<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 1-13772
HEALTHPLAN SERVICES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3787901
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607
(Address of Principal Executive Offices) (Zip Code)
(813) 289-1000
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of Common Stock outstanding as of November 14, 1996.
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 14,911,847
<PAGE> 2
HEALTHPLAN SERVICES CORPORATION
TABLE OF CONTENTS
Page No.
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Balance Sheet
September 30, 1996 and December 31, 1995 . . . . . . . . . . . 2
Consolidated Statement of Operations Three and
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . 3
Consolidated Statement of Changes in
Common Stockholders' Equity September 30, 1996 . . . . . . . 4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1996 and 1995 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 11
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------ ------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 10,458 $ 4,738
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . 9,986 1,005
Short-term investments . . . . . . . . . . . . . . . . . . . . 15 36,723
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 18,274 6,411
Refundable income taxes . . . . . . . . . . . . . . . . . . . - 1,041
Prepaid commissions . . . . . . . . . . . . . . . . . . . . . 272 748
Prepaid expenses and other current assets . . . . . . . . . . . . 4,676 1,485
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . 175 965
---------------- -----------------
Total current assets. . . . . . . . . . . . . . . . . . . 43,856 53,116
Property and equipment, net . . . . . . . . . . . . . . . . . . . 20,987 9,241
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . 2,085 1,463
Deferred taxes . . . . . . . . . .. . . . . . . . . . . . . . . 11,212 -
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . 6,900 -
Investment in unconsolidated subsidiaries . . . . . . . . . . . . . . 2,758 -
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . 162,080 48,847
---------------- -----------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . $ 249,878 $ 112,667
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 5,984 $ 3,407
Premiums payable to carriers . . . . . . . . . . . . . . . . . . 29,260 17,209
Commissions payable . . . . . . . . . . . . . . . . . . . . . . 4,721 2,897
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 2,012 947
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 20,272 5,093
Accrued contract commitments . . . . . . . . . . . . . . . . . 1,974 482
Accrued restructure and integration costs . . . . . . . . . . . 12,452 -
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 2,443 -
Current portion of long-term debt . . . . . . . . . . . . . . . . 2,496 68
---------------- -----------------
Total current liabilities . . . . . . . . . . . . . . . . 81,614 30,103
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . 65,378 1,214
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . - 354
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . 1,338 30
---------------- -----------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 148,330 31,701
---------------- -----------------
Common stockholders' equity:
Common stock voting, $.01 par value, 100,000,000 authorized and
14,908,847 issued and outstanding at September 30, 1996;
25,000,000 authorized and 13,395,357 issued and
outstanding at December 31, 1995 . . . . . . . . . . . . . . 149 134
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 104,598 71,636
Retained earnings . . . . . . . . . . . . . . . . . . . . . . (3,199) 9,196
---------------- -----------------
Total stockholders' equity . . . . . . . . . . . . . . . 101,548 80,966
---------------- -----------------
Total liabilities and stockholders' equity . . . . . . . $ 249,878 $ 112,667
================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . $ 66,555 $ 23,330 $ 128,019 $ 69,476
Interest income . . . . . . . . . . . . . . 451 786 1,857 1,413
------------ ------------ ----------- -----------
Total revenues . . . . . . . . . 67,006 24,116 129,876 70,889
------------ ------------ ----------- -----------
Expenses:
Agents commissions . . . . . . . . . . . 15,025 8,196 34,978 26,442
Personnel expenses . . . . . . . . . . . 27,177 5,711 44,027 17,621
General and administrative . . . . . . . 13,379 4,109 25,053 12,081
Pre-operating and contract start-up costs. 109 545 696 545
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 . . . . . . 3,546 1,162 6,214 3,156
------------ ------------ ----------- -----------
Total expenses . . . . . . . . . . 96,468 19,723 148,200 59,845
------------ ------------ ----------- -----------
Income (loss) before interest expense
and income taxes . . . . . . . . . . (29,462) 4,393 (18,324) 11,044
Interest expense . . . . . . . . . . . . 1,277 16 1,310 48
------------ ------------ ----------- -----------
Income (loss) before income taxes . . . . (30,739) 4,377 (19,634) 10,996
Provision for income taxes . . . . . . . (11,570) 1,753 (7,239) 4,445
------------ ------------ ----------- -----------
Net income (loss) . . . . . . $ (19,169) $ 2,624 $ (12,395) $ 6,551
============ ============ =========== ===========
Dividends on Redeemable
Preferred Stock . . . . . . . . . . . $ - $ - $ - $ 285
============ ============ =========== ===========
Net income (loss) attributable to
common stock . . . . . . . . . . . . $ (19,169) $ 2,624 $ (12,395) $ 6,266
============ ============ =========== ===========
Pro forma net income (loss) per share . . . $ (1.28) $ 0.20 $ (0.83) $ 0.49
============ ============ =========== ===========
Pro forma weighted average
shares outstanding . . . . . . . . . . 14,966 13,415 14,968 13,407
============ ============ =========== ===========
Historical weighted average net
income (loss) per share . . . . . . . $ (1.28) $ .020 $ (0.90) $ 0.59
============ ============ =========== ===========
Historical weighted average
shares outstanding . . . . . . . . . . 14,966 13,415 13,834 10,635
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Voting Additional
Common Paid-in Retained
Stock Capital Earnings Total
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . . . $ 134 $ 71,636 $ 9,196 $ 80,966
Vesting of stockholders' interest in
management stock (unaudited) . . . . . - 236 - 236
Issuance of 5,400 shares in connection with
stock option plans (unaudited) . . . . . - 76 - 76
Issuance of 1,347,133 shares in connection
with acquisition of Harrington Services
Corporation (unaudited) . . . . . . . . 13 28,950 - 28,963
Issuance of 160,957 shares in connection with
acquisition of Consolidated Group, Inc.
(unaudited) . . . . . . . . . . . . . . 2 3,700 - 3,702
Net income (loss) (unaudited) . . . . . . . . - - (12,395) (12,395)
----------- ------------- ------------ ------------
Balance at September 30, 1996 (unaudited) . $ 149 $ 104,598 $ (3,199) $ 101,548
=========== ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1996 1995
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . $ (12,395) $ 6,551
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 3,309 1,997
Amortization of goodwill . . . . . . . . . . . . . . 2,677 1,005
Amortization of deferred costs . . . . . . . . . . . . 228 154
Contract commitment expense, net . . . . . . . . . . . 1,492 (2,176)
Charge for restructuring and integrating business, net. 12,452 -
Loss on impairment of goodwill 19,232 -
Issuance of common stock to management . . . . . . 236 176
Deferred taxes . . . . . . . . . . . . . . . . . . (14,016) (600)
Changes in assets and liabilities net of effect from
acquisitions:
Restricted cash . . . . . . . . . . . . . . . . . . (8,981) (4,521)
Accounts receivable . . . . . . . . . . . . . . . . 1,320 (210)
Refundable income taxes . . . . . . . . . . . . . . 1,041 -
Prepaid commissions . . . . . . . . . . . . . . . 476 (96)
Prepaid expenses and other current assets . . . . . . (1,399) (378)
Other assets . . . . . . . . . . . . . . . . . . . . 212 (97)
Accounts payable . . . . . . . . . . . . . . . . . (3,874) (1,009)
Premiums payable to carriers . . . . . . . . . . . . 12,051 3,936
Commissions payable . . . . . . . . . . . . . . . 1,824 (239)
Deferred revenue . . . . . . . . . . . . . . . . . (38) (1,082)
Accrued liabilities . . . . . . . . . . . . . . . . . 551 (1,482)
Income taxes payable . . . . . . . . . . . . . . . 2,401 (40)
----------------- -----------------
Net cash provided by operating activities . . . 18,799 1,889
----------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . (3,118) (4,044)
(Purchases) sales of short-term investments, net. . . . 36,708 (43,753)
Payment for purchase of Third Party Claims
Management net of cash acquired . . . . . . . - (7,328)
Cash paid for purchase of Harrington Services
Corporation net of cash acquired . . . . . . . (29,274) -
Payment for purchase of Consolidated Group, Inc.
net of cash acquired. . . . . . . . . . . . . . (59,997) -
Investment in unconsolidated subsidiaries . . . . . . . (2,384) -
Increase in note receivable . . . . . . . . . . . . . . (6,900) -
----------------- -----------------
Net cash used in investing activities . . . . . (64,965) (55,145)
----------------- -----------------
Cash flows from financing activities:
Payments on other debt . . . . . . . . . . . . . . . (11,892) (17)
Net borrowings under line of credit . . . . . . . . . . 60,000 -
Net proceeds from initial public
offering of common stock . . . . . . . . . . . - 50,905
Proceeds from exercise of stock options . . . . . . . . 76 -
Proceeds from common stock issued . . . . . . . . . . 3,702 -
----------------- -----------------
Net cash provided by 51,886 50,888
financing activities ----------------- -----------------
Net increase in cash and cash equivalents . . . . . . . 5,720 (2,368)
Cash and cash equivalents at beginning of period . . . . 4,738 4,303
----------------- -----------------
Cash and cash equivalents at end of period . . . . . . . $ 10,458 $ 1,935
================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . $ 1,258 $ 33
================= =================
Cash paid for income taxes . . . . . . . . . . . . . $ 1,414 $ 4,843
================= =================
Supplemental disclosure of noncash activities:
Exchange of Redeemable Preferred Stock
Series A and Series B for common stock . . . . . $ - $ 19,570
================= =================
Issuance of common stock to management . . . . . . $ 236 $ 176
================= =================
Common stock issued for purchase of Harrington
Services Corporation . . . . . . . . . . . . . . . $ 28,963 $ -
================= =================
Dividends on redeemable preferred stock . . . . . . . $ - $ 285
================= =================
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements.
5
<PAGE> 7
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
On October 1, 1994, HealthPlan Services Corporation (the "Company"), a
company formed by certain Company officers and Noel Group, Inc., acquired the
outstanding stock and assumed designated liabilities of Plan Services, Inc., a
division of The Dun & Bradstreet Corporation. On May 19, 1995, the Company
completed an initial public offering of 4,025,000 shares of its Common Stock,
shares of which are presently traded on the New York Stock Exchange. The
Company provides distribution, enrollment, billing and collection, claims
administration, and information reports and analysis on behalf of health care
payors and providers. Its customers include small businesses, health care
purchasing alliances, health maintenance organizations ("HMOs") and other
managed care organizations, insurance companies, and organizations with
self-funded health care plans. Effective July 1, 1996, the Company acquired
Harrington Services Corporation ("Harrington") and Consolidated Group Inc.,
Consolidated Group Claims, Inc., Consolidated Health Coalition, Inc., and Group
Benefit Administrators Insurance Agency, Inc. (collectively, the "Consolidated
Group"). As a result, the Company represents over 75 payors, including
insurance companies, HMOs, and integrated delivery systems, and now serves
approximately 125,000 businesses, plan holders and governmental agencies in 50
states, Washington, D.C. and Puerto Rico, representing approximately 3,000,000
members.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The interim financial data is unaudited and should be read in conjunction
with the audited Consolidated Financial Statements and notes thereto included
in the Company's 1995 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 29, 1996.
In the opinion of the Company, the interim data includes all adjustments
necessary for fair presentation of financial position and results of operations
for the interim periods presented. Interim results are not necessarily
indicative of results for a full year.
Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its wholly-owned subsidiaries, HealthPlan Services, Inc. ("HPS"),
HealthCare Informatics Corporation, Harrington, and Consolidated Group, as well
as Third Party Claims Management, Inc. ("TPCM"), the wholly owned subsidiary of
HPS. All intercompany transactions and balances have been eliminated in
consolidation.
Short-Term Investments
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). The effect of SFAS 115 is dependent upon
classification of the investment. As the Company's short-term investments are
classified as available for sale, they are measured at fair market value. Any
decline in the value of short-term investments is recorded as a valuation
allowance in the equity section of the balance sheet. There are no investments
with maturities of greater than one year.
6
<PAGE> 8
On July 1, 1996, substantially all of the Company's short-term
investments were liquidated in order to meet cash requirements related to the
Company's acquisitions of Harrington and Consolidated Group.
Goodwill
In March 1995, the Financial Accounting Standards Board issued 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 charge against earnings of $19.2
million in the third quarter of 1996, representing approximately 11% of the
Company's pre-charge goodwill. The charge is attributable to impairment of
goodwill recorded on the following acquisitions: Diversified Group Brokerage
Corporation (acquired in October 1995), $7.7 million; TPCM (acquired in August
1995), $6.2 million; and Consolidated Group (acquired in June 1996), $5.3
million.
Subsequent to the recording of this charge, the remaining values of
goodwill are $1.7 million, $1.6 million, and $54.8 million, respectively, for
the acquisitions of Diversified Group Brokerage, TPCM, and Consolidated Group.
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 has no impact on cash flow.
The Company will continue to evaluate on a regular basis whether events
and circumstances have occurred that indicate the carrying amount of goodwill
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.
Earnings per share
Earnings per share was computed based on both the historical and pro
forma weighted average number of shares of Common Stock outstanding during the
period. The pro forma basis gives retroactive effect in 1995 to the exchange of
the Company's Redeemable Series A and Series B Preferred Stock at the time of
the Company's initial public offering. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all stock options and shares of
Common Stock issued have been included as outstanding for the entire period
using the treasury stock method.
7
<PAGE> 9
Income Taxes
The Company's effective tax rate for these periods differed from the
statutory rate, as a result of, among other things, the amortization of
goodwill and state income taxes. Specifically, the Company's effective tax
rate increased because the goodwill amortization for book purposes resulting
from the Harrington acquisition, which was a partially tax-free transaction to
Harrington's shareholders, is not tax deductible by the Company. As a
result, the Company's effective tax rate is expected to vary from the statutory
rate for the remainder of the fiscal year and in future years.
Pre-Operating and Contract Start-Up Costs
The Company has elected to expense as incurred, and segregate from other
operating costs, those costs related to the preparation for and implementation
of new products and contracts for services to new customers prior to the
initiation of significant revenue activity from these new revenue initiatives.
Contract Commitments
Starting in 1994, the Company has pursued contracts with state-sponsored
health care purchasing alliances, initially in Florida, and in 1995-1996, 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 recorded an additional pre-tax charge related to these contracts in the
amount of $2.6 million in the third quarter of 1996 resulting from increased
costs and lower than anticipated revenues. Additionally, the Company took a
charge of $1.3 million in the third quarter of 1996 for changes in estimated
revenues and costs for other commitments related to contracts assumed in the
Harrington and Consolidated Group acquisitions.
Restructure and Integration
In the third quarter of 1996, the Company announced that it was required
to take a charge of $14.1 million for restructuring and integration costs
related to the consolidation of its acquisitions. This restructuring charge
includes costs incurred in the outplacement of staff, closing costs of certain
offices, and the related termination of leases for office space and equipment.
The integration charge includes one-time costs incurred as a direct result of
consolidating the acquisitions into the Company, including consolidating the
Company's data centers to common software platforms and administrative systems
and converting customer files from one system to another, all of which should be
substantially completed prior to December 31, 1996. As of September 30, 1996,
the Company had incurred $1.0 million and $0.6 million in restructuring and
integration expenses, respectively.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123"), which will be adopted by the Company in 1996.
SFAS 123 establishes a fair value based method of accounting for stock-based
compensation plans. However, it also allows companies to continue to apply the
intrinsic value method prescribed by generally accepted accounting principles
on the condition that pro forma disclosures are made illustrating the effect of
the fair value-based method on the income statement.
The Company has not yet decided if it will apply the effects of SFAS 123
to its income statement upon adoption in 1996 or simply provide pro forma
disclosures.
8
<PAGE> 10
3. CREDIT FACILITY
On September 13, 1996, the Company announced an expansion of its credit
facility (the "Line of Credit") from $85 million to $175 million. First Union
National Bank of North Carolina ("First Union") 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. ("NationsBank"), South Trust Bank of
Alabama, and Sun Trust Bank, Tampa Bay. The Company's borrowing under the Line
of Credit will result in interest expense that will range from LIBOR + 125 to
175 basis points or New York prime + 25 to 75 basis points. The Line of Credit
is secured by the stock of the Company's subsidiaries.
On September 13, 1996, the Company entered into an interest rate swap
agreement with 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
loan. The Company did not incur any material expense on this swap during the
quarter ended September 30, 1996.
On October 21, 1996, the Company entered into an interest rate swap
agreement with 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
loan.
4. ACQUISITIONS
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc. ("Medirisk"), a provider of proprietary health care information, to
purchase $2.0 million of Medirisk preferred stock representing a 9% ownership
interest, which was 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 the public
3,000,000 shares of its common stock, plus granted underwriters a 30-day option
to purchase up to 450,000 additional shares of common stock solely to cover
over-allotments, at a price of between $11.00 to $13.00 per share. Upon
completion of the offering, the Company would beneficially own 618,895 shares,
or 11.0% of Medirisk. There can be no assurance, however, that the Medirisk
initial public offering will ultimately be consummated.
On July 1, 1996, the Company acquired all the issued and outstanding
stock of Consolidated Group for approximately $62 million in cash, and
Harrington for $32.5 million cash and 1,400,110 of the Company's common shares.
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 $72 million. Harrington employs approximately 1,500
employees, with principal offices in Columbus, Ohio, Chicago, Illinois, and El
Monte, California.
On September 13, 1996, the Company announced the execution of a merger
agreement to acquire all of the issued and outstanding capital stock of Health
Risk Management, Inc. ("HRM") for a purchase price consisting
9
<PAGE> 11
of (i) a cash payment, for all outstanding shares of HRM capital stock and
common stock equivalents, of $9.68603 per share and (ii) 0.360208 of a Company
share for each share of HRM capital stock. The Company estimates that total
consideration for the stock of HRM will be approximately $45.7 million in cash
and 1.5 million shares of Company stock. The Company filed an S-4 Registration
Statement relating to this proposed acquisition on November 13, 1996. A
special meeting of HRM shareholders is expected in December, 1996 to vote on
the merger, which will not be effective before January 1, 1997.
HRM is a managed care services company that provides care management and
demand management products and is supported by proprietary clinical decision
support software, QUALITYFIRST(R), which enables payors and providers to more
effectively manage their health care risk. HRM common shares became publicly
traded during 1990. The common shares are traded on the NASDAQ National Market
under the symbol HRMI.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of the Company for the three and nine months ended
September 30, 1996 compared to the same periods in 1995. During the third
quarter of 1996, the Company recorded pre-tax charges of $37.2 million
consisting of $2.6 million in contract commitments relating to the Company's
contracts with state sponsored health care purchasing alliances and commitments
of $1.3 million related to changes in estimated revenues and costs for its
acquisitions of Consolidated Group and Harrington, $14.1 million in
restructuring and integration costs associated with the Company's consolidation
of its acquisitions, and $19.2 million relating to the impairment of goodwill
from Company acquisitions (See "Notes to Consolidated Financial Statements").
The Company provides distribution, enrollment, billing and collection,
claims administration, and information reports and analysis on behalf of health
care payors and providers. Its customers include small businesses, health care
purchasing alliances, HMOs and other managed care organizations, insurance
companies, and organizations with self-funded health care plans. Subsequent to
the acquisitions of Harrington and Consolidated Group, the Company now serves
approximately 125,000 businesses, plan holders and governmental agencies in 50
states, Washington, D.C. and Puerto Rico, representing approximately 3,000,000
members. The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . . . 99.3 % 96.7 % 98.6 % 98.0 %
Interest income . . . . . . . . . . . . . . . . 0.7 % 3.3 % 1.4 % 2.0 %
------------------- --------------------
Total revenues . . . . . . . . . . . . . . . . 100.0 % 100.0 % 100.0 % 100.0 %
Expenses:
Agents commissions . . . . . . . . . . . 22.4 % 34.0 % 26.9 % 37.3 %
Personnel expenses . . . . . . . . . . . . 40.6 % 23.7 % 33.9 % 24.8 %
General and administrative . . . . . . . . 20.0 % 17.0 % 19.4 % 17.0 %
Pre-operating and contract start-up costs . . 0.2 % 2.3 % 0.5 % 0.8 %
Contract commitment expense . . . . . . . 5.8 % 0.0 % 3.0 % 0.0 %
Restructure and integration charge . . . . . 21.0 % 0.0 % 10.8 % 0.0 %
Loss on impairment of goodwill . . . . . . 28.7 % 0.0 % 14.8 % 0.0 %
Depreciation and amortization . . . . . . . 5.3 % 4.8 % 4.8 % 4.5 %
------------------- --------------------
Total expenses . . . . . . . . 144.0 % 81.8 % 114.1 % 84.4 %
Net income (loss) before interest expense . . . . (44.0)% 18.2 % (14.1)% 15.6 %
Interest expense . . . . . . . . . . . . . . . . 1.9 % 0.0 % 1.0 % 0.1 %
------------------- --------------------
Net income (loss) before income taxes . . . . . (45.9)% 18.2 % (15.1)% 15.5 %
Provision for income taxes . . . . . . . . . . (17.3)% 7.3 % (5.6)% 6.3 %
------------------- --------------------
Net income (loss) . . . . . . . . . . . . . . . . (28.6)% 10.9 % (9.5)% 9.2 %
=================== ====================
</TABLE>
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Revenues for the three months ended September 30, 1996 increased $42.9
million, or 178.0%, to $67.0 million from $24.1 million for the same period in
1995. This increase resulted primarily from revenue produced by the Company's
acquisitions, and revenue from internal growth, including the new alliance
contract in
11
<PAGE> 13
Kentucky, new Administrative Services Only ("ASO") business, and Multiple
Employer Trust ("MET") business.
Agents commissions expenses for the three months ended September 30,
1996 increased $6.8 million, or 82.9%, to $15.0 million from $8.2 million for
the same period in 1995. This increase resulted primarily from commissions
incurred relating to the Company's acquisitions. Agents commissions
represented 22.6% of operating revenues in 1996 (35.1% in 1995). This decrease
in commissions as a percentage of revenue resulted primarily from an increase
in ASO and alliance revenue as a percentage of total revenue. As a percentage
of revenue, MET agents commissions are typically significantly greater than ASO
agents commissions. There are no agents commissions associated with alliance
revenues.
Personnel costs for the three months ended September 30, 1996
increased $21.5 million, or 377.2%, to $27.2 million from $5.7 million for the
same period in 1995. This increase primarily resulted from the additional
costs of $19.4 million associated with the Company's acquisitions and the
influence of a greater concentration of ASO revenue within the Company's
business mix. The Company realized additional increases from costs associated
with the alliance contract in Kentucky and new MET and ASO contracts.
General and administrative expenses for the three months ended
September 30, 1996 increased $9.3 million, or 226.8%, to $13.4 million from
$4.1 million for the same period in 1995. This increase primarily resulted
from expenses of $8.0 million related to the Company's acquisitions.
Additional postage, telephone, and printing costs resulted from the Kentucky
alliance and new MET and ASO contracts.
Depreciation and amortization expenses for the three months ended
September 30, 1996 increased $2.3 million, or 191.7%, to $3.5 million from $1.2
million in 1995. This increase related primarily to an increase in the
amortization of goodwill related to the Company's acquisitions.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Revenues for the nine months ended September 30, 1996 increased $59.0
million, or 83.2%, to $129.9 million from $70.9 million for the same period in
1995. This increase resulted primarily from revenue produced by the Company's
acquisitions, from internal growth including the new alliance contract in
Kentucky and new ASO and MET business, and additional interest income from the
proceeds of the Company's initial public offering on May 19, 1995.
Agents commissions expenses for the nine months ended September 30,
1996 increased $8.6 million, or 32.6%, to $35.0 million from $26.4 million for
the same period in 1995. This increase resulted primarily from commissions
incurred relating to the Company's acquisitions. Agents commissions
represented 27.3% of operating revenues in 1996 (38.1% in 1995). This decrease
in commissions as a percentage of revenue resulted primarily from an increase
in ASO and alliance revenue as a percentage of total revenue. As a percentage
of revenue, MET agents commissions are typically greater than ASO agents
commissions. There are no agents commissions associated with alliance revenues.
Personnel costs for the nine months ended September 30, 1996 increased
$26.4 million, or 150.0%, to $44.0 million from $17.6 million for the same
period in 1995. This increase primarily resulted from the additional costs of
$23.1 million associated with the Company's acquisitions and the influence of a
greater concentration of ASO revenue within the Company's business mix. The
Company incurred additional increases from costs associated with the alliance
contract in Kentucky and new MET and ASO contracts.
General and administrative expenses for the nine months ended
September 30, 1996 increased $13.0 million, or 107.4%, to $25.1 million from
$12.1 million for the same period in 1995. This increase primarily resulted
from expenses of $10.0 million related to the Company's acquisitions.
Additional postage, telephone, and printing expenses were incurred relating to
the Kentucky alliance and new MET and ASO contracts.
The Company incurred $0.7 million in pre-operating and start-up costs
during the nine months ended September 30, 1996. These costs related primarily
to the contracts with the state-sponsored health care purchasing
12
<PAGE> 14
alliances in North Carolina and Washington, the private alliance in Texas and
the new ASO contracts, and consisted of salaries and wages and temporary help,
printing, and travel expenses.
Depreciation and amortization expenses for the nine months ended
September 30, 1996 increased $3.0 million, or 93.8%, to $6.2 million from $3.2
million in 1995. This increase related primarily to an increase in the
amortization of goodwill related to the Company's acquisitions, the purchase of
data processing equipment, and internally-developed software.
B. LIQUIDITY AND CAPITAL RESOURCES
On May 19, 1995, the Company completed an initial public offering
which generated net proceeds of approximately $51.0 million. On August 31,
1995, HPS used approximately $7.5 million of the offering proceeds to acquire
all of the outstanding capital stock of TPCM. On October 12, 1995, HPS used
approximately $5.1 million of the offering proceeds to acquire substantially
all of the assets of the third party administration business of DGB. The
Company placed an additional $5 million of the proceeds in an escrow account to
guarantee the availability of funds for semi-monthly payments due with respect
to the DGB acquisition. On January 13, 1996, using offering proceeds, the
Company acquired $2.0 million of preferred stock of Medirisk, representing a 9%
ownership interest in Medirisk, and on March 15, 1996, Medirisk exercised its
option to issue $6.9 million of debt with detachable warrants to the Company.
To date, the Company has not elected to convert the detachable warrants into
common stock of Medirisk. Furthermore, if Medirisk is successful in completing
its initial public offering (see "Notes to Consolidated Financial Statements -
Acquisitions"), they will utilize part of their proceeds to extinguish the debt
owed to the Company.
On July 1, 1996, the Company liquidated substantially all of the
remaining proceeds from the public offering and borrowed against its Line of
Credit to fund the acquisitions of Harrington and Consolidated Group. The
outstanding draw against the Line of Credit was $60 million at September 30,
1996.
On September 13, 1996, the Company increased its Line of Credit from
$85 million to $175 million. First Union serves as "agency bank" with respect
to this facility. Like the previous credit facility, the new facility contains
provisions which require the Company to maintain certain minimum financial
ratios, impose limitations on acquisition activity and capital spending, and
prohibit the Company from declaring or paying any dividend upon any of its
capital stock without the consent of First Union. During the third quarter,
the Company amended the terms of its credit facility to allow it to spread
approximately $13.7 million of the restructuring and integration charge
announced during the quarter (see "Notes to Consolidated Financial Statements -
Restructure and Integration") over 3 years for purposes of calculating funds
availability on its Line of Credit. Treatment is similar for calculating
compliance with financial covenants.
The Company has entered into a merger agreement to acquire the issued
and outstanding capital stock of HRM. This acquisition is not expected to be
completed before January 1, 1997. The Company expects to incur a cash outlay
of approximately $45.7 million in conjunction with the closing of this
acquisition.
Based on current expectations, the Company believes that all
operating, investing and financing activities for the remainder of 1996 and the
foreseeable future will be met from internally generated cash flow, available
cash, or its existing Line of Credit.
13
<PAGE> 15
C. SEASONALITY AND INFLATION
The Company has not experienced any pattern of seasonality with
respect to its sales.
The Company does not believe that inflation had a material effect on
its results of operations for the three and nine months ended September 30,
1996 or September 30, 1995. There can be no assurance, however, that the
Company's business will not be affected by inflation in the future.
D. SUBSEQUENT EVENTS
In the first week of October 1996, pursuant to the Plan and Agreement
of Merger dated May 28, 1996, between the Company and Harrington, the Company
and Harrington's shareholders representative agreed on the post closing
adjustment based on the balance sheet of Harrington as of June 30, 1996. This
agreement will result in the issuance, in November 1996, of an additional
52,977 shares of the Company's common stock to the former Harrington
shareholders.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1995, a complaint was filed against the Company for wrongful
termination of an exclusive marketing agreement, breach of contract, and breach
of implied covenant of good faith and fair dealing. The complaint asserted
damages of $25 million. The parties agreed to resolve this dispute through
binding arbitration, which occurred during the week of October 29, 1996. A
decision is expected in December, 1996. Although Company management believes
it has meritorious defenses against the complaint, the ultimate outcome of the
matter cannot presently be determined.
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.
In connection with the acquisition of Harrington, the Company agreed to
use its best efforts to register on behalf of Harrington stockholders those
Company common shares issued to the Harrington stockholders in the
acquisition, 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 of the pending merger with HRM, the Company was not
able to have such registration statement declared effective by October 31,
1996. While the Company's management believes that 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. This
registration statement was filed with the Commission on November 13, 1996.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
10.1 Second Amendment to the Credit Agreement originally dated as of May 17, 1996 by
and among the Company, the Lenders and First Union Bank of North Carolina, as
agent, as amended July, 1996 and September 26, 1996.
10.2 Plan and Agreement of Merger dated September 12, 1996, as amended, among the Company,
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).
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(b) On September 13, 1996, the Company filed two amended reports on Form
8-K/A, together with required financial statements, with respect to the
Harrington and Consolidated Group acquisitions.
15
<PAGE> 17
HEALTHPLAN SERVICES CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHPLAN SERVICES CORPORATION
Date: November , 1996 /s/ James K. Murray, Jr.
--------------------------------------
President and Chief Executive Officer
Date: November , 1996 /s/ James K. Murray III
--------------------------------------
Executive Vice President and Chief Financial Officer
16
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT
THIS SECOND AMENDMENT to the Credit Agreement referred to below (this
"Second Amendment"), is made and entered into as of this 26 day of September,
1996 by and among HEALTHPLAN SERVICES CORPORATION, a corporation organized
under the laws of Delaware (the "Borrower"), certain Subsidiaries of the
Borrower identified on the signature pages hereto, the Lenders party to such
Credit Agreement, and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent for
the Lenders.
Statement of Purpose
The Existing Lenders have extended certain credit facilities to the
Borrower pursuant to the Credit Agreement dated as of May 17, 1996 (as amended
by the First Amendment thereto dated July 1, 1996 (the "First Amendment"), and
as may be further amended, restated or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders party thereto on the
Closing Date (the "Existing Lenders"), and the Agent.
The Borrower has requested that the Lenders amend the Credit Agreement
to, among other things, increase the Aggregate Commitment thereunder to One
Hundred Seventy-Five Million Dollars ($175,000,000), and the Lenders have
agreed to do so, but only on the terms and conditions set forth below in this
Second Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. (a) All capitalized undefined terms used in this
Second Amendment shall have the meanings assigned thereto in the Credit
Agreement and (b) "Second Amendment Effective Date" means the date of this
Second Amendment or such later Business Day upon which each condition described
below in Section 4 shall be satisfied or waived in a manner acceptable to the
Agent and Required Lenders.
2. Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
<PAGE> 2
(a) Section 1.1 is hereby amended by deleting the definition of
"Aggregate Commitment" in its entirety and substituting the following in lieu
thereof:
"` Aggregate Commitment' means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at
any time or from time to time pursuant to the terms hereof. On the
Second Amendment Effective Date, the Aggregate Commitment shall be
One Hundred and Seventy-Five Million Dollars ($175,000,000)."
(b) Section 1.1 is hereby amended by deleting the definition of
"Capital Expenditures" in its entirety and substituting the following in lieu
thereof:
"` Capital Expenditures' means, with respect to a Person and its
Subsidiaries for any period, the aggregate cost of replacement or
acquisition of all Capital Assets of such Person and its Subsidiaries
during such period, determined on a Consolidated basis in accordance
with GAAP; provided that for purposes of calculating the Interest
Coverage Ratio hereunder, the Capital Expenditure Add-Back shall be
added to Capital Expenditures for each fiscal quarter commencing with
the fiscal quarter ending on December 31, 1996 through and including
the fiscal quarter ending December 31, 1999."
(c) Section 1.1 is hereby amended by deleting the definition of
"Earnings Multiple" in its entirety and substituting the following in lieu
thereof:
"` Earnings Multiple' means, as of any date of determination, Pro
Forma EBITDA times three (3)."
(d) Section 1.1 is hereby amended by deleting the definition of "Pro
Forma EBITDA" in its entirety and substituting the following in lieu thereof:
"` Pro Forma EBITDA' means, as of any date of determination, EBITDA
for the period of four consecutive fiscal quarters ending on, or
immediately prior to, such date of determination, as set forth on the
applicable Officer's Compliance Certificate and financial statements
attached thereto, including on a pro forma basis EBITDA for such
period
2
<PAGE> 3
attributable to any Permitted Acquisition; provided that (a)
EBITDA attributable to any Permitted Acquisition (i) for the calendar
month during which such Permitted Acquisition is consummated shall be
included in Pro Forma EBITDA on an actual or pro forma basis as
determined in accordance with GAAP, (ii) for any calendar month
following such Permitted Acquisition which is part of the same fiscal
quarter during which such Permitted Acquisition is consummated shall
be included in Pro Forma EBITDA on an actual basis and (b) the
Acquisition Restructuring Charge (or any reversal of any portion
thereof) shall be excluded, during the fiscal quarter or quarters, as
applicable, in which such charge (or reversal) is treated as expensed
(or reversed) by the Borrower, from the calculation of Pro Forma
EBITDA and such treatment of the Acquisition Restructuring Charge
shall remain in effect for each subsequent calculation of Pro Forma
EBITDA which includes any such fiscal quarter."
(e) Section 1.1 is hereby amended by inserting the following
defined term in the correct alphabetical order:
"` Acquisition Restructuring Charge' means an amount equal to the
total restructuring charges, as described in column B of Exhibit I
hereto, expensed in connection with the acquisitions by the Borrower
of Consolidated Group, Inc. (including certain affiliated companies)
and Harrington Services Corporation in an aggregate amount not to
exceed Thirteen Million Six Hundred Ninety-Five Thousand One Hundred
Eighty-Seven Dollars ($13,695,187); provided such charges are
expensed by the Borrower no later than the fiscal quarter ending on
December 31, 1996."
"` Capital Expenditure Add-Back' means an amount equal to the
Acquisition Restructuring Charge divided by twelve (12); provided,
that if any portion of the Acquisition Restructuring Charge is
subsequently reversed (and thus added back to income), the Capital
Expenditure Add-Back shall be reduced by the amount of such reversal
divided by the total number of fiscal quarters from such reversal
date (including the quarter in which such reversal is taken) through
and including the fiscal quarter ending December 31, 1999."
3
<PAGE> 4
"` Second Amendment Effective Date' shall have the meaning given
thereto in the Second Amendment hereto dated as of September 30, 1996
by and among the Borrower, the Lenders and the Agent."
(f) Schedule 1.1(b) is hereby deleted in its entirety and Schedule
1.1(b) attached hereto shall be substituted in lieu thereof.
(g) Section 8.1 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"Section 8.1 Leverage Ratio. As of the end of any fiscal quarter of
the Borrower during the corresponding time period, permit the Leverage
Ratio to exceed (a) 2.50 to 1.00 from the Closing Date through June
29, 1996 and (b) 3.00 to 1.00 at June 30, 1996 and thereafter."
(h) Section 8.3 is hereby amended by deleting such Section in its
entirety and substituting the following in lieu thereof:
"Section 8.3. Capital Expenditures. Make Capital Expenditures during
any period of four consecutive fiscal quarters ending during the
applicable period set forth below in an aggregate amount in excess of
the corresponding amount set forth below:
From the Second Amendment
Effective Date through
December 31, 1999 $12,450,000
January 1, 2000 and
thereafter $17,000,000"
3. Additional Lenders; Commitments. The Fifth Third Bank of
Columbus and SunTrust Bank, Tampa Bay (collectively, the "Additional Lenders")
are hereby added as "Lenders" under the Credit Agreement as if each such
Additional Lender was a Lender party thereto on the Closing Date. Each Lender
shall have the Commitment set forth opposite its name on Schedule 1.1(b)
hereto. On the Second Amendment Effective Date, the Agent shall effect such
transfers of funds as are necessary in order that the outstanding
4
<PAGE> 5
Loans reflect the Commitments of all the Lenders as set forth herein.
4. Conditions. The effectiveness of this Second Amendment shall
be conditioned upon satisfaction of the following conditions:
(a) Promissory Notes and Delivery Affidavits. The
Borrower shall have issued and delivered to the Agent duly executed
Promissory Notes payable to each Lender in the amount of such Lender's
respective Commitment as set forth in this Second Amendment. Each
Existing Lender shall return to the Agent for cancellation and
forwarding to the Borrower each Promissory Note delivered thereto in
connection with the First Amendment. Further, the Borrower shall have
executed and delivered all delivery affidavits and such other
documents evidencing execution and delivery of such Promissory Notes
as are reasonably requested by any Lender.
(b) Upfront Fees. The Agent shall have received (a) for
the account the Lenders an amendment fee of Five Thousand Dollars
($5,000) for each Lender, (b) for the account of the Existing Lenders
an upfront fee equal to one-eighth of one percent (1/8%) of the
incremental portion of such Existing Lender's Commitment as increased
by this Second Amendment and (c) for the account of the Additional
Lenders an upfront fee equal to one-eighth of one percent (1/8%) of
the Commitment of such Additional Lenders.
(c) Certificate of the Borrower. The Agent shall have
received a certificate dated as of the Second Amendment Effective Date
from the Borrower, in form and substance satisfactory to the Agent,
certifying on behalf of the Credit Parties that all representations
and warranties of the Credit Parties contained in this Amendment and
the Loan Documents are true and correct in all material respects; that
no Credit Party is in violation of any of the covenants contained in
the other Loan Documents; that, after giving effect to the
transactions contemplated by this Amendment, no Default or Event
of Default has occurred and is continuing; and that the Credit Parties
have satisfied each of the closing conditions regarding the Second
Amendment to be satisfied thereby.
5
<PAGE> 6
(d) Certificate of Secretary of the Credit Parties. The
Agent shall have received a certificate of the secretary or assistant
secretary of each Credit Party dated as of the Second Amendment
Effective Date certifying on behalf of such Credit Party, as
applicable, that the articles of incorporation and bylaws of such
Credit Party previously delivered to the Agent have not been repealed,
revoked, rescinded or amended in any respect since such delivery date;
that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of such Credit Party, authorizing
the execution, delivery and performance of this Amendment and the
continued effectiveness of the other Loan Documents; and as to the
incumbency and genuineness of the signature of each officer of such
Credit Party executing Loan Documents to which such Credit Party is a
party.
(e) Opinions of Counsel. The Agent shall have received
favorable opinions of counsel to the Credit Parties, dated as of the
Second Amendment Effective Date and addressed to the Agent and
Lenders, in form and substance satisfactory to the Agent.
(f) Additional Items. Receipt by the Agent of any other
document or instrument reasonably requested by it in connection with
the execution of this Amendment.
5. Limited Amendment. Except as expressly amended herein, the
Credit Agreement and each other Loan Document shall continue to be, and shall
remain, in full force and effect. This Second Amendment shall not be deemed
(a) to be a waiver of, or consent to, or a modification or amendment of, any
other term or condition of the Credit Agreement or any other Loan Documents or
(b) to prejudice any other right or rights which the Agent or Lenders may now
have or may have in the future under or in connection with the Credit Agreement
or the Loan Documents or any of the instruments or agreements referred to
therein, as the same may be amended, restated or otherwise modified from time
to time.
6. Representations and Warranties. By its execution hereof, the
Borrower hereby certifies on behalf of itself and the other Credit Parties that
each of the representations and warranties set forth in the Credit Agreement
and the other Loan Documents is true
6
<PAGE> 7
and correct as of the date hereof as if fully set forth herein and that as of
the date hereof no Default or Event of Default has occurred and is continuing.
7. Confirmation of Security Documents. Each Credit Party hereby
agrees and confirms that the definition of Obligations as used in each Pledge
Agreement and Subsidiary Guaranty Agreement to which it is a party includes the
Credit Agreement as amended hereby.
8. Expenses. The Borrower shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and
delivery of this Second Amendment, including without limitation, the reasonable
fees and disbursements of counsel for the Agent.
9. Governing Law. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
10. Counterparts. This Second Amendment may be executed in
separate counterparts, each of which when executed and delivered is an original
but all of which taken together constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the date and year first above written.
BORROWER:
[CORPORATE SEAL] HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
OTHER CREDIT PARTIES:
[CORPORATE SEAL] HEALTHPLAN SERVICES, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
and Chief Financial Officer
[CORPORATE SEAL] HEALTHCARE INFORMATICS CORPORATION
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] THIRD PARTY CLAIMS MANAGEMENT, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
<PAGE> 9
[CORPORATE SEAL] HARRINGTON SERVICES CORPORATION
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] R.E. HARRINGTON, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] PROHEALTH, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] EMPLOYEE BENEFIT SERVICES, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
<PAGE> 10
[CORPORATE SEAL] CONSOLIDATED GROUP, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] GROUP BENEFIT ADMINISTRATORS INSURANCE
AGENCY, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] CONSOLIDATED GROUP CLAIMS, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
[CORPORATE SEAL] CONSOLIDATED HEALTH COALITION, INC.
By: /s/ James K. Murray, III
----------------------------------
Name: James K. Murray, III
Title: Executive Vice President
<PAGE> 11
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Agent and Lender
By: /s/ Gail M. Golightly
----------------------------------
Name: Gail M. Golightly
Title: Senior Vice President
<PAGE> 12
BARNETT BANK, N.A.,
(as successor by merger to Barnett Bank
of Tampa, a State Bank), as Lender
By: /s/ Kimberly A. Bruce
----------------------------------
Name: Kimberly A. Bruce
Title: Assistant Vice President
<PAGE> 13
NATIONSBANK, N.A. (SOUTH), as Lender
By: /s/ James E. Herden, Jr.
----------------------------------
Name: James E. Herden, Jr.
Title: Vice President
<PAGE> 14
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as Lender
By: /s/ Martin D. Gawel
----------------------------------
Name: Martin D. Gawel
Title: Assistant Vice President
<PAGE> 15
FLEET BANK, N.A., as Lender
By: /s/ Cameron D. Gateman
----------------------------------
Name: Cameron D. Gateman
Title: Vice President
<PAGE> 16
SUNTRUST BANK, TAMPA BAY, as Lender
By: /s/ Jorge Arrieta
----------------------------------
Name: Jorge Arrieta
Title: Vice President
State of Georgia
County of Fulton
Subscribed and sworn before me this 25 day of September, 1996
(SEAL) /s/ Nancy Duncan
Name: Nancy Duncan
Title: Notary Public
My Commission Expires: Notary Public,
Clayton County, Georgia
My Commission Expires November 1, 1998
<PAGE> 17
THE FIFTH THIRD BANK
OF COLUMBUS, as Lender
By: /s/ Charles D. Hale
----------------------------------
Name: Charles D.Hale
Title: Vice President
<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>
