of health care information, to purchase $2.0
million of Medirisk preferred stock representing a 9% ownership interest
recorded under the cost method of accounting and, in addition, to lend up to
$10.0 million over four years in the form of debt for which the Company would
receive detachable warrants to purchase Medirisk common stock at $0.01 per
share. The funds will be used by Medirisk to finance its expansion through the
development of additional products and the acquisition of additional health care
information businesses. Medirisk, which was founded in 1983 and is headquartered
in Atlanta, Georgia, is a provider of proprietary health care information
products and services that track the price and utilization of medical
procedures. As of September 30, 1996, the Company had purchased $2 million of
preferred stock of Medirisk and loaned Medirisk $6.9 million to finance the
acquisition of two health care data companies. On September 19, 1996, Medirisk
filed a Registration Statement on Form S-1 (the "Medirisk S-1") to register the
initial public offering of its shares to the public. In the Medirisk S-1,
Medirisk has proposed to offer 3,000,000 shares of its common stock at a price
range of $11.00 to $13.00 per share. Upon completion of the offering, the
Company would beneficially own 618,895 common shares, or 11.0%, of Medirisk.
There can be no assurance, however, that the Medirisk initial public offering
will ultimately be consummated.
THE COMPANY'S PRODUCTS & SERVICES
The Company provides distribution, enrollment, premium billing and
collection, claims administration, and information and analyses outsourcing
services to insurance companies, managed care organizations, integrated delivery
systems, self-funded benefit plans, and health care purchasing alliances.
Distribution and Enrollment
The Company provides distribution services to providers of health insurance
and other payors desiring to sell health care coverage to the small business
market. The Company's services include telemarketing, quote preparation, voice
telequoting, and customer service. In providing these services, the Company
works with a broad range of insurance agents, including independent brokers as
well as captive insurance agents who work exclusively for one underwriter. Based
on market research, actuarial analysis of claims adjudicated and interaction
with payor organizations, the Company helps design managed care products, often
with specialized features (such as dental coverage, disability, eligibility
requirements and deductibles), which address the specialized needs of the small
business employer. The Company also designs and implements communications
programs on behalf of its payors, which are aimed at educating the insurance
agent about the relative merits of a particular product offering. In addition,
the Company's marketing responsibilities include the development of consumer
awareness programs, including advertising and media planning, on behalf of
state-sponsored health care purchasing alliances. The Company also offers its
customers enrollment services, including underwriting in accordance with the
standards set by the risk bearer, issuance of evidence of coverage, and case
renewal.
Billing and Collection of Premiums
The Company sends monthly bills on behalf of payors to insured parties,
receives premium payments from the insureds, and makes commission payments to
agents. As part of the billing process, the Company implements premium changes
due to rate changes, employee hiring or termination, and other group changes.
14
<PAGE> 16
Claims Administration
The Company's claims administration services include eligibility
verification, copayment calculation, repricing, claims adjudication, and
preparation of explanation of benefit forms. The Company also pays claims on
behalf of payors by issuing checks to health care providers on payor accounts.
The Company's claims administration services also include utilization review
services through its Cost Watch/Medical Case Management and through Harrington's
ProHealth, Inc. unit. These units are staffed by qualified nurses and other
qualified medical personnel to provide precertification approval (a review
mechanism for screening costs in advance of medical care); medical case
management (to contain the costs of prolonged and catastrophic cases); and
special claims review services.
Information and Analysis
The Company has broad reporting and analytic capabilities relating to all
aspects of its services. The Company's information products include reports
regarding agent production, enrollment, and frequency and type of claims. The
Company intends to continue to enhance its information-based products. In
particular, the Company plans to pursue opportunities with its strategic
partner, Medirisk, to develop information-based products from the Company's
database of administered claims.
THE COMPANY'S CUSTOMERS
The Company provides services on behalf of a wide range of health care
payors, including insurance companies, managed care organizations, integrated
delivery systems, self-funded benefit plans, and health care purchasing
alliances. Since September 1994, the Company has expanded its customer base from
traditional indemnity carriers to include PPOs, HMOs, and other managed care
entities, while at the same time working with its traditional indemnity carriers
to develop competitive managed care products.
Insurance Companies, Managed Care Organizations, and Integrated Delivery
Systems
In July 1995, the Company began providing marketing and administrative
services in Florida for PCA Family Health Plan, Inc., which is affiliated with
Physicians Corporation of America ("PCA"), the seventh largest HMO in the United
States. In the third quarter of 1995, the Company and PCA Health Plans of
Alabama, Inc., which is also a PCA affiliate, agreed to expand the scope of the
Company's services in Alabama, which expansion commenced in the first quarter of
1996. In October 1995, the Company and Employers Life Insurance Company of
Wausau ("ELOW"), a wholly owned subsidiary of Nationwide Life Insurance Company,
agreed to form a relationship to offer a broad range of health care products to
small businesses in several states. The Company began marketing activities for
ELOW products in the third quarter of 1996. In December 1995, the Company signed
a letter of intent with the Florida Independent Physicians Association ("FIPA")
to provide administrative services for FIPA, with a projected start-up date in
mid-1996. A definitive agreement was signed in May 1996. FIPA is a network of
independent physicians associations representing nearly 6,000 physicians in the
State of Florida. In July 1996, the Company entered into an agreement with
Provident American Corporation to market and administer its managed indemnity
product to individuals in several states. In August 1996, the Company and
Foundation Health ("Foundation"), a large national HMO, entered into an
agreement whereby the Company will be Foundation's exclusive marketer and
administrator in the State of Florida for its individual and small group HMO
products for groups with 25 or fewer employees. To date, the Company has not
generated any significant revenue from any of these relationships, and it is
unclear when, if ever, significant revenue will materialize. In addition, the
pricing on several of these products is still being negotiated, so it is
uncertain what effect, if any, enhanced revenue from these relationships will
have on the Company's future profitability.
Typically, the Company's insurance and managed care payors sign contracts
with the Company that are cancelable by either party without penalty upon
advance written notice of between 90 days and one year, and are also cancelable
upon a significant change of ownership of the Company. In 1995, The New England,
Celtic Life Insurance Company, and Ameritas Life Insurance Corporation accounted
for 31.0%, 23.0%, and 10.7%, respectively, of the Company's total revenue. The
July 1996 run rate for these customers was
15
<PAGE> 17
approximately 11.6%, 9.1%, and 6.7%, respectively. This decline is due primarily
to the Company's expansion through acquisition, which has diluted its
concentration of revenues from these sources.
Historically, the majority of the Consolidated Group's business was written
with Travelers Insurance Company, which recently combined with the health
insurance business of Metropolitan Life Insurance Company to form MetraHealth.
Subsequently, MetraHealth was acquired by United HealthCare, one of the nation's
leading HMO companies. This business represents approximately 85% to 90% of
Consolidated Group's revenue, or approximately 22% of the Company's total
consolidated revenue as of July 1996. In the third quarter of 1996, Metropolitan
Life Insurance Company completed its acquisition of The New England. The Company
is unable to predict what effect, if any, such merger will have on the Company's
relationship with The New England. In addition, the Company cannot measure
either the commitment United HealthCare will have to the small group market or
the success it will experience in converting the MetraHealth block of business
to United HealthCare's new products. The abandonment of the small group market
by either The New England, Celtic Life Insurance Company, or Ameritas Life
Insurance Corporation, and the degree to which the Company is successful with
respect to the MetraHealth conversion, could have a material adverse effect on
the Company. A decision by any one of these payors to administer and distribute
a significant portion of its products directly to small businesses could also
have a material adverse effect on the Company.
Administrative Services Only ("ASO")
The Company has been in the administrative services only ("ASO") business
since 1987, when the Company assumed administrative responsibility for the
employee health insurance plan of D&B, its former parent. The Company is also
the administrator of health care programs for the State of Oklahoma Education
Employees Group Insurance Board, which cover approximately 89,000 public
employees in Oklahoma. The contract with Oklahoma renews annually on June 30 and
will be subject to state bidding procedures in 1998. The Company administers
this program from its facility in Oklahoma City, Oklahoma. As a result of the
TPCM, DGB, and Harrington acquisitions, the Company added multiple operating
facilities throughout the United States. Through new business sales, case
acquisition, and these acquisitions, this business unit provides administrative
services to nearly 900,000 employees, representing approximately 2.2 million
members.
The current market for the Company's ASO business encompasses all private
entities, public entities, Taft-Hartley Plans, and associations with over 100
employees. During 1995, the Company redesigned its existing administrative
process to serve the large case (greater than 1,000 employees) market more
efficiently. Additionally, the Company implemented a strategy that increased its
market share in the United States via acquisition. The Company also designed
advanced electronic data systems as an interface with providers in order to
automate the adjudication of claims information and provide for more timely
reimbursement to providers.
In September 1995, the Company was selected by Darden Restaurants, Inc. to
administer its self-funded health care benefits plan, covering approximately
19,000 employees, beginning January 1, 1996. Darden Restaurants, Inc., a leader
in the casual dining industry with over $3 billion in sales, owns the Red
Lobster and Olive Garden restaurant chains.
Health Care Purchasing Alliances
During the 1990s, many small businesses were unable to obtain health care
coverage at affordable prices. In response, some states have formed
state-sponsored health care purchasing alliances. Several privately funded
groups also have formed health care purchasing alliances, in some cases with
state support. The Company has been selected to be the administrator for four
state-sponsored health care purchasing alliances (in Florida, Kentucky, North
Carolina and Washington), and three private alliances.
The Company is the administrator for each of the 11 regional Florida
Community Health Purchasing Alliances ("CHPAs"), health care purchasing
alliances established by the State of Florida. In February 1995, the Company was
selected as the statewide administrator for North Carolina's State Health Plan
Purchasing Alliance program, which was launched in the fourth quarter of 1995.
Insurance carriers in North Carolina
16
<PAGE> 18
have not yet shown significant support for this alliance. In April 1995, the
Company was selected as the statewide administrator for Kentucky's health care
purchasing alliance program, which commenced in July 1995. In the third quarter
of 1995, the Company opened an office in Lexington, Kentucky to administer the
Kentucky program. In December 1995, the Company was selected to develop and
implement statewide marketing and selected administrative services for the
"Basic Health Plan," the State of Washington's health care purchasing alliance
program, beginning in the second quarter of 1996. The Kentucky plan is fully
operational and profitable, with over 170,000 enrollees. The Washington contract
is still in the developmental stage, and its ultimate success and acceptance by
the residents of the State of Washington cannot be predicted at this time.
The Company has incurred substantial expenses in connection with the
start-up of its Florida, Kentucky, North Carolina and Washington alliance
administration contracts and will incur similar start-up expenses in connection
with other state health care purchasing alliance business obtained by the
Company in the future. In the fourth quarter of 1994, and in the third quarter
of 1996, the Company took significant write-downs to reflect the estimated loss
the Company would incur over the life of the Florida CHPA contract. The Company
does not anticipate recovering all of its start-up expenses incurred in
connection with the alliance administration contracts during their initial
terms, and there can be no assurance that the health care purchasing alliance
contracts will be profitable for the Company. In addition, each of the health
care purchasing alliance contracts currently held by the Company contains a
broad cancellation provision that enables the alliance to cancel the contract on
relatively short notice without penalty. The Company has developed marketing
expertise and proprietary software to handle the enrollment, billing,
disbursement, and reporting services required under the alliance contracts,
including client-server technology which the Company believes may provide it
with a competitive advantage in pursuing alliance contracts.
In October 1995, Healthcare Sarasota, Inc., a coalition of employers in
Sarasota, Florida, selected the Company to administer health care benefit plans
for some of its member employers beginning in the first quarter of 1996. In
November 1995, the Company began administering health care benefits for the
South Broward Hospital District self-funded benefits plans.
During the first half of 1996, the alliance sector, in aggregate, was still
not profitable; management continues to review operating procedures to improve
profitability, and has entered into discussions with several Florida CHPA Boards
in order to renegotiate the existing contracts which are scheduled to expire in
1997. In the third quarter of 1996, the Company announced that it had taken a
charge of $2.6 million related to the alliance sector.
INFORMATION TECHNOLOGY
The Company's central data processing facilities are located in Tampa,
Florida, Framingham, Massachusetts, Columbus, Ohio, and El Monte, California.
The Company is operating in a three-tiered architectural environment. A large
IBM mainframe and DEC platform supports the large volume of data and
transactions processed by the Company on an annual basis. Since 1990, the
Company has invested in client-server technology to support the front-end sales
and marketing function. The Company utilizes personal computer workstations in a
local area and wide area network to deliver information and images to the
desktop. The Company also utilizes a variety of other technologies to meet
specific business needs, including interactive voice response for sales and
services, point of service devices for claims processing, and optical character
recognition for entry of data from forms.
The Company has completed four acquisitions during 1995 and 1996 and
intends to create a common technology platform for all of its business
operations. In addition, the Company expects to eliminate redundant facilities
and personnel as part of its ongoing integration of acquired businesses.
COMPETITION
The Company faces competition and potential competition from traditional
indemnity insurance carriers, Blue Cross/Blue Shield organizations, PPOs, HMOs,
third party administrators, utilization review companies, and health care
informatics companies. The Company competes principally on the basis of the
price and
17
<PAGE> 19
quality of services. Many large insurers have actively sought the claims
administration business of self-funded programs and have begun to offer
utilization review and other managed health care services similar to the
services offered by the Company. Many of the Company's competitors and potential
competitors are considerably larger and have significantly greater resources
than the Company.
GOVERNMENT REGULATION
The Company is subject to regulation under the health care and insurance
laws and other statutes and regulations of all 50 states, the District of
Columbia, and Puerto Rico. Many states in which the Company provides claims
administration services require the Company or its employees to receive
regulatory approval or licensure to conduct such business. Provider networks are
also regulated in many states, and certain states require the licensure of
companies, such as the Company, which provide utilization review services. The
Company's operations are dependent upon its continued good standing under
applicable licensing laws and regulations. Such laws and regulations are subject
to amendment or interpretation by regulatory authorities in each jurisdiction.
Generally, such authorities have relatively broad discretion when granting,
renewing, or revoking licenses or granting approvals. These laws and regulations
are intended to protect insured parties rather than shareholders, and differ in
content, interpretation, and enforcement practices from state to state.
Moreover, with respect to many issues affecting the Company, there is a lack of
guiding judicial or administrative precedent. Certain of these laws could be
construed to prohibit or restrict practices which have been significant factors
in the Company's operating procedure for many years if state regulators were to
deem the Company's practices to be impermissible.
ERISA governs the relationships between certain health benefit plans and
the fiduciaries of those plans. In general, ERISA is designed to protect the
ultimate beneficiaries of the plans from wrongdoing by the fiduciaries. ERISA
provides that a person is a fiduciary of a plan to the extent that such person
has discretionary authority in the administration of the plan or with respect to
the plan's assets. The employers who are the customers of the Company are
fiduciaries of the plan they sponsor, but there can also be other fiduciaries of
a plan. ERISA imposes various express obligations on fiduciaries. These include
barring a fiduciary from permitting a plan to engage in certain prohibited
transactions with parties in interest or from acting under an impermissible
conflict of interest with a plan. Generally, a party in interest with respect to
a plan includes a fiduciary of the plan and persons that provide services to the
plan. Violations of ERISA by fiduciaries can result in the rescission of any
affected agreement, the imposition of substantial civil penalties on fiduciaries
and parties in interest, and the imposition of excise taxes under the Internal
Revenue Code of 1986, as amended, on parties in interest.
Currently, the Company's Consolidated Group subsidiary is undergoing a DOL
audit in which the DOL has raised various questions about the application of
ERISA to the way that subsidiary does business. This audit is ongoing and there
can be no assurance that the DOL will not take positions which could require
changes to the way this subsidiary operates or result in the assertion or the
imposition of administrative fines and penalties.
The application of ERISA to the operations of the Company and its customers
is an evolving area of law and is subject to ongoing regulatory and judicial
interpretations of ERISA. Although the Company strives to minimize the
applicability of ERISA to its business and to ensure that the Company's
practices are not inconsistent with ERISA, there can be no assurance that courts
or the DOL will not in the future take positions contrary to the current or
future practices of the Company. Any such contrary positions could require
changes to the Company's business practices (as well as industry practices
generally) or result in liabilities of the type referred to above. Similarly,
there can be no assurance that future statutory changes to ERISA will not
significantly affect the Company and its industry.
LEGAL PROCEEDINGS
In 1995, a complaint was filed against the Company claiming wrongful
termination of an exclusive marketing agreement and breach of contract. The
complaint asserted damages of $25,000,000. The parties to the dispute have
agreed to binding arbitration. The arbitration proceedings occurred during the
week of
18
<PAGE> 20
October 29, 1996 and the arbitration panel's decision is expected by early
December 1996. Although the Company management believes it has meritorious
defenses against the complaint, the ultimate outcome of the matter cannot
presently be determined.
In connection with the acquisition of Harrington, the Company agreed to use
its best efforts to cause a registration statement sufficient to permit the
public offering and sale of the shares of the Company's Common Stock issued to
the Harrington stockholders in the acquisition, through the facilities of all
appropriate securities exchanges and the over-the-counter market, provided that
in all events, such registration statement shall become effective on or before
October 31, 1996. On October 30, 1996, the Company received a letter from
Harrington's shareholders representative notifying the Company that it was in
apparent violation of such agreement and reserving all rights under such
agreement. Due to the inability of both parties to finalize the closing balance
sheet for the transaction, and due to the disclosure requirements for the
pending Health Risk Merger, the Company was not able to have such registration
statement declared effective by October 31, 1996. While the Company believes it
has meritorious defenses against any possible claim, as of the date hereof, it
is not possible for the Company to evaluate what, if any, damages might result
from such notice.
The Company is involved in various claims arising in the normal course of
business. In the opinion of the Company's management, although the outcomes of
these claims are uncertain, in the aggregate they are not likely to have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
With the acquisitions of the Consolidated Group and Harrington, the Company
employed approximately 3,000 fulltime equivalent employees as of September 30,
1996. The Company's labor force is not unionized with the exception of
Harrington's subsidiary, American Benefit Plan Administrators, Inc., which
administers Taft-Hartley plans. The Company believes its relationship with its
employees is good.
TRADEMARKS
The Company utilizes various service marks, trademarks, and trade names in
connection with its products and services, most of which are the property of the
Company's payors. Although the Company considers its service marks, trademarks,
and trade names important in the operation of its business, the business of the
Company is not dependent on any individual service mark, trademark or trade
name.
19
<PAGE> 21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
based upon the consolidated financial statements of the Company and Health Risk
combined and adjusted to give effect to the Health Risk Merger. Upon
consummation of the Health Risk Merger, each outstanding share of Health Risk
common stock will be converted into the right to receive $9.68603 per share in
cash and 0.360208 of a Company Common Share. The 0.360208 share exchange ratio
is subject to possible increase or decrease, depending on the market price of
the Company's Common Shares during the five trading days preceding the
consummation of the Health Risk Merger, as set forth in the Merger Agreement.
The following unaudited pro forma consolidated statement of operations is
based on the individual pro forma consolidated statements of income of the
Company as reported in its Amendment No. 1 to Current Reports on Form 8K/A as
filed with the Commission on September 13, 1996, incorporated by reference,
relating to the Company's acquisitions of Harrington and of the Consolidated
Group, net of the effect of an additional 52,977 shares of stock issued to
Harrington shareholders, and the Company's unaudited consolidated statement of
operations for the three months ended September 30, 1996, included herein, and
on the individual unaudited consolidated statements of net income for Health
Risk, included herein, and combines the results of operations of the Company and
Health Risk as if the Health Risk Merger occurred at the beginning of each
period presented. The following unaudited pro forma consolidated balance sheet
is based on the individual balance sheets of the Company and Health Risk and has
been prepared to reflect the Health Risk Merger as of September 30, 1996.
These unaudited pro forma consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial statements,
including the notes thereto, which are incorporated by reference in this
Prospectus, and in conjunction with Health Risk's audited consolidated financial
statements, including the notes thereto which are prepared on the basis of a
June 30 year-end and are included elsewhere in this Prospectus. See
"Incorporation of Certain Documents by Reference."
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results of operations or financial position of the
combined company that would have occurred had the Health Risk Merger occurred at
the beginning of each period presented or on the date indicated, nor are they
necessarily indicative of future operating results or financial position.
The unaudited pro forma adjustments are based upon information set forth in
this Prospectus, and certain assumptions included in the notes to the unaudited
pro forma consolidated financial statements. In addition, as of the date of this
Prospectus, the Company believes that the unaudited pro forma consolidated
financial statements reflect the impact on the operations and liquidity of the
Company of all material events or changes expected to result from the Merger.
The Health Risk Merger will be accounted for by the purchase method of
accounting. Accordingly, the Company's cost to acquire Health Risk (the
"Purchase Consideration"), calculated to be $79.5 million assuming a cash
payment of $45.7 million and the issuance of 1.5 million Company common shares
at an estimated $22.50 per share, will be allocated to the assets acquired and
liabilities assumed according to their respective fair values, with the excess
Purchase Consideration being allocated to goodwill. The Purchase Consideration
is subject to change depending on the market price of Company common shares
during the five trading days preceding the consummation of the Health Risk
Merger, as set forth in the Merger Agreement. Such a change would result in a
corresponding change to goodwill and related amortization expense. The final
allocation of the Purchase Consideration is dependent upon certain valuations
and other studies that have not progressed to a stage where there is sufficient
information to make such an allocation in the accompanying unaudited pro forma
consolidated financial statements. Accordingly, the purchase allocation
adjustments made in connection with the development of the unaudited pro forma
consolidated financial statements are preliminary and have been made solely for
the purpose of developing such unaudited pro forma consolidated financial
statements.
20
<PAGE> 22
HEALTHPLAN SERVICES CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HEALTHPLAN SERVICES HEALTH RISK
CORPORATION MANAGEMENT, INC. PRO FORMA PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS CONSOLIDATED
------------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
$ 45,660 (A)
Cash and cash equivalents............... $ 10,473 $ 2,518 (45,660)(B) $ 12,991
Restricted cash......................... 9,986 -- -- 9,986
Accounts receivable..................... 18,274 9,553 -- 27,827
Prepaid commissions..................... 272 89 -- 361
Prepaid expenses and other current
assets................................ 4,676 1,575 -- 6,251
Deferred taxes.......................... 175 235 -- 410
-------- ------- -------- --------
Total current assets............. 43,856 13,970 -- 57,826
Property and equipment, net............. 16,087 8,693 -- 24,780
Computer software costs, net............ 4,900 17,689 -- 22,589
Note receivable......................... 6,900 -- -- 6,900
79,541 (B)
Investment in unconsolidated
subsidiary............................ 2,758 -- (79,541)(D) 2,758
Other assets............................ -- 1,522 -- 1,522
Intangible assets, net.................. 2,085 992 -- 3,077
Deferred taxes.......................... 11,212 -- -- 11,212
5,000 (C)
Goodwill, net........................... 162,080 753 50,352 (D) 218,185
-------- ------- -------- --------
Total assets..................... $ 249,878 $ 43,619 $ 55,352 $348,849
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 5,984 $ 1,356 $ -- $ 7,340
Premiums payable to carriers............ 29,260 -- -- 29,260
Commissions payable..................... 4,721 -- -- 4,721
Deferred revenue........................ 2,012 3,107 -- 5,119
Accrued liabilities..................... 34,698 1,996 5,000 (C) 41,694
Income taxes payable.................... 2,443 -- -- 2,443
Current portion of long-term debt....... 2,496 2,039 -- 4,535
-------- ------- -------- --------
Total current liabilities........ 81,614 8,498 5,000 95,112
Notes payable............................. 65,378 3,362 45,660 (A) 114,400
Deferred taxes............................ -- 2,570 -- 2,570
Other long-term liabilities............... 1,338 -- -- 1,338
-------- ------- -------- --------
Total liabilities................ 148,330 14,430 50,660 213,420
-------- ------- -------- --------
Common stockholders' equity:
15 (B)
Common stock............................ 149 42 (42)(D) 164
33,866 (B)
Additional paid-in capital.............. 104,598 27,896 (27,896)(D) 138,464
Retained earnings (deficit)............. (3,199) 1,251 (1,251)(D) (3,199)
-------- ------- -------- --------
Total stockholders' equity....... 101,598 29,189 4,692 135,429
-------- ------- -------- --------
Total liabilities and
stockholders' equity........... $ 249,878 $ 43,619 $ 55,352 $348,849
======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma consolidated balance sheet.
21
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) To record a draw on the Company's line of credit to fund the Health Risk
acquisition.
(B) To record the cash paid for the stock of Health Risk of $45.7 million and
the Company common shares issued to Health Risk's shareholders valued at
approximately $33.9 million.
(C) To record estimated costs, including finders fee, legal and accounting
services, and other expenses related to the acquisition, relating to the
Company's acquisition of Health Risk.
(D) To eliminate the Company's investment in Health Risk.
22
<PAGE> 24
HEALTHPLAN SERVICES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HEALTH RISK
HEALTHPLAN SERVICES HEALTHPLAN SERVICES MANAGEMENT, INC.
CORPORATION CORPORATION ACTUAL
PRO FORMA ACTUAL NINE MONTHS
SIX MONTHS ENDED THREE MONTHS ENDED ENDED SEPTEMBER PRO FORMA PRO FORMA
JUNE 30, 1996 SEPTEMBER 30, 1996 30, 1996 ADJUSTMENTS CONSOLIDATED
------------------- ------------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues......... $ 137,579 $ 66,555 $ 41,842 $ -- $245,976
Interest income............ 991 451 138 -- 1,580
-------- -------- ------- -------- --------
Total revenues.... 138,570 67,006 41,980 -- 247,556
-------- -------- ------- -------- --------
Expenses:
Agents commissions....... 31,593 15,025 -- 178 (C) 46,796
Cost of services......... -- -- 24,679 (24,679)(C) --
Personnel expenses....... 56,023 27,177 -- 23,531 (C) 106,731
General and
administrative......... 28,997 13,379 -- 10,239 (C) 52,615
Selling and marketing.... -- -- 5,541 (5,541)(C) --
Administration........... -- -- 3,728 (3,728)(C) --
Pre-operating and
contract start-up
costs.................. 586 109 -- -- 695
Contract commitment
expense................ -- 3,935 -- -- 3,935
Restructure and
integration charge..... -- 14,065 -- -- 14,065
Loss on impairment of
goodwill............... -- 19,232 -- -- 19,232
Depreciation and
amortization........... 7,058 3,546 5,409 1,452 (A) 17,465
-------- -------- ------- -------- --------
Total expenses.... 124,257 96,468 39,357 1,452 261,534
-------- -------- ------- -------- --------
Income (loss) before
interest expense and
income taxes (benefits).. 14,313 (29,462) 2,623 (1,452) (13,978)
Interest expense........... 2,230 1,277 505 2,346 (B) 6,358
-------- -------- ------- -------- --------
Income (loss) before income
taxes (benefits)......... 12,083 (30,739) 2,118 (3,798) (20,336)
Provision for income taxes
(benefits)............... 4,894 (11,570) 825 (3,461)(D) (9,312)
-------- -------- ------- -------- --------
Net income
(loss).......... $ 7,189 $ (19,169)(E) $ 1,293 $ (337) $(11,024)(E)
======== ======== ======= ======== ========
Net income (loss) per
share.................... $ 0.48 $ (1.28)(E) $ (0.67)(E)
======== ======== ========
Weighted average shares.... 14,961 14,966 16,468
======== ======== ========
</TABLE>
See notes to unaudited pro forma consolidated statement of operations.
23
<PAGE> 25
HEALTHPLAN SERVICES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HEALTH RISK
MANAGEMENT, INC.
ACTUAL
TWELVE MONTHS
HEALTHPLAN SERVICES ENDED
CORPORATION DECEMBER 31, PRO FORMA PRO FORMA
PRO FORMA 1995 ADJUSTMENTS CONSOLIDATED
------------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenues........................ $ 243,970 $ 52,848 $ -- $296,818
Interest income........................... 1,197 129 -- 1,326
-------- ------- -------- --------
Total revenues................... 245,167 52,977 -- 298,144
-------- ------- -------- --------
Expenses:
Agents commissions...................... 62,780 -- 222 (C) 63,002
Cost of services........................ -- 31,110 (31,110)(C) --
Personnel expenses...................... 88,022 -- 29,545 (C) 117,567
General and administrative.............. 57,198 -- 12,784 (C) 69,982
Selling and marketing................... -- 6,188 (6,188)(C) --
Administration.......................... -- 5,253 (5,253)(C) --
Pre-operating and contract start-up
costs................................. 1,664 -- -- 1,664
Depreciation and amortization........... 12,619 6,501 2,092 (A) 21,212
-------- ------- -------- --------
Total expenses................... 222,283 49,052 2,092 273,427
-------- ------- -------- --------
Income before interest expense and income
taxes................................... 22,884 3,925 (2,092) 24,717
Interest expense.......................... 4,313 722 3,128 (B) 8,163
-------- ------- -------- --------
Income before income taxes................ 18,571 3,203 (5,220) 16,554
Provision for income taxes................ 7,521 1,195 (1,136)(D) 7,580
-------- ------- -------- --------
Income from continuing
operations..................... 11,050 2,008 (4,084) 8,974
Loss on discontinued business segment net
of tax benefit.......................... 3,170 -- -- 3,170
-------- ------- -------- --------
Net income....................... $ 7,880 $ 2,008 $ (4,084) $ 5,804
======== ======= ======== ========
Net income per share...................... $ 0.53 $ 0.35
======== ========
Weighted average shares................... 14,956 16,468
======== ========
</TABLE>
See notes to unaudited pro forma consolidated statement of operations.
24
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) To eliminate historical amortization and to record pro forma amortization
of estimated goodwill of $55.4 million over a 25 year period.
(B) To record estimated interest expense related to net borrowing on the
purchase of Health Risk at the Company's borrowing rate under its Line of
Credit ranging from LIBOR plus 125 to 175 basis points or New York prime
plus 25 to 75 basis points.
(C) To reclassify Health Risk accounts to conform with those of the Company.
(D) To provide for combined income taxes at an estimated rate of 45.79%.
(E) In the third quarter of 1996, the Company took a pre-tax charge of
approximately $18.0 million in restructuring, integration and contract
commitment expenses. Additionally, the Company recorded a pre-tax charge of
$19.2 million for the impairment of goodwill. See "Risk Factors -- Risks
Related to Goodwill."
25
<PAGE> 27
SELLING STOCKHOLDERS--SHARES COVERED BY THIS PROSPECTUS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 30, 1996, and as adjusted
to reflect the sale of the Shares offered by this Prospectus, with respect to
the stockholders of the Company (the "Selling Stockholders") for whose account
the Shares are being offered from time to time pursuant to this Prospectus.
James F. Carlin and Holyoke L. Whitney are members of the Company's Board of
Directors. Robert R. Parker is President and Chairman of the Board of the
Company's Harrington subsidiary. Timothy T. Clifford is President and Chairman
of the Board of the Company's Consolidated Group subsidiary. Charles W. Berry
and Arthur T. Shultz are members of the Board of Directors of the Company's
Consolidated Group subsidiary. All other Selling Shareholders are neither
officers nor directors of the Company or any of its operating subsidiaries.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1) SHARES OFFERING(1)(2)
----------------- BEING -----------------
NUMBER PERCENT OFFERED NUMBER PERCENT
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
APA Excelsior II................................ 499,736 3.3% 499,736 -- --
Apax Capital Risque............................. 33,072 * 33,072 -- --
Apax Capital Risque IIA......................... 44,979 * 44,979 -- --
Apax Capital Risque IIC......................... 19,512 * 19,512 -- --
APA Excelsior Venture Capital Holdings
(Jersey) Ltd.................................. 125,346 * 125,346 -- --
Apax Venture Capital Fund Ltd................... 24,473 * 24,473 -- --
Apax Ventures II Ltd............................ 73,422 * 73,422 -- --
Robert R. Parker................................ 269,297 1.8% 269,297 -- --
Warren G. Blue.................................. 52,089 * 52,089 -- --
Martin Rapaport................................. 22,762 * 22,762 -- --
Martin B. Rapaport, Trustee under Trust Agmt,
Dtd. 11/23/94................................. 2,041 * 2,041 -- --
Hannah Rapaport Salia........................... 20,721 * 20,721 -- --
Hannah Salia, Trustee for Rachel Fatima Salia... 2,041 * 2,041 -- --
Hannah Salia, Trustee for Mariama Sara Salia.... 2,041 * 2,041 -- --
Robert J. Covert................................ 53,082 * 53,082 -- --
Robert A. or Charlene M. Arthur................. 3,307 * 3,307 -- --
Michael S. Blue................................. 1,653 * 1,653 -- --
Steven J. Covert................................ 1,984 * 1,984 -- --
Jeffrey W. Covert............................... 330 * 330 -- --
Greystone Financial Group, Inc.................. 2,426 * 2,426 -- --
Clay R. Caroland, III........................... 2,731 * 2,731 -- --
Thomas Greene, Trustee.......................... 222 * 222 -- --
Jessie B. Greene................................ 34 * 34 -- --
Tom E. Greene, III.............................. 24,060 * 24,060 -- --
Pitt & Co....................................... 12,156 * 12,156 -- --
Mellon Bank, N.A., as Trustee for the Bell
Atlantic Master Pension Trust................. 4,583 * 4,583 -- --
Hank & Co....................................... 24,511 * 24,511 -- --
General Motors Corporation Salaried Retirement
Plan By Bankers Trust As Trustee.............. 12 * 12 -- --
General Motors Corporation Hourly Pension Plan
By Bankers Trust As Trustee................... 15 * 15 -- --
Mellon Bank, N.A., as Custodian for the
Commingled Employee Benefit Trust Small Cap
Fund.......................................... 123 * 123 -- --
Mellon Bank, N.A., as Custodian for the
Commingled Employee Benefit Trust Emerging
Health Fund................................... 37,834 * 37,834 -- --
Fairfield Investors II, L.P..................... 9,604 * 9,604 -- --
Private Equity Investment Fund, L.P............. 13,927 * 13,927 -- --
William T. Brake................................ 826 * 826 -- --
Steven J. Weber................................. 826 * 826 -- --
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1) SHARES OFFERING(1)(2)
----------------- BEING -----------------
NUMBER PERCENT OFFERED NUMBER PERCENT
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
William R. Ash, Jr.............................. 2,479 * 2,479 -- --
Alan P. Fazer................................... 2,397 * 2,397 -- --
Thomas J. O'Neill............................... 826 * 826 -- --
Diana F. Butts.................................. 412 * 412 -- --
Kenneth L. Di Bella............................. 826 * 826 -- --
Phillip R. Parker............................... 1,653 * 1,653 -- --
Christopher E. Parker........................... 1,653 * 1,653 -- --
Jamie Parker Shepherd........................... 1,653 * 1,653 -- --
Garry L. Koch................................... 2,397 * 2,397 -- --
James F. Carlin................................. 13,270(3) * 10,870 2,400(3) *
Holyoke L. Whitney.............................. 122,400(3) * 120,000 2,400(3) *
John C. Naramore................................ 1,000 * 1,000 -- --
David H. Knight................................. 1,000 * 1,000 -- --
Michael V. Clark................................ 1,000 * 1,000 -- --
Timothy T. Clifford............................. 13,043 * 13,043 -- --
Charles W. Berry................................ 4,348 * 4,348 -- --
Arthur T. Schultz............................... 4,348 * 4,348 -- --
Donald R. Fitch................................. 4,348 * 4,348 -- --
Carolyn D. Shea................................. 1,000 * 1,000 -- --
</TABLE>
- ---------------
* Less than 1.0%.
(1) The percentages shown include the shares of Common Stock actually owned as
of October 30, 1996, and the shares of Common Stock that the Selling
Stockholder had the right to acquire within 60 days of such date. In
calculating the percentage of ownership, all shares of Common Stock that
the Selling Stockholder had the right to acquire within 60 days of October
30, 1996, upon the exercise of options are deemed to be outstanding for the
purpose of computing the percentage of the shares of Common Stock owned by
such Selling Stockholder, but are not deemed outstanding for the purpose of
computing the percentage of the shares of Common Stock owned by any other
person.
(2) Assumes the sale of all of the Shares of the Selling Stockholder offered
hereby.
(3) Includes 2,400 shares issuable upon exercise of options that are currently
exercisable.
The Company has agreed to indemnify each of the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, in connection with the sale of their Shares offered by this
Prospectus.
The Company will pay the expenses incurred in connection with the
preparation and filing of this Prospectus and the related Registration
Statement.
USE OF PROCEEDS
The proceeds from the sale of the Shares to which this Prospectus relates
will be received by the Selling Stockholders and no portion thereof will inure
to the benefit of the Company.
PLAN OF DISTRIBUTION
The Shares may be sold by the Selling Stockholders in one or more
transactions on the New York Stock Exchange.
Such transactions may be effected by the Selling Stockholders at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices or at fixed prices. The Selling Stockholders
may effect such transactions by selling Shares to or through broker-dealers, and
such broker-dealers will receive compensation in the form of discounts or
commissions from the Selling Stockholders and
27
<PAGE> 29
may receive commissions from the purchaser of Shares for whom they may act as
agent. A broker or dealer selling Shares for the Selling Stockholders or
purchasing such Shares from the Selling Stockholders for purposes of resale may
be deemed to be an underwriter under the Securities Act, and any compensation
received by any such broker or dealer may be deemed underwriting compensation.
Neither the Company nor the Selling Stockholders can presently estimate the
amount of such compensation which is to be paid by the Selling Stockholders;
however, the Company has been advised that such discounts or commissions from
the Selling Stockholder will not exceed those customary in the types of
transaction involved. In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to this Prospectus.
Each of the Selling Stockholders has indicated to the Company that it
intends to sell its Shares on a delayed or continuous basis as it may determine.
The Company will file during any period in which offers or sales of Shares are
being made by the Selling Stockholders one or more post-effective amendments to
the Registration Statement of which this Prospectus is a part to describe any
material information with respect to the plan of distribution not previously
disclosed in this Prospectus or any material change to such information in this
Prospectus.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994, and for the year ended December 31, 1995, and for the period from
inception (October 1, 1994 through December 31, 1994), incorporated in this
Prospectus by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The financial statements of the
Company as of September 30, 1994, and for the nine-month period ended September
30, 1994 and the year ended December 31, 1993 incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, have
been so incorporated in reliance on the report of Coopers & Lybrand L.L.P.,
independent certified public accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Health Risk Management, Inc., as
of June 30, 1996 and 1995, and for each of the three years in the period ended
June 30, 1996, included in this Prospectus have been so included in reliance on
the report of Ernst & Young LLP, independent certified public accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Consolidated Group, Inc. and Affiliates, as of
December 31, 1995 and 1994, and for each of the three years ended December 31,
1995, and the financial statements of Consolidated Health Coalition, Inc., as of
December 31, 1995 and 1994 (year of inception) and for each of the two years
ended December 31, 1995, incorporated in this Prospectus by reference have been
so incorporated in reliance on the report of Bonanno, Savino & Davies, P.C.,
independent certified public accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Harrington Services Corporation as of December
31, 1995 and 1994, and for each of the three years ended December 31, 1995,
incorporated in this Prospectus by reference have been so incorporated in
reliance on the report of Richard A. Eisner & Co., LLP, independent certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon by
Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., of Tampa, Florida.
28
<PAGE> 30
INDEX TO FINANCIAL STATEMENTS OF HEALTH RISK MANAGEMENT, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 (UNAUDITED)
Consolidated Balance Sheets as of September 30, 1996 and June 30, 1996............. F-2
Consolidated Statements of Net Income for the three months ended September 30, 1996
and 1995........................................................................ F-3
Consolidated Statements of Cash Flows for the three months ended September 30, 1996
and 1995........................................................................ F-4
Notes to Consolidated Financial Statements......................................... F-5
FINANCIAL STATEMENTS AS OF JUNE 30, 1996
Report of Independent Auditors..................................................... F-7
Consolidated Balance Sheets as of June 30, 1996 and 1995........................... F-8
Consolidated Statements of Net Income for the years ended June 30, 1996, 1995 and
1994............................................................................ F-9
Consolidated Statements of Changes in Shareholders' Equity for the years ended June
30, 1996, 1995 and 1994......................................................... F-10
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and
1994............................................................................ F-11
Notes to Consolidated Financial Statements......................................... F-12
</TABLE>
F-1
<PAGE> 31
PART I. FINANCIAL INFORMATION
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 2,518 $ 3,347
Accounts receivable -- net of allowance for doubtful accounts of $210
and $200 at September 30, 1996 and June 30, 1996, respectively.... 4,105 5,134
Unbilled receivables................................................. 5,448 4,642
Deferred income taxes................................................ 235 235
Other................................................................ 1,664 1,394
------- --------
Total current assets......................................... 13,970 14,752
Computer software costs, net of amortization of $10,747 and $9,816 at
September 30, 1996, and June 30, 1996, respectively.................. 17,689 17,132
Property and equipment less accumulated depreciation of $9,126 and
$9,272 at September 30, 1996, and June 30, 1996, respectively........ 8,693 9,788
Contract rights, net of amortization of $786 and $748 at September 30,
1996 and June 30, 1996, respectively................................. 992 1,030
Other assets........................................................... 2,275 2,120
------- --------
$43,619 $ 44,822
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 1,356 $ 1,863
Accrued expenses..................................................... 1,996 2,638
Unearned revenues.................................................... 3,107 2,578
Current maturities of notes payable.................................. 1,069 1,076
Current portion of capitalized equipment leases...................... 970 1,351
------- --------
Total current liabilities.................................... 8,498 9,506
Deferred income taxes.................................................. 2,570 2,292
Long-term portion of notes payable..................................... 1,892 2,152
Long-term portion of capitalized equipment leases...................... 1,470 2,398
Commitments
Shareholders' equity:
Undesignated shares, $.01 par value, 9,750,000 authorized, none
issued
Common shares, $.01 par value, 20,000,000 shares authorized,
4,218,476 and 4,180,476 shares issued and outstanding at September
30, 1996 and June 30, 1996, respectively.......................... 42 42
Additional paid-in capital........................................... 27,896 27,619
Retained earnings.................................................... 1,251 813
------- --------
Total shareholders' equity................................... 29,189 28,474
------- --------
$43,619 $ 44,822
======= ========
</TABLE>
F-2
<PAGE> 32
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF NET INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Revenues................................................................ $ 14,395 $ 13,371
--------- ---------
Operating expenses:
Cost of services...................................................... 8,648 7,880
Depreciation and amortization, principally cost of services........... 1,726 1,579
Selling and marketing................................................. 1,908 1,558
Administration........................................................ 1,291 1,358
--------- ---------
Total operating expenses...................................... 13,573 12,375
--------- ---------
Operating income........................................................ 822 996
Other income (expense):
Interest income....................................................... 44 44
Interest expense...................................................... (146) (186)
--------- ---------
Total other income (expense).................................. (102) (142)
--------- ---------
Income before income taxes.............................................. 720 854
Provision for income taxes:
Current............................................................... 4 3
Deferred.............................................................. 278 322
--------- ---------
Total income taxes............................................ 282 325
--------- ---------
Net income.............................................................. $ 438 $ 529
========= =========
Net income per common and common equivalent share....................... $ .10 $ .13
========= =========
Weighted average common and common equivalent shares.................... 4,356,000 4,140,000
========= =========
</TABLE>
F-3
<PAGE> 33
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 438 $ 529
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.......................................................... 636 634
Amortization.......................................................... 1,090 945
Provision for deferred income tax..................................... 278 322
Changes in operating assets and liabilities:
Accounts receivable................................................. 1,063 (1,596)
Unbilled receivables................................................ (806) 392
Other assets........................................................ (339) (497)
Accounts payable.................................................... (498) (449)
Accrued expenses.................................................... (640) (736)
Unearned revenues................................................... 529 491
------- -------
Net cash provided by operating activities.................................. 1,751 35
Cash flows from investing activities:
Acquisition of assets, net of cash acquired.............................. (139) --
Property and equipment................................................... (615) (726)
Capitalized software..................................................... (1,488) (1,175)
------- -------
Net cash used in investing activities...................................... (2,242) (1,901)
Cash flows from financing activities:
Principal payments on notes payable...................................... (342) (186)
Principal payments on capital leases..................................... (273) (274)
Issuance of common shares................................................ 277 --
------- -------
Net cash used in financing activities...................................... (338) (460)
------- -------
Decrease in cash........................................................... (829) (2,326)
Cash and cash equivalents at beginning of period........................... 3,347 3,348
------- -------
Cash and cash equivalents at end of period................................. $ 2,518 $ 1,022
======= =======
Supplemental disclosures:
Interest paid............................................................ $ 146 $ 186
Income taxes paid........................................................ 7 7
Equipment acquired under capital lease................................... 0 230
</TABLE>
F-4
<PAGE> 34
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited consolidated financial statements herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying interim financial statements have been prepared
under the presumption that users of the interim financial information have
either read or have access to the audited financial statements for the latest
fiscal year ended June 30, 1996. Accordingly, footnote disclosures which would
substantially duplicate the disclosures contained in the June 30, 1996 audited
financial statements have been omitted from these interim financial statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
interim financial statements should be read in conjunction with the annual
financial statements and the notes thereto.
Certain items in the September 30, 1995 financial statements have been
reclassified to conform to the September 30, 1996 presentation.
2. Computer software and database development costs
Computer software and database development costs consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Computer Software (AutoPILOT(TM))
Cost......................................................... $10,924 $ 10,347
Less accumulated amortization................................ 4,698 4,307
------- --------
Net book value....................................... 6,226 6,040
Claim Administration Software
Cost......................................................... 6,936 6,705
Less accumulated amortization................................ 2,353 2,178
------- --------
Net book value....................................... 4,583 4,527
Guidelines, Protocols and Medical Analysis Software
Cost......................................................... 10,576 9,896
Less accumulated amortization................................ 3,696 3,331
------- --------
Net book value....................................... 6,880 6,565
------- --------
Computer Software and Database Development Costs............... $17,689 $ 17,132
======= ========
</TABLE>
Amortization of these costs was as follows for the three month period ended
September 30, 1996 and the year ended June 30, 1996:
<TABLE>
<CAPTION>
YEAR
ENDED
THREE MONTHS ENDED JUNE 30,
SEPTEMBER 30, 1996 1996
------------------ --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Computer Software (AutoPILOT)............................... $391 $1,485
Claim Administration Software............................... 175 645
Guidelines, Protocols and Medical Analysis Software......... 365 1,279
------- -------
Amortization Expense........................................ $931 $3,409
======= =======
</TABLE>
F-5
<PAGE> 35
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MERGER ANNOUNCEMENT
On September 12, 1996, HRM signed a merger agreement with HealthPlan
Services Corporation (HPS) whereby HPS would acquire HRM for consideration
consisting of cash and shares of HPS stock. Under terms of the merger agreement,
each share of HRM stock will be exchanged for $9.68603 in cash plus 0.360208 of
a share of HPS stock. The 0.360208 share exchange ratio is subject to possible
increase or decrease depending on the market price of HPS stock during the five
trading days preceding consummation of the merger. The merger is subject to
regulatory approval, as well as HRM shareholder approval, and is expected to
close in early 1997.
F-6
<PAGE> 36
[LETTERHEAD]
Report of Independent Auditors
Board of Directors and Shareholders
of Health Risk Management, Inc.
We have audited the accompanying consolidated balance sheets of Health Risk
Management, Inc. as of June 30, 1996 and 1995, and the related consolidated
statements of net income, changes in shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Health Risk Management, Inc. at June 30, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
August 16, 1996
F-7
<PAGE> 37
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1995
------- -------
(IN THOUSANDS,
EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 3,347 $ 3,348
Accounts receivable-net of allowance for doubtful accounts of $200 ($300
in 1995).............................................................. 5,134 2,760
Unbilled receivables..................................................... 4,642 4,945
Deferred income taxes.................................................... 235 220
Other.................................................................... 1,394 1,028
------- -------
Total current assets............................................. 14,752 12,301
Computer software costs, net of amortization of $9,816 ($7,502 in 1995).... 17,132 14,762
Property and equipment less accumulated depreciation of $9,272 ($6,680 in
1995).................................................................... 9,788 9,760
Contract rights, net of amortization of $748 ($604 in 1995)................ 1,030 1,093
Other assets............................................................... 2,120 2,046
------- -------
$44,822 $39,962
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 1,863 $ 1,697
Accrued expenses......................................................... 2,638 2,599
Unearned revenues........................................................ 2,578 2,296
Current maturities of notes payable...................................... 1,076 753
Current portion of capitalized equipment leases.......................... 1,351 1,193
------- -------
Total current liabilities........................................ 9,506 8,538
Deferred income taxes...................................................... 2,292 1,168
Long-term portion of notes payable......................................... 2,152 1,879
Long-term portion of capitalized equipment leases.......................... 2,398 3,276
Commitments:
Shareholders' equity:
Undesignated shares, $.01 par value, 9,750,000 authorized, none issued
Common shares, $.01 par value; 20,000,000 shares authorized, 4,180,476
issued and outstanding (4,029,699 in 1995)........................... 42 40
Additional paid-in capital............................................ 27,619 26,244
Retained earnings (deficit)........................................... 813 (1,183)
------- -------
Total shareholders' equity....................................... 28,474 25,101
------- -------
$44,822 $39,962
======= =======
</TABLE>
See accompanying notes.
F-8
<PAGE> 38
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................................... $ 54,507 $ 49,302 $ 45,824
Operating expenses:
Cost of services......................................... 31,762 30,290 26,784
Depreciation and amortization, principally cost of
services.............................................. 6,947 6,127 5,227
Selling and marketing.................................... 6,767 6,064 6,485
Administration........................................... 5,232 4,811 4,792
---------- ---------- ----------
Total operating expenses......................... 50,708 47,292 43,288
---------- ---------- ----------
Operating income........................................... 3,799 2,010 2,536
Other income (expense):
Interest income.......................................... 158 128 65
Interest expense......................................... (708) (759) (436)
---------- ---------- ----------
Total other expense.............................. (550) (631) (371)
---------- ---------- ----------
Income before income taxes................................. 3,249 1,379 2,165
Income taxes............................................. 1,253 535 449
---------- ---------- ----------
Net income................................................. $ 1,996 $ 844 $ 1,716
========== ========== ==========
Net income per common and common equivalent share.......... $ .47 $ .21 $ .43
========== ========== ==========
Weighted average common and common equivalent shares....... 4,219,186 3,982,093 4,015,317
========== ========== ==========
</TABLE>
See accompanying notes.
F-9
<PAGE> 39
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES
OUTSTANDING
------------------ ADDITIONAL RETAINED
NUMBER PAID-IN UNEARNED EARNINGS
OF SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) TOTAL
--------- ------ ---------- ------------ -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993............ 3,914,724 $ 39 $ 25,381 $ (9) $ (3,743) $21,668
Options to purchase common shares
issued for service............. 47 47
Options exercised................. 31,808 274 274
Cancellation of stock grant....... (3,333) (37) (37)
Amortization of unearned
compensation................... 9 9
Net income........................ 1,716 1,716
--------- --- ------- --- ------- -------
Balance at June 30, 1994............ 3,943,199 39 25,665 -- (2,027) 23,677
Options to purchase common shares
issued for service............. 18 18
Options exercised................. 85,500 1 554 555
Common shares issued for
services....................... 1,000 7 7
Net income........................ 844 844
--------- --- ------- --- ------- -------
Balance at June 30, 1995............ 4,029,699 40 26,244 -- (1,183) 25,101
Options to purchase common shares
issued for service............. 19 19
Options exercised, including tax
benefit of $120................ 143,277 2 1,275 1,277
Common shares issued for contract
rights......................... 7,500 81 81
Net income........................ 1,996 1,996
--------- --- ------- --- ------- -------
Balance at June 30, 1996............ 4,180,476 $ 42 $ 27,619 $ -- $ 813 $28,474
========= === ======= === ======= =======
</TABLE>
See accompanying notes.
F-10
<PAGE> 40
HEALTH RISK MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 1,996 $ 844 $ 1,716
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................. 2,832 2,406 1,958
Amortization................................................. 4,115 3,721 3,269
Provision for deferred income taxes.......................... 1,231 523 425
Amortization of unearned compensation and other.............. -- 7 (28)
Issuance of options.......................................... 19 18 47
Changes in operating assets and liabilities:
Accounts receivable........................................ (2,374) 153 (214)
Unbilled receivables....................................... 303 (1,371) (859)
Other assets............................................... (1,002) 51 (909)
Accounts payable........................................... (6) 318 453
Accrued expenses........................................... 39 416 347
Unearned revenues.......................................... 282 228 (110)
------- ------- -------
Net cash provided by operating activities......................... 7,435 7,314 6,095
Cash flows from investing activities:
Property and equipment.......................................... (2,256) (1,891) (457)
Capitalized software............................................ (5,779) (5,337) (4,896)
------- ------- -------
Net cash used in investing activities............................. (8,035) (7,228) (5,353)
Cash flows from financing activities:
Proceeds from notes payable..................................... 1,500 -- 3,986
Principal payments on notes payable............................. (904) (935) (4,172)
Principal payments on capital leases............................ (1,152) (1,231) (938)
Issuance of common shares....................................... 1,155 555 274
------- ------- -------
Net cash provided by (used in) financing activities............... 599 (1,611) (850)
------- ------- -------
Decrease in cash.................................................. (1) (1,525) (108)
Cash and cash equivalents at beginning of year.................... 3,348 4,873 4,981
------- ------- -------
Cash and cash equivalents at end of year.......................... $ 3,347 $ 3,348 $ 4,873
======= ======= =======
</TABLE>
See accompanying notes.
F-11
<PAGE> 41
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated.
B. NATURE OF OPERATIONS
The Company is engaged in a single business consisting of managed health
care services providing comprehensive, integrated health plan management and
related information services. The Company's principal health plan management
services include care review, case management, price control, and claims
administration. The Company's information services revenues are derived
principally from software license and subscription fees related to its
QUALITYFIRST(@) clinical practice guidelines (the Guidelines). A significant
percentage of the Company's revenues are derived from the care review management
and claims administration management services. Integrated health plan management
and information services are marketed to self-insured employers, unions,
government entities, insurance companies, HMOs, PPOs and hospitals. Contractual
relationships maintained by the Company with its clients subjects the Company to
revenue fluctuations resulting from changes in client employment levels or
covered lives, restructuring of benefit plan offerings, and price adjustments
based upon contract experience. In addition, the Company services a small number
of large clients. In 1996, sales to two clients were seventeen percent (17%) and
eleven percent (11%) of revenues, and in 1995 sales to one customer were sixteen
percent (16%) of revenues. The markets serviced by the Company are principally
domestic.
C. USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
D. REVENUE RECOGNITION
The Company's revenues for health plan management services are derived from
services provided under contracts obligating clients to generally pay a
capitated monthly charge for each covered employee or covered member based on
anticipated case volume experience, a percentage of savings, a transaction or
case fee, or an hourly fee. In addition, each new client is typically charged a
one-time set-up fee to cover the related set-up costs incurred by the Company.
Revenue for health plan management services is recognized as services are
rendered under each contract. Revenue from license fees is recognized upon
delivery of the Guidelines while subscription fees are recognized as revenue in
the month the Guidelines are utilized by the clients.
E. UNBILLED RECEIVABLES
Unbilled receivables represent costs and related profit incurred for
contract services which have not been billed by the Company and for services
billed in the month subsequent to performance for case, hourly, and percentage
of savings fees.
F. UNEARNED REVENUES
Unearned revenues represent amounts billed to clients for contract services
yet to be performed.
F-12
<PAGE> 42
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. COMPUTER SOFTWARE COSTS
The Company capitalizes computer software costs in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. The capitalized
costs are amortized based on the greater of the amount computed using (a) the
ratio of current gross revenues for the product to the total of current and
anticipated future gross revenues or (b) a straight-line basis over their
estimated useful lives, ranging from three to ten years.
H. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the assets using straight-line methods for
financial reporting purposes and accelerated methods for tax purposes. Estimated
useful lives range from three to ten years. Equipment under capital leases is
amortized over the term of the respective lease or over the service lives of the
assets for those leases which substantially transfer ownership.
I. CONTRACT RIGHTS
The fair value of purchased customer lists and relationships is amortized
over their respective estimated useful lives of three to twelve years.
Amortization expense was $144,000, $161,000 and $178,000 for the years ended
June 30, 1996, 1995 and 1994, respectively.
J. INCOME TAXES
The Company reports income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The statement
requires that all deferred tax balances be determined by using the tax rate
expected to be in effect when the taxes will actually be paid. A deferred income
tax provision or credit is provided based on changes in deferred tax asset or
liability balances.
K. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per share is computed using the weighted average number of Common
Shares and Common Share equivalents outstanding during the period. Common Share
equivalents include dilutive stock options using the treasury stock method.
L. CASH AND CASH EQUIVALENTS
Short-term investments purchased within three months of their maturities
are considered cash equivalents. The Company invests in U.S. government
securities and high rated money market funds. The carrying amount reported in
the consolidated balance sheets for cash and cash equivalents approximates its
fair value.
M. RECLASSIFICATION
Certain items in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentations.
N. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 121 (FAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events of changes in circumstances
F-13
<PAGE> 43
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indicate that the carrying amount of an asset may not be recoverable. The
Company will apply this statement in the first quarter of fiscal 1997. The
Company, however, does not believe the adoption of FAS 121 will have an adverse
effect on its consolidated financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (FAS 123) "Accounting for Stock-Based Compensation." FAS 123
allows companies to choose whether to account for stock-based compensation under
the current method as prescribed in Accounting Principles Board Opinion Number
25 (APB 25) or use the fair value method described in FAS 123. The Company plans
to continue to follow the accounting measurement provisions of APB 25 and
believes the impact of implementing the disclosure provisions of FAS 123 will
not be material to its consolidated financial statements.
2. COMPUTER SOFTWARE COSTS
Computer software costs consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computer Software (AutoPILOT(TM))
Cost........................................................... $10,347 $ 8,813
Less accumulated amortization.................................. 4,307 3,586
------- -------
Net book value................................................. 6,040 5,227
Claim Administration Software
Cost........................................................... 6,705 5,770
Less accumulated amortization.................................. 2,178 1,533
------- -------
Net book value................................................. 4,527 4,237
Guidelines, Protocols and Medical Analysis Software
Cost........................................................... 9,896 7,681
Less accumulated amortization.................................. 3,331 2,383
------- -------
Net book value................................................. 6,565 5,298
------- -------
Computer Software and Database Development Costs................. $17,132 $14,762
======= =======
</TABLE>
Amortization of these costs was as follows for the years ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer Software (AutoPILOT(TM))........................ $1,485 $1,255 $1,016
Claim Administration Software............................ 645 552 434
Guidelines, Protocols and Medical Analysis Software...... 1,279 982 735
------ ------ ------
Amortization Expense..................................... $3,409 $2,789 $2,185
====== ====== ======
</TABLE>
F-14
<PAGE> 44
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
OWNED
Office equipment, furniture and fixtures........................... $ 5,037 $ 4,606
Leasehold improvements............................................. 1,387 1,265
Data processing equipment and software............................. 5,951 4,186
------- -------
12,375 10,057
Less accumulated depreciation...................................... 6,431 4,978
------- -------
Net property and equipment owned................................... 5,944 5,079
------- -------
CAPITALIZED LEASES
Office equipment and furniture..................................... 1,372 1,385
Data processing equipment and software............................. 5,313 4,998
------- -------
6,685 6,383
Less accumulated depreciation...................................... 2,841 1,702
------- -------
Net capitalized leases............................................. 3,844 4,681
------- -------
Property and equipment............................................. $ 9,788 $ 9,760
======= =======
</TABLE>
4. NOTES PAYABLE
Notes payable consist of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Term loan payable to bank in monthly installments of $43,667 plus
interest at the bank's reference rate plus 0.375% (8.625% at June
30, 1996), with the last payment due June 30, 1999. Secured by
accounts receivable, equipment, fixtures and general
intangibles. ...................................................... $1,572 $2,096
Note payable to bank under revolving credit agreement in monthly
installments of $25,000 plus interest at the bank's reference rate
plus 0.375% (8.625% at June 30, 1996), with the last payment due
December 31, 2001. Secured by accounts receivable, equipment,
fixtures and general intangibles. ................................. 1,350 --
Note payable to bank in monthly installments of $22,325 including
interest at the bank's base rate (8.25% at June 30, 1996) until
September 30, 1997 when the remaining principal balance is due.
Secured by accounts receivable and equipment. ..................... 306 536
------ ------
3,228 2,632
Less Current Maturities.............................................. 1,076 753
------ ------
Long-Term Portion.................................................... $2,152 $1,879
====== ======
</TABLE>
The Company has entered into a revolving credit agreement with a bank
whereby it may borrow up to $2,500,000 under a revolving loan. The loan is
secured by accounts receivable, equipment, fixtures and general intangibles. The
revolving credit agreement terminates on January 31, 1997. The Company borrowed
$1,500,000 (principal balance of $1,350,000 as of June 30, 1996) under the
$2,500,000 revolving credit facility during fiscal 1996.
F-15
<PAGE> 45
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts of the Company's borrowings under its term loan and
notes payable approximate their fair value.
Under terms of the revolving credit and term loan agreements, the Company
is prohibited from paying dividends on its stock without the bank's consent.
Scheduled payments under terms of the notes payable will be $1,076,000 in
1997, $878,000 in 1998, $824,000 in 1999, $300,000 in 2000, and $150,000 in
2001.
Total interest paid on notes payable was $281,000, $298,000, and $459,000
for the years ended June 30, 1996, 1995 and 1994, respectively.
5. OPTIONS
The Company's 1992 Long-Term Incentive Plan and the 1990 Stock Option Plan
("the Plans") permit the granting of 800,000 options to officers, directors and
employees. These can be either incentive stock options or non-qualified options.
Options are generally granted at not less than market value at the date of grant
and generally for a five-year period. The Options have been granted at prices
ranging from $4.875 to $15.25. A total of 105,735 and 94,518 common shares are
available for future issuance under the Plans at June 30, 1996 and 1995,
respectively.
At June 30, 1996, the Company had granted 36,000 unregistered options to
purchase common shares not granted under the Plans. The exercise prices of these
options to purchase common shares are $6.50 and $11.00 for 1,000 and 35,000
options, respectively.
Transactions related to all options during the last three years are
summarized as follows:
<TABLE>
<CAPTION>
TOTAL EXERCISABLE PRICE PER SHARE
-------- ----------- ---------------
<S> <C> <C> <C>
Balance at June 30, 1993......................... 611,607 289,543 $ .20/15.25
Granted........................................ 156,508 -- 4.875/12.00
Became exercisable............................. -- 261,376 5.50/15.25
Exercised...................................... (31,808) (31,808) 5.50/11.00
Expired........................................ (46,955) (33,205) .20/13.50
-------- -------- ------------
Balance at June 30, 1994......................... 689,352 485,906 .20/15.25
Granted........................................ 178,657 -- 5.50/7.875
Became exercisable............................. -- 125,320 4.875/11.75
Exercised...................................... (85,500) (85,500) 5.50/ 6.50
Expired........................................ (93,482) (90,482) .20/15.25
-------- -------- ------------
Balance at June 30, 1995......................... 689,027 435,244 .20/15.25
Granted........................................ 139,283 -- 7.25/12.00
Became exercisable............................. 224,117 4.875/11.75
Exercised...................................... (143,277) (143,277) 4.875/11.00
Expired........................................ (151,219) (151,219) .20/15.25
-------- -------- ------------
Balance at June 30, 1996......................... 533,814 364,865 $ 4.875/15.25
======== ======== ============
</TABLE>
The number of options scheduled to expire by fiscal year is 43,750 in 1997,
91,505 in 1998, 105,369 in 1999, 163,407 in 2000, and 129,783 in 2001.
F-16
<PAGE> 46
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of the provision for income taxes for the three years ended
June 30 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ 8,000 $ 0 $ 0
State............................................... 14,000 12,000 24,000
Deferred.............................................. 1,231,000 523,000 425,000
---------- -------- --------
$1,253,000 $535,000 $449,000
========== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
deferred income tax liabilities and assets as of June 30 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Prepaid expenses............................................ $ 114,000 $ 75,000
Deferred contract costs..................................... 212,000 219,000
Computer software costs..................................... 6,251,000 4,724,000
Tax over book depreciation.................................. 917,000 809,000
Capital leases treated as operating leases for tax
purposes................................................. -- 7,000
---------- ----------
Total deferred tax liabilities...................... 7,494,000 5,834,000
Deferred tax assets:
Allowance for doubtful accounts............................. 75,000 104,000
Accrued expenses............................................ 290,000 213,000
Stock options deduction..................................... 424,000 110,000
Net operating loss carryforwards............................ 5,072,000 4,569,000
---------- ----------
Total deferred tax assets........................... 5,861,000 4,996,000
Less valuation allowance.................................... (424,000) (110,000)
---------- ----------
Total net deferred tax assets....................... 5,437,000 4,886,000
---------- ----------
Net deferred tax liabilities.................................. $2,057,000 $ 948,000
========== ==========
</TABLE>
The Company has recorded a deferred tax asset and corresponding valuation
allowance related to the stock option deduction. When such deferred tax asset is
realized for tax purposes, the valuation allowance will be removed and paid-in
capital will be credited.
A reconciliation of the statutory federal income tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
Statutory rate.................................................... 34.0% 34.0% 34.0%
State income taxes................................................ 2.7 2.8 .7
Canadian subsidiary loss.......................................... -- -- 3.8
Net operating loss carryforwards.................................. -- -- (17.7)
Non-deductible meals and entertainment expenses................... .7 1.1 .4
Other............................................................. 1.2 .9 (.5)
---- ---- -----
38.6% 38.8% 20.7%
==== ==== =====
</TABLE>
At June 30, 1996, the Company had net operating loss carryforwards of
$13,400,000 for income tax purposes only that expire in years 1999 through 2011.
F-17
<PAGE> 47
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total income tax paid for the years ended June 30, 1996, 1995 and 1994 was
$20,600, $4,600 and $14,000, respectively.
7. COMMITMENTS
The Company leases its office facilities and various equipment under
operating and capital leases. Rental expense was approximately $2,881,000,
$2,754,000, and $2,183,000, for the years ended June 30, 1996, 1995 and 1994,
respectively. The following is a schedule by years of future minimum rental
payments required under operating leases as of June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30:
---------------------
<S> <C>
1997........................................................... $2,618
1998........................................................... 2,434
1999........................................................... 494
------
Total minimum rental payments............................. $5,546
======
</TABLE>
In addition to the above amounts, additional rental payments are due under
the office facility leases based on the lessor's operating costs.
The following is a schedule of future minimum lease payments under capital
leases as of June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30:
---------------------
<S> <C>
1997........................................................... $1,647
1998........................................................... 1,439
1999........................................................... 938
2000........................................................... 247
------
Total minimum lease payments.............................. 4,271
Less amount representing interest................................... 522
------
Net minimum lease payments.......................................... 3,749
Less current maturities............................................. 1,351
------
Long-term portion................................................... $2,398
======
</TABLE>
The Company entered into capital lease agreements aggregating $432,000,
$1,271,000, and $3,389,000 for the years ended June 30, 1996, 1995 and 1994,
respectively, in connection with the purchase of office equipment, furniture and
fixtures, and data processing equipment.
8. SAVINGS PLAN
The Company has a tax deferred savings plan in accordance with the
provisions of section 401(k) of the Internal Revenue Code covering
substantially all employees. Under the plan, the Company will match a
minimum of 10% of eligible employees' contributions up to 6% of the
employee's salary for the plan year ending June 30, 1996 compared to 5% of
the employee's salary for plan years ending June 30, 1995 and 1994.
Employee contributions to the plan are remitted to a trustee on a biweekly
basis. Company contribution expenses were $240,000, $200,000, and $160,000
for the years ended June 30, 1996, 1995, and 1994, respectively.
F-18
<PAGE> 48
HEALTH RISK MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents certain unaudited quarterly results for fiscal
1996 and 1995.
<TABLE>
<CAPTION>
FISCAL 1996
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $13,371 $13,689 $14,045 $13,402 $54,507
======= ======= ======= ======= =======
Gross profit(1).................................. $ 5,491 $ 5,838 $ 6,034 $ 5,382 $22,745
======= ======= ======= ======= =======
Net income....................................... $ 529 $ 612 $ 784 $ 71 $ 1,996
======= ======= ======= ======= =======
Net income per share............................. $ .13 $ .15 $ .18 $ .02 $ .47
======= ======= ======= ======= =======
Weighted average number of shares................ 4,140 4,107 4,277 4,353 4,219
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $11,633 $11,881 $12,628 $13,160 $49,302
======= ======= ======= ======= =======
Gross profit(1).................................. $ 4,073 $ 4,530 $ 5,131 $ 5,278 $19,012
======= ======= ======= ======= =======
Net income (loss)................................ $ (125) $ 102 $ 412 $ 455 $ 844
======= ======= ======= ======= =======
Net income (loss) per share...................... $ (.03) $ .03 $ .10 $ .11 $ .21
======= ======= ======= ======= =======
Weighted average number of shares................ 3,952 3,952 3,963 4,061 3,982
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Represents revenues less cost of services.
F-19
<PAGE> 49
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY
ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Forward-Looking Statements............ 2
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Risk Factors.......................... 4
Company Summary Historical
Consolidated Financial
Information......................... 11
The Company........................... 12
Unaudited Pro Forma Consolidated
Financial Statements................ 20
Selling Stockholders -- Shares Covered
by this Prospectus.................. 26
Use of Proceeds....................... 27
Plan of Distribution.................. 27
Experts............................... 28
Legal Matters......................... 28
Index to Financial Statements of
Health Risk Management, Inc......... F-1
</TABLE>
------------------
================================================================================
================================================================================
1,561,067 SHARES
HEALTHPLAN SERVICES CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1996
===============================================================================
<PAGE> 50
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than the SEC registration fee) of the sale of the
shares of Common Stock are as follows:
<TABLE>
<S> <C>
SEC registration fee..................................................... $ 8,810.57
Legal fees and expenses.................................................. 25,000.00
Accounting fees and expenses............................................. 25,000.00
Printing and engraving expenses.......................................... 30,000.00
Miscellaneous fees and expenses.......................................... 5,000.00
----------
Total.................................................................. $93,810.57
==========
</TABLE>
All such fees and expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware (the "General
Corporation Law") grants each corporation organized thereunder the power to
indemnify its officers, directors, employees and agents on certain conditions
against liabilities arising out of any action or proceeding to which any of them
is a party by reason of being such officer, director, employee or agent. Section
102(b)(7) of the General Corporation Law permits a Delaware corporation, with
the approval of its stockholders, to include within its certificate of
incorporation a provision eliminating or limiting the personal liability of its
directors to such corporation or its stockholders for monetary damages resulting
from certain breaches of the directors' fiduciary duty of care, both in suits by
or on behalf of the corporation and in actions by stockholders of the
corporation.
The Company's certificate of incorporation (the "Certificate of
Incorporation") includes an Article which allows the Company to take advantage
of Section 102(b)(7) of the General Corporation Law. The Certificate of
Incorporation also provides for the indemnification, to the fullest extent
permitted by the General Corporation Law, of officers and directors of the
Company. The Company currently maintains policies of insurance under which the
directors and officers of the Company are insured, within the limits and subject
to the limitations of the policies, against certain expenses in connection with
the defense of actions, suits or proceedings, to which they are parties by
reason of being or having been such directors or officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<C> <S> <C>
2.1 -- Plan and Agreement of Merger dated September 12, 1996, as amended, among the
Registrant, HealthPlan Services Alpha Corporation and Health Risk Management,
Inc. (included as Exhibit 2.1 to the Registrant's Registration Statement on Form
S-4 filed with the Commission on November 13, 1996 and incorporated herein by
reference).
4.1 -- Form of Registration Rights Agreement dated as of July 1, 1996 (included as an
Exhibit to the Schedule 13D filed on August 5, 1996 reporting beneficial
ownership of shares of the Registrant (Commission File No. 5-46553) and
incorporated herein by reference).
4.2 -- Excerpts from Certificate of Incorporation, as amended, of the Registrant
(included as Exhibit 4.1 to the Registrant's Registration Statement on Form S-8
(Commission File No. 333-07631) and incorporated herein by reference).
4.3 -- Excerpts from Bylaws of the Registrant (included as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (Commission File No. 33-90472)
and incorporated herein by reference).
5.1 -- Opinion of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. with respect
to legality of the securities being registered.
23.1 -- Consent of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. (included in
its opinion filed as Exhibit 5.1).
23.2 -- Consent of Price Waterhouse LLP.
</TABLE>
II-1
<PAGE> 51
<TABLE>
<S> <C> <C>
23.3 -- Consent of Bonanno, Savino & Davies, P.C.
23.4 -- Consent of Richard A. Eisner & Company, LLP.
23.5 -- Consent of Ernst & Young LLP.
23.6 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Powers of Attorney of Directors and Executive Officers (included on the Signature
Pages of this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE> 52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tampa, State of Florida, on November 12, 1996.
HEALTHPLAN SERVICES CORPORATION
By: /s/ WILLIAM L. BENNETT
------------------------------------
William L. Bennett
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the directors and/or executive
officers of HealthPlan Services Corporation whose signature appears below hereby
appoints William L. Bennett and James K. Murray, Jr., and each of them
severally, as his attorney-in-fact to sign in his name and behalf, in any and
all capacities stated below and to file with the Commission, any and all
amendments, including post-effective amendments to this registration statement,
making such changes in the registration statement as appropriate, and generally
to do all such things in their behalf in their capacities as officers and
directors to enable HealthPlan Services Corporation to comply with the
provisions of the Securities Act of 1933, and all requirements of the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ WILLIAM L. BENNETT Chairman of the Board, November 12, 1996
- --------------------------------------------- Director
William L. Bennett
/s/ JAMES K. MURRAY, JR. President and chief November 12, 1996
- --------------------------------------------- Executive Officer;
James K. Murray, Jr. Director (Principal
Executive Officer)
/s/ JAMES K. MURRAY, III Executive Vice President November 12, 1996
- --------------------------------------------- and Chief Financial
James K. Murray, III Officer (Principal
Financial and Accounting
Officer)
/s/ JOSEPH A. CALIFANO, JR. Director November 12, 1996
- ---------------------------------------------
Joseph A. Califano, Jr.
/s/ JOSEPH S. DIMARTINO Director November 12, 1996
- ---------------------------------------------
Joseph S. DiMartino
/s/ JOHN R. GUNN Director November 12, 1996
- ---------------------------------------------
John R. Gunn
/s/ CHARLES H. GUY, JR. Director November 12, 1996
- ---------------------------------------------
Charles H. Guy, Jr.
/s/ NANCY KANE Director November 12, 1996
- ---------------------------------------------
Nancy Kane
/s/ DAVID NIERENBERG Director November 12, 1996
- ---------------------------------------------
David Nierenberg
</TABLE>
II-3
<PAGE> 53
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ JAMES G. NIVEN Director November 12, 1996
- ---------------------------------------------
James G. Niven
/s/ SAMUEL F. PRYOR, IV Director November 12, 1996
- ---------------------------------------------
Samuel F. Pryor, IV
/s/ TREVOR G. SMITH Director November 12, 1996
- ---------------------------------------------
Trevor G. Smith
/s/ HOLYOKE L. WHITNEY Director November 12, 1996
- ---------------------------------------------
Holyoke L. Whitney
/s/ JAMES F. CARLIN Director November 12, 1996
- ---------------------------------------------
James F. Carlin
</TABLE>
II-4
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- --------------------------------------------------------------------------
<C> <C> <S> <C>
2.1 -- Plan and Agreement of Merger dated September 12, 1996, as amended, among
the Registrant, HealthPlan Services Alpha Corporation and Health Risk
Management, Inc. (included as Exhibit 2.1 to the Registrant's Registration
Statement on Form S-4 filed with the Commission on November 13, 1996 and
incorporated herein by reference).
4.1 -- Form of Registration Rights Agreement dated as of July 1, 1996 (included
as an Exhibit to the Schedule 13D filed on August 5, 1996 reporting
beneficial ownership of shares of the Registrant (Commission File No.
5-46553) and incorporated herein by reference).
4.2 -- Excerpts from Certificate of Incorporation, as amended, of the Registrant
(included as Exhibit 4.1 to the Registrant's Registration Statement on
Form S-8 (Commission File No. 333-07631) and incorporated herein by
reference).
4.3 -- Excerpts from Bylaws of the Registrant (included as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (Commission File No.
33-90472) and incorporated herein by reference).
5.1 -- Opinion of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. with
respect to legality of the securities being registered.
23.1 -- Consent of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A.
(included in its opinion filed as Exhibit 5.1).
23.2 -- Consent of Price Waterhouse LLP.
23.3 -- Consent of Bonanno, Savino & Davies, P.C.
23.4 -- Consent of Richard A. Eisner & Company, LLP.
23.5 -- Consent of Ernst & Young LLP.
23.6 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Powers of Attorney of Directors and Executive Officers (included on the
Signature Pages of this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD]
November 13, 1996
HealthPlan Services Corporation
3501 Frontage Road
Tampa, Florida 33607
Gentlemen:
In connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed by HealthPlan Services Corporation, a Delaware
corporation, (the "Company") with the Securities and Exchange Commission on
November 13, 1996 pursuant to the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, you have requested that we furnish
you with our opinion as to the legality of the 1,561,067 shares of the Company's
common stock, $0.01 par value (the "Shares"), which are registered under the
Registration Statement.
In this regard, we have examined originals or copies of such corporate
records, documents and other instruments relating to the authorization and
issuance of the Shares as we have deemed relevant under the circumstances.
On the basis of the foregoing, it is our opinion that:
1. The Company is duly organized and incorporated and is validly
existing under the laws of the State of Delaware, with an authorized
capitalization consisting of 100,000,000 shares of Common Stock, $.01 par
value per share, and 20,000,000 shares of Preferred Stock, $.01 par value
per share.
2. The Shares have been duly and validly authorized and issued and are
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and further consent to the use of our name under the
heading "Legal Matters" in the Registration Statement.
Very truly yours,
FOWLER, WHITE, GILLEN, BOGGS,
VILLAREAL AND BANKER, P.A.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 16, 1996 appearing on page 22 of HealthPlan Services Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Tampa, Florida
November 12, 1996
<PAGE> 1
EXHIBIT 23.3
[BONANNO, SAVINO & DAVIES, P.C. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the reference to our firm under the caption "EXPERTS" and
to the use in the Proxy Statement/Prospectus constituting part of this
Registration Statement on Form S-3 of HealthPlan Services Corporation of our
report dated March 15, 1996 relating to the financial statements of
Consolidated Group, Inc. and Affiliates, and of our report dated March 15, 1996
relating to the financial statements of Consolidated Health Coalition, Inc.
/s/ Bonanno, Savino & Davies, P.C.
Needham, Massachusetts
November 11, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated February 16, 1996 on
our audit of the financial statements of Harrington Services Corporation as at
December 31, 1995 and for the year then ended in the Form 8-K/A filed September
13, 1996 and incorporated by reference in the registration statement of
HealthPlan Services Corporation on Form S-3. We also consent to the reference
to our firm under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
November 11, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 16, 1996, related to the consolidated financial
statements of Health Risk Management, Inc. in the Registration Statement (Form
S-3 No. 33-00000) and related Prospectus of HealthPlan Services Corporation for
the registration of 1,561,067 shares of its common stock.
ERNST & YOUNG LLP
Minneapolis, Minnesota
November 8, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
HealthPlan Services Corporation on Form S-3 of our report dated December 2,
1994, on our audits of the financial statements of HealthPlan Services Division
(formerly Plan Services Division, a wholly-owned division of The Dun &
Bradstreet Corporation), as of September 30, 1994 and for the nine-month period
ended September 30, 1994 and the year ended December 31, 1993 which report is
included in the Annual Report on Form 10-K. We also consent to the reference to
our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Tampa Florida
November 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,444
<SECURITIES> 15
<RECEIVABLES> 18,274
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,856
<PP&E> 48,629
<DEPRECIATION> 27,642
<TOTAL-ASSETS> 249,878
<CURRENT-LIABILITIES> 81,614
<BONDS> 65,378
0
0
<COMMON> 149
<OTHER-SE> 101,399
<TOTAL-LIABILITY-AND-EQUITY> 249,878
<SALES> 0
<TOTAL-REVENUES> 129,876
<CGS> 0
<TOTAL-COSTS> 110,272
<OTHER-EXPENSES> 37,928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,310
<INCOME-PRETAX> (19,634)
<INCOME-TAX> (7,239)
<INCOME-CONTINUING> (12,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,395)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.83)
</TABLE>
