-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NwzrV4tw8rl/If/HJqqpfrACrY8xS8nvzJbQpSqsBMt1POpPXqphcsMSjPnyaH0v mvNJi72ym8ez956XCt4ICA== 0000950144-00-003784.txt : 20000328 0000950144-00-003784.hdr.sgml : 20000328 ACCESSION NUMBER: 0000950144-00-003784 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PER SE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000878556 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 581651222 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19480 FILM NUMBER: 580071 BUSINESS ADDRESS: STREET 1: 2840 MT WILKINSON PARKWAY STREET 2: SUITE 300 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7704445300 MAIL ADDRESS: STREET 1: 2700 CUMBERLAND PKWY STREET 2: STE 300 CITY: ATLANTA STATE: GA ZIP: 30339 FORMER COMPANY: FORMER CONFORMED NAME: MEDAPHIS CORP DATE OF NAME CHANGE: 19931027 10-K405 1 PER-SE TECHNOLOGIES, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________ COMMISSION FILE NUMBER 000-19480 PER-SE TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 58-1651222 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2840 MT. WILKINSON PARKWAY 30339-3632 ATLANTA, GEORGIA (Zip Code) (Address of Principal Executive Offices)
(770) 444-5300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------- ----------------------- None None
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of Class) --------------------- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 15, 2000 was approximately $186,676,156 calculated using the closing price on such date of $6.25. The number of shares outstanding of the Registrant's common stock (the "Common Stock") as of March 15, 2000 was 29,868,185. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2000 are incorporated herein by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PER-SE TECHNOLOGIES, INC. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS
PAGE OF FORM 10-K --------- Item 1. Business.................................................... 1 Item 2. Properties.................................................. 5 Item 3. Legal Proceedings........................................... 6 Item 4. Submission of Matters to a Vote of Security Holders......... 6 Item 5. Market for the Registrant's Common Equity and Related 8 Stockholder Matters......................................... Item 6. Selected Financial Data..................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations................................... Item 8. Financial Statements and Supplementary Data................. 18 Item 9. Changes in and Disagreements with Accountants on Accounting 18 and Financial Disclosure.................................... Item 10. Directors and Executive Officers of the Registrant.......... 18 Item 11. Executive Compensation...................................... 19 Item 12. Security Ownership of Certain Beneficial Owners and 19 Management.................................................. Item 13. Certain Relationships and Related Transactions.............. 19 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 19 8-K.........................................................
--------------------- THIS FORM 10-K AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY PER-SE TECHNOLOGIES, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. 15 U.S.C.A SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF PER-SE TECHNOLOGIES, INC. AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-K, AND ARE HEREBY INCORPORATED BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME. 3 PART I ITEM 1. BUSINESS OVERVIEW OF COMPANY Per-Se Technologies, Inc. ("Per-Se" or the "Company"), a corporation organized in 1985 under the laws of the State of Delaware and formerly known as Medaphis Corporation, is a global leader in delivering technology-enabled business management services, financial and clinical software solutions and Internet-enabled connectivity and e-health solutions to healthcare providers. Per-Se delivers its services and products through its three operating segments: Physician Services, Application Software and e-Health. The Physician Services segment provides business management services to physicians and healthcare organizations, including clinical data collection, data input, medical coding, billing, contract management, cash collections and accounts receivable management. These services are designed to assist healthcare providers with the business management functions associated with the delivery of healthcare services, allowing physicians and hospital staff to focus on providing quality patient care. These services also assist physicians and healthcare organizations in improving cash flows and reducing administrative costs and burdens. The Application Software segment provides financial and clinical software including patient scheduling, staff management, clinical information systems and patient financial management software. These applications enable healthcare organizations to simultaneously optimize the quality of care delivered and the profitability of business operations. The e-Health segment offers Internet-enabled and private network connectivity to both integrated healthcare delivery networks and physician practices, including electronic claims processing, referral submissions, eligibility verification and other electronic and paper transaction processing. In addition, e-Health offers physician practice management software as Application Service Provider ("ASP") to physician practices. Per-Se markets its products and services primarily to integrated healthcare delivery networks ("IDNs"), hospitals, physician practices, long-term care facilities, home health providers and managed care organizations. RECENT DEVELOPMENTS In 1999, the Company completed the sale of its consulting services segment, Impact Innovations Group ("Impact"), comprised of two divisions: commercial and government. After reviewing several alternatives for Impact throughout 1998, management concluded a sale of this segment would generate the greatest return to the stockholders and finalized its plan to sell Impact. The Company sold the commercial division of Impact to Complete Business Solutions, Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. The government division of Impact was sold on December 17, 1999 to J3 Technology Services Corp. for initial consideration of $45.0 million, subject to certain closing adjustments. The results of operations for Impact and Medaphis Services Corporation ("Hospital Services"), which was sold in November of 1998, have been classified as discontinued operations for all periods presented. On August 16, 1999, the Company combined the operations of its core businesses, Physician Services (formerly known as Medaphis Physician Services), Application Software and e-Health (formerly known as Per-Se Technologies) and changed its name from Medaphis Corporation to Per-Se Technologies, Inc. The new organization reflects the Company's strategic focus on expanding its leading-edge technology solutions and technology-enabled business management services to create the market's most integrated end-to-end revenue optimization solution for healthcare providers. Revenue optimization in healthcare refers to providing the appropriate level of cost-effective, quality care and obtaining the proper reimbursement as quickly as possible. The combined business offers a unique portfolio of integrated software solutions, expert business management services and Internet-enabled connectivity. In addition, the Company changed its ticker symbol on The Nasdaq Stock Market(R)("Nasdaq") from MEDA to PSTI. 1 4 On November 23, 1999, a special meeting of the Company's stockholders was held at which the stockholders approved a one-for-three reverse split of the Company's Common Stock (the "Reverse Split"). The Reverse Split reduced the number of shares of the Company's Common Stock outstanding to approximately 30 million from approximately 90 million. This enabled the Company to bring its number of outstanding shares down to a level more consistent with companies of similar size and to maintain compliance with Nasdaq listing requirements. The Reverse Split had no effect on the number of shares that the Company is authorized to issue and no effect on the $0.01 par value of the Common Stock. No fractional shares were issued in the Reverse Split; instead, stockholders will be paid cash for any fractional shares. The numbers of shares, per share amounts and market prices of the Company's Common Stock set forth herein have been retroactively adjusted for all periods presented to reflect the Reverse Split. On March 16, 2000, the Company announced the formation of a separate e-Health segment. The e-Health segment has been managed historically as a part of either the Company's Physician Services or Application Software segment. Management believes that the formation of a separate segment will increase focus and resources dedicated to e-Health initiatives, enabling the Company to leverage its current capabilities. All business segment results set forth herein have been retroactively adjusted for all periods presented to reflect the formation of the e-Health segment. DESCRIPTION OF BUSINESS BY INDUSTRY SEGMENT The following description of the Company's business by industry segment should be read in conjunction with Note 16 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Physician Services Physician Services is the largest provider of comprehensive business management services, including clinical data collection, data input, medical coding, billing, contract management, cash collections and accounts receivable management to physicians and healthcare organizations in the United States. Physician Services supports approximately 15,000 physician clients in 39 states, offering practice support services, revenue growth consulting, cost management consulting and practice security services designed to help its physician clients optimize the business and administrative areas of their medical practices. Practice support services include physician credentialing, scheduling, coding and accounts receivable/revenue cycle management services. These services are designed to allow physicians to focus on providing healthcare, maintaining a stable patient base and remaining in compliance with complex healthcare rules and regulations without having to manage the billing and collections. Revenue growth consulting provides physician practices with a framework for revenue growth through strategic planning including merger planning and execution, fee schedule review utilizing geographic and specialty expertise and billing and accounts receivable management in order to optimize revenue from services provided while remaining in compliance with healthcare regulations. In its cost management consulting services, Physician Services uses proprietary technology solutions, industry expertise and a vast storehouse of medical specialty specific information to provide operations planning, benchmarking and productivity analysis for its physician clients. In addition, in complete practice reviews, Physician Services analyzes client accounts receivable and assists physician clients in optimizing payments while maintaining compliance with healthcare regulations. This allows physicians to better manage administrative productivity and control the expenses associated with providing high quality healthcare. Physician Services also provides practice security services that include compliance program design, monitoring and consulting. These services may also be utilized in conjunction with liability coverage for physician billing errors and omissions through a business partner to provide physician clients with peace of mind in the complex healthcare billing environment. 2 5 Physician Services' systems currently support approximately 30 different medical and surgical specialties. The majority of Physician Services' customers are in the hospital-based physician market. However, Physician Services is preparing for growth in the academic and surgical specialties markets. The Physician Services business is highly competitive. Physician Services competes with national and regional physician reimbursement organizations and certain physician groups and hospitals that provide their own business management services. Competition among these organizations is based upon the relationship with the client or prospective client, the efficiency and effectiveness of converting medical services to cash, the ability to provide proactive practice management services and, to the extent that service offerings are comparable, price. Application Software Application Software provides an integrated suite of patient-focused, enterprise-wide software and services that enable healthcare organizations to more effectively deliver quality care, manage resources, reduce costs, improve productivity and drive operational effectiveness. Application Software's products operate across the entire scope of the healthcare enterprise -- IDNs, managed care organizations, physician groups, payers, home health agencies and hospitals -- and manage more than 20 million lives on line. Application Software's customers, which include more than 2,000 healthcare organizations, depend on Application Software's solutions for many critical functions, including: providing access to real time, point-of-care clinical information and decision analysis capability across the continuum of care; automating enterprise-wide staff and patient scheduling; managing surgical inventory; and enhancing enterprise-wide staff productivity. Application Software is a market leader in several key areas of healthcare information technology, including nurse scheduling and productivity management, surgical scheduling and resource management and enterprise-wide staff and productivity management. Application Software competes against a variety of information technology companies, including those marketing comprehensive, enterprise-wide health information systems as well as niche and "best-of-breed" software application vendors. Application Software's competitors are primarily national companies, many of which have longer operating histories and greater financial resources than those of Application Software. Competition is based on product quality, ease of use and ease of integration of new products with other existing and planned applications. Many competitive offerings, however, operate on disparate technologies that are linked through complex interfaces. Application Software's integrated approach to its products and technologies enables it to deliver the real-time information management capabilities that are so critical in today's age of enterprise-wide healthcare. e-Health e-Health offers private network and Internet-based business-to-business e-health solutions to healthcare providers. These solutions include electronic claims and remittance advice processing, web-based provider compliance and productivity management reporting, an ASP-based physician practice management system, an Internet portal for healthcare statement review and electronic payment processing and high speed print and mail services. As a leader in electronic claims processing for healthcare, e-Health processes more than two hundred million transactions per year for physicians and healthcare organizations. This technology supports more than 140 governmental payer connections in 46 states and more than 300 commercial connections as well as claims processing for hospitals via more than 35 government connections in 15 states. e-Health competes against a variety of Internet healthcare technology companies, including those that have recently announced intentions to merge with traditional healthcare technology vendors. Many competitive offerings, however are entirely focused on the office-based physician, in contrast to e-Health's current 3 6 hospital-affiliated physician penetration. e-Health plans to extend its penetration in hospital-affiliated specialties, such as radiology, anesthesiology, pathology and emergency medicine, while also establishing a customer base in various surgical specialties. Competition in the e-health market is based on the number of electronic connections a vendor provides between healthcare providers and payers, as well as the value-added solutions that are offered (web-based reporting and applications). RESULTS BY INDUSTRY SEGMENT Information relating to the Company's industry segments, including revenue, operating profit or loss and identifiable assets attributable to each segment for each of the fiscal years ended 1999, 1998 and 1997 and as of December 31, 1999 and 1998, is presented in Note 16 of Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. HEALTHCARE INDUSTRY The Company's business is affected by, among other things, trends in the U.S. healthcare industry. As healthcare expenditures have grown as a percentage of the U.S. gross national product, increasing focus has been placed on the tremendous administrative costs associated with the delivery of care and the increasing incidence of medical errors. Payers have actively sought to control costs by, among other things, utilizing reimbursement methodologies, such as managed care and fixed fee and capitated reimbursement models, to supplant the more traditional fee-for-service structure. This shift to more restrictive reimbursement models, coupled with extensive regulatory control and government focus on fraud and abuse in the healthcare field, have helped to create a significantly more complex accounting, coding, billing and collection environment in healthcare. These issues create a positive marketing environment for the sale of software and services that reduce the resources spent by healthcare providers on administrative functions, that help ensure compliance in an ever more complex regulatory environment and for solutions that can reduce the opportunity for medical errors and improve the quality of care. The healthcare industry, like many others, experienced pressures unique to 1999. During 1999, healthcare providers were very focused on the effects of the Balanced Budget Act of 1997 (the "Balanced Budget Act"), on healthcare reimbursements and on Year 2000 remediation to ensure that their operations would not be adversely affected by the turn of the century. Management believes that the increased focus on Year 2000 readiness resulted in reduced focus and spending on new information technology or services projects. The Balanced Budget Act may reduce the reimbursement available to healthcare providers, potentially reducing the amount spent by healthcare providers for turnkey software solutions, but at the same time, potentially shifting information technology spending by healthcare providers to application service provider offerings or outsourced services. Management believes that the Year 2000 focus has adversely affected and could continue to adversely affect the revenue and profit margins of the Company's operations through the first half of 2000. Management also believes that the Balanced Budget Act will not affect the revenue and profit margins of the Company's operations, but that it will affect the mix of software and services that will be sold. REGULATION The Company's business is subject to numerous federal and state laws and to a broad range of complex regulations, programs to combat fraud and abuse and increasing restrictions on reimbursement for healthcare services. Each of the major federal healthcare payment programs (Medicare, Medicaid and TRICARE) has its own set of complex and sometimes conflicting regulations. Additional regulations have been mandated by the Balanced Budget Act and the Health Insurance Portability and Accountability Act ("HIPAA"), each of which could have a significant impact on the Company's business. A number of states have also imposed significant regulatory programs applicable to billing and payment for healthcare services. The federal government has maintained a significant emphasis on the prevention of healthcare fraud and abuse. Pursuant to the False Claims Act, the Medicare and Medicaid Patient and Program Protection Act and HIPAA, the federal government has statutory authority to impose both civil and criminal sanctions and 4 7 penalties for submission of false claims to governmental payers. Civil monetary penalties of up to $50,000 per offense may be imposed, as well as exclusion from participation in Medicare and other governmental healthcare programs. In addition, the False Claims Act allows a private party to bring a "qui tam" or "whistleblower" suit alleging the filing of false or fraudulent Medicare or Medicaid claims or other violations of the statute and to share in any damages and civil penalties paid to the government. The U.S. Health Care Financing Administration ("HCFA") also offers rewards for information leading to recovery of Medicare funds, and the agency has begun to engage private contractors to detect and investigate fraudulent billing practices. The Office of Inspector General ("OIG") of the U.S. Department of Health and Human Services has issued compliance guidance for third-party billing companies, recommending components for an effective billing company compliance program and identifying numerous risk areas associated with medical billing. These risk areas include billing for services not documented, unbundling, upcoding, routine waiver of copayment and deductible, etc. The OIG guidelines are widely used by healthcare providers as a standard for evaluating prospective billing contractors. The Company has an established compliance program addressing each of the areas covered by the OIG release. The OIG has announced plans to publish compliance guidance for physicians during 2000. These guidelines will likely serve as a benchmark for physician compliance plans. Both governmental and private payers continue to implement measures to restrict payments for healthcare services, including but not limited to bundling edits, medical necessity edits and post-payment audits. These measures may result in a decrease in revenue to the Company's provider clients and, as a result, a decrease in revenue derived by the Company from such clients as well as an increase in the cost of providing services. EMPLOYEES The Company currently employs approximately 5,750 full-time and part-time employees. The Company has no labor union contracts and believes relations with its employees are satisfactory. ITEM 2. PROPERTIES The Company's principal executive office is leased and is located in Atlanta, Georgia. The lease for that office expires in February 2005. Physician Services Physician Services' principal office is leased and is located in Atlanta, Georgia. The lease for that office expires in February 2005. In addition to its principal office, Physician Services, through its two operating subsidiaries, operates approximately 150 business offices throughout the United States. Two of the facilities are owned, one of which is encumbered by a deed of trust. All of the remaining facilities are leased with expiration dates ranging from March 2000 to June 2011. Application Software Application Software's principal office is leased and is located in Atlanta, Georgia. The lease for that office expires in February 2005. In addition to its principal office, Application Software, through its various operating subsidiaries, currently operates seven offices in the United States, Australia, Canada and Europe. These facilities are leased with expiration dates from March 2000 to December 2004. e-Health e-Health's principal office is leased and is located in Atlanta, Georgia. The lease for that office expires in February 2005. In addition to its principal office, e-Health currently operates eight offices in the United States. These facilities are leased with expiration dates from June 2000 to May 2005. 5 8 ITEM 3. LEGAL PROCEEDINGS The information required by this Item is included in Note 9 of Notes to Financial Statements in Item 8. Financial Statements and Supplementary Data on pages F-14 to F-15. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 23, 1999, a special meeting of the Company's stockholders was held at which the stockholders approved the Reverse Split. Votes cast were 65,480,934 for, 4,304,557 against and 62,143 abstained. 6 9 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the executive officers of the Company as of December 31, 1999:
YEAR FIRST NAME AGE POSITION ELECTED OFFICER - ---- --- --------------------------------- --------------- Allen W. Ritchie.................... 42 President and Chief Executive 1998 Officer Philip M. Pead...................... 47 Executive Vice President and 1999 Chief Operating Officer Wayne A. Tanner..................... 45 Executive Vice President and 1998 Chief Financial Officer Randolph L.M. Hutto................. 51 Executive Vice President, General 1997 Counsel and Secretary William J. DeZonia, Jr.............. 47 Senior Vice President and 1999 Chief Compliance Officer
Each of the above executive officers was elected by the Board of Directors to hold office until the next annual election of officers and until his successor is elected and qualified or until his earlier resignation or removal. ALLEN W. RITCHIE has served as the President and Chief Executive Officer of the Company since July 1998. He has also been a member of Per-Se's Board of Directors since July 1998. From April 1998 to July 1998, Mr. Ritchie served as President and Chief Operating Officer of the Company. From January 1998 to April 1998, he served as Executive Vice President and Chief Financial Officer of the Company. From 1991 to 1997, Mr. Ritchie served as a senior executive of AGCO Corporation, including as President and as a member of AGCO's Board of Directors. PHILIP M. PEAD has served as Executive Vice President and Chief Operating Officer of the Company since August 1999. Mr. Pead joined the Company in April 1997 as a senior executive in the Application Software and e-Health segments of the Company's business and he served as the President of those segments from May 1997 until August 1999. From May 1996 to April 1997, Mr. Pead was employed by Dun & Bradstreet Application Software as a senior executive with responsibility for international operations. From August 1994 to May 1996, he was employed by Attachmate Corporation, a leading provider of communications software, as a senior executive with responsibility for Asia Pacific and Latin American operations. WAYNE A. TANNER has served as Executive Vice President and Chief Financial Officer of the Company since September 1998. From 1990 until he joined the Company, Mr. Tanner was a partner with Arthur Andersen LLP. His business experience includes financial and strategic consulting, including corporate and operational finance, merger and acquisition assistance, troubled company and bankruptcy consulting, resolution of complex legal disputes and accounting and auditing services to numerous privately and publicly held companies. RANDOLPH L. M. HUTTO has served as Executive Vice President, General Counsel and Secretary of the Company since August 1997. From 1992 to August 1997, Mr. Hutto was employed by First Financial Management Corporation ("FFMC") and by First Data Corporation after its merger with FFMC, where he served in a variety of executive positions, including Senior Executive Vice President -- General Counsel and, most recently, Senior Vice President -- Planning and Development. Prior to that, Mr. Hutto was a partner in the law firm of Sutherland, Asbill & Brennan. WILLIAM J. DEZONIA, JR. has served as Senior Vice President and Chief Compliance Officer of the Company since August 1999. Mr. DeZonia joined Per-Se in December 1995 as a result of the acquisition of Medical Management Sciences, Inc. ("MMS"), where he was president and chief operating officer. Mr. DeZonia has more than 20 years experience in the healthcare industry. Prior to joining MMS in 1980, he worked for Blue Cross and Blue Shield of Virginia in claims processing and marketing capacities. 7 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on Nasdaq under the symbol PSTI. The prices in the table below represent the high and low sales prices, as adjusted for the Reverse Split, for the Common Stock as reported on Nasdaq for the periods presented. Such prices are based on inter-dealer bid and asked prices without markup, markdown or commissions and may not represent actual transactions.
YEAR ENDED DECEMBER 31, 1999 HIGH LOW - ---------------------------- ------- ------- First Quarter............................................. $16.875 $ 7.125 Second Quarter............................................ 17.438 7.500 Third Quarter............................................. 18.000 9.094 Fourth Quarter............................................ 10.500 6.000
YEAR ENDED DECEMBER 31, 1998 HIGH LOW - ---------------------------- ------- ------- First Quarter............................................. $37.500 $18.000 Second Quarter............................................ 33.000 17.438 Third Quarter............................................. 19.875 10.125 Fourth Quarter............................................ 13.688 7.875
The last reported sales price of the Common Stock as reported on Nasdaq on March 15, 2000 was $6.25 per share. As of March 15, 2000, the Company's Common Stock was held of record by 5,925 stockholders. Per-Se has never paid cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future but intends instead to retain any future earnings for reinvestment in its business. The Indenture dated as of February 20, 1998, with respect to the Company's outstanding 9 1/2% Senior Notes due 2005, contains restrictions on the Company's ability to declare or pay cash dividends on its Common Stock. 8 11 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial information for Per-Se for and as of each of the five fiscal years in the period ended December 31, 1999. The selected consolidated financial information of Per-Se has been derived from the audited consolidated financial statements of Per-Se which give retroactive effect to the 1995 mergers with Automation Atwork ("Atwork") and Healthcare Recoveries, Inc. ("HRI"), which was subsequently sold during 1997, and the 1996 mergers with Rapid Systems Solutions, Inc. ("Rapid Systems"), which was subsequently sold during 1999, BSG Corporation ("BSG"), which was subsequently sold in 1999 and Health Data Sciences Corporation ("HDS"), all of which have been accounted for using the pooling-of-interests method of accounting. All periods present the operations of Hospital Services and Impact (which primarily consists of Rapid Systems and BSG) as discontinued operations.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1999 1998 1997 1996 1995 -------- --------- -------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA Revenue........................... $322,129 $ 349,823 $392,420 $ 400,451 $369,034 Salaries and wages................ 212,940 226,894 242,228 247,204 207,332 Other operating expenses.......... 104,192 126,183 123,094 130,007 106,000 Depreciation...................... 20,177 23,848 22,481 20,266 9,358 Amortization...................... 9,293 18,077 21,069 21,382 14,107 Interest expense, net............. $ 16,102 $ 23,494 $ 23,398 $ 11,585 $ 10,156 Intangible asset impairment....... -- 390,641 -- -- -- Litigation settlements............ 24,811 35,987 52,500 -- -- Restructuring and other charges... -- 5,191 16,741 119,434 48,750 Loss from continuing operations... (64,776) (558,957) (92,523) (99,644) (17,704) Net loss(1)....................... (33,702) (560,214)(2) (19,303)(3) (137,337) (2,650) Pro forma net loss(4)............. (33,702) (560,214) (19,303) (136,358) (4,780) Weighted average shares outstanding.................... 28,097 25,673 24,226 23,742 17,530 PER SHARE DATA(4) Pro forma basic loss from continuing operations.......... $ (2.31) $ (21.77) $ (3.82) $ (4.20) $ (1.01) Pro forma basic net loss.......... $ (1.20) $ (21.82) $ (0.80) $ (5.74) $ (0.27)
AS OF DECEMBER 31, ---------------------------------------------------------- 1999 1998 1997 1996 1995 -------- --------- -------- --------- -------- (IN THOUSANDS) BALANCE SHEET DATA Working capital................... $ 93,304 $ 86,215 $ 64,522 $ 23,708 $ 54,909 Intangible assets................. 46,446 48,241 459,129 477,545 532,356 Total assets...................... 265,017 286,721 847,145 901,997 908,456 Total debt........................ 177,138 176,080 200,691 271,424 153,842 Convertible subordinated debentures..................... -- -- -- -- 63,375 Stockholders' equity.............. $ 1,440 $ 2,323 $501,781 $ 508,525 $554,008
- --------------- (1) Reflects the income (loss) from discontinued operations of $3.4 million, $ (0.1) million, $(0.7) million, $(37.7) million and $15.1 million for 1999, 1998, 1997, 1996 and 1995, respectively, and the gain on sale of discontinued operations of $27.7 million in 1999 and $7.2 million in 1998. (2) Reflects an $8.4 million extraordinary charge for the early extinguishment of debt. (3) Reflects the extraordinary income of $76.4 million relating to the sale of HRI and a $2.5 million charge for the change in accounting for business process reengineering costs incurred in connection with an information technology project, pursuant to Emerging Issues Task Force Consensus No. 97-13, Accounting for Costs Incurred in Connection with a Consulting or an Internal Project that Combines Business Process Reengineering and Information Technology. 9 12 (4) In 1995 and 1996, the Company acquired Atwork, Consort Technologies, Inc ("Consort"), Intelligent Visual Computing ("IVC"), Rapid Systems and BSG in merger transactions accounted for as poolings-of-interests. Prior to the mergers, Atwork, Consort, IVC, Rapid Systems and a company acquired by BSG prior to the Company's merger with BSG had elected "S" corporation status for income tax purposes. As a result of the mergers (or, in the case of the company acquired by BSG, its acquisition by BSG), such entities terminated their "S" corporation elections. Pro forma net income (loss) and pro forma net income (loss) per common share are presented in the consolidated statements of operations as if each of these entities had been a "C" corporation during the periods presented. 10 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Fiscal 1999 compared to Fiscal 1998 REVENUE. Revenue classified by the Company's reportable segments is as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- (IN THOUSANDS) Physician Services.......................................... $240,200 $264,323 Application Software........................................ 62,145 70,849 e-Health.................................................... 31,343 25,886 Eliminations................................................ (11,559) (11,235) -------- -------- $322,129 $349,823 ======== ========
Revenue for the Physician Services segment decreased 9% to $240.2 million in 1999 from $264.3 million in 1998. The decline in revenue is primarily attributable to Per-Se and client initiated discontinuances during the last quarter of 1998 and throughout 1999. However, the rate of client-initiated discontinuances continues to decrease. Physician Services recorded annualized new sales in 1999 of $41 million compared to $22 million in 1998. The decrease in Application Software's revenue of 12% from 1998 to 1999 was primarily attributable to percentage of completion accounting initiated in 1999 and lower clinical systems and scheduling products sales in 1999. Percentage of completion accounting delays software revenue recognition over the implementation period. e-Health revenue increased by 21% in 1999 as compared with 1998. This increase is a result of greater internal and external claims processing. Approximately $3.1 million, or 57%, of this increase was attributable to increases in volume in the Company's statement processing center ("Laser Center"). Approximately $1.9 million, or 35%, of the revenue increase resulted from electronic claims processed for Physician Services clients. OPERATING LOSS. Operating loss, which excludes restructuring and other charges, litigation settlements, intangible asset impairment and net interest expense, classified by the Company's different operating segments is as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- (IN THOUSANDS) Physician Services.......................................... $ (5,541) $(12,608) Application Software........................................ (1,071) (8,932) e-Health.................................................... (190) (912) Corporate................................................... (17,671) (22,727) -------- -------- $(24,473) $(45,179) ======== ========
Operating loss for the Physician Services segment decreased 56% to $5.5 million in 1999 compared to $12.6 million in 1998. The decrease is primarily attributable to the following: (1) decrease in depreciation expense due to assets becoming fully depreciated, (2) decrease in amortization expense due to the intangible asset impairment charge in 1998 and (3) a gain on the sale of an unprofitable portion of the Physician Services' emergency medicine services operations. Application Software's 1999 operating loss was 88% lower than in 1998. The decrease is primarily the result of increases to the allowance for doubtful accounts recognized in 1998 and lower salaries and wages expense in 1999. The operating loss for e-Health in 1999 was 79% lower than in 1998 primarily due to the previously mentioned increase in revenue. 11 14 The Company's corporate overhead costs decreased by 22% to $17.7 million in 1999 compared to $22.7 million in 1998. This reduction is primarily related to management's continued commitment to reduce operating costs while improving process efficiency. For the year ended 1998, certain corporate overhead expenses of $6.8 million and $2.6 million have been reclassified to the Physician Services segment and the Application Software segment, respectively. INTEREST. Net interest expense was $16.1 million for the year ended December 31, 1999 as compared to $23.5 million in the same period in 1998. The decrease is primarily related to less debt outstanding and interest income of $2.4 million generated from the short-term investment of cash. LITIGATION SETTLEMENTS. In June 1999, the Company accrued an estimated litigation settlement liability of $21.5 million related to the Company's legal dispute with Foundation Health Services, Inc. ("Foundation"), formerly Health Systems International, Inc., arising from Per-Se's June 1996 acquisition of Health Data Sciences Corporation ("HDS"). The estimated liability was based upon an agreement in principle with Foundation. When the agreement was finalized in October 1999, the cost to the Company was reduced to $17.0 million and as a result, $4.4 million of the litigation settlement liability was reversed. Also in June 1999, the Company accrued litigation settlement charges of $6.0 million related to litigation arising from Per-Se's December 1995 acquisition of Medical Management Sciences, Inc. ("MMS"). In addition, the Company paid $1.8 million to settle contract claims against the Company's wholly-owned operating subsidiary, PST Emergency Medicine Services, Inc. (formerly known as Gottlieb's Financial Services, Inc. or GFS) (the "Emergency Medicine" division) which arose in January 1998 in the ordinary course of business. The Company accrued $19.5 million during the third quarter of 1998 as a result of its resolution of two federal investigations into billing and collection practices of the Company. In June 1998, the Company accrued an estimated litigation settlement liability of $21.3 million associated with claims made on behalf of certain former BSG Corporation ("BSG") shareholders in connection with Per-Se's acquisition of BSG in June 1996. Such liability was estimated based upon a proposed settlement of approximately 1.1 million shares of Common Stock. This settlement was subsequently finalized for 1.7 million shares of Common Stock, and, based on the prevailing market price, the settlement was valued at $15.9 million. The Company reversed approximately $5.4 million of the litigation settlement liability in the fourth quarter of 1998 to reflect the final settlement value. RESTRUCTURING AND OTHER CHARGES. In 1999, the Company reevaluated the adequacy of its reserves for lease termination costs established in prior periods. As a result of this evaluation, the Company increased its lease termination reserve for Physician Services by $0.3 million and reduced Application Software's lease termination reserve by $0.3 million. In December 1998, management of Application Software adopted a plan to restructure its operations to align Application Software's resources more appropriately with future operational needs and new product development. In order to accomplish these objectives, Application Software's executive management terminated approximately 35 employees, primarily in the areas of professional services and research and development, and recorded severance costs of approximately $1.3 million. Other components of the 1998 charges were: (i) $0.7 million in non-cash property and equipment impairment charges associated with certain properties held for sale; (ii) $2.0 million in legal costs associated with various lawsuits and investigations; and (iii) $1.2 million of severance costs, primarily related to former executive officers. INCOME TAXES. During 1999 and 1998, the Company reassessed the recoverability of its deferred tax asset. Based on its analysis, the Company recorded a full valuation allowance against the net deferred tax asset in both years. If, during future periods, management believes the Company will generate sufficient taxable income to realize the deferred tax asset, the Company will adjust this valuation reserve accordingly. 12 15 DISCONTINUED OPERATIONS. Summarized financial information for the discontinued operations for the years ended December 31, 1999 and 1998 is as follows:
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 1999 1998 ------- ----------------------------- HOSPITAL IMPACT SERVICES IMPACT TOTAL ------- -------- ------- -------- (IN THOUSANDS) Revenue......................................... $54,916 $100,081 $79,731 $179,812 ======= ======== ======= ======== Income (loss) from discontinued operations before taxes.................................. 3,958 5,192 (5,263) (71) Income tax expense (benefit).................... 555 2,079 (2,079) -- ------- -------- ------- -------- Income (loss) from discontinued operations, net of tax........................................ $ 3,403 $ 3,113 $(3,184) $ (71) ======= ======== ======= ========
Management initiated a plan to focus the Company's financial and management resources on its three core healthcare segments, in an effort to return the Company to profitability. Management defined these segments as: Physician Services, Application Software and e-Health. In 1998, management began to seek alternatives for the remaining non-core business segments: Hospital Services and Impact. Although Hospital Services provided business management and accounts receivable management services to approximately 1,200 hospitals, the Company's management deemed the segment non-core as a substantial portion of the services offered was bad debt collection. Impact was deemed non-core as it did not provide consulting services to the healthcare industry. On November 30, 1998, the Company completed the sale of Hospital Services to NCO Group, Inc. ("NCO") for initial consideration of $107.5 million. In February 1999, the Company received additional proceeds of $0.5 million based on the Hospital Services final closing balance sheet. In addition, Per-Se could receive a purchase price adjustment of up to $10.0 million subject to Hospital Services' achievement of various operational targets in 1999. The purchase price adjustment will be determined by the second quarter of 2000. The Company recorded a $6.8 million gain, net of taxes of $5.4 million, as a result of this sale. In 1999, the Company completed the sale of both divisions of Impact. After reviewing several alternatives for Impact throughout 1998, management concluded a sale of this segment would generate the greatest return to the stockholders and finalized its plan to sell Impact. The Company sold the commercial division of Impact to Complete Business Solutions, Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. The government division of Impact was sold on December 17, 1999 to J3 Technology Services Corp. for initial consideration of $45.0 million, subject to certain closing adjustments. The Company recorded a $28.1 million gain as a result of the Impact sales. The results of operations for Hospital Services and Impact have been classified as discontinued operations for all periods presented. Fiscal 1998 compared to Fiscal 1997 REVENUE. Revenue classified by the Company's reportable segments is as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- (IN THOUSANDS) Physician Services.......................................... $264,323 $278,475 Application Software........................................ 70,849 85,037 e-Health.................................................... 25,886 25,342 HRI......................................................... -- 14,720 Eliminations................................................ (11,235) (11,154) -------- -------- $349,823 $392,420 ======== ========
13 16 Physician Services' revenue decreased by 5% in 1998 as compared to 1997. This decline was attributable both to operating problems at the Emergency Medicine division and to an increase in client losses within the entire Physician Services segment. Revenue declines attributable to client losses in 1998 at the Emergency Medicine division and Physician Services were approximately $22.9 million and $54.7 million, respectively. In addition, the Physician Services segment was affected by the revenue pressures on the physician accounts receivable operations resulting from an increase in managed care. Application Software's revenue decreased 17% in 1998 as compared with 1997. Approximately 67% of this decrease was a result of a slowdown in the sale of software licenses in its scheduling product lines. Management believes the slowdown was due primarily to certain technical problems with a prior release within its patient scheduling product line. Management believes these problems have been corrected and Application Software has made progress in rebuilding its relationship with clients. The overall revenue decline at Application Software was also impacted by a 13% decrease in revenue from the sale and support of clinical information systems. In the fourth quarter of 1998, the Company sold its first license for its newly released Patient1(TM) product; revenue from this license sale was recognized in 1999 over the installation period using the percentage of completion method of accounting. On May 28, 1997, Per-Se completed the sale of HRI and, as a result, there are only five months of revenue from HRI in 1997 and none in 1998. OPERATING PROFIT (LOSS). Operating profit (loss), which excludes restructuring and other charges, litigation settlements, intangible asset impairment and net interest expense, classified by the Company's different operating segments is as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- (IN THOUSANDS) Physician Services.......................................... $(12,608) $(11,402) Application Software........................................ (8,932) 19,560 e-Health.................................................... (912) 613 HRI......................................................... -- 3,685 Corporate................................................... (22,727) (28,908) -------- -------- $(45,179) $(16,452) ======== ========
The increase in the 1998 operating loss as compared to 1997 for the Physician Services segment is directly attributable to revenue declines resulting from the various operational issues in the Emergency Medicine division and client losses throughout the segment. The operating loss for Application Software in 1998 as compared to 1997's operating profit, was primarily a result of the previously mentioned decline in software license sales, increases in investments in new product development and an increase in its allowance for doubtful accounts receivable. During 1998, Application Software increased its reserves for bad debt by $7.3 million related to various receivables, including receivables from Allegheny Health, Education and Research Foundation and certain affiliates ("AHERF"), which filed for protection under Chapter 11 of the United States Bankruptcy Code. The Company believes that Application Software has corrected the problems in its patient scheduling product and that it has made progress in rebuilding its relationships with clients. These improvements are reflected in Application Software's 43% increase in its patient scheduling license sales in the fourth quarter of 1998 as compared with the sales in the third quarter of 1998. The operating loss for e-Health in 1998 as compared to an operating profit in 1997 was primarily the result of higher operating expenses. The Company's corporate overhead costs decreased by 21% for the year ended December 31, 1998 as compared to the previous year. This reduction is primarily the result of fewer professional service fees and a reduction of headcount resulting from process improvement initiatives. 14 17 INTEREST. Net interest expense in 1998 was approximately the same as it was in 1997. INTANGIBLE ASSET IMPAIRMENT. At September 30, 1998, the Company recorded an intangible asset impairment charge of $390.6 million to adjust the intangible assets of the Physician Services segment to their fair value. Management regularly monitors its results of operations and other developments within the industry to adjust its cash flow forecast, as necessary, to determine if an adjustment is necessary to the carrying value of the Company's intangible assets. LITIGATION SETTLEMENTS. The Company accrued $19.5 million during the third quarter of 1998 as a result of its resolution with the government concerning two federal investigations into billing and collection practices of the Company. In June 1998, the Company accrued an estimated litigation settlement liability of $21.3 million associated with claims made on behalf of certain former BSG shareholders in connection with Per-Se's acquisition of BSG in June 1996. Such liability was estimated based upon a proposed settlement of approximately 1.1 million shares of Common Stock. This settlement was subsequently finalized for 1.7 million shares of Common Stock, and, based on the prevailing market price, the settlement was valued at $15.9 million. The Company reversed approximately $5.4 million of the litigation settlement liability in the fourth quarter of 1998 to reflect the final settlement value. In 1997, the Company accrued a non-cash litigation settlement liability of $52.5 million for the settlement of a class action legal matter brought against the Company in 1996. The settlement was comprised of approximately 1.3 million shares of Common Stock and warrants to purchase 1.8 million shares of Common Stock at $36 per share for a five-year period. RESTRUCTURING AND OTHER CHARGES. In December 1998, management of Application Software adopted a plan to restructure its operations to align Application Software's resources more appropriately with future operational needs and new product development. In order to accomplish these objectives, Application Software's executive management terminated approximately 35 employees, primarily in the areas of professional services and research and development, and recorded severance costs of approximately $1.3 million. During 1997, the Company adopted a restructuring plan to combine the operations of Application Software and Impact (the "Application Software Restructuring"). The objective of the Application Software Restructuring was to improve profitability thorough capitalizing on perceived synergies of these similar businesses and better utilizing office space and other resources. In connection with the Application Software Restructuring, the Company recorded charges of approximately $1.1 million, primarily consisting of lease termination costs and severance costs. See "-- Discontinued Operations" where management's decision to sell Impact is discussed. In early 1995, the Company initiated a reengineering program focused upon its billing and accounts receivable management operations (the "Reengineering Project"). The objectives of the Reengineering Project were: (i) to improve profitability in the near term through office consolidations (the "Physician Services Restructuring Plan"); (ii) to improve longer-term profitability by developing technology and then leveraging such technology to make the Company's workflow process more efficient; and (iii) to standardize operating procedures through Physician Services. During 1997, the Company recognized additional restructuring expenses of approximately $1.7 million related to adjustments to the lease termination costs associated with the Physician Services Restructuring Plan. Other components of the 1998 charges were: (i) $0.7 million in non-cash property and equipment impairment charges associated with certain properties held for sale; (ii) $2.0 million in legal costs associated with various lawsuits and investigations; and (iii) $1.2 million of severance costs, primarily related to former executive officers. Other components of the 1997 amounts were: (i) $5.0 million in non-cash property and equipment impairment charges associated with Company's assessment of the recoverability of certain of its long-lived assets; (ii) $2.6 million in legal costs associated with various lawsuits and investigations; and (iii) $6.4 million of various other costs, including severance and other individually insignificant, non-recurring items. 15 18 INCOME TAXES. During 1998, the Company reassessed the recoverability of its deferred tax asset. Based on its analysis, the Company recorded a full valuation allowance against the net deferred tax asset. Effective income tax rates for 1997 vary from statutory rates primarily as a result of nondeductible goodwill associated with merger transactions consummated by the Company in previous years. DISCONTINUED OPERATIONS. Summarized financial information for the discontinued operations for the years ended December 31, 1998 and 1997 is as follows:
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1998 1997 ----------------------------- ------------------------------ HOSPITAL HOSPITAL SERVICES IMPACT TOTAL SERVICES IMPACT TOTAL -------- ------- -------- -------- -------- -------- (IN THOUSANDS) Revenue...................... $100,081 $79,731 $179,812 $97,095 $101,524 $198,619 ======== ======= ======== ======= ======== ======== Income (loss) from discontinued operation before taxes............... 5,192 (5,263) (71) 9,508 (10,419) (911) Income tax expense (benefit).................. 2,079 (2,079) -- 3,910 (4,115) (205) -------- ------- -------- ------- -------- -------- Income (loss) from discontinued operations, net of tax................. $ 3,113 $(3,184) $ (71) $ 5,598 $ (6,304) $ (706) ======== ======= ======== ======= ======== ========
EXTRAORDINARY ITEMS. In February 1998, the Company used the proceeds from the February 1998 issuance of Notes (see Liquidity and Capital Resources) and the Credit Facility to redeem the Company's then-current debt facility. In November 1998, the Company used $71.5 million of the $103.2 million net proceeds received from the sale of Hospital Services to repay and terminate the Credit Facility. The Company recorded extraordinary charges in 1998 of $8.4 million, net of tax of $3.8 million, to write-off the unamortized costs associated with the early extinguishment of both the Company's previous debt facility and the Credit Facility. On May 28, 1997, Per-Se sold HRI through an initial public offering of 100% of its stock, which generated net proceeds to the Company of $126.4 million. The Company recorded an extraordinary gain on the sale of HRI of $76.4 million, net of tax of $46.2 million, in the second quarter of 1997. Per-Se had acquired HRI on August 28, 1995 through a business combination accounted for as a pooling-of-interests. CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In November 1997, the Emerging Issues Task Force ("EITF") issued EITF 97-13 Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project that Combines Business Process Reengineering and Information Technology ("EITF 97-13"). EITF 97-13 requires process reengineering costs, as defined, which had been previously capitalized as part of an information technology project to be expensed in the quarter which includes November 1997. The Company recorded a charge of $2.5 million, net of tax of $1.6 million, in the fourth quarter of 1997 as a result of EITF 97-13. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $93.3 million at December 31, 1999, including $74.4 million of unrestricted cash and cash equivalents. The $19.9 million increase in cash and cash equivalents from December 31, 1998 is primarily the result of net proceeds from the sale of non-core operations and other assets totaling $57.2 million. The increase was offset by the payment of semi-annual interest payments required under the $175 million of 9 1/2% Senior Notes due 2005 (the "Notes") and payments related to the legal settlements with the government concerning the Emergency Medicine division and with Foundation. The Notes, which were sold on February 20, 1998, bear interest at the rate of 9 1/2% per annum, payable semi-annually on February 15 and August 15, commencing on August 15, 1998, and will mature on February 15, 2005. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 15, 2002, at a declining premium to par until 2004 and at par thereafter, plus accrued and unpaid interest. In addition, at any time on or prior to February 15, 2001, the Company may redeem up to 35% 16 19 of the original principal amount of the Notes at a redemption price equal to 109.5% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more equity offerings; provided that at least $100 million aggregate principal amount of the Notes remain outstanding immediately following any such redemption. Payment of principal, premium, if any, and interest on the Notes is fully and unconditionally guaranteed, on a senior unsecured basis, jointly and severally by all of the Company's present and future domestic restricted subsidiaries (the "Subsidiary Guarantors"). The financial statements of the Subsidiary Guarantors have not been presented as all subsidiaries, except for certain insignificant foreign subsidiaries, have provided guarantees and the parent company does not have any significant operations or assets, separate from its investment in subsidiaries. Any non-guarantor subsidiaries are insignificant individually and in the aggregate to the consolidated financial statements. The Company completed its divestiture of non-core operations in December 1999. The Company sold Hospital Services on November 30, 1998 for $103.2 million net proceeds. In February 1999, the Company received additional proceeds of $0.5 million based on Hospital Services' tangible net worth at closing. In addition, Per-Se could receive a purchase price adjustment of up to $10.0 million subject to Hospital Services' achievement of various operational targets in 1999. The purchase price adjustment will be determined by the second quarter of 2000. The Company sold the commercial division of Impact effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. The Company sold the government division of Impact on December 17, 1999 for approximately $45.0 million, subject to final closing adjustments that the Company expects to finalize in the first quarter of 2000. Under the Indenture governing the Notes, the balance of the excess proceeds, as defined, from the sale of Hospital Services, the two divisions of Impact or the sale of any other asset having a fair value in excess of $1.0 million, must be invested in the Company's business within 360 days of receipt of proceeds related to the sale. To the extent that such excess proceeds are not invested and the aggregate of excess proceeds is greater than $10.0 million, the Company is required to offer to repurchase the Notes at par with such proceeds. As of December 31, 1999, excess proceeds related to the sale of non-core operations and other assets totaled approximately $64.4 million. The excess proceeds are the result of various asset sales and, as such, these proceeds must be invested in the Company's business at varying points in time during 2000. The Company must invest a minimum of approximately $7.1 million by April 14, 2000 to preclude the Company's obligation to make an offer to repurchase Senior Notes at par during the second quarter of 2000 and a minimum of approximately $52.1 million must be invested by December 11, 2000 to preclude the Company's obligation to make an offer to repurchase Senior Notes at par in the first quarter of 2001. The Company believes that its current cash flow is sufficient to permit the Company to meet its operating expenses, service its debt requirements as they become due in the next twelve months and for the long term and to invest in the business; however, there can be no assurance that such results will be achieved. If the Company is unable to service its indebtedness, it will be required to adopt alternative strategies, which may include actions such as reducing or delaying capital expenditures, selling assets, restricting or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms. The degree to which the Company is leveraged could have the following consequences: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes may be impaired; and (ii) a substantial portion of the Company's cash flow from operations may be dedicated to the payment of principal and interest on its indebtedness thereby reducing the funds available to the Company for its operations. In addition, the Indenture for the Notes contains restrictive covenants, including without limitation those restricting the incurrence of additional indebtedness, the creation of liens, the payment of dividends and sales of assets. 17 20 To enhance the Company's financial flexibility, management is currently considering a new credit facility. This flexibility may enhance management's ability to make strategic investments in the business and better align working capital with Company operations. YEAR 2000 The Company did not experience any impact from the date change occurring between December 31, 1999 and January 1, 2000 (commonly known as the "Year 2000" problem) and does not expect to experience any significant impact from the Year 2000 problem (including related issues such as leap year) on its operations going forward. However, it is possible that the full impact of the Year 2000 problem has not yet been manifested and billing, payroll, monthly, quarterly or annual financial closings or other matters may be impacted by the Year 2000 problem. In conjunction with its Year 2000 efforts the Company replaced some outdated hardware and non-compliant software and consolidated its billing platforms from eighteen systems to six compliant systems ("Systems Assimilation") rather than make all the systems Year 2000 compatible. The Company completed the required transitions before the end of 1999. Through December 31, 1999, the Company had spent approximately $11.4 million on its Year 2000 and Systems Assimilation efforts. The Company developed contingency plans during the fourth quarter of 1998 and throughout 1999 in response to assessments of the Year 2000 readiness of customers, vendors and resellers. Although these contingency plans remain readily available, the Company was not required to implement any of them during 1999 or through current date 2000. NEW ACCOUNTING PRONOUNCEMENTS On December 3, 1999, the Securities and Exchange Commission (the "Commission") issued Staff Accounting Bulletin Number 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the Commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 provides interpretative guidance on the unbilled accounts receivable and related revenue recognition within the Company's industry. The Commission's guidance requires the accounting change to be reflected by the Company's quarter ended March 31, 2000. Therefore, consistent with the Commission's guidance and changing industry practice, the Company will begin recognizing revenue in its Physician Services segment on an "as billed" basis in fiscal 2000. The Company does not expect this change to significantly affect annual recognized revenue amounts. The change in accounting method will result in the elimination of approximately $38 million of unbilled accounts receivable. The one-time, cumulative charge in the Company's March 31, 2000 statement of operations will be approximately $23 million, on a net of tax basis. This will have no effect on cash flow. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements appear beginning at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item with respect to directors and executive officers of the Registrant, except certain information regarding executive officers which is contained in Part I of this Report pursuant to General Instruction G of Form 10-K, is included in the sections entitled "Management of the Company" and 18 21 "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2000 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is included in the sections entitled "Certain Information Regarding Executive Officers," "Compensation Committee Report on Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Stock Price Performance Graph" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2000 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included in the sections entitled "Management Common Stock Ownership" and "Principal Stockholders" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2000 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements Report of Independent Accountants; Consolidated Balance Sheets -- as of December 31, 1999 and 1998; Consolidated Statements of Operations -- years ended December 31, 1999, 1998 and 1997; Consolidated Statements of Cash Flows -- years ended December 31, 1999, 1998 and 1997; Consolidated Statements of Stockholders' Equity -- years ended December 31, 1999, 1998 and 1997; and Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Included in Part IV of the report: Report of Independent Accountants; Schedule II -- Valuation and Qualifying Accounts -- years ended December 31, 1999, 1998 and 1997 Schedules, other than Schedule II, are omitted because of the absence of the conditions under which they are required. 19 22 3. Exhibits The following list of exhibits includes both exhibits submitted with this Form 10-K as filed with the Commission and those incorporated by reference to other filings:
EXHIBIT NUMBER DOCUMENT - ------- -------- 2.1 -- Stock Purchase Agreement dated as of October 15, 1998, between Registrant and NCO Group, Inc. (incorporated by reference to Exhibit 2.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 2.2 -- Stock Purchase Agreement dated as of April 20, 1999, among Complete Business Solutions, Inc., E-Business Solutions.com, Inc., Impact Innovations Holdings, Inc. and Registrant (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on May 5, 1999). 2.3 -- Stock Purchase Agreement dated as of November 4, 1999, among J3 Technology Services Corp., Impact Innovations Holdings, Inc., Impact Innovations Government Group, Inc. and Registrant (incorporated by reference to Exhibit 2.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 3.1 -- Restated Certificate of Incorporation of Registrant. 3.2 -- Restated By-laws of Registrant. 4.1 -- Specimen Common Stock Certificate. 4.2 -- Form of Option Agreement relating to Registrant's Second Amended and Restated Non-Qualified Stock Option Plan. 4.3 -- Form of Option Agreement relating to Registrant's Senior Executive Performance Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-1, File No. 33-42216). 4.4 -- Form of Option Agreement relating to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-3, File No. 33-71552). 4.5 -- Form of Option Agreement relating to Registrant's Non-Employee Director Stock Option Plan. 4.6 -- Form of Option Agreement relating to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees. 4.7 -- Form of Option Agreement relating to Registrant's Restricted Stock Plan (incorporated by reference to Exhibit 4.5 to Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 000-19480 (the "1995 Form 10-K")). 4.8 -- Indenture dated as of February 20, 1998, among Registrant, as Issuer, the Subsidiary Guarantors named in the Indenture and State Street Bank and Trust Company, as Trustee (including form of note) (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on March 3, 1998). 4.9 -- Warrant Agreement dated as of July 8, 1998, between Registrant and SunTrust Bank, Atlanta, as Warrant Agent (including form of warrant certificate) (incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A filed on July 21, 1998). 4.10 -- Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company (including form of rights certificates) (incorporated by reference to Exhibit 4 to Current Report on Form 8-K filed on February 12, 1999). 4.11 -- Registration Rights Letter Agreement dated as of May 3, 1999, among NFT Ventures Inc., Raymond J. Noorda, Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and Registrant (incorporated by reference to Exhibit 4.8 to Registration Statement on Form S-3, file No. 333-78775). 10.1 -- Second Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Plan.
20 23
EXHIBIT NUMBER DOCUMENT - ------- -------- 10.2 -- Registrant's Senior Executive Performance Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 28.2 to Registration Statement on Form S-8, File No. 33-46847). 10.3 -- First Amendment to Registrant's Senior Executive Performance Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1993). 10.4 -- Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8, File No. 33-67752). 10.5 -- First Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 99 to Registration Statement on Form S-8, File No. 33-71556). 10.6 -- Second Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 99 to Registration Statement on Form S-8, File No. 33-88442). 10.7 -- Third Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 10.14 to the 1995 Form 10-K). 10.8 -- Fourth Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 99.2 to Registration Statement on Form S-8, File No. 333-3213). 10.9 -- Fifth Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8, File No. 333-07627). 10.10 -- Sixth Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by reference to Exhibit 10.21 to Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "1996 Form 10-K")). 10.11 -- Seventh Amendment to Registrant's Non-Qualified Stock Option Plan for Employees of Acquired Companies (incorporated by. reference to Exhibit 10.23 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 Form 10-K")). 10.12 -- Eighth Amendment to Registrant's Non-Qualified Stock Option Plan For Employees of Acquired Companies. 10.13 -- Registrant's Non-Employee Director Stock Option Plan, dated as of August 12, 1994 (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994). 10.14 -- First Amendment to Registrant's Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.25 to the 1998 Form 10-K). 10.15 -- Second Amendment to Registrant's Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1999). 10.16 -- Third Amendment to Registrant's Non-Employee Director Stock Option Plan. 10.17 -- Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.23 to the 1996 Form 10-K). 10.18 -- First Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.24 to the 1996 Form 10-K). 10.19 -- Second Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.25 to Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K")).
21 24
EXHIBIT NUMBER DOCUMENT - ------- -------- 10.20 -- Third Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.26 to the 1997 Form 10-K). 10.21 -- Fourth Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.27 to the 1997 Form 10-K). 10.22 -- Fifth Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.28 to the 1997 Form 10-K). 10.23 -- Sixth Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees (incorporated by reference to Exhibit 10.32 to the 1998 Form 10-K). 10.24 -- Seventh Amendment to Registrant's Non-Qualified Stock Option Plan for Non-Executive Employees. 10.25 -- Restricted Stock Plan of the Registrant, dated as of August 12, 1994 (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-4, File No. 33-88910). 10.26 -- The Per-Se Technologies Employees' Retirement Savings Plan. 10.27 -- Retirement Savings Trust (incorporated by reference to Exhibit 10.10 to Registration Statement on Form S-1, File No. 33-42216). 10.28 -- Registrant's Deferred Compensation Plan (incorporated by reference to Exhibit 99 to Registration Statement on Form S-8, Registration No. 33-90874). 10.29 -- First Amendment to Registrant's Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.30 -- Second Amendment to Registrant's Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.31 -- Third Amendment to Registrant's Deferred Compensation Plan (incorporated by reference to Exhibit 10.76 to the 1997 Form 10-K). 10.32 -- Fourth Amendment to Registrant's Deferred Compensation Plan. 10.33 -- Written description of Registrant's Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.34 -- Registrant's Non-Employee Director Deferred Stock Credit Plan (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.35 -- Registrant's Long Term Incentive Plan (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.36 -- Employment Agreement dated November 19, 1996, between Registrant and David E. McDowell (incorporated by reference to Exhibit 10.49 to the 1996 Form 10-K). 10.37 -- Amendment Number 1 to Employment Agreement by and between Registrant and David E. McDowell, dated October 20, 1999. 10.38 -- Employment Agreement dated July 28, 1997, between Registrant and Randolph L.M. Hutto (incorporated by reference to Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.39 -- Employment Agreement dated January 25, 1998, between Registrant and Allen W. Ritchie (incorporated by reference to Exhibit 10.69 to the 1997 Form 10-K). 10.40 -- Employment Agreement dated July 27, 1998, between Registrant and Wayne A. Tanner (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
22 25
EXHIBIT NUMBER DOCUMENT - ------- -------- 10.41 -- Employment Agreement dated as of June 1, 1999, between Registrant and Philip M. Pead (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.42 -- Employment Agreement dated as of June 25, 1999, between Medaphis Physician Services Corporation and William J. DeZonia. 10.43 -- Corporate Integrity Agreement between the Office of the Inspector General of the Department of Health and Human Services and Registrant (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.44 -- Settlement Agreement and Full and Complete Release dated June 24, 1999, among James F. Thacker, et al., and Registrant (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.45 -- First Amendment to Second Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Plan. 10.46 -- Fourth Amendment to Registrant's Non-Employee Director Stock Option Plan. 21 -- Subsidiaries of Registrant. 23.1 -- Consent of PricewaterhouseCoopers LLP. 27 -- Financial Data Schedule (for SEC use only). 99.1 -- Safe Harbor Compliance Statement for Forward-Looking Statements.
- --------------- * The exhibits, which are referenced in the above documents, are hereby incorporated by reference. Such exhibits have been omitted for purposes of this filing but will be furnished supplementary to the Commission upon request. (b) Reports on Form 8-K Two reports on Form 8-K were filed during the quarter ended December 31, 1999:
FINANCIAL STATEMENTS ITEM REPORTED FILED DATE OF REPORT ------------- ---------- -------------- Registrant's stockholders approved a one-for-three reverse stock split of Registrant's common stock.................. No November 24, 1999 Sale of remaining operations of Impact Innovations Group to J3 Technologies Services Corp............................. No December 30, 1999
23 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Per-Se Technologies, Inc. (Registrant) By: /s/ WAYNE A. TANNER ------------------------------------ Wayne A. Tanner Executive Vice President and Chief Financial Officer /s/ MARY C. BLACKADAR ------------------------------------ Mary C. Blackadar Vice President and Controller (Principal Accounting Officer) Date: March 27, 2000 24 27 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. March 27, 2000 /s/ DAVID E. MCDOWELL ----------------------------------------------------- David E. McDowell Chairman and Director March 27, 2000 /s/ ALLEN W. RITCHIE ----------------------------------------------------- Allen W. Ritchie President, Chief Executive Officer, and Director March 27, 2000 /s/ WAYNE A. TANNER ----------------------------------------------------- Wayne A. Tanner Executive Vice President and Chief Financial Officer March 27, 2000 /s/ MARY C. BLACKADAR ----------------------------------------------------- Mary C. Blackadar Vice President and Controller (Principal Accounting Officer) March 27, 2000 /s/ RODERICK M. HILLS ----------------------------------------------------- Roderick M. Hills Director March 27, 2000 /s/ DAVID R. HOLBROOKE, M.D. ----------------------------------------------------- David R. Holbrooke, M.D. Director March 27, 2000 /s/ KEVIN E. MOLEY ----------------------------------------------------- Kevin E. Moley Director March 27, 2000 /s/ C. CHRISTOPHER TROWER ----------------------------------------------------- C. Christopher Trower Director ----------------------------------------------------- John C. Pope Director
25 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Per-Se Technologies, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Per-Se Technologies, Inc. and its subsidiaries (the "Company") at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Atlanta, Georgia February 8, 2000 F-1 29 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE DATA)
DECEMBER 31, --------------------- 1999 1998 --------- --------- Current Assets: Cash: Cash and cash equivalents.............................. $ 74,354 $ 54,409 Restricted cash........................................ 7,519 5,754 --------- --------- Total cash........................................ 81,873 60,163 Accounts receivable, billed (less allowances of $11,613 and $17,160)........................................... 46,097 54,800 Accounts receivable, unbilled............................. 42,813 46,757 Other..................................................... 7,394 8,022 --------- --------- Total current assets.............................. 178,177 169,742 Property and equipment...................................... 34,103 47,954 Intangible assets........................................... 46,446 48,241 Net assets of discontinued operations....................... -- 11,872 Other....................................................... 6,291 8,912 --------- --------- $ 265,017 $ 286,721 ========= ========= Current Liabilities: Accounts payable.......................................... $ 10,005 $ 8,550 Accrued compensation...................................... 21,842 21,234 Accrued expenses.......................................... 26,449 22,361 Accrued litigation settlements............................ 4,043 12,026 Current portion of long-term debt......................... 2,138 1,067 --------- --------- 64,477 65,238 Deferred revenue.......................................... 20,396 18,289 --------- --------- Total current liabilities......................... 84,873 83,527 Long-term debt.............................................. 175,000 175,013 Accrued litigation settlements.............................. -- 20,250 Other obligations........................................... 3,704 5,608 --------- --------- Total liabilities................................. 263,577 284,398 --------- --------- Commitments and contingencies (Notes 8 and 9) Stockholders' Equity: Preferred stock, no par value, 20,000 authorized; none issued................................................. -- -- Common stock, voting, $0.01 par value, 200,000 authorized, 29,575 and 78,745 issued and outstanding in 1999 and 1998, respectively..................................... 296 787 Common stock, non-voting, $0.01 par value, 600 authorized; none issued............................................ -- -- Paid-in capital........................................... 771,864 740,014 Warrants.................................................. 1,495 -- Accumulated deficit....................................... (772,215) (738,390) --------- --------- 1,440 2,411 Less treasury stock, at cost -- 15 shares in 1998......... -- 88 --------- --------- Total stockholders' equity........................ 1,440 2,323 --------- --------- $ 265,017 $ 286,721 ========= =========
See notes to consolidated financial statements. F-2 30 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 -------- --------- -------- Revenue..................................................... $322,129 $ 349,823 $392,420 -------- --------- -------- Salaries and wages.......................................... 212,940 226,894 242,228 Other operating expenses.................................... 104,192 126,183 123,094 Depreciation................................................ 20,177 23,848 22,481 Amortization................................................ 9,293 18,077 21,069 Interest expense, net....................................... 16,102 23,494 23,398 Intangible asset impairment................................. -- 390,641 -- Litigation settlements...................................... 24,811 35,987 52,500 Restructuring and other charges............................. -- 5,191 16,741 -------- --------- -------- Total expenses.................................... 387,515 850,315 501,511 -------- --------- -------- Loss before income taxes.................................... (65,386) (500,492) (109,091) Income tax (benefit) expense................................ (610) 58,465 (16,568) -------- --------- -------- Loss from continuing operations............................. (64,776) (558,957) (92,523) -------- --------- -------- Discontinued operations, net of tax: Income (loss) from discontinued operations............. 3,403 (71) (706) Gain on sale of subsidiaries........................... 27,671 7,214 -- -------- --------- -------- 31,074 7,143 (706) -------- --------- -------- Loss before extraordinary item and cumulative effect of accounting change......................................... (33,702) (551,814) (93,229) Extraordinary items, net of tax............................. -- (8,400) 76,391 Cumulative effect of accounting change, net of tax.......... -- -- (2,465) -------- --------- -------- Net loss.......................................... $(33,702) $(560,214) $(19,303) ======== ========= ======== Basic net (loss) income per share: Loss from continuing operations........................ $ (2.31) $ (21.77) $ (3.82) Income (loss) from discontinued operations, net of tax.................................................. 1.11 0.28 (0.03) Extraordinary items, net of tax........................ -- (0.33) 3.15 Cumulative effect of accounting change, net of tax..... -- -- (0.10) -------- --------- -------- Net loss............................................... $ (1.20) $ (21.82) $ (0.80) ======== ========= ======== Weighted average shares outstanding......................... 28,097 25,673 24,226 ======== ========= ========
See notes to consolidated financial statements. F-3 31 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(33,702) $(560,214) $ (19,303) Adjustments to reconcile net loss to net cash used for operating activities: (Income) loss from discontinued operations................ (3,403) 71 706 Depreciation and amortization............................. 29,470 41,925 43,550 Gain on sale of subsidiaries.............................. (27,997) (12,229) (122,583) Gain (loss) on long-lived assets.......................... (4,772) 391,322 7,098 Cumulative effect of accounting change.................... -- -- 4,094 Non-cash litigation settlement costs...................... 16,433 -- -- Early extinguishment of debt.............................. -- 12,145 -- Deferred income taxes..................................... -- 58,465 15,492 Changes in assets and liabilities, excluding effects of acquisitions and divestitures: Restricted cash......................................... (572) (2,504) (1,698) Accounts receivable, billed............................. 8,703 13,800 (6,055) Accounts receivable, unbilled........................... 3,863 13,471 1,054 Accounts payable........................................ 1,455 (514) 1,382 Accrued compensation.................................... 608 (5,392) 6,031 Accrued expenses........................................ (6) (3,712) (22,539) Accrued litigation settlements.......................... (11,971) 32,639 52,500 Deferred revenue........................................ 2,107 2,124 9,216 Other, net.............................................. 820 6,966 6,961 -------- --------- --------- Net cash used for continuing operations................. (18,964) (11,637) (24,094) Net cash (used for) provided by discontinued operations........................................... (2,942) 5,240 4,114 -------- --------- --------- Net cash used for operating activities............. (21,906) (6,397) (19,980) -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired.......................... (32) (670) (6,103) Purchases of property and equipment......................... (10,418) (23,789) (10,995) Net proceeds from sale of subsidiaries...................... 47,986 103,204 126,375 Proceeds from sale of property and equipment................ 12,003 915 3,644 Software development costs.................................. (7,498) (4,515) (5,203) -------- --------- --------- Net cash provided by investing activities.......... 42,041 75,145 107,718 -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock............................. 920 1,447 1,216 Proceeds from the exercise of stock options................. 217 5,688 6,104 Proceeds from borrowings.................................... -- 386,969 327,325 Payments of debt............................................ (1,042) (410,712) (398,058) Debt issuance costs......................................... (285) (12,460) (13,596) -------- --------- --------- Net cash used for financing activities............. (190) (29,068) (77,009) -------- --------- --------- CASH AND CASH EQUIVALENTS: Net change.................................................. 19,945 39,680 10,729 Balance at beginning of period.............................. 54,409 14,729 4,000 -------- --------- --------- Balance at end of period.................................... $ 74,354 $ 54,409 $ 14,729 ======== ========= =========
See notes to consolidated financial statements. F-4 32 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON PREFERRED TREASURY COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT WARRANTS AMOUNT ------- ------ --------- --------- -------- ----------- -------- -------- BALANCE AT DECEMBER 31, 1996...................... 71,705 $ 717 -- $ -- $666,673 $(158,696) $ -- $(169) Issuance of common stock.... 205 2 -- -- 1,214 -- -- -- Exercise of stock options (including tax benefit of $2,762)................... 1,303 13 -- -- 8,594 -- -- 259 Net loss.................... -- -- -- -- -- (19,303) -- -- Other....................... (9) -- -- -- 2,517 50 -- (90) ------- ----- -- ------ -------- --------- ------ ----- BALANCE AT DECEMBER 31, 1997...................... 73,204 732 -- -- 678,998 (177,949) -- -- Issuance of common stock.... 272 3 -- -- 1,444 -- -- -- Exercise of stock options... 1,242 12 -- -- 5,582 (49) -- 143 Funding of litigation settlements............... 3,985 40 -- -- 53,587 -- -- (70) Net loss.................... -- -- -- -- -- (560,214) -- -- Other....................... 42 -- -- -- 403 (178) -- (161) ------- ----- -- ------ -------- --------- ------ ----- BALANCE AT DECEMBER 31, 1998...................... 78,745 787 -- -- 740,014 (738,390) -- (88) Issuance of common stock.... 316 3 -- -- 917 -- -- -- Exercise of stock options... 159 2 -- -- 215 -- -- -- Funding of litigation settlements............... 9,500 95 -- -- 30,131 -- 1,495 -- Reverse 1 for 3 stock split..................... (59,151) (591) -- -- 567 -- -- -- Net loss.................... -- -- -- -- -- (33,702) -- -- Other....................... 6 -- -- -- 20 (123) 88 ------- ----- -- ------ -------- --------- ------ ----- BALANCE AT DECEMBER 31, 1999...................... 29,575 $ 296 -- $ -- $771,864 $(772,215) $1,495 $ -- ======= ===== == ====== ======== ========= ====== ===== TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE AT DECEMBER 31, 1996...................... $ 508,525 Issuance of common stock.... 1,216 Exercise of stock options (including tax benefit of $2,762)................... 8,866 Net loss.................... (19,303) Other....................... 2,477 --------- BALANCE AT DECEMBER 31, 1997...................... 501,781 Issuance of common stock.... 1,447 Exercise of stock options... 5,688 Funding of litigation settlements............... 53,557 Net loss.................... (560,214) Other....................... 64 --------- BALANCE AT DECEMBER 31, 1998...................... 2,323 Issuance of common stock.... 920 Exercise of stock options... 217 Funding of litigation settlements............... 31,721 Reverse 1 for 3 stock split..................... (24) Net loss.................... (33,702) Other....................... (15) --------- BALANCE AT DECEMBER 31, 1999...................... $ 1,440 =========
See notes to consolidated financial statements. F-5 33 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The consolidated financial statements include the accounts of Per-Se Technologies, Inc. and its subsidiaries ("Per-Se" or the "Company"). All significant intercompany transactions have been eliminated. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year presentation. Per-Se completed the sale of Medaphis Services Corporation ("Hospital Services") in 1998 and Impact Innovations Group ("Impact") in 1999. The results of these segments are classified as discontinued operations for all periods presented. See Note 2 for further discussion of the Company's discontinued operations. NATURE OF OPERATIONS. Per-Se provides business management services, application software solutions and Internet-based connectivity primarily to the healthcare industry throughout the United States. The Company historically has not experienced any significant losses related to individual clients, classes of clients or groups of clients in any geographical area. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION. Fees for the Company's business management services are primarily based on a percentage of net collections on clients' patient accounts, and revenue is recognized as such business management services are performed. Accounts receivable, billed, represents amounts invoiced to clients. Accounts receivable, unbilled, represents amounts recognized for services rendered but not yet invoiced and is based on the Company's estimate of the fees that will be invoiced when collections on patient accounts are received. On December 3, 1999, the Securities and Exchange Commission (the "Commission") issued Staff Accounting Bulletin Number 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes certain of the Commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 provides interpretative guidance on the unbilled accounts receivable and related revenue recognition within the Company's industry. The Commission's guidance requires the accounting change to be reflected by the Company's quarter ending March 31, 2000. Therefore, consistent with the Commission's guidance and changing industry practice, the Company will begin recognizing revenue in its Physician Services segment on an "as billed" basis in fiscal 2000. The Company does not expect this change to significantly affect annual recognized revenue amounts. The change in accounting method will result in the elimination of approximately $38 million of unbilled accounts receivable. The one-time, cumulative charge in the Company's March 31, 2000 statement of operations will be approximately $23 million, on a net of tax basis. This will have no effect on cash flow. For software license sales where no significant contractual obligations remain outstanding, the Company recognizes revenue upon shipment. For contracts under which the Company is required to make significant production, modification or customization changes, revenue from software licenses is recognized using the percentage-of-completion method over the implementation period. Where services are considered essential to the functionality of the arrangement, the software license is recognized over the implementation period using the percentage of completion method. When the Company receives payment prior to shipment or fulfillment of significant vendor obligations, such payments are recorded as deferred revenue and are recognized as revenue upon shipment or fulfillment of significant vendor obligations. The license agreements typically provide for partial payments upon shipment; such terms result in an unbilled receivable at the date the revenue is recognized. Revenue from software implementation services is recognized as the services are performed. F-6 34 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Software maintenance payments received in advance are deferred and recognized ratably over the term of the maintenance agreement, which is typically one year. Revenue from systems integration contracts is recorded based on the terms of the underlying contracts, which are primarily time and material or fixed price contracts. Revenue from time and material type contracts is recognized as services are rendered and costs are incurred based on contractual rates. Revenue from fixed price contracts is recorded using the percentage of completion method. Anticipated losses, if any, are charged to operations in the period that such losses are determined. Revenue for which customers have not yet been invoiced is reflected as unbilled accounts receivable in the accompanying consolidated balance sheets. CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all highly liquid investments with an initial maturity of no more than three months. RESTRICTED CASH. Restricted cash principally represents amounts collected on behalf of certain clients, a portion of which is held in trust until remitted to such clients. In 1999, the Company also had restrictions on $4.6 million of its cash as security for certain of the Company's letters of credit. PROPERTY AND EQUIPMENT. Property and equipment, including equipment under capital leases, are stated at cost. Depreciation is computed using the straight line method over the estimated useful lives of the assets, generally ten years for furniture and fixtures, three to ten years for equipment and twenty years for buildings. INTANGIBLE ASSETS. Intangible assets are composed principally of goodwill, client lists and software development costs. Goodwill and Client Lists. Goodwill represents the excess of the cost of the businesses acquired over the fair value of net identifiable assets at the date of the acquisition and is amortized over its estimated useful life using the straight-line method. The Company is amortizing its goodwill of $10.4 million over its remaining useful life of fifteen years and its client lists of $21.3 million over their remaining estimated nine-year period of benefit. The Company monitors events and changes in circumstances that could indicate the carrying amounts of the intangible assets may not be recoverable. When events or changes in circumstances are present that indicate the carrying amount of intangible assets may not be recoverable, the Company assesses the recoverability of the intangible assets by determining whether the carrying value of such intangible assets will be recovered through undiscounted expected future cash flows. Should the Company determine that the carrying values of specific intangible assets are not recoverable, as was the case during 1998, the Company would record a charge to reduce the carrying value of such assets to their fair values. The Company determines fair value based on discounted expected future cash flows during the period of benefit. See Note 5 where the 1998 impairment of intangibles assets is discussed. No impairment losses that were related to goodwill or clients lists from continuing operations were recorded in 1999 or 1997. Software Development Costs. Intangible assets include software development costs incurred in the development or the enhancement of software developed by the Application Software and e-Health segments for resale. Software development costs are capitalized upon the establishment of technological feasibility for each product and capitalization ceases when the product or process is available for general release to customers. Software development costs are amortized using the straight-line method over the estimated economic lives of the assets, which are generally three to five years. STOCK-BASED COMPENSATION PLANS. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). In Note 12, the Company presents the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation ("SFAS No. 123"). SFAS No. 123 requires that companies which elect to not account for stock-based compensation as prescribed by F-7 35 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) that statement shall disclose, among other things, the pro forma effects on net income (loss) and basic net income (loss) per share as if SFAS No. 123 had been adopted. LEGAL COSTS. The Company records charges for the legal and administrative fees, costs and expenses and damages or settlements it anticipates incurring in conjunction with its legal matters when management can reasonably estimate these costs. INCOME TAXES. Deferred income taxes are recognized for the tax consequences of "temporary differences" between financial statement carrying amounts and the tax bases of existing assets and liabilities. The measurement of deferred tax assets and liabilities is predominantly determined by reference to the tax laws and changes to such laws. Management includes the consideration of future events in assessing the likelihood that tax benefits will be realized in the future. See Note 13 where the Company discusses the realizability of the deferred tax assets. FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of the Company's financial instruments, including total cash, accounts receivable, accounts payable, accrued compensation, accrued expenses and current portion of long-term debt approximates fair value. BASIC NET LOSS PER COMMON SHARE. Basic net loss per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is not presented as it is antidilutive. Stock options and warrants are the only securities issued that would have been included in the pro forma diluted earnings per share calculation. CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In November 1997, the Emerging Issues Task Force ("EITF") issued EITF 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project that Combines Business Process Reengineering and Information Technology ("EITF 97-13"). EITF 97-13 requires process reengineering costs, as defined, which had been previously capitalized as part of an information technology project to be expensed in the quarter including November 1997. The Company recorded a charge of $2.5 million, net of tax of $1.6 million, in the fourth quarter of 1997 as a result of EITF 97-13. SEGMENT REPORTING. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes standards for the way companies report information about operating segments including the related disclosures about products and services. The Company adopted SFAS No. 131 during the year ended December 31, 1997 and, as required, restated prior years for comparability. See Note 16 where the Company discloses information about its reportable segments. COMPREHENSIVE INCOME. On January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The Company's net loss, as presented in the Consolidated Statements of Operations, approximates the Company's other comprehensive income amount, as defined, for all periods presented. 2. DISCONTINUED OPERATIONS AND DIVESTITURES Management initiated a plan to focus the Company's financial and management resources on its three core healthcare segments, in an effort to return the Company to profitability. Management defined these segments as: Physician Services, Application Software and e-Health. In 1998, management began to seek alternatives for the remaining non-core business segments: Hospital Services and Impact. Although Hospital Services provided business management and accounts receivable management services to approximately 1,200 hospitals, the Company's management deemed the segment non-core as a substantial portion of the services offered was bad debt collection. Impact was deemed non-core as it did not provide consulting services to the healthcare industry. F-8 36 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On November 30, 1998, the Company completed the sale of Hospital Services to NCO Group, Inc. ("NCO") for initial consideration of $107.5 million. In February 1999, the Company received additional proceeds of $0.5 million based on the Hospital Services final closing balance sheet. In addition, Per-Se could receive a purchase price adjustment of up to $10.0 million subject to Hospital Services' achievement of various operational targets in 1999. The purchase price adjustment will be determined by the second quarter of 2000. The Company recorded a $6.8 million gain, net of taxes of $5.4 million, as a result of this sale. In 1999, the Company completed the sale of both divisions of Impact. After reviewing several alternatives for Impact throughout 1998, management concluded a sale of this segment would generate the greatest return to the stockholders and finalized its plan to sell Impact. The Company sold the commercial division of Impact to Complete Business Solutions, Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of $0.6 million which was paid on July 16, 1999. The government division of Impact was sold on December 17, 1999 to J3 Technology Services Corp. for initial consideration of $45.0 million, subject to certain closing adjustments. The Company recorded a $28.1 million gain as a result of the Impact sales. Pursuant to APB No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, the consolidated financial statements of the Company have been presented to reflect both Hospital Services and Impact as discontinued operations for all periods presented. The net operating results of these segments have been reported in the Consolidated Statements of Operations as "Income (loss) from discontinued operations"; the net assets have been reported in the Consolidated Balance Sheets as "Net assets of discontinued operations"; and the net cash flows have been reported in the Consolidated Statements of Cash Flows as "Net cash (used for) provided by discontinued operations." Summarized financial information for the discontinued operations is as follows:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1999 1998 1997 ------- ----------------------------- ------------------------------ HOSPITAL HOSPITAL IMPACT SERVICES IMPACT TOTAL SERVICES IMPACT TOTAL ------- -------- ------- -------- -------- -------- -------- (IN THOUSANDS) Revenue............................... $54,916 $100,081 $79,731 $179,812 $97,095 $101,524 $198,619 ======= ======== ======= ======== ======= ======== ======== Income (loss) from discontinued operations before income taxes...... 3,958 5,192 (5,263) (71) 9,508 (10,419) (911) Income tax expense (benefit).......... 555 2,079 (2,079) -- 3,910 (4,115) (205) ------- -------- ------- -------- ------- -------- -------- Income (loss) from discontinued operations, net of tax.............. $ 3,403 $ 3,113 $(3,184) $ (71) $ 5,598 $ (6,304) $ (706) ======= ======== ======= ======== ======= ======== ========
AS OF DECEMBER 31, 1998 ----------------------- IMPACT ----------------------- (IN THOUSANDS) Current assets..................................... $16,399 Total assets....................................... 21,829 Current liabilities................................ 9,787 Total liabilities.................................. 9,957 Net assets of discontinued operations.............. 11,872
On May 28, 1997, Per-Se sold Healthcare Recoveries, Inc. ("HRI") through an initial public offering of 100% of its stock, which generated net proceeds to the Company of $126.4 million and an extraordinary gain of $76.4 million, net of taxes of $46.2 million. Per-Se acquired HRI on August 28, 1995 through a business F-9 37 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) combination accounted for as a pooling-of-interests and therefore, the resultant gain from the sale has been presented as an extraordinary item. The net proceeds from the sale were used to pay down borrowings under the then-current debt facility. At the time of the sale, HRI was not a separate reportable segment. 3. RESTRUCTURING AND OTHER CHARGES Components of restructuring and other charges are as follows:
1999 1998 1997 ---- ------ ------- (IN THOUSANDS) Restructuring charges....................................... $-- $1,289 $ 2,759 Property and equipment impairment........................... -- 681 4,959 Legal costs................................................. -- 1,999 2,600 Pooling charges............................................. -- -- (17) Severance costs............................................. -- 1,222 2,524 Other....................................................... -- -- 3,916 -- ------ ------- $-- $5,191 $16,741 == ====== =======
Restructuring Charges. In early 1995, the Company initiated a reengineering program focused upon its billing and accounts receivable management operations (the "Reengineering Project"). There were two components of the Reengineering Project: (i) workflow, process and operational improvements along with new technology development; and (ii) office consolidation within Physician Services (the "Physician Services Restructuring Plan"). The Company periodically reevaluates the adequacy of the reserves established for the Physician Services Restructuring Plan and in 1999 and 1997 recorded an additional charge of $0.3 million and $1.7 million, respectively, for lease termination costs. In August 1997, the Company adopted a plan to combine the operations of its software and consulting companies and recorded charges of $0.5 million for the costs associated with the termination of certain leases and $0.6 million for severance costs related to approximately 10 employees who had been notified of their termination. In 1999, the Company revised its plan to combine the operations of its software and consulting companies and reduced the reserve for lease termination costs by $0.3 million. In 1998, Application Software recorded approximately $1.3 million of restructuring costs for severance when management decided to restructure its operations to more appropriately align Application Software's resources with future operational needs and new product development. The severance costs relate to approximately 35 employees, primarily in the areas of professional services and research and development, who had been notified of their termination. A description of the type and amount of restructuring costs recorded at the commitment date and subsequently incurred for all of the restructurings discussed above are as follows:
RESERVE COSTS RESERVE COSTS RESERVE BALANCE APPLIED BALANCE APPLIED BALANCE JANUARY 1, RESERVE AGAINST DECEMBER 31, RESERVE AGAINST DECEMBER 31, 1997 ADJUSTMENTS RESERVE 1997 ADJUSTMENTS RESERVE 1998 ---------- ----------- ------- ------------ ----------- ------- ------------ (IN THOUSANDS) Lease termination costs.............. $5,314 $2,176 $(2,035) $5,455 $ -- $(1,163) $4,292 Severance............ -- 583 (425) 158 1,289 (299) 1,148 ------ ------ ------- ------ ------ ------- ------ $5,314 $2,759 $(2,460) $5,613 $1,289 $(1,462) $5,440 ====== ====== ======= ====== ====== ======= ====== COSTS RESERVE APPLIED BALANCE AGAINST DECEMBER 31, RESERVE 1999 ------- ------------ (IN THOUSANDS) Lease termination costs.............. $ (764) $3,528 Severance............ (875) 273 ------- ------ $(1,639) $3,801 ======= ======
The terminated leases have various expiration dates through 2005 and the severance will be paid during 2000. F-10 38 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Property and Equipment Impairment. In connection with the Company's assessment of the recoverability of certain of its long-lived assets, the Company recorded a charge of $5.0 million for impairment losses during 1997. In 1998, the Company recorded a charge of $0.7 million related to the write-down of certain properties held for sale to their net realizable value. Legal Costs. In 1998 and 1997, the Company evaluated the adequacy of its reserves for the legal and administrative fees, costs and expenses associated with various legal matters and recorded a net charge of $2.0 million and $2.6 million, respectively. Severance Costs. In 1995, management of Physician Services formalized an involuntary severance benefit plan. The Company recorded charges of approximately $0.5 million in 1997 in accordance with Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits, to reflect the expense for employees' rights to involuntary severance benefits that have accumulated to date. In 1998 and 1997, the Company recorded charges of $1.2 million and $2.0 million, respectively, for severance costs associated with former executive management. 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
1999 1998 -------- -------- (IN THOUSANDS) Land........................................................ $ 1,790 $ 3,861 Buildings................................................... 5,536 7,865 Furniture and fixtures...................................... 25,373 15,201 Equipment................................................... 102,844 95,383 Leasehold improvements...................................... 9,134 8,662 -------- -------- 144,677 130,972 Less accumulated depreciation............................... 110,574 83,018 -------- -------- $ 34,103 $ 47,954 ======== ========
5. INTANGIBLE ASSETS AND IMPAIRMENT CHARGE Intangible assets consists of the following:
1999 1998 ------- ------- (IN THOUSANDS) Goodwill.................................................... $12,317 $12,317 Client lists................................................ 39,681 39,681 Software development costs.................................. 44,814 37,316 ------- ------- 96,812 89,314 Less accumulated amortization............................... 50,366 41,073 ------- ------- $46,446 $48,241 ======= =======
At September 30, 1998, the Company recorded an intangible asset impairment charge of $390.6 million to adjust the intangible assets of the Physician Services segment to their fair value. Management regularly monitors its results of operations and other developments within the industry to adjust its cash flow forecast, as necessary, to determine if an adjustment is necessary to the carrying value of the Company's intangible assets. F-11 39 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Expenditures on capitalized software development costs were approximately $7.5 million, $4.5 million and $5.2 million in 1999, 1998 and 1997, respectively. Amortization expense related to the Company's capitalized software costs totaled $4.5 million, $5.0 million and $4.5 million in 1999, 1998 and 1997, respectively. The unamortized balance of software development costs at December 31, 1999 and 1998 was $14.8 million and $11.8 million, respectively. The Company recorded research and development expenses of approximately $9.2 million, $10.8 million and $4.5 million in 1999, 1998 and 1997, respectively. 6. ACCRUED EXPENSES Accrued expenses consists of the following:
1999 1998 ------- ------- (IN THOUSANDS) Accrued interest............................................ $ 6,264 $ 6,253 Accrued restructuring and severance costs................... 2,331 3,711 Accrued legal costs......................................... 532 1,222 Accrued taxes............................................... 1,842 2,301 Funds due clients........................................... 3,419 753 Accrued costs of businesses acquired........................ 406 574 Other....................................................... 11,655 7,547 ------- ------- $26,449 $22,361 ======= =======
7. LONG-TERM DEBT Long-term debt consists of the following:
1999 1998 -------- -------- (IN THOUSANDS) 9 1/2% Senior Notes due 2005 (the "Notes").................. $175,000 $175,000 Capital lease obligations, weighted average effective interest rates of 8.7% and 7.7%........................... 38 135 Other....................................................... 2,100 945 -------- -------- 177,138 176,080 Less current portion........................................ 2,138 1,067 -------- -------- $175,000 $175,013 ======== ========
On February 20, 1998, the Company sold the Notes. The Notes bear interest at the rate of 9 1/2% per annum, payable semi-annually on February 15 and August 15, which commenced on August 15, 1998 and will mature on February 15, 2005. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after February 15, 2002, at a declining premium to par until 2004 and at par thereafter, plus accrued and unpaid interest. In addition, at any time on or prior to February 15, 2001, the Company may redeem up to 35% of the original principal amount of the Notes at a redemption price equal to 109.5% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, with the net cash proceeds of one or more equity offerings; provided that at least $100 million aggregate principal amount of the Notes remain outstanding immediately following any such redemption. Payment of principal, premium, if any, and interest on the Notes is fully and unconditionally guaranteed, on a senior unsecured basis, jointly and severally by all of the Company's present and future domestic restricted subsidiaries (the "Subsidiary Guarantors"). The financial statements of the Subsidiary Guarantors have not been presented as all subsidiaries, except for certain insignificant foreign subsidiaries, have provided guarantees and the parent company does not have any significant operations or assets, separate from its F-12 40 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) investment in subsidiaries. Any non-guarantor subsidiaries are inconsequential individually and in the aggregate to the consolidated financial statements. At December 31, 1999, the estimated fair value of the Notes is approximately $135.6 million based on the quoted market price for these Notes. Although the fair value of the Notes is less than the carrying amount, settlement at the reported fair value may not be possible. The carrying amounts of the remaining debt reflected in the consolidated balance sheets approximate fair value of such instruments due to the variable rate nature of substantially all of this debt. The Company entered into a $100 million credit facility (the "Credit Facility") on February 20, 1998. The Company used the proceeds from the offering of the Notes, together with the initial borrowing under this Credit Facility and available cash, to repay $210 million under a previous debt facility plus accrued interest. The Company paid a quarterly commitment fee on the unused portion of the Credit Facility ranging from 0.25% to 0.75% per annum based on the Company's leverage ratio. On November 30, 1998, the Company used $71.5 million of the $103.2 million net proceeds received from the sale of Hospital Services to repay and terminate the Credit Facility. The Company recorded charges in 1998 of $8.4 million, net of tax of $3.8 million, to write-off the unamortized costs associated with both the Company's previous debt facility and the Credit Facility. It is the Company's policy to amortize debt issuance costs using the straight-line method over the life of the debt agreement. Amortization expense related to debt issuance costs for the years ended 1999, 1998 and 1997 were $1.2 million, $2.5 million and $3.0 million, respectively. The Company's capital leases consist principally of leases for equipment. As of December 31, 1999 and 1998, the net book value of equipment subject to capital leases totaled $0.1 million and $0.2 million, respectively. The aggregate maturities of long-term debt and capital lease obligations are as follows (in thousands): 2000........................................................ $ 2,138 2001........................................................ -- 2002........................................................ -- 2003........................................................ -- 2004........................................................ -- Thereafter.................................................. 175,000 -------- $177,138 ========
8. LEASE COMMITMENTS The Company leases office space and equipment under noncancelable operating leases, which expire at various dates through 2011. Rent expense was $16.7 million, $15.3 million and $17.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Future minimum lease payments under noncancelable operating leases are as follows (in thousands): 2000........................................................ $16,483 2001........................................................ 12,822 2002........................................................ 11,139 2003........................................................ 8,926 2004........................................................ 7,232 Thereafter.................................................. 6,858 ------- $63,460 =======
F-13 41 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LEGAL MATTERS SETTLED LEGAL MATTERS In October 1999, the Company and Foundation Health Services, Inc. ("Foundation"), formerly Health Systems International, Inc., settled litigation arising out of Per-Se's acquisition of Health Data Sciences Corporation ("HDS") in June of 1996. Pursuant to the settlement, Foundation realized $25.0 million from its investment in HDS, consisting of $3.6 million from the sale of 325,590 shares of Per-Se Common Stock received by Foundation in the June 1996 HDS transaction, $4.6 million in cash funded by the Company's insurers, $5.0 million in cash paid by the Company and $11.8 million from the October 1999 sale by Foundation of 1,333,333 shares of Per-Se Common Stock issued to Foundation. On June 24, 1999, the Company entered into a settlement agreement with the former shareholders of Medical Management Sciences, Inc. ("MMS") related to claims arising out of Per-Se's acquisition of MMS in December of 1995. The litigation has been dismissed with prejudice. The settlement agreement provided for the issuance by the Company to the MMS Shareholders of 166,667 shares of Common Stock and warrants to purchase an additional 166,667 shares of Common Stock. In addition, the Company entered into a five-year consulting agreement with Providence Management Corporation, a company controlled by a former MMS shareholder, providing for a $300,000 up front payment and $150,000 a year for the five-year term. The Company also paid the MMS Shareholders $375,000 for the MMS Shareholders' interest in a malpractice claim. On June 21, 1999, the Company finalized the settlement with the United States government concerning its investigation of the Company's wholly-owned subsidiary, PST Emergency Medicine Services, Inc. (the "Emergency Medicine division"), formerly Gottlieb's Financial Services, Inc., requiring the Company to pay to the United States and the various states a total of $15.0 million. The Company paid $6.8 million to the United States on June 29, 1999, $1.2 million on September 30, 1999, $2.2 million, in the aggregate, to the participating states on October 1, 1999 and $1.2 million to the United States on December 31, 1999. The balance of $3.6 million will be paid in $0.9 million increments to the United States at the end of each calendar quarter of 2000. The deferred portion of the settlement payment will bear interest at the one-year Treasury Bill rate. All pending claims against the Company by the United States and the Relator in underlying qui tam litigation have been dismissed with prejudice and the United States has released the Company from all civil and administrative claims arising out of the emergency room billing of government programs services provided by the Emergency Medicine division from 1993 through the date of the settlement agreement with the United States. The settlement agreements with the participating states provide for the release of the Company by the states of all civil and administrative claims arising out of the emergency room billing services provided by the Emergency Medicine division from 1993 through the date of the settlement agreement with the individual state. On June 16, 1999, the Company agreed to settle certain contract claims arising out of a 1996 contract for emergency room billing services to be provided by the Emergency Medicine division to Spectrum Healthcare, Inc. ("Spectrum") and Emcare, Inc. ("Emcare"), the successor to Spectrum's emergency business. The Company paid Emcare $1.75 million in cash in exchange for a release by Spectrum and Emcare of all claims against the Emergency Medicine division for breach of contract. On January 28, 1998, SCI Management Corporation ("SCI") filed a complaint against BSG Alliance/IT, Inc. (later known as Impact Innovations Group, Inc.) seeking recovery for alleged damages in connection with work performed by the commercial division of Impact under a consulting contract. The Company sold the commercial division of Impact effective April 15, 1999 but retained responsibility for this matter. The Company and SCI reached an agreement to refund $5.3 million to SCI and on November 4, 1999, the Company paid $3.2 million to SCI and issued a promissory note for $2.1 million bearing interest at 8.25% payable on October 31, 2000. F-14 42 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PENDING LEGAL MATTERS On May 10, 1999, a motion to reopen a putative class action complaint filed by Ernest Hecht and Stephen D. Strandberger was granted. During 1998, this case had been dismissed with prejudice and without leave to amend. The reinstated appeal is pending. The Company is unable to estimate the final outcome and any loss related to this matter. On January 8, 1997, the Commission notified the Company that it was conducting a formal, non-public investigation into, among other things, former officers and Company transactions including the restatements of the Company's consolidated financial statements for the three months and year ended December 31, 1995 and its unaudited balance sheets as of March 31, 1996 and June 30, 1996. The Company continues to monitor the investigation as it proceeds. The Company is subject to claims and litigation in the ordinary course of its business. Within the Company's industry, federal and state civil and criminal laws govern medical billing and collection activities. These laws provide for various fines, penalties, multiple damages, assessments and sanctions for violations, including possible exclusion from Medicare, Medicaid and certain other federal and state healthcare programs. The Company and its clients have received, and the Company may continue to receive, official inquiries concerning billing and collection practices. The Company believes that it has meritorious defenses to the claims assessed in legal matters. There can be no assurance that existing or future claims, government investigations, including the Commission investigation, and legal matters will not have an adverse effect on the Company. Since the Company is unable to estimate a range of awards or losses, if any, on pending legal matters, no amounts have been reflected in the financial statements unless noted. 10. CAPITAL STOCK On November 23, 1999, a special meeting of the Company's stockholders was held at which the stockholders approved a one-for-three reverse split of the Company's Common Stock (the "Reverse Split"). The Reverse Split reduced the number of shares of the Company's Common Stock outstanding to approximately 30 million from approximately 90 million. This enabled the Company to bring its number of outstanding shares down to a level more consistent with companies of similar size and to maintain compliance with The Nasdaq Stock Market (R) ("Nasdaq") listing requirements. The Reverse Split had no effect on the number of shares that the Company is authorized to issue and no effect on the $0.01 par value of the Common Stock. No fractional shares were issued in the Reverse Split; instead, stockholders will be paid cash for any fractional shares. The numbers of shares, per share amounts and market prices of the Company's Common Stock set forth herein have been retroactively adjusted for all periods presented to reflect the Reverse Split. On June 17, 1997, the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation to authorize the Board of Directors to issue from time to time, without further stockholder action (unless required in a specific case by applicable Nasdaq rules), 20 million shares of one or more series of preferred stock (the "Preferred Stock"), with such terms and for such consideration as the Board of Directors may determine. The flexibility to issue shares of one or more series of Preferred Stock, in general, may have the effect of discouraging an attempt to assume control of a Company by a present or future stockholder or of hindering an attempt to remove the Company's incumbent management. Stockholders of the Company do not have preemptive rights to subscribe for or purchase any shares of Preferred Stock that may be issued in the future. Upon issuance, outstanding Preferred Stock would rank senior to the Common Stock and non-voting common stock with respect to dividends and liquidation rights. Depending on the voting rights applicable to each series of Preferred Stock, the issuance of shares of Preferred Stock could dilute the voting power of the holders of the Common Stock. F-15 43 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. STOCKHOLDERS' RIGHTS PLAN On January 21, 1999, the Company's Board of Directors approved a stockholders' rights plan (the "Rights Plan"). Pursuant to the Rights Plan, the Company declared a dividend of one right for each outstanding share of Common Stock to stockholders of record at the close of business on February 16, 1999 (the "Record Date"). Each right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, without par value (the "Series A Preferred Stock"), at a purchase price of $75 per Unit, as adjusted for the Reverse Split. Initially, the rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate rights certificates will be distributed. Subject to certain exceptions specified in the Rights Plan, the rights will separate from the Common Stock and a distribution date will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding shares of Common Stock other than as a result of repurchases of stock by the Company or certain inadvertent actions by institutional or certain other stockholders or the date a person has entered into an agreement or arrangement with the Company or any subsidiary of the Company providing for an Acquisition Transaction (the "Stock Acquisition Date") or (ii) 10 business days following the commencement of a tender offer. In the event that a person becomes an Acquiring Person, except pursuant to an offer for all outstanding shares of Common Stock which the independent directors determine to be fair and not inadequate to and to otherwise be in the best interests of the Company and its stockholders, after receiving advice from one or more investment banking firms (a "Qualifying Offer"), each holder of a right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the right. Until a right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the rights become exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company or in the event of the redemption of the rights as set forth above. 12. COMMON STOCK OPTIONS AND STOCK AWARDS The Company has several stock option plans including a Non-Qualified Stock Option Plan, a Non-Qualified Stock Option Plan for Employees of Acquired Companies and a Non-Qualified Stock Option Plan for Non-Executive Employees. Granted options expire 10 to 11 years after the date of grant and generally vest over a three-to-five-year period. The total number of options available for future grant under these stock options plans was approximately 1.7 million at December 31, 1999. The Company also has a Non-Employee Director Stock Option Plan (the "Director Plan") for non-employees who serve on the Company's Board of Directors. The Director Plan provides for an initial grant of 3,333 options at a strike price corresponding to the average of the fair market values for the five trading days prior to the date of the grant. Additionally, each non-employee director receives an annual grant of 666 options at each subsequent annual meeting in which the non-employee director is a member of the Board of Directors. All options granted under the Director Plan originally vested over a five-year period and expired eleven years from the date of grant. On April 1, 1999, the Director Plan was amended so that all options granted under the Director Plan fully vest as of the date of grant but shall not become exercisable until one year after the date of grant. As of December 31, 1999, the Company had 7,211 options available for future grant under this plan. F-16 44 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has a Senior Executive Non-Qualified Stock Option Plan which permits certain of the Company's former executive officers to purchase up to an aggregate of 183,582 shares of the Company's Common Stock at $6 per share. All remaining options available for grant under this plan have been granted. Currently, there are 26,667 options exercisable that will expire January 16, 2001. Activity related to all stock option plans and warrants, is summarized as follows (shares in thousands):
1999 1998 1997 ------------------------- ------------------------- -------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------ ---------------- ------ ---------------- ------- ---------------- Options outstanding as of January 1.............. 3,705 $16.62 3,048 $17.89 3,709 $26.24 Granted.................. 401 10.15 1,997 16.23 3,154 18.63 Exercised................ (53) 4.03 (414) 13.91 (434) 14.28 Canceled................. (933) 16.65 (926) 21.13 (3,381) 28.20 ------ ------ ------- Options outstanding as of December 31............ 3,120 $16.00 3,705 $16.62 3,048 $17.89 ====== ====== ======= Options exercisable as of December 31............ 1,592 $17.23 1,281 $16.85 1,185 $16.92 ====== ====== ======= Weighted-average fair value of options granted during the year................... $ 6.31 $ 7.53 $ 9.15
The following table summarizes information about stock options outstanding at December 31, 1999 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------- ------------------------ WEIGHTED- NUMBER NUMBER AVERAGE WEIGHTED- EXERCISABLE WEIGHTED- OUTSTANDING AT REMAINING AVERAGE AT AVERAGE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE RANGE OF EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE - ------------------------ -------------- ----------- --------- ------------ --------- $0.066 to $6.00......................... 95 2.23 $ 3.81 95 $ 3.81 $7.83 to $13.05......................... 1,013 9.53 9.69 309 9.85 $13.594 to $22.50....................... 1,649 7.66 17.20 946 17.21 $26.10 to $29.625....................... 286 7.61 28.64 180 28.61 $30.00 to $135.00....................... 77 6.09 41.51 62 41.94 ----- ----- $0.066 to $135.00....................... 3,120 8.06 16.00 1,592 17.23 ===== =====
On April 25, 1997, the Compensation Committee of the Board of Directors of the Company approved an adjustment of the exercise price for certain outstanding employee stock options, which had an exercise price of $16.50 and above. The revised exercise price of $16.125 was established by reference to the closing price of the Company's Common Stock on April 25, 1997. The outstanding options held by then-current executive officers of the Company were adjusted as part of such option restrike, but no adjustments were made to any options held by directors or former employees of the Company. In approving the adjustment, the Compensation Committee relied upon the views of its outside advisors with respect to the legal, accounting and compensation issues associated with the action and took into consideration, among other things, the following factors: (i) the Company historically had paid salaries which were at or below market levels and had made up for lower salaries through stock option grants to employees; (ii) the Company historically had used stock options as its principal long-term incentive program; (iii) the highly skilled employees of the Company possessed marketable skills; and (iv) senior management of the Company believed that there was potential for increased F-17 45 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) attrition among its key employees and that adjustment of the exercise price of the outstanding options would significantly help to mitigate such risk. The Company accounts for its stock-based compensation plans under APB No. 25. As a result, the Company has not recognized compensation expense for stock options granted to employees with an exercise price equal to the quoted market price of the Common Stock on the date of grant and which vest based solely on continuation of employment by the recipient of the option award. The Company adopted SFAS No. 123 for disclosure purposes in 1996. For SFAS No. 123 purposes, the fair value of each option grant and stock based award has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
1999 1998 1997 ----- ----- ----- Expected life (years)....................................... 4.50 3.74 4.33 Risk-free interest rate..................................... 5.78% 5.09% 6.39% Dividend rate............................................... 0.00% 0.00% 0.00% Expected volatility......................................... 76.22% 61.66% 54.09%
In June of 1999, in connection with the settlement with the former shareholders of MMS, the Company issued warrants to purchase 166,667 shares of Common Stock. These warrants are currently exercisable at an exercise price of $15.9375 per share and will expire in 2004. During 1998, in connection with the settlement of a putative class action law suit, the Company issued warrants to purchase 1,769,841 shares of Common Stock. These warrants are currently exercisable at an exercise price of $36.00 per share and will expire in 2003. Had compensation cost been determined consistent with SFAS No. 123, utilizing the assumptions detailed above, the Company's pro forma net loss and pro forma basic loss per share would have increased to the following pro forma amounts:
1999 1998 1997 ---------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Pro forma net loss: As reported......................................... $(33,702) $(560,214) $(19,303) Pro forma -- for SFAS No. 123....................... (52,686) (573,791) (34,374) Pro forma basic net loss per share: As reported......................................... $ (1.20) $ (21.82) $ (0.80) Pro forma -- for SFAS No. 123....................... (1.88) (22.35) (1.42)
Because the method of accounting under SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that expected in future years. Per-Se has never paid cash dividends on its Common Stock. The Indenture dated as of February 20, 1998, with respect to the Company's outstanding 9 1/2% Senior Notes due 2005, contains restrictions on the Company's ability to declare or pay cash dividends on its Common Stock. F-18 46 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. INCOME TAXES Income tax (benefit) expense is comprised of the following:
1999 1998 1997 ------- --------- -------- (IN THOUSANDS) Current: Federal................................................... $ -- $ -- $ 943 State..................................................... (1,165) 1,234 6,092 Deferred: Federal................................................... (5,806) (127,783) 10,629 State..................................................... (797) (17,524) 1,620 Foreign................................................... -- -- 380 Valuation allowance......................................... 6,603 203,772 8,126 ------- --------- -------- Total income tax (benefit) expense................ (1,165) 59,699 27,790 Income tax benefit (expense) on extraordinary item.......... -- 3,779 (46,192) Cumulative effect of accounting change...................... -- -- 1,629 Income tax benefit (expense) on discontinued operations..... 555 (5,013) 205 ------- --------- -------- Income tax (benefit) expense on continuing operations....... $ (610) $ 58,465 $(16,568) ======= ========= ========
A reconciliation between the amount determined by applying the federal statutory rate to loss before income taxes and income tax (benefit) expense is as follows:
1999 1998 1997 -------- --------- -------- (IN THOUSANDS) Income tax benefit at federal statutory rate................ $(11,582) $(175,172) $(38,182) State taxes, net of federal benefit......................... (1,588) (24,024) (5,236) Nondeductible goodwill amortization......................... -- 2,927 3,241 Nondeductible deal costs of business combinations........... -- -- (38) Nondeductible litigation settlement......................... 6,749 6,900 13,097 Nondeductible write-off of goodwill......................... -- 43,558 -- Valuation allowance......................................... 6,603 203,772 8,126 Foreign..................................................... -- -- 541 Other....................................................... (792) 504 1,883 -------- --------- -------- $ (610) $ 58,465 $(16,568) ======== ========= ========
Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available tax credit carryforwards. The components of deferred taxes at December 31, 1999 and 1998 are as follows:
1999 1998 -------- -------- (IN THOUSANDS) Current: Accounts receivable, unbilled............................... $(23,310) $(27,095) Acquisition accruals........................................ 663 461 Accrued expenses............................................ 20,164 38,978 Valuation allowance......................................... (5,496) (24,279) Other....................................................... 7,979 11,935 -------- -------- $ -- $ -- ======== ========
F-19 47 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 -------- -------- (IN THOUSANDS) Noncurrent: Net operating loss carryforwards............................ $151,266 $126,093 Valuation allowance......................................... (231,339) (205,953) Depreciation and amortization............................... 78,060 77,847 Other....................................................... 2,013 2,013 -------- -------- $ -- $ -- ======== ========
At December 31, 1999, the Company had projected federal net operating loss carryforwards ("NOLs") for income tax purposes of approximately $380 million, which consist of $312 million of consolidated NOLs and $68 million of separate return limitation year NOLs. The NOLs will expire at various dates between 2004 and 2019. As of December 31, 1999, the Company has a deferred tax asset of $236.8 million, which is offset by a valuation allowance of $236.8 million. Realization of the deferred tax asset is dependent upon the Company generating sufficient taxable income prior to the expiration of the NOLs. If, during future periods, management believes the Company will generate sufficient taxable income to realize the deferred tax asset, the Company will adjust this valuation reserve accordingly. 14. EMPLOYEE BENEFIT PLANS The Company has various defined contribution plans whereby employees meeting certain eligibility requirements can make specified contributions to the plans, a percentage of which are matched by the Company. The Company's contribution expense was $1.8 million, $1.7 million and $1.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company maintains a noncontributory money purchase pension plan that covers substantially all employees who are retained by the Company primarily to service specific physician clients. Contributions are determined annually by the Company not to exceed the maximum amount deductible for federal income tax purposes. The Company's contribution to the plan were $0.3 million, $0.7 million and $0.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. In July 1999, the Company's Board of Directors approved the termination of the Company's Employee Stock Purchase Plan ("ESPP") effective as of the close of business on December 31, 1999. 15. CASH FLOW INFORMATION Supplemental disclosures of cash flow information and non-cash investing and financing activities were as follows:
1999 1998 1997 ------- ------- ------- (IN THOUSANDS) Non-cash investing and financing activities: Additions to capital lease obligations.................. $ -- $ 42 $ -- Common Stock issued upon funding of litigation settlements.......................................... 30,226 53,557 -- Issuance of promissory note............................. 2,100 -- -- Issuance of stock warrants.............................. 1,495 -- -- Cash paid for: Interest................................................ 16,956 15,371 19,835 Income taxes............................................ 946 1,484 10,747
F-20 48 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SEGMENT REPORTING The Company's reportable segments are strategic business units that offer different services and products. Per-Se provides its services and products through its three operating segments: Physician Services, Application Software and e-Health. Physician Services provides business management services to physicians and healthcare organizations, including clinical data collection, data input, medical coding, billing, contract management, cash collections and accounts receivable management. These services are designed to assist healthcare providers with the business management functions associated with the delivery of healthcare services, allowing physicians and hospital staff to focus on providing quality patient care. These services also assist physicians and healthcare organizations in improving cash flows and reducing administrative costs and burdens. The Application Software segment provides financial and clinical software including patient scheduling, staff management, clinical information systems and patient financial management software. These applications enable healthcare organizations to simultaneously optimize the quality of care delivered and the profitability of business operations. The e-Health segment offers Internet-enabled and private network connectivity to both integrated healthcare delivery networks and physician practices, including electronic claims processing, referral submissions, eligibility verification and other electronic and paper transaction processing. In addition, e-Health offers physician practice management software as Application Service Provider ("ASP") to physician practices. Certain expenses previously included in Corporate overhead have been reclassified to the Physician Services segment and the Application Software segment for all periods presented. HRI provided subrogation and related recovery services primarily to healthcare payers and was sold on May 28, 1997. Per-Se evaluates each segment's performance based on operating profit or loss. The Company accounts for intersegment sales as if the sales were to third parties. Information concerning the operations in these reportable segments is as follows:
1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Revenue: Physician Services................................... $240,200 $264,323 $278,475 Application Software................................. 62,145 70,849 85,037 e-Health............................................. 31,343 25,886 25,342 HRI.................................................. -- -- 14,720 Eliminations......................................... (11,559) (11,235) (11,154) -------- -------- -------- $322,129 $349,823 $392,420 ======== ======== ========
F-21 49 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Operating (loss) profit (1): Physician Services................................... $ (5,541) $(12,608) $(11,402) Application Software................................. (1,071) (8,932) 19,560 e-Health............................................. (190) (912) 613 HRI.................................................. -- -- 3,685 Corporate............................................ (17,671) (22,727) (28,908) -------- -------- -------- $(24,473) $(45,179) $(16,452) ======== ======== ======== Interest expense, net.................................. $ 16,102 $ 23,494 $ 23,398 ======== ======== ======== Restructuring and other charges (including intangible asset impairment and litigation settlements): Physician Services................................... $ 2,086 $411,139 $ 7,394 Application Software................................. (336) 1,245 1,006 Corporate............................................ 23,061 19,435 60,841 -------- -------- -------- $ 24,811 $431,819 $ 69,241 ======== ======== ======== Loss before income taxes............................... $(65,386) $(500,492) $(109,091) ======== ======== ======== Depreciation and amortization: Physician Services................................... $ 15,674 $ 28,340 $ 34,360 Application Software................................. 6,793 7,342 5,258 e-Health............................................. 2,429 1,912 1,630 HRI.................................................. -- -- 401 Corporate............................................ 4,574 4,331 1,901 -------- -------- -------- $ 29,470 $ 41,925 $ 43,550 ======== ======== ======== Capital expenditures: Physician Services................................... $ 7,422 $ 15,836 $ 5,646 Application Software................................. 1,242 2,863 1,697 e-Health............................................. 882 2,300 1,089 HRI.................................................. -- -- 108 Corporate............................................ 872 2,790 2,455 -------- -------- -------- $ 10,418 $ 23,789 $ 10,995 ======== ======== ========
1999 1998 -------- -------- (IN THOUSANDS) Identifiable assets: Physician Services........................................ $116,423 $134,485 Application Software...................................... 39,265 46,917 e-Health.................................................. 18,904 18,403 Corporate (2)............................................. 90,425 86,916 -------- -------- $265,017 $286,721 ======== ========
- --------------- (1) Excludes restructuring and other charges, litigation settlements, intangible asset impairment and interest expense. (2) 1998 includes net assets of $11,872 related to discontinued operations. F-22 50 PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED ------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 (1)(2): Revenue....................................... $ 81,374 $ 82,357 $ 81,270 $77,128 Net loss from continuing operations........... (14,570) (39,984) (4,685) (5,537) Discontinued operations....................... 774 4,374 (4,604) 30,530 Net (loss) income............................. (13,796) (35,610) (9,289) 24,993 Net loss per common share from continuing operations................................. (0.55) (1.44) (0.16) (0.19) Discontinued operations per common share...... 0.03 0.16 (0.15) 1.03 Net (loss) income per common share............ $ (0.52) $ (1.28) $ (0.31) $ 0.84 Weighted average shares outstanding........... 26,309 27,775 28,465 29,798 1998 (3)(4): Revenue....................................... $ 95,347 $ 89,330 $ 81,980 $83,166 Net loss from continuing operations........... (6,645) (31,886) (513,158)(5) (7,268) Discontinued operations....................... 1,494 2,071 (2,847) 6,425(6) Extraordinary items........................... (5,557) -- -- (2,843) Net loss...................................... (10,708) (29,815) (516,005) (3,686) Net loss per common share from continuing operations................................. (0.27) (1.24) (19.57) (0.28) Discontinued operations per common share...... 0.06 0.08 (0.11) 0.24 Extraordinary item per common share........... (0.23) -- -- (0.10) Net loss per common share..................... $ (0.44) $ (1.16) $ (19.68) $ (0.14) Weighted average shares outstanding........... 24,493 25,712 26,218 26,242
- --------------- (1) The quarterly periods ended June 30, 1999 and September 30, 1999 also included the impact of $29.2 million and $(4.4) million, respectively, of charges for litigation settlements. (2) The quarterly periods ended March 31, 1999, June 30, 1999, September 30, 1999 and December 31, 1999 also included the impact of $0.5 million, $4.0 million, $(6.0) million and $29.2 million, respectively, of gain (loss) on the sale of discontinued operations. (3) The quarterly periods ended March 31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998 included the impact of $0.6 million, $1.0 million, $1.8 million and $1.8 million, respectively, of restructuring and other charges. See Note 3 for a detailed explanation of these charges. (4) The quarterly periods ended June 30, 1998, September 30, 1998 and December 31, 1998 also included the impact of $21.9 million, $19.5 million and $(5.4) million, respectively, of charges for litigation settlements. (5) The quarterly period ended September 30, 1998 also included the impact of a $390.6 million intangible asset impairment charge. (6) The quarterly period ended December 31, 1998 also included the gain on the sale of Hospital Services of $7.2 million, net of tax. F-23 51 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Per-Se Technologies, Inc.: Our audits of the consolidated financial statements referred to in our report dated February 8, 2000 appearing in the 1999 Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Atlanta, Georgia February 8, 2000 F-24 52 PER-SE TECHNOLOGIES, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ADDITIONS --------------------- BALANCE AT CHARGED TO CHARGED BEGINNING COSTS AND TO OTHER BALANCE AT DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR ----------- ---------- ---------- -------- ---------- ----------- (IN THOUSANDS) Year Ended December 31, 1999 Allowance for doubtful accounts............ $ 20,723 $ 4,991 -- $(11,213) $ 14,501 Valuation allowance for deferred taxes..... 230,232 -- -- 6,603 236,835 Year Ended December 31, 1998 Allowance for doubtful accounts............ $ 10,746 $ 14,269 -- $ (4,292) $ 20,723 Valuation allowance for deferred taxes..... 26,460 203,772 -- -- 230,232 Year Ended December 31, 1997 Allowance for doubtful accounts............ $ 8,146 $ 6,459 $43 $ (3,902) $ 10,746 Valuation allowance for deferred taxes..... 18,334 8,126 -- -- 26,460
F-25 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION , REGISTRANT 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF PER-SE TECHNOLOGIES, INC. Per-Se Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: 1. The name under which the Corporation originally was incorporated was MDSC Holding, Inc. The date of filing of the Corporation's original Certificate of Incorporation with the Secretary of State of Delaware was November 15, 1985. The Corporation changed its corporate name to Medaphis Corporation on April 28, 1989, and from Medaphis Corporation to Per-Se Technologies, Inc. on August 16, 1999. 2. The provisions of the Corporation's Certificate of Incorporation as heretofore amended, restated and supplemented, which are currently in effect and operative, are hereby integrated into the Restated Certificate of Incorporation hereinafter set forth (the "Restated Certificate"). 3. The Restated Certificate was duly adopted by the Board of Directors of the Corporation without a vote of the Corporation's stockholders in accordance with Section 245 of the General Corporation Law of the State of Delaware. 4. The Restated Certificate only restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation as heretofore amended, restated and supplemented, and there is no discrepancy between those provisions and the provisions of the Restated Certificate. 5. The undersigned officer of the Corporation hereby acknowledges that this is the act and deed of the Corporation and that the facts stated herein are true. 6. Effective upon the filing of this instrument with the Secretary of State of Delaware, the Corporation's Certificate of Incorporation as heretofore amended, restated and supplemented, shall be superseded by the Restated Certificate. 7. The Restated Certificate is as follows: 2 RESTATED CERTIFICATE OF INCORPORATION OF PER-SE TECHNOLOGIES, INC. FIRST: The name of the Corporation is Per-Se Technologies, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: Number of Shares. The aggregate number of shares of all classes of stock which the Corporation shall have authority to issue is 220,600,000, consisting of 200,000,000 shares of Common Stock, $.01 par value (herein called "Common Stock"), 600,000 shares of Non-Voting Common Stock, $.01 par value (herein called "Non-Voting Common Stock"), and 20,000,000 shares of Preferred Stock, no par value (herein called "Preferred Stock"). All cross-references in each subdivision of this Article Fourth refer to other paragraphs in such subdivision unless otherwise indicated. The following is a statement of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of each class of stock of the Corporation: I. COMMON STOCK 1. Dividends. The holders of shares of Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation, subject to the rights of holders of Non-Voting Common Stock provided for herein. 2. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Common Stock and the holders of Non-Voting Common Stock shall be entitled to share ratably based upon the number of shares held by them in all assets of the Corporation available for distribution to its stockholders. 3. Voting Rights. All shares of Common Stock shall be identical with each other in every respect. The shares of Common Stock shall entitle the holders thereof to one vote for each share upon all matters upon which stockholders have the right to vote. 2 3 II. NON-VOTING COMMON STOCK 1. Dividends. The holders of shares of Non-Voting Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation. No dividend will be declared or paid on Common Stock unless an equivalent per share dividend is declared and paid on the Non-Voting Common Stock. In the event that the holders of Common Stock receive a dividend payable in shares of Common Stock, then holders of Non-Voting Common Stock shall receive an equivalent dividend, payable in shares of Non-Voting Common Stock. 2. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Common Stock and the holders of Non-Voting Common Stock shall be entitled to share ratably based upon the number of shares held by them in all assets of the Corporation available for distribution to its stockholders. 3. Voting Rights. Holders of Non-Voting Common Stock shall have no rights to vote except as provided by law. 4. Conversion. 4A. Right to Convert. Subject to the terms and conditions of this paragraph 4, the holder of any share or shares of Non-Voting Common Stock shall have the right, at its option and at any time, to convert any whole number of such shares of Non-Voting Common Stock (except that upon any liquidation of the Corporation the right of conversion shall terminate at the close of business on the last full business day next preceding the date fixed for payment of the amount distributable on Non-Voting Common Stock) into an equal number of fully-paid and nonassessable whole shares of Common Stock. Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of whole shares of Non-Voting Common Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office of the Corporation as the Corporation may designate by notice in writing to the holder or holders of Non-Voting Common Stock) at any time during its usual business hours, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Stock shall be issued. 4B. Issuance of Certificates; Time Conversion Effected. Promptly after the receipt of the written notice referred to in subparagraph 4A and surrender of the certificate or certificates for the share or shares of Non-Voting Common Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Non-Voting Common Stock. To the extent permitted by law, such conversion shall be deemed to have been effected immediately prior to the 3 4 close of business on the day the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Non-Voting Common Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the share or shares represented thereby. 4C. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued upon conversion of Non-Voting Common Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay in cash an amount equal to all dividends accrued and unpaid (if any) on the shares of Non-Voting Common Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 4B. In case the number of shares of Non-Voting Common Stock represented by the certificate or certificates surrendered pursuant to subparagraph 4A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder thereof, at the expense of the Corporation, a new certificate or certificates for the number of shares of Non-Voting Common Stock represented by the certificate or certificates surrendered which are not to be converted. 5. Subdivision or Combination of Stock. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, then the Non-Voting Common Stock shall be similarly subdivided, and conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, then the number of shares of Non-Voting Common Stock outstanding immediately prior to such combination shall be proportionately reduced. III. PREFERRED STOCK 1. Issuance. The Preferred Stock may be issued, from time to time, in one or more series, each of such series to have such voting powers, full or limited or no voting powers, and such designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions with respect thereto as are stated and expressed herein, in any amendment or amendments to this Restated Certificate of Incorporation, or in any resolution or resolutions establishing such series as are adopted by the Board of Directors as hereinafter provided, and as are acknowledged, filed and recorded in accordance with the laws of the State of Delaware and as are not inconsistent with this Article Fourth or any other provision of this Restated Certificate of Incorporation. 2. Rights, Designations and Preferences. Authority is hereby expressly granted to the Board of Directors, subject to the provisions of this Article Fourth, to authorize the issuance of one or more series of Preferred Stock with such voting powers, full or limited, or no voting powers, and 4 5 such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as the Board of Directors may determine, including without limitation the foregoing, to fix by resolution or resolutions providing for the issuance of each such series: (a) The distinctive designation of such series and the number of shares which shall constitute such series; (b) The amount of the consideration to be received for the shares of such series which shall be capital; (c) The cumulative or noncumulative nature of the dividend to be paid; (d) The dividend rate or rates to which such shares shall be entitled and the restrictions, limitations, and conditions upon the payment of such dividends, the date or dates from which such dividends, if declared, shall be payable; (e) Whether or not the shares of such series shall be redeemable; the limitations and restrictions with respect to such redemptions (including whether or not the shares of such series shall be redeemable at the option of either the holder or the Corporation or upon the happening of a specified event); the manner of selecting shares of such series for redemption if less than all the shares are to be redeemed; the amount, if any, in addition to any accrued dividends thereon which the holder of shares of such series shall be entitled to receive upon the redemption thereof, which amount may vary at different redemption dates, may be subject to adjustment and may be different with respect to shares redeemed through the operation of any purchase, retirement or sinking fund and with respect to shares otherwise redeemed; and whether or not the shares of such series, if redeemable, shall be redeemable for cash, property or rights, including securities of any other corporation; (f) The amount which the holders of shares of such series may be entitled to receive in addition to any accumulated dividends upon the voluntary or involuntary liquidation or dissolution of the Corporation, which amount may vary depending upon whether such liquidation or dissolution is voluntary or involuntary and, if voluntary, may vary at different dates; provided, however, that the merger or consolidation of the Corporation or a sale, lease or conveyance of all or part of the assets of the Corporation shall not be deemed a liquidation or dissolution; (g) Whether or not the shares of such series shall be subject to the operation of a purchase, retirement, or sinking fund, and if so, whether such purchase, retirement or sinking fund shall be cumulative or noncumulative, and the extent to and the manner in which such funds shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation of said fund or funds; 5 6 (h) Whether or not the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes, or of any other series of the same class, and if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same; (i) The voting rights, if any, of such series, but not to exceed one vote per share, and whether such voting rights shall be contingent upon the happening of a specified event and whether such voting rights shall cease upon the happening of a specified event; and (j) Any other preferences and relative, participating, optional, or other special rights, and qualifications, limitations or restrictions thereof not inconsistent with this Article Fourth or any other provision of this Restated Certificate of Incorporation. 3. Additional Authority of Board of Directors. The Board of Directors also shall have authority to change the designation of shares, or the relative rights, preferences and limitations of the shares, of any theretofore established series of Preferred Stock, no share of which has been issued, and further, the Board shall have authority to increase or decrease the number of shares of any series previously determined by it (provided, however, that the number of shares of any series shall not be decreased to a number less than that of the shares of that series then outstanding). 4. Series. All shares of any one series of Preferred Stock shall be identical with each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative; and all series shall rank equally and be identical in all respects, except as permitted by the provisions of this Section III of this Article Fourth. 5. Issued and Reacquired Shares. Shares of Preferred Stock which have been issued and reacquired in any manner by the Corporation (excluding, until the Corporation elects to retire them, shares which the Corporation elects to hold as treasury shares) shall, upon compliance with any applicable provisions of the General Corporation Law of the State of Delaware, have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part (provided the terms of such series do not prohibit such reissue) or as part of a new series of Preferred Stock to be established as provided in this Section III of this Article Fourth or as part of any other series of Preferred Stock the terms of which do not prohibit such reissue. 6. Voting Rights. (a) So long as any of the Preferred Stock is outstanding, the holders of the outstanding shares of Preferred Stock, if any, shall be entitled to vote as a class upon any proposed amendment to this Restated Certificate of Incorporation, whether or not entitled to vote thereon by the provisions of this Article Fourth and the resolutions adopted by the Board of Directors hereunder, if the amendment would increase or decrease the aggregate number of authorized shares of Preferred Stock, increase or decrease the par value of such shares, or alter or change the powers, preferences, or special rights of the shares of Preferred Stock so as to affect them adversely. If any 6 7 proposed amendment to this Restated Certificate of Incorporation would alter or change the powers, preferences or special rights of one or more series of the Preferred Stock so as to affect them adversely, but shall not so affect the entire class of Preferred Stock, then only the shares of the one or more series so affected by the amendment shall be entitled to vote thereon and such voting shall be accomplished as if such one or more series constituted a separate class of Preferred Stock. (b) Any amendment with respect to which the vote required by this paragraph 6 shall be given may be made effective by the filing of an appropriate certificate of amendment of the Corporation's Restated Certificate of Incorporation without obtaining the vote of the holders of the Common Stock of the Corporation, and the holders of the Common Stock shall have no right to vote thereon, unless the action to be taken would adversely affect the preferences, rights, or powers of such class of Common Stock or the holders thereof; and provided further that any vote required concerning a given series of the Preferred Stock may be given and made effective by filing an appropriate amendment of the Corporation's Restated Certificate of Incorporation without obtaining a vote of the holders of any other series of Preferred Stock or of the holders of the Common Stock of the Corporation and the holders of such shares shall have no right to vote thereon, unless the action to be taken would adversely affect the preferences, rights, or powers of such other series of Preferred Stock or the Common Stock, as the case may be. 7. Dividends; Rank. For the purpose of this Section III of this Article Fourth and of any resolution or resolutions adopted by the Board of Directors establishing any series of Preferred Stock and acknowledged, filed and recorded in accordance with the laws of the State of Delaware (unless otherwise provided in any such amendment or certificate): (a) The amount of dividends "accumulated" on any share of Preferred Stock or any series as at any dividend date shall be deemed to be the amount of any unpaid dividends accumulated thereon to and including such dividend date, whether or not earned or declared, and the amount of dividends "accumulated" on any share of Preferred Stock or any series as at any date other than a dividend date shall be calculated as the amount of any unpaid dividends accumulated thereon to and including the last preceding dividend date, whether or not earned or declared, plus any amount equivalent to the pro rata portion of a dividend at the annual dividend rate fixed for the shares of such series for the period after such last preceding dividend date to and including the date as of which the calculation is made. (b) Any class or classes of stock of the Corporation shall be deemed to rank: (i) prior to the Preferred Stock either as to dividends or upon liquidation if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon liquidation or dissolution, as the case may be, in preference or priority to the holders of the Preferred Stock; 7 8 (ii) on a parity with the Preferred Stock either as to dividends or upon liquidation whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share thereof be different from those of the Preferred Stock, if the holders of such class or classes of stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation or dissolution, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preferences or priority one over the other with respect to the holders of the Preferred Stock; and (iii) junior to the Preferred Stock either as to dividends or upon liquidation if the rights of the holders of such class or classes shall be subject or subordinate to the rights of the holders of the Preferred Stock in respect of the receipt of dividends or of amounts distributable upon liquidation or dissolution, as the case may be. 8. Priority Over Common Stock. So long as the shares of Preferred Stock shall be outstanding, the Common Stock shall be deemed to rank junior to the Preferred Stock as to dividends and upon liquidation. FIFTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to make, alter or repeal the Bylaws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any Bylaw made by the Board of Directors. SIXTH: The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained in this Restated Certificate of Incorporation in accordance with the provisions hereof and the laws of the State of Delaware; to add or insert other provisions authorized by the laws of the State of Delaware at the time in force in the manner now or hereafter prescribed by law; and to amend, alter, change or repeal all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other person whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended or granted subject to the right reserved in this Article. SEVENTH: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. 8 9 IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed and acknowledged this 20th day of January, 2000. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE --------------------------------------- Allen W. Ritchie President and Chief Executive Officer 9 EX-3.2 3 RESTATED BY-LAWS OF REGISTRANT 1 EXHIBIT 3.2 - ------------------------------------------------------------------------------- RESTATED BY-LAWS OF PER-SE TECHNOLOGIES, INC. ---------------------------- Incorporated under the Laws of the State of Delaware ---------------------------- Restated as of January 20, 2000 - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I OFFICES................................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS...............................................................1 Section 1 Place of Meetings......................................................................1 Section 2 Annual Meeting.........................................................................1 Section 3 Special Meetings.......................................................................1 Section 4 Notice of Meetings.....................................................................1 Section 5 Notice of Nomination of Directors......................................................2 Section 6 Notice of Other Business...............................................................3 Section 7 List of Stockholders...................................................................3 Section 8 Quorum.................................................................................4 Section 9 Voting.................................................................................4 Section 10 Proxies................................................................................4 Section 11 Inspectors of Elections................................................................4 Section 12 Action without a Meeting...............................................................5 ARTICLE III BOARD OF DIRECTORS.....................................................................5 Section 1 Powers.................................................................................5 Section 2 Election and Term......................................................................6 Section 3 Number.................................................................................6 Section 4 Quorum and Manner of Acting............................................................6 Section 5 Organization Meeting...................................................................6 Section 6 Regular Meetings.......................................................................6 Section 7 Special Meetings; Notice...............................................................6 Section 8 Removal of Directors...................................................................7 Section 9 Resignations...........................................................................7 Section 10 Vacancies..............................................................................7 Section 11 Compensation of Directors..............................................................7 Section 12 Action Without a Meeting...............................................................7 Section 13 Telephonic Participation in Meetings...................................................8 Section 14 Committees of the Board of Directors...................................................8
-i- 3 ARTICLE IV OFFICERS...............................................................................8 Section 1 Principal Officers.....................................................................8 Section 2 Election and Term of Office............................................................8 Section 3 Other Officers.........................................................................8 Section 4 Removal................................................................................8 Section 5 Resignations...........................................................................9 Section 6 Vacancies..............................................................................9 Section 7 Chairman of the Board..................................................................9 Section 8 Vice Chairmen..........................................................................9 Section 9 President..............................................................................9 Section 10 Vice Presidents........................................................................9 Section 11 Treasurer..............................................................................9 Section 12 Secretary.............................................................................10 Section 13 Salaries..............................................................................10 ARTICLE V SHARES AND THEIR TRANSFER.............................................................10 Section 1 Certificate for Stock.................................................................10 Section 2 Stock Certificate Signature...........................................................10 Section 3 Stock Ledger..........................................................................10 Section 4 Cancellation..........................................................................10 Section 5 Registrations of Transfers of Stock...................................................11 Section 6 Regulations...........................................................................11 Section 7 Lost, Stolen, Destroyed or Mutilated Certificates.....................................11 Section 8 Record Dates..........................................................................11 ARTICLE VI MISCELLANEOUS PROVISIONS..............................................................11 Section 1 Corporate Seal........................................................................11 Section 2 Voting of Stocks Owned by the Corporation.............................................11 Section 3 Dividends.............................................................................12 Section 4 Indemnification and Insurance.........................................................12 ARTICLE VII AMENDMENTS ...........................................................................13
-ii- 4 RESTATED BY-LAWS OF PER-SE TECHNOLOGIES, INC. (a Delaware corporation) ---------------------------- ARTICLE I OFFICES The registered office of the Corporation in the State of Delaware shall be located in the City of Wilmington, County of New Castle. The Corporation may establish or discontinue, from time to time, such other offices within or without the State of Delaware as may be deemed proper for the conduct of the Corporation's business. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of stockholders shall be held at such place or places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors, or as shall be specified in the respective notices, or waivers of notice, thereof. Section 2. Annual Meeting. The annual meeting of stockholders for the election of Directors and the transaction of other business shall be held on such date and at such time and place as may be designated by the Board of Directors. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and may transact such other proper business as may come before the meeting. Section 3. Special Meetings. A special meeting of the stockholders, or of any class thereof entitled to vote, for any purpose or purposes, may be called at any time by the Chairman of the Board, if any, or the President or by order of the Board of Directors and shall be called by the President or the Secretary upon the written request of stockholders holding of record at least 50% of the outstanding shares of stock of the Corporation entitled to vote at such meeting. Such written request shall state the purpose or purposes for which such meeting is to be called. Section 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, stating the place, date and hour of the meeting 5 shall be given not less than ten days nor more than sixty days before the date on which the meeting is to be held to each stockholder of record entitled to vote thereat by delivering a notice thereof to him personally or by mailing such notice in a postage prepaid envelope directed to him at his address as it appears on the records of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be directed to another address, in which case such notice shall be directed to him at the address designated in such request. Notice shall not be required to be given to any stockholder who shall waive such notice in writing, whether prior to or after such meeting, or who shall attend such meeting in person or by proxy unless such attendance is for the express purpose of objecting, at the beginning of such meeting, to the transaction of any business because the meeting is not lawfully called or convened. Every notice of a special meeting of the stockholders shall also state the purpose or purposes for which it is called. Section 5. Notice of Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors of the Corporation. Nominations of persons for election as Directors of the Corporation may be made at a meeting of stockholders only (i) by or at the direction of the Board of Directors, (ii) by any nominating committee or person appointed by the Board or (iii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 5. Such nominations, other than those made by or at the direction of the Board or by any nominating committee or person appointed by the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation, in the case of an annual meeting of stockholders, not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 15th day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as now or hereafter amended; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. -2- 6 No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 6. Notice of Other Business. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth with respect to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 6, provided, however, that nothing in this Section 6 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6, and if he should so determine, he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Section 7. List of Stockholders. It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of the stock ledger to prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in his name. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days -3- 7 prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall be kept and produced at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. The original or duplicate ledger shall be the only evidence as to who are the stockholders entitled to examine such list or the books of the Corporation or to vote in person or by proxy at such meeting. Section 8. Quorum. At each meeting of the stockholders, the holders of record of a majority of the issued and outstanding stock of the Corporation entitled to vote at such meeting, present in person or by proxy, shall constitute a quorum for the transaction of business, except as otherwise provided by law, the Certificate of Incorporation or these By-laws. In the absence of a quorum, any officer entitled to preside at, or act as Secretary of, such meeting shall have the power to adjourn the meeting from time to time until a quorum shall be constituted. Section 9. Voting. Every stockholder of record who is entitled to vote shall, at every meeting of the stockholders, be entitled to one vote for each share of stock held by him on the record date; except, however, that shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall neither be entitled to vote nor counted for quorum purposes. Nothing in this Section shall be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. At all meetings of the stockholders, a quorum being present, all matters shall be decided by majority vote of the shares of stock entitled to vote held by stockholders present in person or by proxy, except as otherwise required by law or the Certificate of Incorporation. Unless demanded by a stockholder of the Corporation present in person or by proxy at any meeting of the stockholders and entitled to vote thereat or so directed by the chairman of the meeting or required by law, the vote thereat on any question need not be by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder voting, or in his name by his proxy, if there be such proxy, and shall state the number of shares voted by him and the number of votes to which each share is entitled. Section 10. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. A proxy acting for any stockholder shall be duly appointed by an instrument in writing subscribed by such stockholder. No proxy shall be valid after the expiration of three years from the date thereof unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Section 11. Inspectors of Elections. The Board of Directors, in advance of any stockholder meeting, shall appoint an inspector of elections to act at such meeting, and any adjournment thereof, -4- 8 and make a written report thereof. In case any person appointed fails to appear or act, the vacancy may be filled by an alternate appointed by the Board in advance of the meeting or at the meeting by the person presiding thereat. The inspector, before entering upon discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Section 12. Action without a Meeting. Any action required to be taken at any annual or special meeting of stockholders or any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of stockholders meetings are recorded, to the attention of the Secretary of the Corporation. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. ARTICLE III BOARD OF DIRECTORS Section 1. Powers. Except as otherwise provided by law or in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. -5- 9 Section 2. Election and Term. Except as otherwise provided by law, Directors shall be elected at the annual meeting of stockholders and shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified, or until they sooner die, resign or are removed. At each annual meeting of stockholders, at which a quorum is present, the persons receiving a plurality of the votes cast shall be the Directors. Acceptance of the office of Director may be expressed orally or in writing, and attendance at the organization meeting shall constitute such acceptance. Section 3. Number. The number of Directors shall be such number as shall be determined from time to time by the Board of Directors, but shall not be less than three nor more than ten. Section 4. Quorum and Manner of Acting. Unless otherwise provided by law, the presence of 50% of the whole Board of Directors shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the Directors present may adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. At all meetings of Directors, a quorum being present, all matters shall be decided by the affirmative vote of a majority of the Directors present, except as otherwise required by law, the Certificate of Incorporation or these By-laws. The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as the Board of Directors may from time to time determine or as shall be specified in the respective notices, or waivers of notice, thereof. Section 5. Organization Meeting. Immediately after each annual meeting of stockholders for the election of Directors, the Board of Directors shall meet at the place of the annual meeting of stockholders for the purpose of organization, the election of officers and the transaction of other business. Notice of such meeting need not be given. If such meeting is held at any other time or place, notice thereof must be given as hereinafter provided for special meetings of the Board of Directors, subject to the execution of a waiver of the notice thereof signed by, or the attendance at such meeting of, all Directors who may not have received such notice. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held at such time and place, within or without the State of Delaware, as shall from time to time be determined by the Board of Directors. After there has been such determination, and notice thereof has been once given to each member of the Board of Directors as hereinafter provided for special meetings, regular meetings may be held without further notice being given. Section 7. Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, if any, the President or by a majority of the Directors. Notice of each such meeting shall be mailed to each Director, addressed to him at his residence or usual place of business, at least five days before the date on which the meeting is to be held, or shall be sent to him at such place by facsimile, telegraph or cable, or be delivered personally or by telephone, not later than the day before the day on which such meeting is to be held. Each such notice shall state the time and place of the meeting and, as may be required, the purposes thereof. -6- 10 Section 8. Notice of any meeting of the Board of Directors need not be given to any Director if he shall sign a written waiver thereof either before or after the time stated therein for such meeting, or if he shall be present at the meeting. Unless limited by law, the Certificate of Incorporation, these By-laws or the terms of the notice thereof, any and all business may be transacted at any meeting without the notice thereof having specifically identified the matters to be acted upon. Section 9. Removal of Directors. Any Director or the entire Board of Directors may be removed, with or without cause, at any time, by action of the holders of record of a majority of the issued and outstanding stock of the Corporation entitled to vote thereon (i) present in person or by proxy at a meeting of such stockholders or (ii) by a consent in writing in the manner contemplated in Section 12 of Article II, and the vacancy or vacancies in the Board of Directors caused by any such removal may be filled by action of such a majority at such meeting or at any subsequent meeting or by consent. Section 10. Resignations. Any Director of the Corporation may resign at any time by giving written notice to the Chairman of the Board, if any, the President or the Secretary of the Corporation. The resignation of any Director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 11. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors though less than a quorum of the Board of Directors, or by the sole remaining Director, as the case may be, or if the vacancy is not so filled, or if no Director remains, by the affirmative vote of a majority of the stockholders entitled to vote thereon. A Director elected to fill a vacancy shall serve the unexpired term of his predecessor in office, or, if such vacancy occurs by reason of an amendment to these By-laws increasing the number of Directors, until the next election of Directors by the stockholders, and until his successor has been elected and qualified, or until he sooner dies, resigns or is removed. Section 12. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board, a specific sum fixed by the Board plus expenses may be allowed for attendance at each regular or special meeting of the Board; provided, however, that nothing herein contained shall be construed to preclude any Director from serving the Corporation or any parent or subsidiary corporation thereof in any other capacity and receiving compensation therefore. Section 13. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent thereto is signed by all members of the Board, and such written consent is filed with the minutes or proceedings of the Board. -7- 11 Section 14. Telephonic Participation in Meetings. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 15. Committees of the Board of Directors. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, each consisting of one or more directors. Except as prohibited by law, each committee shall have the authority set forth in the resolution of the Board of Directors establishing such committee. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these By-laws. ARTICLE IV OFFICERS Section 1. Principal Officers. The Board of Directors shall elect a President, a Secretary and a Treasurer, and may in addition elect a Chairman of the Board, one or more Vice Chairmen of the Board, one or more Vice-Presidents and such other officers as it deems fit; the President, the Secretary, the Treasurer, the Chairman of the Board, if any, the Vice Chairmen of the Board, if any, and the Vice Presidents, if any, being the principal officers of the Corporation. One person may hold, and perform the duties of, any two or more of said offices; provided, however, that the offices of President and Secretary shall not be held by one person coincidentally. Section 2. Election and Term of Office. The principal officers of the Corporation shall be elected annually by the Board of Directors at the organization meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. Section 3. Other Officers. In addition, the Board may elect, or the Chairman of the Board, if any, or the President may appoint, such other officers as they deem fit. Any such other officers chosen by the Board of Directors shall be subordinate officers and shall hold office for such period, have such authority and perform such duties as the Board of Directors, the Chairman of the Board, if any, or the President may from time to time determine. Section 4. Removal. Any officer may be removed, either with or without cause, at any time, by resolution adopted by the Board of Directors at any regular meeting of the Board, or at any special meeting of the Board called for that purpose, at which a quorum is present. -8- 12 Section 5. Resignations. Any officer may resign at any time by giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Vacancies. A vacancy in any office may be filled for the unexpired portion of the term in the manner prescribed in these By-laws for election or appointment to such office for such term. Section 7. Chairman of the Board. The Chairman of the Board of Directors, if elected, shall preside, if present, at all meetings of the Board of Directors and meetings of the stockholders, if present thereat, and shall have and perform such other duties as from time to time may be assigned by the Board of Directors. Section 8. Vice Chairmen. Each Vice Chairman shall have the general powers and duties as shall be delegated to him by the Chairman of the Board of Directors or as shall be established by resolution of the Board of Directors. Section 9. President. The President shall be the chief executive officer of the Corporation, and shall have the general powers and duties of supervision and management usually vested in the office of the President and Chief Executive Officer of a corporation. He shall preside, in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the stockholders and the Board of Directors, and shall have general supervision, direction and control of the business of the Corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages, and other contracts on behalf of the Corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer. Section 10. Vice Presidents. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him by the Board of Directors or the President. Section 11. Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation. He shall exhibit at all reasonable times his books of account and records to any of the Directors of the Corporation upon application during business hours at the office of the Corporation where such books and records shall be kept; when requested by the Board of Directors, he shall render a statement of the condition of the finances of the Corporation at any meeting of the Board or at the annual meeting of stockholders; he shall receive, and give receipt for, moneys due and payable to the Corporation from any source whatsoever; in general, he shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors or the President. The Treasurer shall give such bond, if any, for the faithful discharge of his duties as the Board may require. -9- 13 Section 12. Secretary. The Secretary, if present, shall act as secretary at all meetings of the Board of Directors and of the stockholders and keep the minutes thereof in a book or books to be provided for that purpose; he shall see that all notices required to be given by the Corporation are duly given and served; he shall have charge of the stock records of the Corporation; he shall see that all reports, statements and other documents required by law are properly kept and filed; and in general he shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the President. Section 13. Salaries. The salaries of the principal officers shall be fixed from time to time by the Board of Directors or an authorized committee thereof, and the salaries of any other officers may be fixed by the President. ARTICLE V SHARES AND THEIR TRANSFER Section 1. Certificate for Stock. Every stockholder of the Corporation shall be entitled to a certificate or certificates, to be in such form as the Board of Directors shall prescribe, certifying the number of shares of the capital stock of the Corporation owned by him. No certificate shall be issued for partly paid shares. Section 2. Stock Certificate Signature. The certificates for such stock shall be numbered in the order in which they shall be issued and shall be signed by the Chairman of the Board, if any, or the President and the Secretary or Treasurer of the Corporation and its seal shall be affixed thereto. If such certificate is countersigned (i) by a transfer agent other than the Corporation or its employee, or (ii) by a registrar other than the Corporation or its employee, the signatures of such officers of the Corporation may be facsimiles. In case any officer of the Corporation who has signed, or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 3. Stock Ledger. A record shall be kept by the Secretary or by any other officer, employee or agent designated by the Board of Directors, of the name of each person, firm or corporation holding capital stock of the Corporation, the number of shares represented by, and the respective dates of, each certificate for such capital stock, and in case of cancellation of any such certificate, the respective dates of cancellation. Section 4. Cancellation. Every certificate surrendered to the Corporation for exchange or registration of transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except, subject to Section 7 of this Article V, in cases provided for by applicable law. -10- 14 Section 5. Registrations of Transfers of Stock. Registrations of transfers of shares of the capital stock of the Corporation shall be made on the books of the Corporation on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; provided, however, that whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 6. Regulations. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with the Certificate of Incorporation or these By-laws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any principal officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates of stock to bear the signature or signatures of any of them. Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. Before any certificates for stock of the Corporation shall be issued in exchange for certificates which shall become mutilated or shall be lost, stolen or destroyed, proper evidence of such loss, theft, mutilation or destruction shall be procured for the Board of Directors, if it so requires. Section 8. Record Dates. For the purpose of determining the stockholders 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 other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a date as a record date for any such determination of stockholders. Such record date shall not more than sixty (60) days and, in the 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. ARTICLE VI MISCELLANEOUS PROVISIONS Section 1. Corporate Seal. The Board of Directors shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that it was incorporated in the State of Delaware in the year 1985. The Secretary shall be the custodian of the seal. The Board of Directors may authorize a duplicate seal to be kept and used by any other officer. Section 2. Voting of Stocks Owned by the Corporation. The Board of Directors may authorize any person on behalf of the Corporation to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation (except the Corporation) in which the Corporation may -11- 15 hold stock. Nothing in this Section shall be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. Section 3. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor, at any regular or special meeting, declare dividends upon the capital stock of the Corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation. Section 4. Indemnification and Insurance. (a) Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by the Delaware General Corporation Law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, 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 or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Corporation shall be required to indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Corporation. The right provided in this Section 4(a) is a contract right. (b) Prepayment of Expenses. The Corporation shall pay the expenses incurred by an officer or director in defending or investigating any proceeding in advance of its final disposition; provided, however, that, if required by the Delaware General Corporation Law, the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Section or otherwise. The right provided in this Section 4(b) is a contract right. (c) Claims. If a claim for indemnification or payment of expenses under this Section is not paid in full within sixty days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. -12- 16 (d) Non-Exclusivity of Rights. The rights conferred on any person by this Section shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. (e) Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. (f) Insurance. The Corporation may 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 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 liability under the Delaware General Corporation Law. (g) Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Section shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VII AMENDMENTS These By-laws of the Corporation may be altered, amended or repealed by the Board of Directors at any regular or special meeting of the Board of Directors or by the affirmative vote of the holders of record of a majority of the issued and outstanding stock of the Corporation entitled to vote thereon (i) present in person or by proxy at a meeting of holders of such stock or (ii) by a consent in writing in the manner contemplated in Section 12 of Article II, provided, however, that notice of the proposed alteration, amendment or repeal is contained in the notice of such meeting. By-laws, whether made or altered by the stockholders or by the Board of Directors, shall be subject to alteration or repeal by the stockholders as in this Article VII above provided. -13- EX-4.1 4 SPECIMEN COMMON STOCK CERTIFICATE 1 EXHIBIT 4.1 [LOGO] PER-SE TECHNOLOGIES(TM) [LOGO] COMMON STOCK PER-SE TECHNOLOGIES, INC. CUSIP 713569 30 9 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE SIDE FOR CERTAIN DEFINITIONS THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE SHARES, PAR VALUE $.01 EACH, OF THE COMMON STOCK OF PER-SE TECHNOLOGIES, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Countersigned and Registered: AMERICAN STOCK TRANSFER & TRUST COMPANY (New York, New York) Transfer Agent and Registrar By: ------------------------------------- Authorized Signature Dated: By: /s/ By: /s/ ----------------------------- ------------------------------------- Executive Vice President, President and Chief Executive Officer General Counsel and Secretary [CORPORATE SEAL]
2 This Certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between the Corporation and the Rights Agent thereunder dated as of February 12, 1999 (the "Rights Agreement"), the terms of which are hereby incorporated by reference and a copy of which is on file at the principal office of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Corporation will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, rights issued to, or beneficially owned by, any Person who is, was or becomes an Acquiring Person of any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. PER-SE TECHNOLOGIES, INC. The Corporation will furnish without charge to each stockholder who so requests, a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT-____________ CUSTODIAN ___________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with rights of under Uniform Gifts to Minors survivorship and not as tenants Act ___________________ in common (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _________________ HEREBY SELL, ASSIGN AND TRANSFER INTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------ SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT - ---------------------------------------------------------------------- ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED ---------------------- ------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. ------------------------------------------------- SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.2 5 FORM OF OPTION AGREEMENT, QUALIFIED STOCK OPTION 1 EXHIBIT 4.2 AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT ("Agreement") is made as of the date of grant specified on the foregoing Notice of Grant (the "Notice of Grant") by and between PER-SE TECHNOLOGIES, INC., a Delaware corporation formerly known as Medaphis Corporation (the "Company"), and the Optionee as identified on the Notice of Grant. W I T N E S S E T H WHEREAS, the Committee (the "Committee") appointed by the Board of Directors to administer the Second Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Plan, as amended (the "Plan"), has authorized the grant to the Optionee of a stock option, which shall not be an incentive stock option described in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), authorizing the Optionee to purchase the number of shares of Common Stock, par value $.01 per share ("Common Stock"), of the Company allocated to him by the Committee; and WHEREAS, the Company and the Optionee wish to confirm the terms and conditions of the option; NOW, THEREFORE, in consideration of the mutual covenants contained herein, it is hereby agreed between the parties hereto as follows: 1. Grant of Option. Upon and subject to the terms, restrictions, limitations and conditions stated herein, the Company hereby grants to the Optionee an option (the "Option") to purchase all or any part of the shares of Common Stock enumerated on the Notice of Grant (hereinafter the "Option Shares"). 2. Terms and Exercise of Option. Subject to the provisions of Section 6 of this Agreement: (a) Beginning six (6) months after the date of grant of the Option, at any time, and from time to time, the Optionee shall have the right to exercise the Option with respect to that portion of the Option Shares determined by the application of the following vesting schedule (after subtracting the number of Option Shares which previously have been exercised pursuant to the Option) set forth on the Notice of Grant. (b) The Option shall expire, terminate and no longer be exercisable upon the earlier to occur of: (1) the date which is eleven (11) years from the date of grant; or (2) the date set forth in Section 4 hereof. (c) Beginning six (6) months after the date of grant of the Option, at any time, and from time to time, the Option may be exercised with respect to all or any portion of the Option Shares to the extent determined under Section 2(a) hereof and until the expiration of the period set forth in Section 2(b) hereof, by delivery to the Company, at its principal place of business in Atlanta, Georgia, of (i) the written Notice of Exercise in the form attached hereto as Exhibit A, which is incorporated herein by reference, specifying the number of shares of Common Stock with respect to which the Option is being exercised and signed by the person exercising the Option as provided herein and (ii) payment of the purchase price. Upon acceptance of such notice and receipt of payment in full, the Company shall cause to be issued a certificate representing the shares of Common Stock purchased. (d) The Optionee, or the personal representative of the Optionee pursuant to Section 4(b) below, shall have no rights as a stockholder with respect to any shares covered by the Option until the issuance of a stock certificate to him or her for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights in or with respect to shares of Common Stock purchased pursuant to the Option for which the record date for such dividend, distribution or other right is prior to the date of exercise of the Option, except as provided in Section 5 below. Page 2 of 5 2 3. Exercise Price. The Optionee must pay to the Company the option price per share reflected on the Notice of Grant, subject to adjustment as set forth in Section 5, for each share of Common Stock acquired pursuant to the exercise of the Option. 4. Termination of Option. (a) If the Optionee ceases to be an employee of the Company or of any parent or subsidiary corporation of the Company for any reason other than death or disability (within the meaning of Section 22(e)(3) of the Code and as determined in the sole and absolute judgment of the Company) or a Change of Control Event (as hereinafter defined) before this Option is fully vested, any portion of this Option which is not vested on the date of such termination of Optionee's employment shall be automatically forfeited as of his employment termination date. The vested portion of this Option which is unexercised shall expire, terminate and become unexercisable after the expiration of three (3) months after the effective date of the Optionee's termination of employment. The Option evidenced hereby is nontransferable and, except as provided in Section 4(b) below with respect to the death of the Optionee, shall be exercisable during the lifetime of the Optionee only by the Optionee. (b) Notwithstanding any other provision hereof to the contrary, if the Optionee ceases to be an employee of the Company or of any parent or subsidiary corporation of the Company by reason of death or disability (within the meaning of Section 22(e)(3) of the Code and as determined in the sole and absolute judgment of the Company), the Option or any portion thereof which is unexercised shall immediately be and become fully exercisable without regard to the vesting schedule set forth in Section 2 hereof and shall expire, terminate and become unexercisable after the expiration of six (6) months following the Optionee's death or termination of employment due to disability. 5. Corporate Reorganizations and Change in Control. (a) Adjustments. The Committee will adjust the total number of Option Shares, both as to the number of Option Shares and the exercise price, for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock split or a payment of a stock dividend on the shares of Common Stock, a subdivision or combination of the shares of Common Stock, a reclassification of the shares of Common Stock, a merger or consolidation of the Company or any other like changes in the Option Shares or in their value. No fractional shares will be issued as a result of any of these changes, and any fractional shares that result from a change will be eliminated from the Option. Any such adjustments will be made by or under authority of the Committee, and the determination by the Committee as to what adjustments are to be made will be final, binding and conclusive. (b) Change in Control. (1) The following occurrences constitute "Change of Control" events: (i) the adoption of a plan of merger or the consolidation of the Company with any other corporation as a result of which the holders of the outstanding voting stock of the Company as a group would receive less than 50% of the voting stock of the surviving or resulting corporation; (ii) the adoption of a plan of liquidation or the approval of the dissolution of the Company; (iii) the sale or transfer of substantially all of the assets of the Company; (iv) the sale or transfer of substantially all of the assets or stock of an operating subsidiary of the Company, other than as security for obligations of the Company; or (v) the sale or transfer of substantially all of the assets of an operating division of the Company or its subsidiaries, other than as security for obligations of the Company. Page 3 of 5 3 (2) In the event of an occurrence described in Section 5(b)(1)(i), (ii), or (iii), the unexercised portion of this Option will be fully vested and immediately exercisable, and will remain exercisable until the occurrence of such event, after which time the Option will terminate immediately as to any portion thereof not exercised. (3) In the event of an occurrence of an event described in Section 5(b)(1)(iv) or (v), which results in optionees employed by the affected operating subsidiary or division being terminated from their employment with the Company, then the unexercised portion of all outstanding options under the Plan held by those affected optionees will be fully vested and immediately exercisable. Such options will remain exercisable until the earlier of (i) the expiration of the respective terms of such options, or (ii) six (6) months following termination of employment. (4) The Optionee will be mailed notice of any anticipated occurrence described in Section 5(b)(1) at least twenty (20) days prior to the occurrence of such event. (c) Liquidation of Shares After Change in Control. (1) In the event of any occurrence described in Section 5(b)(1)(i), (ii) or (iii) and if the Optionee elects to exercise the Option, the Optionee will have the right in connection with the closing of such event to either (i) sell to the Company, or the surviving or resulting corporation, the shares of Common Stock which the Optionee received upon the exercise of the Option at a cash price per share equivalent to the fair market value of the Common Stock as determined by the Committee, as of the date of such event, or (ii) receive the number and class of shares of stock or other securities or any other property to which the terms of the agreement of merger, consolidation, or other reorganization would entitle the Optionee to receive, if, at the time of the merger, consolidation, or other reorganization, the Optionee had been a holder of record of the number of shares which the Optionee received upon the exercise of the Option; provided, however, that in the event the transaction contemplated by this Section 5(c)(1) involves a merger to be accounted for under the "pooling of interests" accounting method, then the Committee shall have the authority hereunder to modify the rights of the Optionee hereunder to the extent necessary in order to preserve the "pooling of interests" accounting treatment for such merger. (2) In the event of any occurrence described in Section 5(b)(1)(iv) or (v) and if the Optionee elects to exercise the Option, the Optionee will have the right to sell to the Company the shares of Common Stock which the Optionee received upon the exercise of the Option at a price per share equivalent to the fair market value of the Common Stock as determined by the Committee, such payment to be made in the form of cash and/or notes, as determined by the Committee. The Committee will make reasonable efforts to assure that an Optionee electing to sell shares pursuant to this Section 5(c)(2) receives cash consideration in an amount at least sufficient to offset the exercise price paid to the Company by the Optionee in connection with the exercise of the Option. 6. General Restrictions. Notwithstanding anything contained herein to the contrary, no purported exercise of the Option shall be effective without the written approval of the Company, which may be withheld to the extent that the exercise of the Option, either individually or in the aggregate together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sole and absolute judgment of the Company, require the filing of a registration statement with the United States Securities and Exchange Commission or with the securities commission of any state. The Company shall avail itself of any exemptions from registration contained in applicable federal and state securities laws which are reasonably available to the Company on terms which, in its sole and absolute discretion, it deems reasonable and not unduly burdensome or costly. If the Option cannot be exercised at the time it would otherwise expire due to the restrictions contained in this Section, the exercise period of the Option shall be extended for successive one-year periods until it can be exercised in accordance with this Section. The Optionee shall deliver to the Company, prior to the exercise of the Option, such information, representations and warranties as the Company may reasonably request in order for the Company to be able to satisfy itself that the Common Stock to be acquired pursuant to the exercise of the Option is being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws. Page 4 of 5 4 7. Tax Withholding. The Company shall have the right to withhold or retain from any payment to an optionee (whether or not such payment is made pursuant to this Option) or take such other action as is permissible under the Plan which the Company deems necessary or appropriate to satisfy any income or other tax withholding requirements as a result of the exercise of this Option. 8. Governing Laws. This Agreement shall be construed, administered and enforced according to the laws of the State of Delaware; provided, however, that no option may be exercised except, in the reasonable judgment of the Committee, in compliance with exemptions under applicable state securities laws of the state in which the Optionee resides, and/or any other applicable securities laws. 9. Successors. This Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and permitted assigns of the parties. 10. Notice. Except as otherwise specified herein, all notices and other communications under this Agreement shall be in writing and shall be deemed to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested, postage prepaid, addressed to the proposed recipient at the last known address of such recipient. Any party may designate any other address to which notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein. 11. Severability. In the event that any one or more of the provisions or portions thereof contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. 12. Entire Agreement. Subject to the terms and conditions of the Plan, this Agreement expresses the entire understanding and agreement of the parties and specifically supersedes all previous agreements between the Company and the Optionee pertaining to the stock option granted to the Optionee on the date of grant. 13. Transferability. The Option shall not be assignable or transferable by the Optionee other than (i) to the spouse, children or grandchildren of the Optionee ("Immediate Family Members"), (ii) to a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) to a partnership in which such Immediate Family Members are the only partners, (iv) to an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) to a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision; provided, however, that (x) there shall be no consideration for any such transfer, and (y) other transfers by the Optionee, or any subsequent transfer of transferred Options by a transferee, shall be prohibited, except those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended; and provided, further, that following transfer, for purpose of elections to exercise the Option and the general restrictions applicable under the Plan and under this Agreement to Option exercises, the term "Optionee" shall be deemed to include the transferee, but the Option otherwise shall continue to be subject to the same terms and conditions that were applicable immediately prior to transfer, including without limitation the provisions of Section 5(f) of the Plan and Section 4 of this Agreement, which shall apply so that in the event the original grantee of the Option ceases to be an employee of the Company or any parent or subsidiary of the Company, then the Option shall be exercisable by the transferee only to the extent and for the periods specified in this Agreement. 14. Headings. Section headings used herein are for convenience of reference only and shall not be considered in construing this Agreement. 15. Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions or provisions of this Agreement, the party or parties who are thereby aggrieved shall have the right to specific performance and injunction in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. Page 5 of 5 5 EXHIBIT A NOTICE OF EXERCISE OF AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION TO PURCHASE COMMON STOCK OF PER-SE TECHNOLOGIES, INC. Name: __________________________ Address: ________________________ _________________________________ Date:___________________________ SS No.:__________________________ Per-Se Technologies, Inc. 2840 Mt. Wilkinson Parkway Atlanta, Georgia 30339 Attn: Treasurer Re: Exercise of Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Ladies and Gentlemen: Subject to acceptance hereof in writing by Per-Se Technologies, Inc. (the "Company") pursuant to the provisions of the Second Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Plan, as amended, I hereby elect to exercise options granted to me to purchase ______________ shares of Common Stock, par value $.01 per share, of the Company under the Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Agreement dated ________, at a price of $_________ per share. Enclosed is a certified check (or bank cashier's check) for $___________ for the full purchase price, payable to the order of Per-Se Technologies, Inc. As soon as the Stock Certificate is registered in my name, please deliver it to me at the above address. I hereby represent, warrant, covenant and agree with the Company as follows: I am able to bear the economic risks of the investment in the Common Stock, including the risk of a complete loss of my investment therein; I understand and agree that the Company shall withhold from payments made to me, or I shall remit to the Company, all amounts required to be withheld by the Company to satisfy federal and state tax withholding obligations with respect to the exercise of the Option; I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase of the shares hereunder and I am able to bear the economic risk of such purchase; and A-1 of 2 6 The agreements, representations, warranties and covenants made by me herein extend to and apply to all of the Common Stock of the Company issued to me pursuant to the Option. Acceptance by me of the certificate representing such Common Stock shall constitute a confirmation that all such agreements, representations, warranties and covenants made herein shall be true and correct at such time. Very truly yours, ----------------------------------- (Name of Optionee) ----------------------------------- AGREED TO AND ACCEPTED: PER-SE TECHNOLOGIES, INC. By: _________________________ Title: ______________________ Number of Shares Exercised: ___________________ Number of Shares Remaining: ___________________ A-2 of 2 EX-4.5 6 FORM OF OPTION AGREEMENT,DIRECTOR STOCK OPTION 1 EXHIBIT 4.5 PER-SE TECHNOLOGIES, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT THIS AGREEMENT ("Agreement") is made as of the ____ day of __________, ______, by and between PER-SE TECHNOLOGIES, INC., a corporation organized and doing business under the laws of the State of Delaware (the "Company"), and __________________ (the "Optionee"). W I T N E S S E T H: WHEREAS, the Optionee has been granted an option to purchase the number of shares of voting common stock, par value $.01 per share ("Common Stock"), of the Company allocated to such Optionee under the formula contained in the Per-Se Technologies, Inc. Non-Employee Director Stock Option Plan, as amended (the "Plan"), and the Board of Directors of the Company (the "Board"), as administrator of the Plan, wishes for the Optionee and the Company to enter into this Agreement to provide for certain matters relating to such option; WHEREAS, Optionee is a director of the Company and is not an employee of the Company (a "Non-Employee Director"); WHEREAS, the Company and the Optionee wish to confirm the terms and conditions of the option; and WHEREAS, capitalized terms used and not otherwise defined herein shall have the meaning provided to such terms in the Plan. NOW, THEREFORE, in consideration of the mutual covenants contained herein, it is hereby agreed between the parties hereto as follows: 1. Grant of Option. Upon and subject to the terms, restrictions, limitations and conditions stated herein and in the Plan, the Company hereby grants to the Optionee an option (the "Option") to purchase all or any part of ____ Thousand (_______) shares of Common Stock (hereinafter, the "Option Shares"), effective as of the date first written above. 2. Terms and Exercise of Option. Subject to the provisions of Section 5 of this Agreement: (a) The Option shall be fully vested as of the date of this Agreement (the "Date of Grant"), but the Optionee shall not have the right to exercise the Option until one (1) year after the Date of Grant ; provided, however, that in the event the Optionee ceases to be a Non-Employee Director of the Company by reason of retirement, total and permanent disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code")), or death, the Option shall become immediately exercisable. For purposes of this Agreement, the term "by reason of retirement" means mandatory retirement pursuant to established Board policy. 2 (b) The Option shall expire, terminate and no longer be exercisable upon the date which is eleven (11) years from the Date of Grant. (c) After the Option has become exercisable, the Optionee shall have the right to exercise the Option at any time and from time to time, subject to Section 2(b), with respect to any unexercised portion of the Option Shares. The Option may be exercised by delivery to the Company, at its principal place of business in Atlanta, Georgia, of the written Notice of Exercise in the form attached hereto as Exhibit A, which is incorporated herein by reference, specifying the number of shares of Common Stock with respect to which the Option is being exercised and signed by the Optionee or the personal representative of the Optionee pursuant to Section 2(a) hereof, and payment of the exercise price. Upon acceptance of such notice and receipt of payment in full, the Company shall cause to be issued a certificate representing the shares of Common Stock purchased. (d) The Optionee, or the personal representative of the Optionee pursuant to Section 2(a) hereof, shall have no rights as a stockholder with respect to any shares covered by the Option until the issuance of a stock certificate to the Optionee for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights on or with respect to shares of Common Stock purchased pursuant to the Option for which the record date for such dividend, distribution or other right is prior to the date of exercise of the Option, except as provided in Section 4 hereof. 3. Exercise Price. The Optionee must pay to the Company $______ per share for the Common Stock acquired pursuant to the exercise of the Option. The Option exercise price shall be paid in full at the time of exercise (a) in cash, (b) by tendering Common Stock then owned (which has been held for the preceding six (6) months) and properly endorsed to the Company having a Fair Market Value equal to the Option exercise price, or (c) partly in cash and partly in Common Stock (which has been held for the preceding six (6) months) valued at Fair Market Value, at the election of the Recipient. The Fair Market Value of any such tendered Shares shall be determined as of the close of the business day immediately preceding the day on which the certificate is received by the office of the Secretary of the Company. 4. Change in Control. If the Company agrees to sell all or substantially all of its assets for cash or property or for a combination of cash and property or agrees to any merger, consolidation, reorganization or other corporate transaction in which Common Stock is converted into another security or into the right to receive securities or property, or in the event of a Change in Control of the Company or a tender or exchange offer is made for Common Stock other than by the Company, the Option shall, on the date immediately preceding the effective date of a transaction contemplated by this Section 4, become immediately exercisable and the Optionee shall be entitled to receive (at Optionee's election) upon exercise of such Option and payment of the applicable Option exercise price, either (1) the number of Shares subject to such Option, or (2) a cash payment, - 2 - 3 the amount of which shall be determined by the Board by multiplying the number of shares subject to such Option by the Fair Market Value of the Common Stock; provided, however, that in the event the transaction contemplated by this Section 4 involves a merger to be accounted for under the "pooling of interests" accounting method, then the Board shall have the authority hereunder to modify the rights of the Optionee under this Section 4 to the extent necessary in order to preserve the "pooling of interests" accounting treatment for such merger. 5. General Restrictions. If there is no registration statement covering the Shares in effect under the Securities Act of 1933, as amended, then notwithstanding anything contained herein to the contrary, no purported transfer or exercise of the Option shall be effective without the written opinion of counsel to the Company that the Common Stock to be acquired pursuant to the exercise of the Option is being acquired in accordance with the terms of an applicable exemption from the registration requirements of applicable federal and state securities laws. 6. Limitation of Rights. (a) No Stockholder Rights. Neither the Optionee nor the Optionee's successor or successors in interest shall have any rights as a stockholder of the Company with respect to the Shares subject to the Option until the date of issuance of a certificate for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date the certificate is issued, except as otherwise provided in this Agreement. (b) Limitation as to Directorship. Neither this Agreement, nor the granting of the Option evidenced hereunder, nor any other action taken pursuant hereto shall constitute or be evidence of any agreement or understanding, express or implied, that the Optionee has a right to continue as a director for any period of time. 7. No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon the Optionee to exercise the Option. 8. Governing Laws. This Agreement shall be construed, administered and enforced according to the laws of the State of Delaware; provided, however, that no Option may be exercised except, in the reasonable judgment of the Board, in compliance with exemptions under applicable state securities laws of the state in which the Optionee resides, and/or any other applicable securities laws. 9. Transferability. The Option shall not be assignable or transferable by the Optionee other than (i) to the spouse, children or grandchildren of the Optionee ("Immediate Family Members"), (ii) to a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) to a partnership in which such Immediate Family Members are the only partners, (iv) to an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) to a split interest trust or pooled income fund described in Section 2522(c)(2) of the - 3 - 4 Code or any successor provision; provided, however, that (x) there shall be no consideration for any such transfer, and (y) other transfers by the Optionee, or any subsequent transfer of transferred Options by a transferee, shall be prohibited, except those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended; and provided, further, that following transfer, for purpose of elections to exercise the Option and the sale or merger and change in control provisions of the Plan and of Section 4 of this Agreement, the terms "Non-Employee Director," as used in the Plan, and "Optionee," as used in this Agreement, shall be deemed to include the transferee, but the Option otherwise shall continue to be subject to the same terms and conditions that were applicable immediately prior to transfer. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under the Option in the event that the Option has been transferred by the Optionee under Section 5(h) of the Plan or under this Section 9. 10. Successors. This Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and permitted assigns of the parties. IN WITNESS WHEREOF, the parties have executed and sealed this Agreement on the day and year first written above. PER-SE TECHNOLOGIES, INC. By: ___________________________________ Name: [CORPORATE SEAL] Title: ATTEST: ___________________________________ Name: Title: OPTIONEE _____________________________________(Seal) Name: - 4 - 5 EXHIBIT A NOTICE OF EXERCISE OF PER-SE TECHNOLOGIES, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION TO PURCHASE COMMON STOCK OF PER-SE TECHNOLOGIES, INC. Name: _____________________________ Address: _____________________________ _____________________________ Date: _____________________________ Per-Se Technologies, Inc. 2840 Mt. Wilkinson Parkway Atlanta, Georgia 30339 Attn: President Re: Exercise of Per-Se Technologies, Inc. Non-Employee Director Stock Option Ladies and Gentlemen: Subject to acceptance hereof in writing by Per-Se Technologies, Inc. (the "Company") pursuant to the provisions of the Per-Se Technologies, Inc. Non-Employee Director Stock Option Plan, I hereby elect to exercise options granted to me to purchase __________ shares of Common Stock, par value $.01 per share, of the Company under the Per-Se Technologies, Inc. Non-Employee Director Stock Option Agreement dated the ____ day of ____________, _____, at a price of $_______ per share. Enclosed is $__________________ for the full purchase price in the form of _____________________. - 1 - 6 As soon as the Stock Certificate is registered in my name, please deliver it to me at the above address. Very truly yours, ----------------------------------- Name: ---------------------------------- AGREED TO AND ACCEPTED: PER-SE TECHNOLOGIES, INC. By: __________________________________ Title: _______________________________ Number of Shares Exercised: ___________________________ Number of Shares Remaining: ___________________________ - 2 - EX-4.6 7 FORM OF OPTION AGREEMENT,NON-EXECUTIVE EMPLOYEES 1 EXHIBIT 4.6 PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION AGREEMENT FOR NON-EXECUTIVE EMPLOYEES Per-Se Technologies, Inc., a Delaware corporation formerly known as Medaphis Corporation (the "Company"), pursuant to action of its Board of Directors and in accordance with the Per-Se Technologies, Inc. Non-Qualified Stock Option Plan for Non-Executive Employees, as amended (the "Plan"), hereby grants a Stock Option ("Option") to the Optionee named on the foregoing Notice of Grant of Stock Options (the "Notice of Grant") to purchase from the Company the number of shares of Stock enumerated on the Notice of Grant, at an Option Price per share reflected on the Notice of Grant, which Option is subject to all of the terms and conditions set forth on the Notice of Grant, in this Option Agreement and in the Plan. This Option is granted effective as of the date of grant specified on the Notice of Grant (the "Date of Grant"). Capitalized terms used herein and not otherwise defined shall have the same meanings ascribed thereto in the Plan. Section 1. Plan. As stated in the Plan, this Option is not intended to satisfy and will not be treated as an "Incentive Stock Option" as defined in Section 422 of the Code. This Option is subject to all the terms and conditions set forth in the Plan, in this Option Agreement and on the Notice of Grant. A copy of the Plan will be made available to Optionee upon written request to the corporate Secretary of the Company. Section 2. Vesting. a. Except as provided in Section 14 of the Plan or in this Section 2, Optionee shall vest in this Option in accordance with the vesting schedule set forth on the Notice of Grant. b. If Optionee's employment with the Company or any parent or subsidiary corporation of the Company terminates for any reason other than death or disability (within the meaning of Section 22(e)(3) of the Code) before this Option is fully vested, any portion of this Option which is not vested on the date of such termination of Optionee's employment shall be automatically forfeited as of the employment termination date. In the event of termination of Optionee's employment with the Company or any parent or subsidiary corporation of the Company for any reason other than death or disability (within the meaning of Section 22(e)(3) of the Code), after any portion of this Option is vested as set forth in this Section 2, this Option shall be exercisable to the extent vested in accordance with the limitations set forth in Section 4. In the event of termination of employment as a result of the death or disability (within the meaning of Section 22(e)(3) of the Code) of Optionee, this Option shall be and become fully exercisable without regard to the vesting schedule set forth on the Notice of Grant, and the personal representative of Optionee's estate shall be entitled to exercise this Option subject to the limitations in Section 4. Page 2 of 5 2 Section 3. Date Exercisable. This Option shall be exercisable (to the extent vested under Section 2) on any normal business day of the Company that comes before the date this Option expires under Section 4. The maximum number of shares of Stock that may be purchased by exercise of this Option on any such day shall equal the excess, if any, of (a) the product of the vested percentage on such date and the total number of shares of Stock subject to this Option on the Date of Grant, as adjusted in accordance with Section 13 of the Plan, over (b) the number of shares of Stock which have previously been purchased by exercise of this Option, as adjusted in a manner consistent with Section 13 of the Plan. Section 4. Life of Option. This Option shall expire when exercised in full; provided, however, the Option also shall expire immediately and automatically on the earlier of (a) the date which is the eleventh (11th) anniversary of the Date of Grant, (b) the end of the three (3) month period which begins on the date Optionee's employment by the Company or any parent or subsidiary corporation of the Company terminates for any reason, other than as a result of the death or disability (within the meaning of Section 22(e)(3) of the Code) of Optionee or as a result of a Change of Control event described in Section 14.1 of the Plan, (c) the end of the six (6) month period which begins on the date Optionee's employment by the Company or any parent or subsidiary corporation of the Company terminates for reasons of death or disability (within the meaning of Section 22(e)(3) of the Code) of Optionee, (d) upon the consummation of a Change of Control event described in Section 14.1(1), (2) or (3) of the Plan, or (e) the end of the six (6) month period which begins on the date Optionee's employment by the Company or any parent or subsidiary corporation of the Company terminates as a result of a Change of Control event described in Section 14.1(4) or (5) of the Plan. Section 5. Method of Exercise of Option. Optionee may (subject to Sections 2, 3, 4, 11, 12 and 13) exercise this Option in whole or in part (before the date this Option expires) for a whole number of shares of Stock on any normal business day of the Company by (a) delivering the Option Agreement to the Company at its principal place of business together with written notice of the exercise of this Option and (b) simultaneously paying to the Company the Option Price. Section 6. Delivery. The Company's delivery of Stock pursuant to the exercise of this Option (as described in Section 5) shall discharge the Company of all of its duties and responsibilities with respect to this Option. Section 7. Adjustment. The Committee shall have the right to make such adjustments to this Option as described under Section 13 of the Plan. Page 3 of 5 3 Section 8. Nontransferable. Except in the case of death or disability (within the meaning of Section 22(e)(3) of the Code) of Optionee, the rights granted under this Option shall be exercisable during Optionee's lifetime only by Optionee. No rights granted under this Option shall be transferable by Optionee except, in the event of termination of employment of Optionee as a result of death or disability (within the meaning of Section 22(e)(3) of the Code), the personal representative of Optionee's estate shall be entitled to exercise this Option subject to the limitations set forth in Section 4. Section 9. Employment and Termination. Neither the Plan, this Option nor any related material shall give Optionee the right to continue in employment by the Company or shall adversely affect the right of the Company or a subsidiary to terminate Optionee's employment with or without cause at any time. Section 10. Stockholder Status. Optionee shall have no rights as a stockholder with respect to any shares of Stock under this Option until such shares have been duly issued and delivered to Optionee, and no adjustment shall be made for dividends of any kind or description whatsoever or for distributions of other rights of any kind or description whatsoever respecting such Stock except as expressly set forth in the Plan. Section 11. Other Laws. The Company shall have the right to refuse to issue or transfer any Stock under this Option if the Company acting in its absolute discretion determines that the issuance or transfer of such Stock might violate any applicable law or regulation, and any payment tendered in such event to exercise this Option shall be promptly refunded to Optionee. Section 12. Securities Registration. Optionee may be requested by the Company to hold any shares of Stock received upon the exercise of this Option for personal investment and not for purposes of resale or distribution to the public and Optionee shall, if so requested by the Company, deliver a certified statement to that effect to the Company as a condition to the issuance of such Stock to Optionee. Section 13. Other Conditions. Optionee shall (as a condition to the exercise of this Option) enter into any agreement or make any representations required by the Company related to the Stock to be acquired pursuant to the exercise of this Option, including any agreement which restricts the transfer of Stock acquired pursuant to the exercise of this Option and provides for the repurchase of such Stock by the Company under certain circumstances. Section 14. Tax Withholding. The Company shall have the right to withhold or retain from any payment to Optionee (whether or not such payment is made pursuant to this Option) or take such other action as is permissible under the Plan which the Company deems necessary or appropriate to satisfy any income or other tax withholding requirements as a result of the grant or exercise of this Option. Page 4 of 5 4 Section 15. Governing Law. The Plan and this Option shall be governed by the laws of the State of Delaware. Section 16. Modification, Amendment, and Cancellation. The Company shall have the right unilaterally to modify, amend, or cancel this Option in accordance with Section 15 of the Plan. Section 17. Severability. In the event that any one or more of the provisions or portions thereof contained in this Option Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Option Agreement, and this Option Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. Section 18. Entire Agreement. Subject to the terms and conditions of the Plan, this Option Agreement expresses the entire understanding and agreement of the parties and specifically supersedes all previous agreements between the Company and the Optionee pertaining to this Option. Section 19. Binding Effect. This Option shall be binding upon the Company and Optionee and their respective heirs, executors, administrators and successors. Page 5 of 5 5 NOTICE OF EXERCISE OF STOCK OPTION UNDER PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION PLAN FOR NON-EXECUTIVE EMPLOYEES Name: ____________________ Address: _________________ __________________________ Date: ____________________ SS No.____________________ Per-Se Technologies, Inc. 2840 Mt. Wilkinson Parkway Suite 300 Atlanta, Georgia 30339 Attn: Treasurer Re: Exercise of Stock Option under the Per-Se Technologies, Inc. Non-Qualified Stock Option Plan for Non-Executive Employees, as amended (the "Plan") Ladies and Gentlemen: Subject to acceptance hereof in writing by Per-Se Technologies, Inc. (the "Company") pursuant to the provisions of the Plan, I hereby elect to exercise the option (the "Option") granted to me under the Option Agreement dated as of ________________, to purchase ________ shares of the Common Stock, par value $.01 per share, of the Company at a price of $_________ per share (the "Shares"). Enclosed is a certified check (or bank cashier's check) in the amount of $_________ payable to the order of Per-Se Technologies, Inc. in payment of the full Option Price. As soon as a certificate representing the Shares is registered in my name, please deliver it to me at the above address. A-1 of 2 6 In connection with the exercise of the Option, I hereby represent, warrant, covenant and agree with the Company as follows: (a) I am able to bear the economic risks of the investment in the Shares, including the risk of a complete loss of my investment therein; (b) I understand and agree that the Company shall withhold from payments made to me, or I shall remit to the Company, all amounts required to be withheld by the Company to satisfy federal and state tax withholding obligations with respect to the exercise of the Option; (c) I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase of the Shares hereunder and I am able to bear the economic risk of such purchase; and (d) The agreements, representations, warranties and covenants made by me herein extend to and apply to all of the Shares issued to me pursuant to the exercise of the Option; acceptance by me of a certificate representing the Shares shall constitute confirmation by me that all such agreements, representations, warranties and covenants made herein shall be true and correct at such time. Very truly yours, ----------------------------------- Optionee AGREED TO AND ACCEPTED: PER-SE TECHNOLOGIES, INC. Number of Shares Exercised: ______________ By: _____________________ Number of Shares Title: ___________________ Remaining: ______________ A-2 of 2 EX-10.1 8 SECOND AMENDED AND RESTATED, NON-QUALIFIED STOCK 1 EXHIBIT 10.1 SECOND AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION PLAN THIS SECOND AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION PLAN is made as of January 20, 2000, by Per-Se Technologies, Inc., a Delaware corporation formerly known as Medaphis Corporation (the "Company"). STATEMENT OF BACKGROUND 1. On June 2, 1991, the Company adopted the Amended and Restated Medaphis Corporation Non-Qualified Stock Option Plan (the "Plan"). The Company has subsequently adopted twelve amendments to the Plan. 2. The Company desires to amend and restate the Plan to reflect the Company's recent name change, to increase the number of shares authorized under the Plan, and to integrate the existing Plan and all previous amendments thereto into a single document; provided, however, that such increase in shares authorized under the Plan shall be subject to approval by the stockholders of the Company at the 2000 Annual Meeting of Stockholders, or any adjournment thereof. STATEMENT OF AGREEMENT NOW, THEREFORE, as a result of the Company's desire to amend and restate the Plan, the Plan is amended and restated as follows: SECOND AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION PLAN 1. Purpose. This Second Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Plan (the "Plan") is intended to serve as an incentive to encourage stock ownership by employees of Per-Se Technologies, Inc., a corporation organized and doing business under the laws of the State of Delaware (the "Company"), and its subsidiaries so that they may acquire or increase their proprietary interest in the Company and share in the success of the Company, and to encourage them to remain in the employ of the Company. 2. Administration. The Plan shall be administered by the Compensation Committee of the Company (the "Committee"). The Committee shall consist of not less than two members of the Company's Board of Directors (the "Board of Directors"), each of whom shall be a "disinterested 2 person" within the meaning of Rule 16b-3 of the Securities and Exchange Act of 1934, as amended ("Rule 16b-3"), and an "outside director" as provided for in Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee shall be filled by the Board of Directors. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts approved by a majority of the Committee in a meeting at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The Committee acting in its absolute discretion shall exercise such power and take such action as expressly called for under the Plan and, further, the Committee shall have the power to interpret the Plan and (subject to Rule 16b-3) to take such other action (except to the extent the right to take such action is expressly and exclusively reserved for the Board of Directors or the Company's stockholders) in the administration and operation of the Plan as the Committee deems equitable under the circumstances, which action shall be binding on the Company, on each affected participant and on each other person directly or indirectly affected by such action. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. 3. Eligibility. The persons who shall be eligible to receive options shall be the key employees of the Company or of any parent or subsidiary corporation of the Company on the terms and subject to the restrictions hereinafter set forth. No person shall be eligible to receive an option for a larger number of shares than is recommended for him by the Committee. 4. Stock Subject to Plan. (a) Authorized Shares. The Company has authorized and reserved for issuance upon the exercise of options pursuant to the Plan an aggregate of Five Million Six Hundred Fifty-Two Thousand One Hundred Fifty-Two (5,652,152) shares (the "Shares") of $.01 par value Common Stock of the 2 3 Company (the "Common Stock"). If any option expires or terminates without the respective optionee exercising it in full, the Committee may grant options to other individuals with respect to the unpurchased Shares. No individual shall be granted options under the Plan that would cause the aggregate number of options granted under the Plan to such individual during the period that options are granted under the Plan (taking into account all Shares with respect to which options have been granted under the Plan to such individual, including options that have been canceled or otherwise have expired or terminated) to exceed 20% of the aggregate number of Shares authorized for issuance under the Plan. (b) Adjustments and Corporate Reorganizations. The Committee will adjust the total number of Shares and any outstanding options, both as to the number of Shares and the option price, for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock split or a payment of a stock dividend on the shares of Common Stock, a subdivision or combination of the shares of Common Stock, a reclassification of the shares of Common Stock, a merger or consolidation of the Company or any other like changes in the Shares or in their value. No fractional shares will be issued as a result of any of these changes, and any fractional shares that result from a change will be eliminated from the outstanding options. All adjustments made by the Committee under this paragraph shall be final, conclusive and binding on all affected persons and, further, shall not constitute an increase in the aggregate number of shares which may be issued under options pursuant to Section 4 of the Plan, or constitute a "material modification" within the meaning of Section 8 of the Plan. (c) Change in Control. (1) The following occurrences constitute "Change of Control" events: (i) the adoption of a plan of merger or consolidation of the Company with any other corporation as a result of which holders of the outstanding voting stock of the Company as a group would receive less than 3 4 50% of the voting stock of the surviving or resulting corporation; (ii) the adoption of a plan of liquidation or the approval of the dissolution of the Company; (iii) the sale or transfer of substantially all of the assets of the Company; (iv) the sale or transfer of substantially all of the assets or stock of an operating subsidiary of the Company, other than as security for obligations of the Company; or (v) the sale or transfer of substantially all of the assets of an operating division of the Company or its subsidiaries, other than as security for obligations of the Company. (2) In the event of an occurrence described in Section 4(c)(1)(i), (ii) or (iii), the unexercised portion of all outstanding options under the Plan will be fully vested and immediately exercisable, and will remain exercisable until the occurrence of such event, after which time all outstanding options will immediately terminate as to any portion thereof not exercised. (3) In the event of the occurrence of an event described in Section 4(c)(1)(iv) or (v) which results in optionees employed by the affected operating subsidiary or division being terminated from their employment with the Company, then the unexercised portion of all outstanding options under the Plan held by those affected optionees will be fully vested and immediately exercisable. Such options will remain exercisable until the earlier of (i) the expiration of the respective terms of such options, or (ii) six (6) months following termination of employment. 4 5 (4) Applicable optionees will be mailed notice of any anticipated occurrence described in Section 4 (c)(1) at least twenty (20) days prior to the occurrence of such event. (d) Liquidation of Shares After Change in Control. (1) In the event of an occurrence described in the Section 4 (c)(1)(i), (ii) or (iii), each optionee electing to exercise outstanding option(s) will have the right in connection with the closing of such event to either (i) sell to the Company or the surviving or resulting corporation, the Shares which the optionee received upon the exercise of such option(s) at a cash price per Share equivalent to the fair market value of the Common Stock as determined by the Committee, as of the date of such event, or (ii) receive the number and class of shares of stock or other securities or any other property to which the terms of the agreement of merger, consolidation, or other reorganization would entitle the optionee to receive as the holder of record of the number of Shares which the optionee received upon the exercise of such option(s), provided, however, that in the event the transaction contemplated by this Section 4(d)(1) involves a merger to be accounted for under the "pooling of interests" accounting method, then the Committee shall have the authority hereunder to modify the rights of an optionee under this Section 4(d)(1) to the extent necessary in order to preserve the "pooling of interests" accounting treatment for such merger. (2) In the event of any occurrence described in Section 4(c)(1)(iv) or (v), each affected optionee electing to exercise outstanding option(s) will have the right to sell to the Company the Shares which the optionee received upon the exercise of such option(s) at a price per share equivalent to the fair market value of the Common Stock as determined by the Committee, such payment to be made in the form of cash and/or notes, as determined by the Committee. The Committee will make reasonable efforts to assure that an optionee electing to sell Shares pursuant to this Section 4(d)(2) receives cash consideration in an amount at least sufficient to offset the 5 6 exercise price paid to the Company by the optionee in connection with exercising his option(s). 5. Terms and Conditions of Options. Each option granted pursuant to the Plan shall be authorized by the Committee and shall be evidenced by a Per-Se Technologies, Inc. Non-Qualified Stock Option Agreement (the "Agreement"), in such form and containing such terms and conditions as the Committee from time to time may determine, provided that each Agreement shall: (a) state the number of shares of Common Stock to which it pertains; (b) state the exercise price, which shall not be less than the fair market value of the Common Stock as of the date of grant, as determined by the Committee; (c) provide in all events (except as provided in Section 11 of the Plan) that the option is not exercisable after the expiration of eleven (11) years from the date the option is granted; (d) provide that the option is exercisable at any time, following the date, which is six months after the date of grant of such option, only and to the extent of the number of shares of Common Stock subject to the option determined by application of the following vesting schedule:
Years from Date Percent of Grant Vested --------------- -------- Less than 1 0% 1 20% 2 40% 3 60% 4 80% 5 100%
The Committee may, however, provide for different vesting schedules in any Agreements granted hereunder. In the event of the death or disability (within the meaning 6 7 of Section 22(e)(3) of the Internal Revenue Code (the "Code")) of the optionee, the option shall be and become fully exercisable without regard to any vesting schedule; (e) provide that the option is not transferable by the optionee other than (i) to the spouse, children or grandchildren of the optionee ("Immediate Family Members"), (ii) to a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) to a partnership in which such Immediate Family Members are the only partners, (iv) to an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) to a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision; provided, however, that (x) there shall be no consideration for any such transfer, and (y) other transfers by the optionee, or any subsequent transfer of transferred options by a transferee, shall be prohibited, except those by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended; and provided, further, that following transfer, for purpose of elections to exercise the option and the general restrictions applicable under the Plan to option exercises, the term "optionee" shall be deemed to include the transferee, but the option otherwise shall continue to be subject to the same terms and conditions that were applicable immediately prior to transfer, including without limitation the provisions of Section 5(f) of the Plan, which shall apply so that in the event the original grantee of the option ceases to be an employee of the Company or any parent or subsidiary of the Company, then the option shall be exercisable by the transferee only to the extent and for the periods specified in the Agreement; and (f) provide that if the optionee ceases to be an employee of the Company or any parent or subsidiary corporation of the Company (other than as a result of a Change of Control event or death or disability within the meaning of Code Section 22(e)(3)), before the option is fully vested, any portion of the option which is not fully vested on the date of such termination of employment shall be automatically forfeited as of such employment termination date, and the vested portion of the option which is unexercised shall expire, 7 8 terminate and become unexercisable upon the expiration of three (3) months from the date on which the optionee ceases to be an employee of the Company or of any parent or subsidiary corporation of the Company; provided, however, that the Committee, in its sole and absolute discretion, may permit an optionee who is not subject to Rule 16b-3 of the Securities Exchange Act of 1934, as amended, to continue vesting in all or any portion of such option subsequent to termination of employment with the Company or any parent or subsidiary corporation of the Company; and (g) provide that if the optionee ceases to be an employee of the Company or any parent or subsidiary corporation of the Company by reason of death or disability (within the meaning of Code Section 22(e)(3)), as determined in the sole and absolute judgment of the Company, before the option is fully vested, the option or any portion thereof which is unexercised shall immediately be and become fully exercisable without regard to the vesting schedule set forth herein and shall expire, terminate and become unexercisable after the expiration of six (6) months from the date the optionee ceases to be employed by the Company or any parent or subsidiary corporation of the Company. 6. Term of Plan. Options may be granted pursuant to the Plan from time to time within a period often (10) years from the date of this Plan. 7. Indemnification of Committee. In addition to such other rights of indemnification that they may have as directors of the Company or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided the settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in the action, suit or proceeding that the Committee member is liable for 8 9 negligence or misconduct in the performance of his or her duties; provided that within sixty (60) days after institution of the action, suit or proceeding a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend it. 8. Amendment of the Plan. The Plan may be amended by the Committee from time to time to the extent that the Committee deems necessary or appropriate except that the Committee shall not amend the Plan, absent the approval of the stockholders of the Company (a) to materially increase (within the meaning of Rule 16b-3) the benefits accruing to participants under the Plan, (b) to materially increase (within the meaning of Rule 16b-3) the number of securities which may be issued under the Plan, or (c) to materially modify (within the meaning of Rule 16b-3) the requirements as to eligibility for participation in the Plan; provided, however, that if the amendment would not alter the rights of any participant under the Plan who is subject to Rule 16b-3, then the Committee may approve such amendment without obtaining the approval of the stockholders of the Company; and provided, further however, the Committee shall have the authority, for any employee who is not subject to Rule 16b-3, to modify the three (3) and six (6) month time periods set forth in Section 5(f) of the Plan without obtaining the approval of the stockholders of the Company. 9. Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to options will be used for general purposes. 10. No Obligation to Exercise Option. The granting of an option shall impose no obligation upon the optionee to exercise the option. 11. General Restriction. Notwithstanding anything contained herein or in any of the Agreements to the contrary, no purported exercise of any option granted pursuant to the Plan shall be effective without the written approval of the Company, which may be withheld to the extent that the exercise, either individually or in the aggregate together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sold and absolute judgment of the Company, require the filing of a registration statement with the United Sates Securities and Exchange Commission or with the 9 10 securities commission of any state. The Company shall avail itself of any exemptions from registration contained in applicable federal and state securities laws which are reasonably available to the Company on terms which, in its sole and absolute discretion, it deems reasonable and not unduly burdensome or costly. If an option cannot be exercised at the time it would otherwise expire due to the restrictions contained in this Section, the exercise period for that option shall be extended for successive one-year periods until that option can be exercised in accordance with this Section. Each optionee shall, prior to the exercise of an option, deliver to the Company such information, representations and warranties as the Company may reasonably request in order for the Company to be able to satisfy itself that the Common Stock to be acquired pursuant to the exercise of an option is being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and sate securities laws. 12. Rights as a Stockholder. An optionee or a transferee of an option shall not have rights as a stockholder with respect to any shares covered by his option until the date of the issuance of a stock certificate to him for the shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date the stock certificate is issued, except as otherwise provided in the Plan. 13. Withholding. The exercise of any option granted under this Plan shall constitute an optionee's full and complete consent to whatever action the Committee deems necessary to satisfy any federal and state tax withholding requirements which the Committee, acting in its discretion, deems applicable to such exercise. 10 11 IN WITNESS WHEREOF, the Company has caused this Plan to be executed as of the 20th day of January, 2000. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE ------------------------------------- Allen W. Ritchie President and Chief Executive Officer [CORPORATE SEAL] ATTEST: /s/ RANDOLPH L. M. HUTTO - ------------------------------------- Randolph L. M. Hutto Secretary EX-10.12 9 EIGHTH AMENDMENT TO REGISTRANTS NON-QUALIFIED STK. 1 EXHIBIT 10.12 EIGHTH AMENDMENT TO NON-QUALIFIED STOCK OPTION PLAN FOR EMPLOYEES OF ACQUIRED COMPANIES THIS EIGHTH AMENDMENT (the "Eighth Amendment") is made effective as of the 20th day of January, 2000, by PER-SE TECHNOLOGIES, INC., a Delaware corporation formerly known as Medaphis Corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company has previously adopted the Medaphis Corporation Non-Qualified Stock Option Plan for Employees of Acquired Companies, as amended (the "Plan"); and WHEREAS, the Compensation Committee of the Board of Directors of the Company has duly authorized an amendment of the Plan to reflect the recent name change of the Company, and to decrease the number of shares available for grant pursuant to the Plan from 1,505,000 shares (as adjusted to reflect a one-for-three reverse stock split effective November 23, 1999) to 1,320,000 shares. NOW, THEREFORE, the Plan is hereby amended by deleting the name "Medaphis Corporation" from the Plan and replacing such name with the name "Per-Se Technologies, Inc." FURTHER, Section 3 of the Plan is hereby amended by deleting Section 3 of the Plan in its entirety and replacing it with the following: "ss. 3 SHARES RESERVED UNDER THE PLAN There shall be 1,320,000 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 repurchased by the Company. Furthermore, any shares of Stock subject to an Option that remain unissued after the cancellation or expiration of such Option thereafter shall again become available for use under this Plan." FURTHER, except as specifically amended by this Eighth Amendment, the Plan shall remain in full force and effect as prior to this Eighth Amendment. 2 IN WITNESS WHEREOF, the Company has caused this Eighth Amendment to be executed on the day and year first above written. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE ----------------------------------------- Allen W. Ritchie President and Chief Executive Officer ATTEST: By:/s/ RANDOLPH L. M. HUTTO ---------------------------------- Randolph L. M. Hutto Secretary EX-10.16 10 THIRD AMENDMENT, NON-EMPLOYEE DIRECTOR STOCK OPT. 1 THIRD AMENDMENT TO NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN THIS THIRD AMENDMENT (the "Third Amendment") is made effective as of January 20, 2000, by PER-SE TECHNOLOGIES, INC., a Delaware corporation formerly known as Medaphis Corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company has previously adopted the Medaphis Corporation Non-Employee Director Stock Option Plan, as amended (the "Plan"); and WHEREAS, the Board of Directors of the Company has duly authorized an amendment of the Plan to reflect the recent name change of the Company and to increase the number of shares available for grant pursuant to the Plan from 33,333 shares (as adjusted to reflect previous stock splits) to 283,333 shares. NOW, THEREFORE, the Plan is hereby amended by deleting the name "Medaphis Corporation" from the Plan and replacing such name with the name "Per-Se Technologies, Inc." FURTHER, Section 4(a) of the Plan is hereby amended by deleting the first sentence thereof in its entirety and replacing it with the following: "The Company has authorized and reserved for issuance upon the exercise of Options pursuant to this Plan an aggregate of 283,333 shares (the "Shares") of Common Stock." ; provided, however, that the increase in shares available for grant reflected in the foregoing amendment shall be subject to approval by the stockholders of the Company at the 2000 Annual Meeting of Stockholders, or any adjournment thereof. FURTHER, except as specifically amended by this Third Amendment, the Plan shall remain in full force and effect as prior to this Third Amendment. IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed as of the day and year first above written. PER-SE TECHNOLOGIES, INC. By:/s/ ALLEN W. RITCHIE ------------------------------------------ Allen W. Ritchie President and Chief Executive Officer ATTEST: By:/s/ RANDOLPH L. M. HUTTO ------------------------------ Randolph L. M. Hutto Secretary EX-10.24 11 SEVENTH AMENDMENT, NON-EXECUTIVE EMPLOYEES 1 EXHIBIT 10.24 SEVENTH AMENDMENT TO NON-QUALIFIED STOCK OPTION PLAN FOR NON-EXECUTIVE EMPLOYEES THIS SEVENTH AMENDMENT (the "Seventh Amendment") is made effective as of the 20th day of January, 2000, by PER-SE TECHNOLOGIES, INC., a Delaware corporation formerly known as Medaphis Corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company has previously adopted the Medaphis Corporation Non-Qualified Stock Option Plan for Non-Executive Employees, as amended (the "Plan"); and WHEREAS, the Compensation Committee of the Board of Directors of the Company has duly authorized an amendment of the Plan to reflect the recent name change of the Company, and to increase the number of shares available for grant pursuant to the Plan from 2,333,333 shares (as adjusted to reflect a one-for-three reverse stock split effective November 23, 1999) to 2,518,333 shares. NOW, THEREFORE, the Plan is hereby amended by deleting the name "Medaphis Corporation" from the Plan and replacing such name with the name "Per-Se Technologies, Inc." FURTHER, Section 3 of the Plan is hereby amended by deleting Section 3 of the Plan in its entirety and replacing it with the following: SECTION 3. SHARES RESERVED UNDER THE PLAN "There shall be 2,518,333 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 repurchased by the Company. Furthermore, any shares of Stock subject to an Option that remain unissued after the cancellation or expiration of such Option thereafter shall again become available for use under this Plan." FURTHER, except as specifically amended by this Seventh Amendment, the Plan shall remain in full force and effect as prior to this Seventh Amendment. 2 IN WITNESS WHEREOF, the Company has caused this Seventh Amendment to be effective as of the day and year first above written. PER-SE TECHNOLOGIES, INC. By:/s/ ALLEN W. RITCHIE ----------------------------------------- Allen W. Ritchie President and Chief Executive Officer ATTEST: By:/s/ RANDOLPH L. M. HUTTO ----------------------------- Randolph L. M. Hutto Secretary 2 EX-10.26 12 PER-SE TECHNOLOGIES EMPLOYEE RETIREMENT SAVINGS 1 THE PER-SE TECHNOLOGIES EMPLOYEES' RETIREMENT SAVINGS PLAN 2 THE PER-SE TECHNOLOGIES EMPLOYEES' RETIREMENT SAVINGS PLAN THIS INDENTURE made on the 20th day of January, 2000, by PER-SE TECHNOLOGIES, INC. (formerly Medaphis Corporation), a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Primary Sponsor"); W I T N E S S E T H: WHEREAS, the Primary Sponsor established by indenture dated June 30, 1991, the Medaphis Corporation Employees' Retirement Savings Plan which was last amended and restated by indenture dated June 30, 1995 (the "Plan"); and WHEREAS, the Primary Sponsor wishes to amend and restate the Plan to change the name of the Plan to the Per-Se Technologies Employees' Retirement Savings Plan to reflect changes required or permitted by the Small Business Job Protection Act of 1996 and the Taxpayer Relief Act of 1997; and WHEREAS, the Board of Directors of the Primary Sponsor has approved and authorized the amendment and restatement of the Plan; and WHEREAS, the Plan is intended to be a profit sharing plan within the meaning of Treasury Regulations Section 1.401-1(b)(1)(ii) and also contains a cash or deferred arrangement as described in Section 401(k) of the Internal Revenue Code of 1986. NOW, THEREFORE, the Primary Sponsor does hereby amend and restate the Plan, in its entirety, generally effective January 1, 1997, except as otherwise provided herein, to read as follows: 3 TABLE OF CONTENTS -----------------
Page ---- SECTION 1 DEFINITIONS.....................................................................................1 SECTION 2 ELIGIBILITY....................................................................................11 SECTION 3 CONTRIBUTIONS..................................................................................11 SECTION 4 ALLOCATIONS....................................................................................13 SECTION 5 INDIVIDUAL FUNDS AND INVESTMENTS OF TRUST ASSETS...............................................14 SECTION 6 PLAN LOANS.....................................................................................15 SECTION 7 WITHDRAWALS DURING EMPLOYMENT..................................................................17 SECTION 8 DEATH BENEFITS.................................................................................19 SECTION 9 PAYMENT OF BENEFITS ON RETIREMENT OR DEATH.....................................................20 SECTION 10 PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT...............................................26 SECTION 11 ADMINISTRATION OF THE PLAN.....................................................................28 SECTION 12 CLAIM REVIEW PROCEDURE.........................................................................30 SECTION 13 LIMITATION OF ASSIGNMENT, ETC..................................................................31 SECTION 14 PROHIBITION AGAINST DIVERSION..................................................................32 SECTION 15 LIMITATION OF RIGHTS...........................................................................32 SECTION 16 AMENDMENT TO OR TERMINATION....................................................................32 SECTION 17 ADOPTION OF PLAN BY AFFILIATES.................................................................34 SECTION 18 QUALIFICATION AND RETURN OF CONTRIBUTIONS......................................................34 SECTION 19 INCORPORATION OF SPECIAL LIMITATIONS...........................................................35 APPENDIX A SPECIAL NONDISCRIMINATION RULES...............................................................A-1 APPENDIX B LIMITATION ON ALLOCATIONS.....................................................................B-1 APPENDIX C TOP-HEAVY PROVISIONS..........................................................................C-1 APPENDIX D SPECIAL RULES.................................................................................D-1
4 SECTION 1 DEFINITIONS Wherever used herein, the masculine pronoun shall be deemed to include the feminine, and the singular to include the plural, unless the context clearly indicates otherwise and the following words and phrases shall, when used herein, have the meanings set forth below: 1.1 "Account" means the account established and maintained by the Plan Administrator to reflect the interest of a Member in the Fund. In addition to any other accounts as the Plan Administrator may establish and maintain, the Plan Administrator shall establish and maintain separate accounts (each of which shall be adjusted pursuant to the Plan to reflect income, gains, losses and other credits or charges attributable thereto) for each Member to be designated as follows: (a) "Employee Deferral Account" which shall reflect a Member's interest in contributions made by a Plan Sponsor under Plan Section 3.1 and as Qualified Nonelective Contributions (as defined in Appendix A). (b) "Matching Account" which shall reflect a Member's interest in matching contributions made by a Plan Sponsor under Plan Section 3.2. (c) "Company Account" which shall reflect a Member's interest in contributions made by a Plan Sponsor under Plan Section 3.3. (d) "Rollover Account" which shall reflect a Member's interest in Rollover Amounts. (e) "Prior Company Account" which shall reflect a Member's interest in contributions (other than Elective Deferrals) that are made by a Member's prior employer and which are 100% vested. In addition, the Plan Administrator shall allocate the interest of a Member in any funds transferred to the Plan in a trust-to-trust transfer (other than Rollover Amounts) or pursuant to the merger of another tax-qualified retirement plan with the Plan among the Member's Accounts as the Plan Administrator determines best reflects the interest of the Member. 1.2 "Accrued Benefit" means the balance of a Member's Account. 1.3 "Affiliate" means (a) any corporation which is a member of the same controlled group of corporations (within the meaning of Code Section 414(b)) as is a Plan Sponsor, (b) any other trade or business (whether or not incorporated) under common control (within the meaning of Code Section 414(c)) with a Plan Sponsor, (c) any other corporation, partnership or other organization which is a member of an affiliated service group (within the meaning of Code Section 414(m)) with a Plan Sponsor, and (d) any other entity required to be aggregated with a Plan Sponsor pursuant to regulations under Code Section 414(o). 5 1.4 "Anniversary Date" means the first day of each Plan Year. 1.5 "Annual Compensation" means the amount paid to an Employee by a Plan Sponsor and Affiliates during a Plan Year as compensation that would be subject to income tax withholding under Code Section 3401(a), (but without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed, such as the exception for agricultural labor in Code Section 3401(a)(2), to the extent not in excess of $160,000 (for the Plan Year beginning in 1997), which amount shall be adjusted for changes in the cost of living as provided in regulations issued by the Secretary of the Treasury, except for purposes of determining Highly Compensated Employees. Notwithstanding the above, Annual Compensation shall be determined as follows: (a) in determining the amount of contributions under Plan Section 3 and allocations under Plan Section 4 made by or on behalf of an Employee and for purposes of applying the provisions of Appendix A hereto for such Plan Years as the Secretary of the Treasury may allow, Annual Compensation shall only include amounts received for the portion of the Plan Year during which the Employee was a Member and shall exclude income from sources outside the United States whether or not excludable under Code Section 911; (b) in determining the amount of contributions under Plan Section 3 and allocations under Plan Section 4 made by or on behalf of an Employee, Annual Compensation shall not include reimbursements or other expense allowances, taxable fringe benefits, short-term disability pay, amounts realized from the exercise of non-qualified stock options or when restricted stock (or property) held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture, moving expense allowances, deferred compensation, and welfare benefits. Notwithstanding anything contained herein to the contrary, if using the definition of Annual Compensation as described in this Subsection (b) for purposes of Plan Section 3.3 results in a "compensation percentage" for Employees who are Highly Compensated Employees which is greater than the "compensation percentage" for Employees who are not Highly Compensated Employees by more than a de minimis amount, then short-term disability pay and amounts realized from the exercise of non-qualified stock options or when restricted stock (or property) held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture shall be included in Annual Compensation for purposes of Plan Section 3.3. The "compensation percentage" for a group of Employees is the average of the "compensation ratio" for each Employee in the group. An Employee's "compensation ratio" is the Employee's Annual Compensation determined pursuant to the first sentence of this Subsection (b) divided by the Employee's Annual Compensation determined pursuant to the second sentence of this Subsection (b). (c) in determining the amount of contributions under Plan Sections 3.1 and 3.2 made by or on behalf of an Employee, Annual Compensation shall include amounts accrued with respect to services performed in the Plan Year and, but for the Employee's election to defer such amounts (under this Plan or any other plan of deferred 2 6 compensation maintained by the Primary Sponsor or an Affiliate), would have been received by the Employee in the Plan Year; (d) for all purposes under the Plan, except as provided in Subsection (e), Annual Compensation shall include any amount contributed by a Plan Sponsor on behalf of an Employee pursuant to a salary reduction agreement which is not includable in the gross income of the Employee under Sections 125, 402(g)(3), and 402(h) of the Code. (e) for purposes of applying the annual addition limits set forth in Appendix B, the provisions of Subsection (d) shall not apply until January 1, 1998; (f) for purposes of applying the annual addition limits set forth in Appendix B, the term Plan Sponsor as used in Plan Section 1.5 shall mean Plan Sponsor as that term is defined in Section 4 of Appendix B. 1.6 "Beneficiary" means the person or trust that a Member designated most recently in writing to the Plan Administrator; provided, however, that if the Member has failed to make a designation, no person designated is alive, no trust has been established, or no successor Beneficiary has been designated who is alive, the term "Beneficiary" means (a) the Member's spouse or (b) if no spouse is alive, the Member's surviving children, or (c) if no children are alive, the Member's parent or parents, or (d) if no parent is alive, the legal representative of the deceased Member's estate. Notwithstanding the preceding sentence, the spouse of a married Member shall be his Beneficiary unless that spouse has consented in writing to the designation by the Member of some other person or trust and the spouse's consent acknowledges the effect of the designation and is witnessed by a notary public or a Plan representative. A Member may change his designation at any time. However, a Member may not change his designation without further consent of his spouse under the terms of the preceding sentence unless the spouse's consent permits designation of another person or trust without further spousal consent and acknowledges that the spouse has the right to limit consent to a specific beneficiary and that the spouse voluntarily relinquishes this right. Notwithstanding the above, the spouse's consent shall not be required if the Member establishes to the satisfaction of the Plan Administrator that the spouse cannot be located, if the Member has a court order indicating that he is legally separated or has been abandoned (within the meaning of local law) unless a "qualified domestic relations order" (as defined in Code Section 414(p)) provides otherwise, or if there are other circumstances as the Secretary of the Treasury prescribes. If the spouse is legally incompetent to give consent, consent by the spouse's legal guardian shall be deemed to be consent by the spouse. 1.7 "Board of Directors" means the Board of Directors of the Primary Sponsor. 1.8 "Break in Service" means the failure of an Employee to perform an Hour of Service during the twelve consecutive month period commencing on a Severance Date. 1.9 "Code" means the Internal Revenue Code of 1986, as amended. 3 7 1.10 "Company Stock" means a share or shares of any class of stock issued by the Primary Sponsor (or any of its Affiliates) which constitutes employer securities within the meaning of Code Section 4978(e)(5). 1.11 "Company Stock Fund" means an Individual Fund that is primarily invested in Company Stock. 1.12 "Deferral Amount" means a contribution of a Plan Sponsor on behalf of a Member pursuant to Plan Section 3.1. 1.13 "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 1.14 "Disability" means a disability of a Member within the meaning of Code Section 72(m)(7), to the extent that the Member is, or would be, entitled to disability retirement benefits under the federal Social Security Act or to the extent that the Member is entitled to recover benefits under any long term disability plan or policy maintained by the Plan Sponsor. The determination of whether or not a Disability exists shall be determined by the Plan Administrator and shall be substantiated by competent medical evidence. 1.15 "Distributee" means an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse. 1.16 "Effective Date" means January 1, 1997. 1.17 "Elective Deferrals" means, with respect to any taxable year of the Member, the sum of: (a) any Deferral Amounts; (b) any contributions made by or on behalf of a Member under any other qualified cash or deferred arrangement as defined in Code Section 401(k), whether or not maintained by a Plan Sponsor, to the extent such contributions are not or would not, but for Code Section 402(g)(1) be included in the Member's gross income for the taxable year; and (c) any other contributions made by or on behalf of a Member pursuant to Code Section 402(g)(3). 1.18 "Eligibility Service" means the completion by an Employee of a twelve-consecutive-month period beginning on the date on which the Employee first performs or performed an Hour of Service upon his employment or reemployment or any anniversary thereof, without reaching a Severance Date; provided, however: 4 8 (a) if an Employee quits, retires or is discharged and then performs an Hour of Service within twelve months of his Severance Date, then such period of severance shall be taken into account in calculating Eligibility Service; (b) if an Employee quits, is discharged, or retires during an absence from service of twelve months or less for any reason other than quit, discharge or attainment of a Retirement Date and the Employee then performs an Hour of Service within twelve months of the date the Employee was first absent from service, then such period of absence shall be taken into account in calculating Eligibility Service; (c) in the case of an Employee who remains absent from service beyond the first anniversary of the commencement of a period of absence (1) by reason of the pregnancy of the Employee, (2) by reason of the birth of a child of the Employee, (3) by reason of the placement of a child with the Employee in connection with the adoption of the child by the Employee, or (4) for purposes of caring for such child for a period immediately following its birth or placement, the period between the first and second anniversaries of such period of absence shall not be counted as Eligibility Service. Eligibility Service shall not include, in the case of a rehired Employee who did not have any vested right at his Severance Date and then incurs five consecutive Breaks in Service, all periods which would otherwise constitute Eligibility Service before the first of the five consecutive Breaks in Service commenced. 1.19 "Eligible Employee" means any Employee of a Plan Sponsor other than an Employee who is (a) covered by a collective bargaining agreement between a union and a Plan Sponsor, provided that retirement benefits were the subject of good faith bargaining, unless the collective bargaining agreement provides for participation in the Plan, (b) a leased employee within the meaning of Code Section 414(n)(2), (c) considered a "leased employee" within the meaning of Code Section 414(n)(2) with respect to a client of a Plan Sponsor and is an active participant in the tax-qualified retirement plan of the client during any part of the Plan Year, (d) a participant in another tax-qualified retirement plan maintained by the Plan Sponsor or Affiliate thereof and who is eligible to receive benefits under such plan during any part of the Plan Year if he otherwise satisfies the requirement to either perform a requisite number of Hours of Service or be employed as of a particular date, or (e) deemed to be an Employee of a Plan Sponsor pursuant to regulations under Code Section 414(o). In addition, no person who is initially classified by a Plan Sponsor as an independent contractor for federal income tax purposes shall be regarded as an Eligible Employee for that period, regardless of any subsequent determination that any such person should have been characterized as a common law employee of the Plan Sponsor for the period in question. 1.20 "Eligible Retirement Plan" means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a) or a qualified trust described in Code Section 401(a) that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an 5 9 Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 1.21 "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and effective for distributions made after December 31, 1999, any distribution made under Section 7.2 of the Plan. 1.22 "Employee" means any person who is employed by a Plan Sponsor or an Affiliate for purposes of the Federal Insurance Contributions Act, who is a leased employee within the meaning of Code Section 414(n)(2) with respect to a Plan Sponsor, or who is deemed to be an employee of a Plan Sponsor pursuant to regulations under Code Section 414(o). 1.23 "Employment Date" means that date on which an Employee first performs an Hour of Service with a Plan Sponsor or, in the alternative, on which an Employee again performs an Hour of Service following any period of severance which is not required to be taken into account in determining the Employee's period of Service. 1.24 "Entry Date" means the first day of each calendar month. 1.25 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.26 "Fiduciary" means each Named Fiduciary and any other person who exercises or has any discretionary authority or control regarding management or administration of the Plan, any other person who renders investment advice for a fee or has any authority or responsibility to do so with respect to any assets of the Plan or any other person who exercises, or has any authority or control respecting management or disposition of assets of the Plan. 1.27 "Fund" means the amount at any given time of cash and other property held by the Trustee pursuant to the Plan. 1.28 "Highly Compensated Employees" shall mean, with respect to a Plan Year, each Employee who: (a) was at any time during the Plan Year or the immediately preceding Plan Year an owner of more than five percent (5%) of the outstanding stock of a Plan Sponsor or Affiliate or more than five percent (5%) of the total combined voting power of all stock of a Plan Sponsor or Affiliate; or 6 10 (b) received Annual Compensation in excess of $80,000 (as adjusted for changes in the cost of living from time to time by the Secretary of the Treasury). 1.29 "Hour of Service" means: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for a Plan Sponsor or any Affiliate during the applicable computation period, and such hours shall be credited to the computation period in which the duties are performed; (b) Each hour for which an Employee is paid, or entitled to payment, by a Plan Sponsor or any Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence; (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by a Plan Sponsor or any Affiliate, and such hours shall be credited to the computation period or periods to which the award or agreement for back pay pertains rather than to the computation period in which the award, agreement or payment is made; provided, that the crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in Subsection (b) of this Section shall be subject to the limitations set forth in Subsection (e); (d) Effective August 5, 1993, and without duplication of the Hours of Service counted pursuant to Subsection (d) hereof and solely for such purposes as required pursuant to the Family and Medical Leave Act of 1993 and the regulations thereunder (the "FMLA"), each hour (as determined pursuant to the FMLA) for which an Employee is granted leave under the FMLA (1) for the birth of a child, (2) for placement with the Employee of a child for adoption or fostercare, (3) to care for the Employee's spouse, child or parent with a serious health condition, or (4) for a serious health condition that makes the Employee unable to perform the functions of the Employee's job; (e) Solely for purposes of determining whether a Break in Service has occurred, each hour during any period that the Employee is absent from work (1) by reason of the pregnancy of the Employee, (2) by reason of the birth of a child of the Employee, (3) by reason of the placement of a child with the Employee in connection with the adoption of the child by the Employee, or (4) for purposes of caring for such child for a period immediately following its birth or placement. The hours described in this Subsection (d) shall be credited (A) only in the computation period in which the absence from work begins, if the Employee would be prevented from incurring a Break in Service in that year solely because of that credit, or (B), in any other case, in the next following computation period; and (f) The Plan Administrator shall credit Hours of Service in accordance with the provisions of Section 2530.200b-2(b) and (c) of the U.S. Department of Labor 7 11 Regulations or such other federal regulations as may from time to time be applicable and determine Hours of Service from the employment records of a Plan Sponsor or in any other manner consistent with regulations promulgated by the Secretary of Labor, and shall construe any ambiguities in favor of crediting Employees with Hours of Service. Notwithstanding any other provision of this Section, in no event shall an Employee be credited with more than 501 Hours of Service during any single continuous period during which he performs no duties for the Plan Sponsor or Affiliate. (g) In the event that a Plan Sponsor or an Affiliate acquires substantially all of the assets of another corporation or entity or a controlling interest of the stock of another corporation or merges with another corporation or entity and is the surviving entity, then service of an Employee who was employed by the prior corporation or entity and who is employed by the Plan Sponsor or an Affiliate at the time of the acquisition or merger shall be counted in the manner provided, with the consent of the Primary Sponsor, in resolutions adopted by the Plan Sponsor authorizing the counting of such service. 1.30 "Individual Funds" means two or more individual subfunds of the Fund (other than the Loan Fund) as may be established by the Plan Administrator from time to time for the investment of the Fund. 1.31 "Investment Committee" means a committee which may be established to direct the Trustee with respect to investments of the Fund. 1.32 "Investment Manager" means a Fiduciary, other than the Trustee, the Plan Administrator, or a Plan Sponsor, who may be appointed by the Primary Sponsor: (a) who has the power to manage, acquire, or dispose of any assets of the Fund or a portion thereof; and (b) who (1) is registered as an investment adviser under the Investment Advisers Act of 1940; (2) is a bank as defined in the Investment Advisers Act of 1940; or (3) is an insurance company qualified to perform services described in Subsection (a) above under the laws of more than one state; and (c) who has acknowledged in writing that he is a Fiduciary with respect to the Plan. 1.33 "Loan Fund" means the separate subfund of the Fund for the investment of a Member's Account in a note made by the Member evidencing a loan to the Member from the Fund. 1.34 "Member" means any Employee or former Employee who has become a participant in the Plan for so long as his vested Accrued Benefit has not been fully distributed pursuant to the Plan. 1.35 "Named Fiduciary" means only the following: 8 12 (a) The Plan Administrator; (b) The Trustee; (c) The Board of Directors; (d) The Investment Committee; and (e) The Investment Manager. 1.36 "Normal Retirement Age" means age 65. 1.37 "Plan Administrator" means the organization or person designated to administer the Plan. 1.38 "Plan Sponsor" means individually the Primary Sponsor and any Affiliate or other entity which has adopted the Plan and Trust. 1.39 "Plan Year" means the calendar year. 1.40 "Retirement Date" means the date on which the Member retires on or after attaining Normal Retirement Age or becoming subject to a Disability. 1.41 "Rollover Amount" means any amount transferred to the Fund by a Member, which amount qualifies as an Eligible Rollover Distribution under Code Section 402(c)(4), 403(a)(4), or 408(d)(3)(A)(ii) and any regulations issued thereunder. 1.42 "Service" means a period commencing on an Employee's Employment Date and ending on his Severance Date thereafter. The following rules shall apply: (a) Notwithstanding the foregoing, if an Employee performs one Hour of Service within twelve (12) months of (a) a Severance Date described in Subsection (a) of Plan Section 1.44, or (b) the date the Employee was first absent from service for any other reason, any period of severance which would otherwise occur shall be ignored and be required to be taken into account in computing the Employee's period of Service. (b) The period between the first anniversary and second anniversary of an absence from service for the reasons specified in Plan Section 1.44(b)(2) shall be neither a period of severance or a period of Service. (c) In the event that a Plan Sponsor or an Affiliate acquires a substantial part of the assets of another corporation, or merges with another corporation and is the surviving entity, then the Service performed for such prior corporation or entity by an Employee who becomes employed by the Plan Sponsor or an Affiliate as a result of the 9 13 acquisition or merger shall be credited as service in the manner provided, with the consent of the Primary Sponsor, in resolutions adopted by the Plan Sponsor. 1.43 "Severance Date" means the earlier of: (a) the date on which an Employee quits, is discharged, retires or dies; or (b) (1) the first anniversary of the first date of a period in which an Employee remains absent from service (with or without pay) with the Plan Sponsor for any other reason, such as vacation, layoff, or leave of absence; or (2) in the case of an Employee who remains absent from service beyond the first anniversary of the first day of absence by reason of the Employee's pregnancy, the birth of the Employee's child, the placement of a child in the Employee's home or adoption by the Employee, or the caring for the child for the period immediately following its birth or adoption, the second anniversary of the first day of absence from service. 1.44 "Termination Completion Date" means the last day of the fifth consecutive Break in Service computation period, determined under the Plan Section which defines Break in Service, in which a Member completes a Break in Service. 1.45 "Trust" means the trust established under an agreement between the Primary Sponsor and the Trustee to hold the Fund or any successor agreement. 1.46 "Trustee" means the trustee under the Trust. 1.47 "Valuation Date" means the last day of March, June, September, and December or any other date which the Plan Administrator declares to be a Valuation Date; provided, however, that the Plan Administrator may in its sole discretion provide for more frequent Valuation Dates with respect to the Individual Funds. 1.48 "Years of Service" means, with respect to each Employee, the number of years and fractions of a year of Service credited to that Employee. The following rules shall apply: (a) In the case of an Employee who incurs a Break in Service, Years of Service completed prior to the Break in Service shall not be considered in calculating the Employee's nonforfeitable percentage of his Accrued Benefit under Plan Section 10.3 until the Employee has completed a one-year period of Service after such Break in Service. (b) In the case of an Employee who completes five consecutive Breaks in Service, all Years of Service in Plan Years after his Termination Completion Date shall be disregarded in determining the vested portion of his Accrued Benefit derived from Plan Sponsor contributions which accrued before his Termination Completion Date. (c) In the case of an Employee who incurs a Break in Service and at that time does not have any vested right in Plan Sponsor contributions, any Years of Service 10 14 completed by him prior to such Break in Service shall be disregarded for purposes of determining the vested percentage of his right to such contributions if the consecutive period of severance equals or exceeds his prior Years of Service, whether or not consecutive, completed before such Break in Service. SECTION 2 ELIGIBILITY 2.1 Each individual who was a member of the Plan as of the date immediately preceding the Effective Date shall become a Member of the Plan as of the Effective Date. 2.2 Each Eligible Employee shall become a Member as of the Entry Date coinciding with or next following the date he completes his Eligibility Service. 2.3 Each former Member who is reemployed by a Plan Sponsor shall become a Member as of the date of his reemployment as an Eligible Employee. 2.4 Each former Employee who completes his Eligibility Service but terminates employment with a Plan Sponsor before becoming a Member shall become a Member as of the latest of the date he (a) is reemployed, (b) would have become a Member if he had not terminated employment, or (c) becomes an Eligible Employee. 2.5 Solely for the purpose of contributing a Rollover Amount to the Plan, an Eligible Employee who has not yet become a Member pursuant to any other provision of this Section 2 shall become a Member as of the date on which the Rollover Amount is contributed to the Plan. 2.6 Notwithstanding anything contained in this Section 2 to the contrary, in the event that an individual becomes an Eligible Employee of a Plan Sponsor by reason of an acquisition by the Plan Sponsor of a controlling interest in or a substantial part of all the assets of the individual's prior employer with a Plan Sponsor, if the Eligible Employee was covered under a plan of the prior employer meeting the requirements of Code Section 401(a), such Eligible Employee shall become a Member as of the date of his employment with the Plan Sponsor as an Eligible Employee. SECTION 3 CONTRIBUTIONS 3.1 (a) The Plan Sponsor shall make a contribution to the Fund on behalf of each Eligible Employee who is a Member and who has elected to defer a portion of Annual Compensation otherwise payable to him for the Plan Year and to have such portion contributed to the Fund. The election must be made before the Annual Compensation is payable and may only be made pursuant to an agreement between the Member and the Plan Sponsor which shall be in such form and subject to such rules and limitations as the Plan Administrator may prescribe and shall specify the percentage of Annual Compensation that the Member desires to defer and to have contributed to the Fund. Once a Member has made an election for a Plan Year, the Member may revoke his 11 15 election at any time, effective as of the beginning of the payroll period immediately following the date timely notice is received and processed by the Plan Administrator. A Member may modify his election by notifying the Plan Administrator in the manner and pursuant to rules established by the Plan Administrator. The contribution made by a Plan Sponsor on behalf of an Eligible Employee who is a Member under this Section 3.1 shall be in an amount equal to the amount specified in the Member's deferral election, but not greater than sixteen percent (16%) of the Member's Annual Compensation. Notwithstanding the foregoing, the Plan Administrator may reduce the amount that certain Highly Compensated Employees may elect to defer in their deferral elections to a uniform percentage less than sixteen percent (16%) of Annual Compensation, in the event the Plan Administrator deems such reduction necessary for the Plan to comply with one or more of the following limitations: (a) Section 3.1(b) (relating to the annual limit on salary deferrals set forth in Code Section 402(g)), (b) Section 3.1(a) and Section 4 of Appendix A (relating to the nondiscrimination testing limitations under Code Sections 401(k)(3) or 401(m)), and (c) Appendix B (relating to the limit on "annual additions," within the meaning of Code Section 415). (b) Elective Deferrals shall in no event exceed $9,500 (for 1997), as adjusted, in any one taxable year of the Member, which amount shall be adjusted for changes in the cost of living as provided by the Secretary of the Treasury. In the event the amount of Elective Deferrals exceeds $9,500 (for 1997), as adjusted, in any one taxable year then, (1) not later than the immediately following March 1, the Member may designate to the Plan the portion of the Member's Deferral Amount which consists of excess Elective Deferrals, and (2) not later than the immediately following April 15, the Plan may distribute the amount of excess Elective Deferrals designated by the Member, as adjusted to reflect income, gain, or loss attributable to it through the date of the distribution, and reduced by any "Excess Deferral Amounts," as defined in Appendix A hereto, previously distributed or recharacterized with respect to the Member for the Plan Year beginning with or within that taxable year. The payment of the excess Elective Deferrals, as adjusted and reduced, from the Plan shall be made to the Member without regard to any other provision in the Plan. In the event that a Member's Elective Deferrals exceed $9,500, as adjusted, in any one taxable year under the Plan and other plans of the Plan Sponsor and its Affiliates, the Member shall be deemed to have designated for distribution under the Plan the amount of excess Elective Deferrals, as adjusted and reduced, by taking into account only Elective Deferral amounts under the Plan and other plans of the Plan Sponsor and its Affiliates. 3.2 The Plan Sponsor proposes to make contributions to the Fund with respect to each Plan Year on behalf of each Member in an amount equal to fifty percent (50%) of the amount deferred by the Member pursuant to Plan Section 3.1, not in excess of six percent (6%) of the Member's Annual Compensation. The Board of Directors may, at its discretion, increase the percentage contribution under this Section 3.2 for all members, or for any specified unit, division, subdivision, or location, or for any Members who participated in a specified prior plan that was merged into the Plan. 12 16 3.3 Effective upon resolution by the Board of Directors, a Plan Sponsor proposes to make contributions to the Fund with respect to each Plan Year in an amount determined by the Plan Sponsor. 3.4 Forfeitures shall be used to reduce Plan Sponsor contributions and not to increase benefits. 3.5 Any Eligible Employee who is a Member may, with the consent of the Plan Administrator and subject to such rules and conditions as the Plan Administrator may prescribe, transfer a Rollover Amount to the Fund; provided, however, that the Plan Administrator shall not administer this provision in a manner which is discriminatory in favor of Highly Compensated Employees. 3.6 Contributions may be made only in cash or other property which is acceptable to the Trustee. In no event will the sum of contributions under Plan Sections 3.1, 3.2 and 3.3 exceed the deductible limits under Code Section 404. 3.7 Notwithstanding any other provision of the Plan, effective December 12, 1994, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). SECTION 4 ALLOCATIONS 4.1 (a) As soon as reasonably practicable following the date of withholding by the Plan Sponsor, if applicable, and receipt by the Trustee, Plan Sponsor contributions made on behalf of each Member under Plan Sections 3.1 and 3.2 (including forfeitures during the Plan Year used to reduce such contributions) and Rollover Amounts contributed by the Member, shall be allocated to the Employee Deferral Account, Matching Account, and Rollover Account, respectively, of the Member on behalf of whom the contributions were made. (b) As of the last day of each Plan Year, Plan Sponsor contributions made under Plan Section 3.3 shall be allocated to the Company Account of each Eligible Employee who is a Member who is employed by a Plan Sponsor on the last day of the Plan Year, or whose death or Retirement Date occurred during the Plan Year, in the proportion that the Member's Annual Compensation bears to the Annual Compensation of all Members entitled to an allocation under this Subsection (b). 4.2 Except as otherwise provided in the Plan and the Trust, as of each Valuation Date, the Trustee shall determine the net income or net loss of the Fund and shall allocate such amounts to the Accounts of Members as hereinafter set forth. (a) The net income or net loss of the Individual Funds shall be allocated as of each Valuation Date to the Account of each Member in the proportion that the value of the Account invested in the Individual Fund or Loan Fund as of the preceding Valuation 13 17 Date, increased by one-half of the total contributions allocated to that Member's Account since the preceding Valuation Date and reduced by the full amount of any withdrawals from that Member's Account since that Valuation Date, bears to the total value of all Accounts invested in the Individual Fund or Loan Fund, respectively, as of the preceding Valuation Date. (b) Notwithstanding the foregoing, in the event Valuation Dates are changed to a daily basis, the net income or net loss of the Individual Funds shall be allocated as of each Valuation Date to each Account in the proportion that the value of the Account invested in that Individual Fund as of that Valuation Date bears to the value of all Accounts invested in that Individual Fund as of that Valuation Date. SECTION 5 INDIVIDUAL FUNDS AND INVESTMENTS OF TRUST ASSETS 5.1 Until such time as the Plan Administrator may direct otherwise, each Member may direct the Plan Administrator to invest contributions to his Account in two or more Individual Funds as the Member shall designate by providing notice to the Plan Administrator according to the procedures established by the Plan Administrator for that purpose. Notwithstanding the foregoing, Members shall not be able to direct the investment of any Account other than their Matching Accounts into the Company Stock Fund subject to such rules as the Plan Administrator shall develop, including the Primary Sponsor's "stock trading policy." (a) All investment directions shall be in multiples of 1% of contributions being made at any time. Members may change the investment of contributions to their accounts in accordance with the procedures established by the Plan Administrator. New investment directions shall be effective as of the date that such directions are process by the Plan Administrator in accordance with the procedures established for such purpose. (b) An investment direction, once given, shall be deemed to be a continuing direction until changed as otherwise provided herein. If no direction is effective for the date a contribution is to be made, all contributions which are to be made for such date shall be invested in such Individual Fund as the Plan Administrator, the Investment Manager, the Investment Committee, or the Trustee, as applicable, may determine. To the extent permissible by law, no Fiduciary shall be liable for any loss, which results from a Member's exercise or failure to exercise his investment election. 5.2 A Member may elect according to the procedures established by the Plan Administrator, to transfer, in multiples of 1% his Account between Individual Funds. An election under this Section 5.2 shall be effective as of the date that such directions are processed by the Plan Administrator in accordance with the procedures established for such purpose. 5.3 A Member who makes an election pursuant to Plan Section 5.1 or Plan Section 5.2 may apply the new investment direction to his current Account, all future contributions, or both his current Account and all future contributions. 14 18 5.4 A Loan Fund shall be established by the Trustee on behalf of each Member for whom a loan is made pursuant to Plan Section 6. The Loan Fund shall be credited with the amount of any loan made by the Plan to the Member and shall be debited with all principal and interest repayments of any such loans. Under rules established by the Plan Administrator, a Member's interest in the Individual Funds shall be debited by the amount credited to the Member's Loan Fund. All principal and interest repayments debited to the Loan Fund shall be invested as contributions to the Member's Account pursuant to Plan Section 5.1. Each Loan Fund shall be invested in a note or notes made by the Member evidencing the promised repayment of monies loaned to the Member from the Fund. SECTION 6 PLAN LOANS 6.1 All loans under the Plan will be subject to the requirements of this Section and such other rules as the Plan Administrator may from time to time prescribe, including, without limitation, any rules restricting the purpose for which loans will be approved (the "Loan Procedures"). The Loan Procedures shall be set forth in a separate written document, which shall form a part of the Plan and is incorporated herein by reference. 6.2 Subject to the provisions of the Plan and the Trust, each Member who is an Employee shall have the right, subject to prior approval by the Plan Administrator, to borrow from the Fund. In addition, each "party in interest," as defined in ERISA Section 3(14), who is (a) a Member but no longer an Employee, (b) the Beneficiary of a deceased Member, or (c) an alternate payee of a Member pursuant to the provisions of a "qualified domestic relations order," as defined in Code Section 414(p), shall also have the right, subject to prior approval by the Plan Administrator, to borrow from the Fund; provided, however, that loans to such parties in interest may not discriminate in favor of Highly Compensated Employees. 6.3 In order to apply for a loan, a borrower must complete and submit an application to the Plan Administrator in such form and subject to such rules as the Plan Administrator may prescribe for this purpose. 6.4 Loans shall be available to all eligible borrowers on a reasonably equivalent basis which shall take into account the borrower's credit worthiness, ability to repay, and ability to provide adequate security. Loans shall not be made available to Highly Compensated Employees, officers or shareholders of a Plan Sponsor in an amount greater than the amount made available to other borrowers. This provision shall be deemed to be satisfied if all borrowers have the right to borrow the same percentage of their interest in the Member's vested Accrued Benefit, notwithstanding that the dollar amount of such loans may differ as a result of differing values of Members' vested Accrued Benefit. 6.5 Each loan shall bear a "reasonable rate of interest" and provide that the loan be amortized in substantially level payments, made no less frequently than quarterly, over a specified period of time. A "reasonable rate of interest" shall be that rate that provides the Plan 15 19 with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. 6.6 Each loan shall be adequately secured, with the security for the outstanding balance of all loans to the borrower to consist of one-half (1/2) of the borrower's interest in the Member's vested Accrued Benefit, or such other security as the Plan Administrator deems acceptable. 6.7 Each loan, when added to the outstanding balance of all other loans to the borrower from all retirement plans of the Plan Sponsor and its Affiliates which are qualified under Section 401 of the Code, shall not exceed the lesser of: (a) $50,000, reduced by the excess, if any, of (1) the highest outstanding balance of loans made to the borrower from all retirement plans qualified under Code Section 401 of the Plan Sponsor and its Affiliates during the one (1) year period immediately preceding the day prior to the date on which such loan was made, over (2) the outstanding balance of loans made to the borrower from all retirement plans qualified under Code Section 401 of the Plan Sponsor and its Affiliates on the date on which such loan was made, or (b) one-half (1/2) of the value of the borrower's interest in the vested Accrued Benefit attributable to the Member's Account. For purposes of this Section, the value of the vested Accrued Benefit attributable to a Member's Account shall be established as of the latest preceding Valuation Date, or any later date on which an available valuation was made, and shall be adjusted for any distributions or contributions made through the date of the origination of the loan. 6.8 The entire unpaid principal sum and accrued interest shall, at the option of the Plan Administrator, become due and payable if (a) a borrower fails to make any loan payment when due, (b) a borrower ceases to be a "party in interest", as defined in ERISA Section 3(14), (c) the vested Accrued Benefit held as security under the Plan for the borrower will, as a result of an impending distribution or withdrawal, be reduced to an amount less than the amount of all unpaid principal and accrued interest then outstanding under the loan, or (d) a borrower makes any untrue representations or warranties in connection with the obtaining of the loan. In that event, the Plan Administrator may take such steps as it deems necessary to preserve the assets of the Plan, including, but not limited to, the following: (1) direct the Trustee to deduct the unpaid principal sum, accrued interest, and any other applicable charge under the note evidencing the loan from any benefits that may become payable out of the Plan to the borrower, (2) direct the Plan Sponsor to deduct and transfer to the Trustee the unpaid principal balance, accrued interest, and any other applicable charge under the note evidencing the loan from any amounts owed by the Plan Sponsor to the borrower, or (3) liquidate the security given by the borrower, other than amounts attributable to a Member's Employee Deferral Account, and deduct from the proceeds 16 20 the unpaid principal balance, accrued interest, and any other applicable charge under the note evidencing the loan. If any part of the indebtedness under the note evidencing the loan is collected by law or through an attorney, the borrower shall be liable for attorneys' fees in an amount equal to ten percent (10%) of the amount then due and all costs of collection. 6.9 Each loan shall be made only in accordance with regulations and rulings of the Internal Revenue Service or the Department of Labor. The Plan Administrator shall be authorized to administer the loan program of this Section and shall act in his sole discretion to ascertain whether the requirements of such regulations and rulings and this Section have been met. 6.10 Loans will be made last from amounts invested in the Company Stock Fund. 6.11 Prior to making any loan to a Member pursuant to this Section, the consent of the requesting Member's spouse as to the use of the Member's Account as security for any requested loan and the offset against the Member's Account in the event of a default on any requested loan must be obtained in accordance with the notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations promulgated thereunder. SECTION 7 WITHDRAWALS DURING EMPLOYMENT 7.1 A Member who has attained age 59 1/2 may withdraw, in a lump sum in cash, all or any portion of the balance of his Employee Deferral Account, his Rollover Account, his Prior Company account, and the vested portion of his Matching Account. A Member who makes a withdrawal under this Plan Section 7.1 will not be eligible to receive contributions pursuant to Plan Section 3.2 or any contributions on behalf of the Member to his Employee Deferral Account with respect to the three month period following the date of the withdrawal. Any withdrawal under this Plan Section 7.1 shall be made last from amounts invested in the Company Stock Fund. 7.2 A withdrawal pursuant to this Section 7.2 is designated a "Hardship Withdrawal" and is subject to the following rules: The Trustee shall, upon the direction of the Plan Administrator, distribute, in a lump sum in cash, all or a portion of a Member's Rollover Account, Employee Deferral Account consisting of Deferral Amounts (but not earnings thereon), Prior Company Account and Matching Account (to the extend vested) prior to the time such account is otherwise distributable in accordance with the other provisions of the Plan; provided, however, that any such distribution shall be made only if the member is an Employee and demonstrates that he is suffering from "hardship" as determined herein. For purposes of this Section, a distribution will be deemed to be an account of hardship if the distribution is on account of: (a) medical expenses described in Section 213(d) of the Code incurred by the Member, his spouse, or any dependents of the Member (as defined in 17 21 Section 152 of the Code) or necessary for these persons to obtain medical care described in Section 213(d) of the Code; (b) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Member; (c) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Member, his spouse, children, or dependents; (d) the need to prevent the eviction of the Member from his principal residence or foreclosure on the mortgage of the Member's principal residence; or (e) any other contingency determined by the Internal Revenue Service to constitute an "immediate and heavy financial need" within the meaning of Regulations Section 1.401(k)-1(d). 7.3 In addition to the requirements set forth in Plan Section 7.2, any distribution pursuant to Plan Section 7.2 shall not be in excess of the amount necessary to satisfy the need determined under Section 7.2 and shall also be subject to the requirements of Subsection (a) or (b) of this Section. (a) (1) the Member shall first obtain all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Plan Sponsor; (2) the Plan Sponsor shall not permit Elective Deferrals or after-tax employee contributions to be made to the Plan or any other plan maintained by the Plan Sponsor, for a period of twelve (12) months after the Member receives the distribution pursuant to this Section; and (3) the Plan Sponsor shall not permit Elective Deferrals to be made to the Plan or any other plan maintained by the Plan Sponsor for the Member's taxable year immediately following the taxable year of the hardship distribution in excess of the limit under Plan Section 3.1(b) for the taxable year, less the amount of the Elective Deferrals made to the Plan or any other plan maintained by the Plan Sponsor for the taxable year in which the distribution under this Section occurs. (b) The Plan Administrator determines that it can rely on the Member's written representation, unless the Plan Administrator has actual knowledge to the contrary, that the need determined under Plan Section 7.2 cannot reasonably be relieved -- (1) through reimbursement or compensation by insurance or otherwise, 18 22 (2) by reasonable liquidation of the assets of the Member, his spouse and minor children, to the extent that the liquidation would not itself cause an immediate and heavy financial need and to the extent that the assets of the spouse and minor children are reasonably available to the Member, (3) by cessation of Elective Deferrals, or (4) by other distributions or nontaxable (at the time of the distribution) loans from plans maintained by the Plan Sponsor or any other employer, or by borrowing from commercial sources on reasonable commercial terms. Such distribution shall be made only in accordance with such rules, policies, procedures, restrictions, and conditions as the Plan Administrator may from time to time adopt. Any determination of the existence of hardship and the amount to be distributed on account thereof shall be made by the Plan Administrator (or such other person as may be required to make such decisions) in accordance with the foregoing rules as applied in a uniform and nondiscriminatory manner, provided that, unless the Member requests otherwise, any such withdrawal shall include the amount necessary to pay any federal, state or local income taxes and penalties reasonably anticipated to result from such withdrawal. A distribution under this Section shall be made in a lump sum to the Member, and shall be subject to the Eligible Rollover Distribution requirements of Section 9.6. 7.4 Prior to making any distribution pursuant to this Section, the spouse of any Member requesting a distribution from his Account must consent to the making of such distribution to the Member in accordance with all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations promulgated thereunder. SECTION 8 DEATH BENEFITS 8.1 Upon the death of a Member who is an Employee at the time of his death, his Beneficiary shall be entitled to the full value of his Accrued Benefit. 8.2 Upon the death of a Member who is not an Employee at the time of his death, prior to the distribution of his vested Accrued Benefit, his Beneficiary shall be entitled to his vested Accrued Benefit. 8.3 If, subsequent to the death of a Member, the Member's Beneficiary dies while entitled to receive benefits under the Plan, the successor Beneficiary, if any, or the Beneficiary listed under Subsection (a), (b) or (c) of the Plan Section containing the definition of the term "Beneficiary" shall generally be entitled to receive benefits under the Plan. However, if the deceased Beneficiary was the Member's spouse at the time of the Member's death, or if no successor Beneficiary shall have been designated by the Member and be alive and no Beneficiary listed under Subsection (a), (b) or (c) of the Plan Section containing the definition of the term 19 23 "Beneficiary" shall be alive, the Member's unpaid vested Accrued Benefit shall be paid to the personal representative of the deceased Beneficiary's estate. 8.4 Any benefit payable under this Section 8 shall be paid in accordance with and subject to the provisions of Plan Section 9 or Section 10, whichever is applicable, after receipt by the Trustee from the Plan Administrator of due notice of the death of the Member. SECTION 9 PAYMENT OF BENEFITS ON RETIREMENT OR DEATH 9.1 The Accrued Benefit of a Member who has attained a Retirement Date or has attained Normal Retirement Age or died while an Employee shall be fully vested and nonforfeitable. As of a Member's Retirement Date or death while an Employee, he or his Beneficiary shall be entitled to his Accrued Benefit to be paid in accordance with this Section 9. A Member may elect to delay distribution until he reaches age 70 1/2. The Accrued Benefit of a Member which is to be paid under this Section 9 shall be determined as of the Valuation Date coinciding with or next following the Member's Retirement Date or death, or, if the Member elects to delay distribution until age 70 1/2, as of the Valuation Date coinciding with or next following the date the Member reaches age 70 1/2. Such amount shall be decreased by the amount necessary to satisfy the unpaid principal, accrued interest and penalties on any loan made to the Member from the Plan (which loan shall be deemed to be satisfied as a result of such reduction) and adjusted for a pro rata share of any income, gains, and losses attributable thereto through the Valuation Date coinciding with or immediately preceding the date the Accrued Benefit is paid. Payment shall be made as soon as administratively feasible after the Valuation Date. If the amount of the payment required to commence on a date cannot be ascertained by that date, payment shall commence retroactively to that date and shall commence no later than sixty (60) days after the earliest date on which the amount of payment can be ascertained. 9.2 Payment to a Member shall be in the form of one lump sum payment in cash unless the Accrued Benefit of the Member exceeds $3,500 ($5,000 effective January 1, 1998), in which event the Member or the Beneficiary, by written instrument delivered to the Plan Administrator, may elect to have his or her Account distributed in one of the form of distribution listed below, as chosen by the Member or Beneficiary: (a) one lump sum payment in cash; (b) a combination of one lump sum payment in cash for a portion of his Account designated by the member in annual, semiannual, quarterly, or monthly installments in cash for the remaining portion of the Member's Account; (c) annual, semiannual, quarterly or monthly installments in cash (If the Member elects annual, semiannual, quarterly, or monthly installments for some or all of his Account, such distributions shall be made over a period specified by the Member not exceeding the life expectancy of the Member or the joint life expectancies of the Member and his Beneficiary); 20 24 (d) a single life annuity. (If the Member elects to receive his benefits in the form of a single life annuity and is married on the date of his death or the date distributions are to commence, if applicable, the benefit shall automatically be payable pursuant to Subsection (e) of this Section unless the Member makes an election pursuant to Section 9.3 not to receive the applicable annuity under Subsection (e) during the applicable election period); (e) an immediate annuity for the life of the Member with a survivor annuity for the life of his or her spouse which is fifty percent (50%) of the annuity payable during the joint lives of the Member and his spouse (hereinafter referred to as a "Qualified Joint and Survivor Annuity"). (If the Member's Accrued Benefit is payable in the form of a life annuity and the Member dies before he begins to receive payments from the fund, the Member's spouse shall receive an immediate annuity for her life (hereinafter referred to as a "Qualified Preretirement Survivor Annuity"). Notwithstanding the foregoing, the surviving spouse of a Member who is entitled to receive a Qualified Preretirement Survivor Annuity may elect a lump sum payment prior to the date the annuity is purchased or distributions begin; (f) a single life annuity with certain periods of five, ten or fifteen years as selected by the Member. (If the Member elects to receive his benefits in the form provided in this Subsection and is married on the date of his death or the date distributions are to commence, if applicable, the benefit shall automatically be payable pursuant to Subsection (e) of this Section unless the Member makes an election pursuant to Section 9.3 not to receive the applicable annuity under Subsection (e) during the applicable election period); and (g) a single life annuity with installment refund and survival percentages for the contingent annuitant designated by the Member of 50% or 100% (If the Member elects to receive his benefits in the form provided in this Subsection and is married on the date of his death or the date distributions are to commence, if applicable, the benefit shall automatically be payable pursuant to Subsection (e) of this Section unless the Member makes an election pursuant to Section 9.3 not to receive the applicable annuity under Subsection (e) during the applicable election period). If an annuity is to be paid from the Plan, such annuity may be purchased with the Member's Account from an insurance company designated by the Plan Administrator or its designee in writing to the insurance company and may be distributed to the Member or his Beneficiary in full satisfaction of the benefits to which the Member or his Beneficiary is entitled under the Plan. The amount of the annuity shall be the actuarial equivalent of the Member's Account (reduced by any commissions or other costs charged by the insurance company) based on factors used by the insurance company from which the annuity is purchased. 21 25 9.3 (a) The Plan Administrator shall furnish to the Member a written explanation of: (1) the terms and conditions of the Qualified Joint and Survivor Annuity and the Qualified Preretirement Survivor Annuity; (2) the Member's right to make, and the effect of, an election not to receive the Qualified Joint and Survivor Annuity or the Qualified Preretirement Survivor Annuity; (3) the rights of the Member's spouse as described below; and (4) the right to make and the effect of an election pursuant to this paragraph. In the case of a Qualified Joint and Survivor Annuity, the written explanation shall be provided to the Member no less than thirty (30) days and no more than ninety (90) days prior to the first date on which he is entitled to commencement of payments from the Fund. Notwithstanding the foregoing, a Member may elect to waive the requirement that the written explanation be provided at least thirty (30) days prior to commencement of payments, provided that the first payment from the Fund occurs more than seven (7) days from the date the explanation is received by the Member. In the case of the Qualified Preretirement Survivor Annuity, the written explanation shall be provided to the Member in whichever of the following periods ends last: (A) the period beginning with the first day of the Plan Year in which the Member attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Member attains age 35; (B) the period beginning one year before and ending one year after the Employee first becomes a Member; (C) the period beginning one year before and ending one year after the provisions of this Subsection apply to the Member; or (D) a reasonable period of time after separation from service in the case of a Member who separates from service before attaining age 35. The Member may elect during the "applicable election period" not to receive the Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity by execution and delivery to the Committee of a form provided for that purpose by the Committee. The term "applicable election period" shall mean, with respect to a Qualified Joint and Survivor Annuity, the 90-day period ending on the first date on which the Member is entitled to commencement of payment from the Fund. In the event the Member waives the minimum 30-day requirement for the 22 26 written explanation, the "applicable election period" shall not end before the period ending thirty (30) days after the Member receives the written explanation. Notwithstanding the foregoing, if the Member receives the written explanation of the Qualified Joint and Survivor Annuity and affirmatively elects a form of distribution, the payments from the Fund may commence less than thirty (30) days after the Member receives the written explanation provided that the Member may revoke the affirmative distribution election until the later of the time payments from the Fund are to begin or the expiration of the 7-day period which begins on the day after the Member receives the written explanation. With respect to a Qualified Preretirement Survivor Annuity, the "applicable election period" shall mean the period which begins on the first day of the Plan Year in which the Member attains age 35 and ends on the date of the Member's death. (b) In the case of a married Member, no election shall be effective unless: (1) the spouse of the Member consents in writing to the election and the consent acknowledges the effect of the election (including, if applicable, the identity of any Beneficiary other than the Member's spouse and the alternate form of payment) and is witnessed by a notary public, or (2) it is established to the satisfaction of the Committee that the consent required pursuant to Subsection (1) of this Section (b) may not be obtained because there is no spouse, the spouse cannot be located, the Member has a court order indicating that he is legally separated or has been abandoned (within the meaning of local law) unless a qualified domestic relations order provides otherwise, or of any other circumstances as permitted by regulations promulgated by the Department of the Treasury. If the spouse is legally incompetent to give consent, consent by the spouse's legal guardian shall be deemed to be consent by the spouse. (c) Any consent by a spouse (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to that spouse. If an election is made, the Member's vested Accrued Benefit shall be paid in the alternate form of payment set forth in Section 9.2 chosen by the Member by written instrument delivered to the Committee. Any waiver of a Qualified Preretirement Survivor Annuity made prior to the first day of the Plan Year in which the Member attains age 35 shall become invalid as of the first day of the Plan Year in which the member attains age 35 and a Qualified Preretirement Annuity shall be provided, unless a new waiver is obtained. The Member may revoke any election not to receive payment in the form of a Qualified Joint and Survivor Annuity at any time prior to commencement of payments from the Fund, and may make a new election at any time prior to the commencement of payments from the Fund 9.4 Notwithstanding any provision of the Plan to the contrary, (a) if a Member's vested Accrued Benefit exceeds $3,500 ($5,000 effective January 1, 1998), it shall not be distributed before the Member's Normal Retirement Age or death without the consent of the Member, and if the Member is married and elects a 23 27 form of payment other than a Qualified Joint and Survivor annuity, with the consent of his spouse (or if the Member is deceased, his surviving spouse). (b) the payments to be made to a Member, shall satisfy the incidental death benefit requirements under Code Section 401(a)(9)(G) and the regulations thereunder. 9.5 Notwithstanding any other provisions of the Plan, (a) Prior to the death of a Member, all retirement payments hereunder shall -- (1) be distributed to the Member not later than the required beginning date (as defined below) or, (2) be distributed, commencing not later than the required beginning date (as defined below)-- (A) in accordance with regulations prescribed by the Secretary of the Treasury, over the life of the Member or over the lives of the Member and his designated individual Beneficiary, if any, or (B) in accordance with regulations prescribed by the Secretary of the Treasury, over a period not extending beyond the life expectancy of the Member or the joint life and last survivor expectancy of the Member and his designated individual Beneficiary, if any. (b) (1) If -- (A) the distribution of a Member's retirement payments have begun in accordance with Subsection (a)(2) of this Section, and (B) the Member dies before his entire vested Accrued Benefit has been distributed to him, then the remaining portion of his vested Accrued Benefit shall be distributed at least as rapidly as under the method of distribution being used under Subsection (a)(2) of this Section as of the date of his death. (2) If a Member dies before the commencement of retirement payments hereunder, the entire interest of the Member shall be distributed within five (5) years after his death. (3) If -- (A) any portion of a Member's vested Accrued Benefit is payable to or for the benefit of the Member's designated individual Beneficiary, if any, 24 28 (B) that portion is to be distributed, in accordance with regulations prescribed by the Secretary of the Treasury, over the life of the designated individual Beneficiary or over a period not extending beyond the life expectancy of the designated individual Beneficiary, and (C) the distributions begin not later than one (1) year after the date of the Member's death or such later date as the Secretary of the Treasury may by regulations prescribe, then, for purposes of Paragraph (2) of this Subsection (b), the portion referred to in Subparagraph (A) of this Paragraph (3) shall be treated as distributed on the date on which the distributions to the designated individual Beneficiary begin. (4) If the designated individual Beneficiary referred to in Paragraph (3)(A) of this Subsection (b) is the surviving spouse of the Member, then -- (A) the date on which the distributions are required to begin under Paragraph (3)(C) of this Subsection (b) shall not be earlier than the date on which the Member would have attained age 70 1/2, and (B) if the surviving spouse dies before the distributions to such spouse begin, this Subsection (b) shall be applied as if the surviving spouse were the Member. (c) For purposes of this Section, the term "required beginning date" means April 1 of the calendar year following the later of the calendar year in which the member attains age 70 1/2 or the calendar year in which the Member retires, except with respect to a Member who is a five percent (5%) owner (as described in Code Section 416(i)(1)(B)(i)), the "required beginning date" means April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2. Notwithstanding the foregoing, with respect to a Member who attains age 70 1/2 prior to January 1, 2000, other than a Member who is a five percent (5%) owner, such Member may elect to receive distributions in accordance with Section 401(a)(9) as in effect prior to January 1, 1997, or in the alternative, such Member may elect to defer distribution in which event benefits will be paid in accordance with the remaining provisions of the Plan. 9.6 Notwithstanding any provisions of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 9, a Distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a direct rollover. If the Eligible Rollover Distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such Eligible Rollover Distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: 25 29 (a) The Plan Administrator clearly informs the Distributee that the Distributee has a right to a period of at least 30 days after receiving the notice to consider the decisions of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Distributee, after receiving the notice, affirmatively elects a distribution. SECTION 10 PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT 10.1 Transfer of a Member from one Plan Sponsor to another Plan Sponsor or to an Affiliate shall not be deemed for any purpose under the Plan to be a termination of employment of the Member. 10.2 In the event of the termination of employment of a Member for reasons other than death or attainment of a Retirement Date, the Member's Accrued Benefit shall be determined as of the Valuation Date coinciding with or immediately preceding the Member's termination of employment, increased by any amounts allocated to the Account of the Member since that Valuation Date, decreased by any distributions made since that Valuation Date from the Member's Account, decreased by the amount necessary to satisfy, as of the Member's termination of employment, the unpaid principal, accrued interest and penalties on any loan made to the Member from the Plan (which loan shall be deemed to be satisfied as a result of such reduction) and adjusted for a pro rata share of any income, gains, and losses attributable thereto through the Valuation Date coinciding with or immediately preceding the date the Accrued Benefit is paid. 10.3 That portion of a Member's Accrued Benefit in which he is vested as of a Valuation Date shall be: (a) his Employee Deferral Account, Rollover Account, and Prior Company Account, which shall be fully vested and nonforfeitable at all times; and (b) that portion of the value of his Matching Account and Company Account computed according to the following vesting schedule taking into account any Years of Service subsequent to such Valuation Date until the date of his termination of employment:
Full Years of Percentage Service Vested -------------- ---------- 1 33 1/3% 2 66 2/3% 3 100%
10.4 The Member shall be entitled to payment in the form specified in Plan Section 9.2. Payment shall be made as soon as administratively feasible after the Valuation Date 26 30 coinciding with or immediately following the Member's termination of employment; provided, however, if the Member's vested Accrued Benefit exceeds $3,500 ($5,000 effective January 1, 1998), it will not be distributed before the Member's Normal Retirement Age or death without the Member's consent. A Member may, however, elect to have payment of his Accrued Benefit delayed until he attains age 70 1/2. Unless a Member elects to delay commencement of payment of his Accrued Benefit, in no event shall payment be made later than sixty (60) days after the end of the Plan Year in which the Normal Retirement Age of the Member occurs. Payment shall be subject to the minimum distribution requirements set forth in Plan Section 9. Any distribution under this Section shall be subject to the Eligible Rollover Distribution requirements of Section 9.6. 10.5 (a) If any portion of a Member's vested Accrued Benefit derived from Plan Sponsor contributions is paid prior to his Termination Completion Date, a portion of his Accrued Benefit equal to his total non-vested Accrued Benefit derived from Plan Sponsor contributions multiplied by a fraction, the numerator of which is the amount of the distribution attributable to Plan Sponsor contributions and the denominator of which is the total vested Accrued Benefit attributable to Plan Sponsor contributions, shall be immediately forfeited. The amount forfeited shall not exceed the Members non-vested Accrued Benefit. Upon the termination of employment of a Member who is not vested in any part of his Accrued Benefit, the Member shall be deemed to have received a distribution and his Accrued Benefit shall be immediately forfeited. (b) If the Member is reemployed by a Plan Sponsor or an Affiliate prior to his Termination Completion Date and (1) if the Member's Accrued Benefit was partially vested and the Member repays to the Fund no later than the earlier of his Termination Completion Date or the fifth anniversary of the Member's reemployment all of that portion of his vested Accrued Benefit which was paid to him or (2) if the Member's Accrued Benefit was not vested upon his termination of employment, then any portion of his Accrued Benefit which was forfeited shall be restored effective on the Valuation Date coinciding with or next following the repayment or the Member's reemployment, respectively. The restoration on any Valuation Date of the forfeited portion of the Accrued Benefit of a Member pursuant to the preceding sentence shall be made first from forfeitures available for allocation on that Valuation Date, to the extent available, and secondly from additional employer contributions. Only after restorations have been made shall the remaining net income be available for allocation under Plan Section 4. (c) If a Member who is partially vested in his Accrued Benefit does not receive, prior to his Termination Completion Date, a distribution of any portion of his vested Accrued Benefit, then no forfeiture of that Member's non-vested portion of his Accrued Benefit shall occur until that Member's Termination Completion Date. 10.6 In the event that a Plan amendment directly or indirectly changes the vesting schedule, the vesting percentage for each Member in his Accrued Benefit accumulated to the date when the amendment is adopted shall not be reduced as a result of the amendment. In addition, any Member with at least three (3) Years of Service may irrevocably elect to remain 27 31 under the pre-amendment vesting schedule with respect to all of his benefits accrued both before and after the amendment. SECTION 11 ADMINISTRATION OF THE PLAN 11.1 Trust Agreement. The Primary Sponsor shall establish a Trust with the Trustee designated by the Board of Directors for the management of the Fund, which Trust shall form a part of the Plan and is incorporated herein by reference. 11.2 Operation of the Plan Administrator. The Primary Sponsor shall appoint a Plan Administrator. If an organization is appointed to serve as the Plan Administrator, then the Plan Administrator may designate in writing a person who may act on behalf of the Plan Administrator. The Primary Sponsor shall have the right to remove the Plan Administrator at any time by notice in writing. The Plan Administrator may resign at any time by written notice of resignation to the Trustee and the Primary Sponsor. Upon removal or resignation, or in the event of the dissolution of the Plan Administrator, the Primary Sponsor shall appoint a successor. 11.3 Fiduciary Responsibility. (a) The Plan Administrator, as a Named Fiduciary, may allocate its fiduciary responsibilities among Fiduciaries other than the Trustee, designated in writing by the Plan Administrator and may designate in writing other persons (other than the Trustee) to carry out its fiduciary responsibilities under the Plan. The Plan Administrator may at any time and from time to time remove any such person designated to carry out its fiduciary responsibilities under the Plan by notice in writing to such person. (b) The Plan Administrator and each other Fiduciary may employ persons to perform services and to render advice with regard to any of the Fiduciary's responsibilities under the Plan. Charges for all such services performed and advice rendered may be directly paid by each Plan Sponsor but until paid shall constitute a charge against the Fund. (c) Each Plan Sponsor shall indemnify and hold harmless each person constituting the Plan Administrator or the Investment Committee, if any, from and against any and all claims, losses, costs, expenses (including, without limitation, attorney's fees and court costs), damages, actions or causes of action arising from, on account of or in connection with the performance by such person of his duties in such capacity, other than such of the foregoing arising from, on account of or in connection with the willful neglect or willful misconduct of such person so acting. 11.4 Duties of the Plan Administrator. (a) The Plan Administrator shall advise the Trustee with respect to all payments under the terms of the Plan and shall direct the Trustee in writing to make such payments from the Fund; provided, however, in no event shall the Trustee be required to 28 32 make such payments if the Trustee has actual knowledge that such payments are contrary to the terms of the Plan and the Trust. (b) The Plan Administrator shall from time to time establish rules, not contrary to the provisions of the Plan and the Trust, for the administration of the Plan and the transaction of its business. All elections and designations under the Plan by a Participant or Beneficiary shall be made on forms prescribed by the Plan Administrator. The Plan Administrator shall have discretionary authority to construe the terms of the Plan and shall determine all questions arising in the administration, interpretation and application of the Plan, including, but not limited to, those concerning eligibility for benefits and it shall not act so as to discriminate in favor of any person. All determinations of the Plan Administrator shall be conclusive and binding on all Employees, Members, Beneficiaries and Fiduciaries, subject to the provisions of the Plan and the Trust and subject to applicable law. (c) The Plan Administrator shall furnish Members and Beneficiaries with all disclosures now or hereafter required by ERISA or the Code. The Plan Administrator shall file, as required, the various reports and disclosures concerning the Plan and its operations as required by ERISA and by the Code, and shall be solely responsible for establishing and maintaining all records of the Plan and the Trust. (d) The statement of specific duties for a Plan Administrator in this Section is not in derogation of any other duties which a Plan Administrator has under the provisions of the Plan or the Trust or under applicable law. 11.5 Investment Manager. The Primary Sponsor may, by action in writing certified by notice to the Trustee, appoint an Investment Manager. Any Investment Manager may be removed in the same manner in which appointed, and in the event of any removal, the Investment Manager shall, as soon as possible, but in no event more than thirty (30) days after notice of removal, turn over all assets managed by it to the Trustee or to any successor Investment Manager appointed, and shall make a full accounting to the Primary Sponsor with respect to all assets managed by it since its appointment as an Investment Manager. 11.6 Investment Committee. The Primary Sponsor may, by action in writing certified by notice to the Trustee, appoint an Investment Committee. The Primary Sponsor shall have the right to remove any person on the Investment Committee at any time by notice in writing to such person. A person on the Investment Committee may resign at any time by written notice of resignation to the Primary Sponsor. Upon such removal or resignation, or in the event of the death of a person on the Investment Committee, the Primary Sponsor may appoint a successor. Until a successor has been appointed, the remaining persons on the Investment Committee may continue to act as the Investment Committee. 11.7 Action by the Primary Sponsor or a Plan Sponsor. Any action to be taken by the Primary Sponsor or a Plan Sponsor shall be taken by resolution or written direction duly adopted by its board of directors or appropriate governing body, 29 33 as the case may be; provided, however, that by such resolution or written direction, the board of directors or appropriate governing body, as the case may be, may delegate to any officer or other appropriate person of a Plan Sponsor the authority to take any such actions as may be specified in such resolution or written direction, other than the power to amend, modify or terminate the Plan or the Trust or to determine the basis of any Plan Sponsor contributions. SECTION 12 CLAIM REVIEW PROCEDURE 12.1 If a Member or Beneficiary is denied a claim for benefits under a Plan, the Plan Administrator shall provide to the claimant written notice of the denial within ninety (90) days after the Plan Administrator receives the claim, unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period. In no event shall the extension exceed a period of ninety (90) days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the final decision. 12.2 If the claimant is denied a claim for benefits, the Plan Administrator shall provide, within the time frame set forth in Plan Section 12.1, written notice of the denial which shall set forth: (a) the specific reasons for the denial; (b) specific references to the pertinent provisions of the Plan on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why the material or information is necessary; and (d) an explanation of the Plan's claim review procedure. 12.3 After receiving written notice of the denial of a claim, a claimant or his representative may: (a) request a full and fair review of the denial by written application to the Plan Administrator; (b) review pertinent documents; and (c) submit issues and comments in writing to the Plan Administrator. 12.4 If the claimant wishes a review of the decision denying his claim to benefits under the Plan, he must submit the written application to the Plan Administrator within sixty (60) days after receiving written notice of the denial. 30 34 12.5 Upon receiving the written application for review, the Plan Administrator may schedule a hearing for purposes of reviewing the claimant's claim, which hearing shall take place not more than thirty (30) days from the date on which the Plan Administrator received the written application for review. 12.6 At least ten (10) days prior to the scheduled hearing, the claimant and his representative designated in writing by him, if any, shall receive written notice of the date, time, and place of the scheduled hearing. The claimant or his representative may request that the hearing be rescheduled for his convenience on another reasonable date or at another reasonable time or place. 12.7 All claimants requesting a review of the decision denying their claim for benefits may employ counsel for purposes of the hearing. 12.8 No later than sixty (60) days following the receipt of the written application for review, the Plan Administrator shall submit its decision on the review in writing to the claimant involved and to his representative, if any; provided, however, a decision on the written application for review may be extended, in the event special circumstances such as the need to hold a hearing require an extension of time, to a day no later than one hundred twenty (120) days after the date of receipt of the written application for review. The decision shall include specific reasons for the decision and specific references to the pertinent provisions of the Plan on which the decision is based. SECTION 13 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS 13.1 No benefit which shall be payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for, or against, such person, and the same shall not be recognized under the Plan, except to such extent as may be required by law. Notwithstanding the above, this Section shall not apply to a "qualified domestic relations order" (as defined in Code Section 414(p)), and benefits may be paid pursuant to the provisions of such an order. The Plan Administrator shall develop procedures (in accordance with applicable federal regulations) to determine whether a domestic relations order is qualified, and, if so, the method and the procedures for complying therewith. 13.2 If any person who shall be entitled to any benefit under the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge such benefit under the Plan, then the payment of any such benefit in the event a Member or Beneficiary is entitled to payment shall, in the discretion of the Plan Administrator, cease and terminate and in that event the Trustee shall hold or apply the same for the benefit of such 31 35 person, his spouse, children, other dependents or any of them in such manner and in such proportion as the Plan Administrator shall determine. 13.3 Whenever any benefit which shall be payable under the Plan is to be paid to or for the benefit of any person who is then a minor or determined to be incompetent by qualified medical advice, the Plan Administrator need not require the appointment of a guardian or custodian, but shall be authorized to cause the same to be paid over to the person having custody of such minor or incompetent, or to cause the same to be paid to such minor or incompetent without the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or custodian of such minor or incompetent if one has been appointed or to cause the same to be used for the benefit of such minor or incompetent. 13.4 If the Plan Administrator cannot ascertain the whereabouts of any Member to whom a payment is due under the Plan, the Plan administrator may direct that the payment and all remaining payments otherwise due to the Member be cancelled on the records of the Plan and the amount thereof applied as a forfeiture in accordance with Plan Section 3.4, except that, in the event the Member later notifies the Plan Administrator of his whereabouts and requests the payments due to him under the Plan, the Plan Sponsor shall contribute to the Plan an amount equal to the payment to be paid to him as soon as administratively feasible. SECTION 14 PROHIBITION AGAINST DIVERSION At no time shall any part of the Fund be used for or diverted to purposes other than the exclusive benefit of the Members or their Beneficiaries, subject, however, to the payment of all taxes and administrative expenses and subject to the provisions of the Plan with respect to returns of contributions. SECTION 15 LIMITATION OF RIGHTS Membership in the Plan shall not give any Employee any right or claim except to the extent that such right is specifically fixed under the terms of the Plan. The adoption of the Plan and the Trust by any Plan Sponsor shall not be construed to give any Employee a right to be continued in the employ of a Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the employment of any Employee at any time. SECTION 16 AMENDMENT TO OR TERMINATION OF THE PLAN AND THE TRUST 16.1 The Primary Sponsor reserves the right at any time to modify or amend or terminate the Plan or the Trust in whole or in part by notice thereof in writing delivered to the Trustee; provided, however, that the Primary Sponsor shall have no power to modify or amend the Plan in such manner as would cause or permit any portion of the funds held under a Plan to be used for, or diverted to, purposes other than for the exclusive benefit of Members or their 32 36 Beneficiaries, or as would cause or permit any portion of a fund held under the Plan to become the property of a Plan Sponsor; and provided further, that the duties or liabilities of the Trustee shall not be increased without its written consent; and provided further, that the Plan Administrator may amend the Loan Procedures from time to time without the need for further consent of the Primary Sponsor. No such modifications or amendments shall have the effect of retroactively changing or depriving Members or Beneficiaries of rights already accrued under the Plan. No Plan Sponsor other than the Primary Sponsor shall have the right to so modify, amend or terminate the Plan or the Trust. Notwithstanding the foregoing, each Plan Sponsor may terminate its own participation in the Plan and Trust pursuant to the Plan. 16.2 Each Plan Sponsor other than the Primary Sponsor shall have the right to terminate its participation in the Plan and Trust by resolution of its board of directors or other appropriate governing body and notice in writing to the Primary Sponsor and the Trustee unless such termination would result in the disqualification of the Plan or the Trust or would adversely affect the exempt status of the Plan or the Trust as to any other Plan Sponsor. If contributions by or on behalf of a Plan Sponsor are completely terminated, the Plan and Trust shall be deemed terminated as to such Plan Sponsor. Any termination by a Plan Sponsor, shall not be a termination as to any other Plan Sponsor. 16.3 (a) If the Plan is terminated by the Primary Sponsor or if contributions to the Trust should be permanently discontinued, it shall terminate as to all Plan Sponsors and the Fund shall be used, subject to the payment of expenses and taxes, for the benefit of Members and Beneficiaries, and for no other purposes, and the Account of each affected Member shall be fully vested and nonforfeitable, notwithstanding the provisions of the Section of the Plan which sets forth the vesting schedule. (b) In the event of the partial termination of the Plan, each affected Member's Account shall be fully vested and nonforfeitable, notwithstanding the provisions of the Section of the Plan which sets forth the vesting schedule. 16.4 In the event of the termination of the Plan or the Trust with respect to a Plan Sponsor, the Accounts of the Members with respect to the Plan as adopted by such Plan Sponsor shall be held subject to the instructions of the Plan Administrator; provided that the Trustee shall not be required to make any distribution until it receives a copy of an Internal Revenue Service determination letter to the effect that the termination does not affect the qualified status of the Plan or the exempt status of the Trust or, in the event that such letter is applied for and is not issued, until the Trustee is reasonably satisfied that adequate provision has been made for the payment of all taxes which may be due and owing by the Trust. 16.5 In the case of any merger or consolidation of the Plan with, or any transfer of the assets or liabilities of the Plan to, any other plan qualified under Code Section 401, the terms of the merger, consolidation or transfer shall be such that each Member would receive (in the event of termination of the Plan or its successor immediately thereafter) a benefit which is no less than the benefit which the Member would have received in the event of termination of the Plan immediately before the merger, consolidation or transfer. 33 37 16.6 Notwithstanding any other provision of the Plan, an amendment to the Plan -- (a) which eliminates or reduces an early retirement benefit, if any, or which eliminates or reduces a retirement-type subsidy (as defined in regulations issued by the Department of the Treasury), if any, or (b) which eliminates an optional form of benefit shall not be effective with respect to benefits attributable to service before the amendment is adopted. In the case of a retirement-type subsidy described in Subsection (a) above, this Section shall be applicable only to a Member who satisfies, either before or after the amendment, the pre-amendment conditions for the subsidy. SECTION 17 ADOPTION OF PLAN BY AFFILIATES Any corporation or other business entity related to the Primary Sponsor by function or operation and any Affiliate, if the corporation, business entity or Affiliate is authorized to do so by written direction adopted by the Board of Directors, may adopt the Plan and the related Trust by action of the board of directors or other appropriate governing body of such corporation, business entity or Affiliate. Any adoption shall be evidenced by certified copies of the resolutions of the foregoing board of directors or governing body indicating the adoption and by the execution of the Trust by the adopting corporation, or business entity or Affiliate. The resolution shall state and define the effective date of the adoption of the Plan by the Plan Sponsor and, for the purpose of Code Section 415, the "limitation year" as to such Plan Sponsor. Notwithstanding the foregoing, however, if the Plan and Trust as adopted by an Affiliate or other corporation or business entity under the foregoing provisions shall fail to receive the initial approval of the Internal Revenue Service as a qualified Plan and Trust under Code Sections 401(a) and 501(a), any contributions by the Affiliate or other corporation or business entity after payment of all expenses will be returned to such Plan Sponsor free of any trust, and the Plan and Trust shall terminate, as to the adopting Affiliate or other corporation or business entity. SECTION 18 QUALIFICATION AND RETURN OF CONTRIBUTIONS 18.1 If the Plan and the related Trust fail to receive the initial approval of the Internal Revenue Service as a qualified plan and trust within one (1) year after the date of denial of qualification (a) the contribution of a Plan Sponsor after payment of all expenses will be returned to a Plan Sponsor free of the Plan and Trust, (b) contributions made by a Member shall be returned to the Member who made the contributions, and (c) the Plan and Trust shall thereupon terminate. 18.2 If and to the extent permitted by the Code and other applicable laws and regulations thereunder, upon a Plan Sponsor's request, a contribution which was made by reason of a mistake of fact or upon the deductibility of the contribution under Code Section 404, shall be returned to a Plan Sponsor within one (1) year after the payment of the contribution, or the disallowance of the deduction (to the extent disallowed), whichever is applicable. 34 38 In the event of a contribution which was made by reason of a mistake of fact or which was conditioned upon the deductibility of the contribution, the amount to be returned to the Plan Sponsor shall be the excess of the contribution above the amount that would have been contributed had the mistake of fact or the mistake in determining the deduction not occurred, less any net loss attributable to the excess. Any net income attributable to the excess shall not be returned to the Plan Sponsor. No return of any portion of the excess shall be made to the Plan Sponsor if the return would cause the balance in a Member's Account to be less than the balance would have been had the mistaken contribution not been made. SECTION 19 INCORPORATION OF SPECIAL LIMITATIONS Appendices A, B, C, and D to the Plan, attached hereto, are incorporated by reference and the provisions of the same shall apply notwithstanding anything to the contrary contained herein. IN WITNESS WHEREOF, the Primary Sponsor has caused this indenture to be executed as of the date first above written. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE ------------------------------------- Allen W. Ritchie President and Chief Executive Officer [CORPORATE SEAL] ATTEST: By: /s/ RANDOLPH L. M. HUTTO -------------------------- Randolph L. M. Hutto Secretary 35 39 APPENDIX A SPECIAL NONDISCRIMINATION RULES SECTION 1 As used in this Appendix, the following words shall have the following meanings: (a) "Eligible Member" means a Member who is an Employee during any particular Plan Year. (b) "Highly Compensated Eligible Member" means any Eligible Member who is a Highly Compensated Employee. (c) "Matching Contribution" means any contribution made by a Plan Sponsor to a Matching Account and any other contribution made to a plan by a Plan Sponsor or an Affiliate on behalf of an Employee on account of a contribution made by an Employee or on account of an Elective Deferral. (d) "Qualified Matching Contributions" means Matching Contributions which are immediately nonforfeitable when made, and which would be nonforfeitable, regardless of the age or service of the Employee or whether the Employee is employed on a certain date, and which may not be distributed, except upon one of the events described under Section 401(k)(2)(B) of the Code and the regulations thereunder. (e) "Qualified Nonelective Contributions" means contributions of the Plan Sponsor or an Affiliate, other than Matching Contributions or Elective Deferrals, which are nonforfeitable when made, and which would be nonforfeitable regardless of the age or service of the Employee or whether the Employee is employed on a certain date, and which may not be distributed, except upon one of the events described under Code Section 401(k)(2)(B) and the regulations thereunder. SECTION 2 In addition to any other limitations set forth in the Plan, for each Plan Year one of the following tests must be satisfied: (a) the actual deferral percentage for the Highly Compensated Eligible Members for the Plan Year must not be more than the actual deferral percentage of all other Eligible Members for the preceding Plan Year multiplied by 1.25; or (b) the excess of the actual deferral percentage for the Highly Compensated Eligible Members for the Plan Year over that of all other Eligible Members for the preceding Plan Year must not be more than two (2) percentage points, and the actual deferral percentage for the Highly Compensated Eligible Members for the Plan Year must not be more than the actual deferral percentage of all other Eligible Members for the preceding Plan Year multiplied by two (2). A-1 40 The "actual deferral percentage" for the Highly Compensated Eligible Members and all other Eligible Members for a Plan Year is the average in each group of the ratios, calculated separately for each Employee, of the Deferral Amounts contributed by the Plan Sponsor on behalf of an Employee for the Plan Year to the Annual Compensation of the Employee in the Plan Year. In addition, for purposes of calculating the "actual deferral percentage" as described above, Deferral Amounts of Employees who are not Highly Compensated Employees which are prohibited by Code Section 401(a)(30) shall not be taken into consideration. Except to the extent limited by Treasury Regulation section 1.401(k)-1(b)(5) and any other applicable regulations promulgated by the Secretary of the Treasury, all or part of the Qualified Matching Contributions and Qualified Nonelective Contributions made pursuant to the Plan may be treated as Deferral Amounts for purposes of determining the "actual deferral percentage." SECTION 3 If the Deferral Amount contributed on behalf of any Highly Compensated Eligible Member exceeds the amount permitted under the "actual deferral percentage" test described in Section 2 of this Appendix A for any given Plan Year, then before the end of the Plan Year following the Plan Year for which the Excess Deferral Amount was contributed, the portion of the Excess Deferral Amount for the Plan Year attributable to a Highly Compensated Eligible Member, as adjusted to reflect income, gain, or loss attributable to it through the date the Excess Deferral Amount is distributed to the Member and reduced by any excess Elective Deferrals as determined pursuant to Plan Section 3.1 previously distributed to a Member for the Member's taxable year ending with or within the Plan Year, shall be distributed to the Highly Compensated Eligible Member. The income allocable to such Excess Deferral Amount shall be determined in a similar manner as described in Section 4.2 of the Plan. The Excess Deferral Amount to be distributed shall be reduced by Deferral Amounts previously distributed for the taxable year ending in the same Plan Year, and shall also be reduced by Deferral Amounts previously distributed for the Plan Year beginning in such taxable year. In the event the multiple use of limitations contained in Sections 2(b) and 5(b) of this Appendix, pursuant to Treasury Regulations section 1.401(m)-2 as promulgated by the Secretary of the Treasury, requires a corrective distribution, such distribution shall be made pursuant to this Section 3, and not Section 6 of Appendix A. (a) For purposes of this Section 3, "Excess Deferral Amount" means, with respect to a Plan Year, the excess of: (1) the aggregate amount of Deferral Amounts contributed by a Plan Sponsor on behalf of Highly Compensated Eligible Members for the Plan Year, over (2) the maximum amount of Deferral Amounts permitted under Section 2 of this Appendix A for the Plan Year, which shall be determined by reducing the Deferral Amounts contributed on behalf of Highly Compensated Eligible Members in order of the actual deferral percentages beginning with the highest of such percentages. A-2 41 (b) Distribution of the Excess Deferral Amount for any Plan Year shall be made to Highly Compensated Eligible Members on the basis of the dollar amount of Deferral Amounts attributable to each Highly Compensated Eligible Member. The Plan Sponsor shall determine the amount of Excess Deferral Amounts which shall be distributed to each Highly Compensated Eligible Member as follows. (1) The Deferral Amounts allocated to the Highly Compensated Eligible Member with the highest dollar amount of Deferral Amounts for the Plan Year shall be reduced by the amount required to cause that Highly Compensated Eligible Member's remaining Deferral Amounts for the Plan Year to be equal to the dollar amount of the Deferral Amounts allocated to the Highly Compensated Eligible Member with the next highest dollar amount of Deferral Amounts for the Plan Year. This amount is then distributed to the Highly Compensated Eligible Member with the highest dollar amount of Deferral Amount, unless a smaller reduction, when added to the total dollar amount already distributed pursuant to this Subsection (1), equals the total Excess Deferral Amounts. (2) If the total amount distributed under Subsection (1) of this Section 3 is less than the total Excess Deferral Amounts, the procedure in Subsection (1) shall be repeated successively until the total dollar amount distributed is equal to the total Excess Deferral Amounts attributable to Highly Compensated Eligible Members. If a distribution of the Excess Deferral Amounts attributable to the Highly Compensated Eligible Members is made in accordance with Subsections (1) and (2) of this Section, the limitations in Section 2 of this Appendix A shall be treated as being met regardless of whether the actual deferral percentage, if recalculated after such distributions, would have satisfied the requirements of Section 2. SECTION 4 The Plan Administrator shall have the responsibility of monitoring the Plan's compliance with the limitations of this Appendix A and shall have the power to take all steps it deems necessary or appropriate to ensure compliance, including, without limitation, restricting the amount which Highly Compensated Eligible Members can elect to have contributed pursuant to Plan Section 3.1. Any actions taken by the Plan Administrator pursuant to this Section 4 shall be pursuant to non-discriminatory procedures consistently applied. A-3 42 SECTION 5 In addition to any other limitations set forth in the Plan, Matching Contributions under the Plan and the amount of nondeductible employee contributions under the Plan, for each Plan Year must satisfy one of the following tests: (a) The contribution percentage for Highly Compensated Eligible Members for the Plan Year must not exceed 125% of the contribution percentage for all other Eligible Members for the preceding Plan Year; or (b) The contribution percentage for Highly Compensated Eligible Members for the Plan Year must not exceed the lesser of (1) 200% of the contribution percentage for all other Eligible Members for the preceding Plan Year, and (2) the contribution percentage for all other Eligible Members for the preceding Plan Year plus two (2) percentage points. Notwithstanding the foregoing, for purposes of this Section 5, the terms Highly Compensated Eligible Member and Eligible Member shall not include any Member who is not eligible to receive a Matching Contribution under the provisions of the Plan, other than as a result of the Member failing to contribute to the Plan or failing to have an Elective Deferral contributed to the Plan on the Member's behalf. Notwithstanding the foregoing, if Qualified Matching Contributions are taken into account for purposes of applying the test contained in Section 2 of this Appendix A, they shall not be taken into account under this Section 5. In applying the above tests, the Plan Administrator shall comply with any regulations promulgated by the Secretary of the Treasury which prevent or restrict the use of the test contained in Section 2(b) of this Appendix A and the test contained in Section 5(b) of this Appendix A. The "contribution percentage" for Highly Compensated Eligible Members and for all other Eligible Members for a Plan Year shall be the average of the ratios, calculated separately for each Member, of (A) to (B), where (A) is the amount of Matching Contributions under the Plan (excluding Qualified Matching Contributions which are used to apply the test set forth in Section 2 of this Appendix A or Matching Contributions which are used to satisfy the minimum required contributions to the Accounts of Eligible Members who are not Key Employees pursuant to Section 1 of Appendix C to the Plan) and nondeductible employee contributions made under the Plan for the Eligible Member for the Plan Year, and where (B) is the Annual Compensation of the Eligible Member for the Plan Year. Except to the extent limited by Treasury Regulation Section 1.401(m)-1(b)(5) and any other applicable regulations promulgated by the Secretary of the Treasury, a Plan Sponsor may elect to treat Deferral Amounts and Qualified Nonelective Contributions and/or Qualified Matching Contribution as Matching Contributions for purpose of determining the "contribution percentage," provided the Deferral Amounts, excluding those treated as Matching Contributions, satisfy the test set forth in Section 2 of Appendix A. SECTION 6 If the Matching Contributions and nondeductible employee contributions and, if taken into account under Section 5 of this Appendix A, the Deferral Amounts made by or on behalf of A-4 43 Highly Compensated Eligible Members exceed the amount permitted under the "contribution percentage test" for any given Plan Year, then, before the close of the Plan Year following the Plan Year for which the Excess Aggregate Contributions were made, the portion of the Excess Aggregate Contributions attributable to a Highly Compensated Eligible Member for the Plan Year, as adjusted to reflect any income, gain or loss attributable to such contributions through the date the Excess Aggregate Contributions are distributed may be distributed or, if the Excess Aggregate Contributions are forfeitable, forfeited. The income allocable to such contributions shall be determined in a similar manner as described in Section 4.2 of the Plan. As to any Highly Compensated Employee, any distribution or forfeiture of his allocable portion of the Excess Aggregate Contributions for a Plan Year shall first be attributed to any nondeductible employee contributions made by the Member during the Plan Year for which no corresponding Plan Sponsor contribution is made and then to any remaining nondeductible employee contributions made by the Member during the Plan Year and any Matching Contributions thereon. As between the Plan and any other plan or plans maintained by the Plan Sponsor in which Excess Aggregate Contributions for a Plan Year are held, each such plan shall distribute or forfeit a pro-rata share of each class of contribution based on the respective amounts of a class of contribution made to each plan during the Plan Year. The payment of the Excess Aggregate Contributions shall be made without regard to any other provision in the Plan. In the event the multiple use of limitations contained in Sections 2(b) and 5(b) of this Appendix, pursuant to Treasury Regulation section 1.401(m)-2 as promulgated by the Secretary of the Treasury, requires a corrective distribution, such distribution shall be made pursuant to Section 3 of Appendix A, and not this Section 6. (a) For purposes of this Section 6, "Excess Aggregate Contributions" means, with respect to a Plan Year, the excess of: (1) the aggregate amount of the Matching Contributions and nondeductible employee contributions (and any Qualified Nonelective Contributions or Qualified Matching Contributions) and, if taken into account under Section 5 of this Appendix A, the Deferral Amounts actually made on behalf of Highly Compensated Eligible Members for the Plan Year, over (2) the maximum amount of contributions permitted under the limitations of Section 5 of this Appendix A, determined by reducing contributions made on behalf of Highly Compensated Eligible Members in order of their contribution percentages beginning with the highest of such percentages. The determination of the amount of Excess Aggregate Contributions under this Section 6 shall be made after (1) first determining the excess Elective Deferrals under Section 3.1(b) of the Plan and (2) then determining the Excess Deferral Amounts under Section 3 of this Appendix A. A-5 44 (b) Distribution or forfeiture of nondeductible employee contributions or Matching Contributions in the amount of the Excess Aggregate Contributions for any Plan Year shall be made with respect to Highly Compensated Eligible Members on the basis of the dollar amount of the Excess Aggregate Contributions attributable to each Highly Compensated Eligible Member. Forfeitures of Excess Aggregate Contributions may not be allocated to Members whose contributions are reduced under this Section 6. The Plan Sponsor shall determine the amount of Excess Aggregate Contributions which shall be distributed to each Highly Compensated Eligible Member as follows. (1) The Matching Contributions and nondeductible contributions allocated to the Highly Compensated Eligible Member with the highest dollar amount of such contributions for the Plan Year shall be reduced by the amount required to cause that Highly Compensated Eligible Member's remaining Matching Contributions and nondeductible contributions for the Plan Year to be equal to the dollar amount of such contributions allocated to the Highly Compensated Eligible Member with the next highest dollar amount of Matching Contributions and nondeductible contributions for the Plan Year. This amount is then distributed to the Highly Compensated Eligible Member with the highest dollar amount of Matching Contributions and nondeductible contributions, unless a smaller reduction, when added to the total dollar amount already distributed pursuant to this Subsection (1), equals the total Excess Aggregate Contributions. (2) If the total amount distributed under Subsection (1) is less than the total Excess Aggregate Contributions, the procedure in Subsection (1) shall be repeated successively until the total dollar amount of Matching Contributions and nondeductible contributions distributed is equal to the total Excess Aggregate Contributions attributable to Highly Compensated Eligible Members. If a distribution of the total Excess Aggregate Contributions is made in accordance with Subsections (1) and (2) of this Section, the limitations in Section 5 of this Appendix A shall be treated as being met regardless of whether the actual contribution percentage, if recalculated after such distributions, would have satisfied the requirements of Section 5. SECTION 7 Except to the extent limited by rules promulgated by the Secretary of the Treasury, if a Highly Compensated Eligible Member is a participant in any other plan of the Plan Sponsor or any Affiliate which includes Matching Contributions, deferrals under a cash or deferred arrangement pursuant to Code Section 401(k), or nondeductible employee contributions, any contributions made by or on behalf of the Member to the other plan shall be allocated with the same class of contributions under the Plan for purposes of determining the "actual deferral percentage" and "contribution percentage" under the Plan; provided, however, contributions that A-6 45 are made under an "employee stock ownership plan" (within the meaning of Code Section 4975(e)(7)) shall not be combined with contributions under any plan which is not an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)). Except to the extent limited by rules promulgated by the Secretary of the Treasury, if the Plan and any other plans which include Matching Contributions, deferrals under a cash or deferred arrangement pursuant to Code Section 401(k), or nondeductible employee contributions are considered as one plan for purposes of Code Section 401(a)(4) and 410(b)(1), any contributions under the other plans shall be allocated with the same class of contributions under the Plan for purposes of determining the "contribution percentage" and "actual deferral percentage" under the Plan; provided, however, contributions that are made under an "employee stock ownership plan" (within the meaning of Code Section 4975(e)(7)) shall not be combined with contributions under any plan which is not an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)). A-7 46 APPENDIX B LIMITATION ON ALLOCATIONS SECTION 1 The "annual addition" for any Member for any one limitation year may not exceed the lesser of: (a) $30,000 as adjusted for changes in the cost of living as provided in regulations issued by the Secretary of the Treasury; or (b) 25% of the Member's Annual Compensation. SECTION 2 For the purposes of this Appendix B, the term "annual addition" for any Member means for any limitation year, the sum of certain Plan Sponsor and Member contributions, forfeitures, and other amounts as determined in Code Section 415(c)(2) in effect for that limitation year. SECTION 3 Effective until December 31, 1999, in the event that a Plan Sponsor maintains a defined benefit plan under which a Member also participates, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any limitation year for any Member may not exceed 1.0. (a) The defined benefit plan fraction for any limitation year is a fraction: (1) the numerator of which is the projected annual benefit of the Member under the defined benefit plan (determined as of the close of such year); and (2) the denominator of which is the lesser of (A) the product of 1.25, multiplied by the maximum annual benefit allowable under Code Section 415(b)(1)(A), or (B) the product of (i) 1.4, multiplied by (ii) the maximum amount which may be taken into account under Section 415(b)(1)(B) of the Code with respect to the Member under the defined benefit plan for the limitation year (determined as of the close of the limitation year). B-1 47 (b) The defined contribution plan fraction for any limitation year is a fraction: (1) the numerator of which is the sum of a Member's annual additions as of the close of the year; and (2) the denominator of which is the sum of the lesser of the following amounts determined for the year and for all prior limitation years during which the Member was employed by a Plan Sponsor: (A) the product of 1.25, multiplied by the dollar limitation in effect under Code Section 415(c)(1)(A) for the limitation year (determined without regard to Section 415(c)(6) of the Code); or (B) the product of (i) 1.4, multiplied by (ii) the amount which may be taken into account under Code Section 415(c)(1)(B) (or Code Section 415(c)(7), if applicable) with respect to the Member for the limitation year. SECTION 4 For purposes of this Appendix B, the term "limitation year" shall mean a Plan Year unless a Plan Sponsor elects, by adoption of a written resolution, to use any other twelve-month period adopted in accordance with regulations issued by the Secretary of the Treasury. For purposes of applying the limitations set forth in this Appendix B, the term "Plan Sponsor" shall mean a Plan Sponsor and any other corporations which are members of the same controlled group of corporations (as described in Section 414(b) of the Code, as modified by Code Section 415(h)) as is a Plan Sponsor, any other trades or businesses (whether or not incorporated) under common control (as described in Code Section 414(c), as modified by Code Section 415(h)) with a Plan Sponsor, any other corporations, partnerships, or other organizations which are members of an affiliated service group (as described in Section 414(m) of the Code) with a Plan Sponsor, and any other entity required to be aggregated with a Plan Sponsor pursuant to regulations under Code Section 414(o). SECTION 5 For purposes of applying the limitations of this Appendix B, all defined contribution plans maintained or deemed to be maintained by a Plan Sponsor shall be treated as one defined contribution plan, and all defined benefit plans now or previously maintained or deemed to be maintained by a Plan Sponsor shall be treated as one defined benefit plan. In the event any of the actions to be taken pursuant to Section 6 of this Appendix or pursuant to any language of similar import in another defined contribution plan are required to be taken as a result of the annual additions of a Member exceeding the limitations set forth in Section 1 of this Appendix because B-2 48 of the Member's participation in more than one defined contribution plan, the actions shall be taken first with regard to this Plan. SECTION 6 In the event that as a result of either the allocation of forfeitures to the Account of a Member or a reasonable error in estimating the Member's Annual Compensation, the annual addition allocated to the Account of a Member exceeds the limitations set forth in Section 1 of this Appendix B or in the event that the aggregate contributions made on behalf of a Member under both a defined benefit plan and a defined contribution plan, subject to the reduction of allocations in other defined contribution plans required by Section 5 of this Appendix B, cause the aggregate limitation fraction set forth in Section 3 of this Appendix B to be exceeded, the Plan Administrator shall, in writing, direct the Trustee to take such of the following actions as the Plan Administrator shall deem appropriate, specifying in each case the amount or amounts of contributions involved: (a) A Member's annual addition shall be reduced by distributing to the Member contributions made by the Plan Sponsor on behalf of the Member pursuant to Plan Section 3.1 with respect to which no contribution is made under Plan Section 3.2 which cause the annual addition to exceed such limitations; (b) If further reduction is necessary, contributions made by the Plan Sponsor on behalf of the Member pursuant to Plan Section 3.1 and contributions of the Plan Sponsor thereon pursuant to Plan Section 3.2 shall be reduced in the amount of the remaining excess. The amount of the reduction under Plan Section 3.1 shall be distributed to the Member. The amount of the reduction under Plan Section 3.2 shall be reallocated to the Matching Accounts of Members who are not affected by the limitation in the same proportion as the contribution of the Plan Sponsor for the year is allocated under Plan Section 4.1 to the Accounts of such Members; (c) If further reduction is necessary, contributions made by the Plan Sponsor on behalf of the Member pursuant to Plan Section 3.3 shall be reduced in the amount of the remaining excess. The amount of the reduction shall be reallocated to the Accounts of Members who are not affected by the limitations in the same proportion as the contribution of the Plan Sponsor for the year is allocated under Plan Section 4.1 to the Accounts of such Members; and (d) If further reduction is necessary, forfeitures allocated to the Member's Account shall be reduced by the amount of the remaining excess. The amount of the reduction shall be reallocated to the Company Accounts of Members who are not affected by the limitations in the same proportions as the contributions of the Plan Sponsor for the year are allocated to the Company Accounts of such Members; (e) If the contribution of the Plan Sponsor and forfeitures would cause the annual addition to exceed the limitations set forth herein with respect to all Members under the Plan, the portion of such contribution in excess of the limitations shall be B-3 49 segregated in a suspense account. While the suspense account is maintained, (1) no Plan Sponsor contributions under the Plan shall be made which would be precluded by this Appendix B, (2) income, gains and loses of the Fund shall not be allocated to such suspense account and (3) amounts in the suspense account shall be allocated in the same manner as Plan Sponsor contributions and forfeitures under the Plan as of each Valuation Date on which Plan Sponsor contributions may be allocated until the suspense account is exhausted. In the event of the termination of the Plan, the amounts in the suspense account shall be returned to the Plan Sponsor to the extent that such amounts may not then be allocated to the Members' Accounts. B-4 50 APPENDIX C TOP-HEAVY PROVISIONS SECTION 1 As used in this Appendix, the following words shall have the following meanings: (a) "Determination Date" means, with respect to any Plan Year, the last day of the preceding Plan Year, or, in the case of the first Plan Year, means the last day of the first Plan Year. (b) "Key Employee" means an Employee or former Employee (including a Beneficiary of a Key Employee or former Key Employee) who at any time during the Plan Year containing the Determination Date or any of the four (4) preceding Plan Years is: (1) An officer of the Plan Sponsor or any Affiliate whose Annual Compensation was greater than fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A) for the calendar year in which the Plan year ends, where the term "officer" means an administrative executive in regular and continuous service to the Plan Sponsor or Affiliate; provided, however, than in no event shall the number of officers exceed the lesser of Clause (A) or (B) of this subparagraph (1); where: (A) equals fifty (50) Employees; and (B) equals the greater of (i) three (3) Employees or (ii) ten percent (10%) of the number of Employees during the Plan Year, with any non-integer being increased to the next largest integer. (2) One of the ten (10) Employees owning both (A) more than one-half percent (1/2%) of the outstanding stock of the Plan Sponsor or an Affiliate, more than one-half percent (1/2%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate, or more than one-half percent (1/2%) of the capital or profits interest in the Plan Sponsor or an Affiliate, and (B) the largest percentage ownership interests in the Plan Sponsor or any of its Affiliates, and whose Annual Compensation is equal to or greater than the amount in effect under Section 1(a) of Appendix B to the Plan for the calendar year in which the Determination Date falls; or (3) An owner of more than five percent (5%) of the outstanding stock of the Plan Sponsor or an Affiliate or more than five percent (5%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate; or (4) An owner of more than one percent (1%) of the outstanding stock of the Plan Sponsor or an Affiliate or more than one percent (1%) of the total C-1 51 combined voting power of all stock of the Plan Sponsor or an Affiliate, and who in such Plan Year had Annual Compensation from the Plan Sponsor and all of its Affiliates of more than $150,000. Employees other than Key Employees are sometimes referred to in this Appendix as "non-key employees." (c) "Required Aggregation Group" means: (1) each plan of the Plan Sponsor and its Affiliates which qualifies under Code Section 401(a) in which a Key Employee is a participant, and (2) each other plan of the Plan Sponsor and its Affiliates which qualifies under Code Section 401 (a) and which enables any plan described in Subsection (a) of this Section to meet the requirements of Section 401(a)(4) or 410 of the Code. (d) (1) "Top-Heavy" means: (A) if the Plan is not included in a Required Aggregation Group, the Plan's condition in a Plan Year for which, as of the Determination Date: (i) the present value of the cumulative Accrued Benefits under the Plan for all Key Employees exceeds 60 percent of the present value of the cumulative Accrued Benefits under the Plan for all Members; and (ii) the Plan, when included in every potential combination, if any, with any or all of: (I) any Required Aggregation Group, and (II) any plan of the Plan Sponsor which is not part of any Required Aggregation Group and which qualifies under Code Section 401 (a) is part of a Top-Heavy Group (as defined in Paragraph (2) of this Subsection); and (B) if the Plan is included in a Required Aggregation Group, the Plan's condition in a Plan Year for which, as of the Determination Date: (i) the Required Aggregation Group is a Top-Heavy Group (as defined in Paragraph (2) of this Subsection); and C-2 52 (ii) the Required Aggregation Group, when included in every potential combination, if any, with any or all of the plans of the Plan Sponsor and its Affiliates which are not part of the Required Aggregation Group and which qualify under Code Section 401(a), is part of a Top-Heavy Group (as defined in Paragraph (2) of this Subsection). (C) For purposes of Subparagraphs (A)(ii) and (B)(ii) of this Paragraph (1), any combination of plans must satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (2) A group shall be deemed to be a Top-Heavy Group if: (A) the sum, as of the Determination Date, of the present value of the cumulative accrued benefits for all Key Employees under all plans included in such group exceeds (B) 60 percent of a similar sum determined for all participants in such plans. (3) (A) For purposes of this Section, the present value of the accrued benefit for any participant in a defined contribution plan as of any Determination Date or last day of a plan year shall be the sum of: (i) as to any defined contribution plan other than a simplified employee pension, the account balance as of the most recent valuation date occurring within the plan year ending on the Determination Date or last day of a plan year, and (ii) as to any simplified employee pension, the aggregate employer contributions, and (iii) an adjustment for contributions due as of the Determination Date or last day of a plan year. In the case of a plan that is not subject to the minimum funding requirements of Code Section 412, the adjustment in Clause (iii) of this Subparagraph (A) shall be the amount of any contributions actually made after the valuation date but on or before the Determination Date or last day of the plan year to the extent not included under Clause (i) or (ii) of this Subparagraph (A); provided, however, that in the first plan year of the plan, the adjustment in Clause (iii) of this Subparagraph (A) shall also reflect the amount of any contributions made thereafter that are allocated as of a date in such first plan year. In the case of a plan that is subject to the minimum funding requirements, the account balance in Clause (i) and C-3 53 the aggregate contributions in Clause (ii) of this Subparagraph (A) shall include contributions that would be allocated as of a date not later than the Determination Date or last day of a plan year, even though those amounts are not yet required to be contributed, and the adjustment in Clause (iii) of this Subparagraph (A) shall be the amount of any contribution actually made (or due to be made) after the valuation date but before the expiration of the extended payment period in Code Section 412(c)(10) to the extent not included under Clause (i) or (ii) of this Subparagraph (A). (B) For purposes of this Subsection, the present value of the accrued benefit for any participant in a defined benefit plan as of any Determination Date or last day of a plan year must be determined as of the most recent valuation date which is within a 12-month period ending on the Determination Date or last day of a plan year as if such participant terminated as of such valuation date; provided, however, that in the first plan year of a plan, the present value of the accrued benefit for a current participant must be determined either (i) as if the participant terminated service as of the Determination Date or last day of a plan year or (ii) as if the participant terminated service as of such valuation date, but taking into account the estimated accrued benefit as of the Determination Date or last day of a plan year. For purposes of this Subparagraph (B), the valuation date must be the same valuation date used for computing plan costs for minimum funding, regardless of whether a valuation is performed that year. The actuarial assumptions utilized in calculating the present value of the accrued benefit for any participant in a defined benefit plan for purposes of this Subparagraph (B) shall be established by the Plan Administrator after consultation with the actuary for the plan, and shall be reasonable in the aggregate and shall comport with the requirements set forth by the Internal Revenue Service in Q&A T-26 and T-27 of Regulation Section 1.416-1; provided that, the accrued benefit for any participant (other than a Key Employee) in a defined benefit plan shall be determined in accordance with Code Section 416(g)(4)(F). (C) For purposes of determining the present value of the cumulative accrued benefit under a plan for any participant in accordance with this Subsection, the present value shall be increased by the aggregate distributions made with respect to the participant (including distributions paid on account of death to the extent they do not exceed the present value of the cumulative accrued benefit existing immediately prior to death) under each plan being considered, and under any terminated plan which if it had not been terminated would have been in a Required Aggregation Group with the Plan, during the 5-year period ending on the Determination Date or last day of the plan year that falls within the calendar year in which the Determination Date falls. C-4 54 (D) For purposes of this Paragraph (3), participant contributions which are deductible as "qualified retirement contributions" within the meaning of Code Section 219 or any successor, as adjusted to reflect income, gains, losses, and other credits or charges attributable thereto, shall not be considered to be part of the accrued benefits under any plan. (E) For purposes of this Paragraph (3), if any employee is not a Key Employee with respect to any plan for any plan year, but such employee was a Key Employee with respect to such plan for any prior plan year, any accrued benefit for such employee shall not be taken into account. (F) For purposes of this Paragraph (3), if any employee has not performed any service for any Plan Sponsor or Affiliate maintaining the plan during the five-year period ending on the Determination Date, any accrued benefit for that employee shall not be taken into account. (G) (i) In the case of an "unrelated rollover" (as defined below) between plans which qualify under Code Section 401(a), (a) the plan providing the distribution shall count the distribution as a distribution under Subparagraph (C) of this Paragraph (3), and (b) the plan accepting the distribution shall not consider the distribution part of the accrued benefit under this Section; and (ii) in the case of a "related rollover" (as defined below) between plans which qualify under Code Section 401(a), (a) the plan providing the distribution shall not count the distribution as a distribution under Subparagraph (C) of this Paragraph (3), and (b) the plan accepting the distribution shall consider the distribution part of the accrued benefit under this Section. For purposes of this Subparagraph (G), an "unrelated rollover" is a rollover as defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan transfer which is both initiated by the participant and made from a plan maintained by one employer to a plan maintained by another employer where the employers are not Affiliates. For purposes of this Subparagraph (G), a "related rollover" is a rollover as defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan transfer which is either not initiated by the participant or made to a plan maintained by the employer or an Affiliate. SECTION 2 (a) Notwithstanding anything contained in the Plan to the contrary, except as otherwise provided in Subsection (b) of this Section, in any Plan Year during which the Plan is Top-Heavy, allocations of Plan Sponsor contributions and forfeitures for the Plan Year for the Account of each Member who is not a Key Employee and who has not separated from service with the Plan Sponsor prior to the end of the Plan Year shall not C-5 55 be less than three percent (3%) of the Member's Annual Compensation. The Plan Sponsor shall make such allocations to each Member who is not a Key Employee regardless of whether such Member has declined to make a contribution to the Plan. For purposes of this Subsection (a), an allocation to a Member's Account resulting from any Plan Sponsor contribution attributable to a salary reduction or similar arrangement shall not be taken into account. (b) The percentage referred to in Subsection (a) of this Section for any Plan Year shall not exceed the percentage at which allocations are made or required to be made under the Plan for the Plan Year for the Key Employee for whom the percentage is highest for the Plan Year. The Plan operator shall make such allocations to each member who is not a key Employee regardless of whether such member has declined to make a contribution to the Plan. (1) For purposes of this Subsection (b), all defined contribution plans which are members of a Required Aggregation Group shall be treated as part of the Plan. (2) This Subsection (b) shall not apply to any plan which is a member of a Required Aggregation Group if the plan enables a defined benefit plan which is a member of the Required Aggregation Group to meet the requirements of Code Section 401(a)(4) or 410. (3) If the Plan Sponsor maintains a defined benefit plan which is qualified under Code Section 401(a) and which would be Top-Heavy within the meaning of the Plan for its plan year ending within or coincident with the Plan Year, no allocation shall be made pursuant to Subsection (a) of this Section on behalf of any Member who participates in the defined benefit plan and acquires a year of service within the meaning of paragraphs (4), (5) and (6) of Code Section 411(a) under the defined benefit plan for the plan year, if the defined benefit plan provides generally that the accrued benefit of the member when expressed as an annual retirement benefit shall not, when expressed as a percentage of the Member's compensation, be less than the lesser of (A) 2 percent multiplied by the number of such years of service in plan years during which such plan was Top-Heavy, or (B) 20 percent. SECTION 3 Effective until December 31, 1999, in any limitation year (as defined in Section 4 of Appendix B to the Plan) which contains any portion of a Plan Year in which the Plan is Top-Heavy, the number "1.0" shall be substituted for the number "1.25" in Section 3 of Appendix B to the Plan. C-6 56 APPENDIX D SPECIAL RULES SECTION 1 DEFINITIONS (a) "CompMed Employee" means an individual who was an Employee of CompMed, Inc. immediately before January 1, 1994. (b) "CompMed Plan" means the CompMed, Inc. 401(k) Savings Plan. (c) "Gottlieb Plan" means the GFS 401(k) Savings Plan. (d) "MMNE Plan" means the Medical Management of New England, Inc. 401(k) Salary Savings Retirement Plan. SECTION 2 SPECIAL RULES FOR GOTTLIEB EMPLOYEES (a) Any Member who was a participant in the Gottlieb Plan immediately before January 1, 1994 shall have the same number of Years of Service under the Plan as he had under the Gottlieb Plan. In addition, for the Plan Year beginning January 1, 1994, any such Member shall be given credit for the greater of the period of Service he would have received under the terms of the Gottlieb Plan or the period of Service he would receive as a participant in the Plan. For the Plan Year beginning January 1, 1995, and for all subsequent years, the Years of Service for any such Member will be credited in accordance with the terms of the Plan. (b) For any Member who was a participant in the Gottlieb Plan immediately before January 1, 1994, "Normal Retirement Age" means age 59 1/2. SECTION 3 SPECIAL RULES FOR COMPMED EMPLOYEES (a) Any Member who was a participant in the CompMed Plan immediately before January 1, 1994 shall have the same number of Years of Service under the Plan as he had under the CompMed Plan. In addition, for the Plan Year beginning January 1, 1994, any such Member shall be given credit for the greater of the period of Service he would have received under the terms of the CompMed Plan or the period of Service he would receive as a participant in the Plan. For the Plan Year beginning January 1, 1995, and for all subsequent years, the Years of Service for any such Member will be credited in accordance with the terms of the Plan. (b) For any CompMed Employee, "Eligibility Service" shall be as defined in the CompMed Plan. D-1 57 SECTION 4 SPECIAL RULES FOR MMNE EMPLOYEES (a) Any Member who was a participant in the MMNE Plan immediately before January 1, 1994 shall have the same number of Years of Service under the Plan as he had under the MMNE Plan. In addition, for the Plan Year beginning January 1, 1994, any such Member shall be given credit for the greater of the period of Service he would have received under the terms of the MMNE Plan or the period of Service he would receive as a participant in the Plan. For the Plan Year beginning January 1, 1995, and for all subsequent years, the Years of Service for any such Member will be credited in accordance with the terms of the Plan. (b) Any Member who was a participant in the MMNE Plan immediately before January 1, 1994 shall be 25% vested after the completion of one Year of Service. (c) For any Member who was a participant in the MMNE Plan immediately before January 1, 1994 and who completes 2 Years of Service, such Member may request a withdrawal of any vested amounts from his Matching Account by submitting such request to the Plan Administrator according to normal administrative procedures. Upon receipt of such request, the Plan Administrator will provide for such distribution at a reasonable time and in a reasonable manner. D-2 EX-10.32 13 FOURTH AMENDMENT, DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.32 FOURTH AMENDMENT TO THE MEDAPHIS DEFERRED COMPENSATION PLAN THIS FOURTH AMENDMENT, is made as of January 20, 2000, by PER-SE TECHNOLOGIES, INC. (formerly Medaphis Corporation), a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Primary Sponsor"); W I T N E S S E T H: WHEREAS, the Primary Sponsor adopted the Medaphis Deferred Compensation Plan (the "Plan") by indenture originally dated April 1, 1995 and the Plan was last amended on December 31, 1997; and WHEREAS, the Primary Sponsor wishes to amend the Plan to change the name of the Plan to the Per-Se Technologies Deferred Compensation Plan. NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan, effective as of January 20, 2000, to change the name of the Plan to the "Per-Se Technologies Deferred Compensation Plan." Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Fourth Amendment. IN WITNESS WHEREOF, the Primary Sponsor has caused this Fourth Amendment to be executed on the day and year first above written. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE ------------------------------------- Allen W. Ritchie President and Chief Executive Officer [CORPORATE SEAL] ATTEST: By: /s/ RANDOLPH L. M. HUTTO ------------------------- Randolph L. M. Hutto Secretary EX-10.37 14 AMENDMENT NO. 1 ,EMPLOYMENT AGR., DATED 10/20/99 1 EXHIBIT 10.37 AMENDMENT NUMBER 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT NUMBER 1 to that certain Employment Agreement, dated November 19, 1996, by and between Per-Se Technologies, Inc., formerly known as Medaphis Corporation, a Delaware corporation (the "Company"), and David E. McDowell (the "Employee") is made and entered into this 21st day of October 1999. STATEMENT OF BACKGROUND INFORMATION The Company and the Employee entered into that certain Employment Agreement, dated November 19, 1999 (the "Agreement"), providing, among other things, for the employment of the Employee as Chairman of the Board and Chief Executive Officer of the Company. Employee is currently serving in the capacity of Chairman of the Board of the Company and is providing strategic planning and corporate development services to the Company. The Company and the Employee desire to amend the Agreement to extend the term, adjust the Employee's annual salary, reflect a change in Employees duties and make such other changes, deletions or additions as the parties may agree. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. STATEMENT OF AGREEMENT In consideration of the mutual covenants, promises and conditions set forth herein and in the Agreement, the parties agree to amend the Agreement as follows: 1. The second paragraph under "Statement of Background Information" is deleted in its entirety. 2. The fourth paragraph under "Statement of Background Information" is amended by deleting the phrase "the Subrogation Business" from the definition of the Business. 3. Section 2, "Duties of Employee" is deleted in its entirety and the following new Section 2 is substituted in lieu thereof: 2. Duties of Employee. Employee agrees to provide to management of the Company and the Board such services, including, but not limited to, strategic planning, corporate development and corporate governance advice, as management of the Company or the Board may reasonably request. Employee shall report to the Board. Employee 2 acknowledges and agrees that the compensation provided for in Paragraph 5 of this Agreement shall be for services provided to the Company in his capacity as an employee of the Company without regard to his position as Chairman of the Board and that his position as Chairman of the Board, or a position as a member of the Board if not the Chairman, does not entitle Employee to any additional compensation. 4. Section 3 "Term" is deleted in its entirety and the following new Section 3 substituted in lieu thereof: 3. Term. The term of this Agreement will be for a period of six (6) years commencing on October 21, 1999 and expiring on the sixth anniversary of such date, subject to earlier termination as provided for in Section 4. 5. Section 4(b) is amended by deleting the phrase "November 19, 2001" and substituting in lieu thereof the phrase "October 21, 2005." 6. Section 4(e)(4) is amended by deleting the phrase "November 19, 2001" and substituting in lieu thereof the phrase "October 21, 2005." 7. Section 5 is amended by deleting each of subsection (a) "Signing Incentive," subsection (g) "Relocation Expenses" and subsection (h) "Tax Gross-Up Payment" in its entirely and renumbering the remaining subsections of Section 5 as appropriate. 8. Renumbered Section 5(a) (formerly 5(b)) is amended by deleting the phrase "Three Hundred Thousand Dollars" and substituting in lieu thereof the phrase "One Hundred Thousand Dollars." 9. Renumbered Section 5(b) (formerly 5(c)) is amended by deleting the last two sentences in the subsection in their entirety and substituting in lieu thereof the following: In addition to any other rights provided Employee under the Amended and Restated Medaphis Corporation Non-Qualified Stock Option Plan or in the stock option agreements evidencing the awards contemplated by this Section 5, if an Employee Event (as defined herein) shall occur, then Employee shall be deemed to continue as an "employee of the Company" (within the meaning of the Amended and Restated Medaphis Corporation Non-Qualified Stock Option Plan) until October 21, 2005 for the purposes of: (i) continued vesting of the stock option awards set forth in this Section 5(b) and the options so awarded shall not expire or terminate prior to the later of the ninetieth day following said date and the expiration date otherwise applicable under the Amended and Restated Medaphis Corporation Non-Qualified Stock Option Plan; and (ii) determining the exercise period of such options and the options so awarded shall remain 3 exerciseable until the ninetieth day following said date. For purposes of this Section 5(b), an "Employee Event" shall be deemed to occur upon: (x) Employee's termination of this Agreement pursuant to the provisions of Section 4(b) hereof; or (y) involuntary termination of Employee by the Company for any reason other than as set forth in Section 4(a) hereof. 10. Section 16 is amended by deleting the notice address specified for the Company and substituting in lieu thereof the following notice address: 2840 Mt. Wilkinson Parkway Suite 300 Atlanta, Georgia 30339 Attn: General Counsel Except as specifically amended herein, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment Number 1 to the Agreement as of the day and year first above written. PER-SE TECHNOLOGIES, INC. EMPLOYEE By: /s/ ALLEN W. RITCHIE /s/ DAVID E. MCDOWELL [L.S.] --------------------- ------------------------------ Allen W. Ritchie David E. McDowell President and Chief Executive Officer EX-10.42 15 EMPLOYMENT AGREEMENT, DATED 06/25/99 1 EXHIBIT 10.42 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into this 25th day of June 1999, by and between Medaphis Physician Services Corporation., a Delaware corporation (the "Company") and a wholly-owned subsidiary of Medaphis Corporation, a Delaware corporation ("Medaphis"), and William J. DeZonia, a resident of the State of Georgia (the "Employee"). Statement of Background Information The Company renders to hospitals, physicians, and/or other healthcare organizations and providers: (a) billing services, accounts receivable management services, collection services, electronic claims services, financial management services, and practice and facilities management services: (b) eligibility verification and certification for Medicaid, Medicare and other healthcare assistance programs; (c) filing and other medical claims securitization services; (d) medical coverage information services; and (e) medical and insurance claims monitoring and tracking services (collectively, the "Processing Business") (the Processing Business and any other distinct business segment in which the Company engages during Employee's employment are collectively referred to herein as the "Business"). In consideration of the mutual covenants, promises and conditions set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Employment. The Company hereby employs Employee and Employee hereby accepts such employment upon the terms and conditions set forth in this Agreement. 2. Duties of Employee. Employee's title will be Senior Vice President, Process Improvement of the Company. Employee agrees to perform and discharge such other duties as may be assigned to Employee from time to time by the Company to the reasonable satisfaction of the Company, and such duties will be consistent with those duties regularly and customarily assigned by the Company to the position of Senior Vice President, Process Improvement and by Medaphis to executives in comparable positions with operating subsidiaries. Employee also agrees to comply with all of Medaphis' and the Company's policies, standards and regulations as promulgated and in effect from time to time, and to follow the instructions and directives of Employee's superiors within Medaphis. Employee will devote Employee's full professional and business-related time, skills and best efforts to such duties and will not, during the term of this Agreement, be engaged (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Chief Executive Officer of Medaphis, which consent will not 1 2 be unreasonably withheld; provided, however, that Employee's assisting his daughter in the start-up and conduct of a photography and greeting card business shall not violate this restriction. This Section will not be construed to prevent Employee from (a) investing personal assets in businesses which do not compete with the Company in such form or manner that will not require any services on the part of Employee in the operation or the affairs of the companies in which such investments are made and in which Employee's participation is solely that of an investor; (b) purchasing securities in any corporation whose securities are listed on a national securities exchange or regularly traded in the over-the-counter market, provided that Employee at no time owns, directly or indirectly, in excess of one percent (1%) of the outstanding stock of any class of any such corporation engaged in a business competitive with that of the Company; or (c) participating in conferences, preparing and publishing papers or books or teaching, so long as the Chief Executive Officer of Medaphis approves such participation, preparation and publication or teaching prior to Employee's engaging therein. 3. Term. The term of this Agreement will be for a two (2) year period of time, commencing as of June 1, 1999 and expiring on the second anniversary thereof subject to earlier termination as provided for in Section 4 of this Agreement. This Agreement shall be automatically renewed for successive one (1) year periods at the end of the initial term, unless either party gives notice to the other of its intent to terminate this Agreement not less than sixty (60) days prior to the commencement of any such one (1) year period. In the event such notice is properly and timely given, this Agreement shall terminate at the end of the initial term or one (1) year period in which such notice is given without further payment by or obligation on the part of the Company, subject to applicable Company standard severance guidelines. 4. Termination. (a) Termination by Company for Cause. Notwithstanding anything contained in Section 3 to the contrary, the Company may terminate this Agreement and all of its obligations hereunder immediately if any of the following events occur: (i) Employee materially breaches any of the terms or conditions set forth in this Agreement and fails to cure such breach within ten (10) days after Employee's receipt from the Company of written notice of such breach (notwithstanding the foregoing, no cure period shall be applicable to breaches by Employee of Sections 6, 7 or 8 of this Agreement); (ii) Employee commits any other act materially detrimental to the business or reputation of the Company; 2 3 (iii) Employee commits or is convicted of any crime involving fraud, deceit or moral turpitude; or (iv) Employee dies or becomes mentally or physically incapacitated or disabled so as to be unable to perform Employee's duties under this Agreement. Without limiting the generality of the foregoing, Employee's inability adequately to perform services under this Agreement for a period of sixty (60) consecutive days will be conclusive evidence of such mental or physical incapacity or disability, unless such inability adequately to perform services under this Agreement is pursuant to a mental or physical incapacity or disability covered by the Family Medical Leave Act, in which case such sixty (60)-day period shall be extended to a one hundred and twenty (120)-day period. (b) Termination by Company Without Cause. Notwithstanding anything contained in Section 3 to the contrary, the Company may terminate Employee's employment pursuant to this Agreement without cause upon at least thirty (30) days' prior written notice to Employee. In the event Employee's employment with the Company is terminated by the Company without cause or Employee elects to terminate voluntarily his employment following the occurrence of events constituting "Good Reason" for his voluntary termination of employment (in each case, other than in connection with a Change in Control in which event the provisions of subsection (c) of this section 4 will apply, it being understood that the provisions of subsection (c) of this section and this subsection (b) are mutually exclusive), the Company shall pay to Employee an amount equal to his then current salary (not including the right to receive any incentive bonus payments) multiplied by the greater of (i) the number of months remaining in the initial or any renewal term of this Agreement, as applicable or (ii) twelve (12). Such amount shall be paid pursuant to the Company's normal payroll practices over the period of such payments. For purposes of this Agreement, "Good Reason" is defined as (w) a material reduction (greater than 10%) in Employee's annual base salary; (x) a change in Employee's work location to a work location more than 50 miles from Employee's existing work location, except for required travel on the Company's business to an extent consistent with Employee's then present business travel obligations; (y) an assignment to any duties inconsistent in any material adverse respect with Employee's current position, duties or responsibilities, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by Employee; or (z) the failure by the Company to continue any material benefit or compensation plan in which Employee is participating unless Employee is provided with comparable benefits. (c) Change in Control. In the event there is a Change in Control (as defined herein) of the Company or Medaphis and if: (A) Employee's employment is 3 4 terminated by the Company without cause or by Employee for Good Reason within one (1) year following any such Change in Control; (B) if Employee's employment is terminated by the Company at the request of or pursuant to an agreement with a third party who has taken steps reasonably calculated to effect a Change in Control; or (C) if Employee's employment is terminated by the Company or by Employee for Good Reason in connection with or in anticipation of a Change in Control, then Employee will be entitled to receive severance payments, payable over a two year period, equal in the aggregate to two times the sum of: (i) Employee's then current annual base salary; and (ii) the most recent incentive bonus payment received by Employee prior to the Change in Control. In addition, Employee shall be entitled to receive monthly for a period of eighteen (18) months commencing on the date of termination in connection with a Change in Control an amount equal to the difference between the monthly cost to Employee of healthcare coverage at the levels at which Employee is participating on the date of such termination and the monthly cost of comparable COBRA coverage actually incurred. All amounts payable pursuant to this Section 4 (c) shall be paid in accordance with the Company's normal payroll practices. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to occur upon any of the following: (i) a consolidation or merger of Medaphis or the Company with or into any other corporation, or any other entity or person, in the case of the Company, other than Medaphis or a wholly-owned subsidiary of Medaphis, excluding any transaction in which the shares of Medaphis common stock or the Company's common stock, as applicable, outstanding immediately prior to any such consolidation or merger represent immediately thereafter more than 50% of the combined voting power of the resulting entity after the transaction; (ii) any corporate reorganization, including an exchange offer, in which Medaphis or the Company shall not be the continuing or surviving entity resulting from such reorganization, excluding any transaction in which the shares of Medaphis common stock or the Company's common stock outstanding immediately prior to any such reorganization represent immediately thereafter more than 50% of the combined voting power of the resulting entity after the transaction; or (iii) the failure for any reason of individuals who constitute the Incumbent Board to continue to constitute at least a majority of the Board. For purposes of this Section 4 (d), the term "Board" shall mean the Board of Directors of Medaphis or the Company, as applicable, and the term "Incumbent Board" shall mean the members of the Board as of the date hereof and any person becoming a member of the Board hereafter whose election or nomination is by a vote of at least a majority of the directors then comprising the Incumbent 4 5 Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Medaphis or the Company, as applicable, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended). 5. Compensation and Benefits. a) Annual Salary. During the term of this Agreement and for all services rendered by Employee under this Agreement, the Company will pay Employee a base salary of Two Hundred Fifteen Thousand and No/100 Dollars ($215,000.00) per annum to be paid in accordance with the Company's regular payroll practices, provided, however, that such payments shall be made no less frequently than in equal monthly installments. Such annual salary will be subject to increases in the normal course of business. b) Incentive Compensation. Employee shall be eligible to participate in the current Medaphis Incentive Compensation Plan (and any comparable future incentive compensation plans during the term of this Agreement) at a participation category of up to Seventy-five Percent (75%) of Employee's base salary, payable at the discretion of the Board of Directors of the Company. c) Stock Options. As soon as reasonably practicable after the signing of this Agreement, and subject to the approval of the Compensation Committee of the Board of Directors of Medaphis Corporation, the Company will cause Medaphis to issue to Employee, effective as of the date approved by the Compensation Committee of the Board of Directors of Medaphis Corporation, options to purchase Fifty Thousand (50,000) shares of Medaphis Common Stock pursuant to the terms and conditions of the Amended and Restated Medaphis Corporation Non-Executive Employee Stock Option Plan ("Stock Option Plan"), as amended. Such options will vest at the rate of thirty-three and one-third percent (33.3%) per year for a three-year period beginning on the starting date of this Agreement, subject to the terms and conditions of the Stock Option Plan. Such Options shall vest in full immediately upon the occurrence of certain change in control events outlined in the Stock Option Plan. Employee shall be considered for additional grants of options to purchase shares of Medaphis common stock in a manner which is consistent with other senior officers of the Company. Except as expressly set forth herein, nothing in this Agreement shall give rise to a contractual right to Employee to receive grants of additional stock options of Medaphis. Further, Medaphis has no obligation to Employee to create parity with any other Medaphis executives with respect to any options granted to such other executives. 5 6 d) Other Benefits. Employee will be entitled to such fringe benefits as may be provided from time-to-time by the Company to its Employees, including, but not limited to, group health insurance, life and disability insurance, vacation and any other fringe benefits, in each case as now or hereafter provided by the Company to its Employees, if and when, and for so long as, Employee meets the eligibility requirements for such benefits. The Company reserves the right to change or discontinue any employee benefit plans or programs now being offered to its employees; provided, however, that all benefits provided for employees of the same position and status as Employee will be provided to Employee on an equal basis. e) Business Expenses. Employee will be reimbursed for all reasonable expenses incurred in the discharge of Employee's duties under this Agreement pursuant to the Company's standard reimbursement policies. f) Withholding. The Company will deduct and withhold from the payments made to Employee under this Agreement, state and federal income taxes, FICA and other amounts normally withheld from compensation due employees. 6. Non-Disclosure of Proprietary Information. Employee recognizes and acknowledges that the Trade Secrets (as defined below) and Confidential Information (as defined below) of the Company and its affiliates and all physical embodiments thereof (as they may exist from time-to-time, collectively, the "Proprietary Information") are valuable, special and unique assets of the Company's and its affiliates' businesses. Employee further acknowledges that access to such Proprietary Information is essential to the performance of Employee's duties under this Agreement. Therefore, in order to obtain access to such Proprietary Information, Employee agrees that, except in connection with performing duties assigned to him by the Company, Employee shall hold in confidence all Proprietary Information and will not reproduce, use, distribute, disclose, publish or otherwise disseminate any Proprietary Information, in whole or in part, and will take no action causing, or fail to take any action necessary to prevent causing, any Proprietary Information to lose its character as Proprietary Information, nor will Employee make use of any such information for Employee's own purposes or for the benefit of any person, firm, corporation, association or other entity (except the Company) under any circumstances. For purposes of this Agreement, the term "Trade Secrets" means information, without regard to form, including, but not limited to, any technical or non-technical data, formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, financial plan, product plan, list of actual or potential customers or suppliers, or other information similar to any of the foregoing, which is not commonly known by or available to the public and (i) derives economic value, actual or potential, from not being generally known to, and not being readily 6 7 ascertainable by proper means by, other persons who can derive economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. For purposes of this Agreement, the term "Trade Secrets" does not include information that Employee can show by competent proof (i) was known to Employee and reduced to writing prior to disclosure by the Company (but only if Employee promptly notifies the Company of Employee's prior knowledge); (ii) was generally known to the public at the time the Company disclosed the information to Employee; (iii) became generally known to the public after disclosure by the Company through no act or omission of Employee; or (iv) was disclosed to Employee by a third party having a bona fide right both to possess the information and to disclose the information to Employee. The term "Confidential Information" means any data or information of the Company, other than trade secrets, which is valuable to the Company and not generally known to competitors of the Company. The provisions of this Section 6 will apply to Trade Secrets for so long as such information remains a trade secret and to Confidential Information during Employee's employment with the Company and for a period of two (2) years following any termination of Employee's employment with the Company for whatever reason. 7.A. Non-Competition Covenant. During Employee's employment by the Company Employee will be a member of the Company's management team. Employee agrees that during his employment and for a period of one (1) year following any termination of Employee's employment for whatever reason, Employee will not, directly or indirectly, on Employee's own behalf or in the service of or on behalf of any other individual or entity, compete with the Company within the Geographical Area (as hereinafter defined). The term "compete" means to engage in, have any equity or profit interest in, make any loan to or for the benefit of, or render services of any marketing, management, sales, administrative, supervisory or consulting nature, directly or indirectly, on Employee's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that Employee at no time owns, directly or indirectly, in excess of one percent (1%) of the outstanding stock of any class of any such corporation) any business which provides Business products or services. For purposes of this Agreement, the term "Geographical Area" means the territory located within a seventy-five (75) mile radius of Company headquarters of any Company facility for which Employee exercised managerial control. B. Non-Solicitation of Clients Covenant. Employee agrees that during Employee's employment by the Company and for a period of two (2) years following the termination of Employee's employment for whatever reason, Employee will not, 7 8 directly or indirectly, on Employee's own behalf or in the service of or on behalf of any other individual or entity, divert, solicit or attempt to divert or solicit any individual or entity (i) who is a client of the Company at any time during the six (6)-month period prior to Employee's termination of employment with the Company ("Client"), or was actively sought by the Company as a prospective client, and (ii) with whom Employee had material contact while employed by the Company, to provide Business services or products to such Clients or prospects. C. Construction. The parties hereto agree that any judicial authority construing all or any portion of this Section 7 or Section 8 below may, if it chooses, sever any portion of the Geographical Area, client base, prospective relationship or prospect list or any prohibited business activity from the coverage of such Section and to apply the provisions of such Section to the remaining portion of the Geographical Area, the client base or the prospective relationship or prospect list, or the remaining business activities not so severed by such judicial authority. In addition, it is the intent of the parties that the judicial authority may, if it chooses, replace each such severed provision with a provision as similar in terms to such severed provision as may be possible and be legal, valid and enforceable. It is the intent of the parties that Sections 7 and 8 be enforced to the maximum extent permitted by law. In the event that any provision of either such Section is determined not to be specifically enforceable, the Company shall nevertheless be entitled to bring an action to seek to recover monetary damages as a result of the breach of such provision by Employee. 8. Non-Solicitation of Employees Covenant. Employee further agrees and represents that during Employee's employment by the Company and for a period of two (2) years following any termination of Employee's employment for whatever reason, Employee will not, directly or indirectly, on Employee's own behalf or in the service of, or on behalf of any other individual or entity, divert or solicit, or attempt to divert or solicit, to or for any individual or entity which is engaged in providing Business services or products, any person employed by the Company, whether or not such employee is a full-time employee or temporary employee of the Company, whether or not such employee is employed pursuant to written agreement and whether or not such employee is employed for a determined period or at-will. 9. Existing Restrictive Covenants. Employee represents and warrants that Employee's employment with the Company does not and will not breach any agreement which Employee has with any former employer to keep in confidence confidential information or not to compete with any such former employer. Employee will not disclose to the Company or use on its behalf any confidential information of any other party required to be kept confidential by Employee. 10. Return of Proprietary Information. Employee acknowledges that as a result of Employee's employment with the Company, Employee may come into the 8 9 possession and control of Proprietary Information, such as proprietary documents, drawings, specifications, manuals, notes, computer programs, or other proprietary material. Employee acknowledges, warrants and agrees that Employee will return to the Company all such items and any copies or excerpts thereof, in any form or medium, and any other properties, files or documents obtained as a result of Employee's employment with the Company, immediately upon the termination of Employee's employment with the Company. 11. Proprietary Rights. During the course of Employee's employment with the Company, Employee may make, develop or conceive of useful processes, machines, compositions of matter, computer software, algorithms, works of authorship expressing such algorithm, or any other discovery, idea, concept, document or improvement which relates to or is useful to the Company's Business (the "Inventions"), whether or not subject to copyright or patent protection, and which may or may not be considered Proprietary Information. Employee acknowledges that all such Inventions will be "works made for hire" under United States copyright law and will remain the sole and exclusive property of the Company. Employee also hereby assigns and agrees to assign to the Company, in perpetuity, all right, title and interest Employee may have in and to such Inventions, including without limitation, all copyrights, and the right to apply for any form of patent, utility model, industrial design or similar proprietary right recognized by any state, country or jurisdiction. Employee further agrees, at the Company's request and expense, to do all things and sign all documents or instruments necessary, in the opinion of the Company, to eliminate any ambiguity as to the ownership of, and rights of the Company to, such Inventions, including filing copyright and patent registrations and defending and enforcing in litigation or otherwise all such rights. Employee will not be obligated to assign to the Company any Invention made by Employee while in the Company's employ which does not relate to any business or activity in which the Company is or may reasonably be expected to become engaged, except that Employee is so obligated if the same relates to or is based on Proprietary Information to which Employee will have had access during and by virtue of Employee's employment or which arises out of work assigned to Employee by the Company. Employee will not be obligated to assign any Invention which may be wholly conceived by Employee after Employee leaves the employ of the Company, except that Employee is so obligated if such Invention involves the utilization of Proprietary Information obtained while in the employ of the Company. Employee is not obligated to assign any Invention which relates to or would be useful in any business or activities in which the Company is engaged if such Invention was conceived and reduced to practice by Employee prior to Employee's employment with the Company. 9 10 12. Remedies. Employee agrees and acknowledges that the violation of any of the covenants or agreements contained in Sections 6, 7, 8, 9, 10 and 11 of this Agreement would cause irreparable injury to the Company, that the remedy at law for any such violation or threatened violation thereof would be inadequate, and that the Company will be entitled, in addition to any other remedy, to temporary and permanent injunctive or other equitable relief without the necessity of proving actual damages or posting a bond. 13. Notices. Any notice or communication under this Agreement will be in writing and sent by registered or certified mail addressed to the respective parties as follows: If to the Company: If to Employee: Medaphis Corporation William J. DeZonia 2840 Mt. Wilkinson Parkway 2840 Mt. Wilkinson Parkway Suite 300 Suite 300 Atlanta, GA 30339 Atlanta, GA 30339 Attn: General Counsel or to such other address or agent as may be hereafter designated in writing by either party hereto. All such notices shall be deemed given on the date personally delivered or mailed. 14. Severability. Subject to the application of Section 7(C) to the interpretation of Sections 7 and 8, in case one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, the parties agree that it is their intent that the same will not affect any other provision in this Agreement, and this Agreement will be construed as if such invalid or illegal or unenforceable provision had never been contained herein. It is the intent of the parties that this Agreement be enforced to the maximum extent permitted by law. 15. Entire Agreement. This Agreement embodies the entire agreement of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, oral or written, regarding the subject matter hereof, including, but not limited to, any prior restrictive covenants of the Employee in favor of the Company. No amendment or modification of this Agreement will be valid or binding upon the parties unless made in writing and signed by the parties. 16. Binding Effect. This Agreement will be binding upon the parties and their respective heirs, representatives, successors, transferees and permitted assigns. 17. Assignment. This Agreement is one for personal services and will not be assigned by Employee. The Company may assign this Agreement to its parent company or 10 11 to any of its subsidiaries or affiliated companies; provided that the parent or any subsidiary or affiliate fulfills the obligations of the Company under this Agreement. 18. Governing Law. This Agreement is entered into and will be interpreted and enforced pursuant to the laws of the State of Georgia. The parties hereto hereby agree that the appropriate forum and venue for any disputes between any of the parties hereto arising out of this Agreement shall be any federal court in the state or state court in the event diversity is not present, where the Company has its principal place of business and each of the parties hereto hereby submits to the personal jurisdiction of any such court. The foregoing shall not limit the rights of any party to obtain execution of judgment in any other jurisdiction. The parties further agree, to the extent permitted by law, that a final and unappealable judgment against either of them in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. 19. Indemnification. Employee shall be entitled to the indemnification and exculpation offered through and set forth in the Company's Charter and By-laws. 20. Surviving Terms. Sections 6, 7, 8, 9, 10, 11 and 12 of this Agreement shall survive termination of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. COMPANY: EMPLOYEE: By: /s/ RANDOLPH L. M. HUTTO /s/ WILLIAM J. DEZONIA -------------------------- ----------------------- Randolph L.M. Hutto William J. DeZonia Title: Executive Vice President 11 12 EXHIBIT A INVENTIONS Employee represents that there are no Inventions. /s/ WJD ------------------- Employee's Initials 12 EX-10.45 16 FIRST AMENDMENT TO SECOND AMENDMENT 1 EXHIBIT 10.45 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION PLAN THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED PER-SE TECHNOLOGIES, INC. NON-QUALIFIED STOCK OPTION PLAN is made as of February 24, 2000, by Per-Se Technologies, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company has previously adopted the Second Amended and Restated Per-Se Technologies, Inc. Non-Qualified Stock Option Plan (the "Plan"); and WHEREAS, the Company desires to amend the Plan in order to prohibit the repricing of options outstanding under the Plan. NOW, THEREFORE, the Plan is hereby amended by deleting Section 8 thereof in its entirety and substituting in lieu thereof the following new Section 8: "8. Amendments. (a) Amendment of the Plan. The Plan may be amended by the Committee from time to time to the extent that the Committee deems necessary or appropriate except that the Committee shall not amend the Plan, absent the approval of the stockholders of the Company (i) to materially increase (within the meaning of Rule 16b-3) the benefits accruing to participants under the Plan, (ii) to materially increase (within the meaning of Rule 16b-3) the number of securities which may be issued under the Plan, or (iii) to materially modify (within the meaning of Rule 16b-3) the requirements as to eligibility for participation in the Plan; provided, however, that if the amendment would not alter the rights of any participant under the Plan who is subject to Rule 16b-3, then the Committee may approve such amendment without obtaining the approval of the stockholders of the Company; and provided, further however, the Committee shall have the authority, for any employee who is not subject to Rule 16b-3, to modify the three (3) and six (6) month time periods set forth in Section 5(f) of the Plan without obtaining the approval of the stockholders of the Company. (b) Amendment of Outstanding Options. The Board of Directors, acting through the Committee shall have the power to amend any outstanding option; provided, however, that the Committee shall not 2 have to power to amend any outstanding option that would alter the rights of the holder of such option to the detriment of such holder without such holder's prior written consent and, provided further, that the Committee shall not have the power to reprice any outstanding option." FURTHER, except as specifically amended by this First Amendment, the Plan shall remain in full force and effect as prior to this First Amendment. IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed as of the day and year first above written. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE --------------------- Allen W. Ritchie President and Chief Executive Officer ATTEST: By: /s/ RANDOLPH L. M. HUTTO ------------------------ Randolph L. M. Hutto Secretary EX-10.46 17 FOURTH AMENDMENT, NON-EMPLOYEE DIRECTOR STK.OPTION 1 EXHIBIT 10.46 FOURTH AMENDMENT TO NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN THIS FOURTH AMENDMENT (the "Fourth Amendment") is made effective as of February 24, 2000, by PER-SE TECHNOLOGIES, INC., a Delaware corporation formerly known as Medaphis Corporation (the "Company"). W I T N E S S E T H WHEREAS, the Company has previously adopted the Per-Se Technologies Non-Employee Director Stock Option Plan, as amended (the "Plan"); WHEREAS, the Board of Directors of the Company has duly authorized and approved, subject to the approval of the Company's stockholders, the Third Amendment to the Plan increasing the number of shares authorized to be issued under the Plan to 283,333 shares; WHEREAS, the Board of Directors of the Company has duly authorized an amendment of the Plan to grant the Board discretion in determining the number of shares to be granted to non-employee directors of the Company and, subject to approval by the Company's stockholders of the increase in shares authorized to be issued under the Plan, to increase the initial and annual grants of options to non-employee directors to 10,000 shares each, subject to the Board's discretion to increase or decrease such awards from time to time or at any time and to provide for a special one-time grant to existing directors in light of the increase in the initial grant; NOW, THEREFORE, Section 1 of the Plan is amended by deleting the last sentence thereof and substituting in lieu thereof the following: "This Plan is intended to comply with Rule 16b-3." FURTHER, the Plan is hereby amended by deleting Section 2 of the Plan in its entirety and substituting in lieu thereof the following: 2. Administration. This Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board shall have no authority, discretion or power to select the Non-Employee Directors who will receive options (the "Options") to purchase shares of voting common stock, par value $.01 per share, of the Company (the "Common Stock") hereunder or to set or re-set the exercise price of such Option or the period within which such Option may be exercised, except in the sense of administering this Plan pursuant to its express terms. The Board shall have the authority, discretion and power to set the number of shares of Common Stock to be covered by each Option granted hereunder, and to set the timing of the grant of any option hereunder and to make 2 special grants in addition to the initial and annual grants from time to time and at any time. Subject to the foregoing and the provisions of Section 16b) of the Exchange Act, and Rule 16b-3, the Board shall have the authority to interpret and construe the provisions of this Plan and of any agreements issued hereunder and make determinations pursuant to any Plan provision or agreement. The Board shall interpret and administer the provisions of this Plan or any agreement issued hereunder in a manner consistent with the intentions referred to in Section 1 hereof and any provisions of this Plan or any such agreement inconsistent therewith shall be inoperative and shall not affect the validity of this Plan. The Board shall have the power to place transfer and other restrictions on the Options as may be required by federal and state securities laws. Each interpretation, determination or other action made or taken pursuant to the Plan by the Board shall be final, conclusive and binding on all persons. FURTHER, the Plan is hereby amended by deleting the figure 5,000 in the first line of Section 5(b)(1) of the Plan and substituting in lieu thereof the figure 10,000. FURTHER, the Plan is hereby amended by deleting Section 5(b)(2) in its entirety and substituting in lieu thereof the following: (2) Annual Grants. An Option to purchase 10,000 Shares or such other number of Shares as the Board may determine in its discretion (an "Annual Grant") shall be granted each year immediately following the Annual Meeting, or at such other time as the Board in its discretion may determine, to each Non-Employee Director serving as such, other than a Non-Employee Director then receiving an Initial Grant under Section 5(b)(1)(ii)(1) hereof. FURTHER, the Plan is hereby amended by adding to Section 5(b) a new subsection 5(b)(3) as follows: (3) Special Grant. An Option to purchase 10,000 Shares shall be granted to each Director eligible to participate in this Plan as of February 24, 2000, such Option to be granted as of such date with an exercise price equal to the average of the Fair Market Values of the Common Stock for the five (5) trading days prior to February 24, 2000. provided, however, that the increase in the Initial and Annual Grants and the Special Grant reflected in the foregoing amendment shall be subject to and conditioned upon approval by the stockholders of the Company at the 2000 Annual Meeting of Stockholders or any adjournment thereof of the increase in shares available for grant reflected in the Third Amendment to the Plan. FURTHER, except as specifically amended by this Fourth Amendment, the Plan shall remain in full force and effect as prior to this Fourth Amendment. 3 IN WITNESS WHEREOF, the Company has caused this Fourth Amendment to be executed as of the day and year first above written. PER-SE TECHNOLOGIES, INC. By: /s/ ALLEN W. RITCHIE ----------------------- Allen W. Ritchie, President and Chief Executive Officer ATTEST: By: /s/ RANDOLPH L. M. HUTTO --------------------------- Randolph L. M. Hutto Secretary EX-21 18 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
STATE OF INCORPORATION SUBSIDIARY OR ORGANIZATION - ---------- ---------------------- Health Data Sciences Corporation* Delaware IIH, LLC Delaware Knowledgeable Healthcare Solutions, Inc. Alabama Per-Se Transaction Services, Inc.* Indiana PST Emergency Medicine Services, Inc.* Georgia PST Products, Inc.* California PST Services, Inc.* Georgia
- -------------- * Each of these subsidiaries also does business under the name "Per-Se Technologies." EX-23.1 19 CONSENT OF PRICEWATERHOUSECOOPERS, LLP. 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33326289, 33326291, 33326113, 33307627, 33307201, 33307203, 33303213, 3395742, 3395746, 3395748, 3390874, 3390876, 3388444, 3388442, 3371556, 3367752, 3364952, 3346847, 33346489, 33360729, 33394151, 33378167, 33378775) of Per-Se Technologies, Inc. of our report dated February 8, 2000 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K for the year ended December 31, 1999. We also consent to the incorporation by reference of our report dated February 8, 2000 relating to the financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Atlanta, Georgia March 27, 2000 EX-27 20 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PER-SE TECHNOLOGIES, INC. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 74,354 0 89,010 0 0 178,177 34,103 0 265,017 84,873 175,000 0 0 296 1,144 265,017 0 322,129 0 0 371,413 0 16,102 (65,386) (610) (64,776) 31,074 0 0 (33,702) (1.20) (1.20)
EX-99.1 21 SAFE HARBOR COMPLIANCE 1 EXHIBIT 99.1 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS In passing the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996), Congress encouraged public companies to make "forward-looking statements" by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. Per-Se Technologies, Inc. ("Per-Se" or the "Company") intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions. "Forward-looking statements" are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to those uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of Per-Se. The Company undertakes no obligation to update or revise this Safe Harbor Compliance Statement for Forward-Looking Statements (the "Safe Harbor Statement") to reflect future developments. In addition, Per-Se undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Per-Se provides the following risk factor disclosure in connection with its continuing efforts to qualify its written and oral forward-looking statements for the safe harbor protection of the Reform Act and any other similar safe harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the disclosures contained in the Annual Report on Form 10-K to which this statement is appended as an exhibit and also include the following: COMPETITION WITH MANAGEMENT SERVICES COMPANIES The medical management services business is highly competitive. We compete with national and regional physician and hospital reimbursement organizations, national information and data processing organizations, and physician groups and hospitals that provide their own business management services. Our successful competition within this industry is dependent on numerous industry and market conditions. Potential industry and market changes that could adversely affect our ability to compete for billing and collection business include: - an increase in the number of managed care providers compared to fee-for-service providers; and - new alliances between healthcare providers and third-party payers in which healthcare providers are employed by such third-party payers. COMPETITION WITH INFORMATION TECHNOLOGY COMPANIES The business of providing application software, information technology and consulting services is also highly competitive. We compete with national and regional companies in this regard. Some of our competitors have longer operating histories and greater financial, technical and marketing resources than we. Our successful competition within this industry is dependent on numerous industry and market conditions. 1 2 MAJOR CLIENT PROJECTS Our application software business involves projects designed to reengineer customer operations through the strategic use of imaging, client/server and other advanced technologies. Failure to meet our customers' expectations with respect to a major project could, possibly, have the following consequences: - damage our reputation and standing in this marketplace; - impairment of our ability to attract new client/server information technology business; and - the inability to collect for services performed on a project. CHANGES IN OUR INDUSTRY The markets for our software products and services are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. Our ability to keep pace with changes in our industry may be dependent on our ability to: - enhance our existing products and services; - introduce new products and services quickly and cost effectively; - achieve market acceptance for new products and services; and - respond to emerging industry standards and other technological changes. Our competitors may develop competitive products that could adversely affect our operating results. It is possible that we will be unsuccessful in refining, enhancing and developing our software and billing systems going forward. The costs associated with refining, enhancing and developing our software and billing systems may increase significantly in the future. Our existing software and technology may become obsolete as a result of ongoing technological developments in the marketplace. CONSOLIDATION IN THE MARKETPLACE In general, consolidation initiatives in the healthcare marketplace may result in fewer potential customers for our services. Some of these types of initiatives include: - employer initiatives such as creating purchasing cooperatives, (HMOs); - provider initiatives, such as risk-sharing among healthcare providers and managed care companies through capitated contracts; and - integration among hospitals and physicians into comprehensive delivery systems. Continued consolidation of management and billing services through integrated delivery systems may result in a decrease in demand for our billing and collection services for particular physician practices. INVESTIGATIONS OF HEALTHCARE BILLING AND COLLECTION PRACTICES Medical billing and collection activities are governed by numerous federal and state civil and criminal laws. Federal and state regulators increasingly use these laws to investigate healthcare providers and companies that provide billing and collection services. In connection with these laws: - federal or state government investigation and possible penalties may be imposed upon us; - false claims action may have to be defended; - private payers may file claims against us; - Medicare, Medicaid and/or other government funded healthcare programs may exclude us. 2 3 We have been the subject of federal investigations, and we may become the subject of false claims litigation or additional investigations relating to our billing and collection activities. Any such proceeding or investigation could have a material adverse effect on our business. The ownership and operation of hospitals is also subject to comprehensive regulation by federal and state governments which may adversely affect hospital reimbursement. This regulation could have an adverse effect on the operations of hospitals in general, and consequently reduce the amount of our revenues related to hospital clients. Current or future government regulations or healthcare reform measures may effect our business. DEBT We have a significant amount of long-term indebtedness and, as a result, obligations to make interest payments on our debt. If we are unable to make the required debt payments, we could be required to reduce or delay capital expenditures, sell certain of our assets, restructure or refinance our indebtedness, or seek additional equity capital. Our ability to make payments on our debt obligations will depend on our future operating performance, which will be affected by certain conditions that are beyond our control. LEGAL MATTERS AND GOVERNMENT INVESTIGATION We are involved in legal matters which may expose us to loss contingencies. These matters include, but are not limited to, claims involving Company securities. We have also received written demands from customers and former customers that have not yet resulted in legal action. We are also cooperating with the Securities and Exchange Commission in a formal, non-public investigation of former officers and Company transactions. We may not be able to successfully resolve these legal matters. Other lawsuits may be filed and other government investigations may be commenced against us. In the event of an adverse outcome with respect to pending legal matters, there is the risk that our insurance coverage may not fully cover any damages assessed against us. 3 -----END PRIVACY-ENHANCED MESSAGE-----