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SUBMITTED PURSUANT
TO RULE 424(B)(3)
REGISTRATION NO. 333-24333
PROSPECTUS
1,320,000 SHARES
HEALTHPLAN SERVICES CORPORATION
COMMON STOCK
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This Prospectus relates to 1,320,000 shares (the "Shares") of common stock,
par value $0.01 per share (the "Common Stock"), of HealthPlan Services
Corporation (the "Company") held by Automatic Data Processing, Inc. ("ADP") (the
"Selling Stockholder"). See "Selling Stockholder -- Shares Covered by this
Prospectus." The Shares are being registered for sale by the Selling
Stockholder. See "Plan of Distribution." The Company will not receive any of the
proceeds from the sale of Shares by the Selling Stockholder.
The Company has agreed to bear all out-of-pocket expenses incurred in
connection with registration of the Shares, which expenses are expected to be
approximately $36,625. In addition, ADP has agreed to indemnify the Company, and
the Company has agreed to indemnify ADP, against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Company's Common Stock is listed on the New York Stock Exchange and is
quoted under the symbol "HPS." On April 16, 1997, the last reported sale price
for the Common Stock as reported on the New York Stock Exchange Composite Tape
was $16.625 per share. Sales of the Shares by the Selling Stockholder 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."
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SEE "RISK FACTORS" BEGINNING AT PAGE 3 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
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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.
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The date of this Prospectus is April 17, 1997
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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 New York Stock Exchange ("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, 1996; (b) the
description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A, dated May 12, 1995, as amended; (c) all
other reports and other documents filed by the Company pursuant to Sections
13(a) or 15(d) of the Exchange Act since December 31, 1996; and (d) all
documents filed by the Company pursuant to 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.
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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.
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. The primary material risks associated with alliance contracts are
(i) private enterprises will not accept the use of a government-sponsored
program and will therefore fail to provide an adequate number of enrollees to
support a revenue base (over which fixed costs may be spread); (ii) the number
of enrollees per group will be so low that margins are insufficient to cover the
fixed costs of set up for the group; (iii) the level of marketing, enrollment,
and customer service required will
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be materially higher than expected, therefore increasing the variable costs
required under the contract; and (iv) the independent agents on whom the Company
relies to distribute the product are not enthusiastic about the alliance program
and, as a result, program enrollment fails to meet expectations. 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 separate transactions, two
administrative services businesses for a total consideration of $17.6 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 $61.6 million.
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, 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 exceeded the Company's 1995 revenues.
There can be no assurance that the Company will successfully and profitably
integrate the businesses of Harrington and Consolidated Group into its existing
operations. In addition, certain costs will be incurred to successfully
integrate these acquired companies.
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. At December 31, 1996, the Company's total indebtedness under
the Line of Credit was approximately $55 million, of which approximately 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
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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.
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. In addition to the adoption of FASB 121 on January 1, 1996, the
Company will continue to evaluate, where appropriate and on a regular basis,
whether events and circumstances have occurred that indicate the carrying amount
of goodwill warrants revision or is not recoverable, based on estimated future
undiscounted cash flows from operations, in accordance with Accounting
Principles Board Opinion 17, "Intangible Assets".
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 at the lowest level of
identifiable cash flows. 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
value. The Company estimates the discounted future value of anticipated future
cash flows as a measure of the fair value, using a discount rate of 16%, which
approximates management's estimate of the Company's estimated weighted average
cost of capital.
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
$13.7 million in the third quarter of 1996, representing approximately 7.6% 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), $6.6 million and Third Party
Claims Management, Inc. (acquired in August 1995), $7.1 million.
The assets of DGB were acquired by the Company's wholly-owned subsidiary,
HPS, on October 12, 1995. DGB, located in Marlborough, Connecticut, is a third
party administrator providing managed health care administrative services to
self-funded employers, typically having between 250 and 2,000 employees in the
New England market. At the time of this acquisition, the Company projected a 10%
to 15% growth rate in net cash flows and paid a purchase price which resulted in
$9.8 million excess of purchase price over the fair value of the assets
acquired. Since this acquisition, the DGB business has not achieved, and is not
expected to
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achieve, the revenue and net cash flow projections prepared at the time of the
acquisition due to, among other things, higher than originally expected
attrition rates resulting in ongoing decreases in net revenues (due in part to
increased pricing resulting from a reinsurance carrier's departure from DGB's
market), and an inadequate distribution system, as evidenced by an
underperforming sales force and greater than anticipated operating costs. The
Company's efforts to correct these deficiencies have not enabled it to meet its
original projections. The Company has determined that its revised projected cash
flows will not fully provide for the recovery of the goodwill balance of $8.8
million. Accordingly, the Company has written off $6.6 million of goodwill
associated with the DGB acquisition. Any further significant declines in the
Company's projected net cash flows may result in additional write-downs of
remaining goodwill.
TPCM was acquired by the Company's wholly-owned subsidiary, HPS, on August
31, 1995. TPCM is a third party administrator providing managed health care
administrative services to hospitals and other health care institutions which
offer self-funded health care benefits. At the time of this acquisition, the
Company projected a 10% to 15% growth rate in net cash flows and paid a purchase
price which resulted in $8.1 million excess of purchase price over fair market
value of assets acquired. Since this acquisition, TPCM has not achieved, and
does not expect to achieve, the revenue and net cash flow projections prepared
at the time of the acquisition due to, among other things, higher than
originally expected attrition rates, significantly higher than expected claims
experience (claims filed per enrollee), and greater than anticipated operating
costs due to the inability to obtain economies of scale through integration. The
Company's efforts to correct these deficiencies have not enabled it to meet its
original projections. Lives covered at TPCM decreased by 32,000 during 1996. The
Company has determined that its revised projected cash flows will not fully
provide for the recovery of the goodwill balance of $7.5 million. Accordingly,
the Company has written off $7.1 million of goodwill associated with the TPCM
acquisition. Any further significant declines in the Company's projected net
cash flows may result in additional write-downs of remaining goodwill.
To understand how the Company books acquisitions in purchase transactions,
an understanding of the unique nature of the business is essential. Because
administrators can operate with a minimal amount of capital, acquired companies
typically have modest tangible asset bases. As evidenced by the Company's recent
experiences at Harrington and CGI, other than the underlying business, there are
no intangible long-lived assets such as work force, customer base, or supplier
relationships to which the Company could assign significant value, as these are
relationships that routinely turn over and are replaced in the ordinary course
of business. Often no single customer is a significant part of the business, and
customers typically have annual contracts which may or may not be renewed.
Renewal rates can vary significantly on an annual basis. Accordingly, values
cannot be assigned to individual customers or contracts. Thus goodwill is often
a significant portion of the purchase price.
The Company anticipates reductions in revenue at TPCM and DGB of
approximately 30% and 17%, respectively, in 1997, TPCM and DGB represented
approximately 5% of the Company's consolidated revenue in the fourth quarter of
1996. The Company continually evaluates these operations for opportunities to
reverse these revenue losses and adjust operating costs in response to changing
conditions and does not believe these operations will create any further
materially adverse impact on future results of operations.
There can be no assurance that the Company will successfully and profitably
integrate the businesses of Harrington and Consolidated Group into its existing
operations. In addition, certain costs will be incurred to successfully
integrate these acquired companies. Although Harrington and Consolidated Group
are significantly larger companies with a broader customer base over which to
spread risk, more infrastructure, and longer histories of servicing customers,
and management remains optimistic about the future, there can be no assurance
that adverse renewals will not occur in the future. The Company will continue to
evaluate on a regular basis whether events and circumstances have occurred that
indicate that the carrying amount of goodwill 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 have a material adverse effect on the Company's
financial results.
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RELIANCE ON PAYORS
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. The New England, Celtic
Life Insurance Company, and Ameritas Life Insurance Corporation businesses
accounted for approximately 31.0%, 23.0%, and 10.7%, respectively, of the
Company's consolidated revenue in 1995 and approximately 16.2%, 12.5%, and 6.5%,
respectively, of the Company's consolidated revenue for the year ended December
31, 1996. Although this decline is due primarily to the Company's expansion
through acquisition, which has diluted its concentration of revenues from these
sources, it should be noted that the Company continues to experience higher
lapses than originations in the business written with these payors, and it is
not certain when, if ever, this trend will be reversed. In the third quarter of
1996, Metropolitan Life Insurance Company completed a merger with The New
England. The Company is unable to predict what effect, if any, such merger will
ultimately have on the Company's relationship with The New England.
Historically, the majority of Consolidated Group's business was written
with The 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. Between July 1, 1996 and December 31, 1996, this business
represented approximately 75% of Consolidated Group's revenue, or approximately
13% of the Company's consolidated revenue. The Company is dependent on United
HealthCare's commitment to the small group market and on the Company's ultimate
success in converting the MetraHealth business to United HealthCare's new
products. Should the Company have to move this business to another payor it
could experience higher than normal lapse rates and lower than normal margins.
The abandonment of the small market by either The New England, Celtic Life
Insurance Company, or Ameritas Life Insurance Corporation, indemnity payors'
ability to manage medical losses, and the degree to which the Company is
successful in the MetraHealth conversion, could have a material adverse effect
on the Company. With respect to the business serviced by the Company, a decision
by any one of these payors to administer and distribute a significant portion of
its products directly to small businesses also could 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,
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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 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
by state regulators 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. Each employer is a fiduciary of the plan it sponsors, but
there can also be other fiduciaries of a plan. ERISA imposes various express
obligations on fiduciaries. These obligations 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.
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COMPETITION
The Company faces competition and potential competition from traditional
indemnity insurance carriers, Blue Cross/Blue Shield organizations, managed care
organizations, third party administrators, utilization review companies, risk
management companies, and health care informatics companies. The Company
competes principally on the basis of the price and 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.
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 March 10,
1997, the Company had approximately 14,991,126 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 became eligible for sale in the public market, pursuant to Rule 144, in
the fourth quarter of 1996. In addition, certain stockholders owning
approximately 5,335,578 shares, and the holders of the 1,320,000 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.
9
<PAGE> 10
On May 21, 1996, the Board of Directors of Noel adopted a Plan of Complete
Liquidation and Dissolution of Noel (the "Plan") which was approved by the Noel
shareholders at a Special Meeting of Shareholders of Noel held on March 19,
1997. Pursuant to the Plan, 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 currently holds 4,275,846 shares of the Company's Common
Stock and has stated that it currently intends to distribute most of its shares
of the Company's Common Stock to its shareholders . On February 7, 1997, Noel
sold 1,320,000 shares of Company Common Stock to ADP and in the agreement
relating to such sale to ADP, Noel has agreed that, other than pursuant to a
distribution to Noel's shareholders, it will not transfer any of its shares of
the Company's Common Stock prior to September 30, 1997.
LEGAL PROCEEDINGS
In 1995, Self Funded Strategies, L.L.C. ("SFS"), a former provider of
marketing services for the Company, filed a complaint 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 agreed to binding arbitration and the arbitration proceedings occurred
during the week of October 29, 1996. The arbitration panel's decision, rendered
in December 1996, is not expected to materially alter the amount or timing of
future payments that the Company is contractually obligated to make to SFS under
the marketing agreement, and thus is not expected to materially affect the cash
flows of the Company's business.
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 then
pending Health Risk Management, Inc 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.
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 initial 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
10
<PAGE> 11
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 (the "Initial Investors"), purchased the business (the "Acquisition"),
which was then called Plan Services, Inc., from D&B Plan Services Corporation, a
Delaware corporation.
The Company, including its newly acquired operating units, Consolidated
Group, Inc. ("Consolidated Group") and Harrington Services Corporation
("Harrington"), is a leading provider of marketing, administrative, and risk
management services and solutions for benefit programs. The Company provides
these services for over 125,000 small businesses and large, self-funded
organizations, covering more than three million members in the United States.
The Company's clients include managed care organizations, insurance companies,
integrated health care delivery systems, self-funded benefit plans, and health
care purchasing alliances. The Company and its operating units function solely
as service providers generating fee-based income and do not assume any
underwriting risk.
SELLING STOCKHOLDER--SHARES COVERED BY THIS PROSPECTUS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 26, 1997, and as adjusted to
reflect the sale of the Shares offered by this Prospectus, with respect to the
stockholder of the Company (the "Selling Stockholder") for whose account the
Shares are being offered from time to time pursuant to this Prospectus. ADP
acquired the Shares on February 7, 1997, pursuant to a Stock Purchase Agreement
dated as of December 18, 1996 by and among ADP, Noel Group, Inc. ("Noel") and
the Company (the "ADP Agreement"). The ADP Agreement generally provides that:
(i) ADP may not agree to acquire additional shares of the Company's Common Stock
prior to December 31, 1997, unless such acquisition is approved by the Company's
Board of Directors, or unless the Company entertains alternative offers; (ii)
Noel may not dispose of its remaining shares of the Company's Common Stock prior
to September 30, 1997 other than through a direct distribution to Noel's
shareholders, subject to specified conditions; and (iii) the Company may not
take any action prior to December 31, 1997 that could interfere with
"pooling-of-interests" accounting. The Company also agreed: (i) to give ADP the
opportunity to maintain its percentage ownership interest in the Company in the
event that the Company sells any interest in its Common Stock prior to December
31, 1997, and (ii) to grant ADP certain piggyback registration rights. Joseph A.
Califano, Jr. is a director of both the Company and ADP. Arthur F. Weinbach is a
director of the Company and is the President and Chief Executive Officer of ADP.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1) SHARES OFFERING(1)(2)
------------------- BEING -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Automatic Data Processing, Inc................ 1,320,000(3) 8.8% 1,320,000 --(3) --
</TABLE>
- ---------------
(1) The percentages shown include the shares of Common Stock actually owned as
of March 26, 1997, ADP does not possess the right to acquire any additional
shares of Company Common Stock upon the exercise of options within 60 days
of such date.
(2) Assumes the sale of all of the Shares of the Selling Stockholder offered
hereby.
(3) As of the close of business on March 26, 1997, ADP owned directly 1,320,000
Shares. In addition, Joseph A. Califano, Jr., who is a director of the
Company and ADP, beneficially owns 16,050 shares of Company common stock,
including currently exercisable options to purchase 4,800 shares, and
Arthur F. Weinbach owns currently exercisable options to purchase 2,400
shares of Company common stock.
The Company has agreed to indemnify the Selling Stockholder and the Selling
Stockholder has agreed to indemnify the Company against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, in
connection with the sale of the Shares offered by this Prospectus.
11
<PAGE> 12
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 Stockholder and no portion thereof will inure to
the benefit of the Company.
PLAN OF DISTRIBUTION
The Shares may be sold by the Selling Stockholder in one or more
transactions on the New York Stock Exchange, in negotiated transactions or
through a combination of such methods of sales.
Such transactions may be effected by the Selling Stockholder 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 Stockholder
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 Stockholder and may receive commissions from the
purchaser of Shares for whom they may act as agent. A broker or dealer selling
Shares for the Selling Stockholder or purchasing such Shares from the Selling
Stockholder 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
Stockholder can presently estimate the amount of such compensation which is to
be paid by the Selling Stockholder; 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.
The Selling Stockholder 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 Stockholder 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,
1996, 1995 and 1994, and for the years ended December 31, 1996 and 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, 1996, 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 incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, have
been so incorporated in reliance on the report of Coopers & Lybrand L.L.P.,
independent 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.
12
<PAGE> 13
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.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Selection 145 of the General Corporation Law of Delaware 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. The Company's Certificate of
Incorporation, as amended, also provides for the indemnification, to the fullest
extent permitted by the General Corporation Law of Delaware, of such persons.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provision, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
13
<PAGE> 14
======================================================
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.......................... 3
The Company........................... 10
Selling Stockholder -- Shares Covered
by this Prospectus.................. 11
Use of Proceeds....................... 11
Plan of Distribution.................. 12
Experts............................... 12
Legal Matters......................... 12
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... 13
</TABLE>
------------------
======================================================
======================================================
1,320,000 SHARES
HEALTHPLAN SERVICES CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
APRIL 17, 1997
======================================================
