MEDAPHIS CORP, PRE 14A, 1998-03-10

MEDAPHIS CORP
PRE 14A, 1998-03-10
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>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] 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 15, 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 Wednesday, April 15, 1998 at 9:30
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;

(3) To approve and adopt a Leveraged Stock Purchase Plan pursuant to
which certain senior executives of the Company will be granted rights to
purchase shares of common stock of the Company, which purchases will be
financed by full recourse, interest bearing loans provided by the Company;

(4) To approve and adopt a Deferred Incentive Plan pursuant to which
certain senior executives of the Company will be granted deferred cash
awards payable based upon the performance of the common stock of the
Company; and

(5) 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,

[SIGNATURE CUT TO COME]

Randolph L.M. Hutto
Executive Vice President,
General Counsel and
Secretary

Atlanta, Georgia
March , 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 15, 1998

March , 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 15, 1998 at
9:30 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 73,644,189 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 20, 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 appropriate 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 elected to the Board of Directors 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.

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
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<PAGE> 5

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 has been engaged in the private practice of law with the Atlanta
law firm of electriclaw.com since June, 1997. From 1988 to June, 1997, Mr.
Trower was a partner of the Atlanta law firm, Sutherland, Asbill & Brennan. Mr.
Trower has wide-ranging experience with both public and private companies in
corporate, partnership, and tax matters, including acquisitions/divestitures,
securities offerings, and tax planning and tax disputes. He is a member of the
Board of Directors of several privately held companies.

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.

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

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<PAGE> 6

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.

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 *
Harvey Herscovitch.......................................... 20,334(4) *
Robert C. Bellas, Jr. ...................................... 12,915(5) *
David R. Holbrooke, M.D..................................... 38,700(6) *
John C. Pope................................................ -- --
</TABLE>

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<PAGE> 7

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
- ---- ------------------ ----------
<S> <C> <C>
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

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 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

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<PAGE> 8

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.
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."

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<PAGE> 9

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."

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<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) -- 250,000 101,909(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 $100,000 loan by the Company to Mr. Hutto in connection with his
entering into a three-year employment agreement with the Company on July 28,
1997. 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 incentive compensation 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 ("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, 1992 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., CyCare Systems, Inc., HBO &
Company, Health Management Systems, Inc., Misys P.L.C., 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., Misys P.L.C.,
Pacific Physician Services, 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 Physician Support Systems, Inc. by National Data Corporation
on ________, 1997.

(GRAPH TO COME)

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 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. 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 , 1998

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 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 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 $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 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."

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

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."

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 is also to receive options to purchase
up to 300,000 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 and the Compensation Committee of the
Board and has been executed on behalf of the Company effective as

18
<PAGE> 21

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.

PROPOSED MEDAPHIS CORPORATION LEVERAGED STOCK PURCHASE PLAN

The Board has approved and recommends to the stockholders that they approve
a proposal to adopt the Medaphis Corporation Leveraged Stock Purchase Plan. The
Leveraged Stock Purchase Plan is summarized below.

20
<PAGE> 23

The proposed Leveraged Stock Purchase Plan will be adopted 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, will be voted "FOR" adoption of the proposed Leveraged Stock Purchase
Plan.

The Compensation Committee and the Board have determined that the proposed
Leveraged Stock Purchase Plan is in the best interests of the Company and its
stockholders. The Leveraged Stock Purchase Plan is intended to advance the
interests of the Company by encouraging the identification of participants with
stockholders by increasing their personal equity stake in the Company. It also
incorporates an important element of investment risk that generally is not found
in other executive incentive plans, because participants in the Leveraged Stock
Purchase Plan share in both the upside and downside potential inherent in stock
ownership by purchasing a substantial amount of Common Stock using full-recourse
loans. The Leveraged Stock Purchase Plan is thus designed to promote the
long-term growth and financial success of the Company by strengthening the links
between the Company's senior management and stockholders.

The following is a summary of the proposed Leveraged Stock Purchase Plan.
This summary is qualified in its entirety by reference to such plan, the full
text of which is set forth in Exhibit B to this Proxy Statement.

Summary Description of the Leveraged Stock Purchase Plan. The members of
the Compensation Committee and the Board adopted the Medaphis Corporation
Leveraged Stock Purchase Plan on February 1, 1998. The Leveraged Stock Purchase
Plan is administered by a committee (the "Committee") composed of members of the
Board who are disinterested persons within the meaning of Rule 16b-3 ("Rule
16b-3") of the Exchange Act. Such directors have the power to select award
recipients and to determine the terms and conditions of each award, consistent
with the terms and conditions of the Leveraged Stock Purchase Plan. The
Leveraged Stock Purchase Plan provides that the aggregate number of shares of
Common Stock available for issuance pursuant to such plan is ________.

The initial participants in the Leveraged Stock Purchase Plan will be
certain senior executives of the Company selected by the Committee to receive
purchase awards under the Leveraged Stock Purchase Plan. Participants will be
offered the opportunity to purchase a specified minimum and maximum number
(which may be the same) of shares of the Company's Common Stock ("Purchase
Awards") on a specified date at the average of the high and low sales prices for
the Common Stock as reported on the Nasdaq National Market on such date (the
"Average Stock Price"). In the case of initial participants in the Leveraged
Stock Purchase Plan, this date is expected to be April 15, 1998. This purchase
will be fully financed by full-recourse, interest-bearing loans provided by the
Company (a "Purchase Loan"). As currently contemplated by the Committee,
approximately ____ participants, including the Chief Executive Officer and the
other current executive officers, will receive Purchase Awards on April 15, 1998
for a total number of shares of Common Stock to be determined by dividing
$________ by the Average Stock Price, subject to the approval of the Leveraged
Stock Purchase Plan by the Company's stockholders.

The Leveraged Stock Purchase Plan provides that a participant will exercise
a Purchase Award by delivering to the Company on or prior to the Purchase Date
(i) a notice stating the number of shares (not less than the minimum number and
not more than the maximum number specified in the Purchase Award) such
participant elects to purchase on the purchase date, and (ii) an executed
Purchase Note (as defined in the Leveraged Stock Purchase Plan) and any other
documents required pursuant to the Leveraged Stock Purchase Plan, or in lieu of
a Purchase Note, a Participant may deliver cash in the amount of the total
purchase price for the shares of Common Stock purchased pursuant to the Purchase
Award. Any participant who does not elect to purchase at least the minimum
number of shares under the Purchase Award on or prior to the purchase date will
forfeit any rights under the Leveraged Stock Purchase Plan with respect to such
Purchase Award, including, without limitation, any right to receive a Purchase
Loan.

The Leveraged Stock Purchase Plan provides that the exercise of the
Purchase Award, the delivery of the Purchase Note and the issuance by the
Company of the Common Stock purchased pursuant to the Purchase Award will be
effective at 5:00 p.m., Eastern time, on the purchase date (the "Closing Time").
After the Closing Time, such participant will be deemed a stockholder of the
Company and will be entitled (i) to dividends and distributions on such Common
Stock owned or pledged, (ii) to exercise all voting rights with
21
<PAGE> 24

respect to the Common Stock, and (iii) subject to the terms of the Leveraged
Stock Purchase Plan, the Purchase Loan and related documents, to transfer the
Common Stock.

The Leveraged Stock Purchase Plan provides that the Company will extend a
Purchase Loan to a participant upon exercise of a Purchase Award. The original
principal amount of the Purchase Loan will be equal to the total purchase price
of the Purchase Award. Such Purchase Loan will be evidenced by the Purchase Note
with full recourse against the maker. The obligations of each participant under
a Purchase Note will be unconditional and absolute and, without limiting the
generality of the foregoing, will not be released, discharged or otherwise
affected by any change in the existence, structure or ownership of the Company,
or any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Company or its assets or the market value of the Common Stock or
any resulting release or discharge of any obligation of the Company or the
existence of any claim, set-off or other rights which any participant may have
at any time against the Company or any other person, whether in connection with
the Plan or with any unrelated transactions.

The Purchase Loan for each participant will accrue interest at the rate
necessary to avoid imputation of compensation income to participants. This rate
is determined by reference to the "applicable federal rate" (as determined under
Section 1274(d) of the Code; the applicable federal rate as of February 1998 for
six-year loans was 5.69%.

The Leveraged Stock Purchase Plan provides that payment of the Purchase
Note will be secured by a pledge of all of the shares of Common Stock acquired
by the Participant upon the exercise of the Purchase Award to which the Purchase
Loan relates. A participant will have the right to sell shares of Common Stock
acquired pursuant to a Purchase Award at any time, but the proceeds of such sale
must be applied against the outstanding balance of the Purchase Loan.

The Purchase Loans for participants will mature on April 30, 2004. Except
as provided below, no payments will be due with respect to Purchase Loans until
April 30, 2004, and during the period from April 30, 2001 through April 30,
2004, the principal balance of the Purchase Loans (including accrued but unpaid
interest) will be payable in equal annual installments such that the entire
balance of the Purchase Loans will be paid in full as of April 30, 2004.

The Leveraged Stock Purchase Plan provides that to the extent the
participant receives cash dividends or other distributions paid in cash on
Common Stock purchased under the Leveraged Stock Purchase Plan, the participant
will prepay the Purchase Loan by the full pre-tax amount, net of any required
tax withholding on such dividends or other distribution, of such dividend or
distribution received within ten (10) days of receipt.

The Leveraged Stock Purchase Plan provides that the payment of the Purchase
Loan will be accelerated if a participant's service is terminated by the
participant other than for disability or constructive termination, or by the
Company for cause. In the event of a change of control (as defined in the
Leveraged Stock Purchase Plan), the Purchase Loan must be repaid on the 45th day
after such event. The Purchase Loan may also be prepaid at any time at the
participant's option.

The Leveraged Stock Purchase Plan provides that the Board of Directors,
upon the recommendation of the Committee, may amend, suspend, or terminate the
Leveraged Stock Purchase Plan at any time, but no amendment, suspension or
termination of the Leveraged Stock Purchase Plan may, without the consent of the
participant, adversely affect such participant's rights under the Leveraged
Stock Purchase Plan in any material respect.

22
<PAGE> 25

Estimate of Benefits. It is currently contemplated that Purchase Awards
and Purchase Loans will be granted to initial participants as follows:

<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE(1) PURCHASE LOAN
- ----------------- --------------- -------------
<S> <C> <C>
David E. McDowell......................................... $1,000,000 $1,000,000
Randolph L. M. Hutto...................................... $ 0 $ 0
C. James Schaper.......................................... $1,000,000 $1,000,000
Jerome H. Baglien......................................... (2) (2)
Harvey Herscovitch........................................ $ 200,000 $ 200,000
All executive officers as a group.........................
All non-employee directors as a group.....................
All non-executive officer employees as a group............
</TABLE>

- ---------------
(1) The exact number of shares to be awarded will be determined by dividing the
Dollar Value for each individual by the Average Stock Price.
(2) As discussed elsewhere in this Proxy Statement, Mr. Baglien resigned from
the Company in 1997. See "Certain Transactions."

Federal Income Tax Consequences. The following is a summary of the
material tax consequences of the Leveraged Stock Purchase Plan to the Company
and to the participants, based upon the Code, Treasury regulations thereunder,
administrative rulings and court decisions as of the date hereof.

In general, participants should not be subject to federal income tax upon
purchasing Common Stock (the "Plan Stock") pursuant to a Purchase Award. A
participant who is subject to Section 16(b) of the Securities Exchange Act of
1934, and who has made another nonexempt purchase of Common Stock within six
months before his or her purchase pursuant to the Purchase Award (a "Restricted
Participant"), would be taxed at ordinary income rates on the excess (if any) of
(a) the fair market value of the Plan Stock (i.e., the average of the high and
low prices for the Company's Common Stock on the Nasdaq National Market ) on the
earlier of (i) six months after the purchase date of the Plan Stock and (ii) the
first date on which the participant can sell the Plan Stock without being
subject to short-swing profit recovery, over (b) the amount paid for such Plan
Stock, unless the participant made a timely election under Section 83(b) of the
Code. The following discussion assumes that any Restricted Participants will
each make the election under Section 83(b) of the Code. The following discussion
also assumes that participants will not enter into "straddles" (generally,
offsetting positions) or "constructive sales" within the meaning of the Code
with respect to the Company's Common Stock.

Any dividends or distributions on the Plan Stock will be includable in the
participants' income to the extent made out of the Company's earnings and
profits. When the Plan Stock is sold, the sale will result in capital gain or
loss measured by the difference between the amount paid for the Plan Stock when
purchased by the participant and the amount realized upon sale. Such capital
gain or loss will be long-term or short-term, depending on the holding period
for the Plan Stock.

The participants will generally be able to deduct the interest that accrues
on the Purchase Loans as it accrues (rather than as it is paid), but subject to
the limitations described below. The Purchase Loans will be original issue
discount ("OID") loans and the interest on the Purchase Loans will accrue on a
"constant yield to maturity" basis. Under these rules, increasingly greater
amounts of OID will be deductible over successive accrual periods over the term
the Purchase Loans are outstanding.

The interest on the Purchase Loans will be "investment interest" and
therefore may be deducted only to the extent of each participant's net
investment income, including investment income relating to other investments
(i.e., the excess of investment income, including dividends on Plan Stock, other
dividends and income from the disposition of property held for investment, over
expenses directly connected with the production of such income). Investment
interest that is not deducted can be carried forward indefinitely. When the Plan
Stock is sold, investment interest that has been carried forward may be used to
offset any gain realized on such sale.

23
<PAGE> 26

Assuming that all Restricted Participants make a timely election under
Section 83(b) of the Code, no deduction will be available to the Company upon
the purchase of Plan Stock by participants. The Company will include in its
gross income the interest on the Purchase Loans on the same constant yield to
maturity basis referred to above.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE LEVERAGED
STOCK PURCHASE PLAN.

PROPOSED MEDAPHIS CORPORATION DEFERRED INCENTIVE PLAN

The Board has approved and recommends to the stockholders that they approve
a proposal to adopt the Medaphis Corporation Deferred Incentive Plan. The
Deferred Incentive Plan is summarized below.

The proposed Deferred Incentive Plan will be adopted 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, will be voted "FOR" adoption of the proposed Deferred Incentive Plan.

The Compensation Committee and the Board have determined that the proposed
Deferred Incentive Plan is in the best interests of the Company and its
stockholders. The Deferred Incentive Plan is intended to advance the interests
of the Company by offering participants the potential for substantial financial
incentives based on continued service, stock price performance and total return
to stockholders relative to that of other companies, thereby furthering the
Company's progression toward incentives which increase the portion of management
compensation which is dependent upon share value.

The following is a summary of the proposed Deferred Incentive Plan. This
summary is qualified in its entirety by reference to such plan, the full text of
which is set forth in Exhibit C to this Proxy Statement.

Summary Description of the Deferred Incentive Plan. The members of the
Compensation Committee and the Board adopted the Medaphis Corporation Deferred
Incentive Plan on February 1, 1998. The Deferred Incentive Plan is administered
by a committee (the "Committee") composed of members of the Board who are
disinterested persons within the meaning of Rule 16b-3. Such directors have the
power to select award recipients and their allotments and to determine the terms
and conditions of each award consistent with the terms and conditions of the
Deferred Incentive Plan.

The initial participants in the Plan will be certain senior executives of
the Company selected by the Committee to receive deferred cash awards ("Deferred
Awards"), which will be payable in whole or in part based upon the performance
of the Common Stock during the period from the date of grant of the Deferred
Awards through December 31, 2000 (the "Performance Period"). The maximum
Deferred Award that may be made to any one participant is $2,000,000.

The Deferred Incentive Plan provides that if, at any time during the
Performance Period for a Deferred Award, the market price of the Common Stock on
at least 10 trading days during a period of 20 consecutive trading days equals
or exceeds the following Stock Price Goals, a percentage of the Deferred Award
(including any percentage thereof that has previously been earned based upon
earlier periods of trading) will be earned as set forth below:

<TABLE>
<CAPTION>
AGGREGATE
PERCENTAGE OF
DEFERRED AWARD
MARKET PRICE ACHIEVED EARNED
- --------------------- --------------
<S> <C>
At least $15 but less than $20.............................. 33 1/3%
At least $20 but less than $25.............................. 66 2/3%
$25 or more................................................. 100%
</TABLE>

24
<PAGE> 27

The Deferred Incentive Plan provides that a Deferred Award may also be
earned as of the end of the Performance Period (to the extent not already earned
based upon the Stock Price Goals) based upon the Total Shareholder Return Goal,
as follows:

<TABLE>
<CAPTION>
AGGREGATE
PERCENTAGE OF
DEFERRED AWARD
COMPARATIVE PERFORMANCE PERCENTILE(1) EARNED
- ------------------------------------- --------------
<S> <C>
Below 60th.................................................. 0%
60th........................................................ 33 1/3%
70th........................................................ 66 2/3%
80th and Above.............................................. 100%
</TABLE>

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

(1) The Comparative Performance Percentile means the Company's total shareholder
return for the Performance Period, compared to the common stocks (the "Index
Stocks") included in Standard & Poor's 400 Mid-Cap, or in the event such
index is no longer available, such comparable stock market index as may be
selected by the Committee. It is calculated by (i) calculating the total
shareholder return of each Index Stock; (ii) ranking the Index Stocks
according to the total shareholder return, (iii) ranking the Company amongst
such Index Stocks according to the total shareholder return of the Company,
(iv) dividing (x) that number of Index Stocks with lower total shareholder
returns than the total shareholder return of the Company by (y) the number
of Index Stocks plus 1, and (v) multiplying such quotient by 100.

The Deferred Incentive Plan provides that if the aggregate percentage of
the Deferred Award earned as a result of the Total Shareholder Return Goal set
forth in the foregoing table is greater than the aggregate percentage of the
Deferred Award earned through the end of the Performance Period based upon the
Stock Price Goals, then the Company will pay the participant a Deferred Award
equal to the difference between such amounts. The applicable percentage of the
Deferred Award earned for performance between the listed percentiles will be
interpolated on a straight-line basis (but if performance is below the 60th
percentile, none of the Deferred Award will be earned based upon the Total
Shareholder Return Goal).

The Deferred Incentive Plan provides that upon a termination of service of
a participant prior to the end of the Performance Period for any reason except
death, disability, retirement, constructive termination or an involuntary
termination of service without cause, the participant will not be entitled to
any payment with respect to his or her Deferred Award.

The Deferred Incentive Plan provides that upon a termination of service of
a participant prior to the end of the Performance Period due to retirement,
death, disability, constructive termination or an involuntary termination of
service without cause, the participant (or the participant's estate) will
continue to be entitled to a potential payment under the participant's Deferred
Award based on the achievement of the goals during the remainder of the
Performance Period, as if the participant had not experienced a termination of
service.

Upon a change of control of the Company (as defined in the Deferred
Incentive Plan), all participants who have not experienced a termination of
service before the change of control will be entitled to receive, not later than
the 45th day after the change of control, payment of the full amount of their
Deferred Awards regardless of whether the goals have been achieved.

The Deferred Incentive Plan provides that the Board of Directors upon the
recommendation of the Committee may amend, suspend or terminate the Deferred
Incentive Plan at any time, but no amendment, suspension or termination of the
Deferred Incentive Plan may, without the consent of the participant, adversely
affect such participant's rights under the Deferred Incentive Plan in any
material respect.

Shareholders are being asked to approve the Deferred Incentive Plan so that
Deferred Awards thereunder will qualify as exempt from the limitations on
deductibility of certain executive compensation imposed by Section 162(m) of the
Code ("Section 162(m)"). Section 162(m) generally disallows deductions for
compensation in excess of $1 million to any covered executive of a public
company. Covered executives include each executive who is, at the end of the tax
year in which the compensation would (but for

25
<PAGE> 28

Section 162(m)) be deductible by the company, either the chief executive officer
or one of the other four highest-paid executives. However, Section 162(m)
exempts from this limitation compensation that is paid based upon the
achievement of objective, pre-established, stockholder-approved performance
goals. The Deferred Incentive Plan has been designed so as to be eligible for
this exemption, if the stockholders approve it. A vote for the Deferred
Incentive Plan will be deemed to constitute approval of the Stock Price Goals,
the Total Shareholder Return Goals and all other material features of the
Deferred Incentive Plan.

Estimate of Benefits. It is currently contemplated that Deferred Awards
will be granted to initial participants as follows:

<TABLE>
<CAPTION>
NAME AND POSITION AMOUNT OF AWARD
- ----------------- ---------------
<S> <C>
David E. McDowell........................................... $1,000,000
Randolph L. M. Hutto........................................ 0
C. James Schaper............................................ $1,000,000
Jerome H. Baglien........................................... (1)
Harvey Herscovitch.......................................... $ 200,000
All executive officers as a group...........................
All non-employee directors as a group.......................
All non-executive officer employees as a group..............
</TABLE>

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

(1) As discussed elsewhere in this Proxy Statement, Mr. Baglien resigned from
the Company in 1997. See "Certain Transactions."

Federal Income Tax Consequences. The following is a summary of the
material tax consequences of the Deferred Incentive Plan to the Company and to
the participants, based upon the Code, Treasury regulations thereunder,
administrative rulings and court decisions as of the date hereof.

When cash is paid with respect to a Deferred Award, it will be taxable to
the participant as compensation income, and the Company will generally be
entitled to a corresponding tax deduction. However, if the cash is paid in
connection with a change of control, some or all of the cash could be treated as
an "excess parachute payment," subjecting the recipient to a 20 percent federal
excise tax under Section 4999 of the Code, and subjecting the Company to the
loss of some or all of its tax deduction under Section 162(m) and/or Section
280G of the Code.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE DEFERRED
INCENTIVE PLAN.

SELECTION OF INDEPENDENT AUDITORS

The Board has selected the firm of Price Waterhouse LLP ("Price
Waterhouse") to serve as independent auditors of the Company for 1997. Price
Waterhouse has served as independent auditors 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.

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

26
<PAGE> 29

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 (the "MMS Restatement"). Such
acquisition had previously been accounted for as a pooling-of-interests.

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.

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<PAGE> 30

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, GA 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 20, 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. 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

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<PAGE> 31

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 $________ plus any
out-of-pocket expenses.

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

March , 1998

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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."

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<PAGE> 33

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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EXHIBIT B

MEDAPHIS CORPORATION
LEVERAGED STOCK PURCHASE PLAN

1. PURPOSE

The Medaphis Corporation Leveraged Stock Purchase Plan (the "Plan") is
intended to promote the long-term growth and financial success of Medaphis
Corporation (the "Company") in the interests of the Company and its stockholders
and to strengthen the link between management and stockholders by:

- providing senior executives of the Company and its Subsidiaries (as
hereinafter defined) with an opportunity to significantly increase their
ownership of Common Stock (as hereinafter defined) and

- providing this opportunity in a manner that places senior executives at
risk in the event of poor Common Stock price performance.

2. DEFINITIONS

Except where the content otherwise indicates, the following definitions
apply:

"Agreement" means the written agreement entered into between the
Company and a Participant to carry out the Plan with respect to the
Participant concerning a particular Purchase Award in accordance with the
Plan's terms and conditions. The Agreements need not be identical and shall
be in the form approved by the Committee.

"Board" means the Board of Directors of the Company.

"Cause" means (i) the willful and continued failure of the Participant
to perform substantially the Participant's duties with the Company or one
of its Subsidiaries (other than any such failure resulting from
Disability), after a written demand for substantial performance is
delivered to the Participant by the Board which specifically identifies the
manner in which the Board believes that the Participant has not
substantially performed the Participant's duties, (ii) the willful engaging
by the Participant in illegal conduct or dishonesty which is materially and
demonstrably injurious to the Company, or (iii) the conviction of the
Participant of a felony involving moral turpitude. For purposes of this
definition, no act or failure to act, on the part of the Participant, shall
be considered "willful" unless it is done, or omitted to be done, by the
Participant in bad faith or without reasonable belief that the
Participant's action or omission was not inconsistent with the best
interests of the Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or upon the
instructions of a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Participant in good faith and not inconsistent
with the best interests of the Company.

"Change of Control" shall be deemed to have occurred if and when (i)
any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
1934 Act) becomes a beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined voting power of the
Company's then outstanding securities, or (ii) individuals who were members
of the Board as of the Effective Date (the "Incumbent Board") shall cease
to constitute at least a majority of the Board (provided that any
individuals whose nomination was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual was a member of the Incumbent Board, but excluding
for this purpose any individual whose initial assumption of office occurs
as a result of an actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the Board), or (iii) the
consummation of a reorganization, merger, consolidation or sale of all or
substantially all the assets of the Company or complete liquidation
("Corporate Transaction"), excluding any such Corporate Transaction
pursuant to which (1) substantially all of the stockholders of the Company
prior to the Corporate Transaction will own more than 60% of the voting
securities of the corporation resulting from such Corporate Transaction in
substantially the same

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<PAGE> 35

proportions as their ownership of Common Stock immediately prior to such
Corporate Transaction and (2) individuals who were members of the Incumbent
Board immediately prior to the approval of the agreement providing for the
Corporate Transaction will constitute at least a majority of the members of
the board of directors of the corporation resulting from such Corporate
Transaction.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the Securities and Exchange Commission.

"Committee" means the Compensation Committee of the Board or such
other committee of the Board as may be designated by the Board to
administer the Plan.

"Common Stock" means the voting common stock, $0.01 par value per
share, of the Company.

"Constructive Termination" has the meaning ascribed to it in the
employment agreement between the Participant and the Company or any of its
Subsidiaries; provided, that if no such employment agreement is in effect
at the time of the Participant's Termination of Service, or if such
employment agreement does not contain a definition of "Constructive
Termination," then "Constructive Termination" means a Participant's
voluntary Termination of Service within a period of ninety (90) days
following either (i) the 30th day after the Company has received a written
notice from the Participant describing in reasonable detail a material
reduction or material adverse change in the Participant's job
responsibilities or title which has not been remedied by the Company during
such 30-day period, or (ii) a reduction of more than 20% in the then sum of
the Participant's base salary and target annual incentive opportunities,
other than a reduction which is part of a general cost reduction affecting
at least 80% of the officers of the Company, or in the case of a
Participant employed by a Subsidiary of the Company, 80% of the officers of
such Subsidiary. A transfer by the Company of a Participant from one
Subsidiary to another, or between the Company and any Subsidiary, shall not
by itself constitute a Constructive Termination unless it is accompanied by
an event in clause (i) or (ii) of the prior sentence.

"Disability" means the inability of the Participant to perform his or
her normal duties of employment as a result of incapacity as determined by
the Committee.

"Effective Date" means the date the Plan is approved by the
stockholders of the Company.

The "Interest Rate" for any Purchase Loan means the "applicable
federal rate" in effect on the Purchase Date for loans with the maturity of
April 30, 2004 with interest compounded annually, as determined by Section
1274(d) of the Code, compounded annually.

"Market Price" of the Common Stock on any given day mean the average
of the highest and lowest sales prices of the Common Stock on such day on
NASDAQ, or if such day is not a Trading Day, then on the next preceding day
on which was a Trading Day, all as reported by The Wall Street Journal, or,
if the Common Stock ceases to be listed on NASDAQ, as reported on the
principal national securities exchange or national automated stock
quotation system on which the Common Stock is traded or quoted.

"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

"Participant" means each eligible employee of the Company or any of
its Subsidiaries who is designated by the Committee to receive a Purchase
Award.

"Purchase Award" means an award to a Participant permitting such
Participant to purchase shares of Common Stock pursuant to Section 6 at the
Purchase Price, together with related Purchase Loan.

"Purchase Date" means the date a Participant purchases shares of
Common Stock pursuant to a Purchase Award.

"Purchase Loan" means an extension of credit to the Participant by the
Company evidenced by the Purchase Note and secured by a pledge of the
shares of Common Stock purchased by the Participant.

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<PAGE> 36

"Purchase Note" means a full recourse promissory note including the
terms set forth in Section 7(a).

"Purchase Price" of the Common Stock means the Market Price of the
Common Stock on the Purchase Date.

"Retirement" shall be as defined by the Committee.

"Service" means employment with the Company or its Subsidiaries.

"Subsidiary" means a corporation (or partnership, joint venture, or
other enterprise) of which the Company owns or controls, directly or
indirectly, 50% or more of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable equity
participation and voting power).

"Tax Rate" means, at the time of determination, the maximum marginal
effective combined federal and state tax rates on ordinary income or
capital gains, as the case may be, to which such individual is subject.

"Termination of Service" means a Participant's termination of Service
such that he or she is no longer an employee of either the Company or any
of its Subsidiaries for any reason whatsoever.

"Total Purchase Price" means, with respect to each Participant, the
Purchase Price multiplied by the number of shares of Common Stock purchased
pursuant to the Purchase Award.

"Trading Day" means a day on which the Common Stock is publicly
traded.

3. SHARES SUBJECT TO THE PLAN

The aggregate number of shares of Common Stock that may be issued under the
Plan shall not exceed shares; provided, however, that in the event
that at any time after the Effective Date a stock dividend, stock split,
recapitalization, merger, consolidation, or other change in capitalization, or a
sale by the Company of all or part of its assets, or any separation from the
Company, including any spin-off or other distribution to stockholders other than
an ordinary cash dividend, results in (a) the outstanding shares of Common
Stock, or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of shares of stock or other securities
of the Company, or for shares of stock or other securities of any other
corporation, or (b) new, different or additional shares or other securities of
the Company or of any other corporation being received by the holders of
outstanding shares of Common Stock, then the total number of shares of Common
Stock authorized under this Plan shall be appropriately adjusted by the
Committee in its discretion. Shares of Common Stock that have been included in a
Purchase Award but not exercised by a Participant on the Purchase Date may again
be awarded under the Plan.

4. TERM OF THE PLAN

The Plan shall become effective upon the approval by the stockholders of
the Company. Prior to the Effective Date, the Committee may, in its discretion,
grant or authorize the making of Purchase Awards under the Plan as if the
Effective Date had occurred, provided that the exercise of Purchase Awards so
granted or made shall be expressly subject to the occurrence of the Effective
Date. The Plan shall be terminated on December 31, 2000; provided, that Purchase
Loans outstanding as of such date shall not be affected or impaired by the
termination of the Plan; provided further that no Purchase Awards will be
granted after December 31, 1999.

5. ELIGIBLE EMPLOYEES

All officers of the Company and other key employees of the Company and its
Subsidiaries who, in the opinion of the Committee, can materially influence the
long-term performance of the Company and/or its Subsidiaries are eligible to
receive a Purchase Award. The Committee shall have the power and complete
discretion to select those eligible employees who are to receive Purchase
Awards.

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<PAGE> 37

6. STOCK PURCHASE

(a) Grant of Purchase Award. The number of shares of Common Stock
purchasable under a Purchase Award for any Participant and the Purchase Date
shall be determined by the Committee. The Committee shall, with respect to each
Purchase Award, give written notice prior to the Purchase Date to each
Participant receiving such Purchase Award stating (i) the maximum and minimum
number (which numbers may be identical) of shares of Common Stock that may be
purchased under the Purchase Award, (ii) the Purchase Date and (iii) the
Interest Rate and other terms pertaining to the Purchase Loan.

(b) Exercise of Purchase Award. A Participant shall exercise a Purchase
Award by delivering to the Company on or prior to the Purchase Date (i) a notice
stating the number of shares (not less than the minimum number and not more than
the maximum number specified in the Purchase Award) such Participant elects to
purchase on the Purchase Date, and (ii) an executed Agreement, Purchase Note and
any other documents required pursuant to the Plan, or in lieu of a Purchase
Note, a Participant may deliver cash in the amount of the Total Purchase Price
for the shares of Common Stock purchased pursuant to the Purchase Award. Any
Participant who does not elect to purchase at least the minimum number of shares
under the Purchase Award on or prior to the Purchase Date shall forfeit any
rights under the Plan with respect to such Purchase Award, including, without
limitation, any right to receive a Purchase Loan.

(c) Closing Time. The exercise of the Purchase Award, the delivery of the
Purchase Note and the issuance by the Company of the Common Stock purchased
pursuant to the Purchase Award shall be effective at 5:00 p.m., Eastern time, on
the Purchase Date (the "Closing Time"). After the Closing Time, such Participant
shall be deemed a stockholder of the Company and shall be entitled (i) to
dividends and distributions on such Common Stock owned or pledged, (ii) to
exercise all voting rights with respect to the Common Stock, and (iii) subject
to the terms of the Plan, the Purchase Loan and related documents, to transfer
the Common Stock. Notwithstanding anything herein to the contrary, the Committee
shall have the absolute right, in its sole discretion, to revoke any Purchase
Award, including, without limitation, any right to receive a Purchase Loan
related to such Purchase Award, prior to the Closing Time.

7. LOAN PROVISIONS

(a) General. The Company shall extend a Purchase Loan to a Participant
upon exercise of a Purchase Award subject to the terms and conditions set forth
in this Section 7. The original principal amount of the Purchase Loan shall be
equal to the Total Purchase Price. Such Purchase Loan shall be evidenced by the
Purchase Note with full recourse against the maker. The obligations of each
Participant under a Purchase Note shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by any change in the existence, structure or
ownership of the Company, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting the Company or its assets or the market value of
the Common Stock or any resulting release or discharge of any obligation of the
Company or the existence of any claim, set-off or other rights which any
Participant may have at any time against the Company or any other person,
whether in connection with the Plan or with any unrelated transactions, provided
that nothing herein shall prevent the assertion of any such claim by separate
suit or counterclaim.

Notwithstanding anything to the contrary in this Section 7, the Company
shall not be required to make any Purchase Loan to a Participant if the making
of such Purchase Loan will (i) cause the Company to violate any covenant or
similar provision in any indenture, loan agreement or other agreement, or (ii)
violate any applicable federal, state or local law, provided, that the failure
to make such Purchase Loan shall be deemed to revoke the exercise of the related
Purchase Award unless otherwise specified by the Participant.

(b) Security. Payment of the Purchase Note shall be secured by a pledge of
all of the shares of Common Stock acquired by the Participant upon the exercise
of the Purchase Award to which the Purchase Loan relates. The Participant shall
effect such pledge by delivering to the Company (i) the certificate or
certificates for the shares of Common Stock acquired pursuant to the Purchase
Award, accompanied by a duly executed stock power in blank, (ii) a properly
executed stock pledge agreement, and (iii) such other documents as may be
required by the Committee. A Participant shall always have the right to sell
shares of
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<PAGE> 38

Common Stock acquired pursuant to a Purchase Award provided that (A) such sales
must be made in open-market transactions or at a price not less than the Market
Price on the Trading Day prior to the date of sale, (B) the Company shall have a
security interest in the proceeds of such sale to the extent of any outstanding
Purchase Loan, and (C) the proceeds of any such sale are utilized in the manner
provided in Section 7(e)(ii). Prior to payment in full of the outstanding
balance on the Purchase Note (including accrued and unpaid interest), no shares
of Common Stock or other collateral pledged to the Company under the stock
pledge agreement shall be released except pursuant to Section 7(e)(ii) and
except pursuant to the terms of the stock pledge agreement in connection with a
substitution of collateral for such other collateral (other than shares of
Common Stock) pledged to the Company.

(c) Interest. Interest on the principal balance of the Purchase Loan will
accrue annually, in arrears, at the Interest Rate. Except as provided in
subsections (d), (e), (f) and (g) of this Section 7, accrued interest shall not
be payable during the term of the Purchase Loan but shall be added to the
principal balance of the Purchase Loan.

(d) Term. The term of the Purchase Loan for any Participant shall begin on
such Participant's Purchase Date and, subject to prepayment as provided in
subsections (e), (f) and (g) of this Section 7, end on April 30, 2004. Except as
provided below in subsections (e), (f) and (g), no payments shall be due with
respect to the Purchase Loan until April 30, 2001, and during the period from
April 30, 2001 through April 30, 2004, the principal balance of the Purchase
Loan (including accrued but unpaid interest) shall be payable in equal annual
installments such that the entire balance of the Purchase Loan will be paid in
full as of April 30, 2004.

(e) Prepayment Obligations Other than Termination of Service. (i)
Dividends and Distributions. To the extent the Participant receives cash
dividends or other distributions paid in cash on Common Stock purchased under
the Plan, the Participant shall prepay the Purchase Loan by the full pre-tax
amount, net of any required tax withholding on such dividends or other
distribution, of such dividend or distribution received within ten (10) days of
receipt.

(ii) Common Stock Sale. In the event a Participant sells shares of Common
Stock acquired under the Plan prior to the earlier of (i) Termination of Service
due to Retirement or (ii) a Change of Control, the Participant shall immediately
prepay the Purchase Loan by the full pre-tax amount of the proceeds of such sale
of such shares. In the event a Participant sells shares of Common Stock acquired
under the Plan after the earlier of (i) Termination of Service due to Retirement
or (ii) a Change of Control, the Participant shall immediately prepay the
Purchase Loan by the full after-tax amount of the proceeds of such sale of such
shares, based upon the Tax Rate. A transfer of a Participant's shares of Common
Stock to a revocable trust as to which the Participant retains voting and
investment power (which powers of revocation, voting and investment may be
shared with the Participant's spouse) or a transfer to joint ownership with such
Participant's spouse shall not be deemed a sale for purposes of this Section
7(e)(ii) or Section 8(d), although such shares shall remain pledged to secure
the Purchase Loan pursuant to Section 7(b) and, solely for the purposes of this
Plan, shall be deemed to be owned by the Participant.

(iii) Optional Prepayments. The Participant may prepay all or any portion
of the Purchase Loan at any time.

(iv) Application of Prepayments. All prepayments made to the Company
pursuant to this Section 7(e) shall be applied to the payments due thereon in
chronological order of maturity.

(f) Prepayment Obligations for Voluntary or "For Cause" Termination of
Service. Upon a Termination of Service by the Participant other than for
Disability or for Constructive Termination or a Termination of Service by the
Company or a Subsidiary for Cause, any outstanding balance on the Purchase Loan
(including any accrued and unpaid interest) shall become due and payable on the
later of (i) the 90th day following such Termination of Service or (ii) the 90th
day following the first date on which the Participant may sell the Common Stock
purchased under the Plan without incurring liability under the federal
securities laws, including Section 16 of the 1934 Act (limited, in the case of
Section 16, to liability relating to purchases or sales of Common Stock or any
derivative security occurring prior to the Termination of Service for Cause).

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<PAGE> 39

(g) Prepayment Obligation Upon Change of Control. Upon a Change of
Control, any outstanding balance on the Purchase Loan (including any accrued and
unpaid interest) shall become due and payable upon the 45th day after the Change
of Control.

8. PLAN ADMINISTRATION

The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall interpret the Plan and make such rules as it
deems necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defect or supply any omission or reconcile any inconsistency
in the Plan in the manner and to the extent that the Committee deems desirable
to carry the Plan into effect. Among other things, the Committee shall have the
authority, subject to the terms of the Plan, to determine (i) the individuals to
whom the Purchase Awards are granted, (ii) the time or times the Purchase Awards
are granted, (iii) the Purchase Dates for such Purchase Awards, (iv) the basis
for any Termination of Service, including whether or not it was for Cause,
Disability, Retirement or otherwise (which determination shall be reasonable),
and (v) the forms, terms and provisions of the Agreements and any other
documents under the Plan. Any action taken or determination made by the
Committee pursuant to this paragraph and the other paragraphs of the Plan in
which the Committee is given discretion shall be final and conclusive on all
parties. The act or determination of a majority of the Committee shall be deemed
to be the act or determination of the entire Committee. The Committee may
consult with counsel, who may be counsel to the Company, and such other advisors
as the Committee may deem necessary and/or desirable, and the members of the
Committee shall not incur any liability for any action taken in good faith in
reliance upon the advice of counsel or any other advisor.

9. AMENDMENT AND DISCONTINUANCE OF THE PLAN

The Board, upon the recommendation of the Committee, may amend, suspend or
terminate the Plan at any time, subject to the provisions of this Section 9. No
amendment, suspension or termination of the Plan may, without the consent of the
Participant, adversely affect such Participant's rights under the Plan in any
material respect.

10. MISCELLANEOUS PROVISIONS

(a) Employment Not Guaranteed. Nothing contained in the Plan nor any
related Agreement nor any action taken in the administration of the Plan shall
be construed as a contract of employment or as giving a Participant any right to
be retained in the Service of the Company.

(b) Applicable Law. The Plan and any related Agreements shall be governed
in accordance with the laws of the State of Delaware without regard to the
application of the conflicts of law provisions thereof.

(c) Inurement of Rights and Obligations. The rights and obligations under
the Plan and any related Agreements shall inure to the benefit of, and shall be
binding upon, the Company, its successors and assigns, and the Participants and
their beneficiaries.

(d) Notice. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows: (A) if to the Company -- at its principal business address to the
attention of the Secretary; (B) if to any Participant -- at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.

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EXHIBIT C

MEDAPHIS CORPORATION
DEFERRED INCENTIVE PLAN

1. PURPOSE

The Medaphis Corporation Deferred Incentive Plan (the "Plan") is intended
to promote the long-term growth and financial success of Medaphis Corporation
(the "Company") in the interests of the Company and its stockholders and to
strengthen the link between management and stockholders by providing senior
executives of the Company and its Subsidiaries (as hereinafter defined) with
incentive awards earned based upon the performance of the Common Stock (as
hereinafter defined).

2. DEFINITIONS

Except where the content otherwise indicates, the following definitions
apply:

"Average Market Price" of a Security means, for a given period, the
sum of the Market Prices of such Security for each Trading Day in the
relevant period divided by the number of Trading Days in such period.

"Board" means the Board of Directors of the Company.

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"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the Securities and Exchange Commission.

"Committee" means the Compensation Committee of the Board or such
other committee of the Board as the Board may designate to administer the
Plan; provided, that the Committee shall at all times be composed of not
less than two persons who qualify as "outside directors" within the meaning
of Section 162(m) of the Code.

"Committee Certification" means the certification of the Committee
that one or more of the Goals has been met.

"Common Stock" means the voting Common Stock, $0.01 par value per
share, of the Company.

"Comparative Performance Percentile" shall be calculated by (i)
calculating the Total Shareholder Return of each Index Stock; (ii) ranking
the Index Stocks according to Total Shareholder Return, (iii) ranking the
Company amongst such Index Stocks according to the Total Shareholder Return
of the Company, (iv) dividing (x) that number of Index Stocks with lower
Total Shareholder Returns than the Total Shareholder Return of the Company
by (y) the number of Index Stocks plus 1, and (v) multiplying such quotient
by 100.

"Deferred Award" means the opportunity to receive deferred cash
incentive payments pursuant to this Plan.

"Designated Payment Date" means the date designated by the Company for
payment of a Deferred Award, which date shall be not more than thirty (30)
days following the Committee Certification with respect to such Deferred
Award and in any event no later than sixty (60) days following the end of
the Performance Period.

"Disability" means the inability of the Participant to perform his or
her normal duties of employment as a result of incapacity as determined by
the Committee.

"Effective Date" means the date the Plan is approved by the
stockholders of the Company.

"Final Measurement Period" means the Fiscal Quarter beginning October
1, 2000; provided, however, that if the Performance Period ends as a result
of the occurrence of a Change of Control, the Final Measurement Period
shall mean the ten (10) Trading Days ending on the 10th Trading Day prior
to the date of the Change of Control.

"Fiscal Quarter" means any of the three month periods beginning on
January 1, April 1, July 1, or October 1 of any year.

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<PAGE> 42

"Goals" means the Stock Price Goals and the Total Shareholder Return
Goals.

"Index Stock" means the common stock of any corporation (other than
the Company) included in the Market Index on each Trading Day during the
Initial Measurement Period and the Final Measurement Period.

"Initial Measurement Period" means the Fiscal Quarter of January 1,
1998 through March 31, 1998, except that for any Participant whose Deferred
Award is granted on or after June 30, 1998, the Initial Measurement Period
means the last completed Fiscal Quarter prior to such grant.

"Market Index" shall mean the Standard & Poor's 400 Mid-Cap, or in the
event such index is no longer available, such comparable stock market index
as may be selected by the Committee.

"Market Price" with respect to a given Security shall mean, for any
given date (or in the event such date is not a Trading Day with respect to
such Security, the last Trading Day prior to such date), the closing sale
price of such Security on such date, as reported as the New York Stock
Exchange-Composite Transactions for such day in The Wall Street Journal,
or, if such Security is not listed on such exchange, as reported on the
principal national securities exchange or national automated stock
quotation system on which such Security is traded or quoted.

"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

"Participant" means each eligible employee of the Company or any of
its Subsidiaries who is designated by the Committee to receive a Deferred
Award.

"Performance Period" means, with respect to each Deferred Award, the
period of time beginning on the date such Deferred Award is granted and
ending on the earlier of December 31, 2000 and the date of a Change of
Control.

"Retirement" shall be as defined by the Committee.

"Security" means the Common Stock or an Index Stock.

"Service" means employment with the Company or its Subsidiaries.

"Stock Price Goals" means the goals set forth in Section 6(b).

"Termination of Service" means a Participant's termination of Service
such that he or she is no longer an employee of either the Company or any
of its Subsidiaries for any reason whatsoever.

"Total Shareholder Return" of a Security shall be calculated by (i)
assuming that one share of such Security is purchased on the first day of
the Initial Measurement Period at the Average Market Price of such Security
during the Initial Measurement Period, (ii) assuming that additional shares
(or fractions of shares) of such Security are purchased upon the payment of
dividends or other distributions to holders of such Security on the initial
share of such Security and on shares accumulated through the assumed
reinvestment of dividends and other distributions at a price equal to the
Market Price of such Security on the date such dividends or distributions
are paid, (iii) calculating the number of shares (including fractions of
shares) of such Security that would be accumulated over the Performance
Period (or such shorter period as provided in the Plan), adjusting, as
necessary, for any stock split or similar events, (iv) multiplying the
number of shares of such Security (including fractions of shares)
determined in clause (iii) by the Average Market Price during the Final
Measurement Period, and (v) determining the

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<PAGE> 43

annual compound rate of growth during the Performance Period (or such
shorter period) based upon the value determined in clause (i) and the value
determined in clause (iv) for such Security.

"Total Shareholder Return Goal" means the goals set forth in Section
6(c).

"Trading Day" means, with respect to a Security, a day on which such
Security is publicly traded.

3. MAXIMUM DEFERRED AWARD

The maximum amount that may be awarded to any Participant under the Plans
shall be $2,000,000.

4. TERM OF THE PLAN

The Plan shall become effective upon the approval by the stockholders of
the Company. Prior to the Effective Date, the Committee may, in its discretion,
grant or authorize the making of Deferred Awards under the Plan as if the
Effective Date had occurred, provided that the exercise of Deferred Awards so
granted or made shall be expressly subject to the occurrence of the Effective
Date. The Plan shall be terminated on December 31, 2000; provided, that Deferred
Awards outstanding as of such date shall not be affected or impaired by the
termination of the Plan; provided further that no Deferred Awards will be
granted after December 31, 1999.

5. ELIGIBLE EMPLOYEES

All officers of the Company and other key employees of the Company and its
Subsidiaries who, in the opinion of the Committee, can materially influence the
long-term performance of the Company and/or its Subsidiaries are eligible to
receive a Deferred Award. The Committee shall have the power and complete
discretion to select those eligible employees who are to receive Deferred
Awards.

6. COMMITTEE CERTIFICATION AND PAYMENT OF DEFERRED AWARDS

(a) Deferred Awards shall be paid in cash on the appropriate Designated
Payment Date as and when they are earned, as set forth below in this Section 6;
provided, that no such payment shall be made unless and until the relevant
Committee Certification has been made. The Committee shall meet to consider
whether to make a Committee Certification (i) as often as necessary to avoid
undue delay of payment of any portion of a Deferred Award earned based on Stock
Price Goals, and (ii) not later than the 60th day following the end of the
Performance Period. In no event shall more than 100% of a Deferred Award be
considered earned or be paid.

(b) If, at any time during the Performance Period for a Deferred Award, the
Market Price of the Common Stock on at least 10 Trading Days during a period of
20 consecutive Trading Days equals or exceeds the following Stock Price Goals, a
percentage of the Deferred Award (including any percentage thereof that has
previously been earned based upon earlier periods of trading) shall be earned as
set forth below:

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(c) A Deferred Award may also be earned as of the end of the Performance
Period (to the extent not already earned based upon the Stock Price Goals) based
upon the Total Shareholder Return Goal, as follows.

<TABLE>
<CAPTION>
AGGREGATE
PERCENTAGE OF
DEFERRED AWARD
COMPARATIVE PERFORMANCE PERCENTILE EARNED
- ---------------------------------- --------------
<S> <C>
Below 60th.................................................. 0%
60th........................................................ 33 1/3%
70th........................................................ 66 2/3%
80th and Above.............................................. 100%
</TABLE>

If the aggregate percentage of the Deferred Award earned as a result of the
Total Shareholder Return Goal set forth in the foregoing table is greater than
the aggregate percentage of the Deferred Award earned through the end of the
Performance Period based upon the Stock Price Goals, then the Company shall pay
the Participant a Deferred Award equal to the difference between such amounts.
The applicable percentage of the Deferred Award earned for performance between
the listed percentiles will be interpolated on a straight-line basis (but if
performance is below the 60th percentile, none of the Deferred Award shall be
earned based upon the Total Shareholder Return Goal).

(d) Treatment of a Termination of Service. (i) Upon a Termination of
Service of a Participant prior to the end of the Performance Period for any
reason except death, Disability, Retirement, Constructive Termination or an
involuntary Termination of Service without Cause, the Participant shall not be
entitled to any payment with respect to his or her Deferred Award.

(ii) Upon a Termination of Service of a Participant prior to the end of the
Performance Period due to Retirement, death, Disability, Constructive
Termination or an involuntary Termination of Service without Cause, the
Participant (or the Participant's estate) will continue to be entitled to a
potential payment under the Participant's Deferred Award based on the
achievement of Goals during the remainder of the Performance Period, as if the
Participant had not experienced a Termination of Service.

(e) Change of Control. Upon a Change of Control of the Company, all
Participants who have not experienced a Termination of Service described in
Section 6(d)(i) before the Change of Control shall be entitled to receive, not
later than the 30th day after the Change of Control, payment of the full amount
of their Deferred Awards to the extent not previously paid pursuant to Section
6(b) or (c) above, regardless of whether the Goals have been achieved, and the
Participants shall have no further rights with respect to the Deferred Awards.

7. PLAN ADMINISTRATION

(a) The Plan shall be administered by the Committee. If at any time no
Committee shall be in office, the functions of the Committee specified in the
Plan shall be exercised by the members of the Board who are "outside directors"
within the meaning of Section 162(m) of the Code. Subject to the provisions of
the Plan, the Committee shall interpret the Plan and make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defect or supply any omission or reconcile any inconsistency
in the Plan in the manner and to the extent that the Committee deems desirable
to carry the Plan into effect. Deferred Awards are intended to qualify as
performance-based compensation within the meaning of Section 162(m) of the Code,
and these provisions shall be interpreted accordingly. Among other things, the
Committee shall have the authority, subject to the terms of the Plan, to
determine (i) the individuals to whom the Deferred Awards are granted, (ii) the
time or times the Deferred Awards are granted, (iii) the basis for any
Termination of Service, including whether or not it was for Cause, Disability,
Retirement or otherwise (which determination shall be reasonable), (iv) the
calculation of Total Shareholder Return and the Comparative Performance
Percentile, (v) the Committee Certification, and (vi) the forms, terms and
provisions of any documents under the Plan. Any action taken or determination
made by the Committee pursuant to this paragraph and the other paragraphs of the
Plan in which the Committee is given discretion shall be final and conclusive on
all parties.

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<PAGE> 45

The act or determination of a majority of the Committee shall be deemed to be
the act or determination of the entire Committee. The Committee may consult with
counsel, who may be counsel to the Company, and such other advisors as the
Committee may deem necessary and/or desirable, and the members of the Committee
shall not incur any liability for any action taken in good faith in reliance
upon the advice of counsel or any other advisor.

(b) In the event that at any time after the Effective Date a stock
dividend, stock split, recapitalization, merger, consolidation, or other change
in capitalization, or a sale by the Company of all or part of its assets, or any
separation from the Company, including any spin-off or other distribution to
stockholders other than an ordinary cash dividend, results in (a) the
outstanding shares of Common Stock, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
shares of stock or other securities of the Company, or for shares of stock or
other securities of any other corporation, or (b) new, different or additional
shares or other securities of the Company or of any other corporation being
received by the holders of outstanding shares of Common Stock, then the Stock
Price Goals shall be appropriately adjusted by the Committee so as to ensure
that such Goals continue to require the same relative level of stock price
performance of the continuing enterprise as immediately before such event. For
example, if there occurs a two-for-one stock split with respect to the Common
Stock, the Stock Price Goals shall be changed to $7.50 to $10, $10 to $12.50 and
more than $12.50.

8. AMENDMENT AND DISCONTINUANCE OF THE PLAN

The Board, upon the recommendation of the Committee, may amend, suspend or
terminate the Plan at any time, subject to the provisions of this Section 8. No
amendment, suspension or termination of the Plan may, without the consent of the
Participant, adversely affect such Participant's rights under the Plan in any
material respect.

9. MISCELLANEOUS PROVISIONS

(a) Unsecured Status of Claim. Participants and their beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights, interests
or claims in any specific property or assets of the Company. No assets of the
Company shall be held under any trust for the benefit of Participants, their
beneficiaries, heirs, successors or assigns, or held in any way as collateral
security for the fulfillment of the Company's obligations under the Plan.

Any and all of the Company's assets shall be, and shall remain, the general
unpledged and unrestricted assets of the Company. The Company's obligations
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay employee compensation benefits in the future.

(b) Employment Not Guaranteed. Nothing contained in the Plan nor any
related Agreement nor any action taken in the administration of the Plan shall
be construed as a contract of employment or as giving a Participant any right to
be retained in the Service of the Company.

(c) Nonassignability. No person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
hypothecate or convey in advance of actual receipt the deferred cash incentive,
if any, payable under the Plan, or any part thereof, or any interest therein,
which are, and all rights to which are, expressly declared to be unassignable
and nontransferable. No portion of the amounts payable shall, prior to actual
payment, be subject to seizure, attachment, lien or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, nor be transferable by operation of law in the
event of the Participant's or any other person's bankruptcy or insolvency. Any
such transfer or attempted transfer in violation of the preceding provisions
shall be considered null and void.

(d) Withholding Tax. The Company shall withhold from all benefits due
under the Plan an amount sufficient to satisfy any federal, state and local tax
withholding requirements.

(e) Applicable Law. The Plan and any related Agreements shall be governed
in accordance with the laws of the State of Delaware without regard to the
application of the conflicts of law provisions thereof.
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<PAGE> 46

(f) Inurement of Rights and Obligations. The rights and obligations under
the Plan and any related Agreements shall inure to the benefit of, and shall be
binding upon, the Company, its successors and assigns, and the Participants and
their beneficiaries.

(g) Notice. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows: (A) if to the Company -- at its principal business address to the
attention of the Secretary; (B) if to any Participant -- at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.

(h) Exclusion from Pension and Other Benefit Plan Computation. All
Deferred Awards are special incentive compensation that will not be taken into
account, in any manner, as salary, compensation or bonus in determining the
amount of any payment under any pension, retirement or other employee benefit
plan of the Company or any of its Subsidiaries, nor the amount of any life
insurance coverage, if any, provided by the Company or any of its Subsidiaries
on the life of the Participant which is payable to such beneficiary under any
life insurance plan covering employees of the Company or any of its
Subsidiaries.