MEDAPHIS CORP, DEF 14A, 1998-03-20

MEDAPHIS CORP
DEF 14A, 1998-03-20
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

<TABLE>
<S> <C> <C>
Medaphis Logo MEDAPHIS CORPORATION
2700 CUMBERLAND PARKWAY
SUITE 300
ATLANTA, GEORGIA 30339
</TABLE>

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON APRIL 30, 1998

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

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Medaphis
Corporation (the "Company") will be held at the offices of King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303 on Thursday, April 30, 1998 at 10:00
a.m. for the following purposes:

(1) To elect six (6) directors;

(2) To approve an amendment to the Company's Employee Stock Purchase
Plan, as amended, to increase the total number of shares of common stock
available for sale under such plan from three hundred thousand (300,000)
shares to one million (1,000,000) shares; 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 6, 1998 as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the meeting and any adjournment thereof.

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

By Order of the Board of Directors,

Randolph L.M. Hutto

Executive Vice President,
General Counsel and
Secretary

Atlanta, Georgia

March 20, 1998

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 APRIL 30, 1998

March 20, 1998

The enclosed form of proxy is solicited by the Board of Directors of
Medaphis Corporation ("Medaphis" or 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 April 30, 1998 at
10:00 a.m. at the offices of King & Spalding, 191 Peachtree Street, Atlanta,
Georgia 30303, 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 6, 1998
will be entitled to vote at the annual meeting. As of that date, the Company had
outstanding 73,692,727 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 March 27, 1998.

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, and thus will have the effect of a vote
against a proposal that requires the affirmative vote of a majority of the votes
cast by the stockholders of Common Stock present in person or by proxy and
entitled to vote thereon. 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 may be specified on all
proposals other than the election of directors, and 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

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 elected and qualified. All of such
nominees are members of the present Board. With the exception of Mr. C.
Christopher Trower, who was appointed to the Board on May 19, 1997, 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 six 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. With respect to the election of directors,
votes may be cast or withheld for each nominee. Votes that are withheld will
have no effect on the election of directors. Stockholders eligible to vote at
the annual meeting do not have cumulative voting rights with respect to the
election of directors.

MANAGEMENT OF THE COMPANY

DIRECTORS STANDING FOR REELECTION

Set forth below are the nominees for re-election 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 57
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.

2
<PAGE> 5

DAVID E. MCDOWELL
Age 55
Director since 1996

Mr. McDowell was appointed to the Board in May 1996. In October 1996, Mr.
McDowell became the Chairman and Chief Executive Officer of the Company. From
1992 to 1996, he was President, Chief Operating Officer and a director of
McKesson Corporation. 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.
Prior to 1992, Mr. McDowell served for over 25 years as a senior executive at
IBM, including as a Vice President and President of the National Services
Division.

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, Inc., most recently as President, Chief
Operating Officer and Director. Mr. Pope is also a member of the Board of
Directors of Federal-Mogul Corporation, Wallace Computer Services, Inc., Lamalie
Associates, Inc., Waste Management, Inc., and Dollar Thrifty Automotive Group,
Inc.

DENNIS A. PRYOR
Age 55
Director since 1993

Mr. Pryor joined the Company in January 1993 in connection with the
acquisition of CompMed, Inc. ("CompMed") and subsequently became a director of
the Company. 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.

C. CHRISTOPHER TROWER
Age 49
Director since 1997

Mr. Trower, a member of the Georgia and Kentucky bars, is engaged in the
private practice of law. Since June, 1997, he has been the owner of the Atlanta
law firm of electriclaw.com. From 1988 to June, 1997, Mr. Trower was a partner
of the Atlanta law firm of Sutherland, Asbill & Brennan.

BOARD REPRESENTATION

Effective May 6, 1996, the Company acquired all of the outstanding stock of
BSG Corporation, a Delaware corporation ("BSG") in a merger transaction (the
"BSG Merger"). Pursuant to the terms of a Merger Agreement dated as of March 15,
1996, among the Company, BSG and BSGSub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company, for a period of five years following the
closing of the BSG Merger, the Company will nominate a designee of Raymond J.
Noorda and Steven G. Papermaster for election as a member of the Board. Steven
G. 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 Medaphis. On March 21, 1997, Mr. Papermaster resigned as a director
and Executive Vice President of Medaphis. Mr. Papermaster resigned from all
offices with subsidiaries of the Company on October 14, 1997. As of the date
hereof, Messrs. Noorda and Papermaster have not designated a replacement
nominee.

3
<PAGE> 6

OPERATION OF THE BOARD OF DIRECTORS

The Company has an Audit Committee of the Board (the "Audit Committee")
which, during 1997, was composed of David R. Holbrooke, M.D., Chairman, Robert
C. Bellas, Jr., and C. Christopher Trower. 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 1997, was composed of Robert C. Bellas, Jr., Chairman,
David R. Holbrooke, M.D., and John C. Pope. 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 1997, the Board met twenty (20) times, the Audit Committee met
fourteen (14) times and the Compensation Committee met eleven (11) 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 1997.

DIRECTORS' COMPENSATION

In July 1997, the Company adopted a non-employee director compensation
plan. The intent of this plan is to compensate non-employee members of the Board
fairly for their talents and time spent on behalf of the Company. The plan
provides both cash and equity compensation. The cash compensation consists of an
annual retainer in the amount of $16,000 and a fee in the amount of $1,000 for
each Board meeting attended. Each Board committee chairman also receives an
annual retainer in the amount of $2,000 and a fee in the amount of $750 for each
committee meeting attended, and each Board committee member other than a
committee chairman receives a fee in the amount of $650 for each committee
meeting attended. Equity compensation under the plan consists of an initial
grant of 10,000 stock options (upon first election or appointment to the Board)
and an annual grant of 2,000 stock options for each year of service thereafter.
The stock option plan under which these options are granted is the Company's
Non-Employee Director Stock Option Plan (the "Director Plan"). Non-employee
directors may elect to defer receipt and taxation of the cash compensation under
this plan by participating in the Company's Non-Employee Director Deferred Stock
Credit Plan (the "Deferred Stock Credit Plan"). Deferral of taxation is
accomplished under the Deferred Stock Credit Plan using a cash-based feature
similar in substance to a restricted stock program (i.e., the prospective
economic benefit to each participant reflects the full market price per share of
the Company's Common Stock, and varies with fluctuations in that price). The pay
element is paid to the participant upon retirement from the Board.

In addition, 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.

4
<PAGE> 7

MANAGEMENT COMMON STOCK OWNERSHIP

The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of December 31, 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>
David E. McDowell........................................... 120,000(2) *
Randolph L. M. Hutto........................................ 1,000 *
C. James Schaper............................................ 83,334(3) *
Jerome H. Baglien........................................... 83,334(3) *
Harvey Herscovitch.......................................... 20,334(4) *
Robert C. Bellas, Jr. ...................................... 12,915(5) *
David R. Holbrooke, M.D..................................... 38,700(6) *
John C. Pope................................................ -- --
Dennis A. Pryor............................................. 104,000(7) *
C. Christopher Trower....................................... 700 *
All executive officers and directors as a group (10
persons).................................................. 464,317 *
</TABLE>

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

* Beneficial ownership represents less than 1% of the outstanding Common
Stock.
(1) Under the rules of the 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
above have sole voting and investment power with respect to all shares of
Common Stock shown as being beneficially owned by them.
(2) Includes 120,000 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; 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.
(3) Includes 83,334 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) Includes 13,334 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 1,143 shares that are held by the Bellas Family Partnership. Also
includes 7,200 shares that are not currently outstanding, but that may be
acquired under the Director Plan.
(6) Includes 1,500 shares held in a bank account for the benefit of Dr.
Holbrooke's son, a minor. Also includes 7,200 shares that are not currently
outstanding, but may be acquired under the Director Plan.
(7) 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.

EMPLOYMENT AGREEMENTS

5
<PAGE> 8

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 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 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. See also "Certain Transactions."

In January 1997, the Company and Jerome H. Baglien, the Company's former
Senior Vice President and Chief Financial Officer, entered into a three-year
employment agreement which contains certain non-competition and non-solicitation
provisions. Pursuant to that agreement, Mr. Baglien is to receive a base salary
of $250,000 per year (subject to adjustments by any increases given in the
normal course of business), and is entitled to an incentive compensation payment
equal to 80% of his base salary, subject to achievement of certain performance
objectives set by the Board. Mr. Baglien is entitled to reimbursement of certain
expenses, including relocation expenses, and is also entitled to receive an
amount equal to any federal and state income taxes payable by him as a result of
such expense reimbursement. Upon early termination of Mr. Baglien's employment
by the Company other than for cause or by Mr. Baglien for "good reason," the
Company is obligated to continue to pay Mr. Baglien his annual salary and to
cover him under certain welfare plans as if his employment had not been
terminated. Mr. Baglien also received options to purchase up to 250,000 shares
of Common Stock. In June 1997, the Company and Mr. Baglien entered into a letter
agreement in which the Company agreed that if Mr. Baglien remained employed by
the Company on December 31, 1997, then the Company would pay him a special one
time bonus for 1997 in the amount of $187,500. Mr. Baglien resigned from his
position with the Company in January 1998. See also "Certain Transactions."

In February 1997, the Company and C. James Schaper, an Executive Vice
President of the Company, entered into a three-year employment agreement which
contains certain non-competition, non-solicitation and change in control
provisions. Pursuant to that agreement, Mr. Schaper received a signing bonus of
$100,000, and is to receive a base salary of $250,000 per year (subject to
adjustments by any increases given in the normal course of business), and is
entitled to an incentive compensation payment equal to 80% of his base salary,
payable at the discretion of the Board. At the end of the first year of the
agreement, Mr. Schaper is eligible to receive an additional payment of $100,000.
In the event Mr. Schaper's employment is terminated by the Company without
cause, the Company will remain subject to its obligations under the agreement as
if Mr. Schaper remained employed for the balance of the agreement's three-year
term. In the event that Mr. Schaper elects to resign from the Company following
a change in control of the Company, he is entitled to receive a severance
payment equal to the greater of one year of salary continuation at his then
current base salary or the amount of the payments due and owing to him through
the remaining term of the agreement. A "change in control" is generally defined
in the agreement as any consolidation, merger, reorganization or other
transaction in which the Company is not the surviving entity or the sale of a
substantial portion of the Company's assets. Mr. Schaper also received options
to purchase up to 250,000 shares of Common Stock. In June 1997, the Company and
Mr. Schaper entered into a letter agreement in which the Company agreed that if
Mr. Schaper remained employed by the Company on December 31, 1997, then the
Company would pay him a special one time bonus for 1997 in the amount of
$187,500. On January 27, 1998, Mr. Schaper was promoted to Chief Operating
Officer of the Company. See also "Certain Transactions."

In April 1997, the Company and Harvey Herscovitch, the Senior Vice
President, Strategy and Organization of the Company, entered into a two-year
employment agreement which contains certain non-

6
<PAGE> 9

competition, non-solicitation and change in control provisions. Pursuant to that
agreement, Mr. Herscovitch is to receive a base salary of $140,000 per year
(subject to adjustments by any increases given in the normal course of
business), and is entitled to an incentive compensation payment equal to 40% of
his base salary, payable at the discretion of the Board. Mr. Herscovitch is also
entitled to a housing allowance and to reimbursement of certain commuting
expenses. In the event Mr. Herscovitch's employment is terminated by the Company
without cause, the Company will remain subject to its obligations under the
agreement as if Mr. Herscovitch remained employed for the balance of the
agreement's two-year term. In the event that Mr. Herscovitch elects to resign
from the Company following a change in control of the Company, he is entitled to
receive a severance payment equal to the greater of one year of salary
continuation at his then current base salary or the amount of the payments due
and owing to him through the remaining term of the agreement. A "change in
control" is generally defined in the agreement as any consolidation, merger,
reorganization or other transaction in which the Company is not the surviving
entity or the sale of a substantial portion of the Company's assets. Mr.
Herscovitch also received options to purchase up to 40,000 shares of Common
Stock. In June 1997, the Company and Mr. Herscovitch entered into a letter
agreement in which the Company agreed that if Mr. Herscovitch remained employed
by the Company on December 31, 1997, then the Company would pay him a special
one time bonus for 1997 in the amount of $105,000. See also "Certain
Transactions."

In July 1997, the Company and Randolph L. M. Hutto, the Executive Vice
President, General Counsel and Secretary of the Company, entered into a
three-year employment agreement which contains certain non-competition,
non-solicitation and change in control provisions. Pursuant to that agreement,
Mr. Hutto received a signing bonus of $100,000 (structured as a loan to be
forgiven in the event Mr. Hutto remains employed by the Company on the first
anniversary of the agreement), and is to receive a base salary of $250,000 per
year (subject to adjustments by any increases given in the normal course of
business). Mr. Hutto also is entitled to an incentive compensation payment equal
to 80% of his base salary, payable at the discretion of the Board; provided,
however, that the payment of such incentive compensation for 1997 is guaranteed,
and is to be pro-rated based upon the number of months that Mr. Hutto is
employed by the Company during 1997. Upon early termination of Mr. Hutto's
employment by the Company other than for cause or by Mr. Hutto for "good
reason," Mr. Hutto is entitled to elect a severance payment equal to two years
of salary and benefit continuation, or his then current monthly salary
multiplied by the number of months remaining in the initial term of the
agreement, in each case excluding any incentive bonus payments. In the event Mr.
Hutto's employment by the Company is terminated in connection with a change in
control of the Company, he is entitled to receive a severance payment equal to
two years of salary and benefits, including incentive bonus payments. A "change
in control" is generally defined in the agreement as any consolidation, merger,
reorganization or other transaction in which the Company is not the surviving
entity or certain changes in the composition of the Company's Board of
Directors. Mr. Hutto also received options to purchase up to 250,000 shares of
Common Stock. See also "Certain Transactions."

In January 1998, the Company and Allen W. Ritchie, the Executive Vice
President and Chief Financial Officer of the Company, entered into a three-year
employment agreement which contains certain non-competition, non-solicitation
and change in control provisions. Pursuant to that agreement, Mr. Ritchie is to
receive a base salary of $300,000 per year, subject to adjustments in the normal
course of business, and he is entitled to an incentive compensation payment of
up to 80% of his base salary, payable at the discretion of the Board. Upon early
termination of Mr. Ritchie's employment by the Company other than for cause or
by Mr. Ritchie for "good reason," Mr. Ritchie is entitled to elect a severance
payment equal to two years of salary and benefit continuation, or his then
current monthly salary multiplied by the number of months remaining in the
initial term of the agreement, in each case excluding any incentive bonus
payments. In the event Mr. Ritchie's employment by the Company is terminated in
connection with a change in control of the Company, he is entitled to receive a
severance payment equal to two years of salary and benefits, including incentive
bonus payments. A "change in control" is generally defined in the agreement as
any consolidation, merger, reorganization or other transaction in which the
Company is not the surviving entity or certain changes in the composition of the
Company's Board of Directors. Mr. Ritchie also received options to purchase up
to 300,000 shares of Common Stock. See also "Certain Transactions."

7
<PAGE> 10

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information as of December 31, 1997
concerning each person 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>
Ardsley Advisory Partners and Philip J. Hempleman(2)........ 7,590,000 10.36%
646 Steamboat Road, Greenwich, Connecticut 06836
NFT Ventures, Inc.(3)....................................... 4,436,205 6.06%
899 W. Center Street, Orem, Utah 84057
</TABLE>

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

(1) See Note (1) under "Management Common Stock Ownership."
(2) The information regarding Ardsley Advisory Partners and Phillip J. Hempleman
is given in reliance upon a Schedule 13G filed by such stockholders on or
about February 5, 1998 with the Securities and Exchange Commission.
(3) Includes 4,436,205 shares as to which NFT Ventures, Inc. ("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.

8
<PAGE> 11

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) the Company's
Chief Executive Officer, and (ii) the four other most highly compensated
executive officers of the Company (determined as of December 31, 1997) (referred
to herein as the "named executive officers") for 1996 and 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- --------------------------- ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David E. McDowell...................... 1997 $300,000 $150,000 $119,812 810,000* $ 4,661
Chief Executive Officer 1996 42,692 -- -- 810,000 519,770(3)
(11/96 - Present)
Randolph L. M. Hutto................... 1997 102,612 $100,000(4) -- 250,000 28,560.06(5)
Executive Vice President 1996 -- -- -- -- --
and General Counsel (7/97 - Present)
C. James Schaper....................... 1997 182,692 187,500(6) -- 500,000* 104,071(7)
Executive Vice President 1996 -- -- -- -- --
(2/97 - Present)
and Chief Operating Officer
(1/98 - Present)
Jerome H. Baglien...................... 1997 219,538 187,500(6) 34,308 500,000* 4,296
Senior Vice President and 1996 -- -- -- -- --
Chief Financial Officer
(1/97 - 1/98)
Harvey Herscovitch..................... 1997 120,616 155,000(6)(8) 36,147 130,000* 340
Senior Vice President, 1996 -- -- -- -- --
Strategy and Organization
(4/97 - Present)
</TABLE>

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

* Reflects the repricing, exchange and reissuance of certain stock options
outstanding as of April 25, 1997. See "Certain Information Regarding
Executive Officers -- Stock Option Grants."
(1) Includes amounts reimbursed for certain personal expenses, including housing
and travel expenses.
(2) 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.
(3) Includes $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.
(4) Reflects incentive compensation for 1997 guaranteed under Mr. Hutto's
employment agreement.

(5) Includes pro rata forgiveness of debt in the amount of $26,651.06 pursuant
to a loan from the Company to Mr. Hutto. In connection with his entering
into a three-year employment agreement with the Company on July 28, 1997,
the Company made a loan to Mr. Hutto in the amount of $100,000. This loan
will be forgiven in whole by the Company in the event Mr. Hutto remains
employed with the Company through and until July 28, 1998. In the event Mr.
Hutto terminates his employment with the Company prior to July 28, 1998, Mr.
Hutto must repay a pro-rata portion of the loan to the Company in accordance
with the employment agreement.

(6) Reflects the amount earned by this executive in 1997 pursuant to a letter
agreement in which the Company agreed that if this executive remained
employed by the Company on December 31, 1997, then the Company would pay
this amount to him as a special one time bonus.
(7) Includes $100,000 signing incentive received by Mr. Schaper in connection
with his entering into a three-year employment agreement with the Company on
February 25, 1997.

(8) Reflects $50,000 special bonus for 1997.

9
<PAGE> 12

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, as
amended (the "Stock Option Plan"), to each of the named executive officers
during 1997.

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
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE (PER EXPIRATION -----------------------------
NAME GRANTED 1997 SHARE)(1) DATE 5% 10%
- ---- ---------- ------------ -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. McDowell.................... 600,000* 5.36% $ 5.38 11/19/07 $2,176,292.64 $5,606,708.59
210,000(3)* 1.88% 5.38 11/19/07 761,702.42 1,962,348.01
Randolph L. M. Hutto................. 250,000 2.23% 9.06 7/28/08 1,424,839.39 3,610,822.76
C. James Schaper..................... 250,000 2.23% 10.25 2/25/08 1,820,244.61 4,748,611.56
250,000* 2.23% 5.38 2/25/08 936,464.21 2,431,512.39
Jerome H. Baglien.................... 250,000 2.23% 11.38 2/07/08 2,020,027.55 5,269,800.63
250,000* 2.23% 5.38 2/07/08 930,984.40 2,413,809.43
Harvey Herscovitch................... 40,000 .36% 10.50 2/11/08 298,342.53 778,309.02
40,000* .36% 5.38 2/11/08 149,152.16 386,837.80
50,000 .45% 5.38 4/25/08 190,903.70 498,025.11
</TABLE>

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

* Reflects the repricing, exchange and reissuance of certain stock options
outstanding as of April 25, 1997 and having an exercise price of $5.50 and
above, including certain options outstanding under the Stock Option Plan.
(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 original date of
grant.
(2) 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.
(3) These options are subject to an accelerated vesting schedule based upon the
appreciation in the market value of the Company's Common Stock, as described
elsewhere in this Proxy Statement.

10
<PAGE> 13

STOCK OPTION EXERCISES

None of the named executive officers exercised any stock options during
1997. 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, 1997. 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, 1997, the
last trading date in 1997 for the Common Stock.

AGGREGATED OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David E. McDowell................................ 120,000 690,000 $135,000 $776,250
Randolph L. M. Hutto............................. -- 250,000 -- --
C. James Schaper................................. -- 250,000 -- 281,250
Jerome H. Baglien................................ -- 250,000 -- 281,250
Harvey Herscovitch............................... -- 90,000 -- 101,250
</TABLE>

11
<PAGE> 14

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 Total Return Index for the Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Composite") and the Company's peer group
indices for the periods indicated. The graph reflects the investment of $100 on
December 31, 1992 in the Common Stock, the Nasdaq Composite and the Company's
peer group indices. The Company's former peer group consisted 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., Phycor, Inc., Physician Support
Systems, Inc., Sapient Corporation and Shared Medical Systems, Inc. The
Company's current peer group index consists of the following companies:
Cambridge Technology Partners, Cerner Corporation, HBO & Company, National Data
Corporation, Pacific Physician Services, Inc., QuadraMed Corporation, Sapient
Corporation and Shared Medical Systems, Inc. In revising the Company's former
peer group index, management of the Company took into consideration a number of
factors, including a reevaluation of the business activities of companies in the
former peer group, the expansion of the Company's hospital services business,
the acquisition of Medic Computer Systems, Inc. by Misys plc, the acquisition of
Pacific Physician Services, Inc. by MedPartners/Mullikin, Inc., and the
acquisition of Physician Support Systems, Inc. by National Data Corporation.

<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ 1997 PEER 1998 PEER
(FISCAL YEAR COVERED) MEDAPHIS COMPOSITE GROUP GROUP
<S> <C> <C> <C> <C>
12/92 100.00 100.00 100.00 100.00
12/93 139.69 114.80 147.12 147.02
12/94 196.83 112.21 173.19 195.99
12/95 313.24 158.70 303.76 350.74
12/96 94.71 195.20 355.60 491.25
12/97 55.03 239.53 486.71 705.52
</TABLE>

Source: Hewitt Associates L.L.C.

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.

12
<PAGE> 15

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 three Board members
whose names appear below. None of the disinterested members of the Board had,
during 1997, any interlocking or other relationships with the Company that would
call into question their independence with respect to executive compensation
matters involving the Company. 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. 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 healthcare information products and business management services,
together with enabling technologies in selected industries, 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. It is the Compensation Committee's
goal that the Company pay market level compensation for market level
performance.

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, compensation arrangements are often set
forth in employment contracts with specified terms.

Cash Bonus Awards. Except for the Chief Executive Officer, each 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, 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 1997
incentive compensation plan provided that an executive would not receive any
bonus amounts under this plan unless the Company (and division, if applicable)
achieved its established operating budget for such year. The 1997 incentive
compensation plan further provided that if the relevant financial goals for the
Company (and division, if applicable) for the first half of the year were not
met by the end of the Company's second fiscal quarter in 1997, then the bonus
payments for the executives would be reduced by 40%.

In addition, in June 1997, the Company entered into letter agreements with
certain executives in which the Company agreed that if such executive remained
employed by the Company on December 31, 1997, then the Company would pay such
executive a special one time retention bonus for 1997 in an amount equal to 75%
of the executive's base salary. The Compensation Committee, in approving the
bonuses, considered various
13
<PAGE> 16

relevant factors, including the high level of marketability of such executives
and the necessity of their services to the achievement of the objectives of the
Company in 1997.

Restrike of 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. On April 25, 1997,
the Compensation Committee approved an adjustment of the exercise price for
certain outstanding employee stock options, which had an exercise price of $5.50
and above. The revised exercise price of $5.375 was established by reference to
the closing price of the Company's Common Stock on April 25, 1997. The
outstanding options held by current executive officers of the Company were
adjusted as part of such option restrike, but no adjustments were made to any
options held by directors or former employees of the Company. In approving both
adjustments, the Compensation Committee relied upon the views of its outside
advisors with respect to the legal, accounting and compensation issues
associated with the action and took into consideration, among other things, the
following factors: (i) the Company historically had paid salaries which were at
or below market levels and had made up for lower salaries through stock option
grants to employees; (ii) the Company historically had used stock options as its
principal long-term incentive program; (iii) the highly skilled employees of the
Company possessed marketable skills; and (iv) senior management of the Company
believed that there was potential for increased attrition among its key
employees and that adjustment of the exercise price of the outstanding options
would significantly help to mitigate such risk.

The following table sets forth information with respect to stock options
held by current executive officers of the Company that were adjusted as part of
the stock option exercise price adjustments described above, which are the only
such adjustments that have occurred since the Company became a reporting company
under the Acts.

TEN-YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
NUMBER OF MARKET
SECURITIES PRICE OF EXERCISE LENGTH OF ORIGINAL
UNDERLYING STOCK AT PRICE AT NEW OPTION TERM
OPTIONS TIME OF TIME OF EXERCISE REMAINING
NAME DATE REPRICED REPRICING REPRICING PRICE AT DATE OF REPRICING
- ---- -------- ---------- --------- --------- -------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
David E. McDowell........... 04/25/97 810,000 $5.3750 $ 8.50 $5.3750 10.58 yrs
C. James Schaper............ 04/25/97 250,000 5.3750 10.25 5.3750 10.84 yrs
Harvey Herscovitch.......... 04/25/97 40,000 5.3750 10.50 5.3750 10.81 yrs
</TABLE>

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
Compensation Committee. Executive officers, including the Chief Executive
Officer, are eligible to receive options under these plans. To encourage
long-term performance, executive options typically vest over a three to
five-year period and remain outstanding for eleven years.

In making its decisions to approve stock option awards to executives, the
Compensation Committee evaluates the Company's 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.

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 employees who received awards pursuant

14
<PAGE> 17

to the Restricted Stock Plan have since resigned from the Company. The shares of
restricted stock awarded to them were 50% vested prior to their resignations.
Pursuant to severance agreements between the Company and the executives who have
resigned from the Company, the remaining 50% vest in accordance with the vesting
schedule set forth in the Restricted Stock Plan. Under that schedule, an
additional 25% of such shares vested on August 12, 1997.

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 incentives 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 were payable in cash upon vesting.
Awards made under the Plan were to 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.
An aggregate of 156,583 units were granted under the Re-Engineering Incentive
Plan. In 1996, the Company abandoned the Re-Engineering Project. All outstanding
awards under the Re-Engineering Incentive Plan expired, terminated and were
forfeited on January 1, 1998.

Deductibility of Certain Compensation. Section 162(m) of 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 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 1997 that will be subject to the Section 162(m) limitation on deductibility.

Chief Executive Officer Compensation. Effective October 31, 1996, David E.
McDowell was appointed Chairman and Chief Executive Officer of the Company. In
connection with that appointment, 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, the terms of which are described
elsewhere in this Proxy Statement.

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: (i) pursuant to the terms of his employment agreement, Mr. McDowell
is ineligible to participate in the Company's incentive compensation plan absent
written authorization of the Compensation Committee; and (ii) Mr. McDowell
instead received a grant of options to acquire 810,000 shares of Common Stock
under the Stock Option Plan. Six hundred thousand (600,000) of such options vest
ratably over a five-year period from the date of grant. 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. In addition, on February 1, 1998, the Compensation
Committee awarded to Mr. McDowell a special bonus in the amount of $150,000 to
recognize his contributions to the Company in 1997.

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

March 20, 1998

15
<PAGE> 18

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 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 of the Board composed of Robert C. Bellas, Jr., Chairman,
David R. Holbrooke, M.D., and John C. Pope. Each member of the Compensation
Committee is a "non-employee director" as defined in Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is an
"outside director" as provided for in Section 162(m) of the Code.

CERTAIN TRANSACTIONS

Leases. Medaphis Physician Services Corporation ("MPSC") leased certain
offices in Chattanooga, Tennessee from Financial Enterprises III ("FE III"), a
limited liability company in which Dennis A. Pryor (a member of the Board) 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 $57,300 pursuant to such leases during 1997.

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. Mr. McDowell is entitled to reimbursement of certain expenses, including
housing and travel expenses, and is also entitled to receive an amount equal to
any federal and state income taxes payable by him as a result of such expense
reimbursement. 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 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. See also "Employment Agreements."

employment by the Company other than for cause or by Mr. Baglien for "good
reason," the Company is obligated to continue to pay Mr. Baglien his annual
salary and to cover him under certain welfare plans as if his employment had not
been terminated. Mr. Baglien also received options to purchase up to 250,000
shares of Common Stock. In June 1997, the Company and Mr. Baglien entered into a
letter agreement in which the Company agreed that if Mr. Baglien remained
employed by the Company on December 31, 1997, then the Company would pay him a
special one time bonus for 1997 in the amount of $187,500. Mr. Baglien resigned
from his position with the Company in January 1998. See also "Employment
Agreements."

In April 1997, the Company and Harvey Herscovitch, the Senior Vice
President, Strategy and Organization of the Company, entered into a two-year
employment agreement which contains certain non-competition, non-solicitation
and change in control provisions. Pursuant to that agreement, Mr. Herscovitch is
to receive a base salary of $140,000 per year (subject to adjustments by any
increases given in the normal course of business), and is entitled to an
incentive compensation payment equal to 40% of his base salary, payable at the
discretion of the Board. Mr. Herscovitch is also entitled to a housing allowance
and to reimbursement of certain commuting expenses. In the event Mr.
Herscovitch's employment is terminated by the Company without cause, the Company
will remain subject to its obligations under the agreement as if Mr. Herscovitch
remained employed for the balance of the agreement's two-year term. In the event
that Mr. Herscovitch elects to resign from the Company following a change in
control of the Company, he is entitled to receive a severance payment equal to
the greater of one year of salary continuation at his then current base salary
or the amount of the payments due and owing to him through the remaining term of
the agreement. A "change in control" is generally defined in the agreement as
any consolidation, merger, reorganization or other transaction in which the
Company is not the surviving entity or the sale of a substantial portion of the
Company's assets. Mr. Herscovitch also received options to purchase up to 40,000
shares of Common Stock. In June 1997, the Company and Mr. Herscovitch entered
into a letter agreement in which the Company agreed that if Mr. Herscovitch
remained employed by the Company on December 31, 1997, then the Company would
pay him a special one time bonus for 1997 in the amount of $105,000. See also
"Employment Agreements."

17
<PAGE> 20

also is entitled to an incentive compensation payment equal to 80% of his base
salary, payable at the discretion of the Board; provided, however, that the
payment of such incentive compensation for 1997 is guaranteed, and is to be
pro-rated based upon the number of months that Mr. Hutto is employed by the
Company during 1997. Upon early termination of Mr. Hutto's employment by the
Company other than for cause or by Mr. Hutto for "good reason," Mr. Hutto is
entitled to elect a severance payment equal to two years of salary and benefit
continuation, or his then current monthly salary multiplied by the number of
months remaining in the initial term of the agreement, in each case excluding
any incentive bonus payments. In the event Mr. Hutto's employment by the Company
is terminated in connection with a change in control of the Company, he is
entitled to receive a severance payment equal to two years of salary and
benefits, including incentive bonus payments. A "change in control" is generally
defined in the agreement as any consolidation, merger, reorganization or other
transaction in which the Company is not the surviving entity or certain changes
in the composition of the Company's Board of Directors. Mr. Hutto also received
options to purchase up to 250,000 shares of Common Stock. See also "Employment
Agreements."

SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of 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, 4 and
5 and amendments thereto all such persons complied with the applicable reporting
requirements, except (i) Harvey Herscovitch, the Senior Vice President, Strategy
and Organization, of the Company, who filed one late report on Form 5 relating
to the repricing of existing stock options, and (ii) Mark P. Colonnese, the Vice
President and Controller of the Company, who filed one late report on Form 3
relating to the delegation to him of the duties of Principal Accounting Officer
of the Company.

PROPOSAL TO AMEND THE MEDAPHIS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN

The Board has approved and recommends to the stockholders that they approve
a proposal to amend the Medaphis Corporation Employee Stock Purchase Plan, as
amended (the "Stock Purchase Plan"), to increase the number of shares of Common
Stock available for sale under such plan from 300,000 to 1,000,000, an increase
of 700,000 shares of Common Stock. The text of the proposed amendment to the
Stock Purchase Plan is contained in the Third Amendment to the Stock Purchase
Plan, which has been approved by the Board

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<PAGE> 21

and the Compensation Committee of the Board and has been executed on behalf of
the Company effective as of December 31, 1997, subject to stockholder approval.
A copy of the Third Amendment to the Stock Purchase Plan is attached as Exhibit
A to this Proxy Statement.

The proposed amendment to the Stock Purchase Plan will be approved upon
receiving the affirmative vote of holders of a majority of the shares present or
represented by proxy and entitled to vote at the meeting. Proxies will be voted
in accordance with the specifications marked thereon, and if no specification is
made on a proxy that is properly executed and returned, will be voted "FOR"
adoption of the proposed amendment to the Stock Purchase Plan.

When the Stock Purchase Plan was adopted by the Company in 1996, the
maximum number of shares of Common Stock made available for sale thereunder was
fixed at 300,000. Since then, employees of the Company have purchased a total of
279,110 of those shares, leaving only 20,890 shares available for sale under the
Stock Purchase Plan in 1998. Under the terms of the Stock Purchase Plan, the
number of shares of Common Stock that can be sold thereunder cannot be
materially increased without obtaining the approval of the stockholders of the
Company. Without such increase, the number of shares remaining available for
sale under the Stock Purchase Plan will be insufficient to allow the Company to
continue such sales on a meaningful basis.

The Board has determined that the proposed amendment to the Stock Purchase
Plan is in the best interests of the Company and its stockholders. The Board
believes that the Stock Purchase Plan is an effective method to attract and
retain employees and that the availability of shares for future purchases under
the Stock Purchase Plan is important to the Company's business prospects and
operations.

The following is a summary of the provisions of the Stock Purchase Plan.
This summary is qualified in its entirety by reference to such plan.

Summary Description of the Stock Purchase Plan. The Stock Purchase Plan
permits eligible employees of the Company and certain subsidiaries to purchase
shares of Common Stock at a price equal to 85% of the fair market value of the
Common Stock. The Stock Purchase Plan is intended to provide eligible employees
with an opportunity to be compensated through the benefits of stock ownership
and to acquire an interest in the Company through the purchase of Common Stock.

The Stock Purchase Plan is administered by the Compensation Committee and
is a qualified employee stock purchase plan under Section 423 of the Code. The
directors have full authority to interpret the Stock Purchase Plan and to
prescribe, amend and rescind rules and regulations relating to the Stock
Purchase Plan, in a manner consistent with the terms and conditions of the Stock
Purchase Plan.

Eligible employees, including directors who are employees of the Company,
who elect to participate in the Stock Purchase Plan accumulate funds to purchase
Common Stock through payroll deductions. All employees of the Company and its
U.S. subsidiaries are eligible to participate in the Stock Purchase Plan other
than employees who (i) customarily are employed for twenty (20) hours per week
or less or (ii) own shares and/or options to purchase shares possessing five
percent (5%) or more of the total combined voting power or value of all classes
of shares of the Company or any parent or subsidiary.

Prior to each six month purchase period, participating employees may
authorize the Company to withhold a percentage of the participant's compensation
(which percentage shall be at least one percent (1%) and not exceed ten percent
(10%) of such participant's annual compensation) during such purchase period for
purposes of purchasing shares of Common Stock under the Stock Purchase Plan.
Participants must purchase a minimum of one share in each six month purchase
period. A participant may withdraw the balance of the cash credited to his or
her account under the Stock Purchase Plan by giving written notice to the
Company prior to the date specified by the Company before the end of the current
purchase period. At the end of each purchase period, the amounts accumulated for
each participating individual are automatically applied to the purchase of
Common Stock. The purchase price of such shares of Common Stock is equal to the
lesser of (i) 85% of the fair market value of one share of Common Stock on the
first day of the six month purchase period, or (ii) 85% of the fair market value
of one share of Common Stock on the last day of the six month purchase period.
No participant shall be granted any option to purchase shares of Common Stock
under the Stock Purchase Plan at
19
<PAGE> 22

a rate of more than $25,000 worth of stock (measured by the fair market value on
the date the option is granted) in any calendar year.

The number of shares of Common Stock covered by the Stock Purchase Plan is
subject to adjustment by the Compensation Committee, without further action by
the stockholders, in the event of a recapitalization, reclassification, stock
split, combination of shares or stock dividend. The Compensation Committee may
amend or terminate the Stock Purchase Plan at any time without further
stockholder approval, except with respect to any amendment to increase the
number of shares of Common Stock covered by the Stock Purchase Plan or to the
extent required by Rule 16b-3 of the Exchange Act.

Estimate of Benefits. Pursuant to the Stock Purchase Plan, 20,890 shares
of Common Stock remain available for sale to participating employees. In the
event that the stockholders approve the proposed amendment, an additional
700,000 shares of Common Stock will be available for purchase by eligible
employees, including directors who are employees of the Company and the named
executive officers. None of the named executive officers or directors who are
employees of the Company have participated in the Stock Purchase Plan in the
past. The aggregate number of shares that may be purchased in the future on
behalf of the named executive officers and directors (in the event that any of
them elect to participate in the Stock Purchase Plan), as well as the dollar
value of the benefits that may be received by such persons from the Stock
Purchase Plan, are not currently determinable.

Federal Income Tax Consequences. The Stock Purchase Plan is designed to
qualify as an "employee stock purchase plan" under Section 423 of the Code.
Assuming that the Stock Purchase Plan satisfies the requirements of Section 423,
the following is a general summary of the federal income tax consequences to an
employee participating in the Stock Purchase Plan and to the Company as a result
of maintaining the Stock Purchase Plan.

Amounts deducted from a participating employee's pay to purchase shares
under the Stock Purchase Plan will be included in the employee's taxable income
for the year in which those amounts are deducted. The amount of the discount
available to an employee upon the purchase of shares will not be included in the
employee's taxable income at the time of purchase. However, the employee may be
required to recognize all or a portion of this amount as ordinary income upon
the disposition of the shares or at the employee's death. If the employee
disposes of the shares within two years of the date of purchase, the employee
will be required to recognize an amount equal to the discount as ordinary income
in the year of disposition. If the employee does not dispose of the shares for
at least two years from the date of purchase, or if the employee dies (at any
time) while owning the shares, the employee will be required to recognize
ordinary income at such time in an amount equal to the lesser of (i) the excess
of the shares' fair market value at such time over the amount paid for the
shares, or (ii) the discount available to the employee upon the purchase of the
shares. The employee's tax basis in the shares will be increased by the amount
of any ordinary income required to be recognized and the employee's gain or loss
on a disposition of the shares will be equal to the difference between the tax
basis (as so increased) and the amount received upon the disposition.

The Company is not entitled to a deduction with respect to the amount of
the discount available to an employee unless the employee disposes of the shares
within two years of the date of purchase. The amount of the Company's deduction
in that case is equal to the amount of the discount and must be taken in the
Company's taxable year in which the disposition occurs.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE STOCK PURCHASE PLAN.

SELECTION OF INDEPENDENT ACCOUNTANTS

The Board has selected the firm of Price Waterhouse LLP ("Price
Waterhouse") to serve as independent accountants of the Company for 1997. Price
Waterhouse has served as independent accountants of the Company since July 9,
1997. One or more representatives of Price Waterhouse will be present at the
annual meeting, will have the opportunity to make a statement if he or she so
desires and will be available to respond to appropriate questions.

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<PAGE> 23

As a result of a review initiated by senior management and the Audit
Committee of the Board of Directors in March 1997 prior to completion of the
audit process for the Company's 1996 fiscal year, information was developed
indicating that certain revenues and expenses may have been recorded incorrectly
between certain quarters during 1996. In addition, Deloitte & Touche LLP
("Deloitte & Touche") provided to senior management of the Company a letter
relating to the Company's internal control structure resulting from Deloitte &
Touche's audit of the Company's financial statements for the year ended December
31, 1996. This letter reflected Deloitte & Touche's view that inadequate
internal controls over the preparation of interim financial information for each
fiscal quarter of 1996 constituted a material weakness in internal controls
which resulted in certain errors and irregularities in the financial information
for such quarters. The Company previously disclosed in its Form 10-K for its
fiscal year ended December 31, 1996 that such errors and irregularities in its
financial information had occurred for each fiscal quarter of 1996. In
connection with the issuance of Deloitte & Touche's audit report dated March 31,
1997 on the Company's financial statements for the year ended December 31, 1996,
the Company recorded all adjustments to its interim financial statements deemed
appropriate for such errors and irregularities and consequently restated such
interim financial statements. All adjustments were for interim period
transactions and had no effect on the Company's 1996 annual pro forma net loss.

The reports of Deloitte & Touche on the Company's financial statements for
the fiscal year ended December 31, 1996, dated March 31, 1997, included an
unqualified opinion with an explanatory paragraph that stated Deloitte &
Touche's conclusion that uncertainty then existed regarding the ability of the
Company to continue as a going concern due to a mandatory commitment reduction
in the Company's then existing credit facility that was required by July 31,
1997. However, the Company satisfied such commitment reduction on May 28, 1997
by applying the proceeds of the sale of its wholly-owned subsidiary, Healthcare
Recoveries, Inc.

On June 30, 1997, following a competitive review and request for proposal
process in which Deloitte & Touche, the Company's then-present auditors, and a
number of other nationally recognized accounting firms participated, the Company
notified Deloitte & Touche that it had been dismissed as the Company's principal
accountants and that the Company intended to engage new principal accountants.
This action was recommended by the Audit Committee of the Company's Board of
Directors, and the Board approved such change on June 27, 1997. On July 9, 1997,
the Company engaged Price Waterhouse as the Company's new principal accountants.

During the third quarter of 1997, in connection with a refinancing effort
of the Company's then existing credit agreement, management evaluated certain
revenue practices at Health Data Sciences Corporation ("HDS"), a wholly-owned
subsidiary of the Company which was acquired by the Company in a merger
transaction in June 1996 that was accounted for as a pooling-of-interests. These
practices related principally to revenue recognized in fiscal years 1994, 1995
and 1996. As disclosed by the Company in its Form 10-Q for its fiscal quarter
ending September 30, 1997, management determined that certain revenue of HDS was
improperly recognized and, accordingly, determined to restate its financial
statements for its 1994, 1995 and 1996 fiscal years and the first two fiscal
quarters of its 1997 fiscal year. The effect of such restatements on the
Company's net income (loss) for the years ended December 31, 1994, 1995 and 1996
was ($5.8) million, $(1.1) million and $(7.3) million, respectively. The
cumulative reduction in assets caused by such restatement was $20.5 million.

As a result of the HDS-related restatement, Deloitte & Touche withdrew its
audit opinion dated March 31, 1997 in respect of the Company's 1994, 1995 and
1996 fiscal years. Consequently, the Company engaged Price Waterhouse to
re-audit the Company's 1995 and 1996 fiscal years and audit the Company's
nine-month period ending September 30, 1997. As indicated in a Current Report on
Form 8-K filed by the Company on January 8, 1998 (the "January 8-K"), the
Company determined to further restate the results of such periods to account for
the December 1995 acquisition by the Company of Medical Management Sciences,
Inc. ("MMS") on a purchase accounting basis. Such acquisition had previously
been accounted for as a pooling-of-interests.

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<PAGE> 24

Financial statements for the Company's 1995 and 1996 fiscal years and the
nine-month period ended September 30, 1997 reflecting the HDS and MMS-related
restatements were filed by the Company as an exhibit to the January 8-K. Such
financial statements were audited by Price Waterhouse and accompanied by their
audit opinion which was unqualified and was not subject to any modifying
paragraphs.

ANNUAL REPORT TO STOCKHOLDERS

The annual report of the Company for the year ended December 31, 1997,
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 6, 1998, a copy of the Company's
Annual Report on Form 10-K, including the financial statements and financial
statement schedule, 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: Caryn Dickerson
Vice President and Treasurer

STOCKHOLDER PROPOSALS

REQUIREMENTS AND PROCEDURES FOR SUBMISSION OF PROXY PROPOSALS AND NOMINATIONS OF
DIRECTORS BY STOCKHOLDERS

Nominations for the Board Of Directors. The Company expects to hold its
1999 annual meeting of stockholders in April of 1999, although the Company
retains the right to change this date, as it may determine. The By-Laws provide
that written notice of proposed stockholder nominations for the election of
directors at the 1999 annual meeting of stockholders must be received by the
Secretary of the Company not less than sixty days nor more than ninety days
prior to the meeting. Notice to the Company from a stockholder who proposes to
nominate a person for election as a director must satisfy the requirements of
the Securities and Exchange Commission and the By-Laws. Stockholders wishing to
nominate persons should contact the Company's Secretary at 2700 Cumberland
Parkway, Suite 300, Atlanta, Georgia 30339.

Proposals. Any stockholder who intends to present a proposal to be
included in the Company's proxy materials to be considered for action at the
1999 annual meeting of stockholders must satisfy the requirements of the
Securities and Exchange Commission and the proposal must be received by the
Secretary of the Company on or before November 27, 1998 for review and
consideration for inclusion in the Company's proxy statement and proxy card
relating to that meeting.

OTHER MATTERS

The minutes of the annual meeting of stockholders held on May 19, 1997 and
the minutes of the adjourned meeting of stockholders re-convened on June 17,
1997 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.

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<PAGE> 25

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.

RANDOLPH L. M. HUTTO
Executive Vice President,
General Counsel and Secretary

March 20, 1998

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<PAGE> 26

EXHIBIT A

THIRD AMENDMENT TO THE MEDAPHIS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN

THIS THIRD AMENDMENT is made effective as of the 31st day of December,
1997, by MEDAPHIS CORPORATION, a corporation duly organized and existing under
the laws of the State of Delaware (hereinafter called the "Company");

W I T N E S S E T H:

WHEREAS, the Company has previously adopted the Medaphis Corporation
Employee Stock Purchase Plan (the "Plan");

WHEREAS, the Compensation Committee (the "Compensation Committee") of the
Board of Directors of the Company (the "Board") has previously approved a First
Amendment to the Plan, which allows eligible employees to become participants in
the Plan beginning on January 1st and July 1st of each calendar year;

WHEREAS, the Compensation Committee has previously approved a Second
Amendment to the Plan, which allows for the sale under the Plan of fractional
shares of the common stock (the "Common Stock") of the Company;

WHEREAS, the Compensation Committee has approved an increase in the number
of shares of Common Stock available for sale under the Plan to 1,000,000 shares
from 300,000 shares; and

WHEREAS, the Compensation Committee has approved the other changes to the
Plan set forth herein, which permit only whole shares of Common Stock to be sold
under the Plan, and which effectively rescind the Second Amendment to the Plan.

NOW, THEREFORE, the Company does hereby amend the Plan as follows:

1. Section 7(a) of the Plan is amended, effective as of January 1,
1998, and subject to the approval of the stockholders of the Company as
required by Section 13 of the Plan, by replacing the second sentence of
Section 7(a) with the following:

"The maximum number of Shares made available for sale under the
Plan shall be one million (1,000,000), subject to adjustment upon
changes in capitalization of the Company as provided in Paragraph 11."

If and in the event that the foregoing amendment of Section 7(a) of the
Plan is not approved by the stockholders of the Company within twelve (12)
months following the effective date of the amendment, then the foregoing
amendment of Section 7(a) of the Plan will be null and void.

2. Section 6(a) of the Plan is amended, effective as of December 31,
1997, by replacing Section 6(a) with the following:

"As of the beginning of each Purchase Period during each Enrollment
Period, a Participant is granted an option to purchase that whole number
of shares of Common Stock as does not exceed in value the result of
dividing up to ten percent (10%) of the Participant's Compensation for
that Purchase Period by the lesser of (i) eighty-five percent (85%) of
the fair market value of the Common Stock on the first business day of
the Purchase Period, or (ii) eighty-five percent (85%) of the fair
market value of the Common Stock on the last business day of the
Purchase Period."

24
<PAGE> 27

3. Section 6(b) of the Plan is amended, effective as of December 31,
1997, by replacing the first sentence thereof with the following:

"On the last business day of each Purchase Period during an
Enrollment Period, each Participant will be deemed to have exercised his
option to the extent of the funds then held in the Participant's
Contribution Account and such funds will be applied to the purchase of
whole shares of Common Stock; provided, however, the number of shares
purchased for a Participant shall not be less than 1 share."

Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this Amendment.

IN WITNESS WHEREOF, the Company has executed this Third Amendment to the
Plan as of the day and the year first above written.

MEDAPHIS CORPORATION

By: /s/ DAVID E. MCDOWELL

------------------------------------
David E. McDowell
Chairman and Chief Executive Officer

ATTEST:

By: /s/ RANDOLPH L. M. HUTTO
----------------------------------
Randolph L. M. Hutto
Secretary

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<PAGE> 28

APPENDIX A

PROXY MEDAPHIS CORPORATION

PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON APRIL 30, 1998

The undersigned hereby appoints DAVID E. McDOWELL and ALLEN W. RITCHIE, 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, which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders to be held on Thursday, April 30,
1998 at 10:00 a.m., Atlanta time, at the offices of King & Spalding, 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 six (6) directors:

<TABLE>
<S> <C>
[ ] FOR all nominees listed (except as marked [ ] WITHHOLD AUTHORITY to vote for
below to the contrary) all nominees listed
Robert C. Bellas, Jr. John C. Pope
David R. Holbrooke, M.D. Dennis A. Pryor
David E. McDowell C. Christopher Trower
</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 amend the Company's Employee Stock Purchase Plan to increase the number
of shares of common stock of the Company available for sale under such plan
to 1,000,000 from 300,000.

[ ] 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 LISTED ON THE OTHER SIDE OF THIS PROXY.

Date , 1998
--------------------

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

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 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 MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY.