MEDAPHIS CORP, DEF 14A, 1997-04-21

MEDAPHIS CORP
DEF 14A, 1997-04-21
MANAGEMENT SERVICES

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

MEDAPHIS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2

MEDAPHIS CORPORATION

MEDAPHIS LOGO 2700 CUMBERLAND PARKWAY
SUITE 300
ATLANTA, GEORGIA 30339
---------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1997
---------------------

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Medaphis
Corporation (the "Company") will be held at the offices of King & Spalding, 50th
Floor, 191 Peachtree Street, Atlanta, Georgia 30303 on Monday, May 19, 1997, at
10:00 a.m. for the following purposes:

(1) To elect five (5) directors;

(2) To approve and adopt an amendment to the Company's Amended and
Restated Certificate of Incorporation, as amended, pursuant to which (i)
the total number of shares of capital stock that the Company would be
authorized to issue would be increased from 200,600,000 shares to
220,600,000 shares and (ii) the Company would be authorized to issue up to
20,000,000 shares of preferred stock, no par value per share; and

(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on March 21, 1997 as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the meeting and any adjournment thereof. From May 9, 1997
until the annual meeting, a list of stockholders as of the close of business on
March 21, 1997 will be available at the Company's offices for examination during
normal business hours by any stockholder.

Your attention is directed to the Proxy Statement submitted with this
Notice.

By Order of the Board of Directors,

/s/ JEROME H. BAGLIEN

JEROME H. BAGLIEN
Senior Vice President,
Chief Financial Officer and
Assistant Secretary

Atlanta, Georgia
April 21, 1997

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE> 3

MEDAPHIS CORPORATION
2700 CUMBERLAND PARKWAY
SUITE 300
ATLANTA, GEORGIA 30339

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1997

April 21, 1997

The enclosed form of proxy is solicited by the Board of Directors of
Medaphis Corporation (the "Company"), which has its principal executive offices
at 2700 Cumberland Parkway, Suite 300, Atlanta, Georgia 30339, for use at the
annual meeting of stockholders to be held on May 19, 1997 and any adjournment
thereof. When a proxy is properly executed and returned, the shares it
represents will be voted as directed at the meeting and any adjournment thereof
or, if no direction is indicated, such shares will be voted in favor of the
proposals set forth in the notice of the annual meeting of stockholders attached
hereto. Any stockholder giving a proxy has the power to revoke it at any time
before it is voted. Revocation of a proxy is effective upon receipt by the
Secretary of the Company of either (i) an instrument revoking such proxy or (ii)
a duly executed proxy bearing a later date. Furthermore, if a stockholder
attends the meeting and elects to vote in person, any previously executed proxy
is thereby revoked.

Only stockholders of record as of the close of business on March 21, 1997
will be entitled to vote at the annual meeting. As of that date, the Company had
outstanding 72,412,624 shares of common stock, $.01 par value ("Common Stock").
Each share of Common Stock is entitled to one vote. No cumulative voting rights
are authorized and appraisal rights for dissenting stockholders are not
applicable to the matters being proposed. It is anticipated that this proxy
statement ("Proxy Statement") and the accompanying proxy will first be mailed to
stockholders on or about April 21, 1997.

Votes cast by proxy or in person at the annual meeting will be tabulated by
the inspector of elections appointed for the meeting who will also determine
whether a quorum is present for the transaction of business. The Company's
Amended and Restated By-laws provide that a quorum is present if the holders of
a majority of the issued and outstanding stock of the Company entitled to vote
at the meeting are present in person or represented by proxy. Abstentions will
be counted as shares that are present and entitled to vote for purposes of
determining whether a quorum is present. Shares held by nominees for beneficial
owners will also be counted for purposes of determining whether a quorum is
present if the nominee has the discretion to vote on at least one of the matters
presented and even though the nominee may not exercise discretionary voting
power with respect to other matters and voting instructions have not been
received from the beneficial owner (a "broker non-vote"). Abstentions in
connection with the proposal to approve the amendment to the Company's Amended
and Restated Certificate of Incorporation, as amended (the "Amendment"), will
have the effect of a vote against such matter, but abstentions will have no
effect on the vote for election of directors. Broker non-votes will not be
counted as votes for or against matters presented for stockholder consideration.
<PAGE> 4

ELECTION OF DIRECTORS

In accordance with to the Company's Amended and Restated Bylaws, the Board
of Directors has fixed the number of directors at five. Management of the
Company and the Board recommend the election of the nominees listed below for
the office of director to hold office until the next annual meeting and until
their successors are duly elected and qualified. All of such nominees are
members of the present Board. With the exception of Messrs. McDowell and Pope,
who were elected to the Board of Directors on May 15, 1996 and January 29, 1997,
respectively, each of such nominees was elected by the stockholders at the last
annual meeting.

The Board has no reason to believe that any of the nominees for the office
of director will be unavailable for election as a director. However, if at the
time of the annual meeting any of the nominees should be unable or decline to
serve, the persons named in the proxy will vote for such substitute nominees,
vote to allow the vacancy created thereby to remain open until filled by the
Board, or vote to reduce the number of directors for the ensuing year, as the
Board recommends. In no event, however, can the proxy be voted to elect more
than five directors. The election of the nominees to the Board requires the
affirmative vote of a plurality of the votes cast by stockholders present at the
annual meeting in person or by proxy.

MANAGEMENT OF THE COMPANY

DIRECTORS STANDING FOR REELECTION

Set forth below are the nominees for reelection to the Board. Also set
forth below as to each nominee is his age, the year in which he was first
elected a director, a brief description of his principal occupation and business
experience during the past five years, directorships of certain companies
presently held by him, and certain other information, which information has been
furnished by the respective individuals.

ROBERT C. BELLAS, JR.
Age 55
Director Since 1987

Mr. Bellas has been a general partner of Morgenthaler Ventures, a private
equity investment firm based in Cleveland, Ohio, since 1984, where he is
responsible for the firm's investments in healthcare services, medical devices
and biomedical ventures. Mr. Bellas is a member of the Board of Directors of
CardioThoracic Systems, Inc., Vical, Inc., and several privately held healthcare
companies.

DAVID R. HOLBROOKE, M.D.
Age 56
Director since 1994

Dr. Holbrooke has been the President and Chief Executive Officer of
Advocates Rx, Inc., a medical management and healthcare venture development
company, since 1995. From 1983 to 1995, Dr. Holbrooke served as President and
Chief Executive Officer of Holbrooke & Associates. Dr. Holbrooke has a 25 year
history of entrepreneurship, management, medical practice, and new business
development experience in the healthcare services industry. He currently is
active as a board member and investor in several privately held healthcare
companies.

DAVID E. MCDOWELL
Age 54
Director since 1996

Mr. McDowell joined the Company in October 1996 as Chairman and Chief
Executive Officer. He was President, Chief Operating Officer, and a director of
McKesson Corporation from January 1992 until May 1996. McKesson is the world's
largest distributor of pharmaceutical and healthcare products through McKesson
Drug Company in the United States and Medis Health and Pharmaceutical Services,
Inc. in Canada. In May 1996, Mr. McDowell joined the Board of Directors of the
Company.

2
<PAGE> 5

JOHN C. POPE
Age 48
Director since 1997

Mr. Pope has been Chairman of the Board of MotivePower Industries, Inc., a
manufacturer of locomotives and locomotive components, since December 1995. From
January 1988 to July 1994, Mr. Pope held various positions with UAL Corporation
and its subsidiary, United Airlines, most recently as President, Chief Operating
Officer and Director. Mr. Pope is also a member of the Board of Directors of
Federal-Mogul Corporation and Wallace Computer Services, Inc.

DENNIS A. PRYOR
Age 54
Director since 1993

Mr. Pryor joined the Company in January 1993 in connection with the
acquisition of CompMed, Inc. In 1993, Mr. Pryor also served as Chief Executive
Officer of CompMed. From 1976 through 1992, Mr. Pryor was the principal owner
and Chairman of the Board of CompMed. Mr. Pryor was the Chief Financial Officer
of Medical Data Services, Inc. from 1969 to 1976.

BOARD REPRESENTATION

Effective May 6, 1996, the Company acquired BSG Corporation, a Delaware
corporation ("BSG"). Pursuant to the BSG Merger Agreement (as defined under the
caption "Certain Transactions" elsewhere in this Proxy Statement), for a period
of five years following the closing of the BSG Merger (as defined under the
caption "Certain Transactions" elsewhere in this Proxy Statement), the Company
will nominate a designee of Raymond J. Noorda and Steven G. Papermaster for
election as a member of the Board. Mr. Papermaster was initially so designated
and was elected a member of the Board on May 15, 1996. Also in May 1996, Mr.
Papermaster was elected an Executive Vice President of the Company. On March 21,
1997, Mr. Papermaster resigned as a director and Executive Vice President of the
Company, although he remains an executive officer of BSG. As of the date hereof,
Messrs. Noorda and Papermaster have not designated a replacement nominee.

OPERATION OF THE BOARD OF DIRECTORS

The Company has an Audit Committee of the Board (the "Audit Committee")
which, during 1996, was composed of David R. Holbrooke, M.D., Chairman, and
Robert C. Bellas, Jr. The Audit Committee is responsible for meeting with the
Company's auditors at least annually to review the Company's financial
statements and internal accounting controls. The Audit Committee is also
responsible for submitting recommendations to the Board regarding the Company's
internal accounting controls. The Audit Committee may exercise such additional
authority as may be prescribed from time to time by resolution of the Board.

The Company has a Compensation Committee of the Board (the "Compensation
Committee") which, during 1996, was composed of Robert C. Bellas, Jr., Chairman,
and David R. Holbrooke, M.D. Dennis A. Pryor served on the Compensation
Committee from January 1996 to May 1996, and David E. McDowell served on the
Compensation Committee from May 1996 to October 1996. The Compensation Committee
makes recommendations at least annually to the Board regarding the compensation
of the officers of the Company. The Compensation Committee may exercise such
additional authority as may be prescribed from time to time by resolution of the
Board.

The Company does not have a nominating committee.

During 1996, the Board met sixteen times, the Audit Committee met five
times and the Compensation Committee met twelve times. All of the directors
attended 75% or more of the aggregate number of meetings of the Board and all
committees on which they served during 1996.

3
<PAGE> 6

DIRECTORS' EXPENSES

The Company reimburses each director for out-of-pocket expenses associated
with each Board or committee meeting attended and for each other business
meeting at which the Company has requested the director's presence.

MANAGEMENT COMMON STOCK OWNERSHIP

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, as of March 21, 1997, by (i) each of the
Company's directors, (ii) the Company's named executive officers (as hereinafter
defined) and (iii) such directors and all executive officers as a group.

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
- ---- ------------------ ----------
<S> <C> <C>
Robert C. Bellas, Jr........................................ 10,915(2) *
Randolph G. Brown........................................... 313,776(3) *
Michael R. Cote............................................. 23,000(4) *
Michael L. Douglas.......................................... -- --
J. Michael Drinkwater....................................... 48,210(5) *
David R. Holbrooke, M.D..................................... 36,700(6) *
Timothy J. Kilgallon........................................ 32,500(7) *
David E. McDowell........................................... --(8) --
Patrick B. McGinnis......................................... 130,496(9) *
John C. Pope................................................ -- --
Dennis A. Pryor............................................. 104,000(10) *
William R. Spalding......................................... 10,000(11) *
All executive officers and directors as a group (9
persons).................................................. 161,615(12) *
</TABLE>

- ---------------

* Beneficial ownership represents less than 1% of the outstanding Common
Stock.

(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be a "beneficial owner" of a security if that person has or
shares "voting power", which includes the power to vote or to direct the
voting of such security, or "investment power", which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities which that person has the
right to acquire within sixty (60) days. Under these rules, more than one
person may be deemed to be a beneficial owner of the same securities and a
person may be deemed to be a beneficial owner of securities as to which he
has no economic or pecuniary interest. Except as set forth in the footnotes
below, the persons named below have sole voting and investment power with
respect to all shares of Common Stock shown as being beneficially owned by
them.
(2) Includes 1,143 shares that are held by the Bellas Family Partnership. Also
includes 5,200 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
Non-Employee Director Stock Option Plan (the "Director Plan").
(3) Includes 246,800 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans. Also includes 400 shares held by V. Ann DeRosa Brown,
Mr. Brown's wife, as to which Mr. Brown disclaims beneficial ownership.
(4) Includes 18,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.
(5) Includes 48,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.

(6) Includes 1,500 shares held in a bank account for the benefit of Dr.
Holbrooke's son, a minor. Also includes 5,200 shares that are not currently
outstanding, but that may be acquired upon the exercise of stock options
granted under the Director Plan.

(7) Includes 20,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.

4
<PAGE> 7

(8) Does not include 210,000 shares that may be acquired upon the exercise of
stock options granted under the Company's stock option plans which are
subject to an accelerated vesting schedule based on appreciation in the
market value of the Common Stock as described elsewhere in this Proxy
Statement.
(9) Includes 8,800 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.
(10) Includes 104,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.
(11) Includes 10,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.
(12) Includes 124,400 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options granted under the Company's
stock option plans.

EMPLOYMENT AGREEMENTS

In November 1996, the Company and David E. McDowell, the Company's Chairman
and Chief Executive Officer, entered into a five-year employment agreement which
contains certain non-competition, non-solicitation and change in control
provisions. Pursuant to that agreement, Mr. McDowell received a signing
incentive of $500,000 and is to receive a base salary of at least $300,000 per
year. Upon early termination of the agreement by the Company other than for
cause or by Mr. McDowell for "good reason" or by either party for any reason
following certain change in control events, the Company is obligated to pay Mr.
McDowell his annual salary, to provide for the continued vesting of stock option
awards described in the employment agreement and to provide for certain health
insurance benefits to Mr. McDowell through November 19, 2001. Upon certain
change in control events and a termination of the agreement by Mr. McDowell, the
Company will pay to Mr. McDowell (in lieu of its obligation to make the
foregoing payments of salary and to provide the foregoing benefits), a
termination payment in periodic installments or a lump sum (at Mr. McDowell's
option) equal to the salary that would have been payable to Mr. McDowell
pursuant to the agreement from the date of termination until November 18, 2001,
and an additional amount sufficient to make Mr. McDowell whole with respect to
any tax which may be imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). A Change in Control Event is generally defined in
the agreement as the adoption of a plan of liquidation or approval of the
dissolution of the Company, certain mergers and consolidations of the Company,
the sale or transfer of substantially all of the Company's assets, certain
changes in the composition of the Company's Board of Directors, or the
acquisition of more than 30% of Common Stock by any individual, entity, group or
other person. Mr. McDowell also received options to purchase up to 810,000
shares of Common Stock, as described in the Compensation Committee Report on
Executive Compensation contained elsewhere in this Proxy Statement. See also
"Certain Transactions."

In March 1995, the Company and Randolph G. Brown, the Company's former
President, Chief Executive Officer and Chairman, entered into a five-year
employment agreement which contained certain non-competition and
non-solicitation provisions. Pursuant to that agreement, Mr. Brown received a
signing incentive of $1,000,000 and a base salary of at least $250,000 per year.
Mr. Brown resigned from the Company in October 1996. Pursuant to his employment
agreement, Mr. Brown is continuing to receive $250,000 per annum and certain
employee benefits during the term of the agreement. The Company expects to
extend the post-termination exercise period for certain stock options held by
Mr. Brown for a period to be agreed upon, but in no event later than December
31, 1997. See "Compensation Committee Report on Executive Compensation -- Chief
Executive Officer Compensation" and "Certain Transactions."

As part of the Company's acquisition of Healthcare Recoveries, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company ("HRI"),
effective August 28, 1995, Patrick B. McGinnis, President of HRI, and HRI
entered into an employment agreement with a three-year term which contains
certain non-competition, non-solicitation, severance and other provisions
concerning Mr. McGinnis' responsibilities. Pursuant to that agreement, Mr.
McGinnis is to receive a base salary of at least $163,840 (subject to annual
adjustment) and is also entitled to participate in HRI's incentive compensation
plan. Mr. McGinnis also received options to purchase up to 30,000 shares of
Common Stock. See "Certain Transactions."

5
<PAGE> 8

In June 1996, Michael L. Douglas, the Company's former Chief Operating
Officer and a former director of the Company, and the Company entered into an
employment agreement with a two-year term which contained certain
non-competition, non-solicitation, severance and other provisions concerning Mr.
Douglas' responsibilities. Pursuant to that agreement, Mr. Douglas received a
base salary of $225,000 per year, reimbursement of certain relocation expenses,
an incentive compensation payment and was also entitled to participate in the
Company's incentive compensation plan. Mr. Douglas also received 50,000
restricted shares of Common Stock and options to purchase up to 100,000 shares
of Common Stock. That agreement contained a provision which entitled Mr. Douglas
to a severance payment in the amount of 75% of his base salary upon (i)
termination of Mr. Douglas' employment with the Company or (ii) forfeiture of
the restricted shares of Common Stock. Effective January 31, 1997, Mr. Douglas
and the Company entered into an agreement which contains a mutual general
release and certain confidentiality, non-competition and non-solicitation
provisions. Pursuant to the agreement, Mr. Douglas is entitled to receive a
severance payment equal to $168,500, to be paid out in the form of nine months
of salary continuation at Mr. Douglas' regular base rate of pay of $225,000,
and, at the end of the salary continuation period, a lump sum payment equal to
four weeks of accrued vacation. The agreement contains an acknowledgment of the
termination of the foregoing employment agreement and of the forfeiture of all
of the stock options and restricted shares of Common Stock previously granted to
him.

Effective February 21, 1997, Michael R. Cote, the Company's former Chief
Financial Officer, and the Company entered into an agreement which contains a
general release of the Company and certain confidentiality and non-solicitation
provisions. Pursuant to that agreement, Mr. Cote is entitled to receive a
severance payment of $131,250, which is equal to nine months of salary
continuation at Mr. Cote's regular base rate of pay of $175,000. Mr. Cote's
restricted stock award dated August 12, 1994 will continue to vest in accordance
with the vesting schedule set forth in the Restricted Stock Plan described
elsewhere in this Proxy Statement.

Effective December 31, 1996, Timothy J. Kilgallon, a former Executive Vice
President of the Company, and the Company entered into an agreement which
contains a general release of the Company and certain non-competition,
non-solicitation and confidentiality provisions. Pursuant to that agreement, Mr.
Kilgallon is entitled to receive a severance payment equal to fifteen months of
salary continuation at Mr. Kilgallon's regular rate of pay of $200,000, and, at
Mr. Kilgallon's election of COBRA coverage, payment by the Company of Mr.
Kilgallon's COBRA premiums for eighteen months. Mr. Kilgallon's restricted stock
award dated August 12, 1994 will continue to vest in accordance with the vesting
schedule set forth in the Restricted Stock Plan described elsewhere in this
Proxy Statement (without giving effect to any provision indicating that such
benefit ceases upon termination of employment).

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information as of December 31, 1996
concerning persons known to the Board to be a "beneficial owner", as such term
is defined by the rules of the Securities and Exchange Commission, of more than
5% of the outstanding shares of the Common Stock.

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED(1) OF CLASS
- ---------------- ------------------ ---------
<S> <C> <C>
NFT Ventures, Inc........................................... 4,436,205 6.19%
899 W. Center Street Orem, Utah 84057
</TABLE>

- ---------------

(1) See Note (1) under "Management Common Stock Ownership".

(2) NFT Ventures, Inc. ("NFT") received 4,436,205 shares of Common Stock on May
6, 1996 as consideration in the BSG Merger. Includes 4,436,205 as to which
NFT has shared voting and shared investment power. The information regarding
NFT is given in reliance upon a Schedule 13D filed by such stockholder on or
about May 17, 1996 with the Securities and Exchange Commission. See "Certain
Transactions."

6
<PAGE> 9

CERTAIN INFORMATION REGARDING EXECUTIVE OFFICERS

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of (i) each of the
individuals serving as the Company's Chief Executive Officer during 1996, (ii)
the four other most highly compensated executive officers of the Company
(determined as of December 31, 1996) and (iii) two additional individuals who
would have been among the Company's four most highly compensated executive
officers, but for the fact that they were not serving as executive officers of
the Company at December 31, 1996 (referred to herein as the "named executive
officers") for 1994, 1995 and 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) OPTIONS PAYOUTS(2) COMPENSATION
- --------------------------- ---- -------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David E. McDowell...................... 1996 $ 42,692 -- -- 810,000 -- $ 519,770(3)(4)
Chief Executive Officer 1995 -- -- -- -- -- --
(11/96 - Present) 1994 -- -- -- -- -- --
Randolph G. Brown(5)................... 1996 245,194 -- -- -- $673,725 26,778(4)(6)
President and Chief Executive 1995 250,000 $247,300(7) -- 200,000 -- 1,008,396(8)(9)
Officer (through 10/96) 1994 192,800 115,680 $2,063,750 20,000 -- 15,996(10)
Michael R. Cote(11).................... 1996 171,637 -- -- -- 51,825 10,317(4)
Senior Vice President -- 1995 135,000 80,143(7) -- 30,000 -- 9,256(9)
Finance and Chief Financial Officer 1994 110,000 68,020 158,750 30,000 -- 7,768(10)
Michael L. Douglas(12)................. 1996 178,436 -- -- 100,000 -- 2,144(4)
Chief Operating Officer 1995 -- -- -- -- -- --
1994 -- -- -- -- -- --
J. Michael Drinkwater(13).............. 1996 177,885 -- -- 110,000 -- 11,426(4)
Senior Vice President 1995 145,365 87,219 -- 40,000 -- 8,010(9)
1994 150,173 90,000 -- 20,000 -- 7,672(10)
Timothy J. Kilgallon(14)............... 1996 200,000 -- -- -- 129,563 10,883(4)
Executive Vice President 1995 200,000 118,724(7) -- 60,000 -- 10,102(9)
1994 140,530 84,318 396,875 20,000 -- 5,663(10)
Patrick B. McGinnis(15)................ 1996 193,584 86,093 -- 100,000 -- 8,748(4)
Executive Vice President 1995 55,606 79,486 -- 22,000 -- 1,607(9)
1994 -- -- -- 10,000 -- --
William R. Spalding(16)................ 1996 179,329 -- -- 125,000 -- 21,909(4)(17)
Senior Vice President, General 1995 -- 43,300(7) -- 50,000 -- 530(9)
Counsel and Secretary 1994 -- -- -- -- -- --
</TABLE>

- ---------------

(1) This column reflects the dollar value of awards representing 249,000 shares
of restricted stock which were granted by the Board on August 12, 1994
pursuant to the Company's Restricted Stock Plan, dated as of August 12,
1994 (the "Restricted Stock Plan"), as calculated based upon $15.875, the
closing price of the Common Stock on the Nasdaq Stock Market on August 12,
1994. The aggregate restricted stock holdings as of December 31, 1996 for
Messrs. Brown, Cote and Kilgallon were 99,446; 6,849; and 20,573 shares,
respectively, having a value of $1,112,552; $76,623; and $230,160,
respectively, based upon $11.1875, the closing price of the Common Stock on
the Nasdaq Stock Market on December 31, 1996. Each share of restricted
stock is entitled to receive any dividends paid, although none have been
paid to date. See "Employment Agreements," "Compensation Committee Report
on Executive Compensation -- Restricted Stock Awards" and "Certain
Transactions."
(2) This column reflects the dollar value of awards representing 65,000; 5,000;
and 12,500 shares of restricted stock owned by each of Messrs. Brown, Cote
and Kilgallon, respectively, based upon $10.375, the closing price of the
Common Stock on the Nasdaq Stock Market on October 22, 1996, the date the
Company published its financial results for the quarterly period ending
September 30, 1996, net of the consideration paid by each of the foregoing
executives. The shares of restricted stock vested on

7
<PAGE> 10

February 6, 1996 upon the Company achieving net income per share in excess
of $.75 for the year ended December 31, 1995, after excluding restructuring
and certain other charges incurred during the year. Certain
"pooling-of-interest" accounting restrictions delayed the taxable event
associated with the vesting of the restricted stock until the publication
of the Company's financial results for the quarterly period ending
September 30, 1996. The Company did not achieve target earnings per share
for the fiscal year ending December 31, 1996; consequently, the remaining
50% will vest in accordance with the provisions of the Restricted Stock
Plan and other agreements which the Company has entered into with certain
former executive officers.
(3) Includes a $500,000 signing incentive received by Mr. McDowell in
connection with his entering into a five-year employment agreement with the
Company on November 19, 1996 and $19,000 prepaid rent and security deposit
paid by the Company on behalf of Mr. McDowell for housing in Atlanta,
Georgia while he commutes between the Company's headquarters and his
primary residence pursuant to such employment agreement. See "Employment
Agreements," "Compensation Committee Report on Executive
Compensation -- Chief Executive Officer Compensation" and "Certain
Transactions."
(4) All other compensation for 1996 includes amounts paid by the Company on
behalf of each named executive officer for matching 401(k) plan
contributions, matching non-qualified deferred compensation plan
contributions and life, medical and dental insurance premiums.

(5) Mr. Brown resigned as Chairman, Chief Executive Officer and President on
October 31, 1996. See "Employment Agreements," Compensation Committee
Report on Executive Compensation -- Chief Executive Officer Compensation"
and "Certain Transactions."

(6) Includes $17,050 received by Mr. Brown in exchange for options to purchase
shares of common stock of HRI.
(7) Includes the dollar value of units awarded on February 21, 1996 pursuant to
the Medaphis Corporation Re-Engineering Consolidation and Business
Improvement Cash Incentive Plan (the "Re-Engineering Plan") as calculated
based upon $37.75, the closing price of the Common Stock on the Nasdaq
Stock Market on February 21, 1996. The aggregate unit holdings as of
December 31, 1996 for Messrs. Brown, Cote, Kilgallon and Spalding were
6,551; 2,123; 3,145; and 1,147, respectively, having a value of $73,289;
$23,751; $35,185; and $12,832, respectively, based upon $11.1875, the
closing price of the Common Stock on the Nasdaq Stock Market on December
31, 1996. See "Compensation Committee Report on Executive
Compensation -- Re-Engineering Incentive Plan Unit Awards."

(8) Includes a $1,000,000 signing bonus received by Mr. Brown in connection
with his entering into a five-year employment agreement with the Company on
March 24, 1995. See "Employment Agreements."

(9) All other compensation for 1995 includes amounts paid by the Company on
behalf of each named executive officer for matching 401(k) plan
contributions, matching non-qualified deferred compensation plan
contributions and life, medical and dental insurance premiums.
(10) All other compensation for 1994 includes amounts paid by the Company on
behalf of each named executive officer for matching 401(k) plan
contributions and life, medical and dental insurance premiums.
(11) Mr. Cote resigned as Chief Financial Officer and Senior Vice
President -- Finance of the Company on January 31, 1997. See "Employment
Agreements" and "Certain Transactions."
(12) Mr. Douglas resigned as a member of the Board of Directors and as Chief
Operating Officer of the Company on January 31, 1997. See "Employment
Agreements" and "Certain Transactions."
(13) Mr. Drinkwater resigned as Senior Vice President of the Company effective
October 23, 1996, but continues to serve as President of Medaphis Physician
Services Corporation, a wholly owned subsidiary of the Company ("MPSC").
(14) Mr. Kilgallon resigned as Executive Vice President of the Company on
October 28, 1996, but continued to serve as an employee of the Company
through December 31, 1996. See "Employment Agreements" and "Certain
Transactions."

(15) Mr. McGinnis resigned as President of Medaphis Healthcare Information
Technology Company and as Executive Vice President of the Company on
February 5, 1997, but continues to serve as President of HRI. See
"Employment Agreements," "Compensation Committee Report on Executive
Compensation -- Cash Bonus Awards" and "Certain Transactions."

8
<PAGE> 11

(16) Mr. Spalding resigned as Executive Vice President of the Company on April
11, 1997. See "Certain Transactions."

(17) Includes $16,500 interest imputed to Mr. Spalding pursuant to the Deferred
Bonus Note (as defined under the caption "Certain Transactions" elsewhere
in this Proxy Statement) issued by Mr. Spalding to the Company in 1996. See
"Certain Transactions."

STOCK OPTION GRANTS

The following table sets forth information with respect to options granted
under the Company's Amended and Restated Non-Qualified Stock Option Plan (the
"Stock Option Plan") to each of the named executive officers during 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE (PER EXPIRATION ---------------------------
NAME GRANTED(1) 1996(2) SHARE) DATE 5% 10%
- ---- ---------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David E. McDowell.............. 10,000(4) .20% $41.625 5/15/07 $ 295,679 $ 771,360
600,000(5) 11.89% 8.50 11/19/07 3,622,731 9,450,895
210,000(6) 4.16% 8.50 11/19/07 1,267,956 3,307,813
Randolph G. Brown.............. -- -- -- --
Michael R. Cote................ -- -- -- --
Michael L. Douglas............. 100,000(7) 1.98% 35.125 7/02/07 2,499,887 6,524,786
Timothy J. Kilgallon........... -- -- -- --
J. Michael Drinkwater.......... 20,000(5) .40% 39.25 3/07/07 557,616 1,454,697
90,000(8) 1.78% 8.50 11/19/07 543,410 1,417,634
Patrick B. McGinnis............ 100,000(5) 1.98% 13.25 8/27/07 941,200 2,455,380
William R. Spalding............ 125,000(8) 2.48% 9.125 11/27/07 810,231 2,113,711
</TABLE>

- ---------------

(1) All options were granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant. Such options may not be exercised
later than 11 years, or earlier than six months, after the date of grant.

(2) The denominator used in calculating these percentages excludes options
granted to certain non-executive employees of the Company on October 25,
1996 in exchange for options which had been previously granted to such
employees during the fiscal year ended December 31, 1996. See "Compensation
Committee Report on Executive Compensation -- Restrike of Non-Executive
Employee Options."
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall market conditions. The amounts
reflected in this table may not necessarily be achieved.
(4) These options, which were granted pursuant to the Director Plan, were
forfeited when Mr. McDowell was appointed Chairman and Chief Executive
Officer of the Company.
(5) These options vest ratably over a period of five years.
(6) These options vest on November 19, 2001 and are subject to accelerated
vesting upon certain specified percentage increases in the closing price of
the Common Stock. See "Compensation Committee Report on Executive
Compensation -- Chief Executive Officer Compensation."
(7) As discussed elsewhere in this Proxy Statement, these options were forfeited
upon Mr. Douglas' resignation from the Company.

(8) These options vest ratably over a period of three years and are subject to
accelerated vesting upon the average closing price of the Common Stock
exceeding $25.00 per share for twenty consecutive trading days. See
"Compensation Committee Report on Executive Compensation -- Stock Option
Awards."

9
<PAGE> 12

STOCK OPTION EXERCISES

None of the named executive officers exercised any stock options during
1996. The table below shows the number of shares of Common Stock covered by both
exercisable and unexercisable stock options held by the named executive officers
as of December 31, 1996. The table also reflects the values for in-the-money
options based on the positive spread between the exercise price of such options
and the last reported sale price of the Common Stock on December 31, 1996, the
last trading date in 1996 for the Common Stock.

AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996(1) DECEMBER 31, 1996(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David E. McDowell............................ -- 810,000 -- $2,176,875
Randolph G. Brown............................ 392,820 -- $2,172,712 --
Michael R. Cote.............................. 54,400 67,600 69,575 48,000
Michael L. Douglas........................... -- 100,000 -- --
J. Michael Drinkwater........................ 40,000 170,000 90,000 241,875
Timothy J. Kilgallon......................... 171,186 -- 787,771 --
Patrick B. McGinnis.......................... 8,400 123,600 -- --
William R. Spalding.......................... 10,000 165,000 -- 257,813
</TABLE>

- ---------------

(1) Figures include options granted under both the Company's Stock Option Plan
and the Senior Executive Performance Non-Qualified Stock Option Plan.

10
<PAGE> 13

STOCK PRICE PERFORMANCE GRAPH

The graph below reflects the cumulative stockholder return (assuming the
reinvestment of dividends) on the Common Stock compared to the return of the
Center for Research in Security Prices ("CRSP") Total Return Index for the
Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Index") and the Company's peer
group indices for the periods indicated. The graph reflects the investment of
$100 on December 31, 1991 in the Common Stock, the Nasdaq Index and the
Company's peer group indices. The Company's former peer group consisted of the
following companies: Coastal Physician Group, Inc. (formerly known as Coastal
Healthcare Group, Inc.), CyCare Systems, Inc., HBO & Company, Health Management
Systems, Inc., Medic Computer Systems, Inc., Pacific Physician Services, Inc.,
Phycor, Inc. and Shared Medical Systems, Inc. The Company's current peer group
index (the "Peer Group Index") consists of the following companies: Cambridge
Technology Partners, Cerner Corporation, Coastal Physician Group, Inc., HBO &
Company, Health Management Systems, Inc., Medic Computer Systems, Inc., Pacific
Physician Services, Inc., Physician Support Systems, Inc., Sapient Corporation,
Phycor, Inc. and Shared Medical Systems, Inc. In revising the Company's former
peer group index, the Company took into consideration the Company's expansion
into additional lines of business, the entry of new competitors into the
Company's lines of business and the acquisition of CyCare Systems, Inc. by HBO &
Company on August 22, 1996.

<TABLE>
<CAPTION>
12/91 12/92 12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C> <C> <C>
Medaphis 100.00 129.45 180.82 254.79 405.48 122.60
NASDAQ Composite 100.00 115.45 132.48 128.25 179.44 220.19
1996 Peer Group 100.00 125.09 175.06 220.45 407.43 467.56
1997 Peer Group 100.00 147.61 212.52 259.60 459.24 543.04
</TABLE>

Source: Hewitt Associates

The stock price performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended (together, the "Acts"), except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.

11
<PAGE> 14

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Each executive officer's compensation is determined annually by the
disinterested members of the Board based upon the recommendations of the
Compensation Committee of the Board (the "Compensation Committee"). As of the
date hereof, the Compensation Committee consists of the two Board members whose
names appear below. The Compensation Committee also receives input from the
Chief Executive Officer regarding compensation of all executive officers other
than the Chief Executive Officer, who considers the same criteria as those
considered by the Compensation Committee, as described below.

Compensation Components and Philosophy. The components of the Company's
executive compensation program consist of base salaries, cash bonuses and
long-term incentives, including stock options and restricted stock awards. The
Company's compensation program is structured and administered to support the
Company's business mission, which is to develop an organization that efficiently
and effectively delivers business and information management services and
products to its clients and generates favorable returns for its stockholders in
the process. The program is designed to provide base salaries that represent
competitive compensation for the Company's executive officers, and incentive
compensation and long-term incentives that motivate the Company's executive
officers to achieve strategic business objectives over the long-term.

Base Salary. Each executive officer's base salary, including the base
salary of the Chief Executive Officer, is based primarily upon the competitive
market for the executive officer's services. In 1996, Hewitt Associates provided
the Compensation Committee with competitive market data of public companies that
compare with the Company in size and performance and which employ executives in
positions similar to the Company's executives. In light of the rate of turnover
among the Company's executive officers during 1996, among other factors, a
comprehensive assessment of the base salaries of executive officers was not
performed in 1996 as had been the Company's practice in prior years. The
Compensation Committee's review of the competitive market data provided by
Hewitt Associates and the competitive market data surveys performed in prior
years (in conjunction with the 1996 salary increases of the executive officers),
indicates that the base salaries of the Company's Chief Executive Officer and
the executive officer group considered as a whole, fell below market. It is the
Compensation Committee's goal that the Company pay market level compensation for
market level performance. The companies comprising the peer group index in the
stock price performance graph contained in the Proxy Statement (the "Peer
Group") and those analyzed in determining the Companies executive officers'
competitive pay performance are not identical. Significantly more companies were
used for pay comparisons to account for the fact that the Compensation Committee
believes that the Company's most direct competitors for executive talent are
more numerous than the companies included in the Peer Group. The Peer Group
consists of a selection of companies which possess one or more business
characteristics and goals similar to those of the Company, including physician
practice management objectives, systems integration objectives, financial
services objectives, consolidation objectives and collection objectives.

In addition to competitive compensation information, the Compensation
Committee evaluates certain qualitative factors, such as the Chief Executive
Officer's and the Compensation Committee's perceptions of each executive
officer's performance (i.e., experience, responsibilities assumed, demonstrated
leadership ability and overall effectiveness) during the preceding year. Other
factors considered by the Compensation Committee in formulating base salary
recommendations include the level of an executive's compensation in relation to
other executives in the Company with the same, more and less responsibilities
than the particular executive, inflation, the performance of the executive's
division or group in relation to established operating budgets, and the
Company's guidelines for salary increases to non-executive employees which are
determined as a part of the Company's annual budgeting and planning process.
Additionally, for executive officers who become a part of the Company as a
result of an acquisition, pre-acquisition compensation packages are considered,
and post-acquisition compensation arrangements for those executive officers are
often set forth in employment contracts with specified terms.

Cash Bonus Awards. No cash bonuses were awarded to the executive officers
pursuant to the Company's incentive compensation plan in 1996. Patrick B.
McGinnis, President of Healthcare Recoveries, Inc., a wholly owned subsidiary of
the Company ("HRI"), earned $86,093 pursuant to the 1996 HRI

12
<PAGE> 15

Incentive Compensation Plan. Except for the Chief Executive Officer, each
executive officer (including, during 1996, the Company's former Chief Executive
Officer) is eligible to receive an annual cash bonus award. These cash bonuses
generally are paid pursuant to an incentive compensation plan established at the
beginning of each fiscal year in connection with the Company's preparation of
its annual operating budget for such year. Consistent with the Company's
compensation philosophy, under the incentive compensation plan, each executive
(except the Company's Chief Executive Officer and the Company's former Chief
Executive Officer, whose cash bonus opportunities are discussed below) may
receive a bonus for a given year amounting to a maximum of 80% of the
executive's base salary. Because the Compensation Committee believes that the
Company's overall financial performance is one of the most important factors in
determining incentive compensation levels, the 1996 incentive compensation plan
provided that an executive would not receive any bonus amounts unless the
Company met the requisite earnings per share criteria and the executive's
division or group for such year achieved its established operating budget. The
1996 incentive compensation plan further provided that if the above financial
goals were met, only one-third of an executive's potential bonus award would be
paid automatically on a non-discretionary basis. The remaining two-thirds of an
executive's potential bonus award could be paid only upon the approval of the
disinterested members of the Board, to whom the Compensation Committee makes its
recommendations. The Compensation Committee's recommendations and the approval
of the disinterested members of the Board include particular accomplishments
achieved by the executive during the year in his area of responsibility, the
executive's level of responsibility and role in the Company, the executive's
contribution toward successful integration of acquired companies and such other
factors as they deem relevant to motivate the executive to achieve strategic
budgeted performance levels.

Restrike of Non-Executive Employee Options. On October 24, 1996, the
Compensation Committee approved an adjustment of the exercise price for certain
outstanding employee stock options which had an exercise price of $15.00 and
above. No adjustment was made to any options held by executive officers or
directors of the Company. The revised exercise price of $9.875 was established
by reference to the closing price of the Common Stock on October 25, 1996. 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 (including the recognition that significant compensation value was lost
through no fault of the affected employees), the following factors: (i) Below
market salaries: the Company had historically paid salaries which were at or
below market levels and had made up for lower salaries through stock option
grants to employees; (ii) Stock options: the Company historically had used stock
options as its principal long-term incentive program; (iii) Highly mobile
employees: the highly skilled employees of the Company possessed marketable
skills which made them highly mobile; and (iv) Risk of attrition: senior
management of the Company believed that there was potential for increased
attrition among its key employees and that adjustment of the exercise price of
outstanding options would significantly help to mitigate such risk.

Stock Option Awards. The Company maintains stock option plans which are
designed to align executives' and stockholders' interests in the enhancement of
stockholder value. Stock options are granted under these plans by the
disinterested members of the Board based upon the recommendations of the
Compensation Committee. Executive officers, including the Chief Executive
Officer, are eligible to receive options under these plans. In general, stock
option awards are granted on an annual basis if available for grant and if
warranted by the Company's growth and profitability, as expressed in earnings
per share, or as necessary to retain key employees. To encourage long-term
performance, executive options typically vest over a three to five-year period
and remain outstanding for eleven years. In order to attract experienced
management personnel and mitigate management's perceived risk of increased
attrition among the Company's executive officers, stock options granted to
certain of the Company's executive officers during the fourth quarter of 1996
contain an acceleration feature which cause such options to vest immediately
upon the average closing price of Common Stock exceeding $25.00 per share for
twenty consecutive trading days, a 123% increase over the closing price of
Common Stock at December 31, 1996.

In formulating its recommendations to the Board of Directors or the
disinterested members of the Board, as applicable, with respect to stock option
awards, the Compensation Committee evaluates the Company's

13
<PAGE> 16

consolidated profitability for the year, the Company's growth plans, the
desirability of long-term service from an executive, the number of options held
by other executives in the Company with similar responsibilities as the
executive at issue, and the amount and terms of options already held by the
executive. In formulating its recommendation to the Board of Directors or the
disinterested members of the Board, as applicable, with respect to the 1996
stock option awards to executive officers of the Company, only three of whom
received stock option awards during 1996 (other than the Company's Chief
Executive Officer, whose stock option grants are discussed below), the
Compensation Committee engaged in a subjective analysis of all relevant factors,
with particular emphasis placed on creating incentive opportunity for successful
long-term performance from the executive officers.

Restricted Stock Awards. The Board adopted the Company's Restricted Stock
Plan in 1994 to create additional long-term incentives for the senior executives
of the Company to increase stockholder value. Immediately after the Board
adopted the Restricted Stock Plan in August 1994, the disinterested members of
the Board awarded an aggregate of 249,000 shares of restricted stock to five
executives of the Company, including the Company's former Chief Executive
Officer. No awards of restricted stock have been made pursuant to the Restricted
Stock Plan since August 1994. The only executives who received awards pursuant
to the Restricted Stock Plan have since resigned from the Company.

In general, these shares of restricted stock vest 50% on the second
anniversary and 25% on the third and fourth anniversaries of the grant date, and
shares not vested are subject to forfeiture upon termination of the executive's
employment for cause. Furthermore, vesting of the restricted shares can be
accelerated to 50% vested in 1996 and 50% vested in 1997 in the event the
Company achieves certain earnings per share targets for 1995 and 1996. On
February 6, 1996, 50% of the restricted shares issued to date vested based upon
the Company's achieving net income per share in excess of $.75 for the year
ended December 31, 1995, after excluding restructuring and certain other charges
incurred during the year. The Company did not achieve target earnings per share
for the fiscal year ending December 31, 1996. The remaining 50% will vest in
accordance with the provisions of the Restricted Stock Plan and other agreements
the Company has entered into with certain former executive officers.

In June 1996, the Compensation Committee recommended, and the disinterested
members of the Board approved an award of 50,000 shares of restricted stock to
Michael L. Douglas, the Company's former Vice Chairman and Chief Operating
Officer. Upon Mr. Douglas' resignation as Chief Operating Officer and a member
of the Board of Directors, effective January 31, 1997, Mr. Douglas forfeited all
of the restricted shares of Common Stock previously granted to him.

Re-Engineering Incentive Plan Unit Awards. In 1996, the Board adopted the
Company's Re-Engineering, Consolidation and Business Improvement Cash Incentive
Plan (the "Re-Engineering Incentive Plan") to retain and provide incentive to
key employees necessary to effectuate the Company's comprehensive re-engineering
and consolidation project (the "Re-Engineering Project") through awards
denominated in stock units which are payable in cash upon vesting. Key
employees, including the Chief Executive Officer, are eligible to receive stock
units under this plan. The Company is authorized to issue an aggregate of
450,000 units under the Re-Engineering Incentive Plan. Awards made under the
Plan will vest and become payable in full upon the successful completion of the
Re-Engineering Project and achievement of the business improvement milestones
set forth in the Re-Engineering Incentive Plan, as determined in the sole and
absolute discretion of the Compensation Committee. Upon the vesting of awards
under the terms of the plan, each award shall represent the right to receive an
amount of cash equal to the average closing price of the Common Stock for the
ten consecutive trading days immediately prior to the vesting date multiplied by
the number of stock units granted in an award. No awards shall be made under the
Re-Engineering Incentive Plan after December 31, 1997. All awards of units made
under the Re-Engineering Incentive Plan become fully vested and payable in full
upon the occurrence of a change in control of the Company. The Re-Engineering
Incentive Plan is administered by the Compensation Committee and does not
require the approval of the holders of the Common Stock. An aggregate of 156,583
units were granted during the fiscal year ended December 31, 1996, representing
all of the grants under the Re-Engineering Incentive Plan to date. In granting
awards under the Re-Engineering Incentive Plan, the Compensation Committee
placed particular emphasis on the desirability of creating incentives for key
employees to facilitate the successful re-engineering

14
<PAGE> 17

of the Company's transaction processing operations and to achieve the overall
business improvement milestones set forth in the Re-Engineering Incentive Plan.
In light of the Company's abandonment of the Re-Engineering Project during 1996,
the Compensation Committee does not anticipate granting additional awards under
the Re-Engineering Incentive Plan.

Deductibility of Certain Compensation. Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), generally disallows a tax
deduction to publicly held corporations for compensation in excess of $1 million
in any taxable year that is paid to the corporation's chief executive officer or
to the four other most highly compensated executive officers. The Compensation
Committee has considered the provisions of Section 162(m) and the Company's
Amended and Restated Non-Qualified Stock Option Plan (the "Stock Option Plan")
was amended in 1996 to make certain sections of the plan compatible with that
provision of the Code, while maintaining the Compensation Committee's
flexibility to exercise business judgment in determining awards to take account
of business conditions or the performance of individual executives. No named
executive received compensation in 1996 that will be subject to the Section
162(m) limitation on deductibility.

Chief Executive Officer Compensation. The Company's former Chief Executive
Officer, Randolph G. Brown, resigned from the Company in October 1996 during the
second year of a five-year employment agreement.

Effective October 31, 1996, David E. McDowell was appointed Chairman and
Chief Executive Officer of the Company. As discussed earlier in this Proxy
Statement, the Compensation Committee determined that the best interests of the
Company's stockholders would be served by the procurement from Mr. McDowell of
an employment agreement with a five-year term which contains certain
non-competition, non-solicitation and change in control provisions (the
"Employment Agreement"). The Employment Agreement was entered into by Mr.
McDowell effective November 19, 1996. Mr. McDowell received a $500,000 cash
payment as a signing incentive at that time to replace a portion of foregone
compensation from his previous employer. Pursuant to the Employment Agreement,
Mr. McDowell will receive a base salary of at least $300,000 per year, a housing
and travel allowance for himself and his spouse until he relocates his primary
residence to the Atlanta metropolitan area, and will receive certain other
standard employee benefits. Based on a competitive compensation review of other
chief executive officers at similarly sized companies, Mr. McDowell's $300,000
base salary falls below market.

In addition, upon considering the Compensation Committee's desire to
augment Mr. McDowell's long-term incentive for continued employment with the
Company and the Compensation Committee's desire to shift annual cash
compensation opportunities into an equity-based program, the Compensation
Committee recommended, and the disinterested members of the Board approved the
following: (1) pursuant to the terms of the Employment Agreement, Mr. McDowell
is ineligible to participate in the Company's incentive compensation plan absent
written authorization of the Compensation Committee; and (2) Mr. McDowell shall
instead receive a grant of options to acquire 810,000 shares of Common Stock
under the Stock Option Plan. Six hundred thousand of such options vest ratably
over the next five years. The remaining 210,000 options are performance-based
options and vest one-third upon 100% appreciation in the closing price of the
Common Stock over the closing price of the Common Stock on the date of grant,
one-third upon 200% appreciation and the remaining one-third upon 300%
appreciation. All unvested performance-based options shall vest on November 19,
2001. Based on a competitive compensation review of other chief executive
officers of similarly sized companies, the annualized economic value of Mr.
McDowell's total compensation package, including the foregoing equity
compensation and his base salary, falls below market.

COMPENSATION COMMITTEE
Robert C. Bellas, Jr., Chairman
David R. Holbrooke, M.D.

April 21, 1997

The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filing under the Acts, except to the extent

15
<PAGE> 18

that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As described earlier in this Proxy Statement, the Company has a
Compensation Committee composed of Robert C. Bellas, Jr., Chairman, and David R.
Holbrooke, M.D. Dennis A. Pryor served on the Compensation Committee from
January 1996 to May 1996, and David E. McDowell served on the Compensation
Committee from May 1996 through October 1996. Medical Management Sciences South,
Inc., a wholly owned indirect subsidiary of the Company ("MMSS"), leased certain
offices in Chattanooga, Tennessee from Financial Enterprises, III, a limited
liability company ("FE III") in which Dennis A. Pryor (a member of the Board of
Directors) owns a 50% interest. MPSC made payments on behalf of a client
pursuant to a separate lease of offices in Raleigh, North Carolina owned by FE
III. The Company paid FE III approximately $92,000 pursuant to such leases
during 1996.

CERTAIN TRANSACTIONS

Leases. MMSS leased certain offices in Chattanooga, Tennessee from FE III,
a limited liability company in which Dennis A. Pryor (a member of the Board of
Directors) owns a 50% interest. MPSC made payments on behalf of a client
pursuant to a separate lease of offices in Raleigh, North Carolina owned by FE
III. MPSC paid FE III approximately $92,000 pursuant to such leases during 1996.

Acquisition Transactions. Effective May 6, 1996, the Company acquired all
of the outstanding stock of BSG in a merger transaction (the "BSG Merger")
pursuant to the terms of the BSG Merger Agreement (the "BSG Merger Agreement"),
dated as of March 15, 1996, by and among the Company, BSG and BSGSub, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company ("BSGSub"). In
the BSG Merger, BSGSub merged with and into BSG with BSG surviving such merger
as a wholly owned subsidiary of the Company. As a result of the BSG Merger, all
of the issued and outstanding stock of BSG converted into the right to receive a
total of 7,539,179 shares of Common Stock. The amount of Common Stock issued in
connection with the BSG Merger was determined by arm's-length negotiations
between the Company and BSG and included, among other factors, consideration of
BSG's historical and projected earnings and valuations of and purchase prices
paid for comparable companies.

Less than one percent of the outstanding capital stock of BSG was owned by
Steven G. Papermaster, and Mr. Papermaster received 1,150 shares of Common Stock
in connection with the BSG Merger. NP Ventures, Ltd., an affiliate of Mr.
Papermaster's, owned approximately 29.5% of the outstanding capital stock of BSG
and received 2,224,100 shares of Common Stock in connection with the BSG Merger.
On May 6, 1996, the Common Stock received by Mr. Papermaster and NP Ventures,
Ltd. had market values of $50,600 and $97,860,400, respectively, as calculated
based upon $44.00, the closing price of the Common Stock on the Nasdaq Stock
Market on May 6, 1996. Mr. Papermaster entered into an Employment Agreement with
BSG (now owned by the Company) with a two-year term which contains certain
non-competition and non-solicitation provisions and a separate Non-Competition
and Non-Solicitation Agreement with a four-year term which also contains certain
non-competition and non-solicitation provisions. Pursuant to the employment
agreement, Mr. Papermaster will receive a base salary of $225,000 per year and
will be entitled to participate in the Company's incentive compensation plan as
described in the Compensation Committee Report on Executive Compensation
contained elsewhere in this Proxy Statement.

NFT owned 58.84% of the outstanding capital stock of BSG and received
4,436,205 shares of Common Stock in connection with the BSG Merger. Such shares
of Common Stock had a market value of $195,193,020 on May 6, 1996, as calculated
based upon $44.00, the closing price of the Common Stock on the Nasdaq Stock
Market on May 6, 1996.

On February 28, 1997, Steven G. Papermaster, Raymond J. Noorda and two
entities they control made a demand for indemnification under an indemnification
agreement executed by the Company in connection with its acquisition of BSG in
May 1996. On the date of the demand, Mr. Papermaster was an executive officer
and

16
<PAGE> 19

a director of the Company. Mr. Papermaster resigned such positions on March 21,
1997, although he remains an executive officer of BSG. The indemnification
demand claims damages of $35,000,000 (the maximum damages payable by the Company
under the indemnification agreement) for the alleged breach by the Company of
its representations and warranties made in the BSG Merger Agreement. The Company
believes it has meritorious defenses to the indemnification claim.

Employment Agreements and Other Matters. In November 1996, the Company and
David E. McDowell, the Company's Chairman and Chief Executive Officer, entered
into a five-year employment agreement which contains certain non-competition,
non-solicitation and change in control provisions. Pursuant to that agreement,
Mr. McDowell received a signing incentive of $500,000 and is to receive a base
salary of at least $300,000 per year. Upon early termination of the agreement by
the Company other than for cause or by Mr. McDowell for "good reason" or by
either party following certain change in control events, the Company is
obligated to pay Mr. McDowell his annual salary, to provide for the continued
vesting of stock option awards described in the employment agreement and to
provide for certain health insurance benefits to Mr. McDowell through November
19, 2001. Upon certain change in control events and a termination of the
agreement by Mr. McDowell, the Company will pay to Mr. McDowell (in lieu of its
obligation to make the foregoing payments of salary and to provide the foregoing
benefits), a termination payment in periodic installments or a lump sum (at Mr.
McDowell's option) equal to the salary that would have been payable to Mr.
McDowell pursuant to the agreement from the date of termination until November
18, 2001, and an additional amount sufficient to make Mr. McDowell whole with
respect to any tax which may be imposed by Section 4999 of the Code. A Change in
Control Event is generally defined in the agreement as the adoption of a plan of
liquidation or approval of the dissolution of the Company, certain mergers and
consolidations of the Company, the sale or transfer of substantially all of the
Company's assets, certain changes in the composition of the Company's Board of
Directors, or the acquisition of more than 30% of the Common Stock by any
individual, entity, group or other person. Mr. McDowell also received options to
purchase up to 810,000 shares of Common Stock, as described in the Compensation
Committee Report on Executive Compensation contained elsewhere in this Proxy
Statement. See also "Employment Agreements."

As part of the Company's purchase of CompMed, Inc., effective December 31,
1992, Dennis A. Pryor and the Company entered into an employment agreement with
a two-year term which contains certain non-competition and non-solicitation
provisions. That agreement was subsequently amended in 1994 extending the term
for an additional four years. Pursuant to the amended agreement, during 1996,
Mr. Pryor received a base salary of $50,000, together with certain employee
benefits.

In March 1995, Randolph G. Brown, the Company's former Chief Executive
Officer, entered into a five-year employment agreement with the Company which
contained certain non-competition and non-solicitation provisions. Pursuant to
that agreement, during 1996, Mr. Brown received a base salary of $250,000,
together with certain employee benefits. Mr. Brown resigned from the Company in
October 1996. Pursuant to his employment agreement, Mr. Brown is continuing to
receive $250,000 per annum and certain employee benefits during the term of the
agreement. The Company expects to extend the post-termination exercise period
for certain stock options held by Mr. Brown for a period to be agreed upon, but
in no event later than December 31, 1997. See "Employment Agreements" and
"Compensation Committee Report on Executive Compensation -- Chief Executive
Officer Compensation."

As part of the Company's acquisition of HRI, effective August 28, 1995,
Patrick B. McGinnis and HRI entered into an employment agreement with a
three-year term which contains certain non-competition, non-solicitation,
severance and other provisions concerning Mr. McGinnis' responsibilities.
Pursuant to that agreement, during 1996, Mr. McGinnis received a base salary of
$193,000, together with certain employee benefits. The Company has agreed with
Mr. McGinnis that, upon a sale by the Company of all the outstanding common
stock of HRI in a public offering, the Company will cause HRI to issue to Mr.
McGinnis a number of shares of HRI common stock equal to 0.8% of the number of
shares outstanding immediately prior to the offering. Based on the estimated
maximum offering price for HRI's common stock as reflected in the registration
statement filed by HRI on March 14, 1997, the shares issuable to Mr. McGinnis
would have a value of approximately $1,340,000. The Company would require Mr.
McGinnis not to dispose of 50% of the

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<PAGE> 20

shares for one year after issuance. The Company has also agreed with Mr.
McGinnis to pay him an aggregate of $1,000,000 if HRI is sold in a private
transaction instead of a public offering.

Effective December 31, 1996, Timothy J. Kilgallon, a former Executive Vice
President of the Company, and the Company entered into an agreement which
contains a general release of the Company and certain non-competition,
non-solicitation and confidentiality provisions. Pursuant to that agreement, Mr.
Kilgallon is entitled to receive a severance payment equal to fifteen months of
salary continuation at Mr. Kilgallon's regular rate of pay of $200,000, and, at
Mr. Kilgallon's election of COBRA coverage, payment by the Company of Mr.
Kilgallon's COBRA premiums for eighteen months. Mr. Kilgallon's restricted stock
award dated August 12, 1994 will continue to vest in accordance with the vesting
schedule set for in the Restricted Stock Plan described elsewhere in this Proxy
Statement (without giving effect to any provision indicating that such benefit
ceases upon termination of employment).

William R. Spalding, a former Executive Vice President of the Company,
received an advance from the Company in the amount of $300,000. In connection
with this advance, Mr. Spalding issued to the Company a Deferred Bonus Note,
dated January 1, 1996, in the principal amount of $300,000 (the "Deferred Bonus
Note"). No interest accrued or was payable with respect to the outstanding
principal balance of the Deferred Bonus Note. Under the terms of the Deferred
Bonus Note, the principal amount of the note was to be forgiven in three equal
installments in 1997, 1998 and 1999, provided that Mr. Spalding remained an
employee of the Company on the date that an installment of principal was due.
During 1996, approximately $16,500 of interest was imputed to Mr. Spalding
pursuant to the terms of the Deferred Bonus Note. Upon a change in control
followed by Mr. Spalding's termination of employment for any reason within
twelve months of such change in control or Mr. Spalding's death or disability,
the outstanding principal amount of the Deferred Bonus Note was to be canceled.
A change in control event is generally defined for purposes of the Deferred
Bonus Note to include the adoption of a plan of liquidation or approval of the
dissolution of the Company, certain mergers and consolidations of the Company,
the sale or transfer of substantially all of the Company's assets, the sale or
transfer of all of the assets or stock of an operating subsidiary of the
Company, other than as security for obligations of the Company, or 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. On February 26, 1997,

18
<PAGE> 21

the Company transferred to a third party the assets of the Decision Support
Division of Medaphis Healthcare Information Technology Company, a wholly owned
subsidiary of the Company. On April 11, 1997, Mr. Spalding resigned as Executive
Vice President of the Company. As a result of the change in control of the
Decision Support Division and Mr. Spalding's subsequent termination of
employment, the outstanding principal balance of the Deferred Bonus Note was
canceled and no amount remains payable thereunder.

SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and persons who own
more than 10% percent of the Common Stock to file certain reports with respect
to each such person's beneficial ownership of the Common Stock, including
statements of changes in beneficial ownership on Form 4. In addition, Item 405
of Regulation S-K requires the Company to identify in its Proxy Statement each
reporting person that failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year or prior
fiscal years. Based solely upon a review of Forms 3 and 4 and amendments
thereto, all such persons complied with the applicable reporting requirements.

PROPOSAL TO AMEND THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

The Board has unanimously recommended that the stockholders approve the
Amendment, as permitted by the Delaware General Corporation Law, to authorize
the Board to issue from time to time, without further stockholder action (unless
required in a specific case by applicable Nasdaq National Market rules), 20
million shares of one or more series of preferred stock, with such terms and for
such consideration as the Board may determine. With respect to any such series
of preferred stock, the Board will be authorized to determine, among other
things: (i) the number of shares that constitute each series; (ii) the dividend
rate or rates, the conditions and times at which the dividend is payable, its
preference as to any other class or series of capital stock, and whether
dividends will be cumulative or non-cumulative; (iii) whether the shares are to
be redeemable and, if so, at which times and prices and on what other terms and
conditions; (iv) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares; (v) whether or not the shares will be
convertible or exchangeable and, if so, the times, prices, rates, adjustments
and other terms of such conversion or exchange; (vi) the voting rights, if any,
applicable to the shares in addition to those prescribed by law; (vii) the
restrictions and conditions, if any, on the issue or reissue of any additional
shares of such series or of any other series of preferred stock ranking on a
parity with, or prior to, the shares of such series; (viii) the rights of the
holders of such shares upon voluntary or involuntary liquidation, dissolution or
winding up of the Company; and (ix) any other relative rights, powers,
preference, qualifications, limitations or restrictions. The text of the
Amendment to the Certificate of Incorporation is set forth in Exhibit A to this
Proxy Statement.

The Board believes that adoption of the proposed Amendment by the
stockholders is in the best interests of the Company and its stockholders
because the ability to fix the terms of and to issue shares of preferred stock
without the delay related to obtaining stockholder approval provides the Company
with needed financial flexibility. For example, the Company has announced its
intention to effect certain asset sales to raise funds necessary to satisfy
repayment obligations on its bank debt in July 1997 and January 1998. If such
planned asset sales are not consummated or do not produce adequate funds to
satisfy these repayment obligations, the Company may need to issue preferred
stock to raise capital or in connection with a restructuring or a renegotiation
of its bank debt, or both. Under the Amendment the Board would be able to fix
the characteristics of the preferred stock to be issued based on then current
market conditions and other terms of the transaction in which shares of
preferred stock would be issued. The Company has recently received proposals
from third parties relating to various financing alternatives which, among other
things, would involve the issuance of preferred stock. However, the Company does
not currently have any agreement or obligation to pursue any specific financing
transaction which would involve the issuance of preferred stock.

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<PAGE> 22

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 a company's incumbent management. Neither the Board nor management
intends to use the preferred stock to assume control of the Company or to
discourage or hinder an attempt by any other person, company or group to assume
control of the Company, to accumulate Common Stock or to remove present
management. Accordingly, the Board and management represent that they will not
issue shares of preferred stock without prior stockholder approval (i) for any
defensive or anti-takeover purpose or (ii) to implement any stockholder rights
plan.

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. Each
series of preferred stock could and probably would, as determined by the Board
at the time of issuance, rank senior to the Company's Common Stock with respect
to dividends, redemption 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.

The proposal to adopt the Amendment to the Certificate of Incorporation
will be adopted upon receiving the affirmative vote of holders of a majority of
the Company's outstanding shares of Common Stock.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.

SELECTION OF INDEPENDENT AUDITORS

The Board has not selected a firm to serve as independent auditors for
1997. In light of recent management changes at the Company, the Board is
evaluating independent auditors and will make its selection as soon as is
reasonably practicable after the annual meeting. Deloitte & Touche LLP has
served as independent auditors of the Company since 1985. One or more
representatives of Deloitte & Touche LLP will be present at the annual meeting,
will have an opportunity to make a statement if he or she so desires, and will
be available to respond to appropriate questions.

ANNUAL REPORT TO STOCKHOLDERS

The annual report of the Company for the year ended December 31, 1996,
including audited financial statements, accompanies this Proxy Statement.

ANNUAL REPORT ON FORM 10-K

The Company will provide without charge, at the written request of any
beneficial stockholder of record on March 21, 1997 a copy of the Company's
Annual Report on Form 10-K, including the financial statements and financial
statement schedules, as filed with the Securities and Exchange Commission,
except exhibits thereto. The Company will provide copies of the exhibits, should
they be requested by eligible stockholders, and the Company may impose a
reasonable fee for providing such exhibits. Requests for copies of the Company's
Annual Report on Form 10-K should be mailed to:

MEDAPHIS CORPORATION
2700 Cumberland Parkway
Suite 300
Atlanta, Georgia 30339
Attention: Melissa Coley
Investor Relations Coordinator

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<PAGE> 23

STOCKHOLDER PROPOSALS

Any stockholder proposals intended to be presented at the Company's 1998
annual meeting of stockholders must be received no later than December 22, 1997
in order to be considered for inclusion in the Proxy Statement and form of proxy
to be distributed by the Board in connection with such meeting.

OTHER MATTERS

The minutes of the annual meeting of stockholders held on May 1, 1996 will
be presented to the meeting, but it is not intended that action taken under the
proxy will constitute approval of the matters referred to in such minutes. The
Board knows of no other matters to be brought before the meeting. However, if
any other matters should come before the meeting, the persons named in the proxy
will vote such proxy in accordance with their judgment.

EXPENSES OF SOLICITATION

The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances, be made personally or by
telephone, facsimile or mail by one or more employees of the Company. The
Company also may reimburse brokers, banks, nominees and other fiduciaries for
postage and reasonable clerical expenses of forwarding the proxy material to
their principals who are beneficial owners of the Company's common stock.
Corporate Investor Communications, Inc. will assist in the solicitation of
proxies by telephone and/or by mail. The fee of Corporate Investor
Communications, Inc. for providing these services is $4,000 plus any out-of-
pocket expenses.

JEROME H. BAGLIEN
Senior Vice President,
Chief Financial Officer and
Assistant Secretary

April 21, 1997

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<PAGE> 24

EXHIBIT A

PROPOSED AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF MEDAPHIS CORPORATION

Medaphis Corporation, 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 amendment (the "Amendment") is as set forth below:

a. The first sentence of Article Fourth of the Corporation's Amended
and Restated Certificate of Incorporation is deleted and replaced with the
following:

"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")."

b. Article Fourth of the Corporation's Amended and Restated
Certificate of Incorporation is further amended by inserting the following
new Section II at the end of Article Fourth of the Corporation's Amended
and Restated Certificate of Incorporation:

"II.

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 the
Amended and 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
Amended and 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 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;

(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;

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<PAGE> 25

(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;

(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 Amended and 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 II 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

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<PAGE> 26

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 II 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 the Amended and 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
proposed amendment to the Amended and 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 Amended and
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 Amended and 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 II 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;

(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

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<PAGE> 27

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."

2. The Amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.

3. The undersigned officer of the Corporation hereby acknowledges that the
foregoing is the act and deed of the Corporation and that the facts stated
herein are true.

IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed to this Certificate and has caused this Certificate to be signed this
day of April, 1997.

By:
------------------------------------
David E. McDowell

Chairman and Chief Executive Officer

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<PAGE> 28
APPENDIX

PROXY MEDAPHIS CORPORATION

PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON MAY 19, 1997

The undersigned hereby appoints DAVID E. MCDOWELL and JEROME H. BAGLIEN and
each of them, proxies, with full power of substitution and resubstitution, for
and in the name of the undersigned, to vote all shares of stock of Medaphis
Corporation (the "Company"), which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held on Monday,
May 19, 1997, at 10:00 a.m., Atlanta time, at the offices of King & Spalding,
50th Floor, 191 Peachtree Street, Atlanta, Georgia 30303, and at any adjournment
thereof, upon the matters described in the accompanying Notice of Annual Meeting
of Stockholders and Proxy Statement, receipt of which is hereby acknowledged,
and upon any other business that may properly come before the meeting or any
adjournment thereof. Said proxies are directed to vote on the matters described
in the Notice of Annual Meeting and Proxy Statement, as follows, and otherwise
in their discretion upon such other business as may properly come before the
meeting or any adjournment thereof.

(1) To elect five (5) directors:

<TABLE>
<S> <C>
[ ] FOR all nominees listed (except as marked [ ] WITHHOLD AUTHORITY to vote for
to the contrary below) all nominees listed
Robert C. Bellas, Jr. David R. Holbrooke, M.D. David E. McDowell
John C. Pope Dennis A. Pryor
</TABLE>

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST ABOVE.)

(2) To approve and adopt an amendment to the Company's Amended and Restated
Certificate of Incorporation, as amended, pursuant to which (i) the total
number of shares of capital stock that the Company would be authorized to
issue would be increased from 200,600,000 shares to 220,600,000 shares and
(ii) the Company would be authorized to issue up to 20,000,000 shares of
preferred stock, no par value per share.

[] FOR [] AGAINST [] ABSTAIN
(Continued, and to be signed, on the other side)

(Continued from other side)

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE PROPOSALS ON THE OTHER SIDE.

Date , 1997
----------------------

--------------------------------

Please sign exactly as your name
or names appear hereon. Where
more than one owner is shown
above, each should sign. When
signing in a fiduciary or
representative capacity, please
give full title. If this proxy
is submitted by a corporation,
it should be executed in the
full corporate name by a duly
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.

PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU ATTEND
THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.