S-1/A

As Filed with the Securities and Exchange Commission on April 30, 2002

Registration No. 333-84726

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

COMPUTER  PROGRAMS  AND  SYSTEMS,  INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	7389	74-3032373
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

6600 Wall Street

Mobile, Alabama 36695

(251) 639-8100

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

DAVID A. DYE

President and Chief Executive Officer

6600 Wall Street

Mobile, Alabama 36695

(251) 639-8100

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

GREGORY S. CURRAN, ESQ. Maynard, Cooper & Gale, P.C. 1901 Sixth Avenue North, Suite 2400 Birmingham, Alabama 35203 (205) 254-1000 Telephone (205) 254-1999 Facsimile JOHN A. GOOD, ESQ. Bass, Berry & Sims PLC 100 Peabody Place, Suite 900 Memphis, TN 38103 (901) 543-5900 Telephone (888) 543-4644 Facsimile

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Share	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee(3)
Common Stock, par value $.001 per share	3,450,000	$18.00	$62,100,000	$5,714

(1) Includes the dollar value of shares that the underwriters have the option to purchase to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

(3) Previously paid on March 21, 2002.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated April 30, 2002

PROSPECTUS

3,000,000 Shares

Computer Programs and Systems, Inc.

Common Stock

This is the initial public offering of shares of our common stock. We are selling 1,200,000 shares, and the selling stockholders identified in this prospectus are selling 1,800,000 shares. We will not receive any proceeds from the sale of shares by the selling stockholders. We anticipate that the initial public offering price will be between $16.00 and $18.00 per share.

No public market currently exists for our shares. We have applied to have our shares quoted on the Nasdaq National Market under the symbol “CPSI.”

This investment involves risks. See “Risk Factors” beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Share	Total
Public offering price	$	$
Underwriting discount	$	$
Proceeds to CPSI	$	$
Proceeds to selling stockholders	$	$

The underwriters may also purchase up to an additional 450,000 shares of our common stock from the selling stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus solely to cover over-allotments.

Morgan Keegan & Company, Inc.

Raymond James

                    , 2002

Clear direction for healthcare information solutions

Over 400 hospital installations in 45 states

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	6
Special Note Regarding Forward-Looking Statements	13
Use of Proceeds	13
Dividend Policy	14
Capitalization	14
Dilution	15
Selected Financial Data	16
Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Business	26
Management	40
Certain Relationships and Related Party Transactions	46
Principal and Selling Stockholders	46
Description of Capital Stock	48
Shares Eligible for Future Sale	49
Underwriting	51
Legal Matters	53
Experts	54
Change of Independent Auditors	54
Where You Can Find More Information	54
Index to Financial Statements	F-1

You should rely only on the information contained in this prospectus. Neither we nor any underwriter has authorized any other person to provide you with different or additional information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. You should not assume that the information in this prospectus is complete and accurate as of any date other than the date of this prospectus, regardless of when this prospectus is delivered or when any sale of the common stock occurs.

PROSPECTUS SUMMARY

This summary highlights information found in more detail later in this prospectus. You should read the entire prospectus, including the risk factors and the financial statements and related notes, before deciding whether or not to invest in shares of our common stock.

Overview

We are a healthcare information technology company that designs, develops, markets, installs and supports computerized information technology systems to meet the unique demands of small and midsize hospitals. Our target market includes acute care community hospitals with 300 or fewer beds and small specialty hospitals. We are a single-source vendor providing comprehensive software and hardware products, complemented by data conversion, complete installation and extensive support. Our fully integrated, enterprise-wide system automates clinical and financial data management in each of the primary functional areas of a hospital. In addition, we provide services that enable our customers to outsource certain data-related business processes which we can perform more efficiently. We believe our products and services enhance hospital performance in the critical areas of clinical quality, revenue cycle management, cost control and regulatory compliance. From our initial hospital installation in 1981, we have grown to serve more than 400 hospital customers across 45 states and the District of Columbia. In 2001, we generated revenues of $59.7 million from the sale of our products and services.

Industry Dynamics

Healthcare is the largest industry in the United States. Notwithstanding its size and importance, this industry has historically underinvested in medical information technology. Consequently, hospitals often operate with non-integrated, complex, inefficient systems. These systems can adversely impact patient care and financial management. As a result, hospitals have an enhanced need for management tools that allow them to operate more efficiently, capture more reimbursement dollars and provide improved care to patients. We believe these dynamics are more pronounced among hospitals having 300 or fewer acute care beds.

We believe healthcare providers, including hospitals having 300 or fewer acute care beds, are embracing information technology as a management tool. The current market for healthcare information technology and related services is estimated to be in excess of $19.0 billion annually and is expected to grow to more than $23.0 billion by 2003. We believe we offer a solution that positions us to take advantage of increased spending on healthcare information technology and sustain our revenue growth.

Our Solution

We have tailored an information technology solution that effectively addresses the unique needs of small and midsize hospitals. Due to their smaller operating budgets, community hospitals have limited financial and human resources to operate manual or inefficient information systems. At the same time, they are expected to provide high quality healthcare on a cost effective basis.

Our solution has been developed entirely by our people to meet the challenges of our community hospital customers. The CPSI system collects, processes, retains and reports data in the primary functional areas of a hospital, from patient care to clinical processing to administration and accounting. As a key element of our complete solution, we provide ongoing customer service through regular interaction with customers, customer user groups and extensive customer support. We also offer outsourcing services that allow customers to avoid some of the fixed costs of a business office. By remaining sensitive and responsive to the ever-changing demands of our customers and regularly updating our products, we believe we provide an information technology solution that meets the needs of community hospitals.

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Strategy

Our objective is to continue to grow as a leading provider of healthcare information technology systems and services to small and midsize hospitals. We intend to follow the same strategy that we have successfully pursued for over twenty years, the key elements of which are as follows:

Deliver a Single-Source Solution.    When a customer purchases the CPSI system, we provide everything necessary for the customer to implement and use that system. We deliver the application software, computer hardware, peripherals, forms and supplies used in the comprehensive information network. We also offer customers additional services such as business office outsourcing, electronic billing outsourcing and ISP services.

Provide Enterprise-Wide, Fully Integrated Software Applications.    We have developed all of our software products internally as part of our fully integrated system architecture. Our experience has taught us that using a fully integrated system across the primary functional areas of a hospital ensures compatibility among applications and avoids the pitfalls associated with interfacing disparate systems.

Maintain Commitment to Customer Oriented Operating Philosophy.    A key factor in our success has been our focus on customer service and support. We make available to our customers experienced support teams that can assist with any question or problem. We currently have a one to one support staff to customer ratio.

Expand Presence in Target Market.    We will continue to target small and midsize domestic hospitals with 300 or fewer acute care beds. We believe this market of approximately 4,100 community hospitals nationwide, plus the market of small specialty hospitals, has been traditionally overlooked and underserved by other healthcare technology companies. We will also continue to market additional software products to our existing customers who have not purchased our complete package of software applications.

Emphasize Recurring Revenue Opportunities.    In addition to revenues from new system installations, we are developing sources of recurring revenues. Currently, our principal source of recurring revenues is our support and maintenance fees paid by existing customers. We also generate recurring revenues from outsourcing, ASP and ISP services.

Company Information

We were incorporated in Alabama in 1979. We intend to reincorporate in Delaware prior to the completion of this offering through a merger with a recently formed Delaware subsidiary. Unless otherwise noted, all information in this prospectus assumes that the reincorporation has been completed.

Our principal offices are located at 6600 Wall Street, Mobile, Alabama 36695, and our telephone number is (251) 639-8100. We maintain a website at www.cpsinet.com. Note, however, that our website and the information contained therein is not a part of, nor otherwise incorporated into, this prospectus.

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The Offering

Common stock offered by CPSI 1,200,000 shares

Common stock offered by the selling stockholders 1,800,000 shares

Common stock outstanding after the offering(1) 10,488,000 shares

Offering price $             per share

Proposed Nasdaq National Market trading symbol CPSI

Use of proceeds We will not receive any proceeds from the sale of shares by the selling stockholders. We will use the net proceeds we receive from our sale of shares to pay a distribution of previously-taxed S corporation earnings to our current stockholders, to repay existing debt and for general corporate purposes. See “Use of Proceeds.”

(1) The number of shares of common stock to be outstanding after the offering is based on 9,288,000 shares outstanding as of April 30, 2002, after giving effect to a 430 for 1 stock split, which will occur prior to our reincorporation in Delaware and the completion of this offering, and it excludes approximately 1,165,333 shares of our common stock that will be reserved for issuance under our 2002 Stock Option Plan. Unless otherwise noted, all information in this prospectus assumes that the 430 for 1 stock split has been effected.

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Summary Financial Data

The tables below set forth summary financial data for the years ended December 31, 1997, 1998, 1999, 2000 and 2001, the three months ended March 31, 2001 and 2002, and as of March 31, 2002. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial statements and related notes included elsewhere in this prospectus.

For all periods presented, we operated as an S corporation and were not subject to federal and certain state income taxes. Upon completion of this offering, we will become subject to federal and certain state income taxes applicable to C corporations.            

Pro forma net income reflects the provision for income taxes that would have been recorded had we been a C corporation during the periods presented. Pro forma net income per share is based on the weighted average number of shares of common stock outstanding during the years 1997 through 2000, or 9,288,000 shares, plus an additional 397,135 and 356,566 shares for the year ended December 31, 2001 and the three months ended March 31, 2002, respectively, which are the estimated portions of the shares being offered that would be necessary to fund the distribution of accumulated S corporation earnings in excess of net income through the date we become a C corporation. This number of shares has been computed assuming an initial public offering price of $17.00 per share. See Note 3 to our financial statements included elsewhere in this prospectus.

Our pro forma balance sheet reflects the accrual of the S corporation distribution, estimated to be approximately $13.3 million as of March 31, 2002. It also reflects the deferred income tax assets that would have been recorded at that date had we elected to be taxed as a C corporation.

Our pro forma as adjusted balance sheet reflects our sale of 1,200,000 shares of common stock in this offering at an assumed initial public offering price of $17.00 per share, after deducting the underwriting discount and our estimated offering expenses, and reflects the repayment of the note payable and the payment of the S corporation distribution.

	Year ended December 31,													Three months ended March 31,
	1997		1998		1999			2000			2001			2001			2002
	(in thousands except for share and per share data)
INCOME STATEMENT DATA:
Total sales revenues	$	24,121	$	32,150	$	50,530		$	49,222		$	59,666		$	13,529		$	16,921
Total costs of sales		13,810		19,170		29,895			31,487			36,242			8,171			9,902
Gross profit		10,311		12,980		20,635			17,735			23,424			5,358			7,019
Sales and marketing		1,612		2,872		4,650			4,477			5,105			1,383			1,346
General and administrative		4,337		4,960		7,244			8,603			9,843			2,248			2,874
Operating income		4,362		5,148		8,741			4,655			8,476			1,727			2,799
Other income		117		161		228			305			280			33			87
Interest expense		—		—		(32	)		(69	)		(76	)		(16	)		(14	)
Net income	$	4,479	$	5,309	$	8,937		$	4,891		$	8,680		$	1,744		$	2,872
Net income per share—basic and diluted	$	0.48	$	0.57	$	0.96		$	0.53		$	0.93		$	0.19		$	0.31
Weighted average shares outstanding—basic and diluted		9,288,000		9,288,000		9,288,000			9,288,000			9,288,000			9,288,000			9,288,000

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	Year ended December 31,										Three months ended March 31,
	1997		1998		1999		2000		2001		2001		2002
	(in thousands except for share and per share data)
Pro forma information:
Net income as reported	$	4,479	$	5,309	$	8,937	$	4,891	$	8,680	$	1,744	$	2,872
Pro forma income taxes		1,677		1,982		3,324		1,826		3,231		649		1,082
Pro forma net income	$	2,802	$	3,327	$	5,613	$	3,065	$	5,449	$	1,095	$	1,790
Pro forma net income per share—basic and diluted (based on 9,288,000 weighted average shares)	$	0.30	$	0.36	$	0.60	$	0.33	$	0.59	$	0.12	$	0.19
Pro forma net income per share—basic and diluted (based on 9,685,135 and 9,644,566 weighted average shares at December 31, 2001 and March 31, 2002, respectively, and reflecting the S corporation distribution—see Note 3 to financial statements)									$	0.56			$	0.19

	As of March 31, 2002
	Actual		Pro forma			Pro forma as adjusted
	(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents	$	1,750	$	1,750		$	5,964
Total assets		17,555		18,603			22,817
Total current liabilities		6,190		19,490			6,103
Note payable		641		641			—
Total stockholders’ equity (deficit)		10,723		(1,529	)		16,714

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RISK FACTORS

You should carefully consider the following risk factors before you decide to buy our common stock. You should also consider all of the other information in this prospectus. If any of the risks described below actually occurs, our business, financial condition, operating results and cash flows could be materially adversely affected. This could cause the trading price of our common stock to decline, and you may lose part or all of your investment.

Risks Related to Our Business and Industry

Market factors may cause a decline in spending for information technology and services by our current and prospective customers which may result in less demand for our products, lower prices and, consequently, lower revenues and a lower revenue growth rate.

The purchase of our information system involves a significant financial commitment by our customers. At the same time, the healthcare industry faces significant financial pressures which could adversely affect overall spending on healthcare information technology and services. For example, the Balanced Budget Act of 1997 has significantly reduced Medicare reimbursements to hospitals, leaving them less money to invest in infrastructure. Moreover, a general economic decline could cause hospitals to reduce or eliminate information technology related spending. To the extent spending for healthcare information technology and services declines or increases slower than we anticipate, demand for our products and services, as well as the prices we charge, could be adversely affected. Accordingly, we cannot assure you that we will be able to increase or maintain our revenues or our growth rate.

There is a limited number of hospitals in our target market. Continued consolidation in the healthcare industry could result in the loss of existing customers, a reduction in our potential customer base and downward pressure on our products’ prices.

There is a finite number of small and midsize hospitals with 300 or fewer acute care beds. Saturation of this market with our products or our competitors’ products could eventually limit our revenues and growth. Furthermore, many healthcare providers have consolidated to create larger healthcare delivery enterprises with greater market power. If this consolidation continues, we could lose existing customers and could experience a decrease in the number of potential purchasers of our products and services. The loss of existing and potential customers due to industry consolidation could cause our revenue growth rate to decline. In addition, larger, consolidated enterprises could have greater bargaining power, which may lead to downward pressure on the prices for our products and services.

We may experience fluctuations in quarterly financial performance that cause us to fail to meet revenues or earnings expectations. Failure to meet these expectations could adversely impact our stock price.

There is no assurance that consistent quarterly growth in our business will continue. Our quarterly revenues may fluctuate and may be difficult to forecast for a variety of reasons. For example, prospective customers often take significant time evaluating our system and related services before making a purchase decision. Moreover, a prospective customer who has placed an order for our system could decide to cancel that order or postpone installation of the ordered system. If a prospective customer delays or cancels a scheduled system installation during any quarter, we may not be able to schedule a substitute system installation during that quarter. The amount of revenues that would have been generated from that installation will be postponed or lost. The possibility of delays or cancellations of scheduled system installations could cause our quarterly revenues to fluctuate.

The following factors may also affect demand for our products and services and cause our quarterly revenues to fluctuate:

• changes in customer budgets and purchasing priorities;

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• market acceptance of new products, product enhancements and services from us and our competitors;

• product and price competition; and

• delay of revenue recognition to future quarters due to an increase in the sale of our remote access ASP services.

Variations in our quarterly revenues may adversely affect our operating results. In each fiscal quarter, our expense levels, operating costs and hiring plans are based on projections of future revenues and are relatively fixed. If our actual revenues fall below expectations, our earnings will also likely fail to meet expectations. If we fail to meet the revenue or earnings expectations of securities analysts and investors, the price of our common stock will likely decrease.

Competition with companies that have greater financial, technical and marketing resources than we have could result in loss of customers and/or a lowering of prices for our products, causing a decrease in our revenues and/or market share.

Our principal competitors are Medical Information Technology, Inc., or “Meditech,” and Healthcare Management Systems, Inc., or “HMS.” Meditech and HMS compete with us directly in our target market of small and midsize hospitals. These companies offer products and services that are comparable to our system and are designed to address the needs of community hospitals.

Our secondary competitors include McKesson Corporation, Quadramed Corp., Cerner Corporation and Siemens Corporation. These companies are significantly larger than we are, and they typically sell their products and services to larger hospitals outside of our target market. However, they sometimes compete directly with us. We also face competition from providers of practice management systems, general decision support and database systems and other segment-specific applications, as well as from healthcare technology consultants. Any of these companies as well as other technology or healthcare companies could decide at any time to specifically target hospitals within our target market.

A number of existing and potential competitors are more established than we are and have greater name recognition and financial, technical and marketing resources. Products of our competitors may have better performance, lower prices and broader market acceptance than our products. We expect increased competition that could cause us to lose customers, lower our prices to remain competitive and experience lower revenues, revenue growth and profit margins.            

Our failure to develop new products or enhance current products in response to market demands could adversely impact our competitive position and require substantial capital resources to correct.

The needs of hospitals in our target market are subject to rapid change due to government regulation, trends in clinical care practices and technological advancements. As a result of these changes, our products may quickly become obsolete or less competitive. New product introductions and enhancements by our competitors that more effectively or timely respond to changing industry needs may weaken our competitive position.            

We continually redesign and enhance our products to incorporate new technologies and adapt our products to ever-changing hardware and software platforms. Often we face difficult choices regarding which new technologies to adopt. If we fail to anticipate or respond adequately to technological advancements, or experience significant delays in product development or introduction, our competitive position could be negatively affected. Moreover, our failure to offer products acceptable to our target market could require us to make significant capital investments and incur higher operating costs to redesign our products, which could negatively affect our financial condition and operating results.

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Potential regulation of our products as medical devices by the U.S. Food and Drug Administration could increase our costs, delay the introduction of new products and slow our revenue growth.

The U.S. Food and Drug Administration, or the “FDA,” is likely to become more active in regulating the use of computer software for clinical purposes. The FDA has increasingly regulated computer products and computer-assisted products as medical devices under the federal Food, Drug and Cosmetic Act. If the FDA regulates any of our products as medical devices, we would likely be required to, among other things:

• seek FDA clearance by demonstrating that our product is substantially equivalent to a device already legally marketed, or obtain FDA approval by establishing the safety and effectiveness of our product;

• comply with rigorous regulations governing pre-clinical and clinical testing, manufacture, distribution, labeling and promotion of medical devices; and

• comply with the Food, Drug and Cosmetic Act’s general controls, including establishment registration, device listing, compliance with good manufacturing practices and reporting of specified device malfunctions and other adverse device events.

We anticipate that some of our products currently in development will be subject to FDA regulation. If any of our products fail to comply with FDA requirements, we could face FDA refusal to grant pre-market clearance or approval of products; withdrawal of existing clearances and approvals; fines, injunctions or civil penalties; recalls or product corrections; production suspensions; and criminal prosecution. FDA regulation of our products could increase our operating costs, delay or prevent the marketing of new or existing products and adversely affect our revenue growth.

Governmental regulations relating to patient confidentiality and other matters could increase our costs.

State and federal laws regulate the confidentiality of patient records and the circumstances under which those records may be released. These regulations may require the users of such information to implement security measures. Regulations governing electronic health data transmissions are also evolving rapidly, and they are often unclear and difficult to apply.

The Health Insurance Portability and Accountability Act of 1996, or “HIPAA,” requires, among other things, the Secretary of Health and Human Services, or “HHS,” to adopt national standards to ensure the integrity and confidentiality of health information. In December 2000, HHS published its final health data privacy regulations. Our customers must fully comply with these regulations by April 2003. These regulations restrict the use and disclosure of personally identifiable health information without the prior informed consent of the patient. In addition, HHS has also issued final regulations establishing national standards for some healthcare-related electronic transactions and uniform code sets to be used in those transactions. Our customers must comply with these regulations by October 2002, but may obtain a one-year extension for compliance by filing a plan with HHS that explains the steps the organization will take to comply by the extended deadline. Final rules have not yet been issued with respect to other aspects of HIPAA. For example, HHS has issued proposed rules with respect to information security that would require healthcare providers to implement organizational practices to protect the security of electronically maintained or transmitted health-related information, such as the use of electronic signatures and single sign-on access to information. Furthermore, HHS has not yet issued proposed rules on the topic of unique health identifiers. We cannot predict the potential impact of proposed rules and rules that have not yet been proposed. In addition to HIPAA, other federal and/or state privacy legislation may be enacted at any time.

In our support agreements with our customers, we agree to update our software applications to comply with applicable federal and state laws. While we believe we have developed products that will comply with current HIPAA and other regulatory requirements, new laws, regulations and interpretations could force us to further redesign our products. Any such product redesign could consume significant capital, research and development and other resources, which could significantly increase our operating costs.

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Our products assist clinical decision-making and related care by capturing, maintaining and reporting relevant patient data. If our products fail to provide accurate and timely information, our customers could assert claims against us that could result in substantial cost to us, harm our reputation in the industry and cause demand for our products to decline.

We provide products that assist clinical decision-making and related care by capturing, maintaining and reporting relevant patient data. Our products could fail or produce inaccurate results due to a variety of reasons, including mechanical error, product flaws, faulty installation and/or human error during the initial data conversion. If our products fail to provide accurate and timely information, customers and/or patients could sue us to hold us responsible for losses they incur from these errors. These lawsuits, regardless of merit or outcome, could result in substantial cost to us, divert management’s attention from operations and decrease market acceptance of our products. We attempt to limit by contract our liability for damages arising from negligence, errors or mistakes. Despite this precaution, such contract provisions may not be enforceable or may not otherwise protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors or omissions. However, this coverage may not be sufficient to cover one or more large claims against us or otherwise continue to be available on terms acceptable to us. In addition, the insurer could disclaim coverage as to any future claim.

Breaches of security in our system could result in customer claims against us and harm to our reputation causing us to incur expenses and/or lose customers.

We have included security features in our system that are intended to protect the privacy and integrity of patient data. Despite the existence of these security features, our system may experience break-ins and similar disruptive problems that could jeopardize the security of information stored in and transmitted through the computer networks of our customers. Because of the sensitivity of medical information, customers could sue us for breaches of security involving our system. Also, actual or perceived security breaches in our system could harm the market perception of our products which could cause us to lose existing and prospective customers.

New products that we introduce or enhancements to our existing products may contain undetected errors or problems which could affect customer satisfaction and cause a decrease in revenues.

Highly complex software products such as ours sometimes contain undetected errors or failures when first introduced or when updates and new versions are released. Tests of our products may not detect bugs or errors because it is difficult to simulate our customers’ wide variety of computing environments. Despite extensive testing, from time to time we have discovered defects or errors in our products. Defects or errors discovered in our products could cause delays in product introductions and shipments, result in increased costs and diversion of development resources, require design modifications, decrease market acceptance or customer satisfaction with our products, cause a loss of revenue, result in legal actions by our customers and cause increased insurance costs.

Our facilities are located in an area vulnerable to hurricanes and tropical storms, and the occurrence of a severe hurricane, similar storm or other natural disaster could cause damage to our facilities and equipment, which could require us to cease or limit our operations.

All of our facilities and virtually all of our employees are situated on one campus in Mobile, Alabama, which is located on the coast of the Gulf of Mexico. Our facilities are vulnerable to significant damage or destruction from hurricanes and tropical storms. We are also vulnerable to damage from other types of disasters, including tornadoes, fires, floods and similar events. If any disaster were to occur, our ability to conduct business at our facilities could be seriously impaired or completely destroyed. This would have adverse consequences for our customers who depend on us for system support or outsourcing services. Also, the servers of customers who use our remote access services could be damaged or destroyed in any such disaster. This would have potentially devastating consequences to those customers. Although we have an emergency recovery plan, there can be no

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assurance that this plan will effectively prevent the interruption of our business due to a natural disaster. Furthermore, the insurance we maintain may not be adequate to cover our losses resulting from any natural disaster or other business interruption.

Interruptions in our power supply and/or telecommunications capabilities could disrupt our operations, cause us to lose revenues and/or increase our expenses.

We currently have backup generators to be used as alternative sources of power in the event of a loss of power to our facilities. If these generators were to fail during any power outage, we would be temporarily unable to continue operations at our facilities. This would have adverse consequences for our customers who depend on us for system support and outsourcing services. Any such interruption in operations at our facilities could damage our reputation, harm our ability to retain existing customers and obtain new customers, and could result in lost revenue and increased insurance and other operating costs.

We also have customers for whom we store and maintain computer servers containing critical patient and administrative data. Those customers access this data remotely through telecommunications lines. If our power generators fail during any power outage or if our telecommunications lines are severed or impaired for any reason, those customers would be unable to access their mission critical data causing an interruption in their operations. In such event our remote access customers and/or their patients could seek to hold us responsible for any losses. We would also potentially lose those customers, and our reputation could be harmed.

If we are unable to attract and retain qualified customer service and support personnel our business and operating results will suffer.

Our customer service and support is a key component of our business. Most of our hospital customers have small information technology staffs, and they depend on us to service and support their systems. Future difficulty in attracting, training and retaining capable customer service and support personnel could cause a decrease in the overall quality of our customer service and support. That decrease would have a negative effect on customer satisfaction which could cause us to lose existing customers and could have an adverse effect on our new customer sales. The loss of customers due to inadequate customer service and support would negatively impact our ability to continue to grow our business.

We do not have employment or non-competition agreements with our key personnel, and their departure could harm our future success.

Our future success depends to a significant extent on the leadership and performance of our chief executive officer, chief operating officer and other executive officers. We do not have employment or non-competition agreements with any of our executive officers. Therefore, they may terminate their employment with us at any time and may compete against us. The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition and results of operations.

We have limited protection of our intellectual property and, if we fail to adequately protect our intellectual property, we may not be able to compete effectively.

We consider some aspects of our internal operations, products and documentation to be proprietary. To some extent we have relied on a combination of confidentiality provisions in our customer agreements, copyright, trademark and trade secret laws and other measures to protect our intellectual property. To date, however, we have not filed any patent applications to protect our proprietary software products. In addition, existing copyright laws afford only limited protection. Although we attempt to control access to our intellectual property, unauthorized persons may attempt to copy or otherwise use our intellectual property. Monitoring unauthorized use of our intellectual property is difficult, and the steps we have taken may not prevent unauthorized use. If our competitors gain access to our intellectual property, our competitive position in the industry could be damaged. An inability to compete effectively could cause us to lose existing and potential customers and experience lower revenues, revenue growth and profit margins.

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In the event our products infringe on the intellectual property rights of third-parties, our business may suffer if we are sued for infringement or if we cannot obtain licenses to these rights on commercially acceptable terms.

Others may sue us alleging infringement of their intellectual property rights. Many participants in the technology industry have an increasing number of patents and patent applications and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property infringement. Further, as the number and functionality of our products increase, we believe we may become increasingly subject to the risk of infringement claims. If infringement claims are brought against us, these assertions could distract management. We may have to spend a significant amount of money and time to defend or settle those claims. If we were found to infringe on the intellectual property rights of others, we could be forced to pay significant license fees or damages for infringement. If we were unable to obtain licenses to these rights on commercially acceptable terms, we would be required to discontinue the sale of our products that contain the infringing technology. Our customers would also be required to discontinue the use of those products. We are unable to insure against this risk on an economically feasible basis. Even if we were to prevail in an infringement lawsuit, the accompanying publicity could adversely impact the demand for our system. Under some circumstances, we agree to indemnify our customers for some types of infringement claims that may arise from the use of our products.

Risks Related to this Offering

We will receive less than 40% of the net proceeds from this offering, and management may spend or invest these proceeds in ways with which you may not agree.

Over 60% of the net proceeds of this offering will be received by the existing stockholders who have elected to sell some of their shares of our common stock. We will not receive any net proceeds from the sale of those shares by the selling stockholders. We will receive less than 40% of the net proceeds from this offering. With our net proceeds, we will fund a distribution of previously taxed S corporation income to our current stockholders in connection with the termination of our S corporation election, which totaled $13.3 million as of March 31, 2002. We will also use approximately $0.7 million of our net proceeds to repay debt. Accordingly, approximately $4.2 million will be available for use in our operations. We have broad discretion to determine the allocation of our proceeds from this offering that will be used for general corporate purposes. You will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use these proceeds. The failure of management to use those funds effectively could have a material adverse effect on our financial condition and operating results. See “Use of Proceeds.”

As a new investor, you will experience immediate dilution of $15.51, or 91.2% in the book value of your common stock, and may experience additional dilution if options are granted and exercised.

The pro forma net tangible book value per share of common stock you purchase in this offering will be less than the initial public offering price that you pay. Accordingly, if you purchase common stock in this offering at an assumed initial public offering price of $17.00 per share, you will incur immediate and substantial dilution of $15.51 per share, which equals the difference between your purchase price per share and the net tangible book value per share following the completion of this offering. Simultaneously with the completion of this offering and in the future, we intend to issue to our employees options to purchase our common stock. To the extent these options are exercised, there will be further dilution to investors in this offering. See “Dilution.”

A large number of shares may be sold in the market following this offering which may depress our stock price.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that such sales are likely to occur, could depress the market price of our common stock. Based on shares outstanding as of April 30, 2002, upon completion of this offering we will have outstanding 10,488,000 shares of common stock. Of these shares, the 3,000,000 shares of common stock sold in this offering (or

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3,450,000 if the underwriters’ over-allotment option is exercised in full) will be freely tradable in the public market. After the lockup agreements signed by current stockholders expire 180 days from the date of this prospectus, an additional 2,548,568 shares will be eligible for immediate sale in the public market and an additional 4,939,432 shares will be available for sale subject to compliance with various requirements of Rule 144 under the Securities Act. See “Shares Eligible for Future Sale.”

An active public market for our common stock may not develop, which could impede your ability to sell your shares and could depress our stock price.

The price of our common stock to be sold in this offering will be determined through negotiations between us and the underwriters. The public offering price may not be indicative of prices that will prevail in the trading market. Before this offering, no public market existed for our common stock. An active public market for our common stock may not develop or be sustained after the offering, which could affect your ability to sell your shares and depress the market price of your shares. The market price of your shares may fall below the initial public offering price.

There has been significant volatility in the market price and trading volume of securities of healthcare and technology-related companies that are unrelated to the performance of those companies. These broad market fluctuations may negatively affect the market price of our common stock. As a consequence, you may not be able to sell the shares of common stock you purchase at or above the initial public offering price.

In the past, securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities. We may become the target of similar litigation. Securities litigation may result in substantial costs and divert management’s attention and resources, which may harm our business, financial condition and results of operations, as well as the market price of our common stock.

Our executive officers, directors and other current stockholders will own approximately 71.4% of our outstanding common stock after this offering allowing them to control all matters involving stockholder approval.

Upon the completion of this offering, our executive officers, directors and other current stockholders will, in the aggregate, beneficially own approximately 71.4% of our outstanding common stock. As a result, these stockholders will be able to effectively control all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also delay, deter or prevent a change in control and may make some transactions more difficult or impossible to complete without the support of these stockholders, even if the transactions are favorable to you. In addition, because of their ownership of our common stock, these stockholders will be in a position to significantly affect our corporate actions in a manner that could conflict with the interests of our public stockholders.

Certain provisions of our Certificate of Incorporation or our Bylaws could delay or prevent a change in control that may be favorable to our stockholders.

Our Certificate of Incorporation and Bylaws, which will be effective upon our reincorporation in Delaware, contain provisions that may deter or impede takeovers or changes of control or management. These provisions include:

• our board of directors is classified into three classes of directors with staggered three-year terms;

• the board of directors fixes the size of the board of directors, may create new directorships and may elect new directors to serve for the full term in which the new directorship was created;

• all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent;

• there is no cumulative voting for directors;

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• the board of directors may adopt, amend, alter or repeal the bylaws without any vote or further action by the stockholders;

• advance notice procedures are required with respect to stockholder proposals and the nominations of candidates for election as directors; and

• indemnification of executive officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.

These provisions may have the effect of delaying or preventing a change of control that may be desired by or favorable to our public stockholders.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including, but not limited to, “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve risks, uncertainties and other factors, including the risks outlined under “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe our expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are not under any duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results, unless required by law.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 1,200,000 shares of common stock we are offering, assuming an initial public offering price of $17.00 per share, will be approximately $17.9 million, after deducting the estimated underwriting discount and estimated offering expenses of approximately $2.5 million payable by us (which include approximately $0.4 million of expenses which we have already paid). We will not receive any of the net proceeds from the sale of shares by the selling stockholders. See “Principal and Selling Stockholders.”

We have been an S corporation since 1986. Generally speaking, as an S corporation we have not paid income tax. Instead, our earnings have been passed through directly to our stockholders, who report the earnings on their individual tax returns. Our stockholders have been required to include in their taxable income their proportionate share of our earnings even if we did not distribute the earnings to them. Upon consummation of this offering, our S corporation election will terminate, and we will then become subject to federal and state income taxes. In connection with the termination of our S corporation election, we will use a portion of the net proceeds of this offering to fund a distribution to our current stockholders of previously taxed S corporation income through the date of termination. As of March 31, 2002, that amount was $13.3 million. Purchasers of shares of common stock in this offering will not be entitled to any portion of that distribution.

We will also use approximately $0.7 million of the net proceeds to repay the entire outstanding amount of debt on land we purchased in 1999 adjacent to our corporate headquarters. The loan currently is payable in monthly installments of $11,805, including interest at an annual rate of 7.72%. The loan would otherwise mature on July 29, 2009.

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We currently intend to use the balance of the net proceeds, approximately $4.2 million, for working capital and other general corporate purposes. However, we will retain broad discretion in the allocation of the net proceeds of this offering. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest bearing, investment-grade securities.

DIVIDEND POLICY

To the extent that we generate cash in excess of our operating needs, the board of directors from time to time will consider paying cash dividends to holders of our common stock. Any decision to pay dividends will depend upon many factors, including our financial condition and earnings, cash needed to fund future growth and legal requirements. Accordingly, there is no assurance that dividends will be declared or paid in the future.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2002 on an actual basis and on a pro forma as adjusted basis to give effect to the sale of 1,200,000 shares of common stock by us in this offering, after deducting the underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds as described in “Use of Proceeds.”            

You should read this table in conjunction with the audited financial statements and related footnotes, and the other financial information included in this prospectus.

	As of March 31, 2002
	(in thousands)
	Actual		Pro forma, as adjusted
Cash and cash equivalents	$	1,750	$	5,964
Note payable	$	729		—
Stockholders’ equity
Common stock, $0.001 par value; 30,000,000 shares authorized, 9,288,000 issued and outstanding actual; 10,488,000 shares issued and outstanding pro forma as adjusted		9		10
Additional paid-in capital		—		17,857
Retained earnings (deficit)		10,714		(1,153	)
Total stockholders’ equity		10,723		16,714
Total capitalization	$	11,452	$	16,714

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DILUTION

Our net tangible book value as of March 31, 2002, was approximately $10.7 million, or $1.15 per share. Net tangible book value per share represents the amount of our stockholders’ equity divided by the number of shares of common stock outstanding as of March 31, 2002. Dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock, on a pro forma basis, immediately after completion of this offering.

After giving effect to the sale of 1,200,000 shares of common stock offered by us at an assumed initial public offering price of $17.00 per share, after deducting the underwriting discount of approximately $1.4 million and estimated offering expenses of approximately $1.1 million payable by us ($0.4 million of which we have already paid), and the application of the net proceeds as described in “Use of Proceeds,” our net tangible book value as of March 31, 2002, on a pro forma basis, would have been approximately $15.7 million, or approximately $1.49 per share. This represents an immediate increase in pro forma net tangible book value of $.34 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $15.51 per share to investors purchasing our common stock in this offering, as illustrated in the following table:

Assumed initial public offering price per share			$	17.00
Net tangible book value per share before this offering	$	1.15
Increase in pro forma net tangible book value per share attributable to new investors	$	.34
Pro forma net tangible book value per share after this offering			$	1.49
Dilution per share to new investors			$	15.51

The table below summarizes as of March 31, 2002, on a pro forma basis, the differences between our existing stockholders and the new investors purchasing our common stock in this offering with respect to the total number of shares purchased, the total consideration paid and the average price per share paid, based upon an assumed public offering price of $17.00 per share.

	Shares Purchased			Total Consideration				Average Price
	Number	Percent		Amount		Percent		per Share
Existing stockholders	7,488,000	71.4	%	$	119,099	0.2	%	$	0.02
New investors	3,000,000	28.6			51,000,000	99.8			17.00
Total	10,488,000	100.0	%	$	51,119,099	100.0	%

The foregoing table assumes no exercise by the underwriters of the over-allotment option. If the underwriters exercise their over-allotment option in full, the following will occur:

• the number of shares of common stock held by existing stockholders will decrease to 7,038,000, or approximately 67.1% of the total number of shares of our common stock outstanding after this offering; and

• the number of shares held by new investors will increase to 3,450,000 shares, or approximately 32.9% of the total number of shares of common stock outstanding after this offering.

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SELECTED FINANCIAL DATA

To assist you in your investment decision, we are providing the following selected financial data. We derived the selected income data for the years ended December 31, 1999, 2000 and 2001 and for the three months ended March 31, 2001 and 2002, and the selected balance sheet data as of December 31, 2000 and 2001 and March 31, 2002, from our financial statements included elsewhere in this prospectus. The selected income data for the years ended December 31, 1997 and 1998 and the selected balance sheet data as of December 31, 1997, 1998 and 1999, and March 31, 2001 are derived from financial statements not included in this prospectus. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial statements and related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of future results.

For all periods presented, we operated as an S corporation and were not subject to federal and certain state income taxes. Upon completion of this offering, we will become subject to federal and certain state income taxes applicable to C corporations.

Pro forma net income reflects the provision for income taxes that would have been recorded had we been a C corporation during the periods presented. Pro forma net income per share is based on the weighted average number of shares of common stock outstanding during the years 1997 through 2001 and the three month periods ended March 31, 2001 and 2002, or 9,288,000 shares, plus an additional 397,135 and 356,566 shares for the year ended December 31, 2001 and the three months ended March 31, 2002, respectively, which are the estimated portions of the shares being offered that would be necessary to fund the distribution of accumulated S corporation earnings in excess of net income, through the date we become a C corporation. This number of shares has been calculated assuming an initial public offering price of $17.00 per share. See Note 3 to our financial statements included elsewhere in this registration statement.

	Year ended December 31,													Three months ended March 31, 2002
	1997		1998		1999			2000			2001			2001			2002
	(in thousands except for share and per share data)
INCOME DATA:
Sales revenues:
System sales	$	12,268	$	18,201	$	32,538		$	25,737		$	30,350		$	6,767		$	8,800
Support and maintenance		11,853		13,949		17,088			21,123			25,823			6,008			7,090
Outsourcing		—		—		904			2,362			3,493			754			1,031
Total sales revenues		24,121		32,150		50,530			49,222			59,666			13,529			16,921
Costs of sales:
Systems and services		13,810		19,170		29,254			29,979			34,133			7,746			9,278
Outsourcing		—		—		641			1,508			2,109			425			624
Total costs of sales		13,810		19,170		29,895			31,487			36,242			8,171			9,902
Gross profit		10,311		12,980		20,635			17,735			23,424			5,358			7,019
Operating expenses:
Sales and marketing		1,612		2,872		4,650			4,477			5,105			1,383			1,346
General and administrative		4,337		4,960		7,244			8,603			9,843			2,248			2,874
Total operating expenses		5,949		7,832		11,894			13,080			14,948			3,631			4,220
Operating income		4,362		5,148		8,741			4,655			8,476			1,727			2,799
Other income (expense):
Interest income		98		100		82			91			126			24			42
Miscellaneous income		19		61		146			214			154			9			45
Interest expense		—		—		(32	)		(69	)		(76	)		(16	)		(14	)
Total other income		117		161		196			236			204			17			73
Net income	$	4,479	$	5,309	$	8,937		$	4,891		$	8,680		$	1,744		$	2,872
Net income per share—basic and diluted	$	0.48	$	0.57	$	0.96		$	0.53		$	0.93		$	0.19		$	0.31
Weighted average shares outstanding—basic and diluted		9,288,000		9,288,000		9,288,000			9,288,000			9,288,000			9,288,000			9,288,000
Cash dividends declared per share	$	0.38	$	0.49	$	0.66		$	0.65		$	0.71		$	0.09		$	0.19

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	Year ended December 31,										Three months ended March 31, 2002
	1997		1998		1999		2000		2001		2001		2002
	(in thousands except for share and per share data)
Pro forma information:
Net income as reported	$	4,479	$	5,309	$	8,937	$	4,891	$	8,680	$	1,744	$	2,872
Pro forma income taxes		1,677		1,982		3,324		1,826		3,231		649		1,082
Pro forma net income	$	2,802	$	3,327	$	5,613	$	3,065	$	5,449	$	1,095	$	1,790
Pro forma net income per share—basic and diluted (based on 9,288,000 weighted average shares)	$	0.30	$	0.36	$	0.60	$	0.33	$	0.59	$	0.12	$	0.19
Pro forma net income per share basic and diluted (based on 9,685,135 and 9,644,566 weighted average shares at December 31, 2001 and March 31, 2002, respectively, and reflecting the S corporation distribution—see Note 3 to financial statements)										$ 0.56				$0.19
	As of December 31,										As of March 31,
	1997		1998		1999		2000		2001		2001		2002
	(in thousands except for share and per share data)
BALANCE SHEET DATA:
Cash and cash equivalents	$	1,467	$	715	$	980	$	1,033	$	2,019	$	1,111	$	1,750
Total assets		6,406		7,691		14,374		14,515		17,251		14,654		17,555
Total current liabilities		718		1,453		4,421		5,810		6,551		5,025		6,190
Note payable		—		—		889		749		664		729		641
Total stockholders’ equity		5,688		6,239		9,065		7,956		10,036		8,900		10,723

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with “Selected Financial Data” and our financial statements and the related notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

CPSI was founded in 1979 and specializes in delivering comprehensive healthcare information systems and related services to community hospitals. Our systems and services are designed to support the primary functional areas of a hospital and to enhance access to needed financial and clinical information. Our comprehensive system enables healthcare providers to improve clinical, financial and administrative outcomes. Our products and services provide solutions in key areas, including patient management, financial management, patient care and clinical, enterprise and office automation.

We sell a fully integrated, enterprise-wide financial and clinical hospital information system comprised of all necessary software, hardware, peripherals, forms and office supplies, together with comprehensive customer service and support. We also offer outsourcing services, including electronic billing submissions, patient statement processing and business office functions, as part of our overall information system solution.

We have achieved a compounded annual growth rate in revenues of approximately 22% over the past five years. We have achieved year-to-year revenue growth in each of the last five years except 2000, when hospitals decreased technology spending following increased spending in 1999 and earlier years to address the year 2000 issue. Our system currently is installed and operating in over 400 hospitals in 45 states and the District of Columbia. Our customers historically have consisted of community hospitals with 100 or fewer acute care beds. However, we also serve and are targeting for growth the market consisting of hospitals with 100 to 300 acute care beds.

Revenues

System Sales.    Revenues from system sales are derived from the sale of information systems (including software, conversion and installation services, hardware, peripherals, forms and office supplies) to new customers and from the sale of new or additional products to existing customers. We do not record revenue upon execution of a sales contract. Upon signing a contract to purchase a system from us, each customer pays a non-refundable 10% deposit that is recorded as deferred revenue. The customer then pays 40% of the purchase price for the software and the related installation, training and conversion when we install the system and commence training on-site at the customer’s facility, which is likewise recorded as deferred revenue. When the system begins operating in a live environment, we bill the remaining 50% of the system purchase price and recognize revenue for the total amount of the purchase price for software and related services. Revenues derived from installation of additional software applications are generally recognized upon installation. Revenues from the sale of hardware, forms and supplies are recognized upon the shipment of the product to the customer.

Support and Maintenance.     We also derive revenues from the provision of system support services, including software application support, hardware maintenance, continuing education and related services. Support services are provided pursuant to a support agreement under which we provide comprehensive system support and related services in exchange for a monthly fee based on the services provided. The initial term of these contracts ranges from one to seven years, with a typical duration of five years. Upon expiration of the initial term, these contracts renew automatically from year-to-year thereafter until terminated. Revenues from support services are recognized in the month when these services are performed.

We provide our products to some customers as an application service provider, or “ASP.” We provide ASP services on a remote access basis by storing and maintaining servers at our headquarters which contain customers’ patient and administrative data. These customers then access this data remotely in exchange for a monthly fee. In addition, as part of our total information solution, we also serve as an Internet service provider,

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or “ISP,” for some of our customers for a monthly fee. We also provide web-site design and hosting services if needed. Revenues from our ASP and ISP services are recognized in the month when these services are delivered.

Outsourcing Revenues.    We began offering outsourcing services in January 1999. Revenues from outsourcing services have increased rapidly since that time. We expect outsourcing revenues to continue to grow at a faster rate than our systems and services revenues. Our outsourcing services include electronic billing, statement processing and business office outsourcing (primarily accounts receivable management). All of these outsourcing services are sold pursuant to one year customer agreements, with automatic one year renewals until terminated. Revenues from outsourcing services are recognized when these services are performed.

Costs of Sales

Systems and Services.    The principal cost associated with the design, development, sale and installation of our systems and the related support services are employee salaries, benefits, travel expenses and certain other overhead expenses. For the sale of equipment, forms and office supplies, we incur costs to acquire these products from the respective distributors or manufacturers, as the case may be. Costs are expensed as incurred and are not deferred. We have the same employee groups providing both system installations and support and maintenance services. Therefore, we currently aggregate the costs for system installations and support and maintenance services.

Outsourcing.    The principal cost related to our statement outsourcing is postage. The principal cost related to our electronic billing outsourcing is long distance telecommunication fees. Employee salaries, benefits, supplies and forms are additional significant costs associated with our outsourcing services. Costs are expensed as incurred and are not deferred.

Results of Operations

The following table sets forth certain items included in our results of operations for each of the three years in the period ended December 31, 2001, and for the three months ended March 31, 2001 and 2002, expressed as a percentage of our total revenues for these periods:

	Year ended December 31															Three months ended March 31,
	1999					2000					2001					2001					2002
	Amount			% Sales		Amount			% Sales		Amount			% Sales		Amount			% Sales		Amount			%sales
	(in thousands)
Sales revenues:
System sales	$	32,538		64.4	%	$	25,737		52.3	%	$	30,350		50.9	%	$	6,767		50.0	%	$	8,800		52.0	%
Support and maintenance		17,088		33.8			21,123		42.9			25,823		43.3			6,008		44.4			7,090		41.9
Outsourcing		904		1.8			2,362		4.8			3,493		5.8			754		5.6			1,031		6.1
Total sales revenues		50,530		100.0			49,222		100.0			59,666		100.0			13,529		100.0			16,921		100.0
Costs of sales:
Systems and services		29,254		57.9			29,979		60.9			34,133		57.2			7,746		57.3			9,278		54.8
Outsourcing		641		1.3			1,508		3.1			2,109		3.5			425		3.1			624		3.7
Total costs of sales		29,895		59.2			31,487		64.0			36,242		60.7			8,171		60.4			9,902		58.5
Gross profit		20,635		40.8			17,735		36.0			23,424		39.3			5,358		39.6			7,019		41.5
Operating expenses:
Sales and marketing		4,650		9.2			4,477		9.1			5,105		8.6			1,383		10.2			1,346		8.0
General and administrative		7,244		14.3			8,603		17.5			9,843		16.5			2,248		16.6			2,874		17.0
Total operating expenses		11,894		23.5			13,080		26.6			14,948		25.1			3,631		26.8			4,220		24.9
Operating income		8,741		17.3			4,655		9.4			8,476		14.2			1,727		12.8			2,799		16.5
Other income (expense):
Interest income		82		0.2			91		0.2			126		0.2			24		0.2			42		0.2
Miscellaneous income		146		0.3			214		0.4			154		0.2			9		0.1			45		0.3
Interest expense		(32	)	(0.1	)		(69	)	(0.1	)		(76	)	(0.1	)		(16	)	(0.1	)		(14	)	(0.1	)
Total other income		196		0.4			236		0.5			204		0.3			17		0.1			73		0.4
Net income	$	8,937		17.7	%	$	4,891		9.9	%	$	8,680		14.5	%	$	1,744		12.9	%	$	2,872		17.0	%

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Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2002

Revenues. Total revenues increased by 25.1% or $3.4 million from $13.5 million for the three months ended March 31, 2001 to $16.9 million for the three months ended March 31, 2002.

System sales revenues increased by 30.1% or $2.0 million from $6.8 million in the three months ended March 31, 2001 to $8.8 million in the three months ended March 31, 2002. The increase in system sales revenue was attributable to an increase in the number and size of new customer installations.

Support and maintenance revenues increased by 18.0% or $1.1 million from $6.0 million in the three months ended March 31, 2001 to $7.1 million in the three months ended March 31, 2002. The increase in support and maintenance revenues was attributable to an increase in recurring revenues as a result of a larger customer base and an increase in ASP services volume.

Outsourcing revenues increased by 36.6% or $0.3 million from $0.7 million in the three months ended March 31, 2001 to $1.0 million in the three months ended March 31, 2002. We experienced an increase in outsourcing revenues as a result of continued growth in customer demand for electronic billing and statement outsourcing services. We also initiated business office outsourcing services during the first quarter of fiscal 2002.

Costs of Sales. Total costs of sales increased by 21.2% or $1.7 million from $8.2 million in the three months ended March 31, 2001 to $9.9 million in the three months ended March 31, 2002. As a percentage of revenues, cost of sales changed from 60.4% for the three months ended March 31, 2001 to 58.5% for the three months ended March 31, 2002.

The increase in costs of sales of systems and services was caused in part by increased salary expense of $0.7 million due to increased headcount needed to support our increasing customer base. We also experienced an increase in cost of equipment of $0.6 million as a direct result of our increased system sales.

Our costs associated with outsourcing services increased significantly due to an increase in postage costs of $0.1 million resulting from an increase in the transaction volumes of our statement outsourcing services. Salary expense also increased $0.1 million due to the hiring of new employees to support the start up of business office outsourcing services in 2002.

Sales and Marketing Expenses. Sales and marketing expenses remained relatively unchanged for the three months ended March 31, 2001 as compared to the three months ended March 31, 2002.

General and Administrative Expenses. General and administrative expenses increased by 27.9% or $0.7 million from $2.2 million for the three months ended March 31, 2001 to $2.9 million for the three months ended March 31, 2002. The increase was due primarily to increases in employee related expenses as a result of an increase in employees from 508 at March 31, 2001 to 559 at March 31, 2002.

As a result of the foregoing factors, net income increased by 64.7% or $1.2 million from $1.7 million for the three months ended March 31, 2001 to $2.9 million for the three months ended March 31, 2002.

2000 Compared to 2001

Revenues.    Total revenues increased by 21.2% or $10.5 million from $49.2 million in 2000 to $59.7 million in 2001.

System sales revenues increased by 17.9% or $4.7 million from $25.7 million in 2000 to $30.4 million in 2001. The increase in system sales revenues was attributable to an increase in the number and size of new customer installations.            

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Support and maintenance revenues increased by 22.2% or $4.7 million from $21.1 million in 2000 to $25.8 million in 2001. The increase in support and maintenance revenues was attributable to recurring revenues received from an increasing customer base and the commencement of ASP services.

Outsourcing revenues increased by 47.9% or $1.1 million from $2.4 million in 2000 to $3.5 million in 2001. We experienced an increase in outsourcing revenues as a result of continued growth in customer demand for billing and administrative support services. We expect outsourcing revenues to continue to grow at a faster rate than systems and services revenues.

Costs of Sales.    Total costs of sales increased by 15.1% or $4.7 million from $31.5 million in 2000 to $36.2 million in 2001. As a percentage of revenues, costs of sales changed from 64.0% in 2000 to 60.7% in 2001.

The increase in costs of sales of systems and services was caused primarily by increased salary expense of $2.0 million due to increased headcount needed to adequately support our increasing customer base and enhance our product offerings. Our equipment expense increased by $0.8 million as a direct result of our increased system sales. We also experienced an increase in travel expense of $0.7 million as a result of the increase in the number of system installations in 2001 over 2000, and a related increase in customer training requirements.

Our costs associated with outsourcing services increased significantly due to an increase in postage costs of $0.4 million resulting from an increase in the transaction volumes of our statement processing services. Salary costs also increased by $0.1 million due to the hiring of new employees in this area.

Sales and Marketing Expenses.    Sales and marketing expenses increased by 14.0% or $0.6 million from $4.5 million in 2000 to $5.1 million in 2001. As a percentage of total revenues, sales and marketing expenses changed from 9.1% in 2000 to 8.6% in 2001. The increase in expenses was due in part to increased travel expenses of $0.3 million and the increase in costs associated with the addition of sales and marketing personnel and increased sales commissions of $0.2 million. We expect sales and marketing expense to continue to increase on an absolute basis as our business continues to grow. We expect much of the increase to come from increases in the number of employees.

General and Administrative Expenses.    General and administrative expenses increased by 14.4% or $1.2 million from $8.6 million in 2000 to $9.8 million in 2001. As a percentage of total revenues, general and administrative expenses changed from 17.5% in 2000 to 16.5% in 2001. The increase in expenses was due to increased costs of $0.3 million associated with pay raises for existing employees and the hiring of additional employees to support the growth in our business and an increase of $0.5 million in our insurance related costs. The remainder of the increase is primarily attributable to increased depreciation and telecommunications expenses. We expect general and administrative expenses to increase as a result of our becoming a public company.

As a result of the foregoing factors, net income increased by 77.5% or $3.8 million from $4.9 million in 2000 to $8.7 million in 2001. Pro forma net income, which reflects a pro forma tax provision as if we had been a C corporation, increased by 77.8% or $2.3 million from $3.1 million in 2000 to $5.4 million in 2001.

1999 Compared to 2000

Revenues.    Total revenues decreased by 2.6% or $1.3 million from $50.5 million in 1999 to $49.2 million in 2000.

System sales revenues decreased by 20.9% or $6.8 million from $32.5 million in 1999 to $25.7 million in 2000. This decrease was due primarily to hospitals curtailing technology spending related to the Year 2000 issue following the completion of the 1999 calendar year, after which no Year 2000 issue existed. Contributing to the decrease were decisions by some hospitals to delay or cancel orders in the face of a substantial decrease in Medicare reimbursement following the passage of the Balanced Budget Act of 1997.

Support and maintenance revenues increased by 23.6% or $4.0 million from $17.1 million in 1999 to $21.1 million in 2000. The increase in support and maintenance revenues was attributable to recurring revenues received from an increasing customer base.

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Outsourcing revenues increased by 161.5% or $1.5 million from $0.9 million in 1999 to $2.4 million in 2000. The increase in outsourcing revenues was primarily attributable to the addition of electronic billing services.

Costs of Sales.    Total costs of sales increased by 5.3% or $1.6 million from $29.9 million in 1999 to $31.5 million in 2000. As a percentage of total revenues, costs of sales changed from 59.2% in 1999 to 64.0% in 2000.

The increase in costs of sales of systems and services was due primarily to an increase in salary expense of $2.7 million as a result of the addition of employees to keep up with additional customer support requirements arising from the significant increase in system sales in 1999. This increase was partially offset by a decrease in equipment expense of $2.0 million due to decreased sales. We also experienced an increase in travel costs.

Our costs associated with outsourcing services increased significantly due to initial costs related to the addition of electronic billing to our outsourcing services. Postage expenses increased by $0.8 million resulting from an increase in the transaction volumes of our statement outsourcing.

Sales and Marketing Expenses.    Sales and marketing expenses decreased by 3.7% or $0.2 million from $4.7 million in 1999 to $4.5 million in 2000. As a percentage of total revenues, sales and marketing expenses changed from 9.2% in 1999 to 9.1% in 2000. The decrease in expenses was primarily attributable to a decrease in commission expenses of $0.7 million. This decrease in expense was partially offset by an increase in advertising expenditures of $0.3 million as we sought to improve our visibility and name recognition in the industry. We also experienced increased salary costs of $0.2 million due to the hiring of new employees.

General and Administrative.    General and administrative expenses increased by 18.8% or $1.4 million from $7.2 million in 1999 to $8.6 million in 2000. As a percentage of total revenues, general and administrative expenses changed from 14.3% in 1999 to 17.5% in 2000. The increase in expenses was due primarily to an increase in health insurance costs of $0.4 million, legal fees of $0.1 million incurred in connection with employment related litigation, and an increase in our contributions to our 401(k) plan of $0.3 million due to the hiring of additional employees.

As a result of the foregoing factors, net income decreased 45.3% or $4.0 million from $8.9 million in 1999 to $4.9 million in 2000. Pro forma net income, which reflects a pro forma tax provision as if we had been a C corporation, decreased by 45.4% or $2.5 million from $5.6 million in 1999 to $3.1 million in 2000.

Quarterly Results of Operations

The following table presents a summary of our results of operations for our four most recent quarters ended March 31, 2002. The information for each of these quarters is unaudited and has been prepared on a basis consistent with our audited financial statements appearing elsewhere in this prospectus. This information includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair presentation of this information when read in conjunction with our audited financial statements and related notes appearing elsewhere in this prospectus. Statement of income data included in this table has been adjusted to include pro forma corporate income tax provisions as if we had been a C corporation during all of the quarterly periods. Our operating results have varied on a quarterly basis and may fluctuate significantly in the future. Results of operations for any quarter are not necessarily indicative of results for any future quarter or for a full fiscal year.

	2001						2002
	June 30		September 30		December 31		March 31
Sales revenues	$	14,133,002	$	14,849,410	$	17,154,737	$	16,920,706
Gross profit		5,399,023		5,663,910		7,003,770		7,019,288
Operating income		1,909,478		2,093,542		2,746,365		2,798,595
Net income		1,930,610		2,186,106		2,819,506		2,871,831
Pro forma net income		1,211,874		1,372,253		1,769,850		1,789,677

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Liquidity and Capital Resources

As of March 31, 2002, we had $1.8 million in cash and cash equivalents. After completion of the offering and application of the net proceeds, we expect to have approximately $6.0 million in cash, which we consider adequate to fund our business for the foreseeable future. Our principal source of liquidity has been cash provided by operating activities. Cash provided by operating activities has been used primarily to fund the growth in our business and to pay distributions to our stockholders. We paid cash distributions to our stockholders of $6.1 million, $6.0 million and $6.6 million in the years ended December 31, 1999, 2000 and 2001, respectively, and $0.8 million and $1.8 million for the three months ended March 31, 2001 and 2002, respectively. Upon the completion of this offering, we will convert from an S corporation to a C corporation for tax purposes. As a result, some of our cash provided by our operating activities will be required to pay taxes on our income.

Net cash provided by operating activities totaled $7.7 million, $7.6 million and $9.0 million for the years ended December 31, 1999, 2000 and 2001, respectively, and $1.3 million and $2.2 million for the three months ended March 31, 2001 and 2002, respectively. The increase in cash provided by operating activities from 2000 to 2001 was the result of the increase in net income and working capital. Likewise, the increase from the three months ended March 31, 2001 to the three months ended March 31, 2002 was attributable to an increase in net income.

Net cash used in investing activities totaled $2.3 million, $1.4 million and $1.3 million for the years ended December 31, 1999, 2000 and 2001, respectively, and $0.4 million and $0.3 million for the three months ended March 31, 2001 and 2002, respectively. We used cash for the purchase of property and equipment.

Net cash used in financing activities totaled $5.2 million, $6.1 million and $6.7 million for the years ended December 31, 1999, 2000 and 2001, respectively, and $0.8 million and $2.2 million for the three months ended March 31, 2001 and 2002, respectively. Cash was used in each of the periods primarily to pay cash distributions to our stockholders. In 1999, we purchased approximately 11.3 acres of undeveloped land, and we borrowed approximately $1.0 million to fund this purchase. We used cash to make payments on this debt and to pay distributions to our stockholders. For the three month periods ended March 31, 2001 and 2002, respectively, we used $0.8 million and $1.8 million, respectively, to pay cash distributions to our stockholders. During the three month period ended March 31, 2002, we also used $0.4 million to pay expenses related to this offering.

Our days sales outstanding for the years ended December 31, 2000 and 2001 were 52.5 and 41.7, respectively.

We currently do not have a bank line of credit or other credit facility in place. Because we will have no debt after the offering, we will not be subject to contractual restrictions or other influences on our operations, such as payment demands and restrictions on the use of operating funds, that are typically associated with debt. If we borrow money in the future, we will likely be subject to operating and financial covenants that could limit our ability to operate as profitably as we have in the past. Defaults under applicable loan agreements could result in the demand by lenders for immediate payment of substantial funds and substantial restrictions on expenditures, among other things.

Related Party Transactions

We lease the majority of our corporate headquarters campus from CP Investments, Inc., an Alabama corporation, the stockholders of which are also some of the stockholders of CPSI. In 2001, we paid total lease payments in the amount of $958,000 to CP Investments, Inc. On April 1, 2002, we entered into a new lease with CP Investments, Inc., which expires in April 2012. Under this new agreement, we will make annual lease payments in the amount of $1,080,000, subject to adjustment as set forth in the agreement. The annual rent payable under this lease has been determined by an independent, third party appraisal firm. The parties may agree, from time to time, to make adjustments in the annual rent payable under this lease based on subsequent third party appraisals.

We lease the remainder of our headquarters facilities, which is comprised of one building that houses our dedicated research and development staff, from DJK, LLC, a limited liability company owned by Dennis Wilkins. On April 1, 2002, we entered into a lease for this facility that expires in April 2012. Prior to that time

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we paid only the expenses associated with the building. Under the new lease, we will make annual lease payments in the amount of $39,000, subject to adjustment as set forth in the agreement. The annual rent payable under this lease has been determined by an independent, third party appraisal firm.

In July 1999 and May 2001, certain of our stockholders sold an aggregate of 904,750 shares (after considering the effect of the 430 for 1 stock split) to seven of our executive officers for cash in the aggregate amount of approximately $8.5 million. The executive officers financed 100% of the aggregate purchase price with individual loans from AmSouth Bank and pledged their shares of stock as collateral. Simultaneously with such financings, we entered into agreements with AmSouth Bank to purchase from AmSouth any such loan if (i) an officer’s employment with us is terminated for any reason, (ii) an officer defaults on his or her loan or pledge agreement or (iii) our financial condition deteriorates below certain defined parameters. As of March 31, 2002 the aggregate outstanding principal amount of these individual loans was $6,897,633. We have entered into agreements with AmSouth Bank to terminate the loan purchase agreements effective upon consummation of the offering.

Contractual Commitments

Our related party real estate leases are our principal contractual commitments requiring recurring payments in the future. We also have some equipment leases that will expire in July 2002. Our payments under these operating leases subsequent to March 31, 2002 will be as follows:

Year	Amount
2002	$   774,771
2003	1,027,200
2004	1,027,200
2005	1,027,200
2006	1,027,200
Thereafter	3,792,600
Total	$8,676,171

Critical Accounting Policies

General.    Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles. We are required to make some estimates and judgments that affect the preparation of these financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, but actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition.    We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, as amended by SAB 101A and 101B and the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, Software Revenue Recognition. SAB 101 and SOP 97-2 require that four basic criteria must be met before revenues can be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on our judgment regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. Should changes in conditions cause us to determine these criteria are not met for certain future transactions, revenues recognized for any reporting period could be adversely affected.

Backlog

Backlog consists of revenues we reasonably expect to recognize over the next twelve months under existing contracts. The revenues to be recognized may relate to a combination of one-time fees for system sales, and

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recurring fees for support, outsourcing, ASP and ISP services. As of March 31, 2002, we had a twelve month backlog of approximately $14.5 million in connection with non-recurring system purchases and approximately $35.0 million in connection with recurring payments under support, outsourcing, ASP and ISP contracts.             

Qualitative and Quantitative Disclosures About Market and Interest Rate Risk

We reduce the sensitivity of our results of operations to market risks related to changes in interest rates by maintaining an investment portfolio comprised solely of highly rated, short-term investments. We do not hold or issue derivative, derivative commodity instruments or other financial instruments for trading purposes. We are not exposed to currency exchange fluctuations, as we do not sell our products internationally, and we currently have no exposure to equity price risks. After this offering, we will have no outstanding debt.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board approved Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. The statements eliminate the pooling-of-interests method of accounting for business combinations and require that goodwill and intangible assets with indefinite useful lives not be amortized. Instead, these assets will be reviewed for impairment annually with any related losses recognized when incurred. SFAS No. 141 is generally effective for business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, with early application permitted in certain circumstances. Adoption of SFAS No. 141 and SFAS No. 142 did not have an effect on our financial position or results of operations.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. We believe the adoption of SFAS No. 143 will not have a material effect on our financial position or results of operations.

In October 2001, the Financial Accounting Standards Board approved SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of and supersedes SFAS No. 121 and APB Opinion No. 30, Reporting the Results of Operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The adoption of SFAS No. 144 did not have an effect on our financial position or results of operations.

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BUSINESS

Overview

We are a healthcare information technology company that designs, develops, markets, installs and supports computerized information technology systems to meet the unique demands of small and midsize hospitals. Our target market includes acute care community hospitals with 300 or fewer beds and small specialty hospitals. We are a single-source vendor providing comprehensive software and hardware products, complemented by data conversion, complete installation and extensive support. Our fully integrated, enterprise-wide system automates the management of clinical and financial data across the primary functional areas of a hospital. In addition, we provide services that enable our customers to outsource certain data-related business processes which we can perform more efficiently. We believe our products and services enhance hospital performance in the critical areas of clinical care, revenue cycle management, cost control and regulatory compliance. From our initial hospital installation in 1981, we have grown to serve more than 400 hospital customers across 45 states and the District of Columbia. In 2001, we generated revenues of $59.7 million from the sale of our products and services.

Industry Dynamics

The healthcare industry is the largest industry in the United States economy. The Centers for Medicare and Medicaid Services, or “CMS,” has calculated that fiscal 2000 total healthcare expenditures in the United States were approximately $1.3 trillion, or approximately 13.2% of the U.S. gross domestic product. CMS estimates that by fiscal 2011 total U.S. healthcare spending will reach $2.8 trillion, or 17.0% of the estimated U.S. gross domestic product.

Hospital services represents one of the largest categories of total healthcare expenditures. According to CMS, in fiscal 2000 spending on hospital services amounted to $412.1 billion, or 31.7% of total healthcare expenditures. According to the American Hospital Association, there are approximately 4,900 community hospitals in the United States, with approximately 4,100 in our target market of hospitals with 300 or fewer acute care beds. In addition, there is a market of small specialty hospitals that focus on discrete medical areas such as surgery, rehabilitation and psychiatry.

Notwithstanding the size and importance of the healthcare industry within the United States economy, the industry is constantly challenged by changing economic dynamics, increased regulation, and pressure to improve the quality of healthcare. These challenges are particularly significant for the hospitals in our target market due to their more limited financial and human resources. However, we believe healthcare providers can successfully address these issues with the help of advanced medical information systems. Specific examples of the challenges facing healthcare providers include the following.

Changing Economic Dynamics.    The federal Balanced Budget Act of 1997, or “BBA,” significantly lowered Medicare reimbursements for hospital services. These reductions were projected to total over $250 billion over five years. While the Budget Refinement Act of 1999 and the Benefits Improvement Act of 2000 lessened the impact of the BBA, aggregate federal reimbursement for hospital services is still significantly below pre-1997 levels. Lower reimbursement from federal programs, administrative and clinical inefficiencies and increased patient loads due to an aging population have placed significant financial pressure on hospitals in general. This pressure is even greater on community hospitals, as they operate on tighter budgets with lower margins.

Health Insurance Portability and Accountability Act.    The federal Health Insurance Portability and Accountability Act of 1996, or “HIPAA,” requires the implementation of national guidelines for information management by healthcare organizations. Among other things, HIPAA mandates uniform electronic transactions and code sets, improved data security and increased patient privacy. As of February 2002, final regulations for

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privacy and electronic transaction/code set standards were adopted. Healthcare organizations have until October 2002, subject to a one year extension, to establish compliance with the electronic transaction rules and until April 2003 to establish compliance with the privacy rules. The influence of HIPAA is illustrated by the results of the 13^th Annual HIMSS Leadership Survey sponsored by Superior Consultant Company. Survey respondents cited HIPAA compliance more than any other matter as a top business issue that will affect healthcare in the next two years. Approximately 60% of respondents identified upgrading information technology systems to meet HIPAA requirements as the number one information technology priority for their organizations. In addition, according to the Winter 2001-2002 Healthcare Industry HIPAA Compliance Survey conducted by HIMSS and Phoenix Health Systems, approximately 88% of respondent hospitals with 400 or fewer beds have developed an organizational approach for HIPAA compliance. Vendors that offer information solutions utilizing a common architecture and database structure are expected to be well positioned to provide healthcare participants with effective solutions to the HIPAA requirements.

Activism for Improved Clinical Care.    In November 1999, the Institute of Medicine published a report entitled “To Err is Human: Building a Safer Healthcare System.” The report indicated that avoidable medical error is one of the top ten leading causes of death in the United States. The report also estimates that medical error may add as much as $14.5 billion of preventable cost to the healthcare industry. As a result of this study, automated medical information systems have been increasingly identified as a key to improving patient care and reducing medical errors. For example, the Leapfrog Group, a consortium of more than 100 public and private organizations including General Motors, General Electric, AT&T and IBM, recommends that its members utilize hospitals with certain automated medical information systems that are designed to limit medical errors. Moreover, California has adopted legislation requiring hospitals to use automated medical information systems. We believe hospitals utilizing fully integrated enterprise-wide medical information systems that allow professionals real-time access to information such as electronic charts, treatment protocols and pathways, pharmaceutical records and treatment schedules will be favored by large employers and government payors.

While economic, regulatory and consumer pressures such as those described above have increased rapidly over the last several years, we believe healthcare organizations have historically underinvested in information technology and services compared to other industries. This underinvestment has caused healthcare providers to rely on non-integrated, complex and inefficient information systems. A hospital’s failure to adequately invest in modern medical information systems could result in fewer patient referrals, cost inefficiencies, lower than expected reimbursement, increased malpractice risk and possible regulatory infractions.

In the face of decreasing revenue and increasing pressure to improve patient care, healthcare providers are in need of management tools that (1) increase efficiency in the delivery of healthcare services, (2) reduce medical errors, (3) effectively track the cost of delivering services so those costs can be properly managed and (4) increase the speed and rate of reimbursement. We believe the industry has begun to embrace information technology as a management tool, evidenced by the fact that two-thirds of the respondents to the 13^th Annual HIMSS Leadership Survey referenced above predicted an increase in their organizations’ information technology operating budgets during the next twelve months. We believe these dynamics will allow for our sustained revenue growth.

Our Solution

We have tailored an information technology solution that effectively addresses the specific needs of small and midsize hospitals. Due to their smaller operating budgets, community hospitals have limited financial and human resources to operate manual or inefficient information systems. However, these hospitals are expected to achieve the same quality of care and regulatory compliance as larger hospitals, placing them in a particularly difficult operating environment.

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We believe that the CPSI solution meets this challenge. We provide fully integrated, enterprise-wide medical information systems and services that collect, process, retain and report data in the primary functional areas of a hospital, from patient care to clinical processing to administration and accounting. As a key element of our complete solution, we provide ongoing customer service through regular interaction with customers, customer user groups and extensive customer support. Further, we offer outsourcing services that allow customers to avoid some of the fixed costs of a business office. We are capable of providing a single-source solution for small and midsize hospitals, making us a partner in their initiatives to improve operations and medical care.

Our customers continuously communicate with us through our support teams and through organized user groups, allowing us to continue to provide a state-of-the-art solution that meets their specific needs. By remaining sensitive and responsive to the ever-changing demands of our customers and regularly updating our products, we believe we provide an information technology solution that meets the needs of community hospitals. Our business has continued to grow because we have successfully addressed the needs of community hospitals for fully integrated enterprise-wide information systems that allow them to improve operating effectiveness, reduce costs and improve the quality of patient care.

Strategy

Our objective is to continue to grow as a leading provider of healthcare information technology systems and services to small and midsize hospitals by following the same strategy that we have successfully pursued for over twenty years, the key elements of which are described below.

Deliver a Single-Source Solution.    When a customer purchases the CPSI system, we provide everything necessary for the customer to implement and use our system. We deliver the application software, computer hardware, peripherals, forms and supplies used in the comprehensive information network. Our installation teams work extensively with each customer to convert existing data to the new system, to install all of the necessary equipment and to train hospital personnel to use our system. After installation, our support teams answer and address customer questions and issues related to any aspect of the system. We also offer customers additional services such as business office outsourcing, electronic billing outsourcing and ISP services. We believe our single-source approach to delivering a complete information system makes our system easier and more convenient for customers to understand and manage, which results in greater customer satisfaction and retention.

Provide Enterprise-Wide, Fully Integrated Software Applications.    We have developed all of our software products internally as part of our fully integrated system architecture. Our experience has taught us that using a fully integrated system in the primary functional areas of a hospital ensures compatibility among applications and avoids pitfalls associated with interfacing disparate systems. Our system utilizes one central database where information is stored and used by all of our software applications. With our single database model, our systems provide secure, real-time access to all information across multiple applications for all those needing such access, including physicians, nurses, laboratory technicians, pharmacists, clinicians and other users. The enterprise-wide, fully integrated nature of our system also allows customers to monitor user access to information for purposes of compliance with new federal and state privacy regulations.

Maintain Commitment to Customer Oriented Operating Philosophy.    A key factor in our success has been our focus on customer service and support. We make available to our customers experienced support teams that can assist with any question or problem. We currently have a one to one support staff to customer ratio. Our support teams are extensively trained, and our employees are generally promoted from within so that they have a thorough knowledge of our system and a commitment to our culture. Because all of our customers use the same version of our system, our support teams can be more effective by maintaining a complete understanding of a single system. As part of our commitment to system support, we actively solicit customer feedback regarding

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ways in which we can improve the effectiveness and efficiency of our systems. To further this goal, we have organized our customers into a national user group to promote the exchange of information regarding our system and to identify product enhancements based on our customers’ operational experiences. We believe our user group concept is a key component of our success by positively impacting customer satisfaction and retention and by enhancing product development and system functionality. We will continue to focus on our national user group as a key component to our goal of maintaining and growing our customer base and market share.

Expand Presence in Target Market.    We will continue to target small to midsize domestic hospitals of 300 or fewer acute care beds. We believe this market of approximately 4,100 community hospitals nationwide has been traditionally overlooked and underserved by other healthcare technology companies. In addition, a number of our customers are small specialty hospitals that focus on discrete medical areas such as surgery, rehabilitation and psychiatry. We intend to continue gaining customers from this market segment. Our system can help these smaller hospitals reduce costs and increase their operating efficiencies. We believe our personalized marketing approach and emphasis on customer relationships are attractive to the management of these hospitals. We also believe our system is well-suited to hospitals of this size because they typically demonstrate a greater commitment than larger hospitals to the concept of an enterprise-wide, fully integrated system. While 92% of our current customers are hospitals of 100 acute care beds or less, we believe there is a substantial opportunity in the future to increase our market share among hospitals with 100 to 300 acute care beds. In addition, we will continue to sell additional services and software products to our existing customers who have not purchased our complete package of services and software applications.

Emphasize Recurring Revenue Opportunities.    In addition to revenues from new system installations, we are developing sources of recurring revenues. Our current principal source of recurring revenues is our support and maintenance fees paid by existing customers. As our customer base grows, our recurring revenues from support and maintenance fees should also grow. We believe growth in recurring revenues will also come from our outsourcing services, which we market to our existing customers as well as new customers. These services include electronic billing, patient statement processing, business office outsourcing, ISP services and web site hosting. We also provide our software products on an ASP basis. When we provide ASP services, we maintain a customer’s computer server in our facility and provide our system to the customer through remote access. Instead of the one-time system purchase price, these customers pay a monthly fee for the term of the ASP customer agreement, generating recurring revenues.

Our Products and Services

Systems

We offer a full array of software applications designed to streamline the flow of information to the primary functional areas of community hospitals in one fully integrated system. We intend to continue to enhance our existing software applications and develop new applications as required by evolving industry standards and the changing needs of our customers. Pursuant to our customer support agreements, we provide all of our customers with software enhancements and upgrades typically twice each year. See “—Support and Maintenance Services.” These enhancements enable each customer, regardless of its original installation date, to have the benefit of the most advanced CPSI products available. Our software applications:

• provide automated processes that improve clinical workflow and support clinical decision-making;

• allow healthcare providers to efficiently input and easily access the most current patient medical data in order to improve the quality of care and patient safety;

• integrate clinical, financial and patient information to promote efficient use of time and resources, while eliminating dependence on paper medical records;

• provide tools that permit healthcare organizations to analyze past performance, model new plans for the future and measure and monitor the effectiveness of those plans;

• provide for rapid and cost-effective implementation, whether through the installation of an in-house system or through our ASP services; and

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• increase the flow of information by replacing centralized and limited control over information with broad-based, secure access by clinical and administrative personnel to data relevant to their functional areas.

Our software applications are grouped for support purposes according to the following functional categories:

• Patient Management

• Financial Accounting

• Clinical

• Patient Care

• Enterprise Applications

Due to the integrated nature of the CPSI system, our software applications are not marketed as distinct products, and our sales force attempts to sell all applications to each customer as a single product. New customers must purchase from us and install the core applications of patient management and financial accounting and all hardware necessary to run these applications. In addition to the core applications, customers may also acquire one or more of our clinical, patient care and enterprise applications. Approximately one-half of our customers have purchased selected clinical products in addition to the core applications, and of these customers, approximately one-half have purchased a combination of applications that meet all of their current information technology needs. We believe the current customer trend is to purchase and install a complete system.

The general functional categories, as well as the software applications in each of these categories, are described below.

Patient Management.    Our patient management software enables a hospital to identify a patient at any point in the healthcare delivery system and to collect and maintain patient information throughout the entire process of patient care on an enterprise-wide basis. The single database structure of our software permits authorized hospital personnel to simultaneously access appropriate portions of a patient’s record from any point on the system. The patient management software performs the following functions:

Registration

•   records patient admissions, discharges and transfers

•   manages patient status, room assignments and recurring charges

•   keeps information available to all hospital personnel in formats designed for their particular requirements

Patient Accounting

•   records patient charges and maintains accounts receivable information including aging, service charges, and cash receipts

•   generates and processes insurance claims

Health Information

Management

•   supports the operational needs of the modern medical records

department including transcription, case indexing/abstracting, and statistical reporting

•   tracks deficiencies in a patient’s chart and provides chart location information

Patient Index

•   maintains a master index of hospital patients and provides immediate online access to patient financial and medical data associated with a patient stay

Electronic Claims

Processing

•   provides a computer-to-computer link with intermediaries for

Medicare and other payors for the submission of claims

We also offer the following optional products that may be purchased as part of our core patient management suite:

Scheduling

•   maintains all patient scheduling information

Managed Care

•   tracks patients enrolled in managed care plans and conforms billing functions to such plans

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Quality Improvement

•   automates hospital-wide total quality management and reporting requirements for utilization activity, risk management, infection surveillance and all accreditation review functions

Financial Accounting.    Our financial accounting software provides a variety of business office applications designed to efficiently track and coordinate information needed for managerial decision-making. The financial accounting software:

Executive Information

System

•   summarizes daily financial transactions regarding patient revenues,

receipts, census statistics and billing information for ready access by hospital administrators

General Ledger

•   provides timely, accurate, financial information generated from daily hospital operations

•   formats financial statements to the specifications of each user and is able to generate up to 999 different user-defined reports

Accounts Payable

•   processes vendor invoices and payments and their related general ledger entries

Payroll/Personnel

•   calculates all employee wages and benefits for an unlimited number of salaried and hourly employees

•   allocates employee time to user-defined cost centers

Time and Attendance

•   uses touch screen time clocks to eliminate manual time entry

•   reduces effort of gathering employee time data and increases access of managers to such data

•   makes time records more accurate by identifying employees through bar-coding and optional biometric fingerprint technology

Electronic Direct

Deposits

•   provides for computerized bank deposits to meet payroll and accounts

payable needs

Human Resources

•   provides for computerized employee files through document/image scanning and data entry

•   allows for complete tracking of benefits and other employee data through a variety of user-defined reports

•   tracks job applicant information to assist in the employee recruiting and hiring process

Budgeting

•   allows for complete on-line budget preparation through computerized access to historical data

Fixed Assets

•   allows access to information regarding hospital assets including locations and depreciation scheduling

Materials Management

•   tracks the flow of materials throughout the hospital

•   automates the process of inventory control, materials purchasing, stock requisitions and patient charging

Clinical.    Our clinical software automates record keeping and reporting for many clinical functions including laboratory, radiology, physical therapy, respiratory care, and pharmacy. These products eliminate tedious paperwork, calculations and written documentation while allowing for easy retrieval of patient data and statistics. Our clinical software:

Laboratory Information

Systems

•   provides an interface to laboratory analytical instruments in order to

transfer results to nurse stations, mobile point-of-care systems and remote physician offices

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•   allows users to receive orders from any designated location, process orders and report results and maintain technical, statistical and account information

Laboratory Instrument  Interfaces

•   provides an automated solution for reviewing test results and completing patient orders

•   reduces the amount of required manual data entry thereby reducing the likelihood of human error

•   reduces time to process laboratory specimens

Radiology Information  Systems

•   includes flash card printing, patient scheduling, transcription, patient indexing by X-Ray film number, film tracking and location

•   receives patient data, patient locations and other interdepartmental communications support

Physical Therapy and  Respiratory Care

•   communicates to nursing the appropriate procedures and patient preparation instructions from orders entered into the CPSI system

•   keeps a journal of the orders received and processed

•   handles a variety of processing tasks after a patient order is reviewed

•   allows a department to customize its results to be sent back to nursing

Pharmacy

•   allows the hospital pharmacist to enter and fill physician orders

•   performs all of the functions related to patient charging, general ledger upgrading, re-supply scheduling and inventory reduction/statistics maintenance

•   improves patient care by monitoring drug/drug and food/drug interactions, allergy contraindications, dosage ranges and duplicate therapy

•   produces drug education information for each patient in an easy-to-read format

Patient Care.    Our patient care applications allow hospitals to create computerized “patient files” in place of the traditional paper file systems. This software enables physicians, nurses and other hospital staff to improve the quality of patient care through increased access to patient information, assistance with projected care requirements and feedback regarding patient needs. Our software also addresses current safety initiatives in the healthcare industry such as the transition from written prescriptions and physician orders to computerized physician order entry. Our patient care software:

Order Entry / Results

Reporting

•   automates the entry of patient charges

•   reduces “lost” charges and mistakes due to legibility

•   increases efficiency of nursing stations

•   provides interactive, real time status reports for orders

Point-of-Care System

•   allows nurses to enter patient data into the network at the patient’s bedside thereby eliminating the duplicate entry of information

•   utilizes touch-screen and wireless technology

•   makes patient information instantly available throughout the entire hospital system

Patient Acuity

•   categorizes patients according to an assessment of the acuity of the illness, severity of the symptoms, and projected nursing dependency

•   allows nurses to project the total character and amount of care that should be provided to each patient

Chartlink^™

•   provides physicians with secure and interactive access to patient information through a hospital’s website

•   provides for computerized physician order entry including medication order entry

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Medication Verification

•   verifies the accuracy of patient medication orders at a patient’s bedside by comparing scans of patient and medication bar codes against the medication orders and history for that patient

•   screens medication orders for possible patient allergies and/or drug interactions

Resident Assessment

Instruments

•   allows nursing staff to complete time consuming resident reporting

requirements in an expeditious and efficient manner

•   generates nursing care plans based on deficiencies in the resident reports

Hospital/Physician

Office Link

•   provides physicians and their office administrators with remote access

to online, real time, secure patient data such as insurance and billing information, diagnosis and procedure coding, discharge summaries, pharmacy profiles and other clinical and administrative information

Enterprise Applications.    We provide software applications that support the products described above and are useful to all areas of the hospital. These applications include: ad hoc reporting, automatic batch and real-time system backups, an integrated fax system, archival data repository, document scanning and Microsoft Office integration.

Home Health Information System.    In addition to hospital information systems, we also offer a comprehensive information system for use by home health agencies, which system incorporates certain of the applications described above. Our home health system provides an advanced solution that includes both home care patient accounting/billing and remote home care documentation and care tracking. The system is designed, developed and regularly enhanced to meet the needs and regulatory requirements that challenge home health agencies.

Support and Maintenance Services

After a customer installs a CPSI system, we provide software application support, hardware maintenance, continuing education and related services pursuant to a support agreement. The following describes services provided to customers using CPSI systems.

Total System Support.    We believe the quality of continuing customer support is one of the most critical considerations in the selection of an information system provider. We provide hardware, technical and software support for all aspects of our system which gives us the flexibility to take the necessary course of action to resolve any issue. Unlike our competitors who use third-party services for hardware and software support, we provide a single, convenient and efficient resource for all of our customers’ system support needs. In order to minimize the impact of a system problem, we train our customer service personnel to be technically proficient, courteous and prompt. Because a properly functioning information system is crucial to a hospital’s operations, our support teams are available 24 hours a day to assist customers with any problem that may arise. Customers can also use the Internet to directly access our support system. This allows customers to communicate electronically with our support teams at any time. With approximately 430 employees who provide customer service and support, we currently have a one to one support staff to customer ratio.

User Group.    All of our customers are members of our user group from which we solicit feedback regarding our products. We host a national user group meeting annually. We have also organized several active regional user groups which meet on a semi-annual basis. These groups meet to discuss and recommend product modifications and improvements which they then evaluate and prioritize. Upon confirming that the desired improvements are technically feasible, we agree to allocate a significant amount of programming time each year to undertake the requested modification or improvement. The majority of our product enhancements originate from suggestions from our customers through the user group structure.

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Software Releases.    We are committed to providing our customers with software and technology solutions that will continue to meet their information system needs. To accomplish this purpose, we continually work to enhance and improve our application programs. As part of this effort, we typically release two major software updates each year at no additional cost to our customers. We design these enhancements to be seamlessly integrated into each customer’s existing CPSI system. The benefit of these enhancements is that each customer, regardless of its original installation date, uses the most advanced CPSI software available. Through this process, we can keep our customers up-to-date with the latest operational innovations in the healthcare industry as well as changing governmental regulatory requirements. Another benefit of this “one system” concept is that our customer service teams can be more effective in responding to customer needs because they maintain a complete understanding of and familiarity with the one system that all customers use.

Purchasing a new information technology system requires the expenditure of a substantial amount of capital and other resources, and many customers are concerned that these systems will become obsolete as technology changes. Our periodic product updates eliminate our customers’ concerns about system obsolescence. We believe providing this benefit is a strong incentive for potential customers to select our products over the products of our competitors.

Hardware Replacement.    As part of our customer service effort, we are also committed to promptly replacing (instead of repairing) malfunctioning system hardware in order to minimize the effect of operational interruptions. By providing all hardware used in our system, we believe we are better able to meet and address all of the information technology needs of our customers.

Application Service Provider.    In some circumstances, we offer ASP services to customers via remote access telecommunications. As an application service provider, we store and maintain computer servers dedicated to specific customers which contain all of such customers’ critical patient and administrative data. These customers access this information remotely through direct telecommunications connections with these servers.

Internet Service Provider.    As part of our total information solution, we can provide Internet connection services to our customers. We also can provide web-site design and hosting services.

Forms and Supplies.    We offer our customers the forms that they need for their patient and financial records, as well as their general office supplies. Furnishing these forms and supplies helps us to achieve our objective of being a one-source solution for a hospital’s complete healthcare information system requirements.

Outsourcing Services

Electronic Billing.    We provide electronic billing for customers at prices competitive with other electronic billing vendors. Once a customer processes patient insurance claims in our system, we then perform the electronic billing function with no other participation by hospital staff. With this service, customers need not prepare billing files or maintain interfaces with third-party software, thereby saving the customer both time and money.

Statement Processing.    Our customers may choose to have us prepare and distribute all patient billing statements. We use our knowledge of a customer’s collection system to produce statements without requiring any actions on the part of the hospital data processing personnel. Because we can connect directly with a customer’s system, the customer is not required to build and transfer files to us. All system enhancements are incorporated into the statement process without having to modify any third-party vendor interface. Like the electronic billing outsourcing, this service saves the customer both time and money.

Business Office Outsourcing.    We offer customers the option of using us to perform their primary business office functions, including patient billing and accounts receivable management. Using this service allows customers to reduce costs by employing fewer full time administrative employees.

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System Implementation and Training

Conversion Services.    When a customer purchases our system, we convert its existing data to the CPSI system. Our knowledge of hospital data processing, in conjunction with extensive in-house technical expertise, allows us to accomplish this task in a cost effective manner. When we install a new system, the data conversion has already occurred so that the system is immediately operational. Our goal is for each customer to be immediately productive in order not to waste time and money on the costly and inefficient task of maintaining the same data on parallel systems. Our services also relieve the hospital staff of the time-consuming burden of data conversion.

Training.    In order to integrate the new system and to ensure its success, we spend approximately three weeks providing individualized training on-site at each customer’s facility at the time of installation. We directly train all hospital users, including staff members and healthcare providers, during all hospital shifts in the use of hardware and software applications. In contrast, some of our competitors train only a hospital’s training staff at an off-site location. We employ nurses and medical technicians in addition to our technical training staff in order to help us communicate more effectively with our customers during the training process.

Technology

Operating Systems and Server Platform.    We utilize Intel-based servers running industry standard “open systems,” including Unix and Microsoft Windows 2000 Server operating systems.

ClientWare^® Networking.    Our ClientWare^® application integrates the UNIX and Microsoft operating systems. This integration brings together the strengths of both operating environments. The processing power of UNIX combined with the communication capabilities of Microsoft Windows creates an information system that allows the use of familiar “point and click” processing. This architecture also facilitates integration of other Microsoft software and provides expanded opportunities for the inclusion of new technologies without sacrificing system reliability or performance.

Wireless Technology.    Traditional workstations were designed around access to electrical and network outlets. We now use wireless networking technology to connect computers to the CPSI system. This allows customers to use mobile computers and to place stationary computers in locations for optimum convenience and ease of use. We incorporate wireless laptop and hand held computers into our system. Convenient to carry and use, these mobile computers allow effective data collection and real-time access to patient information from practically anywhere in the hospital. Information efficiently collected will then be more quickly accessible by other caregivers throughout the hospital.

Point-of-Care Stations.    Since 1990, we have used “point-of-care stations” which allow nurses to enter information into the system at a patient’s bedside. These stations consist of compact computers on individual data entry stations that are lightweight, durable and easy to maneuver. We incorporate our wireless networking capabilities into these stations in order to provide extended range and mobility.

Touch Sensitive Displays.    Data entry is made easier through the use of touch sensitive displays. With this technology work areas are free of the traditional keyboard and mouse associated with most personal computers. Touch screens are also more efficient for users who are not proficient in computer skills.

Voice Transcription.    We offer voice transcription software capable of learning an individual physician’s speech patterns. Computerized transcription stations can then transcribe documents dictated by physicians. The resulting reduction in time required to input patient data and prepare patient documents positively impacts the quality of patient care by providing caregivers with faster access to the most up-to-date patient information.

Biometric Recognition.    As unique as each individual, a fingerprint cannot be duplicated, making it one of the most secure methods of verifying a person’s identity. Because of the sensitivity of healthcare information and proposed federal security requirements, we have incorporated licensed fingerprint identification technology as an option for our systems. When a user signs on to the system, he or she must scan his or her fingerprint as well as enter a traditional password. The system rapidly responds with the confirmation or rejection of the user’s identity.

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Research and Development

We are continually working to improve and enhance the CPSI system and to develop new products and services for our system. The primary source of ideas for improvements to our products and services comes from our customers through our national user group. We believe our interaction with customers and their communication with each other is the most efficient way to learn about and respond to changes in the healthcare operating environment. This approach to research and development allows us to quickly adapt to technology advances and improve our products and services to better serve the needs of our customers.

Our management and customer support and service teams play a significant role in product development by continually monitoring the needs and desires of our customers and our market. In addition to our customer support and service teams, we currently have five employees whose primary function is the development of financial and enterprise software products and seven employees whose primary function is the development of clinical software products. Finally, we currently have eight full-time research and development employees whose function is to develop new uses for and applications of technology available in the marketplace.

Customers, Sales and Marketing

Target Market.    The target market for our information system consists of small and midsize hospitals of 300 or fewer acute care beds. In the United States, there are approximately 4,100 hospitals in this size range. In addition, we market our products to small specialty hospitals in the United States that focus on discrete medical areas such as surgery, rehabilitation and psychiatry. As of March 31, 2002, we had installed our system in over 400 facilities in 45 states and the District of Columbia. Our customers historically have consisted of hospitals with 100 or fewer acute care beds. Approximately 92% of our existing customers are hospitals of this size. Our goal is to increase sales to hospitals consisting of 100 to 300 acute care beds. We are planning to increase our sales staff in order to better penetrate this group of potential customers. The following table provides information about our current customer base as of March 31, 2002:

	Current CPSI Customers	Percentage of CPSI Customers
Less than 100 beds	383	92	%
100-200 beds	30	7
201-300 beds	4	1
Total	417	100	%

Sales Staff.    Most of our new customers are referrals from our existing customers, thereby reducing the need for a large sales force. Currently, we have 13 employees dedicated to direct sales, seven of whom concentrate on new prospects, and six of whom are responsible for the sale of additional products and services to existing customers. We hire our sales representatives from our existing employees. All of our current sales representatives have at least five years of prior experience in installation, training and customer support. While centrally based at our headquarters in Mobile, our sales representatives have defined geographic territories in the United States in which to target new customers. A significant portion of the compensation for all sales personnel is performance based.

Marketing Strategy.    Our primary marketing strategy is to generate referrals from our existing customers and directly solicit potential users through presentations at industry seminars and trade shows. We also advertise in various healthcare industry trade publications. For hospitals that we have targeted as potential customers, most of our direct sales efforts involve site visits and meetings with hospital management. The typical sales cycle of a healthcare information system usually takes six to eighteen months from the time of initial contact to the signing of a contract. Therefore, we believe it is important for our sales staff to dedicate a substantial amount of time and energy to building relationships with potential new customers. We do not conduct extensive marketing activities and promotions because hospitals are easily identified, finite in number and generally send a request for proposal to vendors when they contemplate the purchase of a hospital information system.

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Competition

The market for our products and services is competitive, and we expect additional competition from established and emerging companies in the future. Our market is characterized by rapidly changing technology, evolving user needs and the frequent introduction of new products. We believe the principal competitive factors that hospitals consider when choosing between us and our competitors are:

• product features, functionality and performance;

• level of customer service and satisfaction;

• ease of integration and speed of implementation;

• product price;

• knowledge of the healthcare industry;

• sales and marketing efforts; and

• company reputation.

Our principal competitors are Meditech and HMS. Meditech and HMS compete with us directly in our target market of small and midsize hospitals. These companies offer products and systems which are comparable to our system and address the needs of hospitals in the markets we serve.

Our secondary competitors include McKesson Corporation, Quadramed Corp., Cerner Corporation and Siemens Corporation. These companies are significantly larger than we are, and they typically sell their products and services to larger hospitals outside of our target market. However, they will sometimes compete directly with us. We also face competition from providers of practice management systems, general decision support and database systems and other segment-specific applications, as well as from healthcare technology consultants. Any of these companies as well as other technology or healthcare companies could decide at any time to specifically target hospitals within our target market.

A number of existing and potential competitors are more established than we are and have greater name recognition and financial, technical and marketing resources than we have. Products of our competitors may have better performance, lower prices and broader market acceptance than our products. We expect that competition will continue to increase.

Internal Controls

We have developed and maintain an automated enterprise management system which permits us to manage not only all of our internal management, accounting and personnel functions, but also all information relating to each customer’s information system. Our system maintains detailed records of all information regarding each customer’s system, including all system specifications, service history and customer communications, among other things. This internal control system helps us to more effectively respond to customer support needs through complete and current system information and through situation-based problem solving.

Intellectual Property

We regard some aspects of our internal operations, software and documentation as proprietary, and rely primarily on a combination of contract and trade secret laws to protect our proprietary information. We believe, because of the rapid pace of technological change in the computer software industry, trade secret and copyright protection is less significant than factors such as the knowledge, ability and experience of our employees, frequent software product enhancements and the timeliness and quality of support services. We cannot guarantee that these protections will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology.

We do not believe our software products or other CPSI proprietary rights infringe on the property rights of third parties. However, we cannot guarantee that third-parties will not assert infringement claims against us with respect to current or future software products or that any such assertion may not require us to enter into royalty arrangements or result in costly litigation.

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Employees

As of March 31, 2002, we had 559 employees, all but three of whom are located at our offices in Mobile, Alabama. Our employees can be grouped according to the following general categories: 348 in financial and clinical software services and support, 97 in information technology services and support, 53 in programming, 26 in sales and marketing and 35 in administration. We have 20 employees who perform research and development activities. These employees are included within the functional areas of financial and clinical software services and support and information technology services and support. Our general practice is to recruit recent college graduates for entry-level positions and then promote these individuals within the organization to fill vacancies in higher positions. We also hire nurses and other medically-trained professionals in connection with our support services.

Since 1991, we have maintained a non-qualified profit sharing plan under which all full-time employees with three years of uninterrupted service are eligible to participate, other than executive officers and commissioned salespeople. The plan is designed to provide each eligible employee with an annual cash bonus based on our profitability. Each eligible employee receives a pro rata share of the amount of cash distributed under the profit sharing plan based on the amount of their base salary compared to the sum of the salaries of all participating employees. Our profit sharing plan is not a qualified plan for tax purposes or a guaranteed benefit. Contributions to the plan are made periodically at the discretion of the board of directors. During 2001, we distributed approximately $2.2 million under this profit sharing plan. We plan to continue to make distributions under the profit sharing plan based on our profitability.

We are fortunate to have a high rate of employee retention, with our senior management having an average tenure in excess of 13 years. Our performance depends in significant part on our ability to attract, train and retain highly qualified personnel. None of our employees are represented by a labor union, and we believe our relations with our employees are good.

Properties

Our corporate headquarters and executive offices are located on approximately 28 acres in Mobile, Alabama. We occupy approximately 99,500 square feet of space in seven buildings. Our main building consists of approximately 66,000 square feet of space. We also have five additional buildings each consisting of approximately 6,000 square feet. Each of these smaller buildings is designed to accommodate a team of employees assigned to install and support a particular software application. We also occupy a building consisting of approximately 3,500 square feet of space which houses our dedicated research and development staff.

We lease approximately 16.5 acres and all of our buildings (other than the research and development building) from CP Investments, Inc., an Alabama corporation, the stockholders of which are John Morrissey, John Heyer, Bob O’Donnell, Bill Stillings, Kevin P. Wilkins, Tabitha M. Wilkins Olzinski, Ellen M. Harvey, Michael K. Muscat, Jr. and Susan M. Slaton. All of these individuals are also stockholders of CPSI. Our lease with CP Investments, Inc. expires in April 2012. The research and development building is leased from DJK, LLC, a limited liability company owned by Dennis Wilkins, a principal stockholder and a director of CPSI. Our lease with DJK, LLC also expires in April 2012. In 1999, we purchased approximately 11.3 acres of undeveloped real property adjacent to our primary premises in order to accommodate future growth. That property is subject to a mortgage securing the indebtedness we incurred to purchase the property. We will repay that indebtedness in full using net proceeds from this offering.

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We are currently expanding our facilities with the addition of two new buildings dedicated to programming and support of our software applications and a new storage facility. Taking into consideration this expansion, we believe our existing facilities will be sufficient to meet our needs until the end of 2002. At that time we believe we will need to construct additional facilities on the undeveloped portion of our campus in order to accommodate our expansion needs.

Legal Proceedings

We have no pending litigation.

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MANAGEMENT

Directors and Officers

The following table sets forth information about our executive officers and members of our board of directors:

Name	Age	Position
John Morrissey(1)	60	Chairman of the Board and Director
Dennis P. Wilkins(1)	53	Director
M. Kenny Muscat(1)	55	Director
Ernest F. Ladd, III(2)	61	Director
W. Austin Mulherin, III(2)	36	Director
William R. Seifert, II(2)	53	Director
David A. Dye	32	President, Chief Executive Officer and Director
J. Boyd Douglas	35	Executive Vice President, Chief Operating Officer and Director
M. Stephen Walker	52	Vice President—Finance and Chief Financial Officer
Victor S. Schneider	43	Vice President—Sales and Marketing
Mellissa Hammons	45	Vice President—Financial Software Services
Thomas W. Peterson	50	Vice President—Clinical Software Services
Patrick A. Immel	31	Vice President—Information Technology Services

(1) Member of the Executive Committee

(2) Member of the Audit Committee

John Morrissey has been a director since 1999, and he was appointed as Chairman of the board of directors in February 2002. Mr. Morrissey served as our Vice President, Sales and Marketing from January 1985 until his retirement in June 1999.

Dennis P. Wilkins is one of our founders and has served as a director since our formation in 1979. From 1979 until his retirement in June 1999, Mr. Wilkins served as our President.

M. Kenny Muscat is one of our founders and has served as a director since our formation in 1979. From 1979 until his retirement in June 1999, Mr. Muscat served as our Executive Vice President.

Ernest F. Ladd, III was elected as a director in February 2002. From 1979 until his retirement in 1997, Mr. Ladd was employed by Dravo Corporation, a national producer and marketer of chemical products, serving most recently as its Executive Vice President and Chief Financial Officer since 1988. Mr. Ladd is currently a director of Regions Bank of Mobile, an operating division of Regions Bank, which is a subsidiary of Regions Financial Corporation. In addition, Mr. Ladd serves as President of Junior Achievement of Mobile, Inc., a non-profit, charitable organization. Mr. Ladd is chairman of the audit committee.

W. Austin Mulherin, III was elected as a director in February 2002. Since 1991, Mr. Mulherin has practiced law, handling a variety of litigation and business matters for public and private companies. He has been a partner in the law firm of Frazer, Greene, Upchurch & Baker, LLC since 1998.

William R. Seifert, II was elected as a director in February 2002. Since 1994, Mr. Seifert has served as Executive Vice President of AmSouth Bank with responsibility for 48 branch offices in south Alabama and south Louisiana.

David A. Dye has served as our President and Chief Executive Officer since July 1999. He was elected as a director in March 2002. Mr. Dye began his career with us in May 1990 as a Financial Software Support Representative. From that time until June 1999, he worked for us in various capacities, including as Manager of

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Financial Software Support, Director of Information Technology and most recently as our Vice President supervising the areas of sales, marketing and information technology.

J. Boyd Douglas has served as our Executive Vice President and Chief Operating Officer since July 1999. He was elected as a director in March 2002. Mr. Douglas began his career with us in August 1988 as a Financial Software Support Representative. From May 1990 until November 1994, Mr. Douglas served as Manager of Electronic Billing, and from December 1994 until June 1999, he held the position of Director of Programming Services.

M. Stephen Walker has served as our Vice President—Finance, Chief Financial Officer, Secretary and Treasurer since July 1999. From February 1991 until June 1999, Mr. Walker served as our controller with primary responsibility for all of our accounting functions.

Victor S. Schneider has served as our Vice President—Sales and Marketing since July 1999. Mr. Schneider is responsible for overseeing all of our sales and marketing efforts. Mr. Schneider began his career with us in June 1983 as Sales Manager. He served in that capacity until January 1997 when he was promoted to Sales Director.

Mellissa Hammons has served as our Vice President—Financial Software Services since July 1999. Ms. Hammons is responsible for overseeing all aspects of the installation and support of our financial software products. Since beginning her career with us in 1985 as a Financial Software Support Representative, Ms. Hammons has worked in various positions in our Financial Software Services Division including Manager and Director of that division.

Thomas W. Peterson has served as our Vice President—Clinical Software Services since July 1999. Mr. Peterson is responsible for overseeing all aspects of the installation and support of our clinical software products. Since beginning his career with us in 1988 as a Clinical Software Support Representative, Mr. Peterson has worked in various positions in our Clinical Software Services Division including Manager and Director of that division.

Patrick A. Immel has served as our Vice President—Information Technology Services since January 2000. Mr. Immel is responsible for overseeing technical hardware and support and hardware research and development. Mr. Immel began his career with us in July 1993 as a Financial Software Support Representative. Since that time, Mr. Immel has served as a programmer, Manager of Technical Support and most recently as Director of Information Technology Services.

Employment Agreements

We have no employment agreements with any of our executive officers.

Board Committees

Our board of directors has authority to appoint committees to perform certain management and administrative functions. Our board of directors has established the following committees:

Executive Committee.    The executive committee consists of Messrs. Morrissey, Muscat and Wilkins. Mr. Morrissey is the chairman. Between meetings of the board of directors and while the board of directors is not in session, the executive committee has all the powers and can exercise all the duties of the entire board of directors relating to the management of the business and affairs of CPSI. The executive committee, however, is prohibited from taking certain actions, including, but not limited to, approving distributions and filling vacancies on the board.            

Audit Committee.    The audit committee currently consists of Messrs. Ladd, Seifert and Mulherin, with Mr. Ladd serving as its chairman. Our audit committee is responsible for overseeing our financial reporting process; reviewing the financial reports and other financial information provided by us to any governmental or

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regulatory body, the public or any other third-party; reviewing and discussing the quality and adequacy of our systems of internal accounting and financial controls with management and the outside auditors; reviewing and discussing with management and the outside auditors the results of the outside auditors’ annual audit and our audited financial statements to be included in our annual reports; reviewing with the outside auditors our interim financial results to be included in our quarterly reports; reviewing the performance of our outside auditors; reviewing and discussing disclosures by outside auditors concerning relationships with us; making recommendations that concern oversight of the independence of our outside auditors; annually selecting (or nominating for stockholder approval, if directed by the board) outside auditors; and annually assessing and reviewing the adequacy of the audit committee’s charter.

Director Compensation

Beginning in 2002, each of our non-employee directors will be paid an annual fee of $10,000 for service as a director and will be paid an additional fee of $2,000 for attendance at each regular quarterly meeting of directors. We also reimburse directors for their expenses incurred in attending any meeting of directors.

Executive Compensation

The following table sets forth all compensation awarded to, earned by or paid to our Chief Executive Officer and our four next most highly compensated executive officers for the year ended December 31, 2001.

Summary Compensation Table

Name and Principal Position	Salary		Bonus(1)		All Other Compensation(2)
David A. Dye President, CEO and Director	$	240,000	$	260,000	$	2,000
J. Boyd Douglas Executive Vice President, COO and Director		180,000		195,000		2,000
M. Stephen Walker Vice President—Finance and CFO		180,000		195,000		2,000
Victor S. Schneider Vice President—Sales and Marketing		168,000		182,000		2,000
Mellissa Hammons Vice President—Financial Software Services		168,000		182,000		2,000

(1) Discretionary bonuses were paid in 2001 to these employees to allow them to service their obligations under loans incurred to finance their respective purchases of shares of our common stock from other stockholders. There are no binding agreements with respect to these bonuses, but we expect to continue to make similar payments in the future until the employees’ loan obligations have been satisfied. See “Principal and Selling Stockholders.”

(2) The amounts shown in this column represent our contributions to our 401(k) retirement plan for each of these employees.

Stock Option Grants in Last Fiscal Year

We granted no stock options during 2001.

Aggregated Options Exercised in Last Fiscal Year and Fiscal Year-end Option Values

No stock options were exercised by any executive officer in 2001, and no stock options were outstanding as of December 31, 2001.

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2002 Stock Option Plan

Our 2002 Stock Option Plan will become effective as of the date on which our common stock is registered pursuant to the Securities Exchange Act of 1934. The plan provides for the granting of incentive stock options and non-qualified stock options. We will reserve 1,165,333 shares of common stock for issuance under the plan. The aggregate number of shares of common stock subject to awards granted to any individual employee under the plan in any fiscal year may not exceed 100,000 shares of common stock. The plan provides for the grant of options to purchase shares of our common stock to any of our full or part-time employees, including officers and directors who are also employees.

The plan will be administered by our board of directors or by a committee comprised of two or more directors which has the authority to select the persons to whom awards are granted, to determine the exercise price and the number of shares of common stock covered by such awards, and to set the other terms and conditions of such awards. The board or the committee will also have the authority to adopt, amend and rescind rules and regulations that, in its opinion, may be advisable in the administration of the plan.

Our plan has a term of ten years. The expiration of the term of the plan will not affect the rights under any outstanding options held by a participant without that participant’s consent. Our board of directors may amend, alter, suspend, discontinue or terminate the plan at any time, except that the board may not, without stockholder approval, adversely affect the rights of the holder of such option without the consent of the holder or beneficiary.

Each option granted under the plan will be evidenced by an option agreement that will establish the specific terms of such option. The exercise price of a stock option granted under the plan cannot be less than 100% of the fair market value of our common stock on the date the option is granted. Each option will expire not more than ten years from the date of the granting thereof, but will be subject to earlier termination as may be provided in the option agreement.

The options and stock awards granted under the plan will vest as determined by the board of directors or the committee.

The plan also provides that the right of any option holder to exercise an option granted to him or her shall not be assignable or transferable by the option holder other than by will or the laws of descent and distribution, except as otherwise permitted in the option agreement.

An option granted to an employee who ceases to be an employee as a result of his or her death, disability or retirement may be exercised, to the extent that the option was exercisable at the time of such cessation of employment, for up to twelve months after the cessation of employment, unless the option expires sooner by its terms. An option granted to an employee who ceases to be an employee as a result of his or her termination by us for cause will automatically terminate upon such termination of employment. An option granted to an employee who ceases to be an employee for any other reason may be exercised, to the extent that the option was exercisable at the time of such cessation of employment, for up to three months after such cessation of employment, unless the option expires sooner by its terms.

Under the terms of our plan, if there is a change of control (as defined in the plan), or in the event that our board proposes that we enter into a transaction that would result in a change of control, the board or the committee may in its discretion, by written notice to a participant, provide that the participant’s options will be canceled in exchange for cash, securities or other consideration. The board or the committee also may in its discretion make adjustments in the terms of a participant’s options, including accelerating the date(s) on which the options become exercisable.

Initial Option Grants.    Effective on the date of the completion of the offering, we will grant to all of our full-time employees options to acquire a total of 466,133 shares of our common stock. The exercise price for these options will be $             per share, the initial public offering price of our common stock. These options cover 40% of the total number of shares reserved for issuance under the plan.

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The options will have a term of seven years. For our seven executive officers, the options will vest and become exercisable 100% on the fifth anniversary of the grant date. For all other employees, the options will vest and become exercisable 50% on the third anniversary of the grant date and 50% on the fifth anniversary of the grant date.

The number of shares covered by the initial option grant to each individual employee has been determined based on each employee’s salary, adjusted for years of service, as a percentage of the aggregate salaries of all full-time employees. In order to reward employees for years of service, each employee will be credited with an additional $10,000 of salary for each full year of service with us.

The number of shares subject to the initial option grants to each executive officer listed in the Summary Compensation Table is as follows:

Name	Number of Shares
David A. Dye	3,770
J. Boyd Douglas	3,954
M. Stephen Walker	3,062
Victor S. Schneider	3,741
Mellissa Hammons	3,531

401(k) Plan

Effective January 1994, we adopted a tax-qualified employee savings plan under Section 401(k) of the Internal Revenue Code. Pursuant to the 401(k) plan, full time employees who have completed at least one year of service with CPSI may elect to reduce their current compensation by up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) plan. The 401(k) plan is intended to qualify under Section 401(a) of the Internal Revenue Code, so that contributions by employees or us to the 401(k) plan, and income earned on the 401(k) plan contributions, are not taxable to employees until withdrawn from the 401(k) plan, and so that contributions by us, if any, will be deductible by us when made. We make matching contributions to each employee’s account in an amount equal to the first $1,000 contributed by each employee, plus a discretionary amount that we determine each year.

Indemnification of Directors and Executive Officers and Limitation of Liability

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnification to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act.

As permitted by Delaware law, our Certificate of Incorporation, which will become effective upon our reincorporation in Delaware, includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability:

• for any breach of the director’s duty of loyalty to us or our stockholders;

• for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• under Section 174 of the Delaware law regarding unlawful dividends, stock purchases or redemptions; or

• for any transaction from which the director derived an improper personal benefit.

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As permitted by Delaware law, our Certificate of Incorporation and/or our Bylaws, which will become effective upon our reincorporation in Delaware, provide that:

• we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law, if such person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of CPSI, and with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful;

• we are permitted to indemnify our other employees to the extent that we indemnify our officers and directors;

• we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to certain very limited exceptions; and

• the rights conferred in our Certificate of Incorporation and Bylaws are not exclusive.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We lease the majority of our corporate headquarters campus from CP Investments, Inc., an Alabama corporation, the stockholders of which are John Morrissey, John Heyer, Bob O’Donnell, Bill Stillings, Kevin P. Wilkins, Tabitha M. Wilkins Olzinski, Ellen M. Harvey, Michael K. Muscat, Jr. and Susan M. Slaton. All of these individuals are also stockholders of CPSI. In 2001, we paid total lease payments of approximately $958,000 to CP Investments, Inc. On April 1, 2002, we entered into a new lease with CP Investments, Inc., which expires in April 2012. Under this new agreement, we will make annual lease payments in the amount of $1,080,000, subject to adjustment as set forth in the agreement. The annual rent payable under this lease has been determined by an independent, third-party appraisal firm. The parties may agree, from time to time, to make adjustments in the annual rent payable under this lease based on subsequent third-party appraisals.

We lease the remainder of our headquarters facilities, which is comprised of one building that houses our dedicated research and development staff, from DJK, LLC, a limited liability company owned by Dennis Wilkins. On April 1, 2002, we entered into a lease for this facility that expires in April 2012. Prior to that time we paid only the expenses associated with the building. Under the new lease, we will make annual lease payments in the amount of $39,000, subject to adjustment as set forth in the agreement. The annual rent payable under this lease has been determined by an independent, third party appraisal firm.

During 2001, we engaged the law firm of Frazer, Greene, Upchurch & Baker, LLC in connection with certain litigation matters. One of our directors, W. Austin Mulherin, III, is a partner of this firm. We expect to continue to use the legal services of this firm in the future.

In July 1999 and May 2001, certain of our stockholders sold an aggregate of 904,750 shares (after considering the effect of the 430 for 1 stock split) to seven of our executive officers for cash in the aggregate amount of approximately $8.5 million. The executive officers financed 100% of the aggregate purchase price with individual loans from AmSouth Bank and pledged their shares of stock as collateral. Simultaneously with such financing, we entered into agreements with AmSouth Bank to purchase from AmSouth any such loan if (i) an officer’s employment with us is terminated for any reason, (ii) an officer defaults on his or her loan or pledge agreement or (iii) our financial condition deteriorates below certain defined parameters. As of March 31, 2002 the aggregate outstanding principal amount of these individual loans was $6,897,633. We have entered into agreements with AmSouth Bank to terminate the loan purchase agreements effective upon consummation of the offering.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of April 30, 2002, and as adjusted to reflect the sale of the shares of common stock offered hereby, for each of the following persons:

• each person or entity who is known by us to own beneficially more than 5% of the common stock;

• each of our directors;

• each of our executive officers listed in the Summary Compensation Table;

• all of our directors and executive officers as a group; and

• each of the selling stockholders.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes generally voting power and/or investment power with respect to securities. Except as otherwise noted, the stockholders named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to applicable community property laws. Unless otherwise indicated in the table, the address of each stockholder identified in the table is c/o Computer Programs and Systems, Inc., 6600 Wall Street, Mobile, Alabama 36695.

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	Shares Beneficially Owned Prior to Offering			Shares to be Sold	Shares Beneficially Owned After Offering
Name of Beneficial Owner	Number	Percent			Number	Percent
Executive Officers and Directors:
Dennis P. Wilkins	3,096,000	33.3	%	1,244,398	1,851,602	17.7	%
M. Kenny Muscat	1,204,000	13.0		—	1,204,000	11.5
John Morrissey	602,000	6.5		—	602,000	5.7
Ernest F. Ladd, III	—	—		—	—	—
W. Austin Mulherin, III	—	—		—	—	—
William R. Seifert, II	—	—		—	—	—
David A. Dye (1)	215,000	2.3		—	215,000	2.0
J. Boyd Douglas (1)	215,000	2.3		—	215,000	2.0
M. Stephen Walker (1)	129,000	1.4		—	129,000	1.2
Victor S. Schneider (1)	107,500	1.2		—	107,500	1.0
Mellissa Hammons (1)	107,500	1.2		—	107,500	1.0
Directors and executive officers as a group (13 persons)	5,891,000	63.4		1,244,398	4,646,602	44.3
Other Selling Stockholders:
John Heyer (2)	688,000	7.4	%	151,360	536,640	5.1	%
Bob O’Donnell (3)	430,000	4.6		80,410	349,590	3.3
Bill Stillings	430,000	4.6		47,300	382,700	3.6
Kevin P. Wilkins	344,000	3.7		138,266	205,734	2.0
Tabitha M. Wilkins Olzinski	344,000	3.7		138,266	205,734	2.0

The following selling stockholders have granted the underwriters an option to purchase up to an aggregate of 450,000 additional shares of common stock to cover over-allotments, if any:

Name	Additional Shares Offered in Over-allotment Option	Shares Beneficially Owned After Exercise of Over-Allotment Option
		Number	Percent
Dennis P. Wilkins	311,099	1,540,503	14.7	%
John Heyer (4)	37,840	498,800	4.8
Bob O’Donnell (3)	20,102	329,488	3.1
Bill Stillings	11,825	370,875	3.5
Kevin P. Wilkins	34,567	171,167	1.6
Tabitha M. Wilkins Olzinski	34,567	171,167	1.6

(1) The shares owned by these officers were purchased from other stockholders. Each of these officers borrowed 100% of the purchase price for these shares. As of the date of this prospectus, the principal amounts of these loans are as follows: Mr. Dye ($1,636,653); Mr. Douglas ($966,000); Mr. Walker ($1,023,000); Mr. Schneider ($832,327); and Ms. Hammons ($854,013).

(2) The number of shares beneficially owned includes 68,800 shares held by the Heyer Family Irrevocable Trust of 2001, of which Mr. Heyer is trustee. The number of shares to be sold includes 15,136 shares held by the Heyer Family Irrevocable Trust of 2001.

(3) The number of shares beneficially owned includes 64,500 shares held by the O’Donnell Family Irrevocable Trust of 2002, of which Mr. O’Donnell is trustee.

(4) The number of additional shares subject to the over-allotment option includes 3,784 shares held by the Heyer Family Irrevocable Trust of 2001, of which Mr. Heyer is trustee. The number of shares beneficially owned after the exercise of the over-allotment option includes 49,880 shares held by the Heyer Family Irrevocable Trust Of 2001.

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DESCRIPTION  OF  CAPITAL  STOCK

General

Upon the completion of this offering, we will be authorized to issue 30,000,000 shares of common stock, $.001 par value.

Common Stock

As of April 30, 2002, there were 9,288,000 shares of common stock outstanding held of record by 23 stockholders. The issued and outstanding shares of common stock are, and the shares of common stock being offered by us hereby will be upon payment therefor, validly issued, fully paid and nonassessable. The holders of outstanding shares of common stock are entitled to receive dividends out of funds legally available therefor at the times and in the amounts as our board of directors may from time to time determine. Shares of our common stock are neither redeemable nor convertible, and the holders thereof have no preemptive rights or other subscription rights to purchase any of our securities. Upon liquidation, dissolution or winding up of CPSI, the holders of common stock are entitled to receive pro rata our assets which are legally available for distribution, after payment of all debts and other liabilities. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of stockholders.

Provisions of our Certificate of Incorporation and Bylaws with Potential Anti-Takeover Effects

Our Certificate of Incorporation and Bylaws, which will become effective upon our reincorporation in Delaware, include a number of provisions that may have the effect of deterring or impeding hostile takeovers or changes of control or management. These provisions include:

• our board of directors is divided into three classes of directors with staggered three-year terms;

• the board of directors fixes the size of the board, may create new directorships and may elect new directors to serve for the full term in which the new directorships were created;

• all stockholder action must be effected at a duly called meeting of stockholders and not by written consent;

• there is no cumulative voting for directors;

• the board of directors may adopt, amend, alter or repeal the bylaws without any vote or further action by the stockholders;

• advance notice procedures are required with respect to stockholder proposals and the nominations of candidates for election as directors; and

• indemnification of executive officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.

These provisions may have the effect of delaying or preventing a change of control. Note, however, that we have decided to opt out of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions.

Transfer Agent And Registrar

The transfer agent and registrar for our common stock will be Wachovia Bank, N.A.

National Market Listing

We have applied for listing of our common stock on the Nasdaq National Market under the symbol “CPSI.”

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to the completion of this offering, there has been no public market for our common stock. Sales of substantial amounts of our common stock in the public market after this offering could cause the market price of our common stock to fall and could limit our ability to raise equity capital on terms favorable to us.

Upon the closing of this offering and based on shares outstanding as of April 30, 2002, we will have an aggregate of 10,488,000 shares of common stock outstanding. Of these shares, the 3,000,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below. The remaining 7,488,000 shares of common stock held by our existing stockholders were issued and sold by us in private transactions, are restricted securities as defined under Rule 144, and may be sold in the public market only if registered or if there is an exemption from registration, such as that provided by Rule 144 promulgated under the Securities Act, which rule is summarized below. Subject to the lock-up agreements described below, and the provisions of Rule 144, and assuming no exercise of the underwriters’ over-allotment option, additional shares will be available for sale in the public market at the following times:

Number of Shares	Date
2,548,568	180 days from the date of this prospectus
4,939,432	At various times after 180 days from the date of this prospectus

Rule 144

In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, including an affiliate, who has beneficially owned shares of our common stock for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus (subject to any applicable lock-up agreement), a number of shares that does not exceed the greater of:

• 1% of the number of shares of common stock then outstanding, which will equal 104,880 shares immediately after this offering; or

• the average weekly trading volume in our common stock during the four calendar weeks preceding the date on which notice of the sale is filed on Form 144, subject to certain restrictions.

Sales of shares of our common stock under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. However, a person who has not been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell those shares under Rule 144(k) without regard to the manner of sale, public information, volume limitation or notice provisions of Rule 144. To the extent that shares were acquired from an affiliate of ours other than by gift, the person’s holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. Shares acquired from an affiliate by gift are deemed acquired for Rule 144’s holding period requirement when they were acquired by the affiliate.

Lock-up Agreements

All of our directors, officers and existing stockholders who will hold 7,488,000 shares of common stock in the aggregate after the offering, have agreed that they will not, without the prior written consent of the representatives of the underwriters, offer, sell or agree to sell, directly or indirectly, or otherwise dispose of any shares of common stock for a period of 180 days from the date of this prospectus, except in the case of the exercise of the underwriters’ over-allotment option. See “Underwriting.”

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Likewise, we have agreed that we will not, without the prior written consent of the representatives of the underwriters, sell, grant any option for the sale of, or otherwise dispose of, any shares of our common stock during the 180-day period following the date of the prospectus, except we may grant options to purchase shares of common stock under our 2002 Stock Option Plan.

Stock Options and Warrants

Except for options to be granted pursuant to our 2002 Stock Option Plan upon the completion of this offering, there will be no options or warrants to purchase shares of our common stock outstanding upon the completion of this offering.

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UNDERWRITING

Subject to the terms and conditions of an underwriting agreement dated             , 2002, the underwriters named below have severally agreed to purchase from us and the selling stockholders the number of shares indicated in the following table. Morgan Keegan & Company, Inc. and Raymond James & Associates, Inc. are the representatives of the underwriters.

Underwriters	Number of Shares
Morgan Keegan & Company, Inc. Raymond James & Associates, Inc.

The underwriters propose to offer shares of our common stock directly to the public at the public offering price set forth on the cover page of this prospectus. Any shares sold by the underwriters to securities dealers will be sold at the public offering price less a selling concession not in excess of $             per share. The underwriters may allow, and these selected dealers may re-allow, a concession of not more than $             per share to other brokers and dealers.

The underwriting agreement provides that the underwriters’ obligations to purchase shares are subject to conditions contained in the underwriting agreement. The underwriters are obligated to purchase all of the shares of common stock that they have agreed to purchase under the underwriting agreement, other than those covered by the over-allotment option, if they purchase any shares.

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock included in this offering in any jurisdiction where action for that purpose is required. The shares of common stock included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sales of any shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to this offering of our common stock and the distribution of this prospectus. This prospectus is not an offer to sell nor a solicitation of any offer to buy any shares of common stock included in this offering in any jurisdiction where that would not be permitted or legal.

The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority.

Underwriting Discount and Expenses

The following table summarizes the underwriting discount to be paid to the underwriters by us and the selling stockholders.

	Per Share	Total, without Over-allotment	Total, with Over-allotment
Underwriting discount to be paid to the underwriters by us Underwriting discount to be paid to the underwriters by the selling stockholders Total

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We will pay all expenses of the offering that we and the selling stockholders incur, except for the underwriting discount to be paid by the selling stockholders. We estimate that our total expenses of this offering, excluding the underwriting discount, will be approximately $1.1 million.

Over-allotment Option

The selling stockholders have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to 450,000 additional shares of common stock at the public offering price, less the underwriting discount, set forth on the cover page of this prospectus. The underwriters may exercise the option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise the option, each underwriter will become obligated, as long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares approximately proportionate to that underwriter’s initial commitment as indicated in the table above. The selling stockholders will be obligated, pursuant to the option, to sell these additional shares of common stock to the underwriters to the extent the option is exercised. If any additional shares of common stock are purchased pursuant to the option, the underwriters will offer the additional shares on the same terms as those on which the other shares are being offered hereby.

Indemnification

We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of any of these liabilities.

Lockup Agreement

Except with respect to our grant of options pursuant to the 2002 Stock Option Plan, we and each of our officers, directors and other stockholders have agreed not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed to, or could be expected to, result in the disposition of any shares of our common stock or other securities convertible into or exchangeable or exercisable for shares of our common stock, or common stock issuable upon exercise of options or warrants held by these persons, for a period of 180 days after the date of this prospectus, without the prior written consent of the representatives of the underwriters. This consent may be given at any time without public notice. With the exception of the underwriters over-allotment option, there are no present agreements between the representatives and us or any of our stockholders releasing us or them from these lock-up agreements prior to the expiration of the 180-day period.

Stabilization, Short Positions and Penalty Bids

The underwriters may engage in over-allotment, syndicate covering transactions, stabilizing transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock:

• Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option, in whole or in part, or purchasing shares in the open market.

• Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by

52

the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

• Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specific maximum.

• Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These syndicate covering transactions, stabilizing transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.            

Pricing of the Offering

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock has been determined by negotiations among us and the representatives of the underwriters. Among the primary factors considered in determining the initial public offering price were:

• prevailing market conditions;

• our historical performance and capital structure;

• the present stage of our development;

• the market capitalization and stage of development of the other companies that we and the representatives of the underwriters believe to be comparable to our business; and

• estimates of our business potential and earnings prospects.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Maynard, Cooper & Gale, P.C., Birmingham, Alabama. Certain legal matters in connection with this offering will be passed upon for the underwriters by Bass, Berry & Sims PLC, Memphis, Tennessee.

53

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial statements and schedule at December 31, 2001 and for the year then ended, as set forth in their reports. We have included our financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.

Wilkins Miller, P.C., independent auditors, have audited our financial statements and schedule at December 31, 2000 and for each of the two years in the period ended December 31, 2000, as set forth in their reports. We have included our financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Wilkins Miller, P.C.’s reports, given on their authority as experts in accounting and auditing.

CHANGE OF INDEPENDENT AUDITORS

On December 14, 2001, we selected Ernst & Young LLP as our independent auditors in connection with our decision to pursue this offering. Wilkins Miller, P. C., or its predecessors, which had been our independent accountants since prior to 2001, declined to stand for re-election because it does not audit, as a matter of practice, the financial statements of publicly held companies. In connection with the audits by Wilkins Miller, P.C. of our financial statements and schedule for the years ended December 31, 1999 and 2000, there were no disagreements with Wilkins Miller, P.C. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, nor any reportable events. The reports of Wilkins Miller, P.C. on the financial statements and schedule for the years ended December 31, 1999 and 2000 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. The decision to change auditors was approved by our board of directors. Neither we, nor someone on our behalf, consulted Ernst & Young LLP on the application of accounting principles or on the type of audit opinion that might be rendered on our financial statements. We have provided Wilkins Miller, P.C. with a copy of the disclosure contained in this section of this prospectus.

Wilkins Miller, P.C. has furnished us with a letter addressed to the SEC stating that it agrees with the above statements. A copy of such letter dated April 30, 2002, is filed as Exhibit 16.1 to our registration statement on Form S-1.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. For further information regarding us and our common stock, please refer to the registration statement and exhibits and schedules filed as part of the registration statement. Each statement in this prospectus referring to a contract, agreement or other document filed as an exhibit to the registration statement is qualified in all respects by the filed exhibit.

You may read and copy all or any portion of the registration statement or any other information that we file at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings, including the registration statement, are also available to you on the SEC’s web site located at www.sec.gov.

Upon completion of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, will file periodic reports, proxy statements and other information with the SEC.

We intend to provide our stockholders with annual reports containing financial statements audited by an independent public accounting firm and to make available to our stockholders quarterly reports containing unaudited financial data for the first three quarters of each year.

54

COMPUTER PROGRAMS AND SYSTEMS, INC.

FINANCIAL STATEMENTS

CONTENTS

	Page
Condensed Balance Sheets (unaudited) as of December 31, 2001 and March 31, 2002	F-2
Condensed Statements of Income (unaudited) for the three months ended March 31, 2001 and 2002	F-3
Condensed Statements of Cash Flows (unaudited) for the three months ended March 31, 2001 and 2002	F-4
Notes to Condensed Financial Statements (unaudited)	F-5
Report of Independent Auditors	F-10
Balance Sheets as of December 31, 2000 and 2001	F-11
Statements of Income for the years ended December 31, 1999, 2000 and 2001	F-12
Statements of Stockholders’ Equity for the years ended December 31, 1999, 2000 and 2001	F-13
Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001	F-14
Notes to the Financial Statements	F-15

F-1

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED BALANCE SHEETS (Unaudited)

	December 31, 2001			March 31, 2002			Proforma March 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	2,018,643		$	1,750,040		$	1,750,040
Accounts receivable, net of allowance for doubtful accounts of $532,000 and $581,000 for 2001 and 2002, respectively		8,107,467			8,194,250			8,194,250
Financing receivables, current portion		769,423			1,024,733			1,024,733
Inventories		1,126,353			1,135,780			1,135,780
Deferred tax assets		—			—			1,047,546
Prepaid expenses		196,276			345,742			345,742
Total current assets		12,218,162			12,450,545			13,498,091
Property and equipment:
Land		936,026			936,026			936,026
Maintenance equipment		2,114,224			2,246,158			2,246,158
Computer equipment		2,906,476			3,059,351			3,059,351
Office furniture and equipment		793,576			798,490			798,490
Automobiles		89,934			89,934			89,934
		6,840,236			7,129,959			7,129,959
Less accumulated depreciation		(2,805,709	)		(3,061,049	)		(3,061,049	)
Net property and equipment		4,034,527			4,068,910			4,068,910
Financing receivables		998,797			1,035,668			1,035,668
Total assets	$	17,251,486		$	17,555,123		$	18,602,669
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Current portion of note payable	$	86,185		$	87,544		$	87,544
Accounts payable		1,033,349			1,100,913			1,100,913
Deferred revenue		1,601,130			1,360,627			1,360,627
Sales, income and use taxes payable		1,879,939			1,879,405			1,879,405
Accrued vacation		1,075,450			1,159,867			1,159,867
Health insurance reserves		288,153			288,153			288,153
Accrued retirement benefits		375,412			112,500			112,500
Accrued stockholders’ distributions		—			—			13,300,000
Other accrued liabilities		211,774			201,431			201,431
Total current liabilities		6,551,392			6,190,440			19,490,440
Note payable		663,712			641,281			641,281
Stockholders’ Equity (Deficit):
Common stock; par value $0.001 per share; 30,000,000 shares authorized; 9,288,000 shares issued and outstanding		9,288			9,288			9,288
Additional paid-in capital		109,811			—			—
Retained earnings (deficit)		9,917,283			10,714,114			(1,538,340	)
Total stockholders’ equity (deficit)		10,036,382			10,723,402			(1,529,052	)
Total liabilities and stockholders’ equity (deficit)	$	17,251,486		$	17,555,123		$	18,602,669

See accompanying notes.

F-2

COMPUTER SYSTEMS AND PROGRAMS, INC.

CONDENSED STATEMENTS OF INCOME (Unaudited)

	Three months ended March 31
	2001			2002
Sales revenues:
System sales	$	6,766,637		$	8,800,231
Support and maintenance		6,008,052			7,089,928
Outsourcing		754,567			1,030,547
Total sales revenues		13,529,256			16,920,706
Costs of sales:
Systems and services		7,746,251			9,277,696
Outsourcing		425,090			623,722
Total costs of sales		8,171,341			9,901,418
Gross profit		5,357,915			7,019,288
Operating expenses:
Sales and marketing		1,383,329			1,345,984
General and administrative		2,247,802			2,874,709
Total operating expenses		3,631,131			4,220,693
Operating income		1,726,784			2,798,595
Other income (expense):
Interest income		23,880			42,528
Miscellaneous income		9,202			45,051
Interest expense		(15,888	)		(14,343	)
Total other income		17,194			73,236
Net income	$	1,743,978		$	2,871,831
Net income per share—basic and diluted	$	0.19		$	0.31
Weighted average shares outstanding—basic and diluted		9,288,000			9,288,000
Cash dividends declared per share	$	0.09		$	0.19
Unaudited pro forma income data:
Net income as reported	$	1,743,978		$	2,871,831
Pro forma income taxes		649,256			1,082,154
Pro forma net income	$	1,094,722		$	1,789,677
Pro forma net income per share—basic and diluted (based on 9,288,000 weighted average shares)	$	0.12		$	0.19
Pro forma net income per share—basic and diluted (based on 9,644,566 weighted average shares and reflecting the S corporation distribution—See Note 3)				$	0.19

See accompanying notes.

F-3

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

	Three months ended March 31
	2001			2002
Operating activities
Net income	$	1,743,978		$	2,871,831
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		206,000			255,340
Provision for bad debt		42,691			49,500
Changes in operating assets and liabilities:
Accounts receivable		353,317			(136,283	)
Inventories		(13,354	)		(9,427	)
Prepaid expenses		202,067			(149,466	)
Financing receivables		(490,086	)		(292,181	)
Accounts payable		(589,846	)		67,564
Deferred revenue		11,910			(240,503	)
Taxes payable		9,855			(534	)
Accrued vacation		18,303			84,417
Other liabilities		(234,863	)		(273,255	)
Net cash provided by operating activities		1,259,972			2,227,003
Investing activities
Purchases of property and equipment		(362,184	)		(289,723	)
Net cash used in investing activities		(362,184	)		(289,723	)
Financing activities
Public offering related expenditures		—			(384,811	)
Repayments of note payable		(19,526	)		(21,072	)
Dividends paid		(800,000	)		(1,800,000	)
Net cash used in financing activities		(819,526	)		(2,205,883	)
Increase (decrease) in cash and cash equivalents		78,262			(268,603	)
Cash and cash equivalents at beginning of period		1,033,148			2,018,643
Cash and cash equivalents at end of period	$	1,111,410		$	1,750,040
Supplemental disclosures of cash flow information
Cash paid for interest	$	15,888		$	14,343

See accompanying notes.

F-4

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

1.    BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.

Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s audited financial statements and the notes thereto for the year ended December 31, 2001 included elsewhere herein.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Earnings Per Share

Basic earnings per share is based on the weighted effect of all shares of common stock issued and outstanding and is calculated by dividing net income by the weighted average shares outstanding during the period. For all of the periods presented in these financial statements, there were no potentially dilutive shares of common stock and, therefore, basic earnings per share and diluted earnings per share are the same.

Income Taxes

The Company, with the consent of its stockholders, has elected to be treated as an S corporation under the Internal Revenue Code. In lieu of corporate federal and state income taxes, the stockholders of an S corporation are taxed individually on their share of the Company’s taxable income. For the purpose of these financial statements, pro forma income taxes were provided as if the Company was a C corporation (to which it will convert concurrent with the initial public offering) for the entire period of these financial statements (see Note 3).

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs totaled approximately $264,000 and $271,000 for the three months ended March 31, 2001 and 2002, respectively.

Accounting for Impairment or Disposal of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company adopted this standard on January 1, 2002, and its adoption did not have any effect on the Company’s financial position, results of operations or cash flows.

F-5

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)

3.    PRO FORMA INFORMATION

The Company has filed a registration statement on Form S-1 with the Securities and Exchange Commission for an initial public offering (IPO) (see Note 5). Prior to completion of the IPO, the Company’s S corporation status will terminate and it will become subject to federal and state income taxes applicable to a C corporation. Additionally, upon completion of the IPO, the Company will distribute the earned, but undistributed, accumulated S corporation earnings (the S Corporation Distribution) through the date the Company becomes a C corporation. Undistributed S corporation earnings through March 31, 2002 were approximately $13,300,000. The difference between the S Corporation Distribution and historical retained earnings consists primarily of temporary timing differences between book and tax income.

Pro forma balance sheet

The pro forma unaudited balance sheet as of March 31, 2002 reflects the termination of the Company’s S corporation status and the recording of a liability to the stockholders in the amount of the S Corporation Distribution ($13,300,000). Payment of the accrued liability will be satisfied through the use of a portion of the proceeds from the IPO. It also reflects the deferred income tax assets that would have been recorded as of that date. A reduction in stockholders’ equity is reflected as a result of recording the accrued liability for the S Corporation Distribution.

Pro forma statements of income data

The unaudited pro forma results of operations information includes a pro forma income tax provision for the three months ended March 31, 2001 and 2002, assuming an effective tax rate of 37.2% and 37.7%, respectively, comparable to what would have been reported had the Company operated as a C corporation throughout the periods.

Pro forma net income per share

The Company has adopted the provisions of SFAS No. 128, Earnings Per Share, for purposes of presenting pro forma basic and diluted net income per common share. The following table reconciles the historical weighted average shares outstanding (9,288,000) to the pro forma weighted average shares outstanding for March 31, 2002:

Historical weighted average shares outstanding	9,288,000
Number of shares required to pay the S Corporation Distribution (estimated to total $13,300,000 less pro forma net income for the year ended December 31, 2001 and for the quarter ended March 31, 2002 of $5,448,699 and $1,789,676, respectively, at an estimated offering price of $17.00 per share)	356,566
Pro forma weighted average shares outstanding	9,644,566

F-6

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)

Pro Forma Income Taxes

For the periods presented in the accompanying financial statements, CPSI operated as an S corporation and, therefore, the individual stockholders were liable for federal and state income taxes and not the Company. Cash distributions were regularly made by CPSI in part to help fund the stockholders’ tax liabilities. Accordingly, net income as presented in the accompanying financial statements does not include a provision for federal or state income taxes.

Assuming completion of the proposed initial public offering (see Note 5), CPSI’s S election will terminate, and CPSI will become subject to corporate federal and state income taxes as a C corporation. For informational purposes, the pro forma balance sheet as of March 31, 2002 and the statements of income include pro forma adjustments for income taxes that would have been recorded if CPSI had been a C corporation during the periods presented. Pro forma income taxes were calculated in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred income taxes arise from temporary differences in the recognition of income and expense for tax purposes. Pro forma deferred income taxes were computed using the liability method and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes as if the Company was a C corporation for all periods presented based on the statutory rates in effect for those periods. Components of the Company’s pro forma deferred tax assets at March 31, 2002 are as follows:

Deferred tax assets
Accounts receivable	$	146,687
Sales, income and use taxes accounts receivable		74,229
Sales, income and use taxes interest		213,986
Accrued liabilities		612,644
	$	1,047,546

Deferred taxes have not been reflected in the accompanying financial statements because CPSI is not responsible for these income taxes until the termination of its S corporation status. Upon such termination, a net deferred income tax benefit will be reflected in the balance sheet with a corresponding credit to the deferred income tax provision. The amount of this net deferred benefit is approximately $1,048,000 at March 31, 2002.

Significant components of the pro forma income taxes provision are as follows:

Current provision:
Federal	$	957,447
State		159,255
Deferred provision:
Federal		(30,910	)
State		(3,638	)
Total pro forma income tax provision	$	1,082,154

F-7

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)

The differences between pro forma income taxes at the U.S. federal statutory income tax rate of 34% and those reported in the statements of income are as follows:

Income tax at U.S. federal statutory rate	$	976,434
State income tax, net of federal tax benefit		102,708
Non-deductible expenses		3,013
	$	1,082,154

Undistributed Earnings of Stockholders

The Company intends to distribute to its current stockholders substantially all of its undistributed S corporation earnings for tax purposes through the date of termination of S corporation status. As of March 31, 2002, the amount of these undistributed S corporation earnings was approximately $13,300,000. The actual amount of the final S corporation distributions will include the undistributed earnings of the Company through the date of termination of S corporation status, which is anticipated to occur immediately prior to completion of the initial public offering (see Note 5). To the extent that undistributed earnings exceed the final S corporation distribution, the excess amount will be reflected as additional paid-in capital at the date of revocation of S corporation status.

4.    COMMITMENT

The Company is a party to agreements with AmSouth Bank under which it has agreed, upon the occurrence of certain events, to purchase the promissory notes of certain officers of the Company to AmSouth totaling $6,897,633 as of March 31, 2002. Shares of common stock of the Company are pledged by the officers as security for the promissory notes. The agreements contain covenants requiring the Company to maintain minimum equity balances, not to incur additional liabilities outside those customary in its normal operations and to satisfy financial ratios on an annual basis as defined in the agreements.

5.    PUBLIC OFFERING

On January 16, 2002, the board of directors authorized the filing of a registration statement with the Securities and Exchange Commission to register 3,000,000 shares of its common stock in connection with a proposed Initial Public Offering (the offering).

The board of directors has approved the 2002 Stock Option Plan under which the Company has authorized the issuance of equity based awards for up to 1,165,333 shares of common stock. This plan will become effective upon the consummation of the offering.

F-8

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)

6.    SUBSEQUENT EVENTS

Effective immediately prior to the completion of the offering, the Company will reincorporate in Delaware. As a Delaware corporation, the Company will have 30,000,000 shares of authorized common stock and the par value per share will be $0.001.

Prior to the completion of the offering, the Company will declare a 430 for 1 stock split. All common share and per common share amounts for all periods presented in the accompanying financial statements have been restated to reflect the effect of this stock split.

Effective upon the completion of the offering, the Company’s agreement to purchase the promissory notes of its executive officers upon certain events of default (see Note 4) will be terminated.

F-9

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors

Computer Programs and Systems, Inc.

We have audited the accompanying balance sheet of Computer Programs and Systems, Inc. as of December 31, 2001, and the related statements of income, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Computer Programs and Systems, Inc. at December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

Ern st & Young LLP

Birmingham, Alabama

February 15, 2002,

except for Note 12, as to which the date is

                 , 2002

The foregoing report is in the form that will be signed upon the completion of the restatement of capital accounts described in Note 12 to the financial statements.

Birmingham, Alabama

April 30, 2002

F-10

REPORT OF WILKINS MILLER, P.C., INDEPENDENT AUDITORS

The Board of Directors

Computer Programs and Systems, Inc.

We have audited the accompanying balance sheet of Computer Programs and Systems, Inc. as of December 31, 2000, and the related statements of income, stockholders’ equity and cash flows for the years ended December 31, 1999 and 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Computer Programs and Systems, Inc. at December 31, 2000, and the results of its operations and its cash flows for the years ended December 31, 1999 and 2000, in conformity with accounting principles generally accepted in the United States.

Wi lkins Miller, P.C.

Mobile, Alabama

February 16, 2001,

except for Note 12, as to which the date is

                 , 2002

The foregoing report is in the form that will be signed upon the completion of the restatement of capital accounts described in Note 12 to the financial statements.

/s/     Wilkins Miller, P.C.

Mobile, Alabama

April 30, 2002

F-11

COMPUTER PROGRAMS AND SYSTEMS, INC.

BALANCE SHEETS

	December 31
	2000			2001
Assets
Current assets:
Cash and cash equivalents	$	1,033,148		$	2,018,643
Accounts receivable, net of allowance for doubtful accounts of $479,000 and $532,000 for 2000 and 2001, respectively		7,752,356			8,107,467
Financing receivables, current portion		259,293			769,423
Inventories		1,130,192			1,126,353
Prepaid expenses		292,917			196,276
Total current assets		10,467,906			12,218,162
Property and equipment:
Land		936,026			936,026
Maintenance equipment		2,108,543			2,114,224
Computer equipment		2,469,743			2,906,476
Office furniture and equipment		604,080			793,576
Automobiles		52,811			89,934
		6,171,203			6,840,236
Less accumulated depreciation		(2,504,081	)		(2,805,709	)
Net property and equipment		3,667,122			4,034,527
Financing receivables		379,740			998,797
Total assets	$	14,514,768		$	17,251,486
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of note payable	$	80,432		$	86,185
Accounts payable		1,240,398			1,033,349
Deferred revenue		1,414,204			1,601,130
Sales, income and use taxes payable		1,393,604			1,879,939
Accrued vacation		1,002,243			1,075,450
Health insurance reserves		179,600			288,153
Accrued retirement benefits		333,473			375,412
Other accrued liabilities		165,608			211,774
Total current liabilities		5,809,562			6,551,392
Note payable		749,024			663,712
Stockholders’ equity:
Common stock, par value $0.001 per share; 30,000,000 shares authorized, 9,288,000 shares issued and outstanding		9,288			9,288
Additional paid-in capital		109,811			109,811
Retained earnings		7,837,083			9,917,283
Total stockholders’ equity		7,956,182			10,036,382
Total liabilities and stockholders’ equity	$	14,514,768		$	17,251,486

See accompanying notes.

F-12

COMPUTER PROGRAMS AND SYSTEMS, INC.

STATEMENTS OF INCOME

	Year ended December 31
	1999			2000			2001
Sales revenues:
System sales	$	32,537,928		$	25,736,339		$	30,350,201
Support and maintenance		17,088,245			21,123,386			25,822,575
Outsourcing		903,467			2,362,172			3,493,629
Total sales revenues		50,529,640			49,221,897			59,666,405
Costs of sales:
Systems and services		29,253,768			29,979,117			34,133,115
Outsourcing		641,643			1,507,717			2,108,672
Total costs of sales		29,895,411			31,486,834			36,241,787
Gross profit		20,634,229			17,735,063			23,424,618
Operating expenses:
Sales and marketing		4,649,805			4,477,144			5,104,906
General and administrative		7,243,851			8,602,745			9,843,543
Total operating expenses		11,893,656			13,079,889			14,948,449
Operating income		8,740,573			4,655,174			8,476,169
Other income (expense):
Interest income		82,082			91,315			125,881
Miscellaneous income		146,003			214,360			153,892
Interest expense		(31,959	)		(69,313	)		(75,742	)
Total other income		196,126			236,362			204,031
Net income	$	8,936,699		$	4,891,536		$	8,680,200
Net income per share—basic and diluted	$	0.96		$	0.53		$	0.93
Weighted average shares outstanding—basic and diluted		9,288,000			9,288,000			9,288,000
Unaudited pro forma income data:
Net income as reported	$	8,936,699		$	4,891,536		$	8,680,200
Pro forma income taxes		3,323,719			1,826,436			3,231,501
Pro forma net income	$	5,612,980		$	3,065,100		$	5,448,699
Pro forma net income per share—basic and diluted (based on 9,288,000 weighted average shares)	$	0.60		$	0.33		$	0.59
Pro forma net income per share—basic and diluted (based on 9,685,135 weighted average shares and reflecting the S corporation distribution—see Note 3)							$	0.56

See accompanying notes.

F-13

COMPUTER PROGRAMS AND SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

	Shares	Common Stock		Additional Paid-In Capital		Retained Earnings			Total Stockholders’ Equity
Balance at December 31, 1998	9,288,000	$	9,288	$	109,811	$	6,119,708		$	6,238,807
Net income	—		—		—		8,936,699			8,936,699
Dividends	—		—		—		(6,110,860	)		(6,110,860	)
Balance at December 31, 1999	9,288,000		9,288		109,811		8,945,547			9,064,646
Net income	—		—		—		4,891,536			4,891,536
Dividends	—		—		—		(6,000,000	)		(6,000,000	)
Balance at December 31, 2000	9,288,000		9,288		109,811		7,837,083			7,956,182
Net income	—		—		—		8,680,200			8,680,200
Dividends	—		—		—		(6,600,000	)		(6,600,000	)
Balance at December 31, 2001	9,288,000	$	9,288	$	109,811	$	9,917,283		$	10,036,382

See accompanying notes.

F-14

COMPUTER PROGRAMS AND SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

	Year ended December 31
	1999			2000			2001
Operating activities
Net income	$	8,936,699		$	4,891,536		$	8,680,200
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		598,841			771,250			954,543
Loss on disposal of equipment		5,969			—			—
Provision for bad debt		249,329			203,896			225,236
Changes in operating assets and liabilities:
Accounts receivable		(3,279,456	)		852,602			(580,347	)
Inventories		(157,626	)		(11,612	)		3,839
Prepaid expenses		(33,184	)		(87,438	)		96,641
Financing receivables		24,290			(431,447	)		(1,129,187	)
Accounts payable		635,823			(39,942	)		(207,049	)
Deferred revenue		(486,909	)		533,619			186,926
Taxes payable		559,203			589,521			486,335
Accrued vacation		339,060			165,218			73,207
Other liabilities		312,267			128,815			196,658
Net cash provided by operating activities		7,704,306			7,566,018			8,987,002
Investing activities
Purchases of property and equipment		(2,286,275	)		(1,440,539	)		(1,321,948	)
Proceeds from sale of property and equipment		—			56,250			—
Net cash used in investing activities		(2,286,275	)		(1,384,289	)		(1,321,948	)
Financing activities
Borrowing on note payable		984,674			—			—
Repayments of note payable		(27,066	)		(128,152	)		(79,559	)
Dividends paid		(6,110,860	)		(6,000,000	)		(6,600,000	)
Net cash used in financing activities		(5,153,252	)		(6,128,152	)		(6,679,559	)
Increase in cash and cash equivalents		264,779			53,577			985,495
Cash and cash equivalents at beginning of year		714,792			979,571			1,033,148
Cash and cash equivalents at end of year	$	979,571		$	1,033,148		$	2,018,643
Supplemental disclosures of cash flow information
Cash paid for interest	$	31,959		$	69,313		$	75,742

See accompanying notes.

F-15

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001

1.    NATURE OF OPERATIONS

Computer Programs and Systems, Inc. (CPSI or the Company) is a healthcare information technology solutions provider which was formed and commenced operations in 1979. The Company provides, on an integrated basis, enterprise-wide clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations throughout the United States. Additionally, CPSI provides other information technology solutions including outsourcing, remote hosting, networking technologies and other related services.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents consists of highly liquid financial instruments, primarily cash and money market funds, purchased with an original maturity of three months or less.

Inventories

Inventories are stated at cost using the average cost method. The Company’s inventories are composed of computer equipment, forms and supplies.

Property and Equipment

Property and equipment is recorded at cost, less accumulated depreciation. Additions and improvements to property and equipment that materially increase productive capacity or extend the life of an asset are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Upon retirement or other disposition of such assets, the related costs and accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the results of operations.

Depreciation expense is computed using the straight-line method over the asset’s useful life, generally 5 years. The Company reviews for the possible impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Deferred Revenue

Deferred revenue represents amounts received from customers under licensing agreements and implementation fees for which the revenue earnings process has not been completed.

Revenue Recognition

System sales revenues are derived from the sale of information systems (including software, conversion and installation services, hardware, peripherals, forms and office supplies) to new customers and from the sale of new or additional products to existing customers. The Company recognizes revenue from the sales of products and services as products are delivered to the customer and as services are provided. The Company does not record revenue upon execution of a sales contract. Each customer initially remits a non-refundable 10% deposit that is recorded as deferred revenue. The customer then pays 40% of the purchase price when the Company commences training on-site at the customer’s facility. When the system becomes operational, the Company bills the remaining 50% of the system purchase price and recognizes revenue for the total amount of the purchase price. Revenues derived from installation of additional software applications are generally recognized upon installation. Revenues from the sale of hardware are recognized upon the shipment of the product to the customer.

F-16

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

The Company also derives revenues from the provision of support and maintenance services, including software application support, hardware maintenance, continuing education and related services. Support services are provided pursuant to a General Support Agreement under which the Company provides comprehensive system support and related services in exchange for a monthly fee based on the services provided. These contracts range in duration from 1 to 7 years, with an average duration of 5 years, and renew automatically unless terminated by the customer. Revenues from support services are recognized in the month when these services are performed.

As part of system sales, the Company also provides products to some customers as an application service provider (ASP) for a monthly fee. In addition, the Company offers Internet services (ISP) to customers for a monthly fee. Revenues from ASP and ISP services are recognized in the month when these services are provided.

The Company has the same employee groups providing both system installations and support and maintenance services. Therefore, the Company currently aggregates the costs for system installations and support and maintenance services.

Outsourcing services are sold pursuant to one year customer agreements, with automatic one year renewals. Revenues from outsourcing services are recognized when services are performed.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs totaled approximately $874,000, $1,025,000, and $1,056,000 for the years ended December 31, 1999, 2000, and 2001, respectively.

Software Development Costs

According to Statement of Financial Accounting Standards No. 86 (SFAS No. 86), Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, all costs incurred to establish the technological feasibility of a computer software product to be sold, leased or otherwise marketed are research and development costs and are charged to expense when incurred. Costs incurred subsequent to establishing technological feasibility are capitalized. Capitalization of computer software costs ceases when the product is available for general release to customers. The Company has determined that costs to be capitalized based on SFAS No. 86 are not material.

Income Taxes

The Company, with the consent of its stockholders, has elected to be treated as an S corporation under the Internal Revenue Code. In lieu of corporate federal and state income taxes, the stockholders of an S corporation are taxed individually on their share of the Company’s taxable income. For the purpose of these financial statements, pro forma income taxes were provided as if the Company was a C corporation (to which it will convert concurrent with the initial public offering) for the entire period of these financial statements (see Note 3).

Advertising

Advertising costs are expensed as incurred. Advertising expense was approximately $189,000, $460,000 and $377,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Earnings Per Share

Basic earnings per share is based on the weighted effect of all shares of common stock issued and outstanding and is calculated by dividing net income by the weighted average shares outstanding during the period. For all of the years presented in these financial statements, there were no potentially dilutive shares of common stock and, therefore, basic earnings per share and diluted earnings per share are the same.

F-17

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, to improve the transparency of the accounting and reporting for business combinations by requiring that all business combinations be accounted for under a single method, the purchase method. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001. The adoption of this standard is not expected to have any effect on the Company’s financial position, results of operations or cash flows.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. SFAS No. 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. SFAS No. 142 is effective starting with fiscal years beginning after December 15, 2001. The adoption of this standard is not expected to have any effect on the Company’s financial position, results of operations or cash flows.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of this standard is not expected to have any effect on the Company’s financial position, results of operations or cash flows.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of this standard is not expected to have any effect on the Company’s financial position, results of operations or cash flows.

3.    PRO FORMA INFORMATION (UNAUDITED)

The Company intends to file a registration statement on Form S-1 for an initial public offering (IPO) with the Securities and Exchange Commission (see Note 12). Prior to completion of the IPO, the Company’s S corporation status will terminate and it will become subject to federal and state income taxes applicable to a C corporation. Additionally, upon completion of the IPO, the Company will distribute the earned, but undistributed, accumulated S corporation earnings (the S Corporation Distribution) through the date the Company becomes a C corporation. Undistributed S corporation earnings through December 31, 2001 were approximately $12,200,000. The difference between the S Corporation Distribution and historical retained earnings consists primarily of temporary timing differences between book and tax income.

F-18

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Pro forma statements of income data

The unaudited pro forma results of operations information includes a pro forma income tax provision for each of the three years ended December 31, 1999, 2000 and 2001, assuming effective tax rates of 37.2%, 37.3% and 37.2%, respectively, comparable to what would have been reported had the Company operated as a C corporation.

Pro forma net income per share

The Company has adopted the provisions of SFAS No. 128, Earnings Per Share, for purposes of presenting pro forma basic and diluted net income per common share. The following table reconciles the historical weighted average shares outstanding (9,288,000) to the pro forma weighted average shares outstanding for 2001:

Historical weighted average shares outstanding	9,288,000
Number of shares required to pay the S Corporation Distribution (estimated to total $12,200,000, less 2001 net income of $5,448,699, at an estimated offering price of $17.00 per share)	397,135
Pro forma weighted average shares outstanding	9,685,135

Pro forma income taxes

For the periods presented in the accompanying financial statements, CPSI operated as an S corporation and, therefore, the individual stockholders were liable for federal and state income taxes and not the Company. Cash distributions were regularly made by CPSI in part to help fund the stockholders’ tax liabilities. Accordingly, net income as presented in the accompanying financial statements does not include a provision for federal or state income taxes.

Assuming completion of the proposed initial public offering (see Note 12), CPSI will revoke the S corporation status with the stockholders’ consent and will become subject to corporate federal and state income taxes as a C corporation. For informational purposes, the pro forma balance sheet as of December 31, 2001 and the statements of operations include pro forma adjustments for income taxes that would have been recorded if CPSI had been a C corporation during the periods presented. Pro forma income taxes were calculated in accordance with SFAS No. 109, Accounting for Income Taxes.

Deferred income taxes arise from temporary differences in the recognition of income and expense for tax purposes. Pro forma deferred income taxes were computed using the liability method and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes as if the Company was a C corporation for all periods presented based on the statutory rates in effect for those periods. Components of the Company’s pro forma deferred tax assets and liabilities are as follows:

F-19

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

	December 31
	1999			2000		2001
Deferred tax assets:
Accounts receivable	$	127,877		$	127,877	$	127,877
Sales, income and use taxes accounts receivable		28,890			54,043		74,229
Sales, income and use taxes interest		112,953			169,281		213,986
Accrued liabilities		460,391			499,133		596,907
Total deferred tax assets		730,111			850,334		1,012,999
Deferred tax liabilities:
Revenue recognition		(80,478	)		—		—
Total deferred tax liabilities		(80,478	)		—		—
Net deferred tax asset	$	649,633		$	850,334	$	1,012,999

Deferred taxes have not been reflected in the accompanying financial statements because CPSI is not responsible for these income taxes until the revocation of the S corporation status. Upon such revocation, a net deferred income tax benefit, which would have been approximately $1,013,000 as of December 31, 2001, will be reflected in the balance sheet with a corresponding credit to the deferred income tax provision. The actual amount to be recorded will be based on temporary differences existing on the date of the change in tax status and will vary from the pro forma amount determined as of December 31, 2001.

Significant components of the pro forma income taxes provision are as follows:

	December 31
	1999			2000			2001
Current provision:
Federal	$	3,150,760		$	1,773,440		$	2,969,385
State		450,728			253,697			424,781
Deferred provision:
Federal		(248,530	)		(179,575	)		(145,542	)
State		(29,239	)		(21,126	)		(17,123	)
Total income tax provision	$	3,323,719		$	1,826,436		$	3,231,501

The differences between pro forma income taxes at the U.S. federal statutory income tax rate of 34% and those reported in the statements of income are as follows:

	December 31
	1999		2000		2001
Income tax at U.S. federal statutory rate	$	3,038,478	$	1,663,122	$	2,951,268
State income tax, net of federal tax effect		278,183		153,497		269,054
Non-deductible expenses		7,058		9,817		11,179
	$	3,323,719	$	1,826,436	$	3,231,501

F-20

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Undistributed Earnings of Stockholders

The Company intends to distribute to its current stockholders substantially all of its undistributed S corporation earnings for tax purposes through the date of revocation of S corporation status. As of December 31, 2001, the amount of these undistributed S corporation earnings was approximately $12,200,000. The actual amount of the final S corporation distributions will include the undistributed earnings of the Company through the date of revocation of S corporation status, which is anticipated to occur immediately prior to completion of the initial public offering (see Note 12). To the extent that undistributed earnings exceed the final S corporation distribution, the excess amount will be reflected as additional paid-in capital at the date of revocation of S corporation status.

4.    CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with credit-worthy, high-quality financial institutions.

The Company’s customer base is concentrated in the healthcare industry. Customers are located throughout the United States. The Company requires no collateral or other security to support customer receivables. An allowance for doubtful accounts has been established for potential credit losses.

5.    FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities are reflected in the accompanying financial statements at cost, which approximates fair value because of the short-term maturity of these instruments. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, at December 31, 2001 the fair values of the note payable and financing receivables approximate book value.

6.    FINANCING RECEIVABLES

The Company leases its information and patient care systems to certain healthcare providers under sales-type leases expiring in various years through 2006. These receivables typically have terms from 2 to 5 years, bear interest at 10% and are usually collateralized by a security interest in the underlying assets. The components of these lease receivables were as follows as of December 31:

	2000			2001
Total minimum lease payments receivable	$	589,543		$	1,649,416
Less unearned income		(104,344	)		(300,099	)
Lease receivables		485,199			1,349,317
Less current portion		(105,459	)		(350,520	)
Amounts due after one year	$	379,740		$	998,797

F-21

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Future minimum lease payments to be received as of December 31, 2001 are as follows:

2002	$	469,976
2003		430,058
2004		351,402
2005		247,130
2006		150,850
Total minimum lease payments to be received		1,649,416
Less unearned income		(300,099	)
Net leases receivable	$	1,349,317

The Company has also sold information and patient care systems to certain healthcare providers under extended payment terms. These receivables, included in current portion of financing receivables, typically have terms from 3 to 12 months and are collateralized by a security interest in the underlying assets. Total amounts receivable under these arrangements at December 31, 2000 and 2001 were $153,834 and $418,903, respectively.

7.   NOTES PAYABLE

In July 1999, the Company entered into a note agreement with a bank for $984,674. The note is payable in monthly installments of $11,805 including interest at 7.72% until the maturity date of July 29, 2009. The note is collateralized by certain real estate of the Company with a net book value of $936,026 at December 31, 2001.

8.   COMMON STOCK

The Company’s common stock at December 31, 2001 and 2000 consists of 4,644,000 shares of voting and 4,644,000 shares of non-voting common stock. In conjunction with the Company’s reincorporation in Delaware (see Note 12), all of the Company’s stock will become voting stock.

In accordance with a stock restriction agreement dated September 1, 1998, the stockholders of the Company cannot sell their stock without first offering to sell the stock back to the Company, and secondly, offering to sell the stock to the other stockholders. This stock restriction agreement will be terminated at or prior to the completion of the offering.

Dividends

Dividends totaling $6,110,860 ($0.66 per share), $6,000,000 ($0.65 per share) and $6,600,000 ($0.71 per share) were paid to the Company’s stockholders in 1999, 2000 and 2001, respectively.

9.   BENEFIT PLANS

In January 1994, the Company adopted the Computer Programs and Systems Inc. 401(k) Retirement Plan that covers all eligible employees of the Company who have completed one year of service. The plan allows eligible employees to contribute up to 15% of their pre-tax earnings up to the statutory limit prescribed by the Internal Revenue Service. The Company matches the first $1,000 contribution per participant plus a discretionary amount determined by the Company. The Company contributed approximately $370,000, $650,000 and $739,000 to the Plan for the years ended December 31, 1999, 2000 and 2001, respectively.

The Company provides certain health and medical benefits to eligible employees, their spouses and dependents pursuant to a benefit plan funded by the Company. Each participating employee contributes to the Company’s costs associated with such benefit plan. The Company’s obligation to fund this benefit plan and pay for these benefits is limited through the Company’s purchase of an insurance policy from a third-party insurer. The amount established as a reserve is intended to recognize the Company’s estimated obligations with respect to its payment of claims, and claims incurred but not yet reported, under the benefit plan. Management believes that

F-22

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

the recorded liability for medical self-insurance at December 31, 2001 is adequate to cover the losses and claims incurred, but these reserves are necessarily based on estimates and the amount ultimately paid may be more or less than such estimates.

10.   OPERATING LEASES

Related Party

The Company leases certain real property, all of which is owned by entities that are owned by one or more stockholders of the Company. The lease agreements have terms of ten years and expire on or before April 2011. For the second five years of the leases, the rental may be adjusted with consent of the landlord and the Company. If mutual consent cannot be obtained, the rental for the second five years will remain the same as the first five years. For the years ended December 31, 1999, 2000 and 2001, total rent expense paid to the related party was approximately $806,000, $890,000 and $958,000, respectively.

Other

The Company leases certain equipment under a noncancelable operating lease which expires in July 2002. For each of the years ended December 31, 1999, 2000 and 2001, rent expense totaled approximately $41,000.

The future minimum lease payments, including related party and other, under operating leases subsequent to December 31, 2001 are as follows:

2002	$	1,008,876
2003		988,200
2004		988,200
2005		988,200
2006		988,200
Thereafter		3,587,850
	$	8,549,526

11.   COMMITMENTS

The Company has entered into an agreement with a supplier obligating the Company to purchase certain forms and supplies. The forms and supplies were manufactured to the Company’s specifications and must be purchased within one year of manufacture. The outstanding purchase commitment at December 31, 2001 was approximately $143,000.

The Company is a party to agreements with AmSouth Bank under which it has agreed, upon the occurrence of certain events, to purchase the promissory notes of certain officers of the Company to AmSouth totaling $6,947,000 as of December 31, 2001. Shares of common stock of the Company are pledged by the officers as security for the promissory notes. The agreements contain covenants requiring the Company to maintain minimum equity balances, not to incur additional liabilities outside those customary in its normal operations and to satisfy financial ratios on an annual basis as defined in the agreements.

12.   SUBSEQUENT EVENTS (UNAUDITED)

On January 16, 2002, the board of directors authorized the filing of a registration statement with the Securities and Exchange Commission to register 3,000,000 shares of its common stock in connection with a proposed Initial Public Offering (the offering).

The board of directors has approved the 2002 Stock Option Plan under which the Company has authorized the issuance of equity based awards for up to 1,165,333 shares of common stock. This plan will become effective upon the consummation of the offering.

F-23

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Effective immediately prior to the completion of the offering, the Company will reincorporate in Delaware. As a Delaware corporation, the Company will have 30,000,000 shares of authorized common stock and the par value per share will be $0.001.

Prior to the completion of the offering, the Company will declare a 430 for 1 stock split. All common share and per common share amounts for all periods presented in the accompanying financial statements have been restated to reflect the effect of this stock split.

F-24

            , 2002

3,000,000 Shares

Computer Programs and Systems, Inc.

Common Stock

PROSPECTUS

Morgan Keegan & Company, Inc.

Raymond James

Until                     , 2002, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

The following table sets forth all expenses, other than the underwriting discount, payable by us in connection with the sale of the common stock being registered. All the amounts shown are estimates except for the SEC registration fee, the NASD filing fee and the Nasdaq listing fee.

SEC registration fee	$	5,714
Nasdaq National Market listing fee		100,000
NASD filing fee		6,710
Printing and engraving expenses		175,000
Legal fees and expenses		350,000
Accounting fees and expenses		400,000
Transfer agent and registrar fees		1,500
Miscellaneous		75,000
Total	$	1,113,924

We intend to pay all expenses of registration, issuance and distribution.

Item 14.    Indemnification of Directors and Officers.

Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware (the “DGCL”) empowers a corporation to indemnify any person who by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, was or is a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he acted in any of the capacities set forth in subsection (a) of Section 145, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court deems proper.

Section 145 further provides that to the extent that a director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in the defense of any claim, issue or matter therein, he is entitled to indemnification against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith. Section 145 also states that any indemnification and advancement of expenses provided by, or granted pursuant to, Section 145 are not exclusive of any other rights to which those seeking indemnification may be entitled, and the section empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a

II-1

director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145.

As permitted by the DGCL, our Certificate of Incorporation and/or our Bylaws, which will become effective upon our reincorporation in Delaware, provide that (1) we are required to indemnify our directors and officers to the fullest extent permitted by the DGCL, subject to certain very limited exceptions; (2) we are permitted to indemnify our other employees to the extent that we indemnify our officers and directors; (3) we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the DGCL, subject to certain very limited exceptions; and (4) the rights conferred in our Certificate of Incorporation and Bylaws are not exclusive.

Prior to the closing of this offering, we intend to enter into indemnity agreements with each of our current directors and officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our Certificate of Incorporation and our Bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

As permitted by the DGCL, our Certificate of Incorporation, which will become effective upon our reincorporation in Delaware, includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to us or our stockholders; (2) for acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law; (3) under Section 174 of the DGCL regarding unlawful dividends, stock purchases and redemptions; or (4) for any transaction from which the director derived an improper personal benefit.

With approval by the board of directors, we expect to obtain directors’ and officers’ liability insurance. Reference is made to the underwriting agreement contained in Exhibit 1.1 hereto, which contains provisions indemnifying our officers and directors against certain liabilities.

Item 15.    Recent Sales of Unregistered Securities.

We have not issued or sold any securities within the past three years.

Item 16.    Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit Number	Description of Document
1.1	Form of Underwriting Agreement
2.1	Form of Agreement and Plan of Merger to effect the reincorporation of Computer Programs and Systems, Inc., an Alabama corporation (“CPSI-Alabama”), to Delaware
3.1**	Certificate of Incorporation of CPSI-Alabama
3.2**	Articles of Amendment to the Articles of Incorporation of CPSI-Alabama
3.3**	Articles of Amendment to the Certificate of Incorporation of CPSI-Alabama
3.4**	Certificate of Incorporation of the registrant
3.5**	Bylaws of CPSI-Alabama
3.6	Bylaws of the registrant
3.7*	Articles of Amendment to the Articles of Incorporation of CPSI-Alabama
5.1	Opinion of Maynard Cooper & Gale, P.C., counsel to the registrant

II-2

Exhibit Number	Description of Document
10.1	Real Property Lease, dated April 1, 2002, between CPSI-Alabama and CP Investments, Inc.
10.2	Real Property Lease dated April 1, 2002, between CPSI-Alabama and DJK, LLC
10.3	2002 Stock Option Plan
10.4	Form of Non-Qualified Stock Option Agreement for executive officers
10.5	Agreement, dated July 1, 1999, between CPSI-Alabama, AmSouth Bank and certain shareholders and officers of CPSI-Alabama
10.6	Agreement, dated May 18, 2001, between CPSI-Alabama, AmSouth Bank and certain shareholders and officers of CPSI-Alabama
16.1	Predecessor auditor letter to the Securities and Exchange Commission
23.1	Consent of Ernst & Young LLP, Independent Auditors
23.2	Consent of Wilkins Miller, P.C., Independent Auditors
23.3	Consent of Maynard, Cooper & Gale, P.C. (to be included in Exhibit 5.1 to this registration statement)
24.1**	Powers of Attorney

* To be filed by amendment.

** Previously filed.

(b) Financial Statement Schedules.

Schedule II—Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

Item 17.    Undertakings.

The undersigned registrant hereby undertakes to provide the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the provisions described in Item 14 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mobile, State of Alabama, on the 30th day of April, 2002.

CO MPUTER PROGRAMS AND SYSTEMS, INC.

/s/    DAVID A. DYE            

By :                                                   

Da vid A. Dye

Pre sident and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/    JOHN MORRISSEY* John Morrissey	Chairman of the Board and Director	April 30, 2002
/s/    DAVID A. DYE David A. Dye	President, Chief Executive Officer and Director	April 30, 2002
/s/    J. BOYD DOUGLAS J. Boyd Douglas	Executive Vice President, Chief Operating Officer and Director	April 30, 2002
/s/    M. STEPHEN WALKER M. Stephen Walker	Vice President—Finance and Chief Financial Officer	April 30, 2002
/s/    DARRELL G. WEST Darrell G. West	Controller (principal accounting officer)	April 30, 2002
/s/    DENNIS P. WILKINS* Dennis P. Wilkins	Director	April 30, 2002
/s/    M. KENNY MUSCAT* M. Kenny Muscat	Director	April 30, 2002
/s/    ERNEST F. LADD, III* Ernest F. Ladd, III	Director	April 30, 2002
/s/    W. AUSTIN MULHERIN, III* W. Austin Mulherin, III	Director	April 30, 2002
/s/    WILLIAM R. SEIFERT, II* William R. Seifert, II	Director	April 30, 2002

*By:	/S/    DAVID A. DYE
	David A. Dye   (Attorney-in-fact)

II-4

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors

Computer Programs and Systems, Inc.

We have audited the financial statements of Computer Programs and Systems, Inc. as of December 31, 2001, and for the year then ended, and have issued our report thereon dated February 15, 2002, except for Note 12, as to which the date is                      2002 (included elsewhere in the registration statement). Our audit also included information for 2001 in the financial statement schedule listed in Item 16(b) of this registration statement. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit.

In our opinion, the information for 2001 in the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

ER NST & YOUNG LLP

Birmingham, Alabama

February 15, 2002

The foregoing report is in the form that will be signed upon completion of the restatement of capital accounts described in Note 12 to the financial statements.

/s/   ERNST & YOUNG LLP

Birmingham, Alabama

April 30, 2002

II-5

REPORT OF WILKINS MILLER, P.C., INDEPENDENT AUDITORS

The Board of Directors

Computer Programs and Systems, Inc.

We have audited the financial statements of Computer Programs and Systems, Inc. as of December 31, 2000, and for each of the two years in the period ended December 31, 2000, and have issued our report thereon dated February 16, 2001, except for Note 12, as to which the date is                     , 2002 (included elsewhere in the registration statement). Our audit also included information for 1999 and 2000 in the financial statement schedule listed in Item 16(b) of this registration statement. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the information for 1999 and 2000 included in the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

WI LKINS MILLER, P.C.

Mobile, Alabama

February 16, 2001

The foregoing report is in the form that will be signed upon completion of the restatement of capital accounts described in Note 12 to the financial statements.

/s/   WILKINS MILLER, P.C.

Mobile, Alabama

April 30, 2002

II-6

SCHEDULE  II

COMPUTER  PROGRAMS  AND  SYSTEMS,  INC.

VALUATION  AND  QUALIFYING  ACCOUNTS  AND  RESERVES

Description		Balance at beginning of period		(1) Additions charged to cost and expenses		(2) Deductions		Balance at end of period
Allowance for doubtful accounts deducted from accounts receivable in the balance sheets	1999	$	163,000	$	250,000	$	—	$	413,000
	2000		413,000		204,000		138,000		479,000
	2001		479,000		225,000		172,000		532,000

(1) Adjustments to allowance for change in estimates.

(2) Uncollectible accounts written off, net of recoveries.

II-7

EXHIBIT INDEX

Exhibit Number	Description of Document
1.1	Form of Underwriting Agreement
2.1	Form of Agreement and Plan of Merger to effect the reincorporation of Computer Programs and Systems, Inc., an Alabama corporation (“CPSI-Alabama”), to Delaware
3.1**	Certificate of Incorporation of CPSI-Alabama
3.2**	Articles of Amendment to the Articles of Incorporation of CPSI-Alabama
3.3**	Articles of Amendment to the Certificate of Incorporation of CPSI-Alabama
3.4**	Certificate of Incorporation of the registrant
3.5**	Bylaws of CPSI-Alabama
3.6	Bylaws of the registrant
3.7*	Articles of Amendment to the Articles of Incorporation of CPSI-Alabama
5.1	Opinion of Maynard Cooper & Gale, P.C., counsel to the registrant
10.1	Real Property Lease, dated April 1, 2002, between CPSI-Alabama and CP Investments, Inc.
10.2	Real Property Lease dated April 1, 2002, between CPSI-Alabama and DJK, LLC
10.3	2002 Stock Option Plan
10.4	Form of Non-Qualified Stock Option Agreement for executive officers
10.5	Agreement, dated July 1, 1999, between CPSI-Alabama, AmSouth Bank and certain shareholders and officers of CPSI-Alabama
10.6	Agreement, dated May 18, 2001, between CPSI-Alabama, AmSouth Bank and certain shareholders and officers of CPSI-Alabama
16.1	Predecessor auditor letter to the Securities and Exchange Commission
23.1	Consent of Ernst & Young LLP, Independent Auditors
23.2	Consent of Wilkins Miller, P.C., Independent Auditors
23.3	Consent of Maynard, Cooper & Gale, P.C. (to be included in Exhibit 5.1 to this registration statement)
24.1**	Powers of Attorney

* To be filed by amendment.

** Previously filed.

EX-1.1

                                                                     Exhibit 1.1

                       COMPUTER PROGRAMS AND SYSTEMS, INC.

                                3,000,000 SHARES

                                  COMMON STOCK
                               ($0.001 PAR VALUE)


                             UNDERWRITING AGREEMENT


_________________, 2002

Morgan Keegan & Company, Inc.
Raymond James & Associates, Inc.
As Representatives of the Several Underwriters
  Named in Schedule II
c/o Morgan Keegan & Company, Inc.
50 Front Street
Memphis, Tennessee  38103

Ladies and Gentlemen:

     Computer Programs and Systems, Inc., a Delaware corporation (the
"Company"), and those certain stockholders of the Company named in Schedule I
(the "Selling Stockholders") propose to sell to the several underwriters named
in Schedule II (collectively, the "Underwriters") an aggregate of 3,000,000
shares (the "Firm Shares") of the Company's common stock, $0.001 par value per
share (the "Common Stock"), of which 1,200,000 shares will be sold by the
Company and 1,800,000 shares will be sold by the Selling Stockholders. The Firm
Shares are to be sold to each Underwriter, acting severally and not jointly, in
such amounts as are set forth in Schedule II opposite the name of such
Underwriter. The respective number of shares to be sold by the Selling
Stockholders are set forth opposite their names in Schedule I.

     Solely for the purpose of covering over-allotments in the sale of the Firm
Shares, the Selling Stockholders grant to the Underwriters the right to purchase
up to an additional 450,000 shares of Common Stock (the "Option Shares"), which
option shall be exercisable in the manner, and such Option Shares shall be sold
in the denominations, set forth in Section 3(b) below. The Firm Shares and
Option Shares are herein sometimes referred to as the "Shares."



     Section 1. Representations and Warranties of the Company. The Company
represents and warrants to, and agree with, each of the Underwriters that:

     (a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-84726) with respect to the Shares, including a preliminary form of
prospectus subject to completion, in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the rules and
regulations of the Commission thereunder (all such rules and regulations,
including Regulation S-X to the extent applicable, referred to as the "1933 Act
Regulations"); and such amendments to such registration statement as may have
been required, if any, prior to the date hereof have been filed with the
Commission, and such amendments have been similarly prepared. Copies of such
registration statement and amendment or amendments and of each related
preliminary prospectus, and the exhibits, financial statements and schedules, as
finally amended and revised, have been delivered to you. The Company has
prepared in the same manner, and proposes so to file with the Commission, one of
the following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, or (ii) a
final prospectus in accordance with Rules 430A and 424(b) of the 1933 Act
Regulations. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) of the 1933 Act Regulations for the purpose
of registering certain additional shares of Common Stock, which registration
statement will be effective upon filing with the Commission. As filed, such
amendment, any registration statement filed pursuant to Rule 462(b) of the 1933
Act Regulations and the final prospectus, shall include all Rule 430A
Information (as hereinafter defined) and, except to the extent that you shall
agree in writing to a modification, shall be in all respects in the form
furnished to you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such date
and time, shall contain only such specific additional information and other
changes (beyond that contained in the latest preliminary prospectus) as the
Company shall have previously advised you in writing would be included or made
therein.

     The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the Closing Time (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall also include
all Rule 430A Information contained in any Prospectus (as hereinafter defined)
and deemed to be included in such registration statement at the time such
registration statement becomes effective as provided by Rule 430A of the 1933
Act Regulations. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective that
omits Rule 430A Information. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the 1933 Act
Regulations or, if no filing pursuant to Rule 424(b) of the 1933 Act Regulations
is required, shall mean the form of final prospectus included in the
Registration Statement at the time such Registration Statement becomes
effective. The term "Rule 430A Information" means information with respect to
the Shares and the offering thereof permitted pursuant to Rule 430A of the 1933
Act Regulations to be omitted from the Registration Statement when it becomes
effective. The term "462(b)

                                       2



Registration Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) of the 1933 Act Regulations (including the
Registration Statement and any Preliminary Prospectus or Prospectus incorporated
therein at the time such registration statement becomes effective).

     (b) No order preventing or suspending the use of any Preliminary Prospectus
has been issued by the Commission and no proceedings for that purpose have been
instituted or, to the knowledge of the Company, threatened by the Commission or
the state securities authority of any jurisdiction, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all respects to the
requirements of the 1933 Act and the 1933 Act Regulations and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter expressly for use in the
Registration Statement or any 462(b) Registration Statement.

     (c) When the Registration Statement and any 462(b) Registration Statement
shall become effective, when the Prospectus is first filed pursuant to Rule
424(b) of the 1933 Act Regulations, when any amendment to the Registration
Statement or any 462(b) Registration Statement becomes effective, when any
supplement to the Prospectus is filed with the Commission, and at each Closing
Date (as hereinafter defined in Section 3), (i) the Registration Statement, the
462(b) Registration Statement, the Prospectus and all amendments thereof and
supplements thereto will conform in all respects with the requirements of the
1933 Act and the 1933 Act Regulations and (ii) neither the Registration
Statement, the 462(b) Registration Statement, the Prospectus nor any amendment
or supplement thereto, will contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that this representation and
warranty shall not apply to any statement or omission made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter expressly for use in the Registration Statement or any 462(b)
Registration Statement.

     (d) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its state of incorporation, with
all requisite corporate power and authority to own, lease and license its
properties, and conduct its business as currently carried on and as currently
proposed to be conducted. The Company has qualified to do business and is in
good standing as a foreign corporation in every jurisdiction in which the
ownership or leasing of its properties or the nature or conduct of its business,
as currently carried on and as currently proposed to be conducted, requires such
qualification, except where the failure to do so would not have a material
adverse effect on the financial condition, results of operations, cash flows or
prospects of the Company (a "Material Adverse Effect").

     (e) The Company has the full legal right, power and authority to enter into
this Agreement and to consummate the transactions contemplated herein. The
Company has the full corporate power and authority to issue, sell and deliver
the Shares as provided herein. This

                                       3



Agreement has been duly authorized, executed and delivered by the Company and
constitutes the valid and binding agreement of the Company enforceable against
the Company in accordance with its terms, except to the extent that the
indemnification provisions set forth in Section 9 of this Agreement may be
limited by applicable law or equitable principles, and except as enforceability
may be limited by bankruptcy, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally and rules of law
governing specific performance, injunctive relief and other equitable remedies.

     (f) Each consent, approval, authorization, order, designation or filing by
or with any governmental agency or body necessary for the valid authorization,
issuance, sale and delivery of the Shares, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, has been made or obtained by the Company, and is in full
force and effect, except as may be required under applicable state securities
laws. The issuance, sale and delivery of the Shares, the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated by this Agreement, (i) will not result in a breach or violation of
any of the terms and provisions of, or constitute a default by the Company under
its Certificate of Incorporation or Bylaws and (ii) will not result in a breach
or violation of any of the terms or provisions of, or constitute a default by
the Company, under, any provision of any indenture, mortgage, deed of trust,
loan agreement, note, lease or other agreement or instrument to which the
Company is a party or to which it or its properties is subject, or (iii) will
not result in a breach or violation of any statute, judgment, decree, order,
rule or regulation of any court or governmental agency or body applicable to the
Company or any of its properties.

     (g) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" All of the
issued and outstanding shares of Common Stock of the Company, including the
Shares to be sold by the Selling Stockholders, have been duly authorized and
validly issued, are fully paid and non-assessable. The Common Stock of the
Company conforms to the description of the Common Stock contained in the
Registration Statement and the Prospectus. All offers and sales of the Company's
capital stock prior to the date hereof were at all relevant times duly
registered under the 1933 Act or were exempt from the registration requirements
of the 1933 Act by reason of Sections 3(b), 4(2) or 4(6) thereof and were duly
registered or the subject of an available exemption from the registration
requirements of the applicable state securities or blue sky laws. The Shares to
be sold by the Company, when issued and delivered by the Company and paid for
pursuant to this Agreement, will be validly issued, fully paid and
non-assessable and will conform in all respects to the description thereof
contained in the Prospectus. No preemptive rights of stockholders exist with
respect to any of the Shares. No person or entity holds a right to require or
participate in the registration under the 1933 Act of the Shares and no person
holds a right to require registration under the 1933 Act of any shares of Common
Stock of the Company at any other time No person or entity has a right of
participation or first refusal with respect to the sale of the Shares by the
Company or Selling Stockholders. None of the issued shares of capital stock of
the Company has been issued in violation of any preemptive or similar rights.
There are no outstanding options, warrants or other rights calling for the
issuance of any share of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the Company. There is no
commitment, plan or arrangement to issue any share of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the

                                       4



Company, except as is disclosed in the Prospectus. The Company does not own,
directly or indirectly, any capital stock or other equity securities of any
other corporation or any ownership interest in any partnership, limited
liability company, joint venture, association or other entity.

     (h) The financial statements of the Company (including all related notes
and schedules) included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the dates indicated and the
results of its operations and its cash flows for the periods specified, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (subject, in the case of unaudited
financial statements, to normal year-end adjustments) and in conformity with
Regulation S-X of the Commission. The supporting schedules included in the
Registration Statement and the amounts in the Prospectus under the captions
"Prospectus Summary -- Summary Financial and Operating Data," "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" are accurately computed, fairly present the
information shown therein and have been determined on a basis consistent with
the financial statements included in the Registration Statement and the
Prospectus. No other financial statements or schedules are required by Form S-1
or otherwise to be included in the Registration Statement, the Prospectus or any
Preliminary Prospectus.

     The pro forma financial data set forth in the Registration Statement and
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act Regulations, the
assumptions underlying the pro forma adjustments are reasonable, and such
adjustments have been properly applied to the historical amounts in the
compilation of such statements. All other financial and statistical data
included in the Registration Statement and Prospectus present fairly and
accurately the information stated therein and have been prepared and compiled on
a basis consistent with the financial statements presented in the Registration
Statement and Prospectus and the books and records of the Company.

     (i) Ernst & Young LLP, which has examined and is reporting upon certain of
the audited financial statements and schedules included in the Registration
Statement and the Prospectus, are, and were during the periods covered by their
reports included in the Registration Statement and the Prospectus, independent
public accountants with respect to the Company within the meaning of the 1933
Act and the 1933 Act Regulations. Wilkins Miller, P.C., which has examined and
is reporting upon certain of the audited financial statements and schedules
included in the Registration Statement and Prospectus, are, and were during the
periods covered by their reports included in the Registration Statement and the
Prospectus, independent public accountants with respect to the Company within
the meaning of the 1933 Act and the 1933 Act Regulations.

     (j) The Company has obtained, for the benefit of the Underwriters, from
each of the Company's directors, officers and stockholders, a written agreement
that for a period of 180 days from the date of the Prospectus such director,
officer or stockholder will not, without your prior written consent, offer,
sell, contract to sell, pledge, grant any option to purchase, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or other
instrument which by its

                                       5



terms is convertible into, or exercisable or exchangeable for, any shares of
Common Stock, other than the Option Shares that may be sold by the Selling
Stockholders.

     (k) The Company has not sustained, since December 31, 2001, any material
loss or interference with its business from fire, explosion, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or arbitration or court or governmental action, order or decree,
otherwise than as set forth in the Prospectus; and, since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there has not been (i) any change in the capital stock, long-term
debt, obligations under capital leases or short-term borrowings of the Company;
(ii) any event or development which could reasonably be seen as having a
Material Adverse Effect; or (iii) any liability or obligation, direct or
contingent, incurred or undertaken by the Company, except for liabilities or
obligations incurred in the ordinary course of business or which otherwise would
not have a Material Adverse Effect.

     (l) The Company is not in violation of its Certificate of Incorporation or
Bylaws and, as of the date hereof, no default exists, and no event has occurred,
nor state of facts exists, which, with notice or after the lapse of time to cure
or both, would constitute a default in the due performance and observance of any
obligation, agreement, covenant, consideration or condition contained in any
indenture, mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company is a party or by which it or any of
its properties is subject, and no violation of any law, order, rule, regulation,
writ, injunction or decree of any government, governmental instrumentality or
court, domestic or foreign, has occurred or exists, in any such case where the
consequences of such violation or default would have a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company has operated and
currently is in compliance in all material respects with any and all applicable
U.S. Food and Drug Administration rules and regulations.

     (m) Except as otherwise disclosed in the Prospectus, (i) the Company has
not authorized or conducted, and otherwise has no knowledge of the generation,
transportation, storage, presence, use, treatment, disposal, release or handling
of (in an amount or of a type that has been or must be reported to any
governmental agency, violates any Environmental Law (as hereinafter defined), or
has required or could require remediation expenditures) any hazardous substance,
asbestos, radon, polychlorinated biphenyl ("PCBs"), petroleum product or waste
(including crude oil or any fraction thereof), natural gas, liquefied gas,
synthetic gas or other material defined, regulated, controlled or potentially
subject to any remediation requirement under any Environmental Law
(collectively, "Hazardous Materials"), on, in or under any real property owned,
leased or used by the Company, (ii) the Company is in compliance with all
federal, state and local laws, ordinances, rules, regulations and other
governmental requirements relating to pollution, control of chemicals,
management of waste, discharges of materials into the environment, health,
safety, natural resources, and the environment (collectively, "Environmental
Laws"), and (iii) the Company has, and is in compliance with, all licenses,
permits, registrations and government authorizations necessary to operate under
all applicable Environmental Laws, except in the case of clause (i) or (ii)
where such noncompliance would not have a Material Adverse Effect. Except as
otherwise disclosed in the Prospectus, the Company has not received any written
or oral notice from any governmental entity or any other person, and

                                       6



there is no pending or, to the knowledge of the Company, threatened claim,
litigation or any administrative agency proceeding, that: (i) alleges a
violation of any Environmental Laws by the Company; (ii) alleges that the
Company is a liable party or a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.ss.ss. 9601, et seq., or any state superfund law; (iii) has resulted in or
could result in the attachment of an environmental lien on any real property
owned, leased or used by the Company; or (iv) alleges the occurrence of
contamination of any of such real property, damage to natural resources,
property damage, or personal injury based on activities of the Company, or the
activities of its predecessors, if any, or third parties (whether at the real
property or elsewhere) involving Hazardous Materials, whether arising under the
Environmental Laws, common law principles, or other legal standards.

     (n) The Company has good and marketable title to all real property owned by
it, free and clear of all liens, encumbrances, claims, security interests,
restrictions and defects, except such as are reflected in the Prospectus. Each
parcel of real property owned or leased by the Company, and each improvement
thereon, complies with all applicable codes, laws and regulations (including,
without limitation, building and zoning codes, laws and regulations and laws
relating to access to facilities located on such real property), except for such
failures to comply that would not have a Material Adverse Effect. The Company
has no knowledge of any pending or threatened condemnation proceedings, zoning
change, or other proceeding or action that will in any manner affect the size
of, use of, improvements on, construction on or access to such real property and
improvements, except such proceedings or actions that would not have a Material
Adverse Effect.

     (o) All real property and buildings held under lease by the Company are
held under a valid, subsisting and enforceable lease with such exceptions as are
not material and do not interfere in any material respect with the use made and
proposed to be made of such property and buildings by the Company; such leases
conform to the description thereof, if any, set forth in the Registration
Statement and the Prospectus; and no notice has been given or claim asserted by
anyone adverse to the rights of the Company under any of the leases or affecting
the Company's rights to the continued possession of the leased property.


     (p) Except as described in the Prospectus, there is not pending, nor to the
Company's knowledge threatened, any action, suit, proceeding, inquiry or
investigation, against the Company or any of its officers, directors or
stockholders or to which the properties, assets or rights of the Company are
subject, before or brought by any court or governmental agency or body or board
of arbitrators, which would, if adversely determined, have a Material Adverse
Effect, or which could prevent consummation of the transactions contemplated by
this Agreement.

     (q) There are no contracts or other documents required by the 1933 Act or
the 1933 Act Regulations to be described in or incorporated by reference into
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which have not been accurately described in all material
respects in the Prospectus or incorporated or filed as required. The agreements
to which the Company is a party which are described in the Registration
Statement and the Prospectus are valid and enforceable in all material respects
by

                                       7



the Company and, to the best of the Company's knowledge, no party thereto is in
breach or default under any of such agreements except where such breach or
default would not have a Material Adverse Effect.

     (r) The Company owns, possesses or has obtained all permits, licenses,
franchises, certificates, consents, orders, approvals and other authorizations
of governmental or regulatory authorities and other third parties as are
necessary to own or lease, as the case may be, and to operate its properties and
to carry on its businesses as presently conducted and as currently proposed to
be conducted, except where a failure to own, possess or obtain such permits,
licenses, franchises, certificates, consents, orders, approvals and other
authorizations would not have a Material Adverse Effect. The Company has not
received any notice relating to termination, revocation or modification of any
such license, permit, franchise, certificate, consent, order, approval or
authorization, which termination, revocation or modification would have a
Material Adverse Effect.

     (s) The Company owns or possesses all intangible property rights and
know-how necessary for the conduct of its business as currently carried on and
as currently proposed to be carried on (collectively, the "Intellectual
Property"). Except as described in the Prospectus, (i) no third parties have
received rights to any such Intellectual Property from the Company, other than
licenses granted in the ordinary course of business; (ii) to the Company's
knowledge, there is no infringement by third parties of any such Intellectual
Property; (iii) there is no pending or, to the Company's knowledge, threatened
action, suit, proceeding or claim by others challenging the Company's rights in
or to any such Intellectual Property, and the Company is unaware of any facts
which would form a basis for any such claim; (iv) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property, and the
Company is unaware of any facts which would form a basis for any such claim; (v)
there is no pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others that the Company infringes or otherwise violates,
or would infringe or otherwise violate upon commercialization of its products
and product candidates described in the Prospectus, any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the Company
is unaware of any facts which would form a basis for any such claim; and (vi) to
the Company's knowledge there is no patent or patent application that contains
claims that dominate or may dominate any Intellectual Property described in the
Prospectus as being owned by or licensed to the Company or that is necessary for
the conduct of its businesses as currently or contemplated to be conducted or
that interferes with the issued or pending claims of any such Intellectual
Property. None of the technology employed by the Company has been obtained or,
to the Company's knowledge, is being used by the Company in violation of the
rights of any person or third party. The Company knows of no infringement by
others of Intellectual Property owned by or licensed to the Company.

     (t) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is

                                       8



compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

     (u) The Company has filed all federal, state, local and foreign income and
franchise tax returns and tax forms required to be filed, except where the
failure to do so would not have a Material Adverse Effect. The Company is
not in default in the payment of any taxes which were payable pursuant to said
returns or any assessments with respect thereto, other than any which the
Company is contesting in good faith and as to which adequate reserves have been
provided, except where any such default would not have a Material Adverse
Effect. Such returns and forms are complete and correct in all material
respects. The Company has made all payroll withholdings required to be made by
it with respect to employees. The charges, accruals and reserves on the books of
the Company in respect of any tax liability for any year not finally determined
are adequate to meet any assessments or reassessments for additional taxes.
There have been no tax deficiencies asserted and, to the Company's knowledge, no
tax deficiency might be reasonably asserted or threatened against the Company
that could individually or in the aggregate have a Material Adverse Effect.

     (v) The Company maintains insurance (issued by insurers of recognized
financial responsibility) of the types and in the amounts generally deemed
adequate for its business and, to the best of the Company's and the Selling
Stockholders' knowledge, generally consistent with insurance coverage maintained
by similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, and casualty and liability (including, but not
limited to product liability) insurance covering the Company's operations, all
of which insurance is in full force and effect.

     (w) To the Company's knowledge, no labor problem exists with the Company's
employees, or is threatened or imminent, that would have a Material Adverse
Effect. The Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal vendors, suppliers,
contractors or customers that would have a Material Adverse Effect.

     (x) Neither the Company nor its officers, directors, stockholders or
affiliates, have taken, and such parties will not take, directly or indirectly,
any action designed to, or that might be reasonably expected to, cause or result
in or constitute, the stabilization or manipulation of the price of the Shares
to facilitate the sale or resale of the Shares.

     (y) The Common Stock has been registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the Shares
have been approved for listing on The Nasdaq Stock Market's National Market (the
"NSM"), subject to official notice of issuance.

     (z) The Company has not incurred any liability for a fee, commission or
other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than as
contemplated hereby.

                                       9



     (aa) The Company is not, will not become as a result of the transactions
contemplated hereby, and does not intend to conduct its business in a manner
that would cause it to become, an "investment company" or a company controlled
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

     (bb) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the date
of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the 1933 Act Regulations.

     (cc) The Company has good and marketable title to all personal property
owned by it, free and clear of all encumbrances and defects; and all personal
property held under lease by the Company is held by it under valid, subsisting
and enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property by the
Company.

     (dd) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required to be described in
the Prospectus and which is not so described.

     (ee) The statistical and market-related data included in the Prospectus and
the Registration Statement are based on or derived from sources that the Company
believes to be reliable and accurate.

     (ff) The execution and delivery of the Agreement and Plan of Merger dated
as of ___________________, 2002 (the "Merger Agreement") between Computer
Programs and Systems, Inc., an Alabama corporation (the "Alabama Corporation"),
and the Company, effecting the re-incorporation of the Alabama Corporation under
the laws of the State of Delaware, was duly authorized by all necessary
corporate action on the part of each of the Alabama Corporation and the Company.
Each of the Alabama Corporation and the Company had all necessary corporate
power and authority to execute and deliver the Merger Agreement, to file the
Merger Agreement with the Secretary of State of Alabama and the Secretary of
State of Delaware and to consummate the re-incorporation contemplated by the
Merger Agreement. The Merger Agreement, at the time of execution and filing,
constituted a valid and binding obligation of each of the Alabama Corporation
and the Company, enforceable in accordance with its terms.

     (gg) For all periods from its election under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Code"), until ________________, 2002 (the
"Termination Date"), the Alabama Corporation was qualified as an S corporation
pursuant to an election validly made under Subchapter S of the Code and any
applicable state statute (which election has not been and will not be revoked or
terminated for any such period), and the Alabama Corporation has not been and
will not be subject to federal corporate income taxes for such periods. The
Subchapter S election of the Alabama Corporation terminated on the Termination
Date, and the Company will be subject to federal corporate income taxes from and
after the date of such termination but not for any prior period.

                                       10



     (hh) The Company is in compliance in all material respects with all
currently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder (herein called "ERISA"); to the Company's knowledge, no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in Section 3(2) ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Code; and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, that would
reasonably be expected to cause the loss of such qualification.

     Section 2. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder severally represents and warrants to each Underwriter and
agrees that:

     (a) The Selling Stockholder has placed in custody under a custody agreement
(the "Custody Agreement" and, together with all other similar agreements
executed by the other Selling Stockholders, the "Custody Agreements") with
Wachovia Bank, N.A., as custodian (the "Custodian"), for delivery under this
Agreement, certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent in the United
States or a member firm of the New York Stock Exchange) representing the Shares
to be sold by the Selling Stockholder.

     (b) The Selling Stockholder has duly and irrevocably executed and delivered
a power of attorney (the "Power of Attorney" and, together with all other
similar agreements executed by the other Selling Stockholders, the "Powers of
Attorney") appointing John Morrissey, David A. Dye, M. Stephen Walker, and any
one of them acting singly, as attorneys-in-fact, with full power of
substitution, and with full authority (exercisable by any one or more of them)
to execute and deliver this Agreement and to take such other action as may be
necessary or desirable to carry out the provisions hereof on behalf of the
Selling Stockholder.

     (c) Such Selling Stockholder has all legal capacity necessary to execute
and deliver this Agreement, the Custody Agreement and the Power of Attorney, to
sell and deliver the Shares to be sold by him or her hereunder and to perform
all other obligations under this Agreement, the Custody Agreement and the Power
of Attorney; each of this Agreement, the Custody Agreement and the Power of
Attorney has been duly executed and delivered by such Selling Stockholder and
constitutes the valid and binding agreement of such Selling Stockholder,
enforceable against him or her in accordance with its terms, except that the
indemnification provisions set forth in Section 9 of this Agreement may be
limited by applicable law or equitable principles, and except as enforceability
may be limited by bankruptcy, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally and rules of law
governing specific performance, injunctive relief and other equitable remedies;
the execution, delivery and performance of this Agreement, the Custody Agreement
and the Power of Attorney by such Selling Stockholder do not and will not
conflict with, result in the creation or imposition of any lien, charge or
encumbrance upon any of the Shares to be sold by such Selling Stockholder
pursuant to the terms of, or constitute a default under, any agreement or

                                       11



other instrument, or any order, rule or regulation of any court or governmental
agency having jurisdiction over such Selling Stockholder or the Selling
Stockholder's properties; and except as required by the 1933 Act and applicable
state securities laws, no consent, authorization or order of, or filing or
registration with, any court or governmental agency is required (or, if
required, has been obtained) for the execution, delivery and performance of this
Agreement, the Custody Agreement or the Power of Attorney by such Selling
Stockholder.

     (d) At the Closing Time and any Delivery Date, such Selling Stockholder
will have good and valid title to the Shares being sold by him or her hereunder;
such Shares are, and at the Closing Time and any Delivery Date will be, validly
authorized, duly issued and outstanding, fully paid and non-assessable Common
Stock of the Company with no personal liability attaching to the ownership
thereof; and upon the delivery of and payment for such Shares as contemplated
herein, the Underwriters will receive good title to the Shares purchased by
them, respectively, from such Selling Stockholder, free and clear of any and all
liens, encumbrances, security interests and adverse claims.

     (e) Without the prior written consent of the Representatives, such Selling
Stockholder, and any affiliate controlled by him or her (other than the
Company), will not sell or offer or contract to sell, except to the Underwriters
pursuant to this Agreement, any securities of the Company which he or she
beneficially owns, within 180 days after the effective date of the Registration
Statement. Such Selling Stockholder has not (i) taken, and agrees that he or she
will not take, directly or indirectly, any action which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares, or (ii)
since the filing of the Registration Statement (A) sold, bid for, purchased, or
paid anyone any compensation for soliciting purchases of, the Shares, or (B)
paid or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.

     (f) Except as set forth in the Prospectus, such Selling Stockholder is
disposing of his or her Shares hereunder for his or her own account and is not
selling such Shares, directly or indirectly, for the benefit of the Company or
the Underwriters.

     (g) When any Preliminary Prospectus was filed with the Commission (i) it
contained all statements required to be stated therein regarding such Selling
Stockholder in accordance with, and complied in all respects regarding such
Selling Stockholder with the requirements of, the 1933 Act and 1933 Act
Regulations, and (ii) such statements in the Preliminary Prospectus as are made
in reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder for use therein did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. When the Registration Statement or any amendment
thereto or any 462(b) Registration Statement or any amendment thereto was or is
declared effective and at the Closing Time or any Date of Delivery, as the case
may be, (i) it contained or will contain all statements required to be stated
therein regarding such Selling Stockholder in accordance with, and complied or
will comply in all respects regarding such Selling Stockholder with the
requirements of the 1933 Act and the 1933 Act Regulations and (ii) such
statements in the Registration Statement any 462(b) Registration Statement or
any

                                       12



amendment thereto as are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder specifically
for use therein did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading. When the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if any Prospectus or such
amendment or supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement to
the Prospectus was or is declared effective), and at the Closing Time or any
Date of Delivery, as the case may be, (i) the Prospectus, as amended or
supplemented at any such time, contained or will contain all statements required
to be contained or stated therein regarding such Selling Stockholder in
accordance with, and complied or will comply in all respects regarding such
Selling Stockholder with the requirements of, the 1933 Act 1933 Act Regulations
and (ii) such statements in the Prospectus, as so amended or supplemented at any
such time, as are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder specifically
for use therein will not include any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.

     (h) The sale of the Shares by such Selling Stockholder pursuant to this
Agreement is not prompted by any information concerning the Company that is not
set forth in the Prospectus.

     (i) The Selling Stockholder has not incurred any liability for a fee,
commission or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than as contemplated hereby.

     Section 3. Sale and Delivery of Shares to the Underwriters; Closing.

     (a) On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, the Company and the
Selling Stockholders agree to sell to the Underwriters named in Schedule II
hereto, and each such Underwriter agrees, severally and not jointly, to purchase
from the Company and the Selling Stockholders, at a purchase price of [$   ] per
share, the aggregate number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II hereto.

                                       13



     (b) On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, the Selling
Stockholders, in the denominations set forth opposite their names on Schedule I,
hereby grant an option to the Underwriters, severally and not jointly, to
purchase up to an additional 450,000 Option Shares on the same terms and
conditions as the Firm Shares. The option hereby granted will expire if not
exercised within the 30 day period after the first date on which the Firm Shares
are released by you for sale to the public. The option granted hereby may be
exercised by you, as Representatives of the several Underwriters, in whole or in
part (but not more than once), only for the purpose of covering the
over-allotments that may be made in connection with the offering and
distribution of the Firm Shares, by giving written notice to the Company and the
Selling Stockholders. The notice of exercise shall set forth the number of
Option Shares as to which the several Underwriters are exercising the option,
and the time and date of payment and delivery thereof. Such time and date of
delivery (the "Date of Delivery") shall be determined by you but shall not be
earlier than the second business day after the date on which the notice of the
exercise of the option shall have been given nor later than seven full business
days after the exercise of such option, nor in any event prior to the Closing
Time. If the option is exercised in part but not in whole, then the Option
Shares with respect to which the option shall have been exercised shall be sold
to the Underwriters pro rata among the Selling Stockholders (based on the
denominations set forth opposite their names on Schedule I), as adjusted by the
Underwriters in such a manner to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Shares, the Option Shares as to
which the option is exercised shall be purchased by the Underwriters, severally
and not jointly, in their respective underwriting obligation proportions.

     (c) Payment of the purchase price for and delivery of the Firm Shares shall
be made at the offices of Morgan Keegan & Company, Inc., 50 Front Street,
Memphis, Tennessee 38103 or at such other place as shall be agreed upon by the
Company, the Selling Stockholders and you, at 9:00 A.M. (prevailing Eastern
time), either (i) on the third full business day after the effective date of the
Registration Statement, or (ii) at such other time not more than ten full
business days thereafter as you, the Selling Stockholders and the Company shall
determine (unless, in either case, postponed pursuant to Section 12 hereof)
(such date and time of payment and delivery being herein called the "Closing
Time") (the Closing Time and each Date of Delivery, if any, being sometimes
referred to as a "Closing Date"). In addition, in the event that any or all of
the Option Shares are purchased by the Underwriters, payment of the purchase
price for and delivery of the Option Shares shall be made at the offices of
Morgan Keegan & Company, Inc. in the manner set forth above, or at such other
place as the Selling Stockholders and you shall determine, on the Date of
Delivery as specified in the notice from you to the Company and the Selling
Stockholders. Payment for the Firm Shares and the Option Shares in immediately
available funds shall be made by wire transfer to the respective bank accounts
designated by the Company and Wachovia Bank, N.A., as Custodian for the Selling
Stockholders, against delivery to you for the respective accounts of the
Underwriters of the Shares to be purchased by them.

     (d) The Shares to be purchased by the Underwriters shall be in such
denominations and registered in such names as you may request in writing at
least two full business days before the Closing Time or the Date of Delivery, as
the case may be. The Shares will be made available at the offices of Morgan
Keegan & Company, Inc. or at such other place as Morgan Keegan & Company, Inc.
may designate for examination and packaging not later than 9:00 A.M.

                                       14



(prevailing Eastern time) at least two full business days prior to the Closing
Time or the Date of Delivery, as the case may be.

     (e) After the Registration Statement becomes effective, you intend to offer
the Shares to the public as set forth in the Prospectus, but after the initial
public offering of such Shares, you may from time to time increase or decrease
the public offering price, in your sole discretion, by reason of changes in
general market condition or otherwise.

     Section 4. Certain Covenants of the Company. The Company covenants and
agrees with each Underwriter as follows:

     (a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time that
this Agreement is executed and delivered by the parties hereto). If the Company
elects to rely upon Rule 430A of the 1933 Act Regulations or the filing of the
Prospectus is otherwise required under Rule 424(b) of the 1933 Act Regulations,
and subject to the provisions of Section 4(b) of this Agreement, the Company
will comply with the requirements of Rule 430A and will file the Prospectus,
properly completed, pursuant to the applicable provisions of Rule 424(b), within
the time period prescribed. If the Company elects to rely upon Rule 462(b), the
Company shall file a 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 A.M., prevailing Eastern time, on the date
of this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee. The Company will notify
you immediately and confirm the notice in writing, (i) when the Registration
Statement, the 462(b) Registration Statement or any post-effective amendment to
the Registration Statement, shall have become effective, or any supplement to
the Prospectus or any amended Prospectus shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission to amend the Registration Statement or the 462(b) Registration
Statement or amend or supplement the Prospectus or for additional information,
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any 462(b) Registration Statement
or of any order preventing or suspending the use of any Preliminary Prospectus,
or of the suspension of the qualification of the Shares for offering or sale in
any jurisdiction, or of the institution or threat of any proceedings for any of
such purposes. The Company will use every reasonable effort to prevent the
issuance of any such stop order or of any order preventing or suspending such
use and, if any such order is issued, use its reasonable efforts to obtain the
withdrawal thereof at the earliest possible moment.

     (b) The Company will not at any time file or make any amendment to the
Registration Statement or any amendment or supplement (i) to the Prospectus, if
the Company has not elected to rely upon Rule 430A, or (ii) if the Company has
elected to rely upon Rule 430A, to either the Prospectus included in the
Registration Statement at the time it becomes effective or to the Prospectus
filed in accordance with Rule 424(b), or (iii) if the Company has elected to
rely upon Rule 462(b), to any 462(b) Registration Statement, in any case if you
shall not have previously been advised and furnished a copy thereof a reasonable
time prior to the proposed filing, or if you or counsel for the Underwriters
shall reasonably object to such amendment or supplement.

                                       15



     (c) The Company has furnished or will furnish to you, at the Company's
expense, as soon as available, as many signed copies of the Registration
Statement as originally filed and of all amendments thereto, whether filed
before or after the Registration Statement becomes effective, copies of all
exhibits and documents filed therewith and signed copies of all consents and
certificates of experts, as you may reasonably request, and has furnished or
will furnish to each Underwriter, one conformed copy of the Registration
Statement as originally filed and of each amendment thereto (but without
exhibits).

     (d) The Company will deliver to each Underwriter, at the Company's expense,
from time to time, as many copies of each Preliminary Prospectus as such
Underwriter may reasonably request, and the Company hereby consents to the use
of such copies for purposes permitted by the 1933 Act and the 1933 Act
Regulations. The Company will deliver to each Underwriter, at the Company's
expense, as soon as the Registration Statement shall have become effective, and
thereafter from time to time as requested during the period when the Prospectus
is required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as each Underwriter may reasonably
request. The Company will use its best efforts to comply with the 1933 Act and
the 1933 Act Regulations so as to permit the completion of the distribution of
the Shares as contemplated in this Agreement and in the Prospectus. In case you
are required to deliver a prospectus within nine months after the time of issue
of the Prospectus in connection with the offering or sale of the Shares and if
at such time any event shall have occurred as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any reason it
shall be necessary during such period to amend or supplement the Prospectus in
order to comply with the 1933 Act or the 1933 Act Regulations, the Company will
notify you and upon your request prepare promptly and furnish without charge to
each Underwriter and to any dealer in securities as many copies as you may from
time to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance. In case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, the Company will prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented Prospectus
complying with the requirements of Section 10(a)(3) of the 1933 Act.

     (e) The Company will use its best efforts, in cooperation with you, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions as you may designate and to maintain such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required by the laws
of each jurisdiction in which the Shares have been qualified as above provided.

     (f) The Company will use the net proceeds received by it from the sale of
the Shares in the manner specified in the Prospectus under the caption "Use of
Proceeds."

                                       16



     (g) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than the end of the fiscal
quarter first occurring after the first anniversary of the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the 1933 Act
Regulations), an earnings statement (in reasonable detail but which need not be
audited) complying with the provisions of Section 11(a) of the 1933 Act and Rule
158 of the 1933 Act Regulations and covering a period of at least 12 months
beginning after the effective date of the Registration Statement.

     (h) During a period of three years from the date hereof, the Company will
furnish to you: (i) copies of all reports mailed to stockholders of the Company;
and (ii) copies of all reports and financial statements furnished to or filed
with the Commission, NSM, any securities exchange or the NASD.

     (i) For a period of 180 days from the date hereof (the "Lock-Up Period"),
the Company will not, without your prior written consent, directly or
indirectly, sell, offer to sell, grant any option for the sale of, hypothecate,
pledge, enter into any transaction which is designed to, or might reasonably be
expected to, result in the disposition (whether by actual disposition or
effective economic disposition due to cash settlement or otherwise) by the
Company or any affiliate, or otherwise issue or dispose of, any Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, or
register or publicly announce any intent to register under the 1933 Act the
offer or sale of any capital stock of the Company, except for: (i) the
registration of the offer and sale of the Shares and sales to the Underwriters
pursuant to this Agreement; (ii) contributions to employee benefit plans in
existence on the date of the execution of this Agreement; (iii) the grant of
options, not exercisable during the Lock-Up Period, pursuant to the Company's
2002 Stock Option Plan in effect at the time of execution of this Agreement; and
(iv) a registration statement filed on Form S-8 limited in scope to the
Company's 2002 Stock Option Plan described in the Registration Statement and
Prospectus. The Company will not, and will use its best efforts to cause its
officers, directors and affiliates not to, take, directly or indirectly, prior
to the termination of the underwriting syndicate contemplated by this Agreement,
any action designed to stabilize or manipulate the price of any security of the
Company, or which may cause or result in, or which might in the future
reasonably be expected to cause or result in, the stabilization or manipulation
of the price of any security of the Company, to facilitate the sale or resale of
any of the Shares.

     (j) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its Common Stock.

     (k) For as long as the Common Stock of the Company is publicly traded, the
Company will use it best efforts to maintain the listing of its shares of Common
Stock on NSM; provided that nothing herein shall prevent the Company from
listing its Common Stock on the New York Stock Exchange.

     (l) If at any time during the 30-day period after the Registration
Statement becomes effective, any publication or event relating to or affecting
the Company shall occur as a result of which in your reasonable opinion the
market price of the Common Stock has been or is likely to

                                       17



be materially affected (regardless of whether such publication or event
necessitates a supplement or amendment of the Prospectus), the Company agrees to
forthwith consult and cooperate with you concerning the Company's response to or
comment on such publication or event.

     (m) The Company will file timely and accurate information with the
Commission in accordance with Rule 463 of the 1933 Act Regulations or any
successor provision.

     (n) The Company will supply the Underwriters with copies of all
correspondence to and from and all documents issued to and by the Commission or
the Commission staff in connection with the registration of the Shares under the
1933 Act.

     Section 5. Covenants of the Selling Stockholders. Each Selling Stockholder
covenants and agrees with each Underwriter as follows:

     (a) Such Selling Stockholder will pay all taxes, if any, on the transfer
and sale of the Shares to be sold by him or her hereunder.

     (b) Such Selling Stockholder will comply with all reasonable requests of
the Company to cause the Registration Statement to become effective, to do and
perform all things to be done and performed by the Selling Stockholder hereunder
prior to the Closing Time and, if applicable, the Date of Delivery, and to
satisfy all conditions precedent to the delivery of the Shares to be sold by the
Selling Stockholders.

     (c) During Lock-Up Period, such Selling Stockholder will not, without your
prior written consent, directly or indirectly, sell, offer or contract to sell,
grant any option for the sale of, hypothecate, pledge, enter into any
transaction which is designed to, or might reasonably be expected to, result in
the disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise) by such Selling Stockholder or any
affiliate of, or otherwise issue or dispose of, any Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock, except to the
Underwriters pursuant to this Agreement. The Selling Stockholder will not take,
directly or indirectly, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to stabilize or manipulate
the price of any security of the Company, or which may cause or result in, or
which might in the future reasonably be expected to cause or result in, the
stabilization or manipulation of the price of any security of the Company, to
facilitate the sale or resale of any of the Shares.

     (d) Such Stockholder acknowledges and agrees that the shares to be sold by
the Selling Stockholder hereunder, which are represented by the certificates
held in custody for the Selling Stockholder, are subject to the interests of the
Underwriters and the other Selling Stockholders thereunder, that the
arrangements made by the Selling Stockholder for such custody are to that extent
irrevocable, and that the obligations of the Selling Stockholder hereunder shall
not be terminated by any act of the Selling Stockholder, by operation of law, by
the death or incapacity of any individual Selling Stockholder or, in the case of
a trust, by the death or incapacity of any executor or trustee or the
termination of such trust, or the occurrence of any other event.

                                       18



     (e) Such Selling Stockholder will deliver to you prior to the Closing Time
a properly completed and executed U.S. Treasury Department Form W-9.

     Section 6. Payment of Expenses.

     (a) The Company will pay or cause to be paid and bear all costs, fees and
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), as originally filed and as
amended, the Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto, and the cost of furnishing copies thereof to the
Underwriters; (ii) the preparation, printing and distribution of this Agreement,
the Selected Dealer Agreement, and any instruments relating to any of the
foregoing; (iii) the issuance and delivery of the Shares to the Underwriters,
including any transfer taxes payable upon the sale of the Shares to the
Underwriters (other than transfer taxes on resales by the Underwriters); (iv)
the fees and disbursements of the Company's counsel and accountants; (v) the
qualification of the Shares under the applicable securities laws in accordance
with Section 4(e) hereof and any filing for review of the offering with the
NASD, including filing fees and fees and disbursements of counsel for the
Underwriters in connection therewith; (vi) the transfer agent's and registrar's
fees and all miscellaneous expenses referred to in Item 14 of the Registration
Statement; (vii) costs related to travel and lodging incurred by the Company and
its representatives relating to meetings with and presentations to prospective
purchasers of the Shares; and (viii) all other costs and expenses incident to
the performance of the Company's obligations hereunder (including costs incurred
in closing the purchase of the Option Shares, if any) that are not otherwise
specifically provided for in this section. The Company, upon your request, will
provide funds in advance for filing fees in connection with "blue sky"
qualifications and the NASD.

     (b) The Selling Stockholders shall pay (i) their proportionate share of all
Underwriters' commissions relating to Shares of the Company sold by such Selling
Stockholders and (ii) any transfer taxes imposed on the sale of the Shares to
the Underwriters by the Selling Stockholders (other than transfer taxes on
resales by the Underwriters).

     Section 7. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Shares that they have severally agreed
to purchase pursuant to this Agreement (whether Firm Shares at the Closing Time
or, upon exercise of the option granted in Section 3, Option Shares on the Date
of Delivery) are subject to the following conditions:

     (a) The Registration Statement shall have become effective not later than
5:30 P.M., prevailing Eastern time, on the date of this Agreement or, with your
consent, at a later time and date not later, however, than 5:30 P.M., prevailing
Eastern time, on the first business day following the date hereof, or at such
later time or on such later date as you may agree to in writing; as of such
Closing Date the Registration Statement shall remain effective and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act and no proceedings for that purpose shall have been
instituted or shall be pending or, to your knowledge or the knowledge of the
Company or the Selling Stockholders, shall be contemplated by the Commission,
and any request on the part of the Commission for additional

                                       19



information shall have been complied with to the reasonable satisfaction of
counsel for the Underwriters. If the Company has elected to rely upon Rule 430A,
a prospectus containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A).

     (b) You shall have received the favorable opinion, dated such Closing Date,
of Maynard, Cooper & Gale, P.C., counsel for the Company and the Selling
Stockholders, with respect to the Company and the Selling Stockholders, together
with signed or reproduced copies of such opinions for each of the other
Underwriters, in form and substance satisfactory to you and counsel for the
Underwriters, stating that:

          (i) the Company has been duly incorporated and is validly existing as
     a corporation in good standing under the laws of the State of Delaware, is
     duly qualified to do business and is in good standing as a foreign
     corporation in each jurisdiction within the United States in which its
     ownership or lease of property or the conduct of its business requires such
     qualification, except where the failure to be so qualified or in good
     standing would not have a Material Adverse Effect;

          (ii) the Company has all power and authority necessary to own or hold
     its properties and conduct its business as described in the Registration
     and Prospectus;

          (iii) the authorized, issued and outstanding capital stock as of
     _____________, 2002 is as set forth under the heading "Capitalization" in
     the Prospectus, and all of the issued shares of capital stock of the
     Company have been duly and validly authorized and issued and, to such
     counsel's knowledge, are fully paid and non-assessable;

          (iv) the outstanding shares of capital stock of the Company are free
     of statutory and, to such counsel's knowledge, contractual preemptive
     rights and have been issued in compliance with all state and federal
     securities laws; to such counsel's knowledge, there are no outstanding
     securities of the Company convertible or exchangeable into, or evidencing
     the right to purchase or subscribe for, any shares of capital stock of the
     Company and, except for options under the Company's 2002 Stock Option Plan
     as described in the Registration Statement and Prospectus, there are no
     outstanding or authorized options, warrants or rights of a similar
     character obligating the Company to issue any shares of its capital stock
     or any securities convertible or exchangeable into, or evidencing the right
     to purchase or subscribe for, any shares of such stock; there are no
     restrictions upon the voting or transfer of any shares of the Company's
     capital stock pursuant to the Company's Certificate of Incorporation or
     Bylaws or any agreement or other instrument known to such counsel;

          (v) the Shares being delivered by the Company to the Underwriters
     hereunder have been duly and validly authorized and, when issued and
     delivered against payment therefor, will be duly and validly issued, fully
     paid and non-assessable;

                                       20



          (vi) to such counsel's knowledge and other than as set forth in the
     Prospectus, there are no legal or governmental proceedings pending to which
     the Company is a party or of which any property or assets of the Company is
     the subject which is required to be set forth in the Prospectus;

          (vii) the Registration Statement and the Prospectus and any further
     amendments or supplements thereto made by the Company (except as to the
     financial statements and schedules and other financial data contained
     therein, as to which such counsel need express no opinion) comply in all
     material respects with the requirements of the 1933 Act and the 1933
     Regulations, and no amendment to the Registration Statement is required to
     be filed which has not been filed;

          (viii) the Registration Statement was declared effective under the
     1933 Act as of the date and time specified in such opinion, any required
     filing with the Commission of the Prospectus pursuant to Rule 424 of the
     1933 Act Regulations was made as of the date specified in such opinion,
     and, to the knowledge of such counsel, no stop order suspending the
     effectiveness of the Registration Statement has been issued and no
     proceeding for that purpose is pending or threatened by the Commission;

          (ix) the statements contained in the Prospectus under the caption
     "Description of Capital Stock", insofar they purport to summarize certain
     provisions of the capital stock of the Company, are correct in all material
     respects and constitute a fair summary thereof; the statements contained in
     the Prospectus under the captions "Management", "Description of Capital
     Stock" and "Shares Eligible for Future Sales" and in the Registration
     Statement in Item 14, in each case insofar as such statements constitute
     summaries of statutes, rules, regulations, or legal matters, are correct in
     all material respects and constitute a fair summary thereof;

          (x) to such counsel's knowledge, there are no contracts or other
     documents which are required to be described in the Prospectus or filed as
     exhibits to the Registration Statement by the 1933 Act or by the 1933 Act
     Regulations which have not been described or filed as exhibits to the
     Registration Statement;

          (xi) this Agreement has been duly authorized, executed and delivered
     by the Company;

          (xii) the issue and sale of the Shares being delivered by the Company
     pursuant to this Agreement and the execution, delivery and compliance by
     the Company with all of the provisions of this Agreement and the
     consummation of the transactions contemplated hereby will not conflict with
     or result in a breach or violation of any of the terms or provisions of, or
     constitute a default under, any indenture, mortgage, deed of trust, loan
     agreement or other agreement or instrument known to such counsel to which
     the Company is a party or by which the Company is bound or to which any of
     the property or assets of the Company is subject, nor will such actions
     result in any violation of the provisions of the Certificate of
     Incorporation or Bylaws of the Company or any statute or any order, rule or
     regulation known to such counsel of any court or

                                       21



     governmental agency or body having jurisdiction over the Company or any of
     its properties or assets; and, except for the registration of the Shares
     under the 1933 Act and such consents, approvals, authorizations,
     registrations or qualifications as may be required under the Exchange Act
     and applicable state securities laws in connection with the purchase and
     distribution of the Shares by the Underwriters, no consent, approval,
     authorization or order of, or filing or registration with, any court or
     governmental agency or body is required for the execution, delivery and
     performance of this Agreement and the consummation of the transactions
     contemplated hereby, except for such consents, approvals, authorizations,
     orders, filings or registrations as have been obtained or made;

          (xiii) to such counsel's knowledge, there are no contracts, agreements
     or understandings between the Company and any person granting such person
     the right to require the Company to file a registration statement under the
     1933 Act with respect to any securities of the Company owned or to be owned
     by such person or to require the Company to include such securities in the
     securities registered pursuant to the Registration Statement or in any
     securities being registered pursuant to any other registration statement
     filed by the Company under the 1933 Act;

          (xiv) the Company is not and, after giving effect to the offering and
     sale of the Shares, will not be, an "investment company" or an entity
     "controlled" by an "investment company", as those terms are defined in the
     Investment Company Act of 1940, as amended;

          (xv) each Selling Stockholder has full right and power to enter into
     this Agreement, the Power of Attorney and the Custody Agreement; except for
     the registration of the Shares under the 1933 Act and such consents,
     approvals, authorizations, registrations or qualifications as may be
     required under the Exchange Act and applicable state securities laws in
     connection with the purchase and distribution of the Shares by the
     Underwriters, such counsel has no knowledge of any consent, approval,
     authorization or order of, or filing or registration with, any court or
     governmental agency or body that is required for the execution, delivery
     and performance of this Agreement, the Power of Attorney or the Custody
     Agreement by any Selling Stockholder and the consummation by any Selling
     Stockholder of the transactions contemplated hereby and thereby;

          (xvi) this Agreement has been duly executed and delivered by or on
     behalf of each Selling Stockholder;

          (xvii) a Power-of-Attorney and a Custody Agreement have been duly
     executed and delivered by each Selling Stockholder and constitute valid and
     binding agreements of each Selling Stockholder, enforceable in accordance
     with their respective terms; and

          (xviii) each Selling Stockholder has good and valid title to the
     Shares to be sold by such Selling Stockholder under this Agreement, free
     and clear of all liens, encumbrances, equities or claims, and full right,
     power and authority to sell, assign, transfer and deliver such Shares to be
     sold by such Selling Stockholder hereunder.

                                       22



     In rendering such opinion, such counsel may state that their opinion is
limited to matters governed by the federal laws of the United States of America
and the laws of the State of Alabama and Delaware. Such opinion shall also be to
the effect that (x) such counsel has acted as counsel to the Company and the
Selling Stockholders in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the attention
of such counsel which lead them to believe that the Registration Statement
(except for the financial statements and financial schedules and other financial
data included therein, as to which such counsel need express no belief), as of
the Closing Date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, or that the Prospectus (except as
stated above) contains any untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as set forth in clause (ix)
above).

     (c) You shall have received a favorable opinion from Bass, Berry & Sims
PLC, counsel for the Underwriters, dated such Closing Date, with respect to the
Registration Statement, the Prospectus and other related matters as the
Underwriters may reasonably require, and the Company shall have furnished to
such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.

     (d) As of such Closing Date,

          (i) the Registration Statement, any 462(b) Registration Statement, and
     the Prospectus, as they may then be amended or supplemented, shall contain
     all statements that are required to be stated therein under the 1933 Act
     and the 1933 Act Regulations and in all respects shall conform to the
     requirements of the 1933 Act and the 1933 Act Regulations, the Company
     shall have complied in all respects with Rule 430A (if it shall have
     elected to rely thereon) and neither the Registration Statement, any 462(b)
     Registration Statement nor the Prospectus, as they may then be amended or
     supplemented, shall contain an untrue statement of a material fact or omit
     to state a material fact required to be stated therein or necessary to make
     the statements therein, in light of the circumstances under which they were
     made, not misleading;

                                       23



          (ii) there shall not have been any change in the capital stock or
     long-term debt of the Company or any change, or any development involving a
     prospective change, in or affecting the business, general affairs,
     management, condition (financial or otherwise), stockholders' equity,
     results of operations, properties or prospects of the Company, otherwise
     than as set forth in the Prospectus, the effect of which is, in your
     judgment, so material and adverse as to make it impracticable or
     inadvisable to proceed with the completion of the public offering or the
     sale of payment for the Shares;

          (iii) no action, suit or proceeding at law or in equity before or by
     any federal, state or other commission, court, board or administrative
     agency shall be pending or, to the best of the Company's knowledge,
     threatened against the Company that would be required to be set forth in
     the Prospectus, other than as set forth therein, wherein an unfavorable
     decision, ruling or finding would have a Material Adverse Effect;

          (iv) the Company and the Selling Stockholders shall have complied with
     all agreements and satisfied all conditions contained herein in all
     respects on their respective parts to be performed or satisfied at or prior
     to such Closing Date; and

          (v) the representations and warranties of the Company set forth in
     Section 1 and the representations and warranties of the Selling
     Stockholders set forth in Section 2 shall be accurate in all respects as
     though expressly made at and as of such Closing Date. You shall have
     received certificates, dated as of such Closing Date, executed by the
     Selling Stockholders and the President and the Chief Financial Officer of
     the Company to such effect and with respect to the following additional
     matters:

               (A) the Registration Statement has become effective under the
          1933 Act and no stop order suspending the effectiveness of the
          Registration Statement or preventing or suspending the use of the
          Prospectus has been issued, and no proceedings for that purpose have
          been instituted or are pending or, to the best of their knowledge,
          threatened under the 1933 Act;

               (B) they have carefully reviewed the Registration Statement, any
          462(b) Registration Statement and the Prospectus and when the
          Registration Statement and any 462(b) Registration Statement became
          effective and at all times subsequent thereto up to the delivery of
          such certificate, the Registration Statement, any 462(b) Registration
          Statement and the Prospectus and any amendments or supplements thereto
          contained all statements and information required to be included
          therein or necessary to make the statements therein in light of the
          circumstances in which they were made, not misleading and neither the
          Registration Statement, any 462(b) Registration Statement, the
          Prospectus nor any amendment or supplement thereto included any untrue
          statement of a material fact or omitted to state any material fact
          required to be stated therein or necessary in order to make the
          statements therein not misleading, and, since the effective date of
          the Registration Statement, there has occurred no event required to be
          set forth in an amended or supplemented Prospectus that has not been
          so set forth, and


                                       24



               (C) all agreements herein to be performed by the Company and the
          Selling Stockholders, respectively, on or prior to such Closing Date
          have been duly performed.

     (e) On the business day preceding the date of this Agreement, you shall
have received from Ernst & Young LLP a letter addressed to the Underwriters and
dated the date hereof, in form and substance satisfactory to you, together with
signed or reproduced copies of such letter(s) for each of the other
Underwriters, (i) confirming that they are independent public accountants with
respect to the Company within the meaning of the 1933 Act and the 1933 Act
Regulations, and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating that, in their opinion, the financial statements and
any supplementary financial information and schedules included in the
Registration Statement for the years ended December 31, 1999, 2000 and 2001
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act, the 1933 Act Regulations and applicable Staff
Accounting Bulletins, and (iii) stating, as of the date hereof (or, with respect
to matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a date
not more than three days prior to the date hereof), the conclusions and findings
of such firm with respect to the financial information and other matters
specified by you that are ordinarily covered by accountants' "comfort letters"
to underwriters in connection with registered public offerings.

     (f) With respect to the letter of Ernst & Young LLP delivered to you and
referred to in the preceding paragraph (e) (the "E&Y Initial Letter"), you shall
have received from Ernst & Young LLP a letter of such accountants, in form and
substance satisfactory to you, addressed to the Underwriters and dated as of
such Closing Date, together with signed or reproduced copies of such letter for
each of the other Underwriters, (i) confirming that they are independent public
accountants with respect to the Company within the meaning of the 1933 Act and
the 1933 Act Regulation and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating that, in their opinion, the financial statements
and any supplementary financial information and schedules included in the
Registration Statement for the years ended December 31, 1999, 2000 and 2001
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act, the 1933 Act Regulations and applicable Staff
Accounting Bulletins, (iii) stating, as of such Closing Date (or with respect to
matters involving changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a date not
more than three days prior to such Closing Date), the conclusions and findings
of such firm with respect to the financial information and other matters covered
by the E&Y Initial Letter, and (iv) confirming in all material respects the
conclusions and findings set forth in the E&Y Initial Letter.

     (g) On the business day preceding the date of this Agreement, you shall
have received from Wilkins Miller, P.C. a letter addressed to the Underwriters
and dated the date hereof, in form and substance satisfactory to you, together
with signed or reproduced copies of such letter(s) for each of the other
Underwriters, confirming that they are independent public accountants with
respect to the Company within the meaning of the 1933 Act and the 1933 Act
Regulations and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission.

                                       25



     (h) With respect to the letter of Wilkins Miller, P.C. delivered to you and
referred to in the preceding paragraph (g), you shall have received from Wilkins
Miller, P.C., a letter of such accountants, in form and substance satisfactory
to you, addressed to the Underwriters and dated as of such Closing Date,
together with signed or reproduced copies of such letter for each of the other
Underwriters, confirming that they are independent public accountants with
respect to the Company within the meaning of the 1933 Act and the 1933 Act
Regulations and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission.

     (i) Subsequent to the execution and delivery of this Agreement, there shall
not have occurred any of the following: (i) trading in securities generally on
the New York Stock Exchange or the American Stock Exchange or in the over-the-
counter market, or trading in any securities of the Company on any exchange or
in the over-the-counter market, shall have been suspended or the settlement of
such trading generally shall have been materially disrupted or minimum prices
shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions, including without limitation as a result of terrorist
activities after the date hereof, or the effect of international conditions on
the financial markets in the United States shall be such as to make it, in your
judgment, impracticable or inadvisable to proceed with the completion of the
public offering or the sale or payment for the Shares.

     (j) As of such Closing Date, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the issuance
and sale of the Shares as contemplated in this Agreement and the matters
referred to in Section 7(d) and in order to evidence the accuracy and
completeness of any of the representations and warranties or statements of the
Company and the Selling Stockholders, the performance of any of the covenants of
the Company and the Selling Stockholders, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company and the
Selling Stockholders at or prior to such Closing Date in connection with the
authorization, issuance and sale of the Shares as contemplated in this Agreement
shall be reasonably satisfactory in form and substance to you and to counsel for
the

                                       26



Underwriters. The Company will furnish you with such number of conformed copies
of such opinion, certificates, letters and documents as you shall request.

     (k) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.

     (l) The Firm Shares and the Option Shares, if any, shall have been approved
for listing on NSM upon official notice of the issuance, sale and evidence of
satisfactory distribution thereof pursuant to this underwritten public offering.

     (m) Each officer, director and stockholder of the Company shall have agreed
in writing as to the matters set forth in Section 1(j).

     If any of the conditions specified in this Section 7 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
may be terminated by you on notice to the Company and the Selling Stockholders
at any time at or prior to such Closing Date, and such termination shall be
without liability of any party to any other party.

     Section 8.  [Intentionally Omitted]

     Section 9.  Indemnification and Contribution.

     (a) The Company will indemnify and hold harmless each Underwriter, its
partners, directors and officers and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the Exchange Act, and the successors and assigns of all such persons, from and
against any losses, claims, damages or liabilities, joint or several, to which
any such Underwriter or any such other person may become subject under the 1933
Act, the Exchange Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any breach of any representation, warranty or covenant of the Company
herein contained or any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or in any
"blue sky" application or other document executed by the Company or based upon
any information furnished in writing by the Company, filed in any jurisdiction
in order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and will reimburse each Underwriter and
each such partner, director, officer, employee and controlling person for any
legal or other expenses reasonably incurred by such Underwriter, partner,
director, officer, employee or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by you or by any

                                       27



Underwriter through you expressly for use therein, it being understood and
agreed that the only such information furnished by you or by any Underwriter
through you consists of the information specified in Section 9(h) below;
provided, further, that the Company will not be liable for any such losses,
claims, damages, or liabilities arising from the sale of the Shares to any
person if a copy of the Prospectus (as first filed pursuant to Rule 424(b)) or
the Prospectus as amended or supplemented by all amendments or supplements
thereto which has been furnished to the Underwriters (within a reasonable amount
of time prior to such sale) shall not have been sent, mailed or given to such
person, at or prior to the written confirmation of the sale of such Shares to
such person, but only if and to the extent that such Prospectus, if so sent or
delivered, would have cured the defect giving rise to, and been a complete
defense against the person asserting, such loss, claim, damage or liability. In
addition to its other obligations under this Section 9(a), the Company agrees
that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
breach or any statement or omission, or any alleged statement or omission,
described in this Section 9(a), it will reimburse the Underwriters, their
partners, directors, officers, employees and controlling persons on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters and such other persons for such expense and the possibility that
such payments might later be held to have been improper by a court of competent
jurisdiction. Any such interim reimbursement payments that are not made to an
Underwriter or any such other person within 30 days of a request for
reimbursement shall bear interest at the prime rate (or reference rate or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by National Bank of Commerce, Memphis, Tennessee (the "Prime
Rate") from the date of such request. This indemnity agreement shall be in
addition to any liabilities that the Company may otherwise have.

     (b) Each Selling Stockholder, severally but not jointly, will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the Exchange Act, and the successors and assigns
of all such persons, from and against any losses, claims, damages or
liabilities, joint or several, to which any such Underwriter or any such other
person may become subject under the 1933 Act, the Exchange Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any breach of any
representation, warranty or covenant of such Selling Stockholder herein
contained or any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, in each case to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or such
amendment or supplement, or any Blue Sky Application, in reliance upon and in
conformity with written information furnished to the Company by such Selling
Stockholder for use therein, and will reimburse each Underwriter and each such
partner, director, officer, employee and controlling person for any legal or
other

                                       28



expenses reasonably incurred by such Underwriter, partner, director, officer,
employee or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Selling Stockholders shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
such amendment or supplement, or any Blue Sky Application in reliance upon and
in conformity with written information furnished to the Company by you or by any
Underwriter through you expressly for use therein, it being understood and
agreed that the only such information furnished by you or by any Underwriter
through you consists of the information specified in Section 9(h) below;
provided further, that the Selling Stockholders will not be liable for any such
losses, claims, damages, or liabilities arising from the sale of the Shares to
any person if a copy of the Prospectus (as first filed pursuant to Rule 424(b))
or the Prospectus as amended or supplemented by all amendments or supplements
thereto which has been furnished to the Underwriters (within a reasonable amount
of time prior to such sale) shall not have been sent, mailed or given to such
person, at or prior to the written confirmation of the sale of such Shares to
such person, but only if and to the extent that such Prospectus, if so sent or
delivered, would have cured the defect giving rise to, and been a complete
defense against the person asserting, such loss, claim, damage or liability; and
provided further, that the liability of such Selling Stockholder under this
Section 9(b) will be limited to an amount equal to the aggregate proceeds, net
of underwriting discounts, to such Selling Stockholder from the sale of Shares
by such Selling Stockholder hereunder. In addition to his or her other
obligations under this Section 9(b), each Selling Stockholder agrees, severally
and not jointly, that as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any breach or any statement or omission, or any alleged statement or
omission, with respect to such Selling Stockholder described in this Section
9(b), he or she will reimburse the Underwriters, their partners, directors,
officers, employees and controlling persons on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Stockholder's obligation to reimburse the
Underwriters and such other persons for such expense and the possibility that
such payments might later be held to have been improper by a court of competent
jurisdiction. Any such interim reimbursement payments that are not made to an
Underwriter or any such other person within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement shall be in addition to any liabilities that
the Selling Stockholders may otherwise have.

     (c) Each Underwriter, severally but not jointly, will indemnify and hold
harmless the Company and the Selling Stockholders against any losses, claims,
damages or liabilities to which the Company or the Selling Stockholders may
become subject under the 1933 Act, the Exchange Act, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any warranty or covenant
by the Underwriters herein contained or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or any Blue Sky Application or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required

                                       29



to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or such amendment or
supplement, or any Blue Sky Application, in reliance upon and in conformity with
information furnished to the Company by such Underwriter expressly for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information specified in Section 9(h) below,
and will reimburse the Company and the Selling Stockholders for any legal or
other expenses reasonably incurred by the Company or the Selling Stockholders in
connection with investigating or defending any such loss, claim, damage,
liability or action. In addition to their other obligations under this Section
9(c), the Underwriters agree that, as an interim measure during the pendency of
any such claim, action, investigation, inquiry or other proceeding arising out
of or based upon any breach or any statement or omission, or any alleged
statement or omission, described in this Section 9(c), they will reimburse the
Company and the Selling Stockholders on a monthly basis for all reasonable legal
and other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of their obligation to reimburse the Company or the Selling Stockholders for
such expense and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to the Company or the Selling
Stockholders within 30 days of a request for reimbursement shall bear interest
at the Prime Rate from the date of such request. This indemnity agreement shall
be in addition to any liabilities that the Underwriters may otherwise have.

     The indemnity agreement in this Section 9(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the Exchange Act, to the same extent as such
agreement applies to the Company.

     (d) Within ten days after receipt by an indemnified party under subsection
(a), (b), (c) or (d) above of notice of commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; no indemnification provided in this Section
9(a), 9(b) or 9(c) shall be available to any party who shall fail to give notice
as provided in this Section 9(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
that it may have to any indemnified party otherwise than under this Section 9.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it shall wish, jointly with any other indemnifying party, similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, other than reasonable costs of investigation, subsequently

                                       30



incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized by the indemnifying party, (ii) the indemnified party
shall have been advised by such counsel that there may be a conflict of interest
between the indemnifying party and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party)
or (iii) the indemnifying party shall not in fact have employed counsel to
assume the defense of such action, in any of which events such fees and expenses
shall be borne by the indemnifying party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.

     (e)  It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Section 9(a), 9(b) and 9(c)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such arbitration
will be limited to the operation of the interim reimbursement provisions
contained in Sections 9(a), 9(b) and 9(c) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of Sections 9(a), 9(b) and 9(c).

     (f) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 9 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Stockholders and the Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity incurred by the Company, the Selling Stockholders and one or more
of the Underwriters, as incurred, in such proportions that (i) the Underwriters
are responsible pro rata for that portion represented by the underwriting
discount appearing on the cover page of the Prospectus bears to the public
offering price (before deducting expenses) appearing thereon, and (ii) the
Company and the Selling Stockholders are responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation; provided,
further, that if the allocation provided above is not permitted by applicable
law, the Company, the Selling Stockholders and the Underwriters shall contribute
to the aggregate losses in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the

                                       31



relative fault of the Company, the Selling Stockholders and the Underwriters
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, by the Selling Stockholders or by the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages or liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (g), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 9(f), the partners, directors, officers and employees and each person,
if any, who controls an Underwriter within the meaning of Section 15 of the 1933
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the Exchange Act shall have the same rights to contribution as the
Company.

     (g) The parties to this Agreement acknowledge that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions of this Agreement, including without limitation, the
provisions of this Section 9, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the 1933 Act. The parties
are advised that federal or state public policy, as interpreted by the courts in
certain jurisdictions, may be contrary to certain of the provisions of this
Section 9, and the parties hereto hereby expressly waive and relinquish any
right or ability to assert such public policy as a defense to a claim under this
Section 9 and further agree not to attempt to assert any such defense.

     (h) For purposes of this Section 9, the Underwriters severally confirm, and
the Company and the Selling Stockholders acknowledge, that the concession and
reallowance figures appearing in the first paragraph under the heading
"Commissions and Expenses" under the caption "Underwriting" and the information
set forth under the heading "Stabilization, Short Positions and Penalty Bids"
under the caption "Underwriting" in any Preliminary Prospectus and in the
Prospectus constitutes the only information furnished by the Underwriters to the
Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement.

     Section 10. Representations and Agreements to Survive Delivery. The
representations, warranties, indemnities, agreements and other statements of the
Company and the Selling Stockholders, set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, the

                                       32



Selling Stockholders, any Underwriter or any representative, officer, director
or any controlling person with respect to an Underwriter or the Company, and
will survive delivery of and payment for the Shares or termination of this
Agreement.

Section 11.  Effective Date of Agreement and Termination.

     (a) This Agreement shall become effective immediately as to Sections 6 and
9 and, as to all other provisions, (i) if at the time of execution of this
Agreement the Registration Statement has not become effective, at 9:00 A.M.
prevailing Eastern time, on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement, the Registration Statement has been declared effective, at
9:00 A.M. prevailing Eastern time on the first full business day following the
date of execution of this Agreement; but this Agreement shall nevertheless
become effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Shares for sale to the public. For the purposes of this Section 11,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by you of telegrams or facsimile messages (i) advising the Underwriters
that the Shares are released for public offering, or (ii) offering the Shares
for sale to securities dealers, whichever may occur first. By giving notice
before the time this Agreement becomes effective, you, as the Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective, without liability of any party to any other party, except
that the Company shall remain obligated to pay costs and expenses to the extent
provided in Section 6 hereof.

     (b) You may terminate this Agreement by notice to the Company and the
Selling Stockholders at any time at or prior to the Closing Date in accordance
with the last paragraph of Section 7 of this Agreement.

     (c) If this Agreement is terminated pursuant to this Section 11, such
termination shall be without liability of any party to any other party, except
that, notwithstanding any such termination, (i) the provisions of Section 6 and
Section 9 shall remain in effect, and (ii) if any Shares have been purchased
hereunder, the representations and warranties in Section 1 and Section 2 and all
obligations under Section 4 and Section 5 shall also remain in effect.

     Section 12.  Default by One or More of the Underwriters.

     (a) If any Underwriter shall default in its obligation to purchase the Firm
Shares which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Firm Shares
on the terms contained herein. If within 36 hours after such default by any
Underwriter you do not arrange for the purchase of such Firm Shares, then the
Company or the Selling Stockholders shall be entitled to a further period of 36
hours within which to procure another party or other parties satisfactory to you
to purchase such Firm Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company and the Selling
Stockholders that you have so arranged for the purchase of such Firm Shares, or
the Company or the Selling Stockholders notifies you that it has so arranged for

                                       33



the purchase of such Firm Shares, you or the Company or the Selling Stockholders
shall have the right to postpone the Closing Time for a period of not more than
seven days in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any persons substituted under this Section 12 with like effect as if such person
had originally been a party to this Agreement with respect to such Firm Shares.

     (b) If, after giving effect to any arrangements for the purchase of the
Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Stockholders as provided in subsection (a) above, the
aggregate number of Firm Shares which remains unpurchased does not exceed
100,000, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the Firm Shares which such Underwriter agreed to
purchase hereunder and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Firm Shares which such
Underwriter agreed to purchase hereunder) of the Firm Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.

     (c) If, after giving effect to any arrangements for the purchase of the
Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Stockholders as provided in subsection (a) above, the
number of Firm Shares which remains unpurchased exceeds 100,000, or if the
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Firm Shares of a defaulting
Underwriter or Underwriters, then this Agreement shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Stockholders except for the expenses to be borne by the Company,
the Selling Stockholders and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 9 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.

     Section 13. Default by the Company or the Selling Stockholders. If the
Company or the Selling Stockholders shall fail at the Closing Time to sell and
deliver the respective aggregate number of Firm Shares that they are obligated
to sell, then this Agreement shall terminate without any liability on the part
of any non-defaulting party, except to the extent provided in Section 6 and
except that the provisions of Section 9 shall remain in effect. No action taken
pursuant to this Section shall relieve the Company or the Selling Stockholders
from liability, if any, in respect of its default.

     Section 14. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
mailed, delivered or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed c/o Morgan Keegan & Company, Inc.,
50 Front Street, Memphis, Tennessee 38103, Attention: Mr. Minor Perkins,
Managing Director (with a copy sent in the same manner to Bass, Berry & Sims
PLC, 100 Peabody Place, Suite 900, Memphis, Tennessee 38103, Attention: John A
Good, Esq.);

                                       34



and notices to the Company and the Selling Stockholders shall be directed to
Computer Programs and Systems, Inc., 6600 Wall Street, Mobile, Alabama 36695,
Attention David A. Dye, President and Chief Executive Officer (with a copy sent
in the same manner to Maynard, Cooper & Gale, P.C., 1901 Sixth Avenue North,
Suite 2400, Birmingham, Alabama 35203, Attention Gregory S. Curran, Esq.). Each
notice hereunder shall be effective upon receipt by the party to which it is
addressed.

     Section 15. Parties. This Agreement is made solely for the benefit of the
Underwriters, the Selling Stockholders, and the Company and, to the extent so
provided, the partners, directors, officers and employees of the Underwriters
and any person controlling any of the Underwriters, the directors of the
Company, the officers of the Company who have signed the Registration Statement
and any person controlling the Company, and their respective executors,
administrators, successors and assigns and, subject to the provisions of Section
12, no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from any of the several Underwriters of the Shares.

     Section 16. Governing Law and Time. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Tennessee. Specified
time of the day refers to United States Eastern Time, unless otherwise
specified.

     Section 17. Counterparts. This Agreement may be executed in any number of
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.

                                       35



     If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
will become a binding agreement among the Company, the Selling Stockholders and
the several Underwriters in accordance with its terms.

                            Very truly yours,

                            COMPUTER PROGRAMS AND SYSTEMS, INC.

                            By
                                ------------------------------------------------
                                David Dye, President and Chief Executive Officer


                            THE SELLING STOCKHOLDERS NAMED
                                    IN SCHEDULE I:

                            By:
                                ------------------------------------------------
                                [                ], Attorney-in-Fact

                                       36



Confirmed and accepted in Memphis,
Tennessee, as of the date
first above written, as
Representatives of the
Underwriters named
in Schedule II hereto.

MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.

By:  Morgan Keegan & Company, Inc.

         By:
             ----------------------------------------------------------
               Minor Perkins, Managing Director

                                       37



                                   SCHEDULE I
                                   ----------



                                           Number of Firm      Number of Option
Selling Stockholder                      Shares to be Sold     Shares to be Sold
- -------------------                      -----------------     -----------------

Dennis P. Wilkins                            1,244,398             311,099
John Heyer (individually)                      136,224              34,056
John Heyer, as trustee of the Heyer
    Family Irrevocable Trust of 2001            15,136               3,784
Bob O'Donnell                                   80,410              20,102
Bill Stillings                                  47,300              11,825
Kevin P. Wilkins                               138,266              34,567
Tabitha M. Wilkins Olzinski                    138,266              34,567


                                   Schedule I



                                   SCHEDULE II
                                   -----------


     Name                                                       Number of Shares
     ----                                                       ----------------

Morgan Keegan & Company, Inc.................................
Raymond James & Associates, Inc..............................

Total........................................................      3,000,000


                                  Schedule II

EX-2.1

                                                                     Exhibit 2.1

                                     FORM OF
                          AGREEMENT AND PLAN OF MERGER
                                     BETWEEN
                      COMPUTER PROGRAMS AND SYSTEMS, INC.,
                             A DELAWARE CORPORATION
                                       AND
                      COMPUTER PROGRAMS AND SYSTEMS, INC.,
                             AN ALABAMA CORPORATION

     THIS AGREEMENT AND PLAN OF MERGER dated this      day of             , 2002
                                                  ----        ------------
(this "Agreement") by and between Computer Programs and Systems, Inc., a
Delaware corporation ("CPSI-Delaware"), and Computer Programs and Systems, Inc.,
an Alabama corporation ("CPSI-Alabama"). CPSI-Delaware and CPSI-Alabama are
sometimes hereinafter collectively referred to as the "Constituent
Corporations."

                                    RECITALS
                                    --------

     A. CPSI-Delaware is a corporation organized and existing under the laws of
the State of Delaware and, as of the date hereof, one hundred (100) shares of
Common Stock of CPSI-Delaware are issued and outstanding, all of which are held
by CPSI-Alabama.

     B. CPSI-Alabama is a corporation organized and existing under the laws of
the State of Alabama and, as of the date hereof, 9,288,000 shares of common
stock of CPSI-Alabama are issued and outstanding, comprised of 4,644,000 shares
of voting common stock, par value $.001 (the "Voting Common Stock") and
4,644,000 shares of non-voting common stock, par value $.001 (the "Non-Voting
Common Stock").

     C. The Board of Directors and shareholders of CPSI-Alabama have determined
that, for the purpose of effecting the reincorporation of CPSI-Alabama in the
State of Delaware, it is advisable and in the best interests of CPSI-Alabama
that it merge with and into CPSI-Delaware upon the terms and conditions herein
provided.

     D. The Board of Directors and stockholders of CPSI-Delaware have determined
that, for the purpose of effecting the reincorporation of CPSI-Alabama in the
State of Delaware, it is advisable and in the best interests of CPSI-Delaware
that CPSI-Alabama be merged with and into it upon the terms and conditions
herein provided.

     E. The respective stockholders and Boards of Directors of the Constituent
Corporations have approved this Agreement, and deem it advisable to consummate
the transactions provided for herein pursuant to which CPSI-Alabama will merge
with and into CPSI-Delaware.

                                       1



     NOW THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, CPSI-Delaware and CPSI-Alabama hereby agree, subject to the terms
and conditions hereinafter set forth, as follows:

                                    ARTICLE I

                                   THE MERGER
                                   ----------

     Section 1.1 Merger. In accordance with the provisions of this Agreement,
                 ------
the Delaware General Corporation Law and the Alabama Business Corporation Act,
CPSI-Alabama shall be merged with and into CPSI-Delaware (the "Merger"),
whereupon the separate existence of CPSI-Alabama shall cease and CPSI-Delaware
shall be the surviving corporation (hereinafter sometimes referred to as, the
"Surviving Corporation.") On the Effective Date of the Merger (as hereinafter
defined) the name of the Surviving Corporation shall be "Computer Programs and
Systems, Inc." Its address shall be 6600 Wall Street, Mobile, Alabama 36695.

     Section 1.2 Filing and Effectiveness. The Merger shall become effective
                 ------------------------
when the following actions shall have been completed:

          (a) this Agreement and the Merger shall have been adopted and approved
by the stockholders of CPSI-Delaware and the shareholders of CPSI-Alabama in
accordance with the requirements of the Delaware General Corporation Law and the
Alabama Business Corporation Act, as the case may be;

          (b) all of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;

          (c) an executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the Delaware General Corporation Law
shall have been filed with the Secretary of State of the State of Delaware; and

          (d) executed Articles of Merger meeting the requirements of the
Alabama Business Corporation Act shall have been filed with the Secretary of
State of the State of Alabama.

The date and time when the Merger shall become effective, as aforesaid, is
herein referred to as the "Effective Date of the Merger."

     Section 1.3 Effect of the Merger. On the Effective Date of the Merger, the
                 --------------------
separate existence of CPSI-Alabama shall cease, and CPSI-Delaware, as the
Surviving Corporation, (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger; (ii) shall be subject to all actions previously taken by its and
CPSI-Alabama's Board of Directors; (iii) shall succeed, without other transfer,
to all of the assets,

                                       2



rights, powers and property of CPSI-Alabama in the manner more fully set forth
in Section 259 of the Delaware General Corporation Law; (iv) shall continue to
be subject to all of its debts, liabilities and obligations as constituted
immediately prior to the Effective Date of the Merger; and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
CPSI-Alabama in the same manner as if CPSI-Delaware had itself incurred them,
all as more fully provided under the applicable provisions of the Delaware
General Corporation Law and the Alabama Business Corporation Act.

                                   ARTICLE II

                    CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
                    -----------------------------------------

     Section 2.1 Certificate of Incorporation. The Certificate of Incorporation
                 ----------------------------
of CPSI-Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.

     Section 2.2 Bylaws. The Bylaws of CPSI-Delaware as in effect immediately
                 ------
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.

     Section 2.3 Directors and Officers. The directors and officers of
                 ----------------------
CPSI-Delaware immediately prior to the Effective Date of the Merger, who are
serving in the same capacities and terms for CPSI-Alabama, shall be the
directors and officers of the Surviving Corporation, and such directors shall
serve for such terms of office as are in accordance with the Bylaws and the
Certificate of Incorporation of CPSI-Delaware.

                                   ARTICLE III

                         MANNER OF CONVERSION OF SHARES
                         ------------------------------

     Section 3.1 CPSI-Alabama Voting Common Shares. Upon the Effective Date of
                 ---------------------------------
the Merger, each share of Voting Common Stock of CPSI-Alabama, issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such shares or any
other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.

     Section 3.2 CPSI-Alabama Non-Voting Common Shares. Upon the Effective Date
                 -------------------------------------
of the Merger, each share of Non-Voting Common Stock of CPSI-Alabama, issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such shares or any
other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.

                                       3



     Section 3.3 CPSI-Delaware Common Stock. Upon the Effective Date of the
                 --------------------------
Merger, each share of CPSI-Delaware common stock, par value $0.001 per share,
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by CPSI-Delaware, the holder of such shares or any other
person, be canceled and returned to the status of authorized but unissued
shares.

     Section 3.4 Exchange of Certificates.
                 ------------------------

          (a) After the Effective Date of the Merger, each holder of an
outstanding certificate representing shares of Voting Common Stock or Non-Voting
Common Stock of CPSI-Alabama may, at such holder's option, surrender the same
for cancellation to such entity as the Surviving Corporation may designate as
exchange agent (the "Exchange Agent"), and each such holder shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of shares of the Surviving Corporation's Common Stock into which the
surrendered shares were converted, or to which such holder was otherwise
entitled, as herein provided. Until so surrendered, each outstanding certificate
theretofore representing shares of Voting Common Stock or Non-Voting Common
Stock of CPSI-Alabama shall be deemed for all purposes to represent the number
of shares of the Surviving Corporation's common stock into which such shares of
CPSI-Alabama were converted in the Merger and which the holder of such
certificate was otherwise entitled to receive pursuant to this Agreement.

          (b) The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of common stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.

          (c) Each certificate representing common stock of the Surviving
Corporation so issued in the Merger shall bear the same legends, if any, with
respect to the restrictions on transferability that appeared on the certificates
of CPSI-Alabama so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws.

          (d) If any certificate for shares of common stock of the Surviving
Corporation is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and that the person requesting such transfer pay to the Exchange Agent
any transfer or other taxes payable by reason of issuance of such new
certificate in a name other than that of the registered

                                       4



holder of the certificate surrendered, or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not payable.

                                   ARTICLE IV

                               GENERAL PROVISIONS
                               ------------------

     Section 4.1 Covenants of CPSI-Delaware. CPSI-Delaware covenants and agrees
                 --------------------------
that it will on or before the Effective Date of the Merger:

          (a) take such action as may be required to qualify to do business as a
foreign corporation in the states in which CPSI-Alabama is qualified to do
business and in connection therewith irrevocably appoint an agent for service of
process as required under the applicable provisions of the relevant state law;
and

          (b) take all such other actions as may be required by the Delaware
General Corporation Law and the Alabama Business Corporation Act to effect the
Merger.

     Section 4.2 Further Assurances. From time to time, as and when required by
                 ------------------
CPSI-Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of CPSI-Alabama such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other actions as
shall be appropriate or necessary in order to vest or perfect in or confirm of
record or otherwise by CPSI-Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of CPSI-Alabama and otherwise to carry out the purposes of this
Agreement, and the officers and directors of CPSI-Delaware are fully authorized
in the name and on behalf of CPSI-Alabama or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other instruments.

     Section 4.3 Abandonment. At any time before the Effective Date of the
                 -----------
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of CPSI-Alabama or CPSI-Delaware,
notwithstanding the approval of this Agreement by the shareholders of
CPSI-Alabama or the stockholders of CPSI-Delaware, or by both.

     Section 4.4 Amendment. The Boards of Directors of the Constituent
                 ---------
Corporations may amend this Agreement at any time prior to the filing of this
Agreement or certificate in lieu thereof with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the shareholders of CPSI-Alabama or the stockholders of
CPSI-Delaware shall not (i) alter or change the amount or kind of shares,
securities, cash, property or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of such
Constituent Corporation; (ii) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger; or
(iii) alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of any class or series
of capital stock of either Constituent Corporation.

                                       5



     Section 4.5 Registered Office. The registered office of the Surviving
                 -----------------
Corporation in the State of Delaware is located at 1209 Orange Street,
Wilmington, Delaware. The Corporation Trust Company is the registered agent of
the Surviving Corporation at such address.

     Section 4.6 Agreement. Executed copies of this Agreement will be on file at
                 ---------
the principal place of business of the Surviving Corporation in Mobile, Alabama,
and copies thereof will be furnished to any stockholder or shareholder of either
Constituent Corporation, upon request and without cost.

     Section 4.7 Governing Law. This Agreement shall in all respects be
                 -------------
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
Alabama Business Corporation Act.

     Section 4.8 Counterparts. In order to facilitate the filing and recording
                 ------------
of this Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.

                  [remainder of page intentionally left blank]

     IN WITNESS WHEREOF, this Agreement, having first been approved by the
resolutions of the Board of Directors of CPSI-Delaware and CPSI-Alabama, is
hereby executed on behalf of each of such corporations and attested by their
respective officers thereunto duly authorized, under penalties of perjury,
hereby declaring and certifying that this is their act and deed and the facts
herein stated are true.

                                            COMPUTER PROGRAMS AND SYSTEMS, INC.,
                                            a Delaware corporation


                                            By:
                                                --------------------------------
                                                David A. Dye

                                       6



                                                Its: President

ATTEST:


By:
    -----------------------------
    M. Stephen Walker
    Its: Secretary


                                            COMPUTER PROGRAMS AND SYSTEMS, INC.,
                                            an Alabama corporation


                                            By:
                                                --------------------------------
                                                David A. Dye
                                                Its: President


ATTEST:


By:
    -----------------------------
    M. Stephen Walker
    Its: Secretary

                                       7

EX-3.6

                                                                     Exhibit 3.6

                                     BYLAWS

                                       OF

                       COMPUTER PROGRAMS AND SYSTEMS, INC.

                          Adopted as of March 15, 2002

                                    ARTICLE I
                            MEETINGS OF STOCKHOLDERS

     Section 1.1. Place of Meetings.

     Except as otherwise provided in the Certificate of Incorporation, as may be
amended from time to time (the "Certificate"), of Computer Programs and Systems,
                                -----------
Inc. (the "Corporation"), all meetings of the stockholders of the Corporation
           -----------
shall be held at such place, either within or without the State of Delaware, as
may from time to time be fixed by the Board of Directors of the Corporation (the
"Board").
 -----

     Section 1.2. Annual Meetings.

     The annual meeting of the stockholders of the Corporation for the election
of directors and for the transaction of such other business as may properly come
before the meeting shall be held in each year on such day as may be fixed by the
Board, at such hour as may be specified in the notice thereof.

     Section 1.3. Special Meetings.

     Special meetings of the stockholders of the Corporation, for any purpose or
purposes, may be called at any time by the Board or an authorized committee of
the Board.

     Section 1.4. Notice of Meetings.

     Except as otherwise provided by law or the Certificate, not less than 10
nor more than 60 days' notice in writing of the place, day, hour and, in the
case of a special meeting, the purpose or purposes thereof, of each meeting of
the stockholders, whether annual or special, shall be given to each stockholder
of record of the Corporation entitled to vote at such meeting, either by the
delivery thereof to such stockholder personally or by the mailing thereof to
such stockholder in a postage prepaid envelope addressed to such stockholder at
his address as it appears on the stock transfer books of the Corporation. Notice
of a stockholders' meeting to act on an amendment of the Certificate, a plan of
merger or share exchange, a proposed sale of all or substantially all of the
Corporation's assets, otherwise than in the usual and regular course of
business, or the dissolution of the Corporation shall be given not less than 20
nor more than 60 days before the date of the meeting and shall be accompanied,
as appropriate, by a copy of the proposed amendment, plan of merger or share
exchange or sale agreement. Any notice required

                                       1



pursuant to this Section 1.4 may be waived in a writing signed by the
                 -----------
stockholder before, at or after such meeting. Attendance by a person at any
meeting of the stockholders shall constitute a waiver of notice of such meeting
unless attendance is for the express purpose of objecting to the transaction of
any business because the meeting was not lawfully called or convened. Notice of
any adjourned meeting need not be given, except when expressly required by law
or otherwise required by these bylaws.

     Section 1.5. Quorum.

     Shares representing a majority of the votes entitled to be cast on a matter
by all classes or series that are entitled to vote thereon and be counted
together collectively, represented in person or by proxy at any meeting of the
stockholders, shall constitute a quorum for the transaction of business thereat
with respect to such matter, unless otherwise provided by law or the
Certificate. In the absence of a quorum at any such meeting or any adjournment
or adjournments thereof, the chairman of such meeting or the holder of shares
representing a majority of the votes cast on the matter of adjournment, either
in person or by proxy, may adjourn such meeting from time to time until a quorum
is obtained.

     Section 1.6. Voting Requirements.

     When a quorum is present, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders, unless (i) by express
provisions of an applicable law or of the Certificate a different vote is
required, in which case such express provision shall govern and control the
decision of such question, or (ii) the subject matter is the election of
Directors, in which case the provisions of Section 2.2 and the Certificate shall
                                           -----------
govern and control.

     Section 1.7. Adjournment.

     The chairman of any meeting of the stockholders, or a majority of shares
represented at such a meeting, either in person or by proxy, even if less than a
quorum, may adjourn the meeting from time to time. At any reconvened meeting of
such adjourned meeting at which a quorum is present, any business may be
transacted at the meeting that could have been transacted at the meeting as
originally notified. If a meeting is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if a new date,
time or place is announced at the meeting before adjournment; however, if a new
record date for the adjourned meeting is or must be fixed in accordance with the
Delaware General Corporation Law ("DGCL"), notice of the adjourned meeting must
be given to persons who are stockholders as of the new record date.

     Section 1.8. Organization and Order of Business.

     At all meetings of the stockholders, the Chairman of the Board or, in the
Chairman's absence, such director of the Corporation as designated in writing by
the Chairman of the Board shall act as chairman. In the absence of all of the
foregoing persons, or, if present, with their consent, a majority of the shares
entitled to vote at such meeting, may appoint any person to act as chairman. The
chairman of a meeting of the stockholders shall have discretion to establish the

                                       2



order of business for such meeting subject to any specific order established by
the Board. The Secretary of the Corporation, if present, shall act as secretary
at all meetings of the stockholders. In the absence of the Secretary, the
chairman may appoint any person to act as secretary of the meeting.

     Section 1.9. Voting.

     Unless otherwise provided by law or the Certificate, at each meeting of the
stockholders, each stockholder entitled to vote at such meeting may vote either
in person or by proxy in writing. Unless demanded by a stockholder present in
person or represented by proxy at any meeting of the stockholders and entitled
to vote thereon or so directed by the chairman of the meeting, the vote on any
matter need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting or his proxy, and it shall show the number of shares
voted.

     Section 1.10. Proxies.

     Each stockholder, or such stockholder's duly authorized attorney-in-fact,
entitled to vote at a meeting of the stockholders may authorize another person
or persons to act for him by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. A stockholder, or such stockholder's duly authorized attorney-in-fact,
may execute a writing authorizing another person or persons to act for him as
proxy by transmitting or authorizing the transmission of a telegram, cablegram,
facsimile or other means of electronic transmission, provided that the telegram,
cablegram, facsimile or other means of electronic transmission either sets forth
or is submitted with information from which it can be reasonably determined that
the telegram, cablegram or other electronic transmission was authorized by the
stockholder, including, but not limited to, by facsimile signature.

     Section 1.11. Record Date.

     For the purpose of determining stockholders who are entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the Board may fix in advance a
record date for any such determination of stockholders, such date in any case to
be not more than sixty (60) days and, in case of a meeting of stockholders, not
less than ten (10) days prior to the date on which the particular action,
requiring such determination of stockholders, is to be taken.

     If no record date is fixed for such purposes, the date on which notice of
the meeting is mailed or the date on which the resolution of the Board declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders.

     When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this Section 1.11, such determination
                                               ------------
shall apply to any adjournment thereof, unless the Board fixes a new record
date, which it must do if the meeting is adjourned more than one hundred twenty
(120) days after the date is fixed for the original meeting.

                                       3



     Section 1.12. Stockholder List.

     The officer or agent having charge of the stock transfer books for shares
of the Corporation shall make at least ten (10) days before each meeting of the
stockholders a complete record of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged by any applicable voting groups and
in alphabetical order, with the address of and the number of shares held by
each. Such record shall be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder or any
stockholder's agent during the whole time of the meeting for the purposes
thereof.

                                   ARTICLE II
                               BOARD OF DIRECTORS

     Section 2.1. General Powers and Number.

     The property, business and affairs of the Corporation shall be managed
under the direction of the Board as from time to time constituted. The number of
directors which shall constitute the Board shall be fixed from time to time by
resolution adopted by the affirmative vote of a majority of the total number of
directors then in office, provided that no decrease in the number of directors
shall shorten or terminate the term of any incumbent director. Directors need
not be stockholders of the Corporation.

     Section 2.2. Nomination and Election of Directors.

     At each annual meeting of stockholders, the stockholders entitled to vote
shall elect the directors. No person shall be eligible for election as a
director unless nominated in accordance with the procedures set forth in this
Section 2.2. Nominations of persons for election to the Board may be made by the
- -----------
Board or any committee designated by the Board or by any stockholder entitled to
vote for the election of directors at the applicable meeting of stockholders who
complies with the notice procedures set forth in this Section 2.2. Such
                                                      -----------
nominations, other than those made by the Board or any committee designated by
the Board, may be made only if written notice of a stockholder's intent to
nominate one or more persons for election as directors at the applicable meeting
of stockholders has been given, either by personal delivery or by United States
certified mail, postage prepaid, to the Secretary of the Corporation and
received (i) with respect to the Corporation's first annual meeting following
the initial public offering of shares of its common stock, not later than the
close of business on the tenth business day following the date on which notice
of such meeting is first given to stockholders, (ii) not less than 120 days nor
more than 150 days before the first anniversary of the date of the Corporation's
proxy statement in connection with the last annual meeting of stockholders,
(iii) if no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more than 30 days from the date of
the previous year's annual meeting, not less than 60 days before the date of the
applicable annual meeting, or (iv) with respect to any special meeting of
stockholders called for the election of directors, not later than the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such stockholder's notice shall set forth
(a) as to the stockholder giving the

                                       4



notice (i) the name and address, as they appear on the Corporation's stock
transfer books, of such stockholder, (ii) a representation that such stockholder
is a stockholder of record and intends to appear in person or by proxy at such
meeting to nominate the person or persons specified in the notice, (iii) the
class and number of shares of stock of the Corporation beneficially owned by
such stockholder, and (iv) a description of all arrangements or understandings
between such stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder; and (b) as to each person whom the
stockholder proposes to nominate for election as a director (i) the name, age,
business address and, if known, residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of stock of the Corporation that are beneficially owned by such person,
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors or is otherwise
required by the rules and regulations of the Securities and Exchange Commission
promulgated under the Securities Exchange Act of 1934, as amended, and (v) the
written consent of such person to be named in the proxy statement as a nominee
and to serve as a director if elected. The Secretary of the Corporation shall
deliver each such stockholder's notice that has been timely received to the
Board or a committee designated by the Board for review. Any person nominated
for election as director by the Board or any committee designated by the Board
shall, upon the request of the Board or such Committee, furnish to the Secretary
of the Corporation all such information pertaining to such person that is
required to be set forth in a stockholder's notice of nomination. The chairman
of the meeting of stockholders shall, if the facts warrant, determine that a
nomination was not made in accordance with the procedures prescribed by this
Section 2.2. If the chairman should so determine, he shall so declare to the
- -----------
meeting and the defective nomination shall be disregarded.

     Section 2.3. Compensation.

     Each director, in consideration of such director's serving as such, shall
be entitled to receive from the Corporation such amount per annum or such fees
for attendance at Board and Committee meetings, or both, in cash or other
property, including securities of the Corporation, as the Board shall from time
to time determine, together with reimbursements for the reasonable expenses
incurred by such director in connection with the performance of such director's
duties. Nothing contained herein shall preclude any director from serving the
Corporation, or any subsidiary or affiliated corporation, in any other capacity
and receiving proper compensation therefor. If the Board adopts a resolution to
that effect, any director may elect to defer all or any part of the annual and
other fees hereinabove referred to for such period and on such terms and
conditions as shall be permitted by such resolution.

     Section 2.4. Place of Meetings.

     The Board may hold its meetings at such place or places within or without
the State of Delaware as it may from time to time by resolution determine or as
shall be specified or fixed in the respective notices or waivers of notice
thereof.

                                       5



     Section 2.5. Regular Meetings.

     Regular meetings of the Board may be held at such time and place as may
from time to time be specified in a resolution adopted by the Board then in
effect, and, unless otherwise required by such resolution, or by law, notice of
any such regular meeting need not be given. A regular meeting of the Board may
be held without notice immediately after the annual meeting of the stockholders
at the same place at which such meeting was held.

     Section 2.6. Special Meetings.

     Special meetings of the Board shall be held whenever called by the Chairman
of the Board or by the Secretary of the Corporation at the request of any two or
more of the directors then in office. Notice of a special meeting shall be
mailed to each director, addressed to him at his residence or usual place of
business, not later than the third day before the day on which such meeting is
to be held, or shall be sent addressed to him at such place by facsimile,
telegraph, cable or wireless, or be delivered personally or by telephone, not
later than the day before the day on which such meeting is to be held. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board need be specified in the notice of such meeting, unless
required by the Certificate.

     Section 2.7. Quorums.

     At each meeting of the Board, the presence of a majority of the number of
directors then in office shall be necessary to constitute a quorum. The act of a
majority of the directors present at a meeting at which a quorum shall be
present shall be the act of the Board, except as may be otherwise provided by
law or by these Bylaws. Any meeting of the Board may be adjourned by a majority
vote of the directors present at such meeting. Notice of the adjourned meeting
or of the business to be transacted thereat, other than by announcement, shall
not be required. At any adjourned meeting at which a quorum is present, any
business may be transacted which could have been transacted at the meeting as
originally called.

     Section 2.8. Waivers of Notice and Meetings.

     Notwithstanding anything in these Bylaws or in any resolution adopted by
the Board to the contrary, notice of any meeting of the Board need not be given
to any director if such notice shall be waived in writing signed by such
director before, at or after the meeting, or if such director shall be present
at the meeting. The waiver must be in writing, signed by the director entitled
to notice and delivered to the Corporation for inclusion in its corporate
records. Any meeting of the Board shall be a legal meeting without any notice
having been given or regardless of the giving of any notice or the adoption of
any resolution in reference thereto, if every member of the Board shall be
present thereat. Except as otherwise provided by law or these Bylaws, waivers of
notice of any meeting of the Board need not contain any statement of the purpose
of the meeting.

                                       6



     Section 2.9. Telephone Meetings.

     Members of the Board or any committee may participate in a meeting of the
Board or such committee by means of a conference telephone or other means of
communication whereby all directors participating may simultaneously hear each
other during the meeting, and participation by such means shall constitute
presence in person at such meeting.

     Section 2.10. Actions Without Meetings.

     Any action that may be taken at a meeting of the Board or of a committee
may be taken without a meeting if a consent in writing, setting forth the
action, shall be signed, either before or after such action, by all of the
directors or all of the members of the committee, as the case may be, and
delivered to the Corporation for inclusion in the minutes of the Board. Such
consent shall have the same force and effect as a unanimous vote.

     Section 2.11. Creation of Committees.

     To the extent permitted by law, the Board may from time to time by
resolution adopted by a majority of the number of directors then in office
create such committees of directors as the Board shall deem advisable, each
comprised of at least two directors. To the extent provided in the resolution of
the board, each committee shall have and may exercise all of the powers and
authority of the Board, provided that no committee shall have the authority to
(i) authorize or approve a distribution, except according to a general formula
or method prescribed by the Board, (ii) approve or propose to stockholders
action which the DGCL requires to be approved by stockholders, (iii) fill
vacancies on the Board or on any of its committees, (iv) adopt, amend, or repeal
the bylaws, (v) approve a plan of merger not requiring stockholder approval, or
(vi) authorize or approve the issuance or sale or contract for sale of shares,
or determine the designation and relative rights, preferences, and limitations
on a class or series of shares, except that the Board may authorize a committee,
or a senior executive officer of the Corporation, to do so within limits
specifically prescribed by the Board. The Board shall have the power to change
the members of any such committee at any time, to fill vacancies, and to
discharge any such committee, either with or without cause, at any time. Each
Committee shall keep minutes of its proceedings and actions and shall report
regularly to the Board.

     Section 2.12. Director Removal.

     Directors may be removed, with or without cause, by the affirmative vote of
a majority of the votes entitled to be cast by the then outstanding shares of
capital stock of the Corporation that are entitled to vote generally in the
election of directors.

                                       7



     Section 2.13. Director Resignation.

     Any director, officer or assistant officer of the Corporation may resign as
such at any time by giving written notice of his resignation to the Board, the
Chairman of the Board or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein or, if no time is specified
therein, at the time of delivery thereof, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.

                                   ARTICLE III
                                    OFFICERS

     Section 3.1. Number, Term, Election.

     The officers of the Corporation shall be a Chairman of the Board, a
President, a Chief Executive Officer, a Chief Financial Officer and a Secretary.
The Board may appoint such other officers and such assistant officers and agents
with such powers and duties as the Board may find necessary or convenient to
carry on the business of the Corporation. Such officers and assistant officers
shall serve until their successors shall be elected and qualify, or as otherwise
provided in these Bylaws. Any two or more offices may be held by the same
person.

     Section 3.2. Chairman of the Board of Directors.

     The Chairman of the Board shall, subject to the control of the Board, have
full authority and responsibility for directing the conduct of the business,
affairs and operations of the Corporation and, except as otherwise provided for
in the Bylaws, shall preside at all meetings of the Board and of the
stockholders. The Chairman of the Board shall perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board.

     Section 3.3 Chief Executive Officer.

     The Chief Executive Officer shall be the principal executive officer of the
Corporation, and shall, subject to the control of the Board and the Chairman of
the Board, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board are carried into effect. The
Chief Executive Officer, except where by law the signature of the President is
required, shall possess the same power as the President to sign all deeds,
bonds, contracts, certificates and other instruments of the Corporation which
may be authorized by the Board. During the absence or disability of the
President and the Chairman of the Board, if there be one, the Chief Executive
Officer shall exercise all the powers and discharge all the duties of the
President. The Chief Executive Officer shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to him by
these Bylaws or by the Board.

                                       8



     Section 3.4. President.

     The President shall execute all deeds, bonds, contracts, certificates and
other instruments of the Corporation, except where required or permitted by law
to be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these Bylaws,
the Board or the President. The President shall have such powers and perform
such duties as may from time to time be prescribed by these Bylaws, the Board,
the Chairman of the Board or the Chief Executive Officer. If there be no Chief
Executive Officer, the President shall have and shall execute all of the powers
of the Chief Executive Officer. In the absence or disability of the Chairman of
the Board and the Chief Executive Officer, the President shall preside at all
meetings of the stockholders and the Board.

     Section 3.5. Vice Presidents.

     Each Vice President, if any, shall have such powers and perform such duties
as may from time to time be prescribed by the Board, the Chairman of the Board,
the Chief Executive Officer, the President or any officer to whom the Chairman
of the Board or the President may have delegated such authority. Any Vice
President of the Corporation may sign and execute in the name of the Corporation
deeds, bonds, contracts, certificates and other instruments, except in cases
where the signing and execution thereof shall be expressly delegated by the
Board or by these Bylaws to some other officer or agent of the Corporation or
shall be required by law otherwise to be signed or executed.

     Section 3.6. Chief Financial Officer.

     The Chief Financial Officer shall have such powers and perform such duties
as may from time to time be prescribed by the Board, the Chairman of the Board,
the Chief Executive Officer, the President or any officer to whom the Chairman
of the Board, the Chief Executive Officer or the President may have delegated
such authority. The Chief Financial Officer shall (i) receive and be responsible
for all funds of, and securities owned or held by, the Corporation and, in
connection therewith, among other things: keep or cause to be kept full and
accurate records and accounts for the corporation; deposit or cause to be
deposited to the credit of the Corporation all monies, funds and securities so
received in such bank or other depositary as the Board or an officer designated
by the Board may from time to time establish; and disperse or supervise the
disbursement of the funds of the Corporation as may be properly authorized, (ii)
render to the Board at any meeting thereof, or from time to time whenever the
Board or Chief Executive Officer of the Corporation may require, financial and
other appropriate reports on the condition of the Corporation, and (iii) in
general, perform all the duties incident to the office of Chief Financial
Officer and such other duties as from time to time may be assigned to him by the
Board or by the Chief Executive Officer of the Corporation. To such extent as
the Board shall deem proper, the duties of the Chief Financial Officer may be
performed by one or more assistants, to be appointed by the Board.

                                       9



     Section 3.7. Secretary.

     The Secretary shall keep the minutes of meetings of stockholders, of the
Board, and, when requested, of committees of the Board, and shall attend to the
giving and serving of notices of all meetings thereof. The Secretary shall keep
or cause to be kept such stock transfer and other books, showing the names of
the stockholders of the Corporation, and all other particulars regarding them,
as may be required by law. The Secretary shall also perform such other duties
and exercise such other powers as may from time to time be prescribed by the
Board, the Chairman of the Board, the Chief Executive Officer, the President or
any officer to whom the Chairman of the Board, the Chief Executive Officer or
the President may have delegated such authority. To such extent as the Board
shall deem proper, the duties of the Secretary may be performed by one or more
assistants, to be appointed by the Board.

     Section 3.8. Assistant Secretary.

     The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board may from time to time prescribe.

     Section 3.9. Compensation and Contract Rights.

     The Board shall have authority (i) to fix the compensation, whether in the
form of salary, bonus, stock options or otherwise, or all officers and employees
of the Corporation, either specifically or by formula applicable to particular
classes of officers or employees, and (ii) to authorize officers of the
Corporation to fix the compensation of subordinate employees. The Board shall
have the authority to appoint a Compensation Committee and may delegate to such
committee any or all of its authority relating to compensation. The appointment
of an officer shall not of itself create contract rights.

                                   ARTICLE IV
                            REMOVALS AND RESIGNATIONS

     Section 4.1. Removal of Officers.

     Any officer, assistant officer or agent of the Corporation may be removed
at any time, either with or without cause, by the Board in its absolute
discretion. Any officer or agent appointed otherwise than by the Board may be
removed at any time, either with or without cause, by any officer having
authority to appoint such an officer or agent, except as may be otherwise
provided in these Bylaws. Any such removal shall be without prejudice to the
recovery of damages for breach of the contract rights, if any, of the officer,
assistant officer or agent removed. Election or appointment of an officer,
assistant officer or agent shall not of itself create contract rights.

                                       10



     Section 4.2. Resignation.

     Any officer or assistant officer of the Corporation may resign as such at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein or, if no time is specified therein, at the
time of delivery thereof, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

     Section 4.3. Vacancies.

     Any vacancy in the office of any officer or assistant officer caused by
death, resignation, removal or any other cause, may be filled by the Board for
the unexpired portion of the term.

                                    ARTICLE V
                CONTRACTS, LOANS, CHECKS, DRAFTS, DEPOSITS, ETC.

     Section 5.1. Execution of Contracts.

     Except as otherwise provided by law or by these Bylaws, the Board (i) may
authorize any officer, employee or agent of the Corporation to execute and
deliver any deed, bond, contract, agreement or other instrument in writing in
the name and on behalf of the Corporation, and (ii) may authorize any officer,
employee or agent of the Corporation so authorized by the Board to delegate such
authority by written instrument to other officers, employees or agents of the
Corporation. Any such authorization by the Board may be general or specific and
shall be subject to such limitations and restrictions as may be imposed by the
Board. Any such delegation of authority by an officer, employee or agent may be
general or specific, may authorize re-delegation, and shall be subject to such
limitations and restrictions as may be imposed in the written instrument of
delegation by the person making such delegation.

     Section 5.2. Loans.

     No loans shall be contracted on behalf of the Corporation and no negotiable
paper shall be issued in its name unless authorized by the Board. When
authorized by the Board, any officer, employee or agent of the Corporation may
effect loans and advances at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual, and
for such loans and advances may make, execute and deliver promissory notes,
bonds or other certificates or evidences of indebtedness of the Corporation and
when so authorized may pledge, hypothecate or transfer any securities or other
property of the Corporation as security for any such loans or advances. Such
authority may be general or confined to specific instances.

     Section 5.3. Checks, Drafts, Etc.

     All checks, drafts and other orders for the payment of money out of the
funds of the Corporation and all notes or other evidences of indebtedness of the
Corporation shall be signed

                                       11



on behalf of the Corporation in such manner as shall from time to time be
determined by the Board.

     Section 5.4. Deposits.

     All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board may select or as may be selected by the Chief
Financial Officer or any other officer, employee or agent of the Corporation to
whom such power may from time to time be delegated by the Board.

     Section 5.5. Voting of Securities.

     Unless otherwise provided by the Board, the Chief Executive Officer or
President may from time to time appoint an attorney or attorneys, or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes that the Corporation may be entitled to cast as the holder of stock or
other securities in any other corporation or other entity, any of whose stock or
other securities may be held by the Corporation, at meetings of the holders of
the stock or other securities of such other corporation or other entity, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as such officer may deem necessary or proper in the
premises.

                                   ARTICLE VI
                                  CAPITAL STOCK

     Section 6.1. Shares.

     No shares of the Corporation shall be issued unless authorized by the
Board. Such authorization shall include the maximum number of shares to be
issued and the consideration to be received. Shares of the Corporation may, but
need not be represented by certificates.

     When shares are represented by certificates, the Corporation shall issue
such certificates in such form as shall be required by the DGCL and as
determined by the Board, for the fully paid shares owned by such stockholder.
Each certificate shall be signed by, or shall bear the facsimile signature of,
the Chairman of the Board or the President and the Secretary or an Assistant
Secretary of the Corporation and may bear the corporate seal of the Corporation
or its facsimile. All certificates for the Corporation's shares shall be
consecutively numbered or otherwise identified.

     The name and address of the person to whom shares (whether or not
represented by a certificate) are issued, with the number of shares and date of
issue, shall be entered on the share transfer books of the Corporation. Such
information may be stored or retained on discs, tapes, cards or any other
approved storage device relating to data processing equipment; provided that

                                       12



such device is capable of reproducing all information contained therein in
legible and understandable form, for inspection by stockholders or for any other
corporate purpose.

     When shares are not represented by certificates, then within a reasonable
time after the issuance or transfer of such shares, the Corporation shall send
the stockholder to whom such shares have been issued or transferred a written
statement of the information required by the DGCL to be included on
certificates.

     Section 6.2. Stock Transfer Books and Transfer of Shares.

     The Corporation, or its designated transfer agent or other agent, shall
keep a book or set of books to be known as the stock transfer books of the
Corporation, containing the name of each stockholder of record, together with
such stockholder's address and the number and class or series of shares held by
such stockholder. Shares of stock of the Corporation shall be transferable on
the stock books of the Corporation by the holder in person or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary or the transfer agent, but, except as hereinafter provided in the case
of loss, destruction or mutilation of certificates, no transfer of stock shall
be entered until the previous certificate, if any, given for the same shall have
been surrendered and canceled. Transfer of shares of the Corporation represented
by certificates shall be made on the stock transfer books of the Corporation
only upon surrender of the certificates for the shares sought to be transferred
by the holder of record thereof or by such holder's duly authorized agent,
transferee or legal representative, who shall furnish proper evidence of
authority to transfer with the Secretary of the Corporation or its designated
transfer agent or other agent. All certificates surrendered for transfer shall
be canceled before new certificates for the transferred shares shall be issued.
Except as otherwise provided by law, no transfer of shares shall be valid as
against the Corporation, its stockholders or creditors, for any purpose, until
it shall have been entered in the stock records of the Corporation by an entry
showing from and to whom transferred.

     Section 6.3. Holder of Record.

     Except as otherwise required by the DGCL, the Corporation may treat the
person in whose name shares of stock of the Corporation (whether or not
represented by a certificate) stand of record on its books or the books of any
transfer agent or other agent designated by the Board as the absolute owner of
the shares and the person exclusively entitled to receive notification and
distributions, to vote, and to otherwise exercise the rights, powers and
privileges of ownership of such shares.

     Section 6.4. Lost, Destroyed or Mutilated Certificates.

     In case of loss, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, destruction or
mutilation and upon the giving of a bond of indemnity to the Corporation in such
form and in such sum as the Board may direct; provided that a new certificate
may be issued without requiring any bond when, in the judgment of the Board, it
is proper so to do.

                                       13



     Section 6.5. Transfer Agent and Registrar; Regulations

     The Corporation may, if and whenever the Board so determines, maintain in
the State of Delaware or any other state of the United States, one or more
transfer offices or agencies and also one or more registry offices which offices
and agencies may establish rules and regulations for the issue, transfer and
registration of certificates. No certificates for shares of stock of the
Corporation in respect of which a transfer agent and registrar shall have been
designated shall be valid unless countersigned by such transfer agent and
registered by such registrar. The Board may also make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of shares represented by certificates and shares without
certificates.

                                   ARTICLE VII
                                      SEAL

     The Board may, by resolution, adopt a corporate seal. The corporate seal
shall be a die and have inscribed thereon the name of the Corporation and the
word "Delaware." The seal may be used by causing it or a facsimile thereof to be
affixed or reproduced or otherwise. The seal may be altered from time to time by
the Board.

                                  ARTICLE VIII
                                   FISCAL YEAR

     The fiscal year of the Corporation shall be determined by the Board.

                                       14

EX-5.1

                                                                     EXHIBIT 5.1

                          MAYNARD, COOPER & GALE, P.C.

                                 April 30, 2002

Computer Programs and Systems, Inc.
6600 Wall Street
Mobile, Alabama 36695

Ladies and Gentlemen:

     We have acted as counsel for Computer Programs and Systems, Inc., a
Delaware corporation (the "Company"), with respect to certain legal matters in
connection with the filing of a Registration Statement on Form S-1 and the
amendments thereto (Registration No. 333-84726) (the "Registration Statement")
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), covering the registration of the offer and sale by the Company of up to
1,200,00 shares (the "Company Shares") of the Company's common stock, par value
$.001 per share ("Common Stock"), and the offer and sale by the selling
stockholders listed in the Registration Statement (the "Selling Stockholders")
of up to 2,250,000 shares of Common Stock (the "Selling Stockholder Shares"), to
be sold (or, in the case of the 450,000 Selling Stockholder Shares subject to an
over-allotment option, subject to sale) pursuant to the terms of the
underwriting agreement (the "Underwriting Agreement") to be executed by the
Company, the Selling Stockholders, and Morgan Keegan & Company, Inc. and Raymond
James & Associates, as representatives of the several underwriters to be named
therein (the "Representatives"). The Company Shares and the Selling Stockholder
Shares are collectively referred to as the "Shares."

     We have examined, among other things, originals or copies, certified or
otherwise identified to our satisfaction, of (i) the Certificate of
Incorporation of the Company, (ii) the Bylaws of the Company, (iii) the records
of corporate proceedings that have occurred prior to the date hereof with
respect to the offer and sale of the Shares, (iv) the Registration Statement,
(v) the form of the Underwriting Agreement to be executed by the Company, the
Selling Stockholders and the Representatives, (vi) the form of Agreement and
Plan of Merger and related documents to be executed in connection with the
merger of Computer Programs and Systems, Inc., an Alabama corporation
("CPSI-Alabama"), with the Company to effect the reincorporation of CPSI-Alabama
in Delaware (the "Reincorporation Merger"), and (vii) such other documents,
instruments or other information as we deemed necessary or appropriate in
rendering our opinion. We have also reviewed such questions of law as we have
deemed necessary or appropriate.

     In connection with this opinion, we have assumed that (i) the Registration
Statement and any amendments thereto (including post-effective amendments), will
have become effective and



Computer Programs and Systems, Inc.
April 30, 2002
Page2

- ----------
(ii) the Shares will be issued and sold in compliance with applicable federal
and state securities laws and in the manner stated in the Registration Statement
and the applicable prospectus.

     Based upon the foregoing, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that when the
Board of Directors of the Company has taken all necessary corporation action to
authorize and approve the terms of the offering of the Shares, including the
issuance of the Company Shares, and when the Reincorporation Merger is completed
in accordance with the documents described above, (i) the Company Shares will be
duly authorized for issuance and, upon the issuance and delivery thereof as set
forth in the Registration Statement, will be validly issued, fully paid and
nonassessable, and (ii) the Selling Stockholder Shares will be validly issued,
fully paid and nonassessable.

     The foregoing opinion is limited to the laws of the United States of
America, the laws of the State of Alabama and the General Corporation Law of the
State of Delaware, as interpreted by federal courts and the courts of the State
of Delaware.

     We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus forming a
part of the Registration Statement under the caption "Legal Matters."

                                                  Yours very truly,

                                                  Maynard, Cooper & Gale, P.C.


                                                      By: /s/ Gregory S. Curran
                                                          ----------------------
                                                              Gregory S. Curran

EX-10.1

                                                                   Exhibit 10.1

                                LEASE AGREEMENT

   THIS LEASE AGREEMENT ("this Lease") is entered into as of the 1st day of
April, 2002 between C P INVESTMENTS, INC., an Alabama corporation (hereinafter
referred to as the "Landlord"), and COMPUTER PROGRAMS AND SYSTEMS, INC., an
Alabama corporation (hereinafter referred to as the "Tenant").

                                  WITNESSETH:

   The Landlord, for and in consideration of the rents, conditions, terms and
covenants herein specified to be paid, performed and observed by the Tenant,
does hereby let, lease and demise to the Tenant, and the Tenant does hereby
lease and take from the Landlord, that certain real estate with accompanying
improvements and appurtenances located at 6508 and 6600 Wall Street in the City
and County of Mobile, State of Alabama and more particularly identified on
Exhibit A attached hereto and incorporated herein by reference (the "Demised
Premises") upon the following terms and conditions:

   NOW, THEREFORE, in consideration of the premises and the rents, covenants
and conditions hereinafter contained, the Landlord and the Tenant do hereby
covenant, promise and agree as follows:

   1.  Landlord does hereby lease unto Tenant and Tenant does hereby lease from
Landlord the Demised Premises for a term of one hundred twenty (120) calendar
months commencing as of April 1, 2002 (hereinafter referred to as the "Lease
Term").

   2.  Tenant shall during the first year of the Lease Term, pay to the
Landlord an annual rental of One Million Eighty Thousand and No/100 Dollars
($1,080,000.00) unless abated or diminished as hereinafter provided, in equal
monthly installments of Ninety Thousand and No/100 Dollars ($90,000.00) in
advance, on the 1st day of each month, commencing upon the 1/st day of April,
2002. For each of the remaining nine years of the Lease Term, the rental rate
shall be adjusted, as of March 31, 2003 and on March 31 of each year
thereafter, in accordance with changes in the Consumer Price Index ("CPI") as
published by the Bureau of Labor Statistics for All Urban Consumers (CPI-U),
1982-84 = 100. Upon each such lease rate adjustment date, the lease rate for
the upcoming year of the Lease Term shall be an amount equal to the monthly
lease rate for the immediately preceding year multiplied by a fraction, the
denominator of which shall be the CPI for April, 2002 and the numerator of
which shall be the CPI for the month of such lease rate adjustment . It is the
intention of the parties that the determination of the adjusted lease rate
shall not be distorted by any changes in the method by which the CPI is
determined or the form in which the CPI is presented, including but not limited
to, changes in the reference year on which the CPI is based or changes in the
components of the CPI. Accordingly, if the method by which the CPI is
determined or the form in which the CPI is presented is hereafter changed, the
index used in the numerator of the fraction described above shall be adjusted
so that such index is determined and presented on the same basis as the CPI
used in the denominator of such fraction. To the extent possible, such
adjustment shall be based on any adjustment factor published by the U.S.
Department of Labor or any successor governmental agency. If for any reason the
index used in the numerator of such fraction cannot be determined on the same
basis as the CPI used in the denominator of such fraction, or if the CPI is not
hereafter published, the adjusted lease rate shall be determined by reference
to the index of consumer prices then published by the U.S. Government, or an
agency thereof, that most nearly resembles the CPI as in effect for April,
2002.

   In addition to the foregoing, the rental may also be re-negotiated at such
future times that additional rental space may become available for use by
Tenant at the Demised Premises.

   Notwithstanding the foregoing, the parties hereby agree that ninety (90)
days prior to the expiration of the first five (5) years of the Lease Term,
they shall obtain an appraisal, in accordance with the procedures set forth
below, in order to determine the Fair Market Rental Value of the Demised
Premises. Upon the completion of such appraisal, the rental rate for the sixth
(6/th) year of the Lease Term shall be adjusted to an amount equal to the Fair
Market Rental Value as set forth in said appraisal.



   On or about the date that is ninety (90) days prior to the expiration of the
fifth (5/th) year of the Lease Term, Landlord and Tenant shall consult with one
another for the purpose of appointing a mutually acceptable qualified
independent appraiser. If the parties are unable to agree on an appraiser
within ten (10) days, such Fair Market Rental Value shall be determined by a
panel of three independent appraisers, one of whom shall be selected by each of
Landlord and Tenant within five (5) days thereafter. If one party appoints an
appraiser pursuant to the immediately preceding sentence, and if the other
party fails to appoint a second appraiser within the applicable time limit, the
appraisal shall be made by such appraiser. On or before the tenth day after
appointment of the second appraiser, a third appraiser shall be selected by
agreement of the first two appraisers. Landlord and Tenant shall split all fees
and expenses of the appraisers. Each appraiser appointed pursuant to the
foregoing procedure shall be experienced, have equivalent qualifications to
those of a senior member of the American Society of Appraisers, shall be
independent of Landlord and Tenant, and shall be instructed to determine Fair
Market Rental Value in accordance with the uniform standards for professional
appraisal practice or the equivalent, before the 45th day after the appointment
of the last of such appraisers to be appointed, and such determination shall be
final, binding and conclusive upon the parties. If three appraisers shall be
appointed, the determination of Fair Market Rental Value shall be the average
of the three appraisals rendered by the appraisers. In the event, however, that
the lowest or the highest of the three appraisals, or both, varies by more than
ten percent (10%) from the middle appraisal, the appraisal or appraisals so
varying shall be disregarded and the average of the remaining appraisals, or
the remaining appraisal, shall be the determination of Fair Market Rental
Value.

   For purposes of this section, (i) "Fair Market Rental Value" means an amount
determined by an Independent Appraisal (as defined below) on the basis of, and
shall be equal in amount to, the rental rate which would be obtained in an
arm's-length transaction between an informed and willing tenant under no
compulsion to lease and an informed and willing landlord under no compulsion to
rent; and (ii) "Independent Appraisal" means the procedure specified above for
determining Fair Market Rental Value.

   3.  Landlord represents and warrants that (A) it is the owner in fee simple
of the Demised Premises; (B) the Demised Premises are free and clear of all
liens and encumbrances other than the lien of current ad valorem taxes,
easements for roads and utilities serving the Demised Premises, setbacks and
other conditions of title as may be set forth in any recorded plat, easements
and restrictions of record that do not interfere with the present use of the
Demised Premises, and those liens and encumbrances set forth on Exhibit B
attached hereto (the "Permitted Encumbrances"); (C) Landlord has not received
any notification from any governmental authority of any pending public
improvements affecting the Demised Premises or requiring any repairs,
replacements or alterations to the Demised Premises that have not been
satisfactorily made; (D) Landlord has no knowledge of any pending or threatened
condemnation or appropriation of all or any part of the Demised Premises by any
governmental authority or other entity having the right of eminent domain; and
(E) to the best of Landlord's knowledge and belief, there are no applicable
laws, ordinances or regulations that would prohibit or interfere with the use
of the Demised Premises by Tenant for its intended use thereof.

   Landlord covenants that Tenant, by paying the rent herein reserved and
performing and observing all of the covenants and agreements herein agreed by
Tenant to be kept and performed, may peaceably hold and enjoy the Demised
Premises with exclusive control and possession thereof during the full Lease
Term without hindrance or interruption by Landlord and that Landlord will
warrant and defend Tenant in peaceful and quiet enjoyment of the Demised
Premises against the claims of all persons claiming through or under Landlord,
except condemning and similar authorities.

   4.  The Tenant shall assess the Demised Premises and shall pay promptly as
and when they become due all real estate taxes and all assessments, water rates
and water charges, and other governmental levies and charges, general and
special, ordinary and extraordinary, unforeseen as well as foreseen, of any
kind, which are assessed or imposed upon the Demised Premises or any part
thereof, or become payable during the term of this Lease.

   During the term of this Lease, Tenant may attempt to have the assessed
valuation of the Demised Premises reduced or may initiate proceedings to
contest the Taxes and Assessments. If requested by Tenant, Landlord shall

                                      2



join in any such proceedings initiated by Tenant; provided that Tenant shall
pay all costs and expenses in connection therewith, including reasonable costs
and expenses incurred by Landlord. Upon the final determination of any such
proceedings, Tenant immediately shall pay the Taxes and Assessments, together
with all costs, charges, interest and penalties, incidental to the proceedings.

   5.  Landlord hereby demises said premises in "as is" condition and Tenant
accepts same "as is". Tenant shall make and pay for all repairs and
replacements to the Demised Premises including all water, plumbing, gas or
electrical lines or conduits originally furnished by the Landlord.

   6.  Tenant may, at its own expense, from time to time, make such
alterations, additions or changes, structural or otherwise, in and to the
Demised Premises as it may deem necessary or suitable; provided, however,
Tenant shall obtain Landlord's prior written consent to plans and
specifications for structural alterations, additions or changes; provided,
further, Landlord shall not unreasonably withhold its consent thereto if the
structural strength or value of the building will not be reduced or impaired by
such work. The term "structural changes", as used herein, shall not include
moving of stud partitions, minor plumbing and electrical work, modification and
rearrangement of fixtures or other minor changes.

   7.  Tenant shall contract in its own name for and pay when due, all charges
and bills for utility services used on or charged against the Demised Premises,
including, without limitation, all gas, water, sewer, electricity and telephone
services, during the term of this Lease, and any extensions or renewals thereof.

   8.  If, as the result of any neglect of the Tenant, its agents, servants or
invitees, or the nature of the use and occupancy of the Demised Premises by the
Tenant, any Federal, State or Municipal government or any department or
division thereof has or hereafter shall condemn the Demised Premises or any
part thereof as unsafe or as not in conformity with the laws, regulations or
orders relating to the use, occupancy and construction thereof, or has ordered
or required or shall hereafter order or require any rebuilding, alteration or
repair thereof or installation therein, the Tenant, at its own expense, will
proceed with due diligence to comply with such laws, regulations or orders and
no abatement of rent shall be effective.

   9.  Tenant shall comply with, at all times and in all respects, all laws and
ordinances relating to nuisances, health, safety and sanitation as respects
Tenant's use of the Demised Premises and the street abounding same. Tenant will
not commit any waste or permit the same to be done, and shall keep the Demised
Premises in a neat and orderly condition.

   10.  Tenant shall insure the Demised Premises against damage or destruction
by fire and other casualties insured under a standard extended coverage
endorsement. Said insurance shall be in an amount equal to not less than eighty
percent (80%) of the insurable value of the permanent improvements thereof. The
cost of such insurance shall be borne by the Tenant and all policies with
respect to the Demised Premises shall bear endorsements naming the Landlord and
Tenant as loss payees as their interest may appear.

   In the event that, at any time during the Lease Term the permanent
improvements then constituting the Demised Premises shall be damaged or
destroyed (partially or totally) by fire, the elements or any other casualty,
Landlord shall, with due diligence repair, rebuild and restore the same as
nearly as practicable to the condition existing just prior to such damage or
destruction. The cost of such repair, restoration and rebuilding shall be borne
by Tenant, provided that if (a) the amount recovered on said insurance is less
than eighty percent (80%) of the reasonably estimated cost of such repairs,
restoration and rebuilding and (b) such estimated cost is more than
$100,000.00, then either party may terminate this Lease as of the date of such
damage or destruction by giving written notice to the other party within thirty
(30) days after receipt of such estimate and Tenant shall have an additional
sixty (60) days within which to remove its property from the Demised Premises.

   During any period commencing upon the date of any such damage or destruction
and ending upon the completion of the repairs, rebuilding and restoration
required herein, there shall be a reasonable abatement in the

                                      3



annual rental and any other charges payable under this Lease equal to any
insurance proceeds received by Landlord therefor.

   11.  In the event of condemnation or sale under threat of condemnation, in
whole or in part, of the Demised Premises, the proceeds therefrom shall be paid
to Landlord and Tenant as owners and Tenant shall not receive compensation in
addition thereto because of the termination in whole or in part of Tenant's
tenancy.

   In the event the Demised Premises, or such portion thereof rendering the
same untenable, shall be expropriated by public or quasi-public authority, this
Lease shall terminate as of the date Tenant shall be deprived of the physical
possession thereof.

   12.  The Demised Premises shall not be used for any unlawful purpose.

   13.  If the rent reserved in this Lease, or any part thereof, shall remain
unpaid for a period of thirty (30) days or if Tenant shall be in default under
any other provision of this Lease and shall remain so for a period of thirty
(30) days after notice to Tenant of said nonpayment or other default, then
Landlord may, by giving notice to Tenant at any time thereafter during the
continuance of such default, terminate this Lease and either (a) re-enter the
Demised Premises by summary proceedings or otherwise, expel Tenant and remove
all property therefrom, relet the same and receive the rent therefrom, and
Tenant shall remain liable for the equivalent of the amount of all rent
reserved herein less the net rent received from reletting, if any, after
deducting therefrom the cost (including attorney's fees) of obtaining
possession of the Demised Premises and of any repairs and alterations necessary
to prepare it for reletting, or (b) sue for and recover the entire unpaid rent
for the remainder of the term of this Lease. In the event of default by Tenant
in payment of any rental due hereunder and employment of an attorney for the
collection of the same, Tenant agrees to pay a reasonable attorney's fee for
the services of such attorney.

   14.  If a petition in bankruptcy shall be filed by Tenant, or if Tenant
shall be adjudicated bankrupt, or if Tenant shall make a general assignment for
the benefit of creditors, or if in any proceeding based upon the insolvency of
Tenant a receiver of all the property of Tenant shall be appointed, then
Landlord may, at its option, terminate this Lease by giving notice to Tenant of
its intention so to do.

   15.  During the Lease Term, Tenant and its assignees and sublessees shall
indemnify and save Landlord harmless against all penalties, claims, or demands
arising from Tenant's negligence or wrongful use of the Demised Premises,
except those which shall result from the act, default or negligence of
Landlord, Landlord's employees, agents, licensees, invitees or contractors.

   In addition, Tenant agrees to maintain insurance against all liabilities for
damages on account of injuries to property or person, including death,
sustained by any person or persons while on the Demised Premises, in a general
liability combined limits policy or policies in the amount of One Million and
No/100 Dollars ($1,000,000.00) with respect to injury to any one person, to any
one accident or disaster, and with respect to damage to property.

   16.  In the event Landlord shall fail to perform any obligations on any
mortgage or encumbrance affecting title to the Demised Premises and to which
this Lease shall be subordinate, or shall fail to perform any obligation
specified in this Lease, then Tenant may, after the thirty (30) days notice
thereof by Tenant, cure such default, all on behalf of and at the expense of
Landlord, and do all necessary work and make all necessary payments in
connection therewith, and Landlord shall on demand pay Tenant forthwith the
amount so paid by Tenant together with interest thereon at the rate of 10%, but
Tenant may not withhold rental payments and other payments thereafter due to
Landlord.

   17.  At the expiration or earlier termination of the Lease Term, Tenant
shall surrender the Demised Premises, together with alterations, additions and
improvements then a part of said premises, in good order and

                                      4



condition except for the following: ordinary wear and tear, repairs required to
be made by Landlord, and loss or damage by fire, the elements and other
casualty. All furniture and trade fixtures installed in said building at the
expense of Tenant or other occupant shall remain the property of Tenant or such
other occupant.

   18.  Tenant may hereinafter sublet all of the Demised Premises or assign
this Lease to a parent, affiliate or subsidiary of the Tenant without
Landlord's prior written approval. Tenant may not, however, sublet all or any
part of the Demised Premises or assign this Lease under circumstances not
listed above without Landlord's prior written approval, which consent shall not
be unreasonably withheld.

   19.  Landlord hereby agrees to and shall indemnify Tenant and his successors
and assigns, and Tenant hereby agrees to and shall indemnify Landlord and its
successors and assigns in respect of: any liability, damage, cost, expense or
deficiency resulting from any misrepresentations, breach of warranty or
nonfulfillment of any representation or agreement of the indemnifying party
made herein, and from any misrepresentation in or omission from any certificate
or other instrument furnished or to be furnished to the indemnified party
hereunder as well as against all actions, suits, process, demands, assessments,
judgments, costs and expenses, including counsel fees, incident to any of the
foregoing. This indemnity shall survive the expiration or termination of this
Lease for a term of two (2) years.

   20.  Notices required under this Lease shall be in writing and deemed to be
properly served on receipt thereof if sent by certified or registered mail to
Landlord at the last address where rent was paid or to Tenant at its principal
office in Mobile, Alabama, or to any subsequent address which Tenant shall
designate for such purpose.

   21.  Landlord shall have the right to enter upon the Demised Premises at all
reasonable hours for the purpose of inspection and making any repairs or
restorations which it may be required to make under the terms of this Lease,
but such rights shall be exercised in such a manner as not to unreasonably
interfere with the business of Tenant.

   22.  The failure of Landlord or Tenant to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease, or
to exercise an option herein contained shall not be construed as a waiver or a
relinquishment for the future, of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by Landlord of rent,
with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach, and no waiver by Landlord or Tenant of any provision
hereof shall be deemed to have been made unless expressed in writing, and
signed by Landlord or Tenant,or their agents.

   23.  Both Landlord and Tenant waive their right of subrogation against the
other party for any reason whatsoever, and any insurance policies herein
required to be procured shall contain a waiver of any right of subrogation by
the insurance company against such other party.

   24.  The necessary grammatical changes which shall be required to make the
provisions of this Lease apply (a) in the plural sense if there shall be more
than one Landlord, and (b) to any Landlord which shall be either a corporation,
an association, a partnership, or and individual, male or female, shall in all
instances be assumed as though in each case fully expressed. Unless otherwise
provided, upon the termination of this Lease under any of the sections hereof,
the parties hereto shall be relieved of any further liability hereunder except
as to acts, omissions or defaults occurring prior to such termination.

   25.  If any term or provision of this Lease, or the application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.

                                      5



   26.  This Lease shall be interpreted and construed pursuant to and in
accordance with the laws of the State of Alabama. Time is of the essence of
this Lease.

   27.  The conditions, covenants and agreements contained in this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns. All
covenants and agreements of this Lease shall run with the land.

   IN WITNESS WHEREOF, the parties hereto have executed these presents in
duplicate and affixed their seals hereto as of the day and year first above
written.

                                          C P INVESTMENTS, INC.

                                          By: /s/  Dennis P. Wilkins
                                             __________________________________
                                             Its President

                                          COMPUTER PROGRAMS AND SYSTEMS, INC.

                                          By: /s/  M. Stephen Walker
                                             __________________________________
                                             Its Vice President of Finance and
                                               CFO

                                      6

EX-10.2

                                                                    Exhibit 10.2

                                 LEASE AGREEMENT
                                 ---------------

     THIS LEASE AGREEMENT ("this Lease") is entered into as of the 1st day of
April, 2002 between DJK, LLC, an Alabama limited liability company (hereinafter
referred to as the "Landlord"), and COMPUTER PROGRAMS AND SYSTEMS, INC., an
Alabama corporation (hereinafter referred to as the "Tenant").

                                   WITNESSETH:

     The Landlord, for and in consideration of the rents, conditions, terms and
covenants herein specified to be paid, performed and observed by the Tenant,
does hereby let, lease and demise to the Tenant, and the Tenant does hereby
lease and take from the Landlord, that certain real estate with accompanying
improvements and appurtenances located at 6660 Wall Street in the City and
County of Mobile, State of Alabama and more particularly identified on Exhibit A
                                                                       ---------
attached hereto and incorporated herein by reference (the "Demised Premises")
upon the following terms and conditions:

     NOW, THEREFORE, in consideration of the premises and the rents, covenants
and conditions hereinafter contained, the Landlord and the Tenant do hereby
covenant, promise and agree as follows:

     1. Landlord does hereby lease unto Tenant and Tenant does hereby lease from
Landlord the Demised Premises for a term of one hundred twenty (120) calendar
months commencing as of April 1, 2002 (hereinafter referred to as the "Lease
Term").

     2. Tenant shall during the first year of the Lease Term, pay to the
Landlord an annual rental of Thirty Nine Thousand and No/100 Dollars
($39,000.00) unless abated or diminished as hereinafter provided, in equal
monthly installments of Three Thousand Two Hundred Fifty and No/100 Dollars
($3,250.00) in advance, on the 1st day of each month, commencing upon the 1st
day of April, 2002. For each of the remaining nine years of the Lease Term, the
rental rate shall be adjusted, as of March 31, 2003 and on March 31 of each year
thereafter, in accordance with changes in the Consumer Price Index ("CPI") as
published by the Bureau of Labor Statistics for All Urban Consumers (CPI-U),
1982-84 = 100. Upon each such lease rate adjustment date, the lease rate for the
upcoming year of the Lease Term shall be an amount equal to the monthly lease
rate for the immediately preceding year multiplied by a fraction, the
denominator of which shall be the CPI for April, 2002 and the numerator of which
shall be the CPI for the month of such lease rate adjustment . It is the
intention of the parties that the determination of the adjusted lease rate shall
not be distorted by any changes in the method by which the CPI is determined or
the form in which the CPI is presented, including but not limited to, changes in
the reference year on which the CPI is based or changes in the components of the
CPI. Accordingly, if the method by which the CPI is determined or the form in
which the CPI is presented is hereafter changed, the index used in the numerator
of the fraction described above shall be adjusted so that such index is
determined and presented on the same basis as the CPI used in the denominator of
such fraction. To the extent possible, such adjustment shall be based on any
adjustment factor published by the U.S. Department of Labor or any successor



governmental agency. If for any reason the index used in the numerator of such
fraction cannot be determined on the same basis as the CPI used in the
denominator of such fraction, or if the CPI is not hereafter published, the
adjusted lease rate shall be determined by reference to the index of consumer
prices then published by the U.S. Government, or an agency thereof, that most
nearly resembles the CPI as in effect for April, 2002.

     In addition to the foregoing, the rental may also be re-negotiated at such
future times that additional rental space may become available for use by Tenant
at the Demised Premises.

     Notwithstanding the foregoing, the parties hereby agree that ninety (90)
days prior to the expiration of the first five (5) years of the Lease Term, they
shall obtain an appraisal, in accordance with the procedures set forth below, in
order to determine the Fair Market Rental Value of the Demised Premises. Upon
the completion of such appraisal, the rental rate for the sixth (6th) year of
the Lease Term shall be adjusted to an amount equal to the Fair Market Rental
Value as set forth in said appraisal.

     On or about the date that is ninety (90) days prior to the expiration of
the fifth (5th) year of the Lease Term, Landlord and Tenant shall consult with
one another for the purpose of appointing a mutually acceptable qualified
independent appraiser. If the parties are unable to agree on an appraiser within
ten (10) days, such Fair Market Rental Value shall be determined by a panel of
three independent appraisers, one of whom shall be selected by each of Landlord
and Tenant within five (5) days thereafter. If one party appoints an appraiser
pursuant to the immediately preceding sentence, and if the other party fails to
appoint a second appraiser within the applicable time limit, the appraisal shall
be made by such appraiser. On or before the tenth day after appointment of the
second appraiser, a third appraiser shall be selected by agreement of the first
two appraisers. Landlord and Tenant shall split all fees and expenses of the
appraisers. Each appraiser appointed pursuant to the foregoing procedure shall
be experienced, have equivalent qualifications to those of a senior member of
the American Society of Appraisers, shall be independent of Landlord and Tenant,
and shall be instructed to determine Fair Market Rental Value in accordance with
the uniform standards for professional appraisal practice or the equivalent,
before the 45th day after the appointment of the last of such appraisers to be
appointed, and such determination shall be final, binding and conclusive upon
the parties. If three appraisers shall be appointed, the determination of Fair
Market Rental Value shall be the average of the three appraisals rendered by the
appraisers. In the event, however, that the lowest or the highest of the three
appraisals, or both, varies by more than ten percent (10%) from the middle
appraisal, the appraisal or appraisals so varying shall be disregarded and the
average of the remaining appraisals, or the remaining appraisal, shall be the
determination of Fair Market Rental Value.

     For purposes of this section, (i) "Fair Market Rental Value" means an
amount determined by an Independent Appraisal (as defined below) on the basis
of, and shall be equal in amount to, the rental rate which would be obtained in
an arm's-length transaction between an informed and willing tenant under no
compulsion to lease and an informed and willing landlord under no compulsion to
rent; and (ii) "Independent Appraisal" means the procedure specified above for
determining Fair Market Rental Value.

                                        2



     3. Landlord represents and warrants that (A) it is the owner in fee simple
of the Demised Premises; (B) the Demised Premises are free and clear of all
liens and encumbrances other than the lien of current ad valorem taxes,
easements for roads and utilities serving the Demised Premises, setbacks and
other conditions of title as may be set forth in any recorded plat, easements
and restrictions of record that do not interfere with the present use of the
Demised Premises, and those liens and encumbrances set forth on Exhibit B
                                                                ---------
attached hereto (the "Permitted Encumbrances"); (C) Landlord has not received
any notification from any governmental authority of any pending public
improvements affecting the Demised Premises or requiring any repairs,
replacements or alterations to the Demised Premises that have not been
satisfactorily made; (D) Landlord has no knowledge of any pending or threatened
condemnation or appropriation of all or any part of the Demised Premises by any
governmental authority or other entity having the right of eminent domain; and
(E) to the best of Landlord's knowledge and belief, there are no applicable
laws, ordinances or regulations that would prohibit or interfere with the use of
the Demised Premises by Tenant for its intended use thereof.

     Landlord covenants that Tenant, by paying the rent herein reserved and
performing and observing all of the covenants and agreements herein agreed by
Tenant to be kept and performed, may peaceably hold and enjoy the Demised
Premises with exclusive control and possession thereof during the full Lease
Term without hindrance or interruption by Landlord and that Landlord will
warrant and defend Tenant in peaceful and quiet enjoyment of the Demised
Premises against the claims of all persons claiming through or under Landlord,
except condemning and similar authorities.

     4. The Tenant shall assess the Demised Premises and shall pay promptly as
and when they become due all real estate taxes and all assessments, water rates
and water charges, and other governmental levies and charges, general and
special, ordinary and extraordinary, unforeseen as well as foreseen, of any
kind, which are assessed or imposed upon the Demised Premises or any part
thereof, or become payable during the term of this Lease.

     During the term of this Lease, Tenant may attempt to have the assessed
valuation of the Demised Premises reduced or may initiate proceedings to contest
the Taxes and Assessments. If requested by Tenant, Landlord shall join in any
such proceedings initiated by Tenant; provided that Tenant shall pay all costs
and expenses in connection therewith, including reasonable costs and expenses
incurred by Landlord. Upon the final determination of any such proceedings,
Tenant immediately shall pay the Taxes and Assessments, together with all costs,
charges, interest and penalties, incidental to the proceedings.

     5. Landlord hereby demises said premises in "as is" condition and Tenant
accepts same "as is". Tenant shall make and pay for all repairs and replacements
to the Demised Premises including all water, plumbing, gas or electrical lines
or conduits originally furnished by the Landlord.

     6. Tenant may, at its own expense, from time to time, make such
alterations, additions or changes, structural or otherwise, in and to the
Demised Premises as it may deem necessary or suitable; provided, however, Tenant
shall obtain Landlord's prior written consent to plans and specifications for
structural alterations, additions or changes; provided, further,

                                        3



Landlord shall not unreasonably withhold its consent thereto if the structural
strength or value of the building will not be reduced or impaired by such work.
The term "structural changes", as used herein, shall not include moving of stud
partitions, minor plumbing and electrical work, modification and rearrangement
of fixtures or other minor changes.

     7. Tenant shall contract in its own name for and pay when due, all charges
and bills for utility services used on or charged against the Demised Premises,
including, without limitation, all gas, water, sewer, electricity and telephone
services, during the term of this Lease, and any extensions or renewals thereof.

     8. If, as the result of any neglect of the Tenant, its agents, servants or
invitees, or the nature of the use and occupancy of the Demised Premises by the
Tenant, any Federal, State or Municipal government or any department or division
thereof has or hereafter shall condemn the Demised Premises or any part thereof
as unsafe or as not in conformity with the laws, regulations or orders relating
to the use, occupancy and construction thereof, or has ordered or required or
shall hereafter order or require any rebuilding, alteration or repair thereof or
installation therein, the Tenant, at its own expense, will proceed with due
diligence to comply with such laws, regulations or orders and no abatement of
rent shall be effective.

     9. Tenant shall comply with, at all times and in all respects, all laws and
ordinances relating to nuisances, health, safety and sanitation as respects
Tenant's use of the Demised Premises and the street abounding same. Tenant will
not commit any waste or permit the same to be done, and shall keep the Demised
Premises in a neat and orderly condition.

     10. Tenant shall insure the Demised Premises against damage or destruction
by fire and other casualties insured under a standard extended coverage
endorsement. Said insurance shall be in an amount equal to not less than eighty
percent (80%) of the insurable value of the permanent improvements thereof. The
cost of such insurance shall be borne by the Tenant and all policies with
respect to the Demised Premises shall bear endorsements naming the Landlord and
Tenant as loss payees as their interest may appear.

     In the event that, at any time during the Lease Term the permanent
improvements then constituting the Demised Premises shall be damaged or
destroyed (partially or totally) by fire, the elements or any other casualty,
Landlord shall, with due diligence repair, rebuild and restore the same as
nearly as practicable to the condition existing just prior to such damage or
destruction. The cost of such repair, restoration and rebuilding shall be borne
by Tenant, provided that if (a) the amount recovered on said insurance is less
than eighty percent (80%) of the reasonably estimated cost of such repairs,
restoration and rebuilding and (b) such estimated cost is more than $100,000.00,
then either party may terminate this Lease as of the date of such damage or
destruction by giving written notice to the other party within thirty (30) days
after receipt of such estimate and Tenant shall have an additional sixty (60)
days within which to remove its property from the Demised Premises.

     During any period commencing upon the date of any such damage or
destruction and ending upon the completion of the repairs, rebuilding and
restoration required herein, there shall

                                        4



be a reasonable abatement in the annual rental and any other charges payable
under this Lease equal to any insurance proceeds received by Landlord therefor.

     11. In the event of condemnation or sale under threat of condemnation, in
whole or in part, of the Demised Premises, the proceeds therefrom shall be paid
to Landlord and Tenant as owners and Tenant shall not receive compensation in
addition thereto because of the termination in whole or in part of Tenant's
tenancy.

     In the event the Demised Premises, or such portion thereof rendering the
same untenable, shall be expropriated by public or quasi-public authority, this
Lease shall terminate as of the date Tenant shall be deprived of the physical
possession thereof.

     12. The Demised Premises shall not be used for any unlawful purpose.

     13. If the rent reserved in this Lease, or any part thereof, shall remain
unpaid for a period of thirty (30) days or if Tenant shall be in default under
any other provision of this Lease and shall remain so for a period of thirty
(30) days after notice to Tenant of said nonpayment or other default, then
Landlord may, by giving notice to Tenant at any time thereafter during the
continuance of such default, terminate this Lease and either (a) re-enter the
Demised Premises by summary proceedings or otherwise, expel Tenant and remove
all property therefrom, relet the same and receive the rent therefrom, and
Tenant shall remain liable for the equivalent of the amount of all rent reserved
herein less the net rent received from reletting, if any, after deducting
therefrom the cost (including attorney's fees) of obtaining possession of the
Demised Premises and of any repairs and alterations necessary to prepare it for
reletting, or (b) sue for and recover the entire unpaid rent for the remainder
of the term of this Lease. In the event of default by Tenant in payment of any
rental due hereunder and employment of an attorney for the collection of the
same, Tenant agrees to pay a reasonable attorney's fee for the services of such
attorney.

     14. If a petition in bankruptcy shall be filed by Tenant, or if Tenant
shall be adjudicated bankrupt, or if Tenant shall make a general assignment for
the benefit of creditors, or if in any proceeding based upon the insolvency of
Tenant a receiver of all the property of Tenant shall be appointed, then
Landlord may, at its option, terminate this Lease by giving notice to Tenant of
its intention so to do.

     15. During the Lease Term, Tenant and its assignees and sublessees shall
indemnify and save Landlord harmless against all penalties, claims, or demands
arising from Tenant's negligence or wrongful use of the Demised Premises, except
those which shall result from the act, default or negligence of Landlord,
Landlord's employees, agents, licensees, invitees or contractors.

     In addition, Tenant agrees to maintain insurance against all liabilities
for damages on account of injuries to property or person, including death,
sustained by any person or persons while on the Demised Premises, in a general
liability combined limits policy or policies in the amount of One Million and
No/100 Dollars ($1,000,000.00) with respect to injury to any one person, to any
one accident or disaster, and with respect to damage to property.

                                        5



     16. In the event Landlord shall fail to perform any obligations on any
mortgage or encumbrance affecting title to the Demised Premises and to which
this Lease shall be subordinate, or shall fail to perform any obligation
specified in this Lease, then Tenant may, after the thirty (30) days notice
thereof by Tenant, cure such default, all on behalf of and at the expense of
Landlord, and do all necessary work and make all necessary payments in
connection therewith, and Landlord shall on demand pay Tenant forthwith the
amount so paid by Tenant together with interest thereon at the rate of 10%, but
Tenant may not withhold rental payments and other payments thereafter due to
Landlord.

     17. At the expiration or earlier termination of the Lease Term, Tenant
shall surrender the Demised Premises, together with alterations, additions and
improvements then a part of said premises, in good order and condition except
for the following: ordinary wear and tear, repairs required to be made by
Landlord, and loss or damage by fire, the elements and other casualty. All
furniture and trade fixtures installed in said building at the expense of Tenant
or other occupant shall remain the property of Tenant or such other occupant.

     18. Tenant may hereinafter sublet all of the Demised Premises or assign
this Lease to a parent, affiliate or subsidiary of the Tenant without Landlord's
prior written approval. Tenant may not, however, sublet all or any part of the
Demised Premises or assign this Lease under circumstances not listed above
without Landlord's prior written approval, which consent shall not be
unreasonably withheld.

     19. Landlord hereby agrees to and shall indemnify Tenant and his successors
and assigns, and Tenant hereby agrees to and shall indemnify Landlord and its
successors and assigns in respect of: any liability, damage, cost, expense or
deficiency resulting from any misrepresentations, breach of warranty or
nonfulfillment of any representation or agreement of the indemnifying party made
herein, and from any misrepresentation in or omission from any certificate or
other instrument furnished or to be furnished to the indemnified party hereunder
as well as against all actions, suits, process, demands, assessments, judgments,
costs and expenses, including counsel fees, incident to any of the foregoing.
This indemnity shall survive the expiration or termination of this Lease for a
term of two (2) years.

     20. Notices required under this Lease shall be in writing and deemed to be
properly served on receipt thereof if sent by certified or registered mail to
Landlord at the last address where rent was paid or to Tenant at its principal
office in Mobile, Alabama, or to any subsequent address which Tenant shall
designate for such purpose.

     21. Landlord shall have the right to enter upon the Demised Premises at all
reasonable hours for the purpose of inspection and making any repairs or
restorations which it may be required to make under the terms of this Lease, but
such rights shall be exercised in such a manner as not to unreasonably interfere
with the business of Tenant.

     22. The failure of Landlord or Tenant to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease, or
to exercise an option herein contained shall not be construed as a waiver or a
relinquishment for the future, of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by

                                        6



Landlord of rent, with knowledge of the breach of any covenant hereof, shall not
be deemed a waiver of such breach, and no waiver by Landlord or Tenant of any
provision hereof shall be deemed to have been made unless expressed in writing,
and signed by Landlord or Tenant, or their agents.

     23. Both Landlord and Tenant waive their right of subrogation against the
other party for any reason whatsoever, and any insurance policies herein
required to be procured shall contain a waiver of any right of subrogation by
the insurance company against such other party.

     24. The necessary grammatical changes which shall be required to make the
provisions of this Lease apply (a) in the plural sense if there shall be more
than one Landlord, and (b) to any Landlord which shall be either a corporation,
an association, a partnership, or and individual, male or female, shall in all
instances be assumed as though in each case fully expressed. Unless otherwise
provided, upon the termination of this Lease under any of the sections hereof,
the parties hereto shall be relieved of any further liability hereunder except
as to acts, omissions or defaults occurring prior to such termination.

     25. If any term or provision of this Lease, or the application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.

     26. This Lease shall be interpreted and construed pursuant to and in
accordance with the laws of the State of Alabama. Time is of the essence of this
Lease.

     27. The conditions, covenants and agreements contained in this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns. All
covenants and agreements of this Lease shall run with the land.

                                       7



     IN WITNESS WHEREOF, the parties hereto have executed these presents in
duplicate and affixed their seals hereto as of the day and year first above
written.

                                   DJK, LLC


                                   By: /s/ Dennis P. Wilkins
                                       -----------------------------------------
                                           Its President


                                   COMPUTER PROGRAMS AND SYSTEMS, INC.


                                   By: /s/ M. Stephen Walker
                                       -----------------------------------------
                                           Its Vice President of Finance and CFO

                                        8

EX-10.3

                       COMPUTER PROGRAMS AND SYSTEMS, INC.

                             2002 STOCK OPTION PLAN

                         Dated as of             , 2002
                                     ------------






                                                                    Exhibit 10.3

                       COMPUTER PROGRAMS AND SYSTEMS, INC.

                             2002 STOCK OPTION PLAN

                          Dated as of           , 2002
                                      ----------

                                    ARTICLE 1
                                     PURPOSE
                                     -------

     The purpose of this Plan is to promote the interests of the Company and its
stockholders by granting Options to purchase Stock to Employees in order (1) to
provide an additional incentive to each Employee to work to increase the value
of the Company's Stock, and (2) to provide each Employee with a stake in the
future of the Company which corresponds to the stake of each of the Company's
stockholders.

                                    ARTICLE 2
                                   DEFINITIONS
                                   -----------

     Each term set forth in this Article 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.

     "Affiliate" means any corporation, partnership, joint venture or any other
      ---------
entity (i) that, directly or indirectly, is controlled by the Company or (ii) in
which the Company owns, directly or indirectly, a significant equity interest,
in either case as determined by the Board.

     "Board" means the Board of Directors of the Company.
      -----

     "Cause" means a felony conviction of an Employee or the failure of an
      -----
Employee to contest prosecution for a felony, or an Employee's willful
misconduct or dishonesty which is harmful to the business or reputation of the
Company or any Subsidiary, as determined by the Board in its sole discretion.

     "Change in Control" shall be deemed to have occurred if (i) any "person"
      -----------------
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or any
two or more persons acting as a partnership, syndicate or other such group
(other than the Company, any trustee or other fiduciary holding securities under
any employee benefit plan of the Company, any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Stock of the Company, or one or more of the
individual stockholders who sold stock in the Company's initial public offering
of Stock which was completed on the effective date of the Plan, either acting
alone or with one or more of the other such selling stockholders) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities; (ii)
during any period of two consecutive years (not including any period prior to
the adoption of the Plan), individuals who at the beginning of such period
constitute the Board, and any new director (other than a director designated by
a person who has entered into an agreement with the Company to



effect a transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board; (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets. If any of the events enumerated in
clauses (i) through (iv) occur, the Board shall determine the effective date of
the Change in Control resulting therefrom, for purposes of the Plan.

     "Code" means the Internal Revenue Code of 1986, as amended.
      ----

     "Committee" means a committee appointed by the Board to administer this
      ---------
Plan which at all times shall consist of two or more members of the Board. To
the extent the Board considers it necessary or desirable for purposes of
complying with or qualifying under Rule 16b-3 of the Exchange Act, each member
of the Committee shall be a "non-employee director" within the meaning of Rule
16b-3. The Board may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee shall be filled by the Board. The
Committee shall select one of its members as Chairman and shall hold meetings at
such times and places as it may determine.

     "Company" means Computer Programs and Systems, Inc., a Delaware
      -------
corporation, or any successor to such corporation, and its Affiliates.

     "Disability" means a permanent and total disability as defined in the
      ----------
Company's long term disability insurance program; provided, however, that in the
event no such program is in effect, Disability shall mean a total and permanent
disability or incapacity resulting from medically demonstrable bodily injury or
disease (i) which prevents the Employee from engaging in any regular occupation
for compensation or profit, (ii) which has continuously existed for a period of
at least six months and (iii) for which the Employee would be eligible for or is
in receipt of disability benefits under the Federal Social Security Act.
Disability will be determined by the Board who may reasonably require the
Employee to undergo examination by a qualified physician selected by the Board
at any time or times for the purposes of determining whether the Employee
incurred and continues to have a Disability.

     "Employee" means any full-time or part-time employee of the Company or any
      --------
Subsidiary of the Company who the Board, acting in its absolute discretion, has
determined to be eligible for the grant of an Option under this Plan.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.
      ------------

                                       2



     "Fair Market Value" means, unless otherwise determined by the Board, the
      -----------------
closing price on the date of determination for a share of Stock, or if there
were no sales on such date, the most recent prior date on which there were
sales, as reported by The Wall Street Journal or, if The Wall Street Journal
does not report such closing price, such closing price as reported by a
newspaper or trade journal selected by the Board.

     "ISO" means an option granted under this Plan to purchase Stock which is
      ---
intended by the Company to satisfy the requirements of Code Section 422.

     "Non-ISO" means an option granted under this Plan to purchase Stock which
      -------
is not intended by the Company to satisfy the requirements of Code Section 422.

     "Option" means an ISO or a Non-ISO.
      ------

     "Option Agreement" means the written agreement or instrument which sets
      ----------------
forth the terms of an Option granted to an Employee under this Plan.

     "Option Price" means the price which shall be paid to purchase one share of
      ------------
Stock upon the exercise of an Option granted under this Plan.

     "Plan" means this Computer Programs and Systems, Inc. 2002 Stock Option
      ----
Plan, as amended from time to time.

     "Retirement" means retirement from active employment with the Company or
      ----------
any Subsidiary on or after the earlier of the date on which an Employee reaches
the age of fifty-five (55), or such earlier date determined by the Board on a
case by case basis for an Employee who has not reached the age of fifty-five
(55) but who has at least fifteen (15) continuous years of service with the
Company.

     "Rule 16b-3" means the exemption under Rule 16b-3 to Section 16(b) of the
      ----------
Exchange Act or any successor to such rule.

     "Stock" means the $.001 par value common stock of the Company.
      -----

     "Subsidiary" means a corporation which is a subsidiary corporation (within
      ----------
the meaning of Section 242(f) of the Code) of the Company.

                                    ARTICLE 3
                         SHARES AVAILABLE UNDER THE PLAN
                         -------------------------------

     Section 3.1 Shares Reserved Under the Plan. There shall be 1,165,333 shares
                 ------------------------------
of Stock reserved for issuance under this Plan, and such shares of Stock shall
be reserved to the extent that the Company deems appropriate from authorized but
unissued shares of Stock and from shares of Stock which have been reacquired by
the Company. Furthermore, any shares of Stock subject to an Option which remain
unissued after the cancellation, expiration or exchange of such Option
thereafter shall again become available for use under this Plan.

                                       3



     Section 3.2 Annual Limit. Subject to adjustment under Article 13, the
                 ------------
maximum number of shares of Stock with respect to which Options may be granted
to any Employee under the Plan shall be 100,000 shares per calendar year. The
per-Employee limit described in this Article 13 shall be construed and applied
consistently with Section 162(m) of the Code ("Section 162(m)").

                                    ARTICLE 4
                                 EFFECTIVE DATE
                                 --------------

     The effective date of this Plan shall be the date that the Company
completes its initial public offering of Stock.

                                    ARTICLE 5
                                 ADMINISTRATION
                                 --------------

     Section 5.1 Authority of Board. The Plan shall be administered by the
                 ------------------
Board. Subject to the terms of the Plan and applicable law, and in addition to
other express powers and authorizations conferred on the Board by the Plan, the
Board shall have full power and authority to: (i) designate Employees to
participate in the Plan; (ii) determine the type of Options to be granted to an
eligible Employee; (iii) determine the number of shares of Stock to be covered
by an Option; (iv) determine the terms and conditions of any Option; (v)
determine whether, to what extent, and under what circumstances an Option may be
exercised in cash, shares of Stock, other securities, or other property, or
canceled, forfeited, or suspended and the method or methods by which Options may
be exercised, canceled, forfeited, or suspended; (vi) interpret and administer
the Plan and any instrument or agreement relating to, or grant made under, the
Plan; (vii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (viii) make any other determination and take any other action
that the Board deems necessary to or desirable for the administration of the
Plan.

     Section 5.2 Board Discretion Binding. Unless otherwise expressly provided
                 ------------------------
in the Plan, all designations, determinations, interpretations, and other
decisions under or with respect to the Plan or any Option shall be within the
sole discretion of the Board, may be made at any time, and shall be final,
conclusive, and binding upon all persons, including the Company, any Employee,
any holder or beneficiary of any Option and any stockholder.

     Section 5.3 Appointment of Committee. To the extent permitted by applicable
                 ------------------------
law, the Board may delegate any or all of its powers under the Plan to a
Committee. All references in the Plan or any Option Agreement to the "Board"
shall mean the Board or a Committee of the Board, to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee.

     Section 5.4 Delegation of Authority. The Board may delegate to one or more
                 -----------------------
of its members, or to one or more agents, such administrative duties as it may
deem advisable; provided, however, that any such delegation shall be in writing.
In addition, the Board, or any person to whom it has delegated duties under this
Section 5.4, may employ one or more persons to render advice with respect to any
responsibility the Board or such person may have under the

                                       4



Plan. The Board may employ such legal or other counsel, consultants and agents
as it may deem desirable for the administration of the Plan and may rely upon
any opinion or computation received from any such counsel, consultant or agent.
Expenses incurred by the Board in the engagement of such counsel, consultant or
agent shall be paid by the Company.

     Section 5.5 Liability. No member of the Board and no Employee shall be
                 ---------
liable for any act or failure to act hereunder, except in circumstances
involving his or her bad faith, gross negligence or willful misconduct, or for
any act or failure to act hereunder by any other member or Employee or by any
agent to whom duties in connection with the administration of the Plan have been
delegated.

     Section 5.6 Indemnification. The Company shall indemnify members of the
                 ---------------
Board and any agent of the Board who is an Employee, against any and all
liabilities or expenses to which they may be subjected by reason of any act or
failure to act with respect to their duties on behalf of the Plan, except in
circumstances involving such person's bad faith, gross negligence or willful
misconduct.

                                    ARTICLE 6
                                   ELIGIBILITY
                                   -----------

     Only Employees shall be eligible for the grant of Options under this Plan.

                                    ARTICLE 7
                                GRANT OF OPTIONS
                                ----------------

     Subject to the provisions of the Plan, the Board shall have sole and
complete authority to determine the Employees to whom Options shall be granted,
the number of shares of Stock to be covered by each Option, the Option Price
therefor, and the conditions and limitations applicable to the exercise of the
Option. The Board shall have the authority to grant ISOs, or to grant Non-ISOs,
or to grant both types of Options. In the case of ISOs, the terms and conditions
of such grants shall be subject to and comply with such rules as may be
prescribed by Section 422 of the Code, as from time to time amended, and any
regulations implementing such statute.

                                    ARTICLE 8
                        OPTION PRICE; EXERCISE OF OPTION
                        --------------------------------

     Section 8.1 Option Price. The Option Price for each share of Stock subject
                 ------------
to an Option shall be determined by the Board in its discretion, but in no event
shall the Option Price be less than the Fair Market Value of a share of Stock on
the date the Option is granted.

     Section 8.2 Exercise of Stock Options. The Options shall be exercised as
                 -------------------------
set forth in the Employee's Option Agreement. The Option Price may be paid in
cash. In the sole discretion of the Board, payment may also be made (i) by the
delivery or presentation of Stock then owned by the Employee for not less than
six (6) months or (ii) by the delivery of a properly executed exercise notice to
the Company together with a copy of irrevocable instructions to a broker to
effect the immediate sale of some or all of the Stock purchased pursuant to the
exercise of the Option and to remit promptly to the Company, out of the sale or
loan proceeds available on the

                                       5



settlement date, the aggregate exercise price payable for the purchased Stock (a
"Cashless Exercise"). To facilitate the foregoing Cashless Exercise, the Company
may enter into agreements for coordinated procedures with one or more brokerage
firms. The Board may prescribe any other method of paying the exercise price
that it determines to be consistent with applicable law and the purpose of the
Plan, including without limitation, in lieu of the exercise of an Option by
delivery of Stock then owned by an Employee, providing the Company with a
notarized statement attesting to the number of shares of Stock owned by the
Employee for not less than six (6) months, where upon verification by the
Company, the Company would issue to the Employee only the number of incremental
shares of Stock to which the Employee is entitled upon exercise of the Option.

                                    ARTICLE 9
                     EXERCISE PERIOD; TERMINATION OF OPTIONS
                     ---------------------------------------

     Section 9.1 Exercise Period. Each Option granted under this Plan to an
                 ---------------
Employee shall be exercisable in whole or in part at such time or times as set
forth in the related Option Agreement, but, unless otherwise provided for by the
Board, no Option Agreement shall make an Option granted to an Employee
exercisable after the date which is the tenth anniversary of the date the Option
is granted.

     Section 9.2 Termination of Employment by Reason of Death. Unless otherwise
                 --------------------------------------------
determined by the Board, if any Employee's employment with the Company or any
Subsidiary terminates by reason of death, the Option may thereafter be
immediately exercised, to the extent then exercisable (or on such accelerated
basis as the Board shall determine at or after grant), by the legal
representative of the estate or by the legatee of the Employee under the will of
the Employee, for a period of one (1) year from the date of death (or such
shorter period as may be determined by the Board at the time of grant) or until
the expiration of the stated term of such Option, whichever period is the
shorter.

     Section 9.3 Termination of Employment by Reason of Disability. Unless
                 -------------------------------------------------
otherwise determined by the Board, if any Employee's employment with the Company
and any Subsidiary terminates by reason of Disability, any Option held by such
Employee may thereafter be exercised, to the extent it was exercisable at the
time of termination due to Disability (or on such accelerated basis as the Board
shall determine at or after grant), for a period of one (1) year (or such
shorter period as may be determined by the Board at the time of grant) from the
date of such termination of employment or the expiration of the stated term of
such Option, whichever period is the shorter; and if the Employee dies within
such period, any unexercised Option held by such Employee shall thereafter be
exercisable to the extent to which it was exercisable at the time of death, for
the remainder of such period.

     Section 9.4 Termination of Employment by Reason of Retirement. Unless
                 -------------------------------------------------
otherwise determined by the Board, if any Employee's employment with the Company
or any Subsidiary terminates by reason of Retirement (with Board consent), any
Option held by such Employee may thereafter be exercised, to the extent it was
exercisable at the time of such Retirement (or on such accelerated basis as the
Board shall determine at or after grant), for a period of one (1) year (or such
shorter period as may be determined by the Board at the time of grant) from the
date of such termination of employment or the expiration of the stated term of

                                       6



such Option, whichever period is the shorter; and if the Employee dies within
such period, any unexercised Option held by such Employee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of death, for
the remainder of such period.

     Section 9.5 Involuntary Termination of Employment for Cause. Unless
                 -----------------------------------------------
otherwise determined by the Board, if an Employee's employment with the Company
or any Subsidiary is involuntarily terminated for Cause, the Option shall
thereupon terminate.

     Section 9.6 Other Termination of Employment. Unless otherwise determined by
                 -------------------------------
the Board, if an Employee's employment with the Company or any Subsidiary
terminates for any reason other than death, Disability, Retirement or
involuntarily by the Company or any Subsidiary for Cause, the Option shall
thereupon terminate, except that such Option may be exercised, to the extent it
was exercisable at the time of termination, for the lesser of three (3) months
from the date of termination or the balance of such Option's term.

                                   ARTICLE 10
                                 TRANSFERABILITY
                                 ---------------

     Section 10.1 Transfer of Option. No Option granted under this Plan shall be
                  ------------------
transferable by an Employee other than by will or by the laws of descent and
distribution, and such Option shall be exercisable during the lifetime of an
Employee only by such Employee. The person or persons to whom an Option is
transferred by will or by the laws of descent and distribution thereafter shall
be treated as the Employee under this Plan. Notwithstanding the foregoing, the
Board, in its sole discretion, may permit the transferability of an Option by an
Employee solely to members of the Employee's immediate family or trusts or
family partnerships or other similar entities for the benefit of such persons
and subject to such terms, conditions, restrictions and/or limitations, if any,
as the Board may include in the Option Agreement.

     Section 10.2 Restrictions. The Board may impose such restrictions on any
                  ------------
shares of Stock acquired pursuant to Options under the Plan as it may deem
advisable, including, without limitation, restrictions under applicable federal
securities law, restrictions imposed by any stock exchange upon which such
shares of Stock may be listed, and restrictions under any blue sky or state
securities laws applicable to such shares.

                                   ARTICLE 11
                             SECURITIES REGISTRATION
                             -----------------------

     All certificates for shares of Stock or other securities of the Company
delivered under the Plan pursuant to any Option or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Board may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which shares of
Stock or other securities are then listed, and any applicable Federal or state
securities law, and the Board may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions. If so
requested by the Company, the Employee shall make a written representation to
the Company that he or she will not sell or offer to sell any of such Stock
unless a registration statement shall be in effect with respect to such Stock
under the Securities Act of 1933, as amended ("1933 Act"), and any applicable
state securities law or

                                       7



unless he or she shall have furnished to the Company an opinion, in form and
substance satisfactory to the Company, of legal counsel acceptable to the
Company, that such registration is not required.

                                   ARTICLE 12
                                  LIFE OF PLAN
                                  ------------

     No Option shall be granted under this Plan on or after the earlier of (1)
the tenth anniversary of the effective date of this Plan (as determined under
Article 4 of this Plan), in which event this Plan thereafter shall continue in
effect until all outstanding Options have been exercised in full or no longer
are exercisable, or (2) the date on which all of the Stock reserved under
Article 3 of this Plan, subject to adjustment pursuant to Article 13 hereof or
amendment pursuant to Article 15 hereof, has (as a result of the exercise of
Options granted under this Plan) been issued or no longer is available for use
under this Plan, in which event this Plan also shall terminate on such date.

                                   ARTICLE 13
                                   ADJUSTMENT
                                   ----------

     In the event that the Board determines that any dividend or other
distribution (whether in the form of cash, shares of Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares of Stock or other securities of the Company,
issuance of warrants or other rights to purchase shares of Stock or other
securities of the Company, or other similar corporate transaction or event
affects the shares of Stock such that an adjustment is determined by the Board
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the Board
shall, in such manner as it may deem equitable, adjust any or all of (i) the
number of shares of Stock or other securities of the Company with respect to
which Options may be granted, (ii) the number of shares of Stock or other
securities of the Company subject to outstanding Options, and (iii) the Option
Price with respect to any Options, or, if deemed appropriate, make provision for
a cash payment to the holder of an outstanding Option; provided, in each case,
that with respect to ISOs no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b)(1) of the
Code, as from time to time amended.

                                   ARTICLE 14
                                CHANGE IN CONTROL
                                -----------------

     In the event that there is a Change in Control of the Company, the Board
shall have the right in anticipation of such event or thereafter to take such
action with respect to any outstanding Options granted to any Employee as the
Board deems appropriate under the circumstances to protect the interest of the
Company and to maintain the integrity of such grants under this Plan, including,
without limitation, (i) unilaterally canceling such Options in exchange for
cash, securities or other consideration, and (ii) making such adjustments in the
terms and conditions of outstanding Options, as the Board in its sole discretion
determines are equitably warranted under the circumstances, including
accelerating the date(s) on which the Options become exercisable. The Board
shall have the right to take different action under this Article 14

                                       8



with respect to different Employees or different groups of Employees, as the
Board deems appropriate under the circumstances. In no event, however, shall the
Board take any action under this Article 14 which would impair the rights of an
Employee or which would impair the value of such Options, without such
Employee's consent.

                                   ARTICLE 15
                            AMENDMENT OR TERMINATION
                            ------------------------

     Section 15.1 Amendments to the Plan. This Plan may be amended, in whole or
                  ----------------------
in part, by the Board from time to time to the extent that the Board deems
necessary or appropriate; provided, however, that no amendment shall be made
which would impair the rights of an Employee with respect to Options theretofore
granted or which would impair the value of such Options, without such Employee's
consent; and, provided further, that no such amendment shall be made absent the
approval of the stockholders of the Company if such approval is necessary to
comply with any tax or regulatory requirement for which or with which the Board
deems it necessary or desirable to qualify or comply. The Board also may suspend
the granting of Options under this Plan at any time and may terminate this Plan,
in whole or in part, at any time; provided, however, the Board shall not have
the right unilaterally to modify, amend or cancel any Option granted before such
suspension or termination unless (1) the Employee consents in writing to such
modification, amendment or cancellation or (2) there is a dissolution or
liquidation of the Company or a transaction described in Article 13 or Article
14 of this Plan.

     Section 15.2 Amendments to Options. The Board may waive any conditions or
                  ---------------------
rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, any Option theretofore granted, prospectively or retroactively;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would adversely affect the
rights of any Employee or any holder or beneficiary of any Option theretofore
granted shall not to that extent be effective without the consent of the
affected Employee, holder or beneficiary.

     Section 15.3 Adjustment of Awards Upon the Occurrence of Certain Unusual or
                  --------------------------------------------------------------
Nonrecurring Events. The Board is hereby authorized to make adjustments in the
- -------------------
terms and conditions of Options in recognition of unusual or nonrecurring events
affecting the Company or the financial statements of the Company, or of changes
in applicable laws, regulations, or accounting principles, whenever the Board
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.

     Section 15.4 Cancellation. Any provision of this Plan or any Option
                  ------------
Agreement to the contrary notwithstanding, the Board may cause any Option
granted hereunder to be canceled in consideration of a cash payment or
alternative Option made to the holder of such canceled Option equal in value to
the difference between the Fair Market Value of Stock subject to such Option and
the Option Price for such cancelled Option.

                                       9



                                   ARTICLE 16
                                  MISCELLANEOUS
                                  -------------

     Section 16.1 No Stockholder Rights. No Employee shall have any rights as a
                  ---------------------
stockholder of the Company as a result of the grant of an Option to him or to
her under this Plan or his or her exercise of such Option pending the actual
issuance of Stock subject to such Option to such Employee.

     Section 16.2 No Contract of Employment. The grant of an Option to an
                  -------------------------
Employee under this Plan shall not constitute a contract of employment and shall
not confer on any Employee any rights upon his or her termination of employment
in addition to those rights, if any, expressly set forth in the Option Agreement
which evidences his or her Option.

     Section 16.3 Other Conditions. Each Option Agreement may require that an
                  ----------------
Employee (as a condition to the exercise of an Option) enter into any agreement
or make such representations prepared by the Company, including any agreement
which restricts the transfer of Stock acquired pursuant to the exercise of such
Option.

     Section 16.4 Withholding. The exercise of any Option granted under this
                  -----------
Plan shall constitute full and complete consent by an Employee to whatever
action the Board deems necessary to satisfy the federal and state tax
withholding requirements, if any, which the Board acting in its discretion deems
applicable to such exercise. The Board also shall have the right to provide in
an Option Agreement that an Employee may elect to satisfy federal and state
withholding requirements through a reduction in the number of shares of Stock
actually transferred to him or her under this Plan, and if the Employee is
subject to the reporting requirements under Section 16 of the Exchange Act, any
such election and any such reduction shall be effected so as to satisfy the
conditions to the exemption under Rule 16b-3 under the Exchange Act.

     Section 16.5 No Rights to Awards. No Employee, or other person shall have
                  -------------------
any claim to be granted any Option, and there is no obligation for uniformity of
treatment of Employees, or holders or beneficiaries of Options. The terms and
conditions of Options need not be the same with respect to each recipient.

     Section 16.6 No Limit on Other Compensation Arrangements. Nothing contained
                  -------------------------------------------
in the Plan shall prevent the Company from adopting or continuing in effect
other compensation arrangements, which may, but need not, provide for the grant
of options, restricted stock, and other types of awards whether or not provided
for hereunder (subject to stockholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.

     Section 16.7 Severability. If any provision of the Plan or any Option is or
                  ------------
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any person or Option, or would disqualify the Plan or any
Option under any law deemed applicable by the Board, such provision shall be
construed or deemed amended to conform the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Board,

                                       10



materially altering the intent of the Plan or the Option, such provision shall
be stricken as to such jurisdiction, person or Option and the remainder of the
Plan and any such Option shall remain in full force and effect.

     Section 16.8 No Trust or Fund Created. Neither the Plan nor any Option
                  ------------------------
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and an Employee or any other person.
To the extent that any person acquires a right to receive payments from the
Company pursuant to an Option, such right shall be no greater than the right of
any unsecured general creditor of the Company.

     Section 16.9 Loans. If approved by the Board, the Company may lend money
                  -----
to, or guarantee loans made by a third party to, any Employee to finance all or
part of the exercise of any Option granted under this Plan, and the exercise of
an Option with the proceeds of any such loan shall be treated as an exercise for
cash under this Plan.

     Section 16.10 Other Laws. The Board may refuse to issue or transfer any
                   ----------
shares of Stock or other consideration under an Option if, acting in its sole
discretion, it determines that the issuance or transfer of such shares of Stock
or such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange Act,
and any payment tendered to the Company by a holder or beneficiary of an Option
in connection with the exercise of such Option shall be promptly refunded to the
relevant holder or beneficiary. Without limiting the generality of the
foregoing, no Option granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Board in its sole discretion has determined that any such offer, if
made, would be in compliance with all applicable requirements of the U.S.
federal securities laws and any other laws to which such offer, if made, would
be subject.

     Section 16.11 Headings. Headings are given to the Sections and subsections
                   --------
of the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.

     Section 16.12 Construction. This Plan shall be construed under the laws of
                   ------------
the State of Delaware.

                                       11

EX-10.4

                                                                    Exhibit 10.4

                       COMPUTER PROGRAMS AND SYSTEMS, INC.
                             2002 STOCK OPTION PLAN

                  Form of Non-Qualified Stock Option Agreement

Date of Grant:              , 2002
               -------------

     This Non-Qualified Stock Option Agreement (this "Agreement") is entered
into as of                , 2002, by and between
           ---------------                       -------------------------------
("Optionee") and Computer Programs and Systems, Inc., a Delaware corporation
(the "Company").

                                    Recitals
                                    --------

     A. The Company has previously adopted the 2002 Stock Option Plan ("Plan");

     B. The Board (as defined in the Plan) has approved the grant of a
non-qualified stock option to Optionee pursuant to the Plan;

     C. Optionee desires to accept such option;

     D. Capitalized terms used in this Agreement but not otherwise defined shall
have the meanings given to such terms in the Plan.

                                    Agreement
                                    ---------

     NOW, THEREFORE, in consideration of the foregoing facts and the mutual
promises set forth herein, the parties agree as follows:

     1. Grant of Option. Subject to the terms and conditions hereinafter set
        ---------------
forth, the Company, with the approval and at the direction of the Board, hereby
grants to the Optionee, as of the date first written above (the "Date of
Grant"), an option to purchase up to                  shares of Stock (the
                                     ----------------
"Granted Shares") at a price of $        per share, the Fair Market Value of the
                                 -------
Stock on the Date of Grant. Such option is hereinafter referred to as the
"Option," and the shares of Stock purchased upon exercise of the Option are
hereinafter sometimes referred to as the "Option Shares." The Option is not
intended by the parties to be, and shall not be treated as, an incentive stock
option (as such term is defined under Section 422 of the Internal Revenue Code
of 1986, as amended).

     2. Vesting of Option. Subject to such further limitations as are provided
        -----------------
herein, the Option shall become exercisable by Optionee on the fifth anniversary
of the Date of Grant, provided that Optionee is employed by the Company as of
such date.

     3. Option Term. The Option shall remain exercisable through and until the
        -----------
seventh anniversary of the Date of Grant (the "Option Term").



     4. Method of Exercise. Subject to Section 2 above and the other terms and
        ------------------
conditions of this Agreement, the Option may be exercised in whole or in part by
giving written notice of exercise to the Company specifying the number of Option
Shares to be purchased, accompanied by payment in full of the purchase price, in
cash, by check or such other instrument as may be acceptable to the Board.
Payment may also be made by the delivery of a properly executed exercise notice
to the Company together with (i) the delivery or presentation of Stock then
owned by the Employee for not less than six (6) months or (ii) a copy of
irrevocable instructions to a broker to effect the immediate sale of some or all
of the Option Shares and to remit promptly to the Company, out of the sale or
loan proceeds available on the settlement date, the aggregate exercise price
payable for the Option Shares purchased. No Option Shares shall be issued until
full payment therefor has been made. Optionee shall have the rights to dividends
or other rights of a stockholder with respect to Option Shares subject to the
Option when Optionee has given written notice of exercise and has paid in full
for such Option Shares.

     5. Transferability of Options. The Option shall not be transferable by
        --------------------------
Optionee other than by will or by the laws of descent and distribution and shall
be exercisable, during Optionee's lifetime, only by Optionee; provided, however,
that the Option shall be transferable to members of Optionee's immediate family
(which shall include Optionee's spouse, children and grandchildren, whether
natural or adopted) and to trusts for the benefit of such family members and
partnerships or limited liability companies in which such family members are the
only partners or members. For purposes of Sections 6, 7 and 8 of this Agreement,
a transferred Option may be exercised by the transferee only to the extent that
Optionee would have been entitled had the Option not been transferred.

     6. Termination of Employment by Reason of Death. If Optionee's employment
        --------------------------------------------
with the Company terminates by reason of death, then the Option shall
immediately become exercisable in full (notwithstanding Section 2 above), and
the Option may thereafter be exercised, in whole or in part, by the legal
representative of the estate or by the legatee of Optionee under the will of
Optionee, for a period of one (1) year from the date of death or until the
expiration of the Option Term, whichever period is the shorter.

     7. Termination of Employment by Reason of Disability. If Optionee's
        -------------------------------------------------
employment with the Company terminates by reason of Disability, then the Option
shall immediately become exercisable in full (notwithstanding Section 2 above),
and the Option may thereafter be exercised, in whole or in part, for a period of
one (1) year from the date of such termination of employment or until the
expiration of the Option Term, whichever period is the shorter; and if Optionee
dies within such period, any unexercised Option held by Optionee shall
thereafter be exercisable, in whole or in part, for the remainder of such
period.

     8. Termination of Employment by Reason of Retirement. If Optionee's
        -------------------------------------------------
employment with the Company terminates by reason of Retirement (with Board
consent), then the Option may thereafter be exercised for a period of one (1)
year from the date of such termination of employment or until the expiration of
the Option Term, whichever period is the shorter, to the extent, but only to the
extent, that Optionee could have exercised the Option as of the date of
Retirement; and if Optionee dies within such period, any unexercised Option that
was exercisable at the time of death shall thereafter be exercisable for the
remainder of such period.

                                       2



Notwithstanding anything to the contrary herein, the Board may, in connection
with such Retirement, make such adjustments in the terms and conditions of the
Option as the Board in its sole discretion determines are equitably warranted
under the circumstances, including, without limitation, acceleration of exercise
terms.

     9. Other Termination of Employment. If Optionee's employment with the
        -------------------------------
Company terminates for any reason, whether voluntarily or involuntarily, other
than (a) death, (b) Disability, (c) Retirement or (d) by the Company for Cause,
the Option may thereafter be exercised , in whole or in part, for a period of
three (3) months following such termination of employment or until the
expiration of the Option Term, whichever period is the shorter, to the extent,
but only to the extent, that the Option was exercisable as of the date of
termination of employment and had not previously been exercised. In the event
that Optionee's employment with the Company is terminated by the Company for
Cause, the Option shall thereupon terminate.

     10. Stock Certificates. All certificates for Option Shares delivered under
         ------------------
this Agreement shall be subject to such stock transfer orders and other
restrictions as the Board may deem advisable under the rules, regulations and
other requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, any applicable Federal or state securities
law, and the terms and conditions of this Agreement, and the Board may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

     11. Withholding Taxes.
         -----------------

          (a) Optionee shall, no later than the date as of which the value of
Option Shares first becomes includable in the gross income of Optionee for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Board regarding payment of, any Federal, state or local
taxes of any kind required by law to be withheld with respect to the award. The
obligations of the Company under this Agreement and the Plan shall be
conditioned on such payment or arrangements, and the Company (and, where
applicable, its Subsidiaries), shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Optionee.

          (b) Subject to applicable laws and regulations regarding transactions
in Stock by persons who are deemed insiders, Optionee may elect to have the
withholding tax obligations or, if the Board so determines, any additional tax
obligation with respect to any Option Shares acquired hereunder satisfied by (i)
having the Company withhold Option Shares otherwise deliverable to the
participant with respect to the Option or (ii) delivering to the Company shares
of unrestricted Stock owned by Optionee.

     12. Adjustment of and Changes in Common Stock of the Company. In the event
         --------------------------------------------------------
of a reorganization, recapitalization, change of shares, stock split, spin-off,
stock dividend, reclassification, subdivision or combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of capital stock of the Company, the Board shall make such adjustment,
if any, as it deems appropriate in the number and kind of shares of

                                       3



Stock subject to the Option or in the option price; provided, however, that no
such adjustment shall give the Optionee any additional benefits under the
Option. Upon the Board's determination of any such adjustments, the terms and
conditions of the Option and of this Agreement shall automatically, without any
further action on the part of any party, be deemed to have been amended to
incorporate such adjustments.

     13. Employment Not Affected. Neither the granting of the Option nor its
         -----------------------
exercise shall be construed as granting Optionee any right with respect to
continuance of employment by the Company. The right of the Company to terminate
at will the Optionee's employment with it at any time (whether by dismissal,
discharge, retirement or otherwise) is specifically reserved by the Company and
acknowledged by Optionee.

     14. Notice. Any notice to the Company provided for in this Agreement shall
         ------
be addressed to it in care of its Secretary at its executive offices at 6600
Wall Street, Mobile, Alabama 36695, and any notice to Optionee shall be
addressed to Optionee at the current address shown on the payroll records of the
Company. Any notice shall be deemed to be duly given if and when properly
addressed and posted by registered or certified mail, postage prepaid.

     15. Incorporation of Plan by Reference. The Option is granted pursuant to
         ----------------------------------
the terms of the Plan, the terms of which are incorporated herein by reference,
and the Option shall in all respects be subject to the terms of the Plan and be
interpreted in accordance with the Plan. The Board shall interpret and construe
the Plan and this instrument, and its interpretations and determinations shall
be conclusive and binding on the parties hereto and any other person claiming an
interest hereunder, with respect to any issue arising hereunder or thereunder.
Terms used herein not otherwise defined shall have the meaning assigned to them
in the Plan.

     16. Governing Law. The validity, construction, interpretation and effect of
         -------------
this instrument shall exclusively be governed by and determined in accordance
with the law of the State of Delaware without regard to principles of conflict
of laws.

                            [signature page follows]

                                       4



     IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Non-Qualified Stock Option Agreement, and Optionee has placed his
or her signature hereon, effective as of the Date of Grant.

                                          Computer Programs and Systems, Inc.


                                          By:
                                              ----------------------------------
                                                   Name:
                                                        ------------------------
                                                   Its:
                                                       -------------------------

                                          AGREED TO AND ACCEPTED:


                                          By:
                                              ----------------------------------
                                                           Optionee

                                          --------------------------------------
                                          (Print Name)

                                          --------------------------------------
                                          (Address)

                                          --------------------------------------
                                          (City)     (State)     (Zip)

                                       5

EX-10.5

                                                                   EXHIBIT 10.5

                                   AGREEMENT

   THIS AGREEMENT ("this Agreement") made and entered into effective July 1,
1999, by and among DENNIS P. WILKINS, M. KENNY MUSCAT, AND JOHN MORRISSEY
(collectively, "Sellers" and individually, "Seller"), and DAVID A. DYE, M.
STEPHEN WALKER, JOHN BOYD DOUGLAS, JR., MELLISSA A. HAMMONS, PATRICK A. IMMEL,
THOMAS W. PETERSON, AND VICTOR S. SCHNEIDER (collectively, "Buyers" and
individually, "Buyer"), COMPUTER PROGRAMS AND SYSTEMS, INC., an Alabama
corporation (the "Corporation"), and AMSOUTH BANK (the "Lender").

                                  WITNESSETH:

   WHEREAS, each of the Sellers is selling certain Non-Voting Common Stock to
each of the Buyers in the proportions set forth on Exhibits "A", "B", and "C"
hereto;

   WHEREAS, the Sellers, the Buyers and the Corporation have requested that the
Lender finance the Buyers' acquisition of the above-described Non-Voting Common
Stock and the Lender has agreed to do so provided that, among other things, the
Corporation agrees to purchase the money loans made to the Buyers under the
circumstances set forth herein; and

   WHEREAS, the sale by Sellers to Buyers is of material benefit to the
Corporation in that it induces the Buyers to remain as employees of the
Corporation and become long-term employees of the Corporation; and

   NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the parties hereto do hereby agree as follows:

   1.  MATERIAL INDUCEMENT.  The Corporation, the Sellers, and the Buyers
acknowledge that their respective obligations under this Agreement are a
material inducement to the Bank to make the loans described herein.

   2.  EVIDENCE OF AND SECURITY FOR INDEBTEDNESS.  The loan to each of the
Buyers (each such loan as the same be renewed, extended, modified or
restructured is hereinafter sometimes referred to as "Loan") shall be evidenced
by a promissory note signed by such Buyer in favor of the Lender and secured by
a pledge of the Non-Voting Common Stock shares purchased by such Buyer
hereunder. Other than the foregoing pledge in favor of the Lender, for so long
as the purchase money lent by the Lender to such Buyer remains outstanding, no
Buyer shall transfer, sell, mortgage, place a security interest or lien upon,
or otherwise dispose of the shares purchased with funds lent to such Buyer by
Lender or resulting from recapitalizations or stock dividends that adjust the
outstanding shares of the Corporation's capital stock.

                                      1



   3.  PURCHASE REQUIREMENT.  (a) In the event that (i) the employment of a
Buyer by the Corporation is terminated, at either the election of the
Corporation or such Buyer (a termination arising as a result of the Buyer's
death shall not be deemed a termination of employment for these purposes), or
(ii) the Lender declares a default by a Buyer under such Buyer's promissory
note (as the same may have been renewed, extended, modified or extended from
time to time) and/or pledge agreement to Lender, then the Corporation shall
purchase from the Lender, and the Lender shall sell to the Corporation, the
Loan made by the Lender to such Buyer whose employment was terminated or whose
promissory note and/or pledge agreement in favor of the Lender was declared to
be in default for cash within thirty (30) days after the termination of said
employment of such Buyer or the declaration of default of such Buyer's
promissory note and/or pledge agreement in favor of the Lender, as the case may
be.

   (b)  In addition, so long as any Loan remains unpaid, in the event that:

      (i)  as of any date, the total shareholders' equity (including capital
   stock, additional paid in capital and retained earnings after deducting
   treasury stock) which would appear on a balance sheet for the Corporation
   prepared as of such date in accordance with those generally accepted
   accounting principles and practices that are recognized by the American
   Institute of Public Accountants acting through its Accounting Principles
   Board or by the Financial Accounting Standards Board or through other
   appropriate boards or committees thereof and which are consistently applied
   for all periods after the date hereof as to properly affect the financial
   condition of the Corporation and the results of operations and changes in
   financial position of the Corporation with such changes in accounting
   principles and practices as are required by said Accounting Principles Board
   of Financial Accounting Standards Board (or other appropriate board or
   committee of said Boards) in order to continue as a generally accepted
   accounting principle or practice ("Generally Accepted Accounting Principles"
   or "GAAP") shall be less than $6,800,000.00;

      (ii)  the Corporation shall incur, create, contract, waive, assume, have
   outstanding, guarantee or otherwise be or become, directly or indirectly,
   liable with respect to any indebtedness, liability or obligation, whether
   contingent, liquidated or mature, to any person or entity other than Lender
   that would be reflected on the Corporations's balance sheet prepared in
   accordance with GAAP except for current liabilities for taxes and
   assessments incurred in the ordinary course of the Corporation's business,
   accounts payable or accrued that are incurred in the ordinary course of the
   Corporation's business and are promptly paid and discharged in accordance
   with customary trade terms, leases of personal property used in the business
   of the Corporation, and indebtedness reflected in the Corporation's latest
   financial statements provided to the Lender prior to the date of this
   Agreement;

      (iii)  the ratio of (1) the Corporation's income (or deficit) before
   provision for income taxes for any fiscal year of the Corporation, plus the
   Corporation's interest expenses for such period, plus the Corporation's
   non-cash expenses such as depreciation for such period, plus the expenses
   for rental of operational facilities for the Corporation for such period to
   (2) any dividends, including the value of any in kind dividends, paid or
   declared to the Corporation's shareholders during such period, plus the
   Corporation's interest expenses for such period, plus the amount of any
   principal reductions in the Corporation's indebtedness during said period,
   plus the expenses for rental of operational facilities for the Corporation
   for such period shall fail to be 1.1:1 or greater; or

      (iv)  the Corporation shall fail to comply with the requirements of
   Paragraph 3 or Paragraph 4 of this Agreement,

then the Corporation shall purchase from the Lender, and the Lender shall sell
to the Corporation, for cash within thirty (30) days for a demand by the
Lender, each Loan made by the Lender to any and all of the Buyers who have not
satisfied such indebtedness in full.

                                      2



   (c)  In the event the Corporation is obligated in accordance with the terms
of this Agreement to purchase any Loan made to a Buyer, the purchase price
shall be an amount equal to the outstanding principal balance of such Loan plus
all accrued interest and other charges permitted under the loan documentation,
and the Lender shall assign such indebtedness, the evidence thereof, and the
security therefor, to the Corporation without warranty, representation or
recourse of any kind whatsoever other than as to the outstanding balance
thereof and that no encumbrances were created by the Lender.

   4.  FINANCIAL STATEMENTS AND CERTIFICATES.  Within ninety days of the end of
each of the Corporation's fiscal years while this Agreement remains in effect,
the Corporation shall provide to the Lender (a) financial statements as of the
end of such fiscal year, including without limitation a balance statement and
statements of income and expenses both for such fiscal year and comparative to
the prior fiscal year of the Corporation, and (b) a certificate of the chief
financial officer of the Corporation certifying that each of the Buyers who is
not deceased remains an employee of the Corporation and that no condition
exists that would require the Corporation to purchase the indebtedness of the
Buyers pursuant to paragraph 3(b) hereof. In addition, the Corporation shall
deliver to the Lender such additional financial information as the Lender might
reasonably request.

   5.  RELATIONSHIP OF PARTIES AND INDEMNITY.  The Corporation and the Buyers
acknowledge that the Lender is not a principal in the sale of the Non-Voting
Common Stock by the Sellers to the Buyers or the purchase of the same by the
Buyers and is not the agent of either the Corporation or of any of the Buyers
but, rather, is merely financing said purchase by the Buyers. Accordingly, the
Corporation, each of the Sellers, and each of the Buyers hereby agree to
indemnify and hold harmless the Lender from any and all claims, losses, and
liabilities, including without limitation any costs incurred in defending
against any such claims, losses, and liabilities or in collecting or attempting
to collect on its right to be indemnified hereunder, relating to the sale of
Non-Voting Common Stock by the Seller and the purchase of the same by the
Buyers or relating to the sale by the Lender to the Corporation of any Loan.

   6.  SUCCESSORS, HEIRS, EXECUTORS AND ADMINISTRATORS.  This Agreement shall
be binding upon the parties hereto and their respective successors, heirs,
executors, administrators, successors and assigns.

   7.  APPLICABLE LAW.  This Agreement has been executed in the State of
Alabama, and shall be governed by and construed in accordance with the laws
thereof.

                                      3



   IN WITNESS WHEREOF, the said COMPUTER PROGRAMS AND SYSTEMS, INC. and AMSOUTH
BANK have each caused its respective name to be signed hereto by its duly
authorized officer and the Sellers and Buyers have hereunto set their
respective hands and seals, as of the month, day and year first hereinabove
written.


                                       CORPORATION:

                                       COMPUTER PROGRAMS AND SYSTEMS, INC.

                                       By:      /s/  David A. Dye
                                           -----------------------------------
                                       As its:         President

ATTEST:

By:      /s/   M.S. Walker
     ----------------------------
Its:       Secretary/Treasurer


                                       LENDER:

                                       AMSOUTH BANK

                                       By:         /s/  Claire G. Baker
                                           ------------------------------------
                                       As its:        Vice President


                                       SELLERS:

                                               /s/  Dennis P. Wilkins
                                       ----------------------------------------
                                       DENNIS P. WILKINS


                                                /s/  M. Kenny Muscat
                                       ----------------------------------------
                                       M. KENNY MUSCAT


                                                 /s/  John Morrissey
                                       ----------------------------------------
                                       JOHN MORRISSEY

                                      4



                                                   BUYERS:


                                                   /s/  David A. Dye
                                                   -----------------------------
                                                   DAVID A. DYE


                                                   /s/  M. Stephen Walker
                                                   -----------------------------
                                                   M. STEPHEN WALKER


                                                   /s/  John Boyd Douglas, Jr.
                                                   -----------------------------
                                                   JOHN BOYD DOUGLAS, JR.


                                                   /s/  Mellissa A. Hammons
                                                   -----------------------------
                                                   MELLISSA A. HAMMONS


                                                   /s/  Patrick A. Immel
                                                   -----------------------------
                                                   PATRICK A. IMMEL


                                                   /s/  Thomas W. Peterson
                                                   -----------------------------
                                                   THOMAS W. PETERSON


                                                   /s/  Victor S. Schneider
                                                   -----------------------------
                                                   VICTOR S. SCHNEIDER

                                      5

EX-10.6

                                                                   EXHIBIT 10.6

                                   AGREEMENT

   THIS AGREEMENT ("this Agreement") made and entered into effective May 18,
2001, by and among DENNIS P. WILKINS ("Seller"), and M. STEPHEN WALKER and JOHN
BOYD DOUGLAS, JR. (collectively, "Buyers" and individually, "Buyer"), COMPUTER
PROGRAMS AND SYSTEMS, INC., an Alabama corporation (the "Corporation"), and
AMSOUTH BANK (the "Lender").

                                  WITNESSETH:

   WHEREAS, Seller is selling certain Non-Voting Common Stock to each of the
Buyers in the proportions set forth on Exhibit "A" hereto;

   WHEREAS, the Seller, the Buyers and the Corporation have requested that the
Lender finance the Buyers' acquisition of the above-described Non-Voting Common
Stock and the Lender has agreed to do so provided that, among other things, the
Corporation agrees to purchase the money loans made to the Buyers under the
circumstances set forth herein; and

   WHEREAS, the sale by Seller to Buyers is of material benefit to the
Corporation in that it induces the Buyers to remain as employees of the
Corporation and become long-term employees of the Corporation; and

   NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the parties hereto do hereby agree as follows:

   1.  MATERIAL INDUCEMENT.  The Corporation, the Seller, and the Buyers
acknowledge that their respective obligations under this Agreement are a
material inducement to the Bank to make the loans described herein.

   2.  EVIDENCE OF AND SECURITY FOR INDEBTEDNESS.  The loan to each of the
Buyers (each such loan as the same be renewed, extended, modified or
restructured is hereinafter sometimes referred to as "Loan") shall be evidenced
by a promissory note signed by such Buyer in favor of the Lender and secured by
a pledge of the Non-Voting Common Stock shares purchased by such Buyer
hereunder. Other than the foregoing pledge in favor of the Lender, for so long
as the purchase money lent by the Lender to such Buyer remains outstanding, no
Buyer shall transfer, sell, mortgage, place a security interest or lien upon,
or otherwise dispose of the shares purchased with funds lent to such Buyer by
Lender or resulting from recapitalizations or stock dividends that adjust the
outstanding shares of the Corporation's capital stock.

                                      1



   3.  PURCHASE REQUIREMENT.  (a) In the event that (i) the employment of a
Buyer by the Corporation is terminated, at either the election of the
Corporation or such Buyer (a termination arising as a result of the Buyer's
death shall not be deemed a termination of employment for these purposes), or
(ii) the Lender declares a default by a Buyer under such Buyer's promissory
note (as the same may have been renewed, extended, modified or extended from
time to time) and/or pledge agreement to Lender, then the Corporation shall
purchase from the Lender, and the Lender shall sell to the Corporation, the
Loan made by the Lender to such Buyer whose employment was terminated or whose
promissory note and/or pledge agreement in favor of the Lender was declared to
be in default for cash within thirty (30) days after the termination of said
employment of such Buyer or the declaration of default of such Buyer's
promissory note and/or pledge agreement in favor of the Lender, as the case may
be.

   (b)  In addition, so long as any Loan remains unpaid, in the event that:

      (i)  as of any date, the total shareholders' equity (including capital
   stock, additional paid in capital and retained earnings after deducting
   treasury stock) which would appear on a balance sheet for the Corporation
   prepared as of such date in accordance with those generally accepted
   accounting principles and practices that are recognized by the American
   Institute of Public Accountants acting through its Accounting Principles
   Board or by the Financial Accounting Standards Board or through other
   appropriate boards or committees thereof and which are consistently applied
   for all periods after the date hereof as to properly affect the financial
   condition of the Corporation and the results of operations and changes in
   financial position of the Corporation with such changes in accounting
   principles and practices as are required by said Accounting Principles Board
   of Financial Accounting Standards Board (or other appropriate board or
   committee of said Boards) in order to continue as a generally accepted
   accounting principle or practice ("Generally Accepted Accounting Principles"
   or "GAAP") shall be less than $6,800,000.00;

      (ii)  the Corporation shall incur, create, contract, waive, assume, have
   outstanding, guarantee or otherwise be or become, directly or indirectly,
   liable with respect to any indebtedness, liability or obligation, whether
   contingent, liquidated or mature, to any person or entity other than Lender
   that would be reflected on the Corporations's balance sheet prepared in
   accordance with GAAP except for current liabilities for taxes and
   assessments incurred in the ordinary course of the Corporation's business,
   accounts payable or accrued that are incurred in the ordinary course of the
   Corporation's business and are promptly paid and discharged in accordance
   with customary trade terms, leases of personal property used in the business
   of the Corporation, and indebtedness reflected in the Corporation's latest
   financial statements provided to the Lender prior to the date of this
   Agreement;

      (iii)  the ratio of (1) the Corporation's income (or deficit) before
   provision for income taxes for any fiscal year of the Corporation, plus the
   Corporation's interest expenses for such period, plus the Corporation's
   non-cash expenses such as depreciation for such period, plus the expenses
   for rental of operational facilities for the Corporation for such period to
   (2) any dividends, including the value of any in kind dividends, paid or
   declared to the Corporation's shareholders during such period, plus the
   Corporation's interest expenses for such period, plus the amount of any
   principal reductions in the Corporation's indebtedness during said period,
   plus the expenses for rental of operational facilities for the Corporation
   for such period shall fail to be 1.1:1 or greater; or

      (iv)  the Corporation shall fail to comply with the requirements of
   Paragraph 3 or Paragraph 4 of this Agreement,

then the Corporation shall purchase from the Lender, and the Lender shall sell
to the Corporation, for cash within thirty (30) days for a demand by the
Lender, each Loan made by the Lender to any and all of the Buyers who have not
satisfied such indebtedness in full.

                                      2



   (c)  In the event the Corporation is obligated in accordance with the terms
of this Agreement to purchase any Loan made to a Buyer, the purchase price
shall be an amount equal to the outstanding principal balance of such Loan plus
all accrued interest and other charges permitted under the loan documentation,
and the Lender shall assign such indebtedness, the evidence thereof, and the
security therefor, to the Corporation without warranty, representation or
recourse of any kind whatsoever other than as to the outstanding balance
thereof and that no encumbrances were created by the Lender.

   4.  FINANCIAL STATEMENTS AND CERTIFICATES.  Within ninety days of the end of
each of the Corporation's fiscal years while this Agreement remains in effect,
the Corporation shall provide to the Lender (a) financial statements as of the
end of such fiscal year, including without limitation a balance statement and
statements of income and expenses both for such fiscal year and comparative to
the prior fiscal year of the Corporation, and (b) a certificate of the chief
financial officer of the Corporation certifying that each of the Buyers who is
not deceased remains an employee of the Corporation and that no condition
exists that would require the Corporation to purchase the indebtedness of the
Buyers pursuant to paragraph 3(b) hereof. In addition, the Corporation shall
deliver to the Lender such additional financial information as the Lender might
reasonably request.

   5.  RELATIONSHIP OF PARTIES AND INDEMNITY.  The Corporation and the Buyers
acknowledge that the Lender is not a principal in the sale of the Non-Voting
Common Stock by the Sellers to the Buyers or the purchase of the same by the
Buyers and is not the agent of either the Corporation or of any of the Buyers
but, rather, is merely financing said purchase by the Buyers. Accordingly, the
Corporation, the Seller, and each of the Buyers hereby agree to indemnify and
hold harmless the Lender from any and all claims, losses, and liabilities,
including without limitation any costs incurred in defending against any such
claims, losses, and liabilities or in collecting or attempting to collect on
its right to be indemnified hereunder, relating to the sale of Non-Voting
Common Stock by the Seller and the purchase of the same by the Buyers or
relating to the sale by the Lender to the Corporation of any Loan.

   6.  SUCCESSORS, HEIRS, EXECUTORS AND ADMINISTRATORS.  This Agreement shall
be binding upon the parties hereto and their respective successors, heirs,
executors, administrators, successors and assigns.

   7.  APPLICABLE LAW.  This Agreement has been executed in the State of
Alabama, and shall be governed by and construed in accordance with the laws
thereof.

                                      3



   IN WITNESS WHEREOF, the said COMPUTER PROGRAMS AND SYSTEMS, INC. and AMSOUTH
BANK have each caused its respective name to be signed hereto by its duly
authorized officer and the Seller and Buyers have hereunto set their respective
hands and seals, as of the month, day and year first hereinabove written.


                                         CORPORATION:

                                         COMPUTER PROGRAMS AND SYSTEMS, INC.

                                         By:       /s/  David A. Dye
                                             ----------------------------------
                                         As its:          President

ATTEST:

By:      /s/  M.S. Walker
     -------------------------
Its:    Secretary/Treasurer


                                         LENDER:

                                         AMSOUTH BANK

                                         By:       /s/  Claire G. Baker
                                             ----------------------------------
                                         As its:        Vice President


                                        SELLER:



                                                /s/  Dennis P. Wilkins
                                        ---------------------------------------
                                        DENNIS P. WILKINS

                                      4



                                                   BUYERS:


                                                      /s/  M. Stephen Walker
                                                   -----------------------------
                                                   M. STEPHEN WALKER


                                                    /s/  John Boyd Douglas, Jr.
                                                   -----------------------------
                                                   JOHN BOYD DOUGLAS, JR.

                                      5

EX-16.1

                                                                    Exhibit 16.1

April 30, 2002


Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Dear Madam or Sir:

We have read the statements under the caption "Change of Independent Auditors"
made by Computer Programs and Systems, Inc. (the Company), included as part of
Amendment No. 1 to the Company's Registration Statement on Form S-1 dated April
30, 2002. We agree with the statements concerning our Firm under such caption in
the Form S-1.


Very truly yours,

/s/ Wilkins Miller, P.C.
- --------------------------
Wilkins Miller, P.C.

EX-23.1

                                                                    Exhibit 23.1

               Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 15, 2002 (except for Note 12 as to which the
date is _________, 2002) in Amendment No. 1 to the Registration Statement (Form
S-1 No. 333-84726) and related Prospectus of Computer Programs and Systems Inc.
for the registration of 3,000,000 shares of common stock.


                                                               Ernst & Young LLP

Birmingham, Alabama

The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 12 to the financial
statements.

                                                           /s/ Ernst & Young LLP

Birmingham, Alabama
April 30, 2002

EX-23.2

                                                                   Exhibit 23.2


             Consent of Wilkins Miller, P.C., Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 16, 2001 (except for Note 12 as to which the
date is _________, 2002) in Amendment No. 1 to the Registration Statement (Form
S-1 No. 333-84726) and related Prospectus of Computer Programs and Systems, Inc.
for the registration of 3,000,000 shares of common stock.

                                   Wilkins Miller, P.C.


Mobile, Alabama



The foregoing consent is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 12 to the financial
statements.

                                   /s/ Wilkins Miller, P.C.

Mobile, Alabama
April 30, 2002