AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 2005

 
                                                     REGISTRATION NO. 333-119012
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                AMENDMENT NO. 4

                                       TO
 
                                    FORM S-1
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                             ---------------------
                           PER-SE TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

                                                  
                      DELAWARE                                               7374
          (State or other jurisdiction of                        (Primary Standard Industrial
           incorporation or organization)                        Classification Code Number)
 
                                                   
                      DELAWARE                                             58-1651222
          (State or other jurisdiction of                               (I.R.S. Employer
           incorporation or organization)                             Identification No.)

 
                             1145 SANCTUARY PARKWAY
                                   SUITE 200
                              ALPHARETTA, GA 30004
                                 (770) 237-4300
              (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)
                             ---------------------
                                 PAUL J. QUINER
                   SENIOR VICE PRESIDENT AND GENERAL COUNSEL
                           PER-SE TECHNOLOGIES, INC.
                             1145 SANCTUARY PARKWAY
                                   SUITE 200
                              ALPHARETTA, GA 30004
                                 (770) 237-4300
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)
                             ---------------------
                                WITH COPIES TO:
 
                                 NILS H. OKESON
                               ALSTON & BIRD LLP
                           1201 WEST PEACHTREE STREET
                             ATLANTA, GEORGIA 30309
                            (404) 881-7000 TELEPHONE
                            (404) 881-7777 FACSIMILE
 
   APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
 
   If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
 
   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
 
   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
 
   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
 
   If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, check the following box. [ ]
 
                        CALCULATION OF REGISTRATION FEE
 


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                                                                     PROPOSED MAXIMUM     PROPOSED MAXIMUM
          TITLE OF EACH CLASS OF                  AMOUNT TO           OFFERING PRICE         AGGREGATE            AMOUNT OF
       SECURITIES TO BE REGISTERED              BE REGISTERED            PER UNIT          OFFERING PRICE      REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                 
3.25% Convertible Subordinated Debentures
 Due 2024.................................    $125,000,000 (1)             100%             $125,000,000        $15,837.50(2)
Common Stock, $.01 par value per share
 (with attached Rights to purchase Series
 A Junior Participating Preferred
 Stock)(3)................................      7,003,037(4)               (4)                  (4)                  (5)
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------

 
(1) Represents the aggregate principal amount of the debentures issued by the
    Registrant.
 
(2) The Registrant previously paid the Securities and Exchange Commission a
    filing fee of $15,837.50 in connection with the initial filing of this
    registration statement.
 
(3) Prior to the occurrence of certain events, the rights will not be evidenced
    or traded separately from the Registrant's common stock. Value, if any, of
    the rights is reflected in the market price of the Registrant's common
    stock. Accordingly, no separate fee is paid.
 
(4) The Registrant is registering the maximum number of shares of common stock
    that may be issued upon conversion of the debentures pursuant to their terms
    based on the initial conversion rate of 56.0243 shares per $1,000 principal
    amount of debentures. In addition, in accordance with Rule 416 under the
    Securities Act of 1933, as amended, the amount to be registered includes an
    indeterminable number of additional shares of common stock that may be
    issued to prevent dilution resulting from stock splits, stock dividends or
    similar transactions affecting the shares to be offered by the selling
    securityholders. If the Registrant needs to register additional shares of
    common stock issuable upon conversion of the debentures due to a conversion
    rate adjustment and Rule 416 is unavailable, the Registrant will file
    another registration statement to register the resale of any additional
    shares.
 
(5) Pursuant to Rule 457(i), no filing fee is payable with respect to the common
    stock issuable upon conversion of the debentures because no additional
    consideration will be received in connection with the conversion privilege.
                             ---------------------
 
   THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.

 
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
 

                   SUBJECT TO COMPLETION, DATED MARCH 4, 2005

 
PROSPECTUS
 
                                  $125,000,000
 
                           PER-SE TECHNOLOGIES, INC.
 
                   3.25% CONVERTIBLE SUBORDINATED DEBENTURES
                                    DUE 2024
                                      AND
                UP TO 7,003,037 SHARES OF COMMON STOCK ISSUABLE
                       UPON CONVERSION OF THE DEBENTURES
 

     We issued the debentures offered by this prospectus in a private placement
in June 2004. This prospectus may be used by selling securityholders to resell
their debentures and the common stock issuable, if any, upon conversion of their
debentures. We will not receive any proceeds from the sale of the debentures or
the shares of common stock offered by the selling securityholders pursuant to
this prospectus. The selling securityholders, and the maximum amount of
securities that they may offer, are identified beginning on page 20 of this
prospectus.

 

     The debentures will mature on June 30, 2024. You may convert your
debentures before their maturity into cash and, depending on the trading price
of our common stock, shares of our common stock in the manner and upon the
events described beginning on page 34 of this prospectus.

 
     We will pay interest on the debentures on June 30 and December 30 of each
year, beginning December 30, 2004.
 
     We may redeem some or all of the debentures for cash on or after July 6,
2009. You may require us to repurchase all or a portion of your debentures for
cash on June 30, 2009, June 30, 2014 and June 30, 2019, or upon the occurrence
of a fundamental change.
 
     We do not intend to list the debentures on any national securities exchange
or to include them in any automated quotation system. The debentures issued in
the private placement are eligible for trading in The PORTAL Market of the
National Association of Securities Dealers, Inc. The debentures sold using this
prospectus, however, will no longer be eligible for trading in The PORTAL
Market.
 

     Shares of our common stock are quoted on the Nasdaq National Market under
the symbol "PSTI." The last reported sale price of our common stock on March 1,
2005 was $15.21 per share.

 

     INVESTING IN THE DEBENTURES OR OUR COMMON STOCK INVOLVES RISKS. PLEASE
REVIEW THE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER IN CONNECTION WITH AN
INVESTMENT IN THE DEBENTURES AND COMMON STOCK ISSUABLE, IF ANY, UPON CONVERSION
OF THE DEBENTURES.

 
     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
 
                  THE DATE OF THIS PROSPECTUS IS           , 2005.

 
                               TABLE OF CONTENTS
 



                                                              PAGE
                                                              ----
                                                           
Prospectus Summary..........................................    1
Risk Factors................................................   10
Forward-Looking Statements..................................   18
Use of Proceeds.............................................   19
Selling Securityholders.....................................   20
Plan of Distribution........................................   28
Description of the Debentures...............................   30
Description of Capital Stock................................   52
Certain Material United States Federal Income Tax
  Considerations............................................   56
Capitalization..............................................   62
Business....................................................   63
Price Range of Common Stock.................................   68
Dividend Policy.............................................   68
Selected Financial Data.....................................   69
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   71
Quantitative and Qualitative Disclosures About Market
  Risk......................................................   94
Management..................................................   95
Certain Relationships and Related Transactions..............  103
Principal Stockholders......................................  104
Legal Matters...............................................  108
Experts.....................................................  108
Where You Can Find More Information.........................  108
Index to Consolidated Financial Statements..................  F-1



 
                               PROSPECTUS SUMMARY
 
                                  OUR COMPANY
 
     We were organized in 1985 under the laws of the State of Delaware, and
focus on providing services and solutions that improve the administrative
functions of the healthcare industry. Specifically, we provide Connective
Healthcare solutions that help physicians and hospitals achieve their income
potential. Connective Healthcare solutions support and unite healthcare
providers, payers and patients with innovative technology processes that improve
and accelerate reimbursement and reduce the administrative cost of care. We
serve the healthcare industry through two divisions: Physician Services and
Hospital Services.
 
     The Physician Services division provides Connective Healthcare services and
solutions that manage the revenue cycle for physician groups. The division is
the largest provider of business management outsourced services that supplant
all or most of the administrative functions of a physician group. Services
include clinical data collection, data input, medical coding, billing, contract
management, cash collections, accounts receivable management and extensive
reporting of metrics related to the physician practice. These services are
designed to assist healthcare providers with the business management functions
associated with the delivery of healthcare services, allowing physicians to
focus on providing quality patient care. These services also help physician
groups to be financially successful by improving cash flows and reducing
administrative costs and burdens.
 
     The target market is primarily hospital-affiliated physician groups in the
specialties of radiology, anesthesiology, emergency medicine and pathology as
well as physician groups practicing in the academic setting and other large
physician groups. Approximately 225,000 U.S.-based hospital-affiliated
physicians represent our target market for business management outsourced
services. Our target market consists of large physician groups -- typically 10
or more physicians depending upon the specialty -- and represents an estimated
market opportunity of approximately $7 billion. We estimate that approximately
20% to 30% of the physicians in the target market currently outsource their
business management needs, with the remainder of physicians performing these
services in house. Our Physician Services division is the largest provider of
comprehensive business management outsourcing services to the U.S.
hospital-based physician market, supporting approximately 1,100 clients in 42
states. This division also offers a physician practice management solution that
is delivered via an application service provider model which represented less
than 5% of the division's revenue in 2003.
 
     The Hospital Services division provides Connective Healthcare solutions
that increase revenue and decrease expenses for hospitals, with a focus on
revenue cycle management and resource management. The division has one of the
largest electronic clearinghouses in the medical industry, which provides an
important infrastructure to support its revenue cycle offering. The
clearinghouse supports more than 1,400 governmental and commercial payer
connections in 48 states. The clearinghouse delivers dedicated electronic and
Internet-based business-to-business solutions that focus on electronic
processing of medical transactions as well as complementary transactions, such
as electronic remittance advices, real-time eligibility verification and
high-speed print and mail services. Other revenue cycle management solutions
provide insight into a hospital's revenue cycle inefficiencies, such as denial
management. Denial management allows hospitals to identify charges denied
reimbursement by a payer and to take corrective actions such as resubmitting for
reimbursement. Hospitals may opt to outsource portions of their revenue cycle
management process to us, such as secondary insurance billing. Our revenue cycle
management solutions are currently in approximately 400 hospitals in the United
States.
 
     The Hospital Services division also provides resource management solutions
that enable hospitals to efficiently manage resources to reduce costs and
improve their bottom line. The division's resource management offerings include
staff scheduling solutions that can efficiently plan nurse schedules,
accommodating individual preferences as well as environmental factors, such as
acuity levels, as well as schedule all the personnel across the hospital
enterprise. The division also offers patient scheduling solutions that help
effectively manage a hospital's most expensive and profitable area, the
operating room, as well as schedule patients across the enterprise. The Hospital
Services division has the market-leading
 
                                        1

 
staff scheduling solution and a market-leading patient scheduling solution. We
provide staff and patient scheduling solutions to approximately 1,600 hospitals,
primarily in the United States.
 
     As stated previously, we focus on the administrative functions of the
healthcare market, with the majority of our business based in the United States.
Healthcare spending in the United States reached an estimated $1.7 trillion or
15.3% of gross domestic product in 2003. It has been estimated that as much as
31% of annual healthcare spending is for administrative functions. Our solutions
help make the reimbursement of healthcare more efficient and help improve the
overall patient care experience by simplifying the revenue cycle process for
physicians and hospitals. Our services and solutions are not capital-intensive
for providers, making them a cost-effective solution as providers focus on their
financial health.
 
                              RECENT DEVELOPMENTS
 
  RESTATEMENT OF FINANCIAL STATEMENTS
 
     As a result of allegations of improprieties made during 2003 and 2004, our
independent registered public accounting firm advised us and the Audit Committee
of the Board of Directors that additional procedures should be performed related
to the allegations. These additional procedures were required due to Statement
of Auditing Standards No. 99, Consideration of Fraud in a Financial Statement
Audit, or SAS No. 99, that became effective for periods beginning on or after
December 15, 2002. Due to the volume and, in some cases, vague nature of many of
the allegations, the scope of the additional procedures was broad and extensive.
The additional procedures included the review of certain of our revenues,
expenses, assets and liabilities accounts for the years 2001 through 2003.
Certain financial items were identified during the additional procedures that
warranted our further review. We reviewed these items and determined that it was
appropriate to restate certain prior period financial statements. The
restatements affected the financial statements for the years ended December 31,
2002, and 2001 and for the nine months ended September 30, 2003.
 
     The overall impact of the restatements was a net increase to reported net
income totaling approximately $2.1 million, or $.07 per share on a fully diluted
basis, for the years 2001 and 2002 and for the nine months ended September 30,
2003. On an annual basis, the net decrease to the reported net loss for 2001 was
approximately $0.2 million or $.01 per share, and the net increase to reported
net income for 2002 was approximately $1.0 million or $.03 per share on a fully
diluted basis. The net increase to reported net income for the nine months ended
September 30, 2003, was approximately $0.8 million or $.03 per share on a fully
diluted basis. In the periods presented on a quarterly basis, the impact of the
restatements was a net increase to reported net income in each of the quarters,
except for the second quarter of 2002, which had a decrease to reported net
income of $0.2 million. The restatements were primarily related to certain
liability accounts that were determined to be over-accrued based on the
correction of errors and the subsequent refinement of estimates originally made
in establishing the accruals.
 
     We recorded costs related to the additional procedures totaling
approximately $6.3 million during the nine months ended September 30, 2004 and
included these costs in other expenses in our consolidated statements of
operations. In segment reporting, these expenses are classified in the Corporate
segment.
 
     As a result of errors that caused the restatements to our financial
statements, our independent registered public accounting firm determined that a
material weakness exists related to our internal controls and procedures. Our
auditors reported to us that the errors that resulted in the restatements, which
generally related to the recording of accruals for sales commissions, vacation
liabilities, legal expenses, health insurance, incentive compensation and other
liabilities, were the result of not having appropriate controls over the
estimation process associated with the establishment of accruals and reserves
and the lack of adequate supervision of accounting personnel. We have taken
steps to improve controls in these areas, including hiring a new Corporate
Controller and principal accounting officer, reorganizing our accounting groups
so that the divisional accounting departments now report directly to the
Corporate Controller, strengthening controls over the month-end close process,
and requiring monthly review and
 
                                        2

 
documented approval for all balance sheet account reconciliations. We believe
the actions taken and additional controls implemented have effectively addressed
the material weakness identified by our independent registered public accounting
firm.
 
  LLOYD'S OF LONDON LITIGATION SETTLEMENT
 
     On May 10, 2004, we reached a settlement with our former insurance carrier,
certain underwriters at Lloyd's of London, which we refer to in this prospectus
as Lloyd's of London. We were in litigation with Lloyd's of London after its
attempt in May 2002 to rescind certain errors and omissions, or E&O, policies
and directors and officers and company reimbursement, or D&O, policies that it
had issued to us from the period December 31, 1998 to June 30, 2002. In the
settlement, Lloyd's of London agreed to pay us $20 million in cash by July 9,
2004. Lloyd's of London also agreed to defend, settle or otherwise resolve at
their expense the two remaining pending claims covered under the E&O policies.
In exchange, we provided Lloyd's of London with a full release of all E&O and
D&O policies. The California Superior Court retained jurisdiction to enforce any
aspect of the settlement agreement.
 
     As of the settlement date, we had an $18.3 million receivable from Lloyd's
of London, of which approximately $4.9 million represented additional amounts to
be paid by us under prior E&O policy settlements covered by Lloyd's of London.
Effective on May 12, 2004, as a result of negotiations among us, Lloyd's of
London, and a party to a prior E&O policy settlement with us, the Lloyd's of
London settlement was amended to reduce by $3.8 million the additional amounts
to be paid by us under the prior E&O policy settlements covered by Lloyd's of
London. This amendment reduced the amount of cash payable by Lloyd's of London
to us in the settlement from $20.0 million to $16.2 million, and reduced the
amount of our receivable from Lloyd's of London by $3.8 million. On July 7,
2004, pursuant to the settlement, as amended, Lloyd's of London paid us $16.2
million in cash. The settlement amendment had no impact on the net proceeds of
approximately $15.7 million that we received in early July. As of the payment
date, we had an approximately $14.7 million receivable from Lloyd's of London
and recognized a gain of approximately $1.5 million on the settlement in the
third quarter of 2004.
 
  RELOCATION OF PRINCIPAL EXECUTIVE OFFICE
 
     On July 30, 2004, we relocated our principal executive office to
Alpharetta, Georgia. We entered into a non-cancelable operating lease for that
office space in February 2004, which will expire in June 2014. The new landlord
has reimbursed us for the remaining payments due under the lease for our former
office space, which expires in February 2005; however, we recorded a one-time
non-cash expense of approximately $1.0 million upon our exit of the former
office facility.
 

  FOURTH QUARTER 2004 RESULTS

 

     On March 3, 2005, we reported our results for the quarter and year ended
December 31, 2004. We reported revenue of $89.4 million, operating income of
$8.5 million, and income from continuing operations of $35.8 million, or $1.10
per share on a fully diluted basis for the quarter ended December 31, 2004. We
reported revenue of $352.8 million, operating income of $28.9 million and income
from continuing operations of $44.8 million, or $1.36 per share on a fully
diluted basis for the year ended December 31, 2004.

 

     Our Physician Services division reported revenue and operating income of
$65.2 million and $7.3 million, or 11.2% of revenue, for the quarter ended
December 31, 2004, and revenue and operating income of $260.5 million and $27.6
million, or 10.6% of revenue, for the year ended December 31, 2004.

 

     We experienced a technical problem in our physician claims clearinghouse
during December 2004, which resulted in a delay in transmitting electronic
claims to payers for our Physician Services division. While the problem has been
resolved, the delay in transmitting claims adversely impacted the timing of
reimbursement from payers, and reduced revenue recognized by the division in the
quarter and year ended December 31, 2004, by approximately $1.5 million. Because
the Physician Services division recognizes revenue based on a percentage of cash
collections, the reduced revenue related to the delay in transmitting

                                        3

 

claims for reimbursement had a direct adverse impact of $1.5 million on the
division's operating income. We expect to recognize this revenue during the
first quarter of 2005.

 

     Our Hospital Services division reported revenue and operating income of
$27.6 million and $4.7 million, or 17.1% of revenue, for the quarter ended
December 31, 2004, and revenue and operating income of $105.9 million and $23.3
million, or 22% of revenue, for the year ended December 31, 2004. The division's
margins in the fourth quarter of 2004 were adversely impacted by a higher mix of
print and mail revenue due to a large customer contract signed in the second
quarter of 2004, and were lower than the division's margins in the corresponding
period of 2003.

 

     Additionally, during the quarter ended December 31, 2004, we reviewed the
valuation allowance on our deferred tax asset to determine the appropriateness
of the allowance. In accordance with GAAP, the deferred tax asset has been fully
reserved since 1998 due to our history of operating losses. The review of the
deferred tax asset valuation allowance was appropriate as we have been
profitable for the last three years. We determined it was appropriate to release
a portion of the valuation allowance based on projections of the amount of
pre-tax income that could be offset by the NOLs in the next two years. As such,
we recognized a non-cash tax benefit of approximately $28.1 million, or $0.86
per fully diluted share, during the quarter and year ended December 31, 2004.

 

     Also, on March 3, 2005, we announced that John C. "Jack" Pope, a director
since 1997, resigned from the Board due to other commitments. Mr. Pope held
several positions on the board, including chairman of the audit committee and
lead independent director. Craig Macnab has been elected audit committee
chairman, and Christopher Trower has been elected lead independent director.

 
                             CORPORATE INFORMATION
 
     Our principal executive office is located at 1145 Sanctuary Parkway, Suite
200, Alpharetta, Georgia 30004, and our telephone number is (770) 237-4300. Our
corporate website is www.per-se.com. Information contained on our website is not
part of this prospectus.
 
                                  RISK FACTORS
 

     You should read the "Risk Factors" section, beginning on page 10 of this
prospectus, to understand the risks associated with an investment in the
debentures.

 
                           SUMMARY OF THE DEBENTURES
 
Maturity Date.................   June 30, 2024.
 
Ranking.......................   The debentures will be subordinated in right of
                                 payment to all of our existing and future
                                 senior debt as that term is described in this
                                 prospectus. The indenture for the debentures
                                 does not restrict the amount of senior debt or
                                 other indebtedness as that term is described in
                                 this prospectus that we or any of our
                                 subsidiaries can incur. At September 30, 2004
                                 our senior debt totaled approximately $4.1
                                 million. See "Description of the
                                 Debentures -- Subordination." The debentures
                                 will not be guaranteed by any of our
                                 subsidiaries and, accordingly, the debentures
                                 are effectively subordinated to the
                                 indebtedness and other liabilities of our
                                 subsidiaries, including trade creditors. As of
                                 September 30, 2004, our subsidiaries had
                                 liabilities of approximately $54.4 million
                                 excluding intercompany indebtedness and
                                 guarantees under our credit agreement, all of
                                 which is structurally senior to the debentures.
 
                                        4

 
Interest......................   We will pay interest on the debentures on June
                                 30 and December 30 of each year, beginning
                                 December 30, 2004.
 
Conversion Rights.............   You may convert your debentures prior to stated
                                 maturity only under the following
                                 circumstances:
 
                                 - during any fiscal quarter commencing after
                                   September 30, 2004, if the closing sale price
                                   of our common stock for at least 20 trading
                                   days in the 30 trading-day period ending on
                                   the last trading day of the preceding fiscal
                                   quarter is more than 130% of the conversion
                                   price on that 30th trading day; or
 
                                 - during the five business day period after any
                                   five consecutive trading day period, which we
                                   refer to in this prospectus as the
                                   measurement period, in which the trading
                                   price per debenture for each day of such
                                   measurement period was less than 98% of the
                                   product of the closing sale price of our
                                   common stock on such day and the conversion
                                   rate on such day; provided, however, if you
                                   convert your debentures in reliance on this
                                   subsection, and on any trading day during
                                   such measurement period the closing sale
                                   price of shares of our common stock was
                                   between 100% and 130% of the conversion price
                                   of the debentures, you will receive cash
                                   equal to the principal amount of the
                                   debentures plus accrued and unpaid interest,
                                   if any, and liquidated damages, if any; or
 
                                 - if we have called your debentures for
                                   redemption, provided that if we elect to
                                   redeem less than all of the debentures, only
                                   those debentures called for redemption may be
                                   converted; or
 
                                 - upon the occurrence of specified corporate
                                   transactions described under "Description of
                                   the Debentures -- Conversion Rights."
 
                                 As originally issued, the debentures were
                                 convertible into shares of our common stock at
                                 an initial conversion rate of 56.0243 shares
                                 per $1,000 principal amount, which represents
                                 an initial conversion price of approximately
                                 $17.85 per share. However, we have made an
                                 irrevocable election under the terms of the
                                 indenture to satisfy in cash up to 100% of the
                                 principal amount of the debentures submitted
                                 for conversion, with any remaining amount to be
                                 satisfied in shares of our common stock as
                                 described under "Description of the
                                 Debentures -- Conversion Rights -- Payment Upon
                                 Conversion." As described in this prospectus,
                                 the conversion rate may be adjusted for certain
                                 reasons.
 
                                 Upon conversion, you will not receive any cash
                                 payment representing accrued and unpaid
                                 interest, if any. Instead, any such amounts
                                 will be deemed paid by the cash and common
                                 stock, if any, received by you on conversion.
                                 You will, however, receive any accrued and
                                 unpaid liquidated damages to, but not
                                 including, the conversion date.
 
                                 Debentures called for redemption may be
                                 surrendered for conversion until the close of
                                 business on the business day prior to the
                                 redemption date.
 
                                        5

 
                                 If you convert your debentures in connection
                                 with certain fundamental changes on or prior to
                                 June 30, 2009, we will, in certain
                                 circumstances, pay a make-whole premium in the
                                 form of consideration into which or for which
                                 our common stock was converted, exchanged or
                                 acquired as more fully described below.
 
Payment at Maturity...........   For each $1,000 principal amount of the
                                 debentures that you hold, you shall be entitled
                                 to receive $1,000 at maturity, plus accrued
                                 interest, if any, and accrued and unpaid
                                 liquidated damages, if any.
 
Sinking Fund..................   None.
 
Optional Redemption by Us.....   We may not redeem the debentures prior to July
                                 6, 2009. We may redeem some or all of the
                                 debentures for cash on or after July 6, 2009,
                                 upon at least 30 days but not more than 60 days
                                 notice by mail to holders of debentures, at a
                                 price equal to 100% of the principal amount of
                                 the debentures redeemed, plus accrued and
                                 unpaid interest, if any, and accrued and unpaid
                                 liquidated damages, if any, to, but not
                                 including, the redemption date.
 
Repurchase of Debentures by Us
at Your Option................   You may require us to repurchase all or a
                                 portion of your debentures for cash on June 30,
                                 2009, June 30, 2014 and June 30, 2019 at a
                                 price equal to 100% of the principal amount of
                                 the debentures to be purchased plus accrued and
                                 unpaid interest, if any, and accrued and unpaid
                                 liquidated damages, if any, to, but not
                                 including, the date of repurchase.
 
Fundamental Change Put........   If a fundamental change occurs to us, as
                                 defined under "Description of the
                                 Debentures -- Repurchase of Debentures at Your
                                 Option -- Fundamental Change Put," you may
                                 require us to repurchase all or a portion of
                                 your debentures. We will pay a repurchase price
                                 equal to 100% of the principal amount of the
                                 debentures to be purchased plus accrued
                                 interest, if any, and accrued and unpaid
                                 liquidated damages, if any, to, but not
                                 including, the fundamental change repurchase
                                 date.
 
Make-Whole Premium Upon
Certain Fundamental Changes...   If certain fundamental changes occur prior to
                                 June 30, 2009, we will, in certain
                                 circumstances, pay a make-whole premium on the
                                 debentures converted or tendered for repurchase
                                 upon such fundamental change. The make-whole
                                 premium, if any, will be payable in the
                                 consideration into which or for which our
                                 common stock was converted, exchanged or
                                 acquired in such fundamental change.
 
                                 The amount of the make-whole premium, if any,
                                 will be based on our stock price and the
                                 effective date of such specified fundamental
                                 change. A table showing the make-whole-premium
                                 that would apply at various stock prices and
                                 specified fundamental change effective dates is
                                 set forth under "Description of the
                                 Debentures -- Repurchase of Debentures at Your
                                 Option -- Make-Whole Premium." No make-whole
                                 premium will be paid
 
                                        6

 
                                 if the common stock price is less than $12.57
                                 or if the common stock price exceeds $50.00.
 
Use of Proceeds...............   We will not receive any proceeds from the sale
                                 by any selling securityholders of the
                                 debentures or any shares of common stock that
                                 may be issuable upon conversion of the
                                 debentures.
 
Absence of a Public Market for
the Debentures................   The debentures are new securities for which
                                 there is currently no public market. We cannot
                                 assure you that any active or liquid market
                                 will develop for the debentures. See "Plan of
                                 Distribution."
 
Trading.......................   We do not intend to list the debentures on any
                                 national securities exchange or include them in
                                 any automated quotation system. The debentures
                                 issued in the private placement are eligible
                                 for trading in The PORTAL Market of the
                                 National Association of Securities Dealers,
                                 Inc. The debentures sold using this prospectus,
                                 however, will no longer be eligible for trading
                                 in The PORTAL Market.
 
Nasdaq Symbol for our Common
Stock.........................   Our common stock is quoted on the Nasdaq
                                 National Market under the symbol "PSTI."
 
                                        7

 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
 
     The following table sets forth our summary consolidated financial data for
the periods indicated. The summary consolidated financial data for the years
ended December 31, 2003, 2002, and 2001 have been derived from our audited
consolidated financial statements and related notes included elsewhere in this
prospectus. The summary consolidated financial data for the nine months ended
September 30, 2004, and 2003 have been derived from our unaudited consolidated
financial statements and related notes included elsewhere in this prospectus.
This information is qualified by reference to and should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes to consolidated financial statements included elsewhere in this
prospectus.
 


                                           NINE MONTHS ENDED
                                             SEPTEMBER 30,         YEAR ENDED DECEMBER 31,
                                          -------------------   ------------------------------
                                            2004       2003       2003       2002       2001
                                          --------   --------   --------   --------   --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                       
STATEMENTS OF OPERATIONS DATA
  Revenue...............................  $263,383   $251,977   $335,169   $325,564   $305,822
  Salaries and wages....................   153,861    146,086    194,139    186,075    182,597
  Other operating expenses..............    71,511     65,792     87,183     90,857     86,800
  Depreciation..........................     5,979      7,154      9,375     10,908     12,223
  Amortization..........................     5,799      5,417      7,134      7,836      9,229
  Interest expense......................     5,483     12,524     14,646     18,069     18,009
  Interest income.......................      (332)      (245)      (297)      (471)    (1,121)
  Loss on extinguishment of debt........     5,896      6,255      6,255         --         --
  Process improvement project...........        --         --         --         --      3,423
  Restructuring expenses................       (16)       177        830         --        593
  Other expenses........................     5,861         --         --         --         --
  Income tax expense....................       314        803         27        800        343
  Income (loss) from continuing
     operations.........................     9,027      8,014     15,877     11,490     (6,274)
  Net income (loss)(1)..................    12,131      5,424     11,989      8,989     (6,109)
  Shares used in computing net income
     (loss) per common share-basic......    31,046     30,364     30,594     30,061     29,915
  Shares used in computing net income
     (loss) per common share-diluted....    33,273     32,199     32,661     31,966     29,915
PER SHARE DATA
  Income (loss) from continuing
     operations-basic...................  $   0.29   $   0.26   $   0.52   $   0.38   $  (0.21)
  Net income (loss) per common
     share-basic........................  $   0.39   $   0.18   $   0.39   $   0.30   $  (0.20)
  Income (loss) from continuing
     operations-diluted.................  $   0.27   $   0.25   $   0.49   $   0.36   $  (0.21)
  Net income (loss) per common share-
     diluted............................  $   0.36   $   0.17   $   0.37   $   0.28   $  (0.20)

 


                                                                          AS OF DECEMBER 31,
                                              AS OF SEPTEMBER 30,   ------------------------------
                                                     2004             2003       2002       2001
                                              -------------------   --------   --------   --------
                                                                 (IN THOUSANDS)
                                                                              
BALANCE SHEET DATA
  Working capital...........................       $ 30,622         $ 20,313   $ 20,602   $ 22,519
  Intangible assets.........................         53,872           52,336     55,494     61,929
  Total assets..............................        169,182          171,653    209,631    202,270
  Total debt................................        125,000          121,875    175,020    175,091
  Stockholders' deficit.....................        (24,646)         (17,612)   (37,972)   (49,901)

 
---------------
 
(1) Reflects the income (loss) from discontinued operations of $3.1 million and
    ($2.6) million for the nine months ended September 30, 2004, and 2003,
    respectively, and ($3.9) million, ($2.5) million and $0.2 million for the
    years ended December 31, 2003, 2002, and 2001, respectively.
 
                                        8

 
                       RATIO OF EARNINGS TO FIXED CHARGES
 
     The following table presents our historical ratios of earnings to fixed
charges for the periods indicated:
 


                                           NINE MONTHS ENDED
                                             SEPTEMBER 30,           YEARS ENDED DECEMBER 31,
                                           ------------------   ----------------------------------
                                            2004        2003    2003    2002    2001   2000   1999
                                           ------      ------   -----   -----   ----   ----   ----
                                              (UNAUDITED)
                                                                         
Ratio(1).................................   1.74x       1.43x    1.68x   1.58x  (2)    (2)    (2)

 
---------------
 
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
    consist of earnings before income tax expense, plus fixed charges. Fixed
    charges consist of:
 
     - interest expense, which includes interest on capitalized leases and
       amortization of deferred financing costs, whether expensed or
       capitalized, and
 
     - that portion of rental expense estimated by management to be attributable
       to interest based on the net present value of real estate and equipment
       leases using interest equal to our weighted average interest rate for the
       period.
 
(2) Our pre-tax income from continuing operations was inadequate to cover fixed
    charges for the years ended December 31, 2001, 2000, and 1999 by
    approximately $5.9 million, $21.4 million, and $69.9 million, respectively.
 
                                        9

 
                                    RISK FACTORS
 
                           RISKS RELATED TO OUR BUSINESS
 
     IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT
BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS ON A TIMELY BASIS. AS A
RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR
FINANCIAL REPORTING WHICH WOULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR
STOCK.
 
     As a result of errors that led to the restatements of our financial
statements for the years ended December 31, 2001, and 2002, and the nine months
ended September 30, 2003, our independent auditors determined that a material
weakness related to our internal controls existed. Our auditors reported to us
that the errors that resulted in the restatements were the result of not having
appropriate controls over the estimation process associated with the
establishment of accruals and reserves and the lack of adequate supervision of
accounting personnel. The errors generally related to the recording of accruals
for sales commissions, vacation liabilities, legal expenses, health insurance,
incentive compensation and other liabilities. While we have taken steps to
improve controls in these areas, we cannot be certain that these steps will
ensure that we implement and maintain adequate controls over financial processes
and reporting. Failure to maintain adequate controls of this type could
adversely impact the accuracy and future timeliness of our financial reports
filed pursuant to the Securities Exchange Act of 1934. If we cannot provide
reliable and timely financial reports, our business and operating results could
be harmed, investors could lose confidence in our reported financial
information, our common stock could be delisted from the Nasdaq Stock Market,
and the trading price of our common stock could fall. In addition, beginning
with our fiscal year 2004 audit, we must comply with Section 404(a) of the
Sarbanes-Oxley Act, which requires an annual management assessment of the
effectiveness of our internal controls over financial reporting and a report by
our independent auditors addressing that assessment. In light of the material
weakness identified in connection with our 2003 audit, there can be no assurance
that we or our independent auditors will be able to conclude that we have
effective internal controls over financial reporting in connection with the 2004
audit, which could raise the same concerns identified above.
 
     WE HAVE A SIGNIFICANT AMOUNT OF LONG-TERM DEBT AND OBLIGATIONS TO MAKE
PAYMENTS, WHICH COULD LIMIT OUR FUNDS AVAILABLE FOR OTHER ACTIVITIES.
 
     We have approximately $125 million of long-term indebtedness and, as a
result, have obligations to make interest and principal payments on that debt.
If unable to make the required debt payments, we could be required to reduce or
delay capital expenditures, sell certain assets, restructure or refinance our
indebtedness, or seek additional equity capital. Our ability to make payments on
our debt obligations will depend on future operating performance, which may be
affected by conditions beyond our control.
 
     WE ARE REGULARLY INVOLVED IN LITIGATION, WHICH MAY EXPOSE US TO SIGNIFICANT
LIABILITIES.
 
     We are involved in litigation arising in the ordinary course of our
business, which may expose us to loss contingencies. These matters include, but
are not limited to, claims brought by former customers with respect to the
operation of our business. We have also received written demands from customers
and former customers that have not yet resulted in legal action.
 
     We may not be able to successfully resolve such legal matters, or other
legal matters that may arise in the future. In the event of an adverse outcome
with respect to such legal matters or other legal matters in which we may become
involved, our insurance coverage, errors and omissions coverage or other
coverage, may not fully cover any damages assessed against us. Although we
maintain all insurance coverage in amounts that we believe is sufficient for our
business, such coverage may prove to be inadequate or may become unavailable on
acceptable terms, if at all. A successful claim brought against us, which is
uninsured or under-insured, could materially harm our business, results of
operations or financial condition.
 
     THE PHYSICIAN BUSINESS MANAGEMENT OUTSOURCING BUSINESS IS HIGHLY
COMPETITIVE AND OUR INABILITY TO SUCCESSFULLY COMPETE FOR BUSINESS COULD
ADVERSELY AFFECT US.
 
     The physician business management outsourcing business, especially for
revenue cycle management, is highly competitive. We compete with regional and
local physician reimbursement organizations as well as
 
                                        10

 
physician groups that provide their own business management services in house.
Successful competition within this industry is dependent on numerous industry
and market conditions.
 
     Potential industry and market changes that could adversely affect our
ability to compete for business management outsourcing services include an
increase in the number of local, regional or national competitors providing
comparable services and new alliances between healthcare providers and
third-party payers in which healthcare providers are employed by such
third-party payers.
 
     THE BUSINESS OF PROVIDING SERVICES AND SOLUTIONS TO HOSPITALS FOR BOTH
REVENUE CYCLE AND RESOURCE MANAGEMENT IS ALSO HIGHLY COMPETITIVE AND OUR
INABILITY TO SUCCESSFULLY COMPETE FOR BUSINESS COULD ADVERSELY AFFECT US.
 
     The business of providing services and solutions to hospitals for both
revenue cycle and resource management is also highly competitive. We compete
with traditional electronic data interface companies, outsourcing companies and
specialized software vendors with national, regional and local bases. Some
competitors have longer operating histories and greater financial, technical and
marketing resources than us. Our successful competition within this industry is
dependent on numerous industry and market conditions.
 
     THE MARKETS FOR OUR SERVICES AND SOLUTIONS ARE CHARACTERIZED BY RAPIDLY
CHANGING TECHNOLOGY, EVOLVING INDUSTRY STANDARDS AND FREQUENT NEW PRODUCT
INTRODUCTIONS AND OUR INABILITY TO KEEP PACE COULD ADVERSELY AFFECT US.
 
     The markets for our services and solutions are characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. Our ability to keep pace with changes in the healthcare industry
may be dependent on a variety of factors, including our ability to enhance
existing products and services; introduce new products and services quickly and
cost effectively; achieve market acceptance for new products and services; and
respond to emerging industry standards and other technological changes.
 
     Competitors may develop competitive products that could adversely affect
our operating results. It is possible that we will be unsuccessful in refining,
enhancing and developing our technology going forward. The costs associated with
refining, enhancing and developing these systems may increase significantly in
the future. Existing software and technology may become obsolete as a result of
ongoing technological developments in the marketplace.
 
     THE HEALTHCARE MARKETPLACE IS CHARACTERIZED BY CONSOLIDATION, WHICH MAY
RESULT IN FEWER POTENTIAL CUSTOMERS FOR OUR SERVICES.
 
     In general, consolidation initiatives in the healthcare marketplace may
result in fewer potential customers for our services. Some of these types of
initiatives include employer initiatives such as creating purchasing
cooperatives, or GPOs; provider initiatives, such as risk-sharing among
healthcare providers and managed care companies through capitated contracts; and
integration among hospitals and physicians into comprehensive delivery systems.
 
     Consolidation of management and billing services through integrated
delivery systems may result in a decrease in demand for our business management
outsourcing services for particular physician practices.
 
     THE HEALTHCARE INDUSTRY IS HIGHLY REGULATED, WHICH MAY INCREASE OUR COSTS
OF OPERATION.
 
     The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Federal and state legislatures
have periodically considered programs to reform or amend the U.S. healthcare
system at both the federal and state level and to change healthcare financing
and reimbursement systems, such as the Balanced Budget Act of 1997 and the
Medicare Modernization Act of 2003. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry participants
operate. Current or future government regulations or healthcare reform measures
may affect our business.
 
                                        11

 
Healthcare industry participants may respond by reducing their investments or
postponing investment decisions, including investments in our products and
services.
 
     Medical billing and collection activities are governed by numerous federal
and state civil and criminal laws. Federal and state regulators use these laws
to investigate healthcare providers and companies that provide billing and
collection services. In connection with these laws, we may be subjected to
federal or state government investigations and possible penalties may be imposed
upon us, false claims actions may have to be defended, private payers may file
claims against us, and we may be excluded from Medicare, Medicaid or other
government-funded healthcare programs.
 
     In the past, we have been the subject of federal investigations, and we may
become the subject of false claims litigation or additional investigations
relating to our billing and collection activities. Any such proceeding or
investigation could have a material adverse effect on our business.
 
     Under the Health Insurance Portability and Accountability Act of 1996, or
HIPAA, final rules have been published regarding standards for electronic
transactions as well as standards for privacy and security of individually
identifiable health information. The HIPAA rules set new or higher standards for
the healthcare industry in handling healthcare transactions and information,
with penalties for noncompliance. We have incurred and will continue to incur
costs to comply with these rules. Although management believes that future
compliance costs will not have a material impact on our results of operations,
compliance with these rules may prove to be more costly than is anticipated.
Failure to comply with such rules may have a material adverse effect on our
business and may subject us to civil and criminal penalties as well as loss of
customers.
 
     We rely upon third parties to provide data elements to process electronic
medical claims in a HIPAA compliant format. While we believe we will be fully
and properly prepared to process electronic medical claims in a HIPAA-compliant
format, there can be no assurance that third parties, including healthcare
providers and payers, will likewise be prepared to supply all the data elements
required to process electronic medical claims and make electronic remittance
under HIPAA's standards. If payers reject electronic medical claims and such
claims are processed manually rather than electronically, there could be a
material adverse affect on our business. We have made and expect to continue to
make investments in product enhancements to support customer operations that are
regulated by HIPAA. Responding to HIPAA's impact may require us to make
investments in new products or charge higher prices.
 
     Numerous federal and state civil and criminal laws govern the collection,
use, storage and disclosure of health information for the purpose of
safeguarding the privacy and security of such information. Federal or state
governments may impose penalties for noncompliance, both criminal and civil.
Persons who believe their health information has been misused or disclosed
improperly may bring claims and payers who believe instances of noncompliance
with privacy and security standards have occurred may bring administrative
sanctions or remedial actions against offending parties.
 
     Passage of HIPAA is part of a wider healthcare reform initiative. We expect
that the debate on healthcare reform will continue. We also expect that the
federal government as well as state governments will pass laws and issue
regulations addressing healthcare issues and reimbursement of healthcare
providers. We cannot predict whether the government will enact new legislation
and regulations, and, if enacted, whether such new developments will affect our
business.
 
     THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE AND NEGATIVELY AFFECT
YOUR INVESTMENT.
 
     The trading price of our common stock may be volatile. The market for our
common stock may experience significant price and volume fluctuations in
response to a number of factors including actual or anticipated quarterly
variations in operating results, changes in expectations of future financial
performance, changes in estimates of securities analysts, government regulatory
action, healthcare reform measures, client relationship developments and other
factors, many of which are beyond our control. Furthermore, the stock market in
general, and the market for software, healthcare business services and high
technology companies in particular, has experienced volatility that often has
been unrelated to the
 
                                        12

 
operating performance of particular companies. These broad market and industry
fluctuations may adversely affect the trading price of our common stock,
regardless of actual operating performance.
 
                        RISKS RELATED TO THE DEBENTURES
 
     THE DEBENTURES ARE SUBORDINATED IN RIGHT OF PAYMENT TO OUR OTHER
INDEBTEDNESS, AND THERE MAY NOT BE SUFFICIENT ASSETS TO PAY AMOUNTS DUE ON THE
DEBENTURES IN THE EVENT OF A BANKRUPTCY OR LIQUIDATION OR UPON ACCELERATION OF
THE DEBENTURES.
 
     The debentures are unsecured obligations subordinated in right of payment
to all of our existing and future senior debt. In the event of our bankruptcy,
liquidation or reorganization or upon acceleration of the debentures due to an
event of default under the indenture and in certain other events, our assets
will be available to pay obligations on the debentures only after all our senior
debt has been paid. As a result, there may not be sufficient assets remaining to
pay amounts due on any or all of the outstanding debentures.
 
     THE DEBENTURES WILL BE EFFECTIVELY SUBORDINATED TO EXISTING AND FUTURE
INDEBTEDNESS AND OTHER LIABILITIES OF OUR SUBSIDIARIES, AND IN THE EVENT OF A
BANKRUPTCY OR LIQUIDATION OF A SUBSIDIARY, WE MAY NOT RECEIVE ANY OF ITS ASSETS
TO HELP FULFILL OUR OBLIGATIONS UNDER THE DEBENTURES.
 
     Because we operate through our subsidiaries, we derive our revenues from
and hold our assets through those subsidiaries. As a result, we rely upon the
operations of our subsidiaries in order to meet our payment obligations under
the debentures and our other obligations. These subsidiaries are separate and
distinct legal entities and will have no obligation to pay any amounts due on
our debt securities, including the debentures, or to provide us with funds for
our payment obligations, whether by dividends, distributions, loans or
otherwise. Our right to receive any assets of any subsidiary in the event of a
bankruptcy or liquidation of the subsidiary, and therefore the right of our
creditors to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any subsidiary, our rights as a creditor
would be subordinated to any indebtedness of that subsidiary senior to that held
by us, including secured indebtedness to the extent of the assets securing such
indebtedness. As of September 30, 2004, our subsidiaries had liabilities of
approximately $54.4 million, excluding intercompany indebtedness and guarantees
under our credit agreement, all of which is structurally senior to the
debentures.
 
     BECAUSE WE OPERATE THROUGH SUBSIDIARIES, WE MAY BE UNABLE TO REPAY OR
REPURCHASE THE DEBENTURES IF OUR SUBSIDIARIES ARE UNABLE TO PAY DIVIDENDS OR
MAKE ADVANCES TO US.
 
     At maturity, the entire outstanding principal amount of the debentures will
become due and payable by us. In addition, each holder of the debentures may
require us to repurchase all or a portion of that holder's debentures on June 30
of 2009, 2014, and 2019 or, if a fundamental change, as defined in the
indenture, of our company occurs. A fundamental change also may constitute an
event of default under, and result in the acceleration of the maturity of,
indebtedness under another indenture or other indebtedness that we have or may
incur in the future.
 
     We, as a holding company, are dependent upon the operations of our
subsidiaries to enable us to service our outstanding debt, including the
debentures. At maturity or upon a repurchase request, if we do not have
sufficient funds on hand or available through existing borrowing facilities or
through the declaration and payment of dividends by our subsidiaries, we will
need to seek additional financing. Additional financing may not be available to
us in the amounts necessary.
 
     Our credit agreement contains, and future borrowing arrangements or
agreements may contain, restrictions on our repayment or repurchase of the
debentures under certain conditions. For example, our credit agreement contains
a provision prohibiting us from prepaying, redeeming or acquiring the debentures
for cash. In the event that the maturity date or repurchase request occurs at a
time when we are restricted from repaying or repurchasing the debentures, we
could attempt to obtain the consent of the lenders under those arrangements to
purchase the debentures or could attempt to refinance the borrowings that
contain
 
                                        13

 
the restrictions. If we do not obtain the necessary consents or refinance these
borrowings, we will be unable to repay or repurchase the debentures. Failure by
us to repurchase the debentures when required will result in an event of default
with respect to the debentures, which would, in turn, result in an event of
default under our credit agreement or may result in an event of default under
such other arrangements.
 
     WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH COULD ADVERSELY AFFECT
OUR FINANCIAL PERFORMANCE AND IMPACT OUR ABILITY TO MAKE PAYMENTS ON THE
DEBENTURES.
 
     As of September 30, 2004, we, including our subsidiaries, had total debt of
approximately $125 million. Our level of indebtedness could have important
consequences to the holders of the debentures. For example, it:
 
     - may limit our ability to obtain additional financing for working capital,
       capital expenditures or general corporate purposes, particularly if the
       ratings assigned to our debt securities by rating organizations were
       revised downward;
 
     - will require us to dedicate a substantial portion of our cash from
       operations to the payment of principal and interest on our debt, reducing
       the funds available to us for other purposes, including expansion through
       acquisitions, capital expenditures, marketing spending and expansion of
       our product offerings;
 
     - may limit our flexibility to adjust to changing business and market
       conditions and make us more vulnerable to a downturn in general economic
       conditions as compared to our competitors; and
 
     - may place us at a possible competitive disadvantage relative to less
       leveraged competitors and competitors that have better access to capital.
 
     Our ability to make scheduled payments or to refinance our obligations with
respect to our indebtedness will depend on our financial and operating
performance, which, in turn, is subject to prevailing economic conditions and to
financial, business and other factors beyond our control.
 
     OUR STOCK PRICE, AND THEREFORE THE PRICE OF THE DEBENTURES, MAY BE SUBJECT
TO SIGNIFICANT FLUCTUATIONS AND VOLATILITY, WHICH COULD NEGATIVELY AFFECT YOUR
INVESTMENT.
 
     The market price of the debentures may be significantly affected by the
market price of our common stock particularly if our common stock trades in
excess of the conversion price of the debentures. This may result in greater
volatility in the trading value of the debentures than would be expected for
non-convertible debt securities that we issue. Among the factors that could
affect our common stock price are those discussed above under "-- Risks Related
to Our Business" as well as:
 
     - quarterly variations in our operating results;
 
     - federal or state legislative, licensing or regulatory changes with
       respect to our industry;
 
     - healthcare reform measures;
 
     - client relationship developments;
 
     - changes in revenue or earnings estimates or publication of research
       reports by analysts;
 
     - speculation in the press or investment community;
 
     - strategic actions by us or our competitors;
 
     - general market conditions; and
 
     - domestic and international economic factors unrelated to our performance.
 
     In addition, the stock markets have experienced extreme volatility that has
often been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of our common
stock and of the debentures.
 
                                        14

 
     THE TRADING PRICES FOR THE DEBENTURES MAY BE AFFECTED BY THE TRADING PRICES
FOR OUR COMMON STOCK, WHICH ARE IMPOSSIBLE TO PREDICT.
 
     The price of our common stock could be affected by possible sales of our
common stock by investors who view the debentures as a more attractive means of
equity participation in our company particularly if our common stock trades in
excess of the conversion price of the debentures. In addition, the trading price
of our common stock could be affected by hedging or arbitrage trading activity
that may develop involving our common stock. The hedging or arbitrage could, in
turn, affect the trading prices of the debentures.
 
     THE CONDITIONAL CONVERSION FEATURE OF THE DEBENTURES COULD RESULT IN YOU
NOT RECEIVING THE VALUE OF THE CASH AND COMMON STOCK, IF ANY, INTO WHICH THE
DEBENTURES ARE CONVERTIBLE.
 
     The debentures are convertible into cash and, depending on the trading
price of our common stock, shares of common stock only if specific conditions
are met. If the specific conditions for conversion are not met, you may not be
able to receive the value of the cash and common stock, if any, into which your
debentures would otherwise be convertible.
 
     CONVERSION OF DEBENTURES ENTAILS MARKET RISK WITH RESPECT TO OUR COMMON
STOCK, AND IF THE TRADING PRICE OF OUR COMMON STOCK DECLINES AFTER YOU SUBMIT A
CONVERSION NOTICE, YOU MAY ULTIMATELY RECEIVE LESS CASH AND COMMON STOCK THAN
YOU EXPECTED TO RECEIVE WHEN YOU SUBMITTED YOUR CONVERSION NOTICE.
 
     The amount of cash and common stock, if any, payable upon conversion of
debentures depends, in part, on the trading price of our common stock during a
period of 20 trading days occurring after you submit a conversion notice.
Conversion notices cannot be revoked. As a result, if the trading price of our
common stock declines during the applicable 20 trading day period, you may
receive less cash and common stock than you expected to receive when you
submitted your conversion notice. You may receive less than 100% of the
principal amount of the debentures surrendered for conversion. The manner in
which the amount of cash and common stock, if any, payable upon conversion of
debentures will be determined is described under "Description of
Debentures -- Conversion Rights -- Payment Upon Conversion."
 
     THERE MAY NOT BE AN ACTIVE TRADING MARKET FOR THE DEBENTURES, WHICH COULD
ADVERSELY AFFECT THE TRADING PRICE OF THE DEBENTURES AND YOUR ABILITY TO SELL
THE DEBENTURES.
 
     Prior to this offering, there has been no trading market for the
debentures. We do not intend to apply for listing of the debentures on any
securities exchange or any automated quotation system. Although the initial
purchasers advised us that they intend to make a market in the debentures, they
are not obligated to do so and may discontinue their market-making activities at
any time without notice. Consequently, we cannot be sure that any market for the
debentures will develop, or if one does develop, that it will be maintained. If
an active market for the debentures fails to develop or be sustained, the
trading price and liquidity of the debentures could be adversely affected.
 
     IF YOU ARE ABLE TO RESELL YOUR DEBENTURES, MANY OTHER FACTORS MAY AFFECT
THE PRICE YOU RECEIVE, WHICH MAY BE LOWER THAN YOU BELIEVE TO BE APPROPRIATE.
 
     If you are able to resell your debentures, the price you receive will
depend on many other factors that may vary over time, including:
 
     - the number of potential buyers;
 
     - the level of liquidity of the debentures;
 
     - ratings published by major credit rating agencies;
 
     - our financial performance;
 
     - the amount of indebtedness we have outstanding;
 
     - the level, direction and volatility of market interest rates generally;
 
     - the market for similar securities;
 
                                        15

 
     - the redemption and repayment features of the debentures to be sold; and
 
     - the time remaining to the maturity of your debentures.
 
     As a result of these factors, you may only be able to sell your debentures
at prices below those you believe to be appropriate, including prices below the
price you paid for them.
 
     THE CONVERSION RATE OF THE DEBENTURES MAY NOT BE ADJUSTED FOR ALL DILUTIVE
EVENTS, WHICH COULD ADVERSELY AFFECT THE VALUE OF THE DEBENTURES AND ANY COMMON
STOCK THAT MAY BE ISSUABLE UPON CONVERSION OF THE DEBENTURES.
 
     The conversion rate of the debentures is subject to adjustment for certain
events, including but not limited to the issuance of stock dividends on our
common stock, the issuance of rights or warrants, subdivisions, combinations,
distributions of capital stock, indebtedness or assets, certain cash dividends
and certain tender or exchange offers as described under "Description of the
Debentures -- Conversion Rights -- Conversion Rate Adjustments." The conversion
rate will not be adjusted for other events, such as an issuance of common stock
for cash, which may adversely affect the trading price of the debentures or our
common stock. We cannot assure you that an event that adversely affects the
value of the debentures, but does not result in an adjustment to the conversion
rate, will not occur.
 
     YOU MAY HAVE TO PAY TAXES WITH RESPECT TO DISTRIBUTIONS ON OUR COMMON STOCK
THAT YOU DO NOT RECEIVE.
 
     The conversion rate of the debentures is subject to adjustment for certain
events arising from stock splits and combinations, stock dividends, certain cash
dividends and certain other actions by us that modify our capital structure. See
"Description of the Debentures -- Conversion Rights -- Conversion Rate
Adjustments." If the conversion rate is adjusted as a result of a distribution
that is taxable to our common stock holders, such as a cash dividend, you would
be required to include an amount in income for federal income tax purposes,
notwithstanding the fact that you do not actually receive such distribution. The
amount that you would have to include in income will generally be equal to the
amount of the distribution that you would have received if you had settled the
purchase contract and purchased our common stock. In addition, non-U.S. holders
of the debentures may, in certain circumstances, be deemed to have received a
distribution subject to U.S. federal withholding tax requirements. See "Certain
Material United States Federal Income Tax Considerations."
 
     THE DEBENTURES DO NOT RESTRICT OUR ABILITY TO INCUR ADDITIONAL DEBT OR TO
TAKE OTHER ACTION THAT COULD NEGATIVELY IMPACT OUR ABILITY TO MAKE PAYMENTS ON
THE DEBENTURES WHEN DUE.
 
     We are not restricted under the terms of the indenture and the debentures
from incurring additional indebtedness or securing indebtedness other than the
debentures. In addition, the debentures do not require us to achieve or maintain
any minimum financial results relating to our financial position or results of
operations. Our ability to recapitalize, incur additional debt, secure existing
or future debt and take a number of other actions that are not limited by the
terms of the indenture and the debentures could have the effect of diminishing
our ability to make payments on the debentures when due. In addition, we are not
restricted from repurchasing subordinated indebtedness or common stock by the
terms of the indenture and the debentures.
 
     CONVERSION OF THE DEBENTURES MAY DILUTE THE OWNERSHIP INTEREST OF EXISTING
STOCKHOLDERS, INCLUDING HOLDERS WHO HAD PREVIOUSLY CONVERTED THEIR DEBENTURES.
 
     The conversion of debentures may dilute the ownership interests of existing
stockholders. Any sales in the public market of the common stock issuable upon
such conversion could adversely affect prevailing market prices of our common
stock. In addition, the existence of the debentures may encourage short selling
by market participants because the conversion of the debentures could depress
the price of our common stock.
 
                                        16

 
     IF YOU HOLD DEBENTURES, YOU WILL NOT BE ENTITLED TO ANY RIGHTS WITH RESPECT
TO OUR COMMON STOCK, BUT YOU WILL BE SUBJECT TO ALL CHANGES MADE WITH RESPECT TO
OUR COMMON STOCK.
 
     If you hold debentures, you will not be entitled to any rights with respect
to our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but you will
be subject to all changes affecting the common stock. You will have rights with
respect to our common stock only if and when we deliver shares of common stock
to you upon conversion of your debentures and, in limited cases, under the
conversion rate adjustments applicable to the debentures. For example, in the
event that an amendment is proposed to our certificate of incorporation or
bylaws requiring stockholder approval and the record date for determining the
stockholders of record entitled to vote on the amendment occurs prior to
delivery of common stock to you, you will not be entitled to vote on the
amendment, although you will nevertheless be subject to any changes in the
powers, preferences or special rights of our common stock.
 
     WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS, WHICH
MAY REDUCE OR ELIMINATE OUR STOCKHOLDERS' ABILITY TO SELL THEIR SHARES FOR A
PREMIUM IN A CHANGE OF CONTROL TRANSACTION.
 
     Various provisions of our certificate of incorporation and bylaws and of
Delaware corporate law may discourage, delay or prevent a change of control or
takeover attempt of our company by a third party that is opposed to by our
management and board of directors. Public stockholders who might desire to
participate in such a transaction may not have the opportunity to do so. These
anti-takeover provisions could substantially impede the ability of public
stockholders to benefit from a change of control or change in our management and
board of directors. These provisions include:
 
     - preferred stock that could be issued by our board of directors to make it
       more difficult for a third party to acquire, or to discourage a third
       party from acquiring, a majority of our outstanding voting stock;
 
     - non-cumulative voting for directors;
 
     - control by our board of directors of the size of our board of directors;
 
     - limitations on the ability of stockholders to call special meetings of
       stockholders;
 
     - a unanimity requirement for stockholders to take any action by written
       consent; and
 
     - advance notice requirements for nominations of candidates for election to
       our board of directors or for proposing matters that can be acted upon by
       our stockholders at stockholder meetings.
 
     We have also approved a Rights Agreement, which we refer to in this
prospectus as the rights plan. Pursuant to the rights plan, the holders of our
common stock are entitled to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a purchase price of $75 per unit.
Subject to certain exceptions specified in the rights plan, the right to
purchase will separate from the common stock and become exercisable upon the
earlier to occur of (i) 10 business days following a public announcement that a
person or group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding common stock or (ii) 10 business
days following the commencement of a tender offer for the common stock. The
existence of the rights plan may discourage, delay or prevent a change of
control or takeover attempt of our company by a third party opposed to by our
management and board of directors.
 
                                        17

 
                           FORWARD-LOOKING STATEMENTS
 
     This prospectus includes statements reflecting assumptions, expectations,
projections, intentions, and/or beliefs about future events and future
performance that are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. You can identify these
statements by the fact that they do not relate strictly to historical or current
facts or because they necessarily depend upon future events. They sometimes
include words such as "anticipate," "estimate," "project," "forecast," "may,"
"will," "intend," "should," "could," "would," "expect," "believe" and other
words of similar meaning. In particular, these forward-looking statements
include, but are not limited to, statements relating to the following:
 
     - meritorious defenses to the claims and other issues asserted in pending
       legal matters;
 
     - the effect of industry and regulatory changes on our business and our
       customer base;
 
     - the impact of revenue backlog on future revenue; and
 
     - overall profitability and the availability of capital.
 
     Any or all of our forward-looking statements may turn out to be wrong. They
can be affected by inaccurate assumptions and by known or unknown risks and
uncertainties. Although we believe that the forward-looking statements we have
made are based on reasonable assumptions, they are based on current information
and beliefs and, accordingly, we can give no assurance that our expectations
will be achieved. In addition, these statements are subject to factors that
could cause actual results to differ materially from those suggested by the
forward-looking statements. These factors include, but are not limited to,
factors identified in this prospectus under the caption "Risk Factors."
 
     Many of these factors and uncertainties will be important in determining
our actual future results. Consequently, no forward-looking statement can be
guaranteed. Our actual future results may vary materially from those expressed
or implied in any forward-looking statements.
 
     All of our forward-looking statements, whether written or oral are
expressly qualified by these cautionary statements and any other cautionary
statements that may accompany such forward-looking statements. In addition, we
disclaim any obligation to update forward-looking statements to reflect events
or circumstances that occur or become known after the date of this prospectus.
 
                                        18

 
                                USE OF PROCEEDS
 
     We will not receive any proceeds from the sale by any selling
securityholder of the debentures or the shares of common stock issuable, if any,
upon conversion of the debentures.
 
                                        19

 
                            SELLING SECURITYHOLDERS
 
     The debentures were originally issued by us in a private placement and were
resold by the initial purchasers thereof to qualified institutional buyers in
reliance on Rule 144A under the Securities Act of 1933, as amended, which we
refer to in this prospectus as the Securities Act. Selling securityholders named
in the following table, including any of their non-sale transferees, pledgees or
donees, or their successors, may from time to time offer and sell any or all of
the debentures and shares of common stock, if any, into which the debentures are
convertible pursuant to this prospectus.
 
     The selling securityholders may offer all, some or none of the debentures
or shares of common stock, if any, into which the debentures are convertible.
Because the selling securityholders may offer all or some portion of the
debentures or the common stock, no estimate can be given as to the amount of the
debentures or the common stock that will be held by the selling securityholders
upon completion of this offering.
 



                                                                    CONVERSION
                                    PRINCIPAL        NUMBER OF      SHARES OF
                                    AMOUNT OF        SHARES OF        COMMON     DEBENTURES
                                    DEBENTURES     COMMON STOCK       STOCK      OWNED AFTER    SHARES OF COMMON
                                   BENEFICIALLY     OWNED PRIOR      THAT MAY    COMPLETION    STOCK OWNED AFTER
                                    OWNED THAT        TO THIS           BE         OF THIS     COMPLETION OF THIS
NAME OF SELLING SECURITYHOLDER     MAY BE SOLD    OFFERING(1)(2)     SOLD(2)     OFFERING(3)      OFFERING(3)
------------------------------     ------------   ---------------   ----------   -----------   ------------------
                                                                                
Acuity Master Fund, Ltd.(4)......      760,000              --             --         0                   0
Akela Capital Master Fund,
  Ltd.(5)........................   12,500,000              --             --         0                   0
Attorney's Title Insurance
  Fund(6)........................       90,000              --             --         0                   0
Banc of America Securities
  LLC(7).........................    3,475,000              --             --         0                   0
Bancroft Convertible Fund,
  Inc.(8)........................      500,000              --             --         0                   0
Basso Multi-Strategy Holding Fund
  Ltd.(9)........................    1,000,000              --             --         0                   0
BNP Paribas Equity Strategies,
  SNC(10)........................    1,548,000           1,261             --         0               1,261
Boilermakers Blacksmith Pension
  Trust(11)......................    1,245,000              --             --         0                   0
BP Amoco PLC Master Trust(12)....      546,000              --             --         0                   0
Calamos(R) Market Neutral Fund --
  Calamos(R) Investment
  Trust(13)......................    3,000,000              --             --         0                   0
Citadel Credit Trading
  Ltd.(14).......................      160,000              --             --         0                   0
Citadel Equity Fund Ltd.(15).....    1,840,000              --             --         0                   0
CooperNeff Convertible Strategies
  (Cayman) Master Fund, LP(16)...    1,508,000              --             --         0                   0
CQS Convertible and Quantitative
  Strategies Master Fund
  Limited(17)....................      500,000              --             --         0                   0
DBAG London(18)..................      525,000              --             --         0                   0
Delta Airlines Master
  Trust(19)......................      315,000              --             --         0                   0
Diaco Investments LP(20).........      240,000              --             --         0                   0
DKR SoundShore Opportunity
  Holding Fund Ltd.(21)..........    2,100,000              --             --         0                   0
Duke Endowment(22)...............      265,000              --             --         0                   0
Ellsworth Convertible Growth and
  Income Fund, Inc.(23)..........      500,000              --             --         0                   0
FrontPoint Convertible Arbitrage
  Fund, L.P.(24).................    3,500,000              --             --         0                   0
Geode U.S. Convertible Arbitrage
  Fund(25).......................    3,350,000              --             --         0                   0
Grace Convertible Arbitrage Fund,
  Ltd.(26).......................    3,500,000              --             --         0                   0


 
                                        20

 



                                                                    CONVERSION
                                    PRINCIPAL        NUMBER OF      SHARES OF
                                    AMOUNT OF        SHARES OF        COMMON     DEBENTURES
                                    DEBENTURES     COMMON STOCK       STOCK      OWNED AFTER    SHARES OF COMMON
                                   BENEFICIALLY     OWNED PRIOR      THAT MAY    COMPLETION    STOCK OWNED AFTER
                                    OWNED THAT        TO THIS           BE         OF THIS     COMPLETION OF THIS
NAME OF SELLING SECURITYHOLDER     MAY BE SOLD    OFFERING(1)(2)     SOLD(2)     OFFERING(3)      OFFERING(3)
------------------------------     ------------   ---------------   ----------   -----------   ------------------
                                                                                
HFRCA Select Fund(27)............      750,000              --             --         0                   0
Highbridge International
  LLC(28)........................    4,000,000              --             --         0                   0
Hotel Union & Hotel Industry of
  Hawaii Pension Plan(29)........      147,000              --             --         0                   0
Institutional Benchmarks Master
  Fund Ltd. c/o SSI Investment
  Management(30).................      781,000              --             --         0                   0
Institutional Benchmarks Master
  Fund Ltd. c/o Zazove
  Associates(31).................    1,750,000              --             --         0                   0
Lord Abbett Investment
  Trust -- LA Convertible
  Fund(32).......................    2,500,000              --             --         0                   0
Lyxor/Convertible Arbitrage Fund
  Limited(33)....................      276,000              --             --         0                   0
Man Convertible Bond Master Fund,
  Ltd.(34).......................    3,965,000              --             --         0                   0
McMahan Securities Co.
  L.P.(35).......................    2,000,000              --             --         0                   0
Mill River Master Fund,
  L.P.(36).......................    1,000,000              --             --         0                   0
Mohican VCA Master Fund,
  Ltd.(37).......................      600,000              --             --         0                   0
MSD TCB, LP(38)..................   10,700,000              --             --         0                   0
The Northwestern Mutual Life
  Insurance Company(39)..........    1,900,000              --             --         0                   0
Polaris Vega Fund L.P.(40).......    4,900,000              --             --         0                   0
Putnam Convertible Income-Growth
  Trust(41)......................    3,500,000              --             --         0                   0
RBC Alternative Assets -- Conv.
  ARB(42)........................      250,000              --             --         0                   0
Ritchie Convertible Arbitrage
  Trading(43)....................      400,000              --             --         0                   0
S.A.C. Arbitrage Fund, LLC(44)...    1,000,000          42,130             --         0              42,130
San Diego County Employee
  Retirement Association(45).....    2,000,000              --             --         0                   0
Singlehedge US Convertible
  Arbitrage Fund(46).............      352,000              --             --         0                   0
Sphinx Convertible Arbitrage Fund
  SPC(47)........................      593,000              --             --         0                   0
SSI Blended Market Neutral
  L.P.(48).......................      295,000              --             --         0                   0
SSI Hedged Convertible Market
  Neutral L.P.(49)...............      459,000              --             --         0                   0
St. Thomas Trading, Ltd.(50).....    3,335,000              --             --         0                   0
Sterling Invest Co.(51)..........       85,000              --             --         0                   0
Sturgeon Limited(52).............      316,000              --             --         0                   0
Sunrise Partners Limited
  Partnership(53)................   12,300,000              --             --         0                   0
Value Line Convertible Fund,
  Inc.(54).......................      250,000              --             --         0                   0
Viacom Inc. Pension Plan Master
  Trust(55)......................       14,000              --             --         0                   0


 
                                        21

 



                                                                    CONVERSION
                                    PRINCIPAL        NUMBER OF      SHARES OF
                                    AMOUNT OF        SHARES OF        COMMON     DEBENTURES
                                    DEBENTURES     COMMON STOCK       STOCK      OWNED AFTER    SHARES OF COMMON
                                   BENEFICIALLY     OWNED PRIOR      THAT MAY    COMPLETION    STOCK OWNED AFTER
                                    OWNED THAT        TO THIS           BE         OF THIS     COMPLETION OF THIS
NAME OF SELLING SECURITYHOLDER     MAY BE SOLD    OFFERING(1)(2)     SOLD(2)     OFFERING(3)      OFFERING(3)
------------------------------     ------------   ---------------   ----------   -----------   ------------------
                                                                                
VICIS Capital Master Fund(56)....    3,243,750              --             --         0                   0
Victus Capital, LP(57)...........    2,162,500              --             --         0                   0
Wachovia Capital Markets
  LLC(58)........................      400,000              --             --         0                   0
Whitebox Diversified Convertible
  Arbitrage Partners LP(59)......    1,250,000              --             --         0                   0
Wolverine Asset Management(60)...    2,000,000              --             --         0                   0
WPG Convertible Arbitrage
  Overseas Master Fund(61).......      600,000              --             --         0                   0
WPG Univest Multi-Strategy --
  Conv. ARB(62)..................      150,000              --             --         0                   0
Zazove Convertible Arbitrage Fund
  L.P.(63).......................    5,200,000              --             --         0                   0
Zazove Hedged Convertible Fund,
  L.P.(64).......................    2,000,000              --             --         0                   0
Zazove Income Fund L.P.(65)......    1,000,000              --             --         0                   0
Any other unnamed holder of
  debentures or future non-sale
  transferee pledge, donee or
  successor of any such
  holder(66).....................    3,608,750              --             --         0                   0
                                   -----------       ---------      ---------         --             ------
Total............................  125,000,000          43,391             --         0              43,391
                                   ===========       =========      =========         ==             ======


 
---------------
 
(1)  Includes common stock into which the debentures are convertible.
 
(2)  As originally issued, the debentures were convertible into shares of our
     common stock at an initial conversion rate of 56.0243 shares per $1,000
     principal amount, for an aggregate of 7,003,037 shares. However, we have
     made an irrevocable election under the terms of the indenture to satisfy in
     cash up to 100% of the principal amount of the debentures submitted for
     conversion, with any remaining amount to be satisfied in shares of our
     common stock as described under "Description of the
     Debentures -- Conversion Rights -- Payment Upon Conversion." The precise
     number of shares, if any, issuable upon conversion of debentures depends,
     in part, on the trading price of our common stock following an election to
     convert and is not presently determinable. If the trading price of our
     common stock does not exceed approximately $17.85, no shares of common
     stock would be issuable upon conversion of debentures. In no event will the
     number of shares issuable upon conversion, per $1,000 principal amount of
     debentures, exceed the applicable conversion rate. The conversion rate
     currently remains at the initial rate of 56.0243 shares per $1,000
     principal amount, but is subject to adjustment in the manner and upon the
     events described under "Description of the Debentures -- Conversion
     Rights -- Conversion Rate Adjustments."
 
(3)  We do not know when or in what amounts a selling securityholder may offer
     the debentures or shares of common stock for sale. The selling
     securityholders might not sell any or all of the debentures or shares of
     common stock offered by this prospectus. Because the selling
     securityholders may offer all or some of the debentures or shares of common
     stock pursuant to this prospectus, and because there are currently no
     agreements, arrangements or understandings with respect to the sale of any
     of the debentures or shares of common stock, we cannot estimate the number
     of the debentures or shares of common stock that will be held by the
     selling securityholders after completion of this offering. However, for
     purposes of this table, we have assumed that, after completion of the
     offering pursuant to this prospectus, none of the debentures or shares of
     common stock covered by this prospectus will be held by the selling
     securityholders.
 
                                        22

 
(4)  David J. Harris and Howard Needle are the managing members of the selling
     securityholder and exercise voting control and dispositive power over these
     securities.
 
(5)  Anthony B. Bosco acts as investment manager for the selling securityholder
     and exercises voting control and dispositive power over these securities.
 
(6)  Ann Houlihan acts as investment manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.
 
(7)  The selling securityholder is a subsidiary of Bank of America Corp., a
     reporting company under the Exchange Act. The selling securityholder served
     as the lead manager in the initial offering of the debentures and is an
     affiliate of Bank of America, N.A., one of the lenders under our credit
     agreement. The selling securityholder has informed us that it is a
     registered broker-dealer. As such, it is an underwriter in connection with
     the sale of the debentures and the shares of common stock, if any, into
     which the debentures are convertible. The selling securityholder has
     informed us that it purchased the securities in the ordinary course of
     business, and at the time of purchase, it had no agreements or
     understandings, directly or indirectly, with any person to distribute the
     securities.
 
(8)  Davis-Dinsmore Management Company acts as investment advisor to the selling
     securityholder. Thomas H. Dinsmore is the portfolio manager of
     Davis-Dinsmore Management Company and exercises voting control and
     dispositive power over these securities.
 
(9)  Basso Asset Management, L.P. acts as investment manager for the selling
     securityholder. Basso GP, LLC is the general partner of Basso Asset
     Management, L.P., and Howard Fischer as managing member of Basso GP, LLC
     exercises voting control and dispositive power over these securities.
 
(10) The total under "Number of Shares of Common Stock Owned Prior to this
     Offering" includes 1,261 shares of our common stock owned by the selling
     securityholder. CooperNeff Advisors, Inc. acts as investment manager for
     the selling securityholder. Christian Menestrier is the Chief Executive
     Officer of CooperNeff Advisors, Inc. and exercises voting control and
     dispositive power over these securities. The selling securityholder has
     informed us that (i) it is an affiliate of BNP Paribas Securities Corp., a
     registered broker-dealer, (ii) it purchased the securities in the ordinary
     course of business, and (iii) at the time of purchase, the selling
     securityholder had no agreements or understandings, directly or indirectly,
     with any person to distribute the securities.
 
(11) Ann Houlihan acts as investment manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.
 
(12) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.
 
(13) Nick Calamos acts as investment manager for the selling securityholder and
     exercise voting control and dispositive power over these securities.
 

(14) Citadel Limited Partnership, or Citadel, is the trading manager of the
     selling securityholder and disclaims beneficial ownership of these
     securities. Kenneth C. Griffin indirectly controls Citadel and therefore
     exercises ultimate voting control and dispositive power over these
     securities. Mr. Griffin disclaims beneficial ownership of these securities.
     The selling securityholder has informed us that (i) it is an affiliate of
     Aragon Investments Ltd., Palofax Trading LLC, Citadel Trading Group, LLC
     and Citadel Derivatives Group, LLC, each a registered broker-dealer, (ii)
     it purchased the securities in the ordinary course of business, and (iii)
     at the time of purchase, the selling securityholder had no agreements or
     understandings, directly or indirectly, with any person to distribute the
     securities.

 

(15) Citadel Limited Partnership, or Citadel, is the trading manager of the
     selling securityholder and disclaims beneficial ownership of these
     securities. Kenneth C. Griffin indirectly controls Citadel and therefore
     exercises ultimate voting control and dispositive power over these
     securities. Mr. Griffin disclaims beneficial ownership of these securities.
     The selling securityholder has informed us that (i) it is an affiliate of
     Aragon Investments Ltd., Palofax Trading LLC, Citadel Trading Group, LLC
     and Citadel Derivatives Group, LLC, each a registered broker-dealer, (ii)
     it purchased the securities in the ordinary course of business, and (iii)
     at the time of purchase, the selling securityholder had no agreements or
     understandings, directly or indirectly, with any person to distribute the
     securities.

 
                                        23

 

(16) CooperNeff Advisors, Inc. acts as investment manager for the selling
     securityholder. Christian Menestrier is the Chief Executive Officer of
     CooperNeff Advisors, Inc. and exercises voting control and dispositive
     power over these securities.

 

(17) CQS Convertible and Quantitative Strategies Feeder Fund Limited is the sole
     investor in the selling securityholder. CQS Cayman Limited Partnership acts
     as investment manager to the selling securityholder and, in turn, CQS
     Cayman Limited Partnership has delegated its investment management
     responsibilities to the investment advisor, CQS (UK) LLP. The directors of
     the selling securityholder have ultimate voting control and dispositive
     power over these securities. The directors of the selling securityholder
     are Alan Smith, Michael Hintze, Jim Rogers, Jonathan Crowther, Blair Gould
     and Karla Bodden.

 

(18) Patrick Corrigan and Tom Sullivan act as brokers for the selling
     securityholder and exercise voting control and dispositive power over these
     securities. The selling securityholder has informed us that (i) it is an
     affiliate of Deutsche Bank Securities, Inc., a registered broker-dealer,
     (ii) it purchased the securities in the ordinary course of business, and
     (iii) at the time of purchase, the selling securityholder had no agreements
     or understandings, directly or indirectly, with any person to distribute
     the securities.

 

(19) Ann Houlihan acts as investment manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(20) Simon Glick is the general partner of the selling securityholder and
     exercises voting control and investment power over these securities.

 

(21) DKR Capital Partners L.P. acts as investment manager for the selling
     securityholder. DKR Capital Partners, L.P. has retained certain portfolio
     managers to act as the portfolio manager for the selling securityholder.
     DKR Capital Partners L.P. and these certain portfolio managers have shared
     voting control and shared dispositive power over the selling
     securityholder's securities. Tom Kirvaitis has trading authority over these
     securities for the selling securityholder.

 

(22) Ann Houlihan acts as investment manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(23) Davis-Dinsmore Management Company acts as investment advisor to the selling
     securityholder. Thomas H. Dinsmore is the portfolio manager of
     Davis-Dinsmore Management Company and exercises voting control and
     dispositive power over these securities.

 

(24) FrontPoint Partners LLC is the managing member of FrontPoint Convertible
     Arbitrage Fund GP LLC, the selling securityholder's general partner, and
     has voting control and dispositive power over these securities. Philip
     Duff, W. Gillespie Caffray and Paul Ghaffari are members of the board of
     managers of FrontPoint Partners LLC and exercise voting control and
     dispositive power over these securities.

 

(25) Vincent Gubitosi acts as portfolio manager for the selling securityholder
     and exercises voting control and dispositive power over these securities.

 

(26) Bradford Whitmore and Michael Brailon are managing members of the selling
     securityholder and exercise voting control and dispositive power over these
     securities.

 

(27) Gene T. Pretti acts as investment advisor to the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(28) Highbridge Capital Management acts as trading advisor to the selling
     securityholder. Glenn Dubin and Henry Swieca are the principals of
     Highbridge Capital Management and exercise voting control and dispositive
     power over these securities. The selling securityholder has informed us
     that (i) it is an affiliate of Highbridge Capital Corp., a registered
     broker-dealer, (ii) it purchased the securities in the ordinary course of
     business, and (iii) at the time of purchase, the selling securityholder had
     no agreements or understandings, directly or indirectly, with any person to
     distribute the securities.

 

(29) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.

 
                                        24

 

(30) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.

 

(31) Gene T. Pretti acts as investment advisor to the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(32) Maren Lindstrom is a fiduciary manager and partner at Lord Abbett & Co. and
     exercises voting control and dispositive power over these securities.

 

(33) CooperNeff Advisors, Inc. acts as investment manager for the selling
     securityholder. Christian Menestrier is the Chief Executive Officer of
     CooperNeff Advisors, Inc. and exercises voting control and dispositive
     power over these securities.

 

(34) Marin Capital Partners, LP acts as investment advisor to the selling
     securityholder. J.T. Hansen and John Null are principals of Marin Capital
     Partners, LP and exercise voting control and dispositive power over these
     securities.

 

(35) D. Bruce McMahan is the general partner of the selling securityholder and
     exercises voting control and dispositive power over these securities. The
     selling securityholder has informed us that it is a registered
     broker-dealer. As such it is an underwriter in connection with the sale of
     the debentures and the shares of common stock, if any, into which the
     debentures are convertible. The selling securityholder has informed us that
     it purchased the securities in the ordinary course of business, and at the
     time of purchase, it had no agreements or understandings, directly or
     indirectly, with any person to distribute the securities.

 

(36) Massachusetts Mutual Life Insurance Company, or Massachusetts Mutual, is an
     affiliate of the selling securityholder and sold various insurance policies
     to our company. Annual premium payments for all policies total
     approximately $87,250. Massachusetts Mutual is the principal equityholder
     of the selling securityholder. Mill River Management L.L.C., or MRM, is the
     General Partner of the selling securityholder. Babson Capital Management
     LLC, or Babson, is the sole member of MRM. MassMutual Holding LLC, or
     MassMutual, is the sole member of Babson. Massachusetts Mutual is the sole
     member of MassMutual. Patrick J. Joyce acts as portfolio manager for the
     selling securityholder and exercises sole voting and dispositive power over
     these securities. The selling securityholder has informed us that (i) it is
     an affiliate of MML Distributors, LLC, MML Investors Services, Inc.,
     Oppenheimer Funds Distributor, Inc., Centennial Asset Management
     Corporation and Babson Securities Corporation, each a registered
     broker-dealer, (ii) it purchased the securities in the ordinary course of
     business, and (iii) at the time of purchase, the selling securityholder had
     no agreements or understandings, directly or indirectly, with any person to
     distribute the securities.

 

(37) Eric C. Hage and Daniel C. Hage act as investment managers for the selling
     securityholder and exercise voting control and dispositive power over these
     securities.

 

(38) John Phelan and Glenn Fuhman are the managing partners of the selling
     securityholder and exercise voting control and dispositive power over these
     securities.

 

(39) Northwestern Investment Management Company, LLC, or NIMC, is the investment
     advisor to the selling securityholder with respect to these securities.
     NIMC has shared voting power or investment power over these securities.
     Jerome R. Baier is a portfolio manager for NIMC and manages the portfolio
     holding these securities. The selling securityholder has informed us that
     (i) it is an affiliate of Northwestern Mutual Investment Services, LLC,
     Frank Russell Capital Inc., Frank Russell Securities, Inc. and Russell Fund
     Distributors, Inc., each a registered broker-dealer, (ii) it purchased the
     securities in the ordinary course of business, and (iii) at the time of
     purchase, the selling securityholder had no agreements or understandings,
     directly or indirectly, with any person to distribute the securities.

 

(40) Gregory R. Levinson controls the selling securityholder's investment
     advisor and exercises voting control and dispositive power over these
     securities.

 

(41) The selling securityholder is managed by Putnam Investment Management, LLC,
     which is owned through intermediaries by Marsh & McLennan Companies, Inc.,
     a reporting company under the Exchange Act. The selling securityholder has
     informed us that (i) it is an affiliate of Putnam Retail

 
                                        25

 
     Management Limited Partnership, a registered broker-dealer, (ii) it
     purchased the securities in the ordinary course of business, and (iii) at
     the time of purchase, the selling securityholder had no agreements or
     understandings, directly or indirectly, with any person to distribute the
     securities.
 

(42) Sheri Kaplan acts as portfolio manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(43) Ritchie Capital Management acts as investment advisor to the selling
     securityholder. A.R. Thane Ritchie is the President of Ritchie Capital
     Management and exercises voting control and dispositive power over these
     securities.

 

(44) The total under "Number of Shares of Common Stock Owned Prior to this
     Offering" includes 42,130 shares of our common stock owned by the selling
     securityholder. Pursuant to investment agreements, each of S.A.C. Capital
     Advisors, LLC, or SAC Capital Advisors, and S.A.C. Capital Management, LLC,
     or SAC Capital Management, share all investment and voting power over these
     securities. Steven A. Cohen controls both SAC Capital Advisors and SAC
     Capital Management. Each of SAC Capital Advisors, SAC Capital Management
     and Mr. Cohen disclaim beneficial ownership of any of these securities.

 

(45) Gene T. Pretti acts as investment advisor to the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(46) CooperNeff Advisors, Inc. acts as investment manager for the selling
     securityholder. Christian Menestrier is the Chief Executive Officer of
     CooperNeff Advisors, Inc. and exercises voting control and dispositive
     power over these securities.

 

(47) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.

 

(48) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.

 

(49) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.

 

(50) Marin Capital Partners, LP acts as investment advisor to the selling
     securityholder. J.T. Hansen and John Null are principals of Marin Capital
     Partners, LP and exercise voting control and dispositive power over these
     securities. The selling securityholder has informed us that (i) it is an
     affiliate of Tiburon Fund Trading, LLC, an inactive registered
     broker-dealer, (ii) it purchased the securities in the ordinary course of
     business, and (iii) at the time of purchase, the selling securityholder had
     no agreements or understandings, directly or indirectly, with any person to
     distribute the securities.

 

(51) Ann Houlihan acts as investment manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(52) CooperNeff Advisors, Inc. has shared voting control and sole investment
     control over these securities. Christian Menestrier is the Chief Executive
     Officer of CooperNeff Advisors, Inc.

 

(53) S. Donald Sussman controls the selling securityholder's general partner and
     exercises voting control and dispositive power over these securities. The
     selling securityholder has informed us that (i) it is an affiliate of
     Paloma Securities L.L.C., a registered broker-dealer, (ii) it purchased the
     securities in the ordinary course of business, and (iii) at the time of
     purchase, the selling securityholder had no agreements or understandings,
     directly or indirectly, with any person to distribute the securities.

 

(54) John Gottfurcht, George Douglas and Amy Jo Gottfurcht act as investment
     managers for the selling securityholder and exercise voting control and
     dispositive power over these securities.

 

(55) David T. Henigson as vice president exercises voting control and
     dispositive power over these securities.

 

(56) Shad Stastney, John Succo and Sky Lucas are members of the selling
     securityholder and exercise voting control and dispositive power over these
     securities.

 

(57) Shad Stastney, as a managing director, John Succo, as a managing director,
     Sky Lucas, as a portfolio manager and managing director, and Bryan Zwen, as
     a principal, exercise voting control and

 
                                        26

 
     dispositive power over these securities. The selling securityholder has
     informed us that (i) it is an affiliate of H.C. Wainwright, a registered
     broker-dealer, (ii) it purchased the securities in the ordinary course of
     business, and (iii) at the time of purchase, the selling securityholder had
     no agreements or understandings, directly or indirectly, with any person to
     distribute the securities.
 

(58) The selling securityholder is a subsidiary of Wachovia Corporation, a
     reporting company under the Exchange Act. The selling securityholder has
     informed us that it is a registered broker-dealer. As such, it is an
     underwriter in connection with the sale of the debentures and the shares of
     common stock, if any, into which the debentures are convertible. The
     selling securityholder has informed us that it purchased the securities in
     the ordinary course of business, and at the time of purchase, it had no
     agreements or understandings, directly or indirectly, with any person to
     distribute the securities.

 

(59) Whitebox Diversified Arbitrage Advisors LLC is the general partner of the
     selling securityholder. Andrew Redleaf is the managing member of Whitebox
     Diversified Arbitrage Advisors LLC and exercises voting control and
     dispositive power over these securities.

 

(60) Rob Bellick is the general partner of the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(61) Sheri Kaplan acts as portfolio manager for the selling securityholder and
     exercises voting control and dispositive power over these securities. The
     selling securityholder has informed us that (i) it is an affiliate of
     Robeco USA Brokerage, a registered broker-dealer, (ii) it purchased the
     securities in the ordinary course of business, and (iii) at the time of
     purchase, the selling securityholder had no agreements or understandings,
     directly or indirectly, with any person to distribute the securities.

 

(62) Sheri Kaplan acts as portfolio manager for the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(63) Gene T. Pretti acts as investment advisor to the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(64) Gene T. Pretti acts as investment advisor to the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(65) Gene T. Pretti acts as investment advisor to the selling securityholder and
     exercises voting control and dispositive power over these securities.

 

(66) Information about additional selling securityholders not named in this
     table, or anyone directly or indirectly obtaining debentures or shares of
     common stock from such securityholders, will be set forth in post-effective
     amendments to the registration statement of which this prospectus forms a
     part before such persons are permitted to make any offers or sales pursuant
     to this prospectus. We may file prospectus supplements to include
     information about non-sale transferees, pledgees or donees who obtain
     debentures or shares of common stock from selling securityholders named in
     this table in transfers occurring after the date of this prospectus.

 
                                        27

 
                              PLAN OF DISTRIBUTION
 
     The selling securityholders and their successors, including their
transferees, pledges or donees or their successors, may sell the debentures and
any underlying common stock from time to time directly to purchasers or through
underwriters, brokers, dealers or agents who may receive compensation in the
form of discounts, concessions or commissions from the selling securityholders
or the purchasers. These discounts, concessions or commissions as to any
particular underwriter, broker, dealer or agent may be in excess of those
customary in the types of transactions involved.
 
     The debentures and any underlying common stock may be sold in one or more
transactions at:
 
     - fixed prices,
 
     - prevailing market prices at the time of sale,
 
     - prices related to the prevailing market prices,
 
     - varying prices determined at the time of sale, or
 
     - negotiated prices.
 
     The sales may be affected in transactions (which may involve block
transactions):
 
     - on any national securities exchange or quotation service on which the
       debentures or any underlying common stock may be listed or quoted at the
       time of sale,
 
     - in the over-the-counter market,
 
     - in transactions other than on such exchanges or services or in the
       over-the-counter market,
 
     - through the writing and exercise of options, whether the options are
       listed on an options exchange or otherwise, or
 
     - through the settlement of short sales.
 
     In connection with sales of the debentures and any underlying common stock
or otherwise, the selling securityholders may enter into hedging transactions
with brokers, dealers or other financial institutions. These brokers, dealers or
other financial institutions may in turn engage in short sales of the debentures
or any such underlying common stock in the course of hedging their positions.
The selling securityholders may also sell the debentures or any underlying
common stock short and deliver debentures or any such underlying common stock to
close out short positions, or loan or pledge debentures or any underlying common
stock to brokers or dealers that, in turn, may sell the debentures or any such
underlying common stock. To our knowledge, there are currently no plans,
arrangements or understandings between any selling securityholders and any
underwriter, broker, dealer or agent regarding the sale of the debentures or any
underlying common stock by the selling securityholders.
 
     The aggregate proceeds to the selling securityholders from the sale of the
debentures or any underlying common stock offered by them will be the purchase
price of the debentures or any such underlying common stock less discounts and
commissions, if any. Each of the selling securityholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of the debentures or any underlying common stock
to be made directly or through agents. We will not receive any of the proceeds
of the sale of the debentures or any underlying common stock offered by this
prospectus.
 
     In order to comply with the securities laws of some states, if applicable,
the debentures and any underlying common stock may be sold in these
jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states, the debentures and any underlying common stock may not
be sold unless they have been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
 
                                        28

 
     Selling securityholders who are registered broker-dealers are
"underwriters" under the securities laws. Other selling securityholders and any
brokers, dealers or agents who participate in the sale of the debentures or any
underlying common stock may be "underwriters" under the securities laws. Any
profits on the sale of securities by selling securityholders who are
underwriters and any discounts, commissions or concessions received by any
brokers, dealers or agents who are underwriters might be deemed to be
underwriting discounts or commissions under the securities laws. Persons who are
underwriters may be subject to liabilities under the securities laws and will be
subject to the prospectus delivery requirements of the securities laws.
 
     If the debentures or any underlying common stock are sold through
underwriters, brokers or dealers, the selling securityholders will be
responsible for underwriting discounts or commissions or agent commissions.
 
     We do not know when or whether any selling securityholder will sell any or
all of the debentures or any underlying common stock pursuant to this
prospectus. In addition, any debentures or underlying common stock covered by
this prospectus that qualify for sale under Rule 144 or Rule 144A of the
Securities Act may be sold under Rule 144 or Rule 144A rather than under this
prospectus. The selling securityholders may not sell any or all of the
debentures or any underlying common stock and may not transfer, devise or gift
these securities by other means not described in this prospectus.
 
     The selling securityholders have acknowledged that they and other persons
participating in any distribution will be subject to the securities laws and
rules, including Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the debentures or any underlying common stock by
the selling securityholders and any other persons. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the debentures or any underlying common stock to engage in
market-making activities with respect to the debentures or our common stock for
a period of up to five business days prior to the commencement of the
distribution. This restriction may affect the marketability of the debentures or
any underlying common stock and the ability of any person or entity to engage in
market-making activities with respect to the debentures or our common stock.
 
     To the extent required, the specific debentures or any underlying common
stock to be sold, the names of the selling securityholders, the respective
purchase prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
 
     We entered into a registration rights agreement for the benefit of holders
of the debentures to register their debentures and any underlying common stock
under applicable federal and state securities laws under specific circumstances
and at specific times. Under the registration rights agreement, we and the
selling securityholders will be indemnified by (or entitled to contribution
from) one another against specified liabilities in connection with the offer and
sale of the debentures and any underlying common stock, including some
liabilities under the Securities Act.
 
     We have agreed to pay substantially all of the expenses incidental to the
registration of the debentures and any underlying common stock other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
 
                                        29

 
                         DESCRIPTION OF THE DEBENTURES
 
     We issued the debentures under an indenture, dated as of June 30, 2004,
between us and U.S. Bank National Association, as trustee. Initially, the
trustee acted as paying agent, conversion agent and calculation agent for the
debentures. The terms of the debentures include those provided in the indenture
and those provided in the registration rights agreement, which we entered into
with the initial purchasers. The following description is only a summary of the
material provisions of the debentures, the indenture and the registration rights
agreement. We urge you to read these documents in their entirety because they,
and not this description, define your rights as holders of the debentures. You
may request a copy of the indenture and the registration rights agreement from
us. When we refer to "Per-Se," "we," "our" or "us" in this section, we refer
only to Per-Se Technologies, Inc., a Delaware corporation, and not its
subsidiaries.
 
BRIEF DESCRIPTION OF THE DEBENTURES
 
     The debentures offered hereby:
 
     - are $125,000,000 in aggregate principal amount;
 
     - bear interest at a rate of 3.25% per annum, payable on each June 30 and
       December 30, beginning December 30, 2004;
 
     - are issued only in registered form, without coupons, in denominations of
       $1,000 principal amount and integral multiples thereof;
 
     - are our unsecured obligations, subordinated in right of payment to all of
       our existing and future senior debt; as our indebtedness, the debentures
       are effectively subordinated to all indebtedness and liabilities of our
       subsidiaries;
 
     - are convertible into our common stock initially at a conversion rate of
       56.0243 shares per $1,000 principal amount of debentures which is
       equivalent to an initial conversion price of approximately $17.85 per
       share, under the conditions and subject to such adjustments as are
       described under "-- Conversion Rights"; however, we have made an
       irrevocable election under the terms of the indenture to satisfy in cash
       up to 100% of the principal amount of the debentures submitted for
       conversion, with any remaining amount to be satisfied in shares of our
       common stock;
 
     - are redeemable at our option in whole or in part beginning on July 6,
       2009 upon the terms set forth under "-- Optional Redemption by Us";
 
     - are subject to repurchase by us at your option on June 30 of each of
       2009, 2014 and 2019 or upon the occurrence of a fundamental change with
       respect to our company, upon the terms and at the repurchase price in
       cash set forth below under "-- Repurchase of Debentures at Your Option";
 
     - are entitled in certain circumstances to the make-whole premium in
       connection with a conversion or repurchase as a result of certain
       fundamental changes; and
 
     - are due on June 30, 2024, unless earlier converted, redeemed by us at our
       option or repurchased by us at your option.
 
     The indenture does not contain any financial covenants and does not
restrict us from paying dividends, incurring additional indebtedness or issuing
or repurchasing our other securities. The indenture also does not protect you in
the event of a highly leveraged transaction or a change of control of our
company, except to the extent described under "-- Repurchase of Debentures at
Your Option -- Fundamental Change Put" and "-- Repurchase of Debentures at Your
Option -- Make-Whole Premium" below.
 
     No sinking fund is provided for the debentures and the debentures will not
be subject to defeasance.
 
     You may present definitive debentures for conversion and registration of
transfer and exchange at our office or agency in New York City, which shall
initially be the principal corporate trust office of the trustee currently
located at 100 Wall Street, 16th Floor, New York, New York 10005. For
information regarding conversion, registration of transfer and exchange of
global debentures, see "-- Form,
 
                                        30

 
Denomination and Registration." No service charge will be made for any
registration of transfer or exchange of debentures, but we may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
 
SUBORDINATION
 
     The debentures are subordinate in right of payment to all of our existing
and future senior debt. The indenture does not restrict the amount of senior
debt or other indebtedness that we or any of our subsidiaries can incur. As of
September 30, 2004, the debentures were subordinated to $4.1 million of our
senior debt, as defined in this prospectus. In addition, as of September 30,
2004, our subsidiaries had liabilities of approximately $54.4 million, excluding
intercompany indebtedness and guarantees under our credit agreement, all of
which are structurally senior to the debentures. The payment of the principal
of, interest on or any other amounts due on the debentures is subordinated in
right of payment to the prior payment in full in cash of all of our existing and
future senior debt. No payment on account of principal of, redemption of,
interest on or any other amounts due on the debentures, including, without
limitation, any payments on the fundamental change repurchase right, and no
redemption, repurchase or other acquisition of the debentures may be made,
except in our common stock, if:
 
     - a default in the payment of designated senior debt occurs, called a
       payment default; or
 
     - a default other than a payment default occurs and is continuing that
       permits the holders of designated senior debt to accelerate its maturity,
       and the trustee receives a notice of such default, called a payment
       blockage notice, from us or any other person permitted to give such
       notice under the credit agreement so long as it remains in effect, and
       thereafter any other person permitted to give such notice under the
       indenture, called a non-payment default.
 
     We may resume payments and distributions on the debentures:
 
     - in case of a payment default, upon the date on which such default ceases
       to exist or is cured or waived in writing by agent so long as the credit
       agreement remains in effect, and thereafter in accordance with the terms
       of the applicable senior debt; and
 
     - in the case of a non-payment default, upon the earliest of the date on
       which such non-payment default ceases to exist or is cured or waived in
       writing by agent so long as the credit agreement remains in effect, and
       thereafter in accordance with the terms of the applicable senior debt or
       179 days from the date the payment blockage notice is received.
 
     Notwithstanding the foregoing, not more than one payment blockage notice
may be given in any consecutive 360-day period, called a payment blockage
period, irrespective of the number of defaults with respect to designated senior
debt during such period. No default which existed or was continuing on the date
of the commencement of any payment blockage notice with respect to the
designated senior debt whose holders delivered the payment blockage notice may
be made the basis of the commencement of a subsequent payment blockage period by
the holders of such designated senior debt, whether or not within a period of
360 consecutive days, unless the default has been cured or waived for a period
of not less than 90 consecutive days.
 
     Upon any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization of us or acceleration of the principal
amount due on the debentures because of any event of default, all senior debt
must be paid in full in cash before the holders of the debentures are entitled
to any payments whatsoever.
 
     As a result of these subordination provisions, in the event of our
insolvency, holders of the debentures may recover ratably less than the holders
of our senior debt and our general creditors.
 
     If the payment of the debentures is accelerated because of an event of
default, we or the trustee shall promptly notify the holders of senior debt or
the trustee(s) for the senior debt of the acceleration. We may not pay the
debentures until five days after the holders or trustee(s) of senior debt
receive notice of
 
                                        31

 
the acceleration and, after which we may pay the debentures only if the
subordination provisions of the indenture otherwise permit payment at that time.
 
     If the trustee or any holder of debentures receives any payment or
distribution of our assets of any kind in contravention of any of the terms of
the indenture, whether in cash, property or securities, including, without
limitation by way of set-off or otherwise, in respect of the debentures before
all senior debt is paid in full in cash, then the payment or distribution will
be held by the recipient in trust for the benefit of holders of senior debt, and
will be immediately paid over or delivered to the holders of senior debt or
their representative or representatives to the extent necessary to make payment
in full in cash of all senior debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of senior debt.
 
     The debentures are the obligations only of Per-Se and not our subsidiaries.
Since a significant amount of our operations are conducted through our
subsidiaries, our cash flow and our consequent ability to service debt,
including the debentures, will depend in part upon the earnings of our
subsidiaries and the distribution of those earnings to, or under loans or other
payments of funds by those subsidiaries to, us. The payment of dividends and the
making of loans and advances to us by our subsidiaries may be subject to
statutory or contractual restrictions, will depend upon the earnings of those
subsidiaries and are subject to various business considerations.
 
     Our right to receive assets of any of our subsidiaries upon their
liquidation or reorganization, and the consequent right of the holders of the
debentures to participate in those assets, is effectively subordinated to the
claims of that subsidiary's creditors, including trade creditors, except to the
extent that we are recognized as a creditor of that subsidiary, in which case
our claims would still be subordinate to any security interests in the assets of
that subsidiary and any indebtedness of that subsidiary senior to that held by
us.
 
     The indenture does not limit the amount of additional indebtedness,
including senior debt, which we can create, incur, assume or guarantee, nor does
the indenture limit the amount of indebtedness and other liabilities which any
subsidiary can create, incur, assume or guarantee.
 
     Credit agreement means our credit agreement dated as of September 11, 2003,
as amended as of June 30, 2004, among us, as the borrower, our subsidiaries
identified therein as guarantors, Bank of America, N.A., as administrative
agent, swingline lender and L/C issuer, Wachovia Bank, N.A., as syndication
agent and the other lenders who are party thereto, as further amended, restated,
supplemented or otherwise modified from time to time, and all direct and
indirect refundings, refinancings and replacements of any credit agreement.
 
     Designated senior debt means (1) any indebtedness from time to time
outstanding under the credit agreement and (2) any other senior debt the
principal amount of which is $10,000,000 or more and that has been designated by
us as designated senior debt.
 
     Exchange rate contract means, with respect to any person, any currency swap
agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, the principal purpose of
which is to provide protection against fluctuations in currency exchange rates.
An exchange rate contract may also include an interest rate agreement.
 
     GAAP means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are applied on a consistent basis.
 
     Guarantee means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
 
                                        32

 
     Hedging obligations means, with respect to any specified person, the
obligations of such person under (1) interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements and other agreements or
arrangements with respect to exposure to interest rates; (2) commodity swap
agreements, commodity option agreements, forward contracts and other agreements
or arrangements with respect to exposure to commodity prices; and (3) foreign
exchange contracts, currency swap agreements and other agreements or
arrangements with respect to exposure to foreign currency exchange rates.
 
     Indebtedness means, with respect to any person, any indebtedness of such
person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit, or
reimbursement agreements in respect thereof, or representing the balance
deferred and unpaid of the purchase price of any property, including pursuant to
capital leases and sale-and-leaseback transactions, or representing any hedging
obligations under an exchange rate contract or an interest rate agreement,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness, other than obligations
under an exchange rate contract or an interest rate agreement, would appear as a
liability upon a balance sheet of such person prepared in accordance with GAAP,
and also includes, to the extent not otherwise included, the guarantee of items
which would be included within this definition. The amount of any indebtedness
outstanding as of any date shall be the accreted value thereof, in the case of
any indebtedness issued with original issue discount. Indebtedness shall not
include liabilities for taxes of any kind.
 
     Interest rate agreement means, with respect to any person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement the principal purpose of which is to protect the
party indicated therein against fluctuations in interest rates.
 
     Senior debt with respect to us means indebtedness of ours, including any
monetary obligation in respect of the credit agreement, and interest, whether or
not allowable, accruing on indebtedness incurred pursuant to the credit
agreement after the filing of a petition initiating any proceeding under any
bankruptcy, insolvency or similar law, arising under the credit agreement, all
hedging obligations owing to any lender or affiliate of any lender party to the
credit agreement, all obligations under treasury management agreements with any
lender or affiliate of any lender party to the credit agreement or any other
indebtedness of ours, whether outstanding on the date of the indenture or
thereafter created, incurred, assumed or guaranteed by us and any of our
subsidiaries.
 
     Notwithstanding anything to the contrary in the foregoing, senior debt
shall not include: (a) indebtedness of or amounts owed by us for compensation to
employees, or for goods or materials purchased or for services obtained in the
ordinary course of business; (b) our indebtedness to any of our subsidiaries or
(c) our indebtedness that expressly provides that it shall not be senior in
right of payment to the debentures or expressly provides that it is on the same
basis or junior to the debentures.
 
INTEREST
 
     The debentures will bear interest at a rate of 3.25% per annum from June
30, 2004. We will pay interest semiannually in arrears on June 30 and December
30 of each year, beginning December 30, 2004, to the holders of record at the
close of business on the preceding June 15 and December 15, respectively. There
is one exception to the preceding sentence:
 
     In general, we will not pay accrued and unpaid interest on any debentures
that are submitted for conversion. Instead, accrued interest will be deemed paid
by the cash and common stock, if any, received by holders on conversion. You
will receive, however, accrued and unpaid liquidated damages to, but not
including, the conversion date. If you surrender debentures for conversion after
a record date for an interest payment but prior to the corresponding interest
payment date, you will receive on that interest payment date accrued and unpaid
interest on those debentures, notwithstanding your conversion of those
debentures prior to that interest payment date, because you will have been the
holder of record on the corresponding record date. However, at the time you
surrender debentures for conversion, you must pay to us an amount equal to the
interest that has accrued and that will be paid on the related interest payment
date. The preceding sentence does not apply, however, if (1) we have specified a
redemption date that is
 
                                        33

 
after a record date for an interest payment but on or prior to the corresponding
interest payment date, (2) we have specified a repurchase date following a
fundamental change that is during such period or (3) to the extent of any
overdue interest if any overdue interest exists at the time of conversion with
respect to the debentures converted. Accordingly, under these circumstances you
will not be required to pay us, at the time that you surrender those debentures
for conversion, the amount of interest you will receive on the interest payment
date.
 
     Except as provided below, we will pay interest on:
 
     - global debentures to the Depository Trust Company, which we refer to in
       this prospectus as DTC, in immediately available funds;
 
     - any definitive debentures having an aggregate principal amount of
       $5,000,000 or less by check mailed to the holders of those debentures;
       and
 
     - any definitive debentures having an aggregate principal amount of more
       than $5,000,000 by wire transfer in immediately available funds if
       requested by the holders of those debentures.
 
     At maturity we will pay interest on the definitive debentures at our office
or agency in New York City, which initially will be the principal corporate
trust office of the trustee presently located at 100 Wall Street, 16th Floor,
New York, New York 10005.
 
     Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
 
     If any interest payment date falls on a day that is not a business day,
such interest payment date will be postponed to the next succeeding business day
and no additional interest will be payable in respect of such delay. The term
business day means, with respect to any debenture, any day other than a
Saturday, a Sunday or a day on which banking institutions in The City of New
York are authorized or required by law, regulation or executive order to close.
 
CONVERSION RIGHTS
 
  GENERAL
 
     As originally issued, the debentures were convertible, subject to the
conditions and during the periods described below, into shares of our common
stock, at an initial conversion rate of 56.0243 shares per $1,000 principal
amount of the debentures, which is equal to an initial conversion price of
approximately $17.85 per share. However, we have made an irrevocable election
under the terms of the indenture to satisfy in cash up to 100% of the principal
amount of the debentures submitted for conversion, with any remaining amount to
be satisfied in shares of our common stock as described below. The conversion
rate and the corresponding conversion price in effect at any given time will be
subject to adjustment as described below. We will not issue fractional shares of
common stock upon conversion of the debentures. Instead, we will pay the cash
value of such fractional shares based upon the closing sale price of our common
stock on the trading day immediately preceding the conversion date. You may
convert debentures only in denominations of $1,000 principal amount and integral
multiples thereof.
 
     If you have exercised your right to require us to repurchase your
debentures in the circumstances described under "-- Repurchase of Debentures at
Your Option," you may convert your debentures only if you withdraw your
repurchase notice or fundamental change repurchase notice and convert your
debentures prior to the close of business on the repurchase date or fundamental
change repurchase date, as applicable.
 
     You may surrender debentures for conversion prior to the stated maturity
only under the following circumstances:
 
  CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
 
     You may surrender any of your debentures for conversion during any fiscal
quarter, and only during such fiscal quarter, commencing after September 30,
2004, if the closing sale price of our common stock
 
                                        34

 
for at least 20 trading days in the 30 consecutive trading-day period ending on
the last trading day of the preceding fiscal quarter is more than 130% of the
conversion price as of that 30th trading day.
 
     The conversion agent, which initially will be U.S. Bank National
Association, will, on our behalf, determine if the debentures are convertible as
a result of the sale price of our common stock and notify us and the trustee.
 
     The closing sale price of our common stock on any date means the closing
sale price per share, determined without regard for after-hours or extended
market trading, or, if no closing sale price is reported, the average of the bid
and ask prices or, if there is more than one bid or ask price, the average of
the average bid and the average ask prices, on that date as reported by the
Nasdaq National Market or, if our common stock is not then quoted on the Nasdaq
National Market, as reported in composite transactions for the principal U.S.
securities exchange on which our common stock is traded. If our common stock is
not listed on a U.S. national or regional securities exchange and not reported
by the Nasdaq National Market on the relevant date, the closing sale price will
be the last quoted bid for our common stock in the over-the-counter market on
the relevant date as reported by the National Quotation Bureau or similar
organization. In the absence of such quotations, our board of directors will
make a good faith determination of the closing sale price.
 
     Trading day means a day during which trading in our common stock generally
occurs and a closing sale price for our common stock is provided on the Nasdaq
National Market or, if our common stock is not listed on the Nasdaq National
Market, on the principal other U.S. national or regional securities exchange on
which our common stock is then listed or, if our common stock is not listed on a
U.S. national or regional securities exchange, on the principal other market on
which our common stock is then traded.
 
  CONVERSION UPON SATISFACTION OF TRADING PRICE CONDITION
 
     You may surrender any of your debentures for conversion during the five
consecutive business day period after the measurement period in which the
trading price per debenture for each day of such measurement period was less
than 98% of the product of the closing sale price of our common stock on such
day and the conversion rate on such date; provided, however, if you convert your
debentures in reliance on this subsection and on any trading day during such
measurement period the closing sale price of shares of our common stock was
between 100% and 130% of the conversion price of the debentures on such day, you
will receive cash equal to 100% of the principal amount of the debentures plus
accrued and unpaid interest and liquidated damages, if any, to, but not
including, the conversion date.
 
     The trading price of a debenture on any date of determination means the
average of the secondary market bid quotations obtained by the trustee for
$2,000,000 principal amount of the debentures at approximately 3:30 p.m., New
York City time, on such determination date from three independent nationally
recognized securities dealers we select; provided, that if three such bids
cannot reasonably be obtained by the trustee, but two such bids are obtained,
then the average of the two bids shall be used, and if only one such bid can
reasonably be obtained by the trustee, that one bid shall be used. If the
trustee cannot reasonably obtain at least one bid for $2,000,000 principal
amount of the debentures from a nationally recognized securities dealer, then
the trading price per $1,000 principal amount of debentures will be deemed equal
to the product of the closing sale price of our common stock and the conversion
rate.
 
     The conversion agent will, on our behalf, determine if the debentures are
convertible as a result of the trading price of the debentures and notify us and
the trustee; provided, that the conversion agent shall have no obligation to
determine the trading price of the debentures unless we have requested such
determination and we shall have no obligation to make such request unless
requested to do so by a holder of the debentures. At such time, we shall
instruct the conversion agent to determine the trading price of the debentures
beginning on the next trading day and on each successive trading day until the
trading price of the debentures is greater than or equal to 98% of the product
of the closing sale price of our common stock and the conversion rate.
 
                                        35

 
  CONVERSION UPON NOTICE OF REDEMPTION
 
     You may surrender for conversion any of your debentures that have been
called for redemption at any time prior to the close of business on the business
day prior to the redemption date, even if the debentures are not otherwise
convertible at that time. If you have already delivered a repurchase notice or a
fundamental change repurchase notice with respect to a debenture, you may not
surrender that debenture for conversion until you have withdrawn the notice in
accordance with the indenture.
 
  CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
 
  (1) Certain Distributions.
 
     In the event:
 
     - we distribute to all holders of our common stock certain rights or
       warrants entitling them to purchase, for a period expiring within 60 days
       after the distribution, shares of our common stock at a price per share
       less than the closing sale price of the common stock on the business day
       immediately preceding the announcement of such distribution, or
 
     - we elect to distribute to all holders of our common stock, cash or other
       assets, debt securities or certain rights to purchase our securities,
       which distribution has a per share value exceeding 10% of the closing
       sale price of the common stock on the business day preceding the
       declaration date for the distribution, then
 
at least 20 days prior to the ex-dividend date for the distribution, we must
notify you of the occurrence of such event. Once we have given that notice, you
may surrender your debentures for conversion at any time until the earlier of
close of business on the business day immediately prior to the ex-dividend date
or the date of our announcement that the distribution will not take place. No
adjustment to the conversion rate or your ability to convert will be made if we
provide that you will participate in the distribution without conversion.
 
  (2) Change of Control.
 
     If we are a party to a consolidation, merger or binding share exchange
pursuant to which our common stock is converted into cash, securities or other
property, then you may surrender debentures for conversion at any time from and
after the date which is 15 days prior to the anticipated effective date of the
transaction until the effective date of the transaction or, if such transaction
also constitutes a fundamental change, the fundamental change repurchase date.
In addition, if the transaction described in the second paragraph of the
definition of change of control constitutes a fundamental change and occurs
before June 30, 2009, we will pay a make-whole premium in connection with the
conversion of debentures, calculated as described under "-- Repurchase of
Debentures at Your Option -- Make-Whole Premium." Payment of the make-whole
premium to holders surrendering their debentures for conversion will be made
upon the later of: (1) the fundamental change repurchase date and (2) the
conversion settlement date for those debentures. We will pay the make-whole
premium in the form of consideration into which or for which our common stock
was converted, exchanged or acquired. The method of determining the amount of
such consideration is described under "-- Repurchase of Debentures at Your
Option -- Make-Whole Premium."
 
     Upon any determination by us or the trustee that you are or will be
entitled to convert your debentures in accordance with the foregoing provisions,
we will issue a press release, as promptly as practicable, but in no event less
than 15 days prior to the effective date of such transaction, through a public
medium that is customary for such press releases or publish the information on
our website or through such other public medium as we may use at such time.
 
     If a transaction occurs pursuant to which you would be entitled to a
make-whole premium upon conversion, you can also, subject to certain conditions,
require us to repurchase all or a portion of your
 
                                        36

 
debentures as described under "-- Repurchase of Debentures at Your
Option -- Fundamental Change Put."
 
     If we are a party to a consolidation, merger or binding share exchange
pursuant to which our common stock is converted into cash, securities or other
property, then at the effective time of the transaction, any then existing right
to receive shares of our common stock upon conversion of debentures will be
changed into a right to receive the kind and amount of cash, securities or other
property which you would have received if you had converted such debentures
immediately prior to the transaction.
 
  CONVERSION PROCEDURES
 
     By delivering to you the full amount of cash, common stock or other
property issuable upon conversion, together with a cash payment in lieu of any
fractional shares, we will satisfy our obligation with respect to the
debentures. That is, accrued and unpaid interest, if any, will be deemed to be
paid in full rather than canceled, extinguished or forfeited.
 
     You will not be required to pay any taxes or duties relating to the
issuance or delivery of shares of common stock issuable, if any, upon conversion
of your debentures, but you will be required to pay any tax or duty which may be
payable relating to any transfer involved in the issuance or delivery of such
common stock in a name other than your own. Certificates representing shares of
common stock will be issued or delivered only after all applicable taxes and
duties, if any, payable by you have been paid.
 
     To convert a definitive debenture, you must:
 
     - complete the conversion notice on the back of the debentures, or a
       facsimile thereof;
 
     - deliver the completed conversion notice and, if the debentures are in
       certificated form, the debentures to be converted to the specified office
       of the conversion agent;
 
     - pay all funds required, if any, relating to interest on the debentures to
       be converted to which you are not entitled, as described in
       "-- Interest"; and
 
     - pay all taxes or duties payable by you, if any, as described above.
 
To convert interests in a global debenture, you must comply with the last two
bullets above and deliver to DTC the appropriate instruction form for conversion
pursuant to DTC's conversion program.
 
     Conversion notices are irrevocable. The conversion date will be the date on
which all of the foregoing requirements have been satisfied. The debentures will
be deemed to have been converted immediately prior to the close of business on
the conversion date. A certificate will be delivered to you, or a book entry
transfer through DTC will be made, for the number of shares of common stock, if
any, into which the debentures are converted along with the amount of cash
payable to your upon conversion, including any cash in lieu of any fractional
shares, as soon as practicable on or after the conversion date.
 
  PAYMENT UPON CONVERSION
 
     Pursuant to the indenture, we have irrevocably elected to satisfy in cash
up to 100% of the principal amount of the debentures submitted for conversion,
with any remaining amount to be satisfied in shares of our common stock.
Accordingly, for each $1,000 principal amount of debentures, we will deliver to
you:
 
     - cash in an amount equal to the lesser of (1)(x) the then current
       conversion rate, multiplied by (y) the average closing price of our
       common stock during the 20 trading-day period beginning on the day after
       receipt of your notice of conversion and (2) $1,000; and
 
     - a number of shares of our common stock equal to the greater of (1) zero
       and (2) the excess, if any, of the then current conversion rate over the
       number of shares equal to the sum, for each day of the 20 trading-day
       period beginning on the day after receipt of your notice of conversion,
       of (x) 5% of the cash amount determined in accordance with the
       immediately preceding bullet point, divided by (y) the closing sale price
       of our common stock on such day.
 
                                        37

 
We will pay cash for all fractional shares of common stock. The cash payment for
fractional shares will be based on the closing sale price of our common stock on
the trading day immediately prior to the conversion date.
 
     Settlement will occur on the business day following the 20 trading-day
period beginning on the day after receipt of your notice of conversion.
 
  CONVERSION RATE ADJUSTMENTS
 
     We will adjust the conversion rate if any of the following events occur:
 
          (1) We issue our common stock as a dividend or distribution on our
              common stock.
 
          (2) We distribute to all holders of common stock certain rights or
              warrants entitling them to purchase, for a period expiring within
              60 days after the date of the distribution, shares of our common
              stock at a price per share of less than the closing sale price of
              our common stock on the record date for the distribution.
 
          (3) We subdivide or combine our common stock.
 
          (4) We distribute to all holders of our common stock capital stock,
              evidences of indebtedness or assets, including securities, but
              excluding rights or warrants listed in (2) above, dividends or
              distributions listed in (1) above and distributions consisting
              exclusively of cash, in which event the conversion rate in effect
              immediately before the close of business on the record date fixed
              for the determination of stockholders entitled to receive that
              distribution will be increased by multiplying it by a fraction,
 
              - the numerator of which will be the current market price of our
                common stock and
 
              - the denominator of which will be the current market price of our
                common stock minus the fair market value, as determined by our
                board of directors whose determination in good faith will be
                conclusive, of the portion of those assets, debt securities,
                shares of capital stock or rights or warrants so distributed
                applicable to one share of common stock.
 
              If we distribute capital stock of, or similar equity interests in,
              a subsidiary or other business unit of ours, then the conversion
              rate will be adjusted based on the market value of the securities
              so distributed relative to the market value of our common stock,
              in each case based on the average closing sales price of those
              securities, where such closing sale prices are available, for the
              10 trading days commencing on and including the fifth trading day
              after the ex-dividend date for such distribution on the Nasdaq
              National Market or such other national or regional exchange or
              market on which the securities are then listed or quoted.
 
          (5) We distribute cash, excluding any dividend or distribution in
              connection with our liquidation, dissolution or winding up, in
              which event the conversion rate will be increased by multiplying
              it by a fraction,
 
              - the numerator of which will be the current market price of our
                common stock and
 
              - the denominator of which will be the current market price of our
                common stock minus the amount per share of such dividend or the
                amount of such distribution as determined below.
 
          (6) We or one of our subsidiaries makes a payment in respect of a
              tender offer or exchange offer for our common stock to the extent
              that the cash and value of any other consideration included in the
              payment per share of our common stock exceeds the closing sale
              price of our common stock on the trading day next succeeding the
              last date on which tenders or
 
                                        38

 
           exchanges may be made pursuant to such tender or exchange offer, in
           which event the conversion rate will be increased by multiplying it
           by a fraction,
 
              - the numerator of which will be the sum of (a) the fair market
                value, as determined by our board of directors, of the aggregate
                consideration payable for all shares of our common stock we
                purchase in such tender or exchange offer and (b) the product of
                the number of shares of our common stock outstanding less any
                such purchased shares and the closing sale price of our common
                stock on the trading day next succeeding the expiration of the
                tender or exchange offer and
 
              - the denominator of which will be the product of the number of
                shares of our common stock outstanding, including any such
                purchased shares, and the closing sale price of our common stock
                on the trading day next succeeding the expiration of the tender
                or exchange offer.
 
          (7) Someone other than us or one of our subsidiaries makes a payment
              in respect of a tender offer or exchange offer in which, as of the
              closing date of the offer, our board of directors is not
              recommending rejection of the offer, in which event each
              conversion rate will be increased by multiplying such conversion
              rate by a fraction,
 
              - the numerator of which will be the sum of (a) the fair market
                value, as determined by our board of directors, of the aggregate
                consideration payable to our stockholders based on the
                acceptance up to any maximum specified in the terms of the
                tender or exchange offer of all shares validly tendered or
                exchanged and not withdrawn as of the expiration of the offer
                and (b) the product of the number of shares of our common stock
                outstanding less any such purchased shares and the closing price
                of our common stock on the trading day next succeeding the
                expiration of the tender or exchange offer and
 
              - the denominator of which will be the product of the number of
                shares of our common stock outstanding, including any such
                purchased shares, and the closing price of our common stock on
                the trading day next succeeding the expiration of the tender or
                exchange offer.
 
              The adjustment referred to in this clause (7) will be made only
              if:
 
              - the tender offer or exchange offer is for an amount that
                increases the offeror's ownership of common stock to more than
                25% of the total shares of common stock outstanding; and
 
              - the cash and value of any other consideration included in the
                payment per share of common stock exceeds the current market
                price per share of common stock on the trading day next
                succeeding the last date on which tenders or exchanges may be
                made pursuant to the tender or exchange offer.
 
              However, the adjustment referred to in this clause (7) will
              generally not be made if, as of the closing of the offer, the
              offering documents disclose a plan or an intention to cause us to
              engage in a consolidation or merger or a sale of all or
              substantially all of our assets.
 
     The current market price of our common stock on any day means the average
of the closing sale price of our common stock as defined above under
"-- Conversion -- General" for each of the 10 consecutive trading days ending on
the earlier of the day in question and the day before the ex-dividend date with
respect to the issuance or distribution requiring such computation.
 
     To the extent that we have a rights plan in effect upon conversion of the
debentures you will receive, in addition to any shares of our common stock that
may be issuable pursuant to such conversion, the rights under the rights plan
attributable to such shares, unless prior to any conversion, the rights have
separated from the common stock, in which case the conversion rate will be
adjusted at the time of separation as described in clause (4) above, as if we
distributed to all holders of our common stock, shares of our
 
                                        39

 
capital stock, evidences of indebtedness or assets as described above, subject
to readjustment in the event of the expiration, termination or redemption of
such rights.
 
     In the event of:
 
     - any reclassification of our common stock;
 
     - a consolidation, merger, binding share exchange or combination involving
       us; or
 
     - a sale or conveyance to another person or entity of all or substantially
       all of our property or assets;
 
in which holders of common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of your debentures you will be entitled to receive the same type of
consideration that you would have been entitled to receive if you had converted
the debentures immediately prior to any of these events.
 
     The conversion rate will not be adjusted:
 
     - upon the issuance of any shares of our common stock pursuant to any
       present or future plan providing for the reinvestment of dividends or
       interest payable on our securities and the investment of additional
       optional amounts in shares of our common stock under any plan,
 
     - upon the issuance of any shares of our common stock or options or rights
       to purchase those shares pursuant to any present or future employee,
       director or consultant benefit plan or program of or assumed by us or any
       of our subsidiaries,
 
     - upon the issuance of any shares of our common stock pursuant to any
       option, warrant, right or exercisable, exchangeable or convertible
       security not described in the preceding bullet and outstanding as of the
       date the debentures were first issued,
 
     - for a change in the par value of the common stock, or
 
     - for accrued and unpaid interest and liquidated damages, if any.
 
     In the event of a taxable distribution to holders of our common stock which
results in an adjustment to the conversion rate, you may, in certain
circumstances, be deemed to have received a distribution subject to U.S. income
tax as a dividend; in certain other circumstances, the absence of such
adjustment may result in a taxable dividend to the holders of our common stock.
In addition, non-U.S. holders of debentures in certain circumstances may be
deemed to have received a distribution subject to U.S. federal withholding tax
requirements. See "Certain Material United States Federal Income Tax
Considerations -- Treatment of U.S. Holders -- Constructive Dividends" and
"Treatment of Non-U.S. Holders -- Constructive Dividends."
 
     To the extent permitted by law, we may, from time to time, increase the
conversion rate for a period of at least 20 days if our board of directors has
made a determination that this increase would be in our best interests. Any such
determination by our board will be conclusive. We would give holders at least 15
days notice of any increase in the conversion rate. In addition, we may increase
the conversion rate if our board of directors deems it advisable to avoid or
diminish any income tax to holders of common stock resulting from any dividend
or distribution of stock or rights to acquire stock or from any event treated as
such for income tax purposes.
 
PAYMENT AT MATURITY
 
     Each holder of $1,000 principal amount of the debentures shall be entitled
to receive $1,000 at maturity, plus accrued and unpaid interest, and liquidated
damages, if any. We will pay principal on:
 
     - global debentures to DTC in immediately available funds; and
 
     - any definitive debentures at our office or agency in New York City, which
       initially will be the office or agency of the trustee in New York City.
 
                                        40

 
OPTIONAL REDEMPTION BY US
 
     Prior to July 6, 2009, the debentures will not be redeemable at our option.
Beginning on July 6, 2009, we may redeem the debentures for cash at any time as
a whole, or from time to time in part, at a redemption price equal to 100% of
the principal amount of the debentures plus any accrued and unpaid interest and
liquidated damages, if any, on the debentures to but not including the
redemption date. We will give at least 30 days but not more than 60 days notice
of redemption by mail to holders of debentures. Debentures or portions of
debentures called for redemption will be convertible by the holder until the
close of business on the business day prior to the redemption date.
 
     If we do not redeem all of the debentures, the trustee will select the
debentures to be redeemed in principal amounts of $1,000 or integral multiples
thereof, by lot, on a pro rata basis or by such other method that the trustee
considers fair and appropriate, so long as such method is not prohibited by the
rules of any securities exchange or quotation association on which the
debentures may then be traded or quoted. If any debentures are to be redeemed in
part only, we will issue a new debenture or debentures with a principal amount
equal to the unredeemed principal portion thereof. If a portion of your
debentures is selected for partial redemption and you convert a portion of your
debentures, the converted portion will be deemed to be taken from the portion
selected for redemption.
 
     In the event of any redemption in part, we will not be required to:
 
     - register the transfer of or exchange any debenture in certificated form,
       during a period beginning at the opening of business 15 days before any
       selection of debentures in certificated form, for redemption and ending
       at the close of business on the earliest date on which the relevant
       notice of redemption is deemed to have been given to all holders of
       debentures to be so redeemed; or
 
     - register the transfer of or exchange any debenture in certificated form,
       so selected for redemption, in whole or in part, except the unredeemed
       portion of any debenture being redeemed in part.
 
REPURCHASE OF DEBENTURES AT YOUR OPTION
 
  OPTIONAL PUT
 
     On June 30, 2009, June 30, 2014, and June 30, 2019, each a repurchase date,
you may require us to repurchase for cash any outstanding debentures for which
you have properly delivered and not withdrawn a written repurchase notice,
subject to certain additional conditions, at a repurchase price equal to 100% of
the principal amount of the debentures plus accrued and unpaid interest and
liquidated damages, if any, to, but not including, the repurchase date.
 
     You may submit your debentures for repurchase to the paying agent at any
time from the opening of business on the date that is 20 business days prior to
the repurchase date until the close of business on the repurchase date.
 
     Your repurchase notice electing to require us to repurchase debentures
shall be given so as to be received by the paying agent no later than the close
of business on the repurchase date and must state:
 
     - if definitive debentures have been issued, the certificate numbers of
       your debentures to be delivered for repurchase, or, if the debentures are
       not issued in definitive form, the notice of repurchase must comply with
       appropriate DTC procedures;
 
     - the portion of the principal amount of debentures to be repurchased,
       which must be $1,000 or an integral multiple thereof; and
 
     - that the debentures are to be repurchased by us pursuant to the
       applicable provisions of the debentures and the indenture.
 
                                        41

 
     You may withdraw any repurchase notice in whole or in part by delivering a
written notice of withdrawal to the paying agent prior to the close of business
on the repurchase date. The notice of withdrawal shall state:
 
     - the principal amount of debentures being withdrawn;
 
     - if definitive debentures have been issued, the certificate numbers of the
       debentures being withdrawn or, if the debentures are not issued in
       definitive form, the notice of withdrawal must comply with appropriate
       DTC procedures; and
 
     - the principal amount of the debentures, if any, that remain subject to
       the repurchase notice.
 
     In connection with any repurchase, we will, to the extent applicable:
 
     - comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
       offer rules under the Exchange Act which may then be applicable; and
 
     - file Schedule TO or any other required schedule under the Exchange Act.
 
     Our obligation to pay the repurchase price for debentures for which a
repurchase notice has been delivered and not validly withdrawn is conditioned
upon your delivering the debentures, together with necessary endorsements, to
the paying agent at any time after delivery of the repurchase notice. We will
cause the repurchase price for the debentures to be paid promptly following the
later of the repurchase date or the time of delivery of the debentures, together
with such endorsements.
 
     If the paying agent holds money sufficient to pay the repurchase price of
the debentures for which a repurchase notice has been given on the business day
following the repurchase date in accordance with the terms of the indenture,
then, immediately after the repurchase date, the debentures will cease to be
outstanding and interest and liquidated damages, if any, on the debentures will
cease to accrue, whether or not the debentures are delivered to the paying
agent, and all other rights of the holder shall terminate, other than the right
to receive the repurchase price upon delivery of the debentures.
 
     Our ability to repurchase debentures for cash may be limited by
restrictions on our ability to obtain funds for such repurchase through
dividends, loans or other distributions from our subsidiaries and the terms of
our then existing borrowing agreements and the subordination provisions
described above in "Subordination." We cannot assure you that we would have the
financial resources, or would be able to arrange financing, to pay the
repurchase price in cash for all the debentures that might be delivered to
holders of debentures seeking to exercise the repurchase right. See "Risk
Factors -- Risks Related to the Debentures -- Because we operate through
subsidiaries, we may be unable to repay or repurchase the debentures if our
subsidiaries are unable to pay dividends or make advances to us."
 
  FUNDAMENTAL CHANGE PUT
 
     If a fundamental change, as defined below, occurs, you will have the right
on the fundamental change repurchase date, subject to certain exceptions set
forth below, to require us to repurchase all of your debentures not previously
called for redemption, or any portion of those debentures that is equal to
$1,000 in principal amount or integral multiples thereof, at a fundamental
change repurchase price in cash equal to 100% of the principal amount of the
debentures plus any accrued and unpaid interest, the make-whole premium, if any
and liquidated damages, if any, on the debentures to but not including the
fundamental change repurchase date. If the fundamental change repurchase date is
on a date that is after a record date and on or prior to the corresponding
interest payment date, we will pay such interest, and liquidated damages, if any
to the holder of record on the corresponding record date, which may or may not
be the same person to whom we will pay the repurchase price and the repurchase
price will be 100% of the principal amount of the debentures repurchased.
 
     Notwithstanding the foregoing, we may be required to offer to repurchase or
otherwise repay in full our senior debt on a pro rata basis with the debentures,
or prior to the debentures as a result of the
 
                                        42

 
subordination provisions described above under "-- Subordination," upon a change
of control, if similar change of control offers are or will be required by our
senior debt.
 
     Within 30 days after the occurrence of a fundamental change, we are
required to give you notice of such occurrence and of your resulting repurchase
right, and the procedures that holders must follow to require us to repurchase
their debentures as described below. The fundamental change repurchase date
specified by us will be 30 days after the date on which we give you this notice.
 
     To exercise your fundamental change repurchase right, you must deliver,
before the close of business on the business day prior to the fundamental change
repurchase date, the debentures to be repurchased, duly endorsed for transfer,
together with the written fundamental change repurchase notice, to the paying
agent. Your fundamental change repurchase notice must state:
 
     - if definitive debentures have been issued, the certificate numbers of the
       holders' debentures to be delivered for repurchase or, if the debentures
       are not issued in definitive form, the fundamental change repurchase
       notice must comply with appropriate DTC procedures;
 
     - the portion of the principal amount of debentures to be repurchased,
       which must be $1,000 or an integral multiple thereof; and
 
     - that the debentures are to be repurchased by us pursuant to the
       applicable provisions of the debentures.
 
     A holder may withdraw any fundamental change repurchase notice in whole or
in part by delivering a written notice of withdrawal to the paying agent prior
to the close of business on the fundamental change repurchase date. The notice
of withdrawal shall state:
 
     - the principal amount at maturity of debentures being withdrawn;
 
     - if definitive debentures have been issued, the certificate numbers of the
       debentures being withdrawn or, if the debentures are not issued in
       definitive form, the notice of withdrawal must comply with appropriate
       DTC procedures; and
 
     - the principal amount of the debentures, if any, that remain subject to
       the fundamental change repurchase notice.
 
     A fundamental change will be deemed to have occurred upon a change of
control or a termination of trading.
 
     A change of control will be deemed to have occurred at such time after the
original issuance of the debentures when any of the following has occurred:
 
          (1) as indicated by the filing of a Schedule TO under the Exchange Act
     or any other schedule, form or report under the Exchange Act disclosing the
     acquisition by any person, including any syndicate or group deemed to be a
     "person" under Section 13(d)(3) of the Exchange Act of beneficial
     ownership, directly or indirectly, through a purchase, merger or other
     acquisition transaction or series of purchase, merger or other acquisition
     transactions, of shares of our capital stock entitling that person to
     exercise 50% or more of the total voting power of all shares of our capital
     stock entitled to vote generally in elections of directors, other than any
     acquisition by us, any of our subsidiaries or any of our employee benefit
     plans, except that any of those persons shall be deemed to have beneficial
     ownership of all securities it has the right to acquire, whether the right
     is currently exercisable or is exercisable only upon the occurrence of a
     subsequent condition; or
 
          (2) our consolidation or merger with or into any other person, any
     merger of another person into us, or any conveyance, transfer, sale, lease
     or other disposition of all or substantially all of our properties and
     assets to another person, other than:
 
           - any transaction pursuant to which holders of our capital stock
             immediately prior to the transaction have the entitlement to
             exercise, directly or indirectly, 50% or more of the total voting
             power of all shares of capital stock entitled to vote generally in
             elections of
 
                                        43

 
             directors of the continuing or surviving person immediately after
             giving effect to such issuance; or
 
           - any merger, share exchange, transfer of assets or similar
             transaction solely for the purpose of changing our jurisdiction of
             incorporation and resulting in a reclassification, conversion or
             exchange of outstanding shares of common stock, if at all, solely
             into shares of common stock of the surviving entity or a direct or
             indirect parent of the surviving entity.
 
     Beneficial ownership shall be determined in accordance with Rule 13d-3
promulgated by the Securities and Exchange Commission, which we refer to in this
prospectus as the SEC, under the Exchange Act. The term "person" includes any
syndicate or group that would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
 
     The definition of change of control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, your ability to require
us to repurchase your debentures as a result of a conveyance, transfer, sale,
lease or other disposition of less than all our assets may be uncertain.
 
     However, notwithstanding the foregoing, it will not constitute a
fundamental change if more than 90% of the consideration in the transaction or
transactions, other than cash payments for fractional shares and cash payments
made in respect of dissenters' appraisal rights, constituting a change of
control consists of shares of common stock traded or to be traded immediately
following a change of control on a national securities exchange or the Nasdaq
National Market, and, as a result of the transaction or transactions, the
debentures become convertible into that common stock (to the same extent
convertible into our common stock before such transaction or transactions,
subject to appropriate adjustments to give effect to such transaction or
transactions) and any rights attached thereto.
 
     A termination of trading will be deemed to have occurred if our common
stock or other common stock into which the debentures are then convertible is
neither listed for trading on a U.S. national securities exchange nor approved
for trading on the Nasdaq National Market.
 
     Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to holders of the debentures. We will
comply with this rule and file Schedule TO or any similar schedule to the extent
applicable at that time.
 
     If the paying agent holds money or securities sufficient to pay the
fundamental change repurchase price and the make-whole premium, if any, with
respect to debentures which holders have elected to require us to repurchase on
the business day following the fundamental change repurchase date in accordance
with the terms of the indenture, then, immediately after the fundamental change
repurchase date, those debentures will cease to be outstanding and interest and
liquidated damages, if any, on the debentures will cease to accrue, whether or
not the debentures are delivered to the paying agent and all other rights of the
holder shall terminate, other than the right to receive the fundamental change
repurchase price and the make-whole premium, if any, upon delivery of the
debentures.
 
     The foregoing provisions would not necessarily protect holders of the
debentures if highly leveraged or other transactions involving us occur that may
affect holders adversely. We could, in the future, enter into certain
transactions, including certain recapitalizations, that would not constitute a
fundamental change with respect to the fundamental change repurchase feature of
the debentures but that would increase the amount of our or our subsidiaries'
outstanding indebtedness.
 
     Our ability to repurchase debentures for cash upon the occurrence of a
fundamental change is subject to important limitations. Our ability to
repurchase the debentures for cash may be limited by restrictions on our ability
to obtain funds for such repurchase through dividends, loans or other
distributions from our subsidiaries and the terms of our then existing borrowing
agreements and the subordination provisions described above under
"-- Subordination." In addition, the occurrence of a fundamental change could
 
                                        44

 
cause an event of default under, or be prohibited or limited by the terms of,
our other senior debt. We cannot assure you that we would have the financial
resources, or would be able to arrange financing, to pay the fundamental change
repurchase price in cash for all the debentures that might be delivered by
holders of debentures seeking to exercise the repurchase right. See "Risk
Factors -- Risks Related to the Debentures -- Because we operate through
subsidiaries, we may be unable to repay or repurchase the debentures if our
subsidiaries are unable to pay dividends or make advances to us."
 
     The fundamental change purchase feature of the debentures may in certain
circumstances make more difficult or discourage a takeover of our company. The
fundamental change repurchase feature, however, is not the result of our
knowledge of any specific effort:
 
     - to accumulate shares of our common stock;
 
     - to obtain control of us by means of a merger, tender offer solicitation
       or otherwise; or
 
     - by management to adopt a series of anti-takeover provisions.
 
     Instead, the fundamental change repurchase feature is a standard term
contained in securities similar to the debentures.
 
  MAKE-WHOLE PREMIUM
 
     If a transaction described in the second paragraph of the definition of
change of control occurs prior to June 30, 2009 and constitutes a fundamental
change, we will pay, in addition to the repurchase price described above under
"-- Fundamental Change Put," a make-whole premium described below to the holder
of debentures who elects to require us to repurchase such debentures in
connection with such a fundamental change.
 
     No make-whole premium will be paid if the stock price as defined below is
less than $12.57 or greater than $50.00, in each case subject to adjustment. The
make-whole premium will be determined by reference to the table below and is
based on the date on which such specified corporate transaction becomes
effective, or the effective date, and the price paid per share of our common
stock, or the stock price, in the transaction constituting the fundamental
change. If the holders of our common stock receive only cash in the fundamental
change, the stock price shall be the cash amount paid per share. Otherwise the
stock price shall be the closing sale price of our common stock on the 10
trading days up to, but not including, the effective date.
 
     In connection with the repurchase of the debentures as described above or
upon a conversion of the debentures as a result of certain specified corporate
transactions as described under "Conversion Rights -- Conversion Upon Specified
Corporate Events -- Change of Control" above, we will pay the make-whole premium
in the form of consideration into which or for which our common stock was
converted, exchanged or acquired except that we will pay cash in lieu of
fractional interests in any security or other property delivered in connection
with such transaction.
 
     If holders of our common stock receive or have the right to receive more
than one form of consideration in connection with such transaction, then for
purposes of the foregoing, the forms of consideration in which the make-whole
premium will be paid will be in proportion to the relative values, determined as
described in the next paragraph, of the different forms of consideration paid to
our common stockholders in connection with such fundamental change.
 
     The value of such consideration to be delivered in respect of the
make-whole premium will be calculated as follows:
 
     - securities that are traded on a U.S. national securities exchange or
       approved for quotation on the Nasdaq National Market or any similar
       system of automated dissemination of quotations of securities prices will
       be valued based on 98% of the average closing price or last sale price,
       as applicable, on the 10 trading days prior to but excluding the
       fundamental change repurchase date,
 
                                        45

 
     - other securities, assets or property other than cash will be valued based
       on 98% of the average of the fair market value of such securities, assets
       or property other than cash as determined by two independent
       nationally-recognized banks selected by the trustee, and
 
     - 100% of any cash.
 
     The stock prices set forth in the first row of the table (i.e., the column
headers), will be adjusted as of any date on which the conversion rate of the
debentures is adjusted. The adjusted stock prices will equal the stock prices
applicable immediately prior to such adjustment multiplied by a fraction, the
numerator of which is the conversion rate immediately prior to the adjustment
giving rise to the stock price adjustment and the denominator of which is the
conversion rate as so adjusted.
 
     The following table sets forth the make-whole premiums (table in
percentages of principal amount of debentures).
 


                                                                          STOCK PRICE
                           ---------------------------------------------------------------------------------------------------------
EFFECTIVE DATE             $12.57   $13.89   $15.21   $16.53   $17.85   $20.00   $25.00   $30.00   $35.00   $40.00   $45.00   $50.00
--------------             ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
                                                                                          
6/24/2004................   0.00     5.32    10.51    16.41    22.14    20.14    16.50    13.97    12.07    10.56     9.64     8.64
6/30/2005................   0.00     3.73     8.60    14.36    19.67    17.76    13.99    11.46     9.68     8.34     7.54     6.72
6/30/2006................   0.00     2.54     6.93    12.55    18.10    15.50    11.50     8.99     7.36     6.21     5.58     4.96
6/30/2007................   0.00     1.42     5.93    10.35    15.80    12.57     8.31     5.94     4.55     3.71     3.37     2.97
6/30/2008................   0.00     0.00     3.62     6.69    11.89     7.75     3.63     1.91     1.22     0.98     0.91     0.82
6/30/2009................   0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00     0.00

 
     The exact stock price and effective dates may not be set forth on the
table, in which case
 
     - if the stock price is between two stock price amounts on the table or the
       effective date is between two dates on the table, the make-whole premium
       will be determined by straight-line interpolation between the additional
       premium amounts set forth for the higher and lower stock price amounts
       and the two dates, as applicable, based on a 365-day year;
 
     - if the stock price is in excess of $50.00 per share, subject to
       adjustment, no make-whole premium will be paid; and
 
     - if the stock price is less than $12.57, subject to adjustment, no
       make-whole premium will be paid.
 
     Our obligation to pay the make-whole premium could be considered a penalty,
in which case the enforceability thereof would be subject to general principles
of reasonableness of economic remedies.
 
MERGER AND SALES OF ASSETS
 
     The indenture provides that we may not consolidate with or merge into any
other person or convey, transfer, sell, lease or otherwise dispose of all or
substantially all of our properties and assets to another person unless, among
other things:
 
     - we are the continuing corporation or the resulting, surviving or
       transferee person is organized and existing under the laws of the U.S.,
       any state thereof or the District of Columbia and such person assumes all
       our obligations under the debentures and the indenture;
 
     - if as a result of such transaction the debentures become convertible into
       common stock or other securities issued by a third party, such third
       party fully and unconditionally guarantees all our obligations or such
       successor under the debentures and the indenture; and
 
     - we are or such successor is not then or immediately thereafter in default
       under the indenture.
 
     The occurrence of certain of the foregoing transactions could constitute a
change of control.
 
     This covenant includes a phrase relating to the conveyance, transfer, sale,
lease or disposition of "all or substantially all" of our assets. There is no
precise, established definition of the phrase "substantially
 
                                        46

 
all" under applicable law. Accordingly, there may be uncertainty as to whether a
conveyance, transfer, sale, lease or other disposition of less than all our
assets is subject to this covenant.
 
EVENTS OF DEFAULT
 
     Each of the following constitutes an event of default under the indenture:
 
     - default in our obligation to deliver cash or shares of our common stock
       upon conversion of any debentures;
 
     - default in our obligation to provide timely notice of a fundamental
       change;
 
     - default in our obligation to repurchase debentures at the option of
       holders or following a fundamental change;
 
     - default in our obligation to redeem debentures after we have exercised
       our redemption option;
 
     - default in our obligation to pay the principal amount of the debentures
       at maturity, when due and payable;
 
     - default in our obligation to pay any interest or liquidated damages when
       due and payable, and continuance of such default for a period of 30 days;
 
     - our failure to perform or observe any other term, covenant or agreement
       contained in the debentures or the indenture for a period of 60 days
       after written notice of such failure, provided that such notice requiring
       us to remedy the same shall have been given to us by the trustee or to us
       and the trustee by the holders of at least 25% in aggregate principal
       amount of the debentures then outstanding;
 
     - a default that results in the acceleration of maturity of any
       indebtedness for borrowed money of our company or our designated
       subsidiaries in an aggregate amount of $25,000,000 or more, unless the
       acceleration is rescinded, stayed or annulled within 30 days after
       written notice of default is given to us by the trustee or to us and the
       trustee by holders of not less than 25% in aggregate principal amount of
       the debentures then outstanding; and
 
     - certain events of bankruptcy, insolvency or reorganization with respect
       to us or any of our subsidiaries that is a designated subsidiary or any
       group of two or more subsidiaries that, taken as a whole, would
       constitute a designated subsidiary.
 
     A designated subsidiary means any existing or future, direct or indirect,
subsidiary of ours whose assets constitute 15% or more of our total assets on a
consolidated basis. The indenture will provide that the trustee shall, within 90
days of the occurrence of a default, give to the registered holders of the
debentures notice of all uncured defaults known to it, but the trustee shall be
protected in withholding such notice if it, in good faith, determines that the
withholding of such notice is in the best interest of such registered holders,
except in the case of a default under any of the first five bullets above.
 
     If certain events of default specified in the last bullet point above shall
occur and be continuing, then automatically the principal amount of the
debentures plus any accrued and unpaid interest and liquidated damages, if any,
through such date shall become immediately due and payable. If any other event
of default shall occur and be continuing (the default not having been cured or
waived as provided under "-- Modification and Waiver" below), the trustee or the
holders of at least 25% in aggregate principal amount of the debentures then
outstanding may declare the debentures due and payable at their principal amount
plus any accrued and unpaid interest and liquidated damages, if any, through
such date and thereupon the trustee may, at its discretion, proceed to protect
and enforce the rights of the holders of debentures by appropriate judicial
proceedings. Such declaration may be rescinded or annulled with the written
consent of the holders of a majority in aggregate principal amount of the
debentures then outstanding upon the conditions provided in the indenture.
 
                                        47

 
     The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to
be indemnified by the holders of debentures before proceeding to exercise any
right or power under the indenture at the request of such holders. The indenture
provides that the holders of a majority in aggregate principal amount of the
debentures then outstanding, through their written consent, may direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred upon the trustee.
 
     We will be required to furnish annually to the trustee a statement as to
the fulfillment of our obligations under the indenture.
 
MODIFICATION AND WAIVER
 
  CHANGES REQUIRING APPROVAL OF EACH AFFECTED HOLDER
 
     The indenture, including the terms and conditions of the debentures, cannot
be modified or amended without the written consent or the affirmative vote of
the holder of each debenture affected by such change to:
 
     - change the maturity of any debenture or the payment date of any
       installment of interest or liquidated damages payable on any debentures;
 
     - reduce the principal amount of, or any interest, liquidated damages,
       redemption price, repurchase price, fundamental change repurchase price
       or make-whole premium on, any debenture;
 
     - impair or adversely affect the conversion rights of any holder of
       debentures;
 
     - change the currency of payment of such debentures or interest, liquidated
       damages, redemption price, fundamental change repurchase price,
       repurchase price or make-whole premium thereon;
 
     - alter the manner of calculation or rate of interest, liquidated damages,
       redemption price, fundamental change repurchase price, repurchase price
       or make-whole premium on any debenture or extend the time for payment of
       any such amount;
 
     - impair the right to institute suit for the enforcement of any payment on
       or with respect to, or conversion of, any debenture;
 
     - modify our obligation to maintain an office or agency in New York City;
 
     - except as otherwise permitted or contemplated by provisions concerning
       corporate reorganizations, adversely affect the repurchase option of
       holders including after a fundamental change;
 
     - modify the redemption provisions of the indenture in a manner adverse to
       the holders of debentures;
 
     - modify the subordination provisions of the indenture in a manner adverse
       to the holders of debentures;
 
     - reduce the percentage in aggregate principal amount of debentures
       outstanding necessary to modify or amend the indenture or to waive any
       past default; or
 
     - reduce the percentage in aggregate principal amount of debentures
       outstanding required for any other waiver under the indenture.
 
  CHANGES REQUIRING MAJORITY APPROVAL
 
     The indenture, including the terms and conditions of the debentures, may be
modified or amended, subject to the provisions described above, with the written
consent of the holders of at least a majority in aggregate principal amount of
the debentures at the time outstanding.
 
                                        48

 
  CHANGES REQUIRING NO APPROVAL
 
     The indenture, including the terms and conditions of the debentures, may be
modified or amended by us and the trustee, without the consent of the holder of
any debenture, for the purposes of, among other things:
 
     - adding to our covenants for the benefit of the holders of debentures;
 
     - surrendering any right or power conferred upon us;
 
     - providing for conversion rights of holders of debentures if any
       reclassification or change of our common stock or any consolidation,
       merger or sale of all or substantially all of our assets occurs;
 
     - providing for the assumption of our obligations to the holders of
       debentures in the case of a merger, consolidation, conveyance, transfer
       or lease;
 
     - increasing the conversion rate, provided that the increase will not
       adversely affect the interests of the holders of debentures;
 
     - complying with the requirements of the SEC in order to effect or maintain
       the qualification of the indenture under the Trust Indenture Act of 1939,
       as amended;
 
     - making any changes or modifications necessary in connection with the
       registration of the debentures under the Securities Act as contemplated
       in the registration rights agreement; provided that such change or
       modification does not, in the good faith opinion of our board of
       directors and the trustee, adversely affect the interests of the holders
       of debentures in any material respect;
 
     - to evidence and provide for the acceptance of the appointment of a
       successor trustee;
 
     - curing any ambiguity or correcting or supplementing any defective
       provision contained in the indenture; provided that such modification or
       amendment does not, in the good faith opinion of our board of directors
       and the trustee, adversely affect the interests of the holders of
       debentures in any material respect; provided further that any amendment
       made solely to conform the provisions of the indenture to the description
       of the debentures in this prospectus will not be deemed to adversely
       affect the interests of the holders of the debentures; or
 
     - adding or modifying any other provisions with respect to matters or
       questions arising under the indenture which we and the trustee may deem
       necessary or desirable and which will not adversely affect the interests
       of the holders of debentures.
 
REGISTRATION RIGHTS
 
     We entered into a registration rights agreement with the initial purchasers
for the benefit of the holders of the debentures. Pursuant to the agreement, we
will, at our expense:
 
     - use our commercially reasonable efforts to cause the registration
       statement of which this prospectus is a part to become effective within
       210 days after the earliest date of original issuance of the debentures;
       and
 
     - use our commercially reasonable efforts to keep such registration
       statement effective until the earlier of:
 
          (1) the date when the non-affiliated holders of the debentures and the
     common stock issuable upon conversion of the debentures, if any, are able
     to sell all such securities immediately without restriction pursuant to the
     volume limitation provisions of Rule 144 under the Securities Act; and
 
          (2) the date when all of the debentures and the common stock issuable
     upon conversion of the debentures, if any, are sold pursuant to the shelf
     registration statement or pursuant to Rule 144 under the Securities Act or
     any similar provision then in effect.
 
                                        49

 
     Additionally, we will:
 
     - provide to each holder for whom the shelf registration statement was
       filed copies of the prospectus that is a part of the shelf registration
       statement;
 
     - notify each such holder for whom the shelf registration statement was
       filed, when the shelf registration statement has become effective; and
 
     - take certain other actions as are required to permit unrestricted resales
       of the debentures and the common stock issuable upon conversion of the
       debentures, if any.
 
     Each holder who sells securities pursuant to the shelf registration
statement generally will be:
 
     - required to be named as a selling holder in the related prospectus;
 
     - required to deliver a prospectus to the purchaser;
 
     - subject to certain of the civil liability provisions under the Securities
       Act in connection with the holder's sales; and
 
     - bound by the provisions of the registration rights agreement which are
       applicable to the holder including certain indemnification rights and
       obligations.
 
     We may suspend the use of the prospectus for a period not to exceed 45 days
in any 90-day period, and not to exceed an aggregate of 120 days in any 360-day
period, if:
 
     - the prospectus would, in our reasonable judgment, contain a material
       misstatement or omission as a result of an event that has occurred and is
       continuing; and
 
     - we reasonably determine in good faith that the disclosure of this
       material non-public information would be seriously detrimental to us and
       our subsidiaries.
 
However, if the disclosure relates to a previously undisclosed proposed or
pending material business transaction, the disclosure of which we determine in
good faith would be reasonably likely to impede our ability to consummate such
transaction, we may extend the suspension period from 45 days to 60 days. We
will not specify the nature of the event giving rise to a suspension in any
notice to holders of the debentures of the existence of such a suspension.
 
     We refer to each of the following as a registration default:
 
     - the registration statement has not been filed prior to or on the 90th day
       following the earliest date of original issuance of any of the
       debentures; or
 
     - the registration statement has not been declared effective prior to or on
       the 210th day following the earliest date of original issuance of any of
       the debentures, or the effectiveness target date; or
 
     - at any time after the effectiveness target date, the registration
       statement ceases to be effective or fails to be usable and (1) we do not
       cure the registration statement within five business days (or, if the
       suspension period is then in effect, the fifth business day following the
       expiration of such suspension period) by a post-effective amendment,
       prospectus supplement or report filed pursuant to the Exchange Act or (2)
       if applicable, we do not terminate the suspension period, described in
       the preceding paragraph, by the 45th or 60th day, as the case may be, or
       (3) if suspension periods exceed an aggregate of 90 days in any 360-day
       period.
 
     If a registration default occurs, other than a registration default
relating to a failure to file or have an effective registration statement with
respect to the shares of common stock, cash liquidated damages will accrue on
the debentures that are transfer restricted securities, from and including the
day following the registration default to but excluding the earlier of (1) the
day on which the registration default has been cured and (2) the date the
registration statement is no longer required to be kept effective. Subject to
the subordination described above under "-- Subordination," liquidated damages
will be paid semiannually in
 
                                        50

 
arrears, with the first semiannual payment due on each June 30 and December 30,
commencing on the first interest payment date following the registration
default, and will accrue at a rate per year equal to:
 
     - 0.25% of the principal amount of a debenture to and including the 90th
       day following such registration default; and
 
     - 0.50% of the principal amount of a debenture from and after the 91st day
       following such registration default.
 
     In no event will liquidated damages accrue at a rate per year exceeding
0.50%. If a holder converts some or all of its debentures when there exists a
registration default with respect to the common stock or a registration default
occurs following such conversion, the holder will not be entitled to receive
liquidated damages on any common stock that may have been issued pursuant to
such conversion.
 
GOVERNING LAW
 
     The indenture and the debentures will be governed by, and construed in
accordance with, the laws of the State of New York.
 
INFORMATION CONCERNING THE TRUSTEE
 
     U.S. Bank National Association, as trustee under the indenture, has been
appointed by us as paying agent, conversion agent, calculation agent, registrar
and custodian with regard to the debentures. American Stock Transfer & Trust
Company is the transfer agent and registrar for our common stock. The trustee or
its affiliates may from time to time in the future provide banking and other
services to us in exchange for a fee.
 
CALCULATIONS IN RESPECT OF DEBENTURES
 
     We or our agents will be responsible for making all calculations called for
under the debentures. These calculations include, but are not limited to,
determination of the trading prices of the debentures and of our common stock.
We or our agents will make all these calculations in good faith and, absent
manifest error, our and their calculations will be final and binding on holders
of debentures. We or our agents will provide a schedule of these calculations to
the trustee, and the trustee is entitled to conclusively rely upon the accuracy
of these calculations without independent verification.
 
                                        51

 
                          DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 

     Our authorized capital stock consists of 200,000,000 shares of common
stock, par value $.01 per share, 600,000 shares of non-voting common stock, par
value $.01 per share and 20,000,000 shares of preferred stock, no par value. As
of March 1, 2005, 30,397,876 shares of our common stock were outstanding. In
this section, we summarize certain of the features and rights of our common
stock, non-voting common stock, and preferred stock. This summary does not
purport to be exhaustive and is qualified in its entirety by reference to our
Certificate of Incorporation, Bylaws, the Shareholder Protection Rights
Agreement and all amendments thereto, and to applicable Delaware law.

 
COMMON STOCK
 
     The holders of shares of our common stock are entitled to one vote per
share on all matters upon which stockholders have the right to vote. Each
stockholder may exercise such vote either in person or by proxy. Directors are
elected by a plurality of the votes cast and stockholders are not entitled to
cumulate their votes for the election of directors, which means that the holders
of more than 50% of the common stock voting for the election of directors can
elect all of the directors to be elected by holders of common stock, in which
event the holders of the remaining common stock voting will not be able to elect
any director. In all other matters, the affirmative vote of a majority of the
shares of stock entitled to vote held by stockholders present in person or by
proxy at a meeting of stockholders shall be required for approval, unless a
greater vote is required by law or our certificate of incorporation. Subject to
preferences to which holders of preferred stock, if any, may be entitled, and
the holders of non-voting common stock receiving an equivalent per share
dividend, the holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by our board of
directors out of legally available funds. We do not presently anticipate paying
cash dividends in the foreseeable future. In the event we liquidate, dissolve or
wind up our business, the holders of common stock and the holders of non-voting
common stock are entitled to share ratably in all of our assets which are
legally available for distribution to stockholders, subject to the prior rights
on liquidation of creditors and to preferences to which holders of preferred
stock, if any, may be entitled. The holders of common stock have no preemptive,
subscription, redemption or sinking fund rights.
 
NON-VOTING COMMON STOCK
 
     Our board of directors has the authority to issue non-voting common stock.
The holders of shares of our non-voting common stock are not entitled to vote
except as provided by law. Subject to certain limitations, our non-voting common
stock is convertible, at the option of its holder, into an equal number of
shares of our common stock. Subject to preferences to which holders of preferred
stock, if any, may be entitled, the holders of non-voting common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of legally available funds. No dividend
will be declared or paid on the common stock unless an equivalent per share
dividend is declared or paid on the non-voting common stock. We do not presently
anticipate paying cash dividends in the foreseeable future. In the event we
liquidate, dissolve or wind up our business, the holders of common stock and the
holders of non-voting common stock are entitled to share ratably in all of our
assets which are legally available for distribution to stockholders, subject to
the prior rights on liquidation of creditors and to preferences to which holders
of preferred stock, if any, may be entitled. The holders of non-voting common
stock have no preemptive, subscription, redemption or sinking fund rights. At
present, we have no plans to issue any of the non-voting common stock and we are
not aware of any pending or proposed transaction that would be affected by such
an issuance.
 
PREFERRED STOCK
 
     Our board of directors has the authority to issue preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion
 
                                        52

 
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption prices and liquidation preferences, and the number of shares
constituting and the designation of any such series, without further vote or
action by the stockholders. At present, we have no plans to issue any of the
preferred stock and we are not aware of any pending or proposed transaction that
would be affected by such an issuance.
 
POTENTIAL ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION, BY-LAWS,
DELAWARE LAW AND SHAREHOLDER PROTECTION RIGHTS AGREEMENT
 
  DELAWARE LAW
 
     We are subject to Section 203 of the Delaware General Corporation Law. This
statute regulating corporate takeovers prohibits a Delaware corporation such as
ours from engaging in any business combination with any interested stockholder
for three years following the date that the stockholder became an interested
stockholder unless:
 
     - prior to such time, the board of directors of the Delaware corporation
       approved either the business combination or the transaction which
       resulted in the stockholder becoming an interested stockholder;
 
     - upon the consummation of the transaction which resulted in the
       stockholder becoming an interested stockholder, the interested
       stockholder owned at least 85% of the voting stock of the corporation
       outstanding at the time the transaction commenced, excluding for purposes
       of determining the number of shares of voting stock outstanding (a)
       shares owned by persons who are directors and also officers, and (b)
       shares owned by employee stock plans in which employee participants do
       not have the right to determine confidentially whether shares held
       subject to the plan will be tendered in a tender or exchange offer; or
 
     - on or subsequent to the date of the transaction, the business combination
       is approved by the board and authorized at an annual or special meeting
       of stockholders, and not by written consent, by the affirmative vote of
       at least 66 2/3% of the outstanding voting stock which is not owned by
       the interested stockholder.
 
     Section 203 defines a "business combination" to include the following:
 
     - any merger or consolidation involving the corporation and the interested
       stockholder;
 
     - any sale, transfer, pledge or other disposition involving the interested
       stockholder of assets of the corporation having an aggregate market value
       equal to 10% or more of either the aggregate market value of all the
       assets or of all the outstanding stock or the corporation;
 
     - subject to exceptions, any transaction that results in the issuance or
       transfer by the corporation of any stock of the corporation to the
       interested stockholder; or
 
     - the receipt by the interested stockholder of the benefit of any loans,
       advances, guarantees, pledges or other financial benefits provided by or
       through the corporation.
 
     In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or controlled
by such entity or person.
 
  RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BY-LAW PROVISIONS
 
     Our restated Certificate of Incorporation and restated By-laws contain
provisions that could have an anti-takeover effect. These provisions include:
 
     - authorized but unissued shares of common and preferred stock available
       for future issuance without stockholder approval;
 
                                        53

 
     - vacancies on our board may only be filled by the remaining directors and
       not our stockholders (unless no director remains);
 
     - non-cumulative voting for directors
 
     - authorization for our board of directors, without stockholder approval,
       to issue up to 20,000,000 shares of preferred stock;
 
     - limitations on the ability of stockholders to call special meetings of
       stockholders;
 
     - a unanimity requirement for stockholders to take any action by written
       consent;
 
     - the board may generally adopt, amend and repeal our bylaws;
 
     - stockholders must submit proposals for annual stockholders' meetings or
       nominees for election as director at least 120 days prior to the
       anniversary date of the distribution of the company's proxy statement
       related to its last annual meeting in order for their proposals or
       nominees to be considered.
 
     These and other provisions contained in our restated certificate of
incorporation and restated by-laws could delay or discourage transactions
involving an actual or potential change in control of us or our management,
including transactions in which stockholders might otherwise receive a premium
for their shares over their current prices. Such provisions could also limit the
ability of stockholders to remove current management or approve transactions
that stockholders may deem to be in their best interests and could adversely
affect the price of our common stock.
 
  SHAREHOLDER PROTECTION RIGHTS AGREEMENT
 
     Pursuant to the rights plan adopted in 1999, our board of directors
declared a dividend of one right for each outstanding share of common stock to
stockholders of record at the close of business on February 16, 1999. Each right
entitles the registered holder to purchase a unit consisting of one one-
hundredth of a share of Series A Junior Participating Preferred Stock from us.
Currently, and after certain adjustments for certain recapitalization activities
such as reverse stock splits, the purchase or exercise price for such right is
$75 per unit.
 
     In the event that a person becomes an acquiring person, as defined in the
rights plan, except pursuant to an offer for all outstanding shares of common
stock that our independent directors determine to be fair and otherwise in the
best interests of our company and our stockholders, each holder of a right will
thereafter have the right to receive, upon exercise, common stock or, in certain
circumstances, cash, property or other securities of ours having a value equal
to two times the exercise price of the right.
 
     Until a right is exercised, the holder will not possess stockholder rights,
such as the right to vote or to receive dividends. While the distribution of the
rights will not be taxable to stockholders or to us, stockholders may, in
certain circumstances, recognize taxable income in the event that the rights
become exercisable for our common stock or other consideration, or for common
stock of the acquiring company, or in the event of the redemption of the rights.
 
     The rights are not exercisable until the distribution date, as that term is
defined in the rights plan, and are set to expire at 5:00 P.M. (EST) on February
16, 2009, unless earlier redeemed, exchanged, extended or terminated by us.
 
  CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK
 

     As of March 1, 2005, there are 169,602,124 unissued shares of common stock,
600,000 unissued shares of non-voting common stock and 20,000,000 unissued
shares of preferred stock of which 1,000,000 shares of such preferred stock have
been designated Series A Junior Participating Preferred Stock in connection with
the adoption of our rights plan. These additional shares may be issued for a
variety of proper corporate purposes, including future public or private
offerings to raise additional capital or facilitate acquisitions. We do not
presently intend to issue additional shares of common stock, non-

 
                                        54

 
voting common stock or preferred stock other than in connection with our
employee benefit plans or pursuant to conversions of the debentures. The
existence of unissued shares of common stock, non-voting common stock and
preferred stock may enable our board of directors to discourage an attempt to
change control of our company by means of a tender offer, proxy contest or
otherwise and thereby protect the continuity of our management. If, in the due
exercise of its fiduciary duties, our board of directors determined that an
attempt to change control of our company was not in the best interest of our
stockholders, our board of directors could authorize, without having to obtain
approval of the stockholders, the issuance of such shares in one or more
transactions that might prevent or render more difficult the completion of such
attempt. In this regard, our board of directors has the authority to establish
the rights and preferences of the authorized and unissued shares of preferred
stock, one or more series of which could be issued entitling the holders thereof
to vote separately as a class or to cast a proportionately larger vote than the
holders of shares of common stock on any proposed action, to elect directors
having terms of office or voting rights greater than the terms of office or
voting rights of other directors, to convert shares of preferred stock into a
proportionately larger number of shares of common stock or our other securities,
to demand redemption at a specified price under prescribed circumstances related
to such a change or to exercise other rights designed to impede such a change.
The issuance of shares of preferred stock, whether or not related to any attempt
to effect such a change, may adversely affect the rights of the holders of
shares of common stock and non-voting common stock.
 
TRANSFER AGENT AND REGISTRAR
 
     The registrar and transfer agent for our common stock is American Stock
Transfer & Trust Company.
 
                                        55

 
        CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
 
     The following is a summary of certain U.S. federal income tax consequences
as of the date of this prospectus of purchasing, holding and selling the
debentures, and where noted, our common stock. The discussion below is based
upon the provisions of the Internal Revenue Code of 1986, as amended, which we
refer to in this prospectus as the Code, Treasury regulations (including
proposed treasury regulations) issued thereunder, Internal Revenue Service, or
IRS, rulings and pronouncements and judicial decisions now in effect, all of
which are subject to change, possibly with retroactive effect, so as to result
in U.S. federal income tax considerations different from those discussed below.
Except where we state otherwise, this summary deals only with debentures held as
capital assets by a "U.S. Holder" (as described below) who purchases the
debentures at their "issue price" (as defined below).
 
     We do not address all of the tax consequences that may be relevant to a
U.S. Holder. We also do not address, except as stated below, any of the tax
consequences to holders that are "Non-U.S. Holders" (as defined below) or to
holders that may be subject to special tax treatment including banks, thrift
institutions, real estate investment trusts, personal holding companies,
regulated investment companies, insurance companies, tax exempt entities,
persons who hold the debentures in a "straddle" or as part of a "hedging,"
"conversion" or "constructive sale" transaction or U.S. Holders whose
"functional currency" is not the U.S. dollar, and brokers and dealers in
securities or currencies. Further, we do not address:
 
     - the U.S. federal income tax consequences to stockholders in, or partners
       or beneficiaries of, an entity that is a holder of the debentures;
 
     - the U.S. federal estate and gift or alternative minimum tax consequences
       of the purchase, ownership or sale of the debentures; or
 
     - any state, local or foreign tax consequences of the purchase, ownership
       and sale of the debentures.
 
     A U.S. Holder is a beneficial owner of our debentures, or our common stock
received upon the conversion of our debentures, and is for U.S. federal income
tax purposes:
 
     - a citizen or resident of the U.S.;
 
     - a corporation, or other entity taxable as a corporation for U.S. federal
       income tax purposes, created or organized in or under the laws of the
       U.S., any state thereof or the District of Columbia;
 
     - a trust if (1) a U.S. court can exercise primary supervision over its
       administration and one or more U.S. persons have the authority to control
       all of its substantial decisions or (2) the trust has a valid election in
       effect under applicable U.S. Treasury regulations to be treated as a U.S.
       person; or
 
     - estates, the income of which is subject to United States federal income
       taxation regardless of its source.
 
     A Non-U.S. Holder is a beneficial owner (other than a partnership) of our
debentures, or our common stock received upon the conversion of our debentures,
other than a U.S. Holder.
 
     If a partnership holds our debentures or common stock, the tax treatment of
a partner will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner in a partnership holding the
debentures, you should consult your own tax advisor.
 
     No rulings have been sought or will be sought from the IRS with respect to
any of the U.S. federal income tax considerations discussed below. As a result,
we cannot assure you that the IRS will agree with the tax characterizations and
the tax consequences described below.
 
     If you are considering purchasing the debentures, you should consult your
own tax advisor concerning the U.S. federal income and estate tax consequences
in light of your particular situation and any consequences arising under the
laws of any other taxing jurisdiction.
 
                                        56

 
TREATMENT OF U.S. HOLDERS
 
  PAYMENTS OF INTEREST
 
     It is expected, and this discussion assumes, that the debentures were
issued without original issue discount for U.S. federal income tax purposes.
Accordingly, payments of interest on the debentures generally will be taxable to
a U.S. Holder as ordinary interest income at the time such payments are accrued
or are received (in accordance with the U.S. Holder's regular method of tax
accounting). If, however, the debentures "stated redemption price at maturity"
(generally the sum of all payments required under the debenture other than
payments of stated interest) exceeds the issue price by more than a de minimis
amount, a U.S. Holder will be required to include such excess in income as
original issue discount, as it accrues, in accordance with a constant yield
method based on a compounding of interest before the receipt of cash payments
attributable to this income.
 
  LIQUIDATED DAMAGES AND MAKE-WHOLE PREMIUM
 
     We may be required to pay liquidated damages if we fail to comply with
certain obligations under the registration rights agreement. See "Description of
the Debentures -- Registration Rights." Additionally, we may be required to pay
the make-whole premium in connection with a change in control. See "Description
of the Debentures -- Conversion Rights," and "Description of the
Debentures -- Repurchase of Debentures at the Option of Holders."
 
     We believe (and this discussion assumes) that, as of the date of issuance
of the debentures, the likelihood of the payment of liquidated damages or the
make-whole premium is a "remote" contingency within the meaning of the
regulations that apply to debt instruments providing for one or more contingent
payments. Our determination in this regard is binding on a U.S. Holder unless
such holder explicitly discloses that it is taking a contrary position in its
tax return for the first year that it owns the debenture. This position,
however, is not binding on the IRS. If the IRS took a contrary position from
that described above, then a U.S. Holder may be required to accrue interest
income based upon a "comparable yield," regardless of the holder's method of
accounting. Such yield will be higher than the stated coupon on the debentures.
In addition, any gain on the sale, exchange, retirement or other taxable
disposition of the debentures, including any gain realized on the conversion of
a debenture, may be recharacterized as ordinary income. U.S. Holders should
consult their tax advisors regarding the tax consequences of the debentures
being treated as contingent payment debt instruments.
 
     If we become obligated to pay liquidated damages, we intend to take the
position that such amounts would be treated as ordinary interest income and
taxed as described under "-- Payments of Interest" above. In the event that a
make-whole premium is paid, such premium would be included in the amount
realized by the holder on conversion or repurchase of the debentures. See
"-- Conversion of the Debentures" and "-- Sale, Exchange, Redemption or
Repurchase of the Debentures."
 
  SALE, EXCHANGE, REDEMPTION OR REPURCHASE OF THE DEBENTURES
 
     Except as set out below under "-- Conversion of the Debentures," the sale,
exchange, redemption or repurchase of a debenture will cause you to recognize
gain or loss equal to the difference between the amount you received (the sum of
the cash and the fair market value of any property received) and your adjusted
tax basis in the debentures. Any gain you recognize generally will be treated as
a capital gain. Provided that you have held the debentures for more than one
year, such gain will be treated as long-term capital gain. Long-term capital
gains recognized by certain non-corporate taxpayers generally will be subject to
a reduced tax rate. Any loss you recognize will be treated as a capital loss.
The deductibility of capital losses is subject to limitations. If a capital loss
from the sale, exchange, redemption or repurchase of the debentures meets
certain thresholds (generally $10 million for corporate U.S. Holders, other than
S corporations, and $2 million for other U.S. Holders), you may be required to
file a disclosure statement with the IRS.
 
                                        57

 
     Special rules apply in determining the tax basis of a debenture. If you are
an accrual basis taxpayer, your basis in a debenture is generally increased by
unpaid interest you previously accrued on the debentures. If you are a cash
basis taxpayer, your basis will not include unpaid interest but your gain from
the sale, exchange, redemption or repurchase of the debenture will be reduced by
the portion of the payment you receive that represents unpaid interest. That
amount will be taxable as ordinary income rather than as gain or loss from the
sale, exchange, redemption or repurchase of the debenture.
 
  CONVERSION OF THE DEBENTURES
 
     Because we have made an irrevocable election under the terms of the
indenture to satisfy in cash up to 100% of the principal amount of the
debentures submitted for conversion, with any remaining amount to be satisfied
in shares of our common stock, we intend to take the position that the
conversion will be treated as a recapitalization. As a result, the amount of
gain recognized is the lesser of (1) the value of the cash and stock received
(less the value of any cash or stock treated as payment of accrued but unpaid
interest) minus your adjusted basis in the debentures or (2) the amount of cash
received (less any portion of the cash treated as paid for accrued but unpaid
interest). As a result, no loss would be recognized on the conversion. You
should consult your own tax advisor regarding the proper treatment to you of the
receipt of a combination of cash and common stock upon conversion.
 
  CONSTRUCTIVE DISTRIBUTIONS
 
     The conversion price of the debentures will be adjusted in certain
circumstances. See the discussion under "Description of the
Debentures -- Conversion -- Conversion Rate Adjustment" above. Under Section
305(c) of the Code, adjustments, or failures to make adjustments, that have the
effect of increasing your proportionate interest in our assets or earnings may,
in certain circumstances, be treated as a deemed distribution to you. For
example, if we were to make a distribution of cash to our stockholders, and the
conversion rate of the debentures were increased, such increase would be deemed
to be a distribution to you. Any deemed distributions will be taxable as a
dividend, return of capital or capital gain in accordance with the rules
governing corporate distributions. It is unclear whether such deemed
distributions would be eligible for the dividends received deduction or at the
reduced rate of 15% applicable to certain non-corporate U.S. Holders (currently
effective for tax years 2004 through 2008). You should carefully review the
conversion rate adjustment provisions and consult your own tax advisor with
respect to the tax consequences of any such adjustment.
 
  DISTRIBUTIONS ON COMMON STOCK
 
     In general, distributions with respect to our common stock received upon
the conversion of a debenture will constitute dividends to the extent made out
of our current or accumulated earnings and profits, as determined under U.S.
federal income tax principles. If a distribution exceeds our current and
accumulated earnings and profits, the excess will be treated as a non-taxable
return of capital to the extent of a U.S. Holder's basis in our common stock and
thereafter as capital gain. Dividends received by a corporate U.S. Holder will
be eligible for the dividends-received deduction if the holder meets certain
holding period and other applicable requirements. Dividends received by a
non-corporate U.S. Holder will qualify for taxation at the 15% rate (currently
effective for tax years 2004 through 2008) if the holder meets certain holding
period and other applicable requirements.
 
  SALE OR OTHER DISPOSITION OF COMMON STOCK
 
     You will recognize capital gain or loss on the sale or other disposition of
our common stock received upon the conversion of a debenture. This capital gain
or loss will equal the difference between the amount realized and the holder's
tax basis in our common stock. Capital gain of a non-corporate U.S. Holder is
eligible to be taxed at reduced rates where the property is held for more than
one year. The deductibility of capital losses is subject to limitations. If you
sell common stock at a loss that meets certain thresholds (generally $10 million
for corporate U.S. Holders, other than S corporations, and $2 million for other
U.S. Holders), you may be required to file a disclosure statement with the IRS.
 
                                        58

 
TREATMENT OF NON-U.S. HOLDERS
 
     The following is a summary of U.S. federal tax consequences that will apply
to you if you are a Non-U.S. Holder of debentures or shares of our common stock.
As described above, a "Non-U.S. Holder" is a beneficial owner (other than a
partnership) of our debentures, or our common stock received upon the conversion
of our debentures, other than a U.S. Holder.
 
     Special rules may apply to certain Non-U.S. Holders such as "controlled
foreign corporations," "passive foreign investment companies," "foreign personal
holding companies," corporations that accumulate earnings to avoid federal
income tax or, in certain circumstances, individuals who are U.S. expatriates.
Such Non-U.S. Holders should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that may be relevant to
them.
 
  PAYMENTS WITH RESPECT TO THE DEBENTURES
 
     Subject to the discussion below under "-- Constructive Dividends," if you
are a Non-U.S. Holder, all payments made to you on the debentures, and any gain
realized on a sale, exchange, conversion, redemption or repurchase of the
debentures, will be exempt from the 30% U.S. federal withholding tax and the
U.S. federal income tax, provided that:
 
     - you do not (directly or indirectly, actually or constructively) own 10%
       or more of the total combined voting power of all classes of our stock
       that are entitled to vote;
 
     - you are not a controlled foreign corporation that is related to us
       through stock ownership;
 
     - you are not a bank whose receipt of interest on a debenture is described
       in Section 881(c)(3)(A) of the Code;
 
     - (a) you provide your name and address, and certify, under penalties of
       perjury, that you are not a U.S. person, which certification may be made
       on an IRS Form W-8BEN (or successor form), or (b) you hold your
       debentures through certain qualified intermediaries and you satisfy the
       certification requirements of applicable Treasury regulations (special
       certification rules apply to holders that are pass-through entities); and
 
     - in the case of a sale, exchange, conversion, redemption or repurchase of
       the debentures:
 
        - we are not, and have not been within the shorter of the five-year
          period preceding such sale, exchange, conversion, redemption or
          repurchase and the period during which the Non-U.S. Holder held the
          debentures, a "U.S. real property holding corporation" as defined in
          Section 897(c)(2);
 
        - if we are determined to be a U.S. real property holding corporation,
          you own, actually or constructively, 5% or less of our debentures and
          our common stock and our common stock is publicly traded;
 
        - if you are an individual Non-U.S. Holder, you are present in the
          United States for less than 183 days in the taxable year of
          disposition (or are present in the United States for 183 days or more
          in the taxable year of disposition and certain other conditions are
          not met); and
 
        - your holding of the debenture is not effectively connected with the
          conduct of a trade or business in the U.S.
 
     We believe that we are not, and do not anticipate becoming, a U.S. real
property holding corporation for U.S. federal income tax purposes.
 
     If you cannot satisfy the requirements described above, payments of
interest will be subject to the 30% U.S. federal withholding tax, unless you
provide us with a properly executed (1) IRS Form W-8BEN (or successor form)
claiming an exemption from or reduction in withholding under the benefit of an
applicable tax treaty or (2) IRS Form W-8ECI (or successor form) stating that
interest paid on the
 
                                        59

 
debentures is not subject to withholding tax because it is effectively connected
with your conduct of a trade or business in the U.S.
 
     If you are engaged in a trade or business in the U.S. and interest on a
debenture or gain realized from the sale, exchange, conversion, repurchase or
redemption of the debenture is effectively connected with the conduct of that
trade or business (and, where a tax treaty applies, is attributable to a U.S.
permanent establishment), you will be subject to U.S. federal income tax, but
not the 30% withholding tax if you provide a Form W-8ECI as described above, on
that interest or gain on a net income basis in the same manner as if you were a
U.S. person as defined under the Code. In addition, if you are a foreign
corporation, you may be subject to a "branch profits tax" equal to 30% (or lower
applicable treaty rate) of your earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with your conduct of a
trade or business in the U.S. For this purpose, interest or gain will be
included in the earnings and profits of such foreign corporation. An individual
Non-U.S. Holder who is in the U.S. for more than 183 days in the taxable year
that the debenture is sold, exchanged, redeemed or repurchased, and meets
certain other conditions, will be subject to a flat 30% U.S. federal income tax
on the gain derived, which may be offset by U.S. source capital losses, even
though the holder is not considered a resident of the U.S.
 
  PAYMENTS ON COMMON STOCK
 
     Any dividends paid to a non-U.S. holder with respect to the shares of
common stock will be subject to withholding tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty. However, dividends that
are effectively connected with the conduct of a trade or business within the
U.S. or, where a tax treaty applies, are attributable to a U.S. permanent
establishment, are not subject to the withholding tax, but instead are subject
to U.S. federal income tax on a net income basis at applicable individual or
corporate rates. Certain certification and disclosure requirements must be
complied with in order for effectively connected income to be exempt from
withholding. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
 
     A Non-U.S. Holder of shares of common stock who wishes to claim the benefit
of an applicable treaty rate is required to satisfy applicable certification and
other requirements. If you are eligible for a reduced rate of U.S. withholding
tax pursuant to an income tax treaty, you may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
 
  CONSTRUCTIVE DIVIDENDS
 
     Under certain circumstances, a Non-U.S. Holder may be deemed to have
received a constructive dividend, see "Treatment of U.S. Holders -- Constructive
Distributions" above. Any constructive dividend deemed paid to a Non-U.S. Holder
will be subject to withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty unless that gain is effectively
connected with your conduct of a trade or business in the U.S. or, where a tax
treaty applies, is attributable to a U.S. permanent establishment. A Non-U.S.
Holder who wishes to claim the benefit of an applicable treaty rate is required
to satisfy applicable certification and other requirements. It is possible that
U.S. federal tax on the constructive dividend would be withheld from interest
paid to the Non-U.S. Holder of the debentures. A Non-U.S. Holder who is subject
to withholding tax under such circumstances should consult its own tax advisor
as to whether it can obtain a refund for all or a portion of the withholding
tax.
 
  SALE, EXCHANGE OR REDEMPTION OF SHARES OF COMMON STOCK
 
     Any gain that a Non-U.S. Holder realizes upon the sale, exchange,
redemption or other disposition of a share of our common stock generally will
not be subject to U.S. federal income tax unless:
 
     - that gain is effectively connected with your conduct of a trade or
       business in the U.S. or, where a tax treaty applies, is attributable to a
       U.S. permanent establishment;
 
                                        60

 
     - you are an individual who is present in the U.S. for 183 days or more in
       the taxable year of that disposition and certain other conditions are
       met; or
 
     - we are or have been a U.S. real property holding corporation for U.S.
       federal income tax purposes, except if you own, actually or
       constructively, less than 5 percent of our common stock and such common
       stock is publicly traded.
 
     An individual Non-U.S. Holder who realizes gain described in the first
bullet point above will be subject to U.S. federal income tax on the net gain
derived. An individual Non-U.S. Holder described in the second bullet point
above will be subject to a flat 30% U.S. federal income tax on the gain derived,
which may be offset by U.S. source capital losses, even though the holder is not
considered a resident of the U.S. A Non- U.S. Holder that is a foreign
corporation and that realizes gain described in the first bullet point above
will be subject to tax on the gain at regular graduated U.S. federal income tax
rates and, in addition, may be subject to a "branch profits tax" at a 30% rate
or a lower rate if so specified by an applicable income tax treaty. As to the
third bullet point, as stated above, we believe that we are not, and do not
anticipate becoming, a U.S. real property holding corporation for U.S. federal
income tax purposes.
 
BACKUP WITHHOLDING AND INFORMATION REPORTING
 
     If you are a U.S. Holder of our debentures or common stock, information
reporting requirements will generally apply to all payments we make to you and
the proceeds from a sale of a debenture or share of common stock made to you,
unless you are an exempt recipient, such as a corporation. If you fail to supply
your correct taxpayer identification number, under-report your tax liability or
otherwise fail to comply with applicable U.S. information reporting or
certification requirements, the IRS may require us to withhold federal income
tax at the rate set by Section 3406 of the Code (currently 28%) from those
payment.
 
     In general, if you are a Non-U.S. Holder you will not be subject to backup
withholding and information reporting with respect to payments that we make to
you provided that we do not have actual knowledge or reason to know that you are
a U.S. person and you have given us the certification described above under
"Treatment of Non-U.S. Holders -- Payments With Respect to the Debentures."
 
     In addition, if you are a Non-U.S. Holder you will not be subject to backup
withholding or information reporting with respect to the proceeds of the sale of
a debenture or share of common stock within the U.S. or conducted through
certain U.S.-related financial intermediaries, if the payor receives the
certification described above under "Treatment of Non-U.S. Holders -- Payments
With Respect to the Debentures" and does not have actual knowledge that you are
a U.S. person, as defined under the Code, or you otherwise establish an
exemption.
 
     Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your U.S. federal income tax liability provided the
required information is timely furnished to the IRS.
 
                                        61

 
                                 CAPITALIZATION
 
     You should read this table in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus.
 


                                                                    AT
                                                               SEPTEMBER 30,
                                                                   2004
                                                               -------------
                                                               (IN THOUSANDS
                                                                EXCEPT PER
                                                               SHARE AND PAR
                                                                VALUE DATA)
                                                            
Total debt..................................................     $ 125,000
                                                                 =========
Stockholders' Investment(1):
  Common stock, $01 par value; 200,000 shares authorized;
     approximately 32,110 shares issued and outstanding.....     $     321
  Additional paid-in capital................................       793,652
  Accumulated deficit.......................................      (793,155)
  Accumulated other comprehensive loss......................          (415)
  Deferred stock unit plan obligation.......................         1,443
  Treasury stock, at cost, 2,124 shares.....................       (26,492)
                                                                 ---------
     Total stockholders' investment.........................       (24,646)
                                                                 ---------
     Total capitalization...................................     $ 100,354
                                                                 =========

 
---------------
 
(1) The number of shares authorized, issued and outstanding in the table above
    excludes:
 
     - 20,000,000 shares of preferred stock authorized, no par value, none
       issued;
 
     - 600,000 shares of non-voting common stock authorized, $.01 par value,
       none issued;
 
     - 6,729,368 shares of common stock issuable upon the exercise of options
       outstanding as of September 30, 2004 with exercise prices ranging from
       $2.59 to $135.00 per share and a weighted average exercise price of $9.99
       per share;
 
     - 1,025,657 shares of common stock reserved for future grants under our
       stock option plans as of September 30, 2004; and
 
     - an indeterminable number of shares of common stock reserved for the
       potential conversion of the debentures.
 
                                        62

 
                                    BUSINESS
 
OVERVIEW OF OUR COMPANY
 
     We are a corporation organized in 1985 under the laws of the State of
Delaware and are focused on providing solutions that improve the administrative
functions of the healthcare industry. Specifically, we provide Connective
Healthcare solutions that help physicians and hospitals achieve their income
potential. Connective Healthcare solutions support and unite healthcare
providers, payers and patients with innovative technology processes that improve
and accelerate reimbursement and reduce the administrative cost of care. We
serve the healthcare industry through two divisions: Physician Services and
Hospital Services. Please refer to note 19 -- Segment Reporting to our
consolidated financial statements for the year ended December 31, 2003, for
financial information regarding our Physician Services and Hospital Services
divisions.
 
     The Physician Services division provides Connective Healthcare solutions
that manage the revenue cycle for physician groups. We provide a complete
outsourcing service, therefore, allowing physician groups to avoid the
infrastructure investment in their own in-house billing office. The division is
the largest provider of business management outsourced services that supplant
all or most of the administrative functions of a physician group. The target
market is primarily hospital-affiliated physician groups in the specialties of
radiology, anesthesiology, emergency medicine and pathology as well as physician
groups practicing in the academic setting and other large physician groups.
Services include clinical data collection, data input, medical coding, billing,
contract management, cash collections, accounts receivable management and
extensive reporting of metrics related to the physician practice. These services
help physician groups to be financially successful by improving cash flows and
reducing administrative costs and burdens. Fees for these services are primarily
based on a percentage of net collections on our clients' accounts receivable.
The division recognizes revenue and bills customers when the customers receive
payment on those accounts receivable, which aligns the division's interests with
the interests of the physician groups it services. The division's offerings have
historically focused on the back-end processes required to ensure that
physicians are properly reimbursed for care delivery. The division also offers a
physician practice management, or PPM, solution that is delivered via an
application service provider, or ASP, model and collects a monthly usage fee
from the physician practices using the system. The division's revenue model is
100% recurring in nature due to the transaction-based nature of its fee revenue
in the outsourced services business and the monthly usage fee in the PPM
business.
 
     Formed in July 2003 through the combination of the former e-Health
Solutions and Application Software divisions, the Hospital Services division
provides Connective Healthcare solutions that focus on revenue cycle and
resource management to improve the financial health of hospitals. The division
has one of the largest electronic clearinghouses in the medical industry, which
provides an important infrastructure to support its revenue cycle management
offerings. The clearinghouse delivers dedicated electronic and Internet-based
business-to-business solutions that focus on electronic processing of medical
transactions as well as complementary transactions, such as electronic
remittance advices, realtime eligibility verification and high-speed print and
mail services. Other revenue cycle management solutions provide insight into a
hospital's revenue cycle inefficiencies, such as denial management. Denial
management allows hospitals to identify charges denied reimbursement by a payer
and to take corrective actions such as resubmitting for reimbursement. Hospitals
may opt to outsource portions of their revenue cycle management process to us,
such as secondary insurance billing. The division also provides resource
management solutions that enable hospitals to efficiently manage resources to
reduce costs and improve their bottom line. The division's staff scheduling
software efficiently plans nurse schedules, accommodating individual preferences
as well as environmental factors, such as acuity levels, as well as schedules
all the personnel across the hospital enterprise. The division's patient
scheduling software helps effectively manage a hospital's most expensive and
profitable area, the operating room, as well as schedules patients across the
enterprise. The division primarily recognizes revenue on a per-transaction basis
for its revenue cycle management solutions and primarily recognizes revenue on a
percentage-of-completion basis or upon software shipment for sales of its
resource management software solutions. Approximately 88% of the division's
revenue is recurring due to
 
                                        63

 
its transaction-based business and the maintenance revenue from its substantial
installed base for the resource management software.
 
     We market our products and services to constituents of the healthcare
industry, primarily to hospital-affiliated physician practices, physician groups
in academic settings, hospitals and integrated delivery networks, or IDNs.
 
     As stated previously, we focus on the administrative functions of the
healthcare market, with the majority of our business based in the United States.
Healthcare spending in the United States reached an estimated $1.7 trillion or
15.3% of gross domestic product in 2003. It has been estimated that as much as
31% of annual healthcare spending is for administrative functions. Our solutions
help make the reimbursement of healthcare more efficient and help improve the
overall patient care experience by simplifying the revenue cycle process for
physicians and hospitals. Our services and solutions are not capital-intensive
for providers, making them a cost-effective solution as providers focus on their
financial health.
 
     During 2003 and early 2004, we took steps to strengthen our strategic focus
and financial health. Two non-core software product lines for hospitals were
divested -- a clinical information system was divested in July 2003, and a
patient financial management system was divested in January 2004. Both product
lines were enterprise-wide software solutions that required a hospital or IDN to
invest significant capital and time to implement. Both product lines generated
negative cash flow during 2003. In July 2003, we reorganized, aligning our
operations around our two key constituents: physicians and hospitals. We
incurred approximately $0.8 million in restructuring charges in 2003 and $41,000
in 2004 related to this reorganization.
 
     We recorded research and development costs of approximately $8.0 million,
$10.1 million and $5.3 million in 2003, 2002 and 2001 respectively.
 
DESCRIPTION OF BUSINESS BY INDUSTRY SEGMENT
 
  BUSINESS MANAGEMENT OUTSOURCED SERVICES FOR PHYSICIANS
 
     Approximately 225,000 U.S.-based hospital-affiliated physicians represent
our target market for business management outsourced services. The target market
consists of large physician groups -- typically 10 or more physicians depending
upon the specialty -- and represents an estimated market opportunity of
approximately $7 billion. We estimate that approximately 20% to 30% of the
physicians in the target market currently outsource their business management
needs, with the remainder of physicians performing these services in house. Our
Physician Services division is the largest provider of comprehensive business
management outsourcing services to the U.S. hospital-based physician market,
supporting approximately 1,100 clients in 42 states. The business of providing
integrated business management outsourcing services is highly competitive. The
division competes with regional and local billing companies as well as physician
groups performing these services in house. Competition among outsourcing
companies is based upon the relationship with the client or prospective client,
the efficiency and effectiveness of converting medical services to cash while
minimizing compliance risk, the ability to provide proactive practice management
services and, to the extent that service offerings are comparable, price. We
believe there is a trend toward outsourcing among physician groups performing
these revenue cycle management services in house due to the complexity of
reimbursement regulations and the financial pressures physician groups face.
 
  ASP-BASED PHYSICIAN PRACTICE MANAGEMENT SYSTEMS
 
     Representing less than 5% of the revenue of the Physician Services
division, our ASP-based PPM solution is targeted at office-based physicians and
physician groups in the U.S., and is the largest PPM solution delivered via ASP
in the nation serving approximately 4,000 physicians. Today, the solution is
regionally focused, mostly in the upper Midwest. The PPM market is highly
competitive with large national competitors as well as small regionally or
locally focused competition.
 
                                        64

 
  REVENUE CYCLE MANAGEMENT SOLUTIONS FOR HOSPITALS
 
     The market for hospital revenue cycle management solutions ranges from
providing technology tools that allow a hospital's central billing office, or
CBO, to more effectively manage its cash flow. Technology tools include
electronic transactions, such as claims processing, that can be delivered via
the Web or through dedicated electronic data interfaces as well as license-based
solutions, such as automated cash posting solutions, that are deployed at the
CBO. Our Hospital Services division has the third largest electronic
clearinghouse (based on our market research) in the healthcare industry and
processes approximately 320 million transactions on an annual basis. The
clearinghouse supports more than 1,400 governmental and commercial payer
connections in 48 states. Our revenue cycle management solutions are currently
in approximately 400 hospitals in the U.S. Competition in the revenue cycle
management market is based on providing solutions that enable hospitals to
improve their cash flow. Competitors include traditional electronic data
interface companies, Internet healthcare companies, outsourcing companies and
specialized software vendors.
 
  RESOURCE MANAGEMENT SOLUTIONS FOR HOSPITALS
 
     The market for resource management solutions for hospitals focuses on
license-based and Internet solutions to help hospitals efficiently and
effectively manage their costs. Our resource management business focuses on the
areas of staff and patient scheduling. We provide staff and patient scheduling
solutions to approximately 1,600 hospitals, primarily in the U.S. Our Hospital
Services division has the market-leading staff scheduling solution and a
market-leading patient scheduling solution. Competition in this market segment
is based on enabling a hospital to decrease costs by improving the utilization
of its personnel and facilities. We compete against national software vendors,
specialized software vendors and Internet healthcare companies.
 
HEALTHCARE INDUSTRY
 
     Trends in the U.S. healthcare industry affect our business. As healthcare
expenditures have become a larger percentage of the gross domestic product,
increasing focus has been placed on the administrative costs and burdens
associated with the delivery of care. As a result, payers have sought to control
costs by changing from the traditional fee-for-service reimbursement model to
managed care, fixed fee and capitation arrangements. These reimbursement models,
coupled with extensive regulatory control and government healthcare fraud and
abuse initiatives, have resulted in a significantly more complex accounting,
coding, billing and collection environment. Such industry changes create a more
positive market for solutions that reduce a healthcare provider's administrative
burdens, help ensure compliance in the complex regulatory environment and
minimize medical coding and billing errors, while improving reimbursement and
reducing costs.
 
     Both governmental and private payers continue to restrict payments for
healthcare services, using measures such as payment bundling, medical necessity
edits and post-payment audits. These measures may decrease revenue to our
provider clients and consequently decrease revenue derived by us from such
clients, as well as increase the cost of providing services.
 
     The healthcare industry continues to focus on the impact that regulations
governing standards for electronic transactions, privacy and information
security issued under HIPAA have on operations and information technology
systems. HIPAA was designed to reduce administrative waste in healthcare and
protect the privacy and security of patients' health information. HIPAA
regulations identify and impose standards for all aspects of handling patient
health information. These regulations, which are described in more detail below
under the subheading "Regulation," may require us to enhance our internal
systems and software applications sold, but HIPAA may also create an increased
demand for our services and solutions. While we have incurred and will continue
to incur costs to comply with HIPAA, management believes these compliance costs
will not have a material impact on our results of operations.
 
                                        65

 
REGULATION
 
     Our business is subject to numerous federal and state laws, programs to
combat healthcare fraud and abuse, and increasing restrictions on reimbursement
for healthcare services. Each of the major federal healthcare payment programs
(Medicare, Medicaid and TRICARE) has its own set of complex and sometimes
conflicting regulations. The Balanced Budget Act of 1997 and HIPAA have mandated
additional regulations, and many states have passed legislation addressing
billing and payment for healthcare services.
 
     The federal government is making significant efforts to detect and
eliminate healthcare fraud and abuse, particularly through its enforcement of
the False Claims Act, the Medicare and Medicaid Patient and Program Protection
Act of 1987 and HIPAA, all of which provide the federal government with the
authority to impose both civil and criminal sanctions and penalties for
submission of false claims to governmental payers. The federal government may
impose civil monetary penalties up to $50,000 per offense as well as exclude a
provider from participation in Medicare and other governmental healthcare
programs. In addition, the False Claims Act allows a private party to bring a
"qui tam" or "whistleblower" suit alleging the filing of false or fraudulent
Medicare or Medicaid claims and potentially share in damages and civil penalties
paid to the government. The U.S. Centers for Medicare & Medicaid Services, or
CMS, offers rewards for information leading to the recovery of Medicare funds,
and CMS engages private contractors to detect and investigate fraudulent billing
practices.
 
     Our compliance program, which is modeled after the Office of Inspector
General's Compliance Program Guidance for Third-Party Medical Billing Companies,
is designed and maintained to detect and prevent regulatory violations. We
believe our compliance program is effective; however, a compliance program
cannot be expected to provide absolute compliance with the law. The existence of
an effective compliance program may, nevertheless, mitigate civil and criminal
sanctions for certain healthcare-related offenses.
 
     Under HIPAA, the federal government published final rules regarding the
standards for electronic transactions as well as standards for privacy and
security of individually identifiable health information. These rules set new or
higher standards for the healthcare industry in handling healthcare transactions
and information, with penalties for noncompliance.
 
     The HIPAA rules regarding standards for electronic transactions require
healthcare providers, healthcare clearinghouses and health plans that send or
receive healthcare transaction data electronically to use standard data formats.
The compliance deadline for standard electronic transactions was October 16,
2003. In September 2003, CMS issued transitional guidance that allowed
noncompliant electronic transactions after the October 2003 compliance deadline.
The industry continues to work toward compliance. We have modified the
operations of our subsidiaries that are engaged in the electronic transmission
of such data substantially to comply with HIPAA's electronic transaction
standards.
 
     The HIPAA rules regarding privacy of patient health information require
organizations that handle such information to establish safeguards regarding
access, use and disclosure, and to restrict how other entities use that
information. The privacy rules had a compliance deadline of April 14, 2003, and
we implemented them on or before the deadline. We believe that our operations
are in material compliance with the privacy rule requirements. Although the
HIPAA privacy rules do not provide a private right of action for individuals,
individuals could bring a privacy action under applicable state law for misuse
or improper disclosure of their health information.
 
     The HIPAA rules regarding the security of medical information became final
on February 20, 2003. Under these rules, health insurers, certain healthcare
providers and healthcare clearinghouses must establish procedures and mechanisms
to protect the confidentiality, integrity and availability of electronic
protected health information. These rules have a compliance deadline of April
21, 2005. Management believes that the costs of compliance with the HIPAA
security rules will not materially impact our results of operations.
 
                                        66

 
EMPLOYEES
 
     We currently employ approximately 4,900 full-time and part-time employees.
We have no labor union contracts and believe relations with our employees are
satisfactory.
 
PROPERTIES
 
     Our principal executive office is leased and is located in Alpharetta,
Georgia. The lease for that office expires in June 2014. Future minimum lease
payments through 2014 under the lease are approximately $13.4 million.
 
LEGAL PROCEEDINGS
 
     We are subject to claims, litigation and official billing inquiries arising
in the ordinary course of our business. These matters include, but are not
limited to, lawsuits brought by former customers with respect to the operation
of our business. We have also received written demands from customers and former
customers that have not resulted in legal action. Within our industry, federal
and state civil and criminal laws govern medical billing and collection
activities. These laws provide for various fines, penalties, multiple damages,
assessments and sanctions for violations, including possible exclusion from
federal and state healthcare payer programs.
 
     We believe we have meritorious defenses to the claims and other issues
asserted in pending legal matters; however, there can be no assurance that such
matters or any future legal matters will not have an adverse effect on us.
Amounts of awards or losses, if any, in pending legal matters have not been
reflected in the financial statements unless probable and reasonably estimable.
 
                                        67

 
                          PRICE RANGE OF COMMON STOCK
 
     Our common stock is listed on the Nasdaq National Market under the symbol
"PSTI." The following table sets forth the high and low sales prices for our
common stock as reported by the Nasdaq National Market.
 


                                                               HIGH     LOW
                                                              ------   ------
                                                                 
2004
1st Quarter.................................................  $18.26   $10.68
2nd Quarter.................................................  $14.90   $ 8.10
3rd Quarter.................................................  $15.10   $11.47
4th Quarter.................................................  $16.35   $12.89
 
2003
1st Quarter.................................................  $ 9.07   $ 5.75
2nd Quarter.................................................  $11.74   $ 7.78
3rd Quarter.................................................  $16.58   $10.65
4th Quarter.................................................  $17.25   $11.64
 
2002
1st Quarter.................................................  $13.23   $ 9.76
2nd Quarter.................................................  $13.45   $ 8.20
3rd Quarter.................................................  $ 9.93   $ 6.81
4th Quarter.................................................  $10.70   $ 8.25

 

     On March 1, 2005, the last reported sale price of our common stock on the
Nasdaq National Market was $15.21. As of March 1, 2005, there were 3,346 holders
of record of our common stock. There are a significantly greater number of
shareholders whose shares are held in street name.

 
                                DIVIDEND POLICY
 
     We have not paid cash dividends on our common stock since our initial
public offering. Further, we currently intend to retain our future earnings, if
any, to finance the growth development and expansion of our business.
Accordingly, we do not intend to declare or pay any cash dividends on our common
stock in the immediate future. In addition, our credit agreement contains, and
any future borrowing arrangements or agreements may contain, restrictions on our
ability to declare or pay cash dividends on our common stock. The declaration,
payment and amount of future cash dividends, if any, will be at the discretion
of our board of directors after taking into account various factors. These
factors include our financial condition, results of operations, cash flows from
operations, current and anticipated capital requirements and expansion plans,
the income tax laws then in effect, applicable restrictions in our credit
agreement and the requirements of Delaware law.
 
                                        68

 
                            SELECTED FINANCIAL DATA
 
     The following selected financial data have been derived from our financial
statements and should be read in conjunction with our consolidated financial
statements, the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
 


                                   NINE MONTHS ENDED
                                     SEPTEMBER 30,                     YEAR ENDED DECEMBER 31,
                                  -------------------   ------------------------------------------------------
                                    2004       2003       2003       2002       2001       2000         1999
                                  --------   --------   --------   --------   --------   --------     --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                 
STATEMENTS OF OPERATIONS DATA
  Revenue.......................  $263,383   $251,977   $335,169   $325,564   $305,822   $291,561     $302,011
  Salaries and wages............   153,861    146,086    194,139    186,075    182,597    182,075      202,725
  Other operating expenses......    71,511     65,792     87,183     90,857     86,800     90,388      102,169
  Depreciation..................     5,979      7,154      9,375     10,908     12,223     15,044       19,582
  Amortization..................     5,799      5,417      7,134      7,836      9,229      7,412        6,498
  Interest expense..............     5,483     12,524     14,646     18,069     18,009     18,238       18,483
  Interest income...............      (332)      (245)      (297)      (471)    (1,121)    (3,728)      (2,388)
  Loss on extinguishment of
    debt........................     5,896      6,255      6,255         --         --         --           --
  Process improvement project...        --         --         --         --      3,423         --           --
  Litigation settlements........        --         --         --         --         --      1,147       24,811
  Restructuring expenses........       (16)       177        830         --        593      2,382           --
  Other expenses................     5,861         --         --         --         --         --           --
  Income tax expense
    (benefit)...................       314        803         27        800        343       (733)        (777)
  Income (loss) from continuing
    operations..................     9,027      8,014     15,877     11,490     (6,274)   (20,664)     (69,092)
  Net income (loss)(1)..........    12,131      5,424     11,989      8,989     (6,109)   (48,202)(2)  (33,702)
  Shares used in computing net
    income (loss) per common
    share-basic.................    31,046     30,364     30,594     30,061     29,915     29,852       28,097
  Shares used in computing net
    income (loss) per common
    share-diluted...............    33,273     32,199     32,661     31,966     29,915     29,852       28,097
PER SHARE DATA
  Income (loss) from continuing
    operations-basic............  $   0.29   $   0.26   $   0.52   $   0.38   $  (0.21)  $  (0.69)    $  (2.46)
  Net income (loss) per common
    share-basic.................  $   0.39   $   0.18   $   0.39   $   0.30   $  (0.20)  $  (1.62)    $  (1.20)
  Income (loss) from continuing
    operations-diluted..........  $   0.27   $   0.25   $   0.49   $   0.36   $  (0.21)  $  (0.69)    $  (2.46)
  Net income (loss) per common
    share-diluted...............  $   0.36   $   0.17   $   0.37   $   0.28   $  (0.20)  $  (1.62)    $  (1.20)

 


                                         AS OF                         AS OF DECEMBER 31,
                                     SEPTEMBER 30,   ------------------------------------------------------
                                         2004          2003       2002       2001       2000         1999
                                     -------------   --------   --------   --------   --------     --------
                                                                 (IN THOUSANDS)
                                                                                 
BALANCE SHEET DATA
  Working capital..................    $ 30,622      $ 20,313   $ 20,602   $ 22,519   $ 22,885     $ 89,897
  Intangible assets................      53,872        52,336     55,494     61,929     57,168       31,689
  Total assets.....................     169,182       171,653    209,631    202,270    214,128      265,017
  Total debt.......................     125,000       121,875    175,020    175,091    175,000      177,138
  Stockholders' (deficit) equity...     (24,646)      (17,612)   (37,972)   (49,901)   (44,136)(2)    1,440

 
                                        69

 
---------------
 
(1) Reflects the results from discontinued operations of $3.1 million and ($2.6)
    million for the nine months ended September 30, 2004, and 2003,
    respectively, and ($3.9) million, ($2.5) million, $0.2 million, $10.1
    million and $35.4 million for the years ended December 31, 2003, 2002, 2001,
    2000, and 1999, respectively.
 
(2) Reflects a $37.7 million cumulative effect of accounting change for the
    change in accounting for revenue pursuant to Staff Accounting Bulletin
    Number 101, Revenue Recognition in Financial Statements, and the
    corresponding increase in our deferred tax valuation allowance.
 
                                        70

 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

     The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains forward-looking statements about events that
have not yet occurred. All statements, trend analysis and other information
contained below relating to markets, products and trends in revenue, as well as
other statements including words such as "anticipates," "believes" or "expects"
and statements in the future tense are forward-looking statements. These
forward-looking statements are subject to business and economic risks, and
actual events or our actual future results could differ materially from those
set forth in the forward-looking statements due to such risks and uncertainties.
We disclaim any responsibility to update any forward-looking statement. Risks
and uncertainties that may affect future results and performance include, but
are not limited to, those discussed under the heading "Risk Factors -- Risks
Relating to Our Business" at pages 10 to 13 of this prospectus.

 
PERFORMANCE MEASUREMENTS IMPORTANT TO MANAGEMENT
 
     Our management is focused on profitable, organic revenue growth. Our
business model is designed such that revenue is generally recurring in nature
and cash flow generation is relatively consistent. Management follows certain
key metrics in monitoring its performance. Such key metrics include, but are not
limited to:
 
     - net new business sold in the Physician Services division, defined by us
       as the annualized revenue value of new contracts signed in a period, less
       the annualized revenue value of terminated business in that same period;
 
     - net backlog in the Physician Services division, defined by us as the
       annualized revenue related to new contracts signed with the business
       still to be implemented, less the annualized revenue related to existing
       contracts where discontinuance notification has been received;
 
     - transaction volume in the Hospital Services division;
 
     - new business sold in the Hospital Services division;
 
     - sales pipelines and sales personnel productivity in both divisions;
 
     - EBITDA, a non-GAAP measure defined as earnings before interest, taxes,
       depreciation and amortization, and operating margins in both divisions;
 
     - days in accounts receivable in both divisions;
 
     - cash flow generated from operations; and
 
     - free cash flow, a non-GAAP measure defined as net cash provided by
       continuing operations less investments in capitalized software
       development costs and capital expenditures and represents cash flow
       available for activities unrelated to operations, such as debt reduction.
 
     Our financial health is also dependent upon our capital structure.
Management tracks its debt-to-EBITDA ratio and interest expense coverage ratio
in monitoring the appropriateness of its capital structure.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     On December 16, 2004, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standards, or SFAS, No. 123 (revised
2004), Share-Based Payment, or SFAS No. 123 (R), which is a revision of SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 (R) supersedes
Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued
to Employees, or APB No. 25, and amends SFAS No. 95, Statement of Cash Flows.
SFAS No. 123 (R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values.
 
                                        71

 
     SFAS No. 123 (R) must be adopted no later than July 1, 2005. Early adoption
will be permitted in periods in which financial statements have not yet been
issued. We expect to adopt SFAS No. 123 (R) on July 1, 2005.
 
     We currently account for share-based payments to employees using APB No. 25
and the intrinsic value method and, as such, generally recognize no compensation
cost for employee stock options. Accordingly, the adoption of SFAS No. 123 (R)'s
fair value method will have an impact on our results of operations, although it
will have no impact on our overall financial position. The impact of adoption of
SFAS No. 123 (R) cannot be estimated, as the impact will depend on the levels of
share-based payments granted in the future. Had we adopted SFAS No. 123 (R) in
prior periods, the impact would have approximated the impact of SFAS No. 123 as
described in note 1 to our consolidated financial statements for the years ended
December 31, 2003, 2002, and 2001.
 
     In September 2004, the FASB Emerging Issues Task Force, or EITF, reached a
tentative conclusion on Issue No. 04-08, The Effect of Contingently Convertible
Debt on Diluted Earnings per Share, or EITF No. 04-08. The EITF concluded that
contingently convertible debt instruments should be included in diluted earnings
per share computations regardless of whether the market price trigger has been
met. The effective date is expected to be for periods ending after December 15,
2004. In November 2004, we exercised our irrevocable option to satisfy in cash
up to 100% of the principal amount of the debentures submitted for conversion.
We will satisfy any amount above the conversion trigger price of $17.85 through
the issuance of shares of common stock. Any stock appreciation above the
conversion trigger price would be included in our dilutive shares for purposes
of calculating diluted earnings per share under EITF No. 04-08.
 
     On December 17, 2003, the SEC issued Staff Accounting Bulletin Number 104,
Revenue Recognition, or SAB 104. SAB 104 revises or rescinds portions of the
interpretative guidance included in Topic 13 of the codification of staff
accounting bulletins in order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance and the SEC's rules and
regulations. The principal revisions relate to the rescission of material no
longer necessary because of private sector developments in U.S. generally
accepted accounting principles. Revisions include those necessitated by the
FASB, EITF, Issue No. 00-21, Revenue Arrangements With Multiple Deliverables, or
EITF No. 00-21. SAB 104 did not affect our consolidated statements of
operations.
 
     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument within its scope as a
liability (or in some circumstances an asset). Many of those instruments were
previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of nonpublic
entities. We adopted SFAS No. 150 on May 31, 2003; however, SFAS No. 150 did not
affect our consolidated statements of operations.
 
     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, or SFAS No. 149. SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. We adopted SFAS No. 149 on June 30, 2003; however, SFAS No. 149 did
not affect our consolidated statements of operations.
 
     In January 2003, the FASB issued and subsequently revised in December 2003,
Interpretation No. 46, Consolidation of Variable Interest Entities, or FIN No.
46, which clarifies the consolidation accounting guidance of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entities to finance
their activities without additional subordinated financial support from other
parties. Such entities are known as variable interest entities, or VIEs.
Controlling
 
                                        72

 
financial interests of a VIE are identified by the exposure of a party to the
VIE to a majority of either the expected losses or residual rewards of the VIE,
or both. Such parties are primary beneficiaries of the VIE, and FIN No. 46
requires that the primary beneficiary of a VIE consolidate the VIE. FIN No. 46
also requires new disclosures for significant relationships with VIEs, whether
or not consolidated. Application of FIN No. 46 is required in the financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods after December 15,
2003. Application by public entities for all other types of entities is required
in financial statements for periods ending after March 15, 2004. We currently
believe that we do not have any relationships with a VIE; however, we will
evaluate all new business relationships.
 
     At the November 21, 2002 EITF meeting, the EITF reached a consensus on EITF
00-21. EITF 00-21 addresses how to determine if an arrangement involving
multiple deliverables contains more than one unit of accounting. In applying
EITF 00-21, separate contracts with the same entity or related parties that are
entered into at or near the same time are presumed to have been negotiated as a
package and should, therefore, be evaluated as a single arrangement in
considering whether there are one or more units of accounting. That presumption
may be overcome if there is sufficient evidence to the contrary. EITF 00-21 also
addresses how arrangement consideration should be measured and allocated to the
separate units of accounting in the arrangement. The EITF indicated that the
guidance in EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. We adopted EITF 00-21 on January
1, 2003; however, EITF 00-21 did not have a material effect on our consolidated
statements of operations.
 
     In November 2002, FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, or FIN No. 45. The Interpretation requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken by issuing the guarantee. The Interpretation
also requires additional disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees
it has issued. FIN No. 45 did not have a material effect on our consolidated
financial statements for the year ended December 31, 2003. Certain of our sales
agreements contain infringement indemnity provisions that are covered by FIN No.
45. Under these sales agreements, we agree to defend and indemnify a customer in
connection with infringement claims made by third parties with respect to the
customer's authorized use of our products and services. The indemnity
obligations contained in sales agreements generally have no specified expiration
date and generally limit the award to the amount of fees paid. We have not
previously incurred costs to settle claims or pay awards under these
indemnification obligations. Also, we maintain membership in a group captive
insurance company for our workers compensation insurance. The member companies
agree to jointly insure the group's liability risks up to a certain threshold.
As a member, we guarantee to pay an assessment, if an assessment becomes due, as
a result of insured losses by its members. This guarantee will never exceed a
percentage of our loss funds. Based on our historical experience, we do not
anticipate such an assessment. As a result, our estimated fair value of the
infringement indemnity provision obligations and the captive insurance guarantee
is nominal.
 
OVERVIEW OF CRITICAL ACCOUNTING POLICIES
 
     The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
     Critical accounting policies are those accounting policies that management
believes are both most important to the portrayal of our financial condition and
results, and/or they require management's most difficult, subjective and/or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
 
                                        73

 
  REVENUE RECOGNITION
 
     Our revenue is derived from services and products delivered to the
healthcare industry through our two operating divisions:
 
  PHYSICIAN SERVICES
 
     Physician Services provides Connective Healthcare solutions that manage the
revenue cycle for physician groups. The division provides outsourced revenue
cycle management services that are targeted at hospital-affiliated and academic
physician practices. Fees for these services are primarily based on a percentage
of net collections on our clients' accounts receivable. The division recognizes
revenue and bills its customers when the customers receive payment on those
accounts receivable. Contracts are typically multi-year in length and require no
payment from the customer upon contract signing. Since this is an outsourced
service delivered on our proprietary technology, there are no license or
maintenance fees to be paid by the physician group customers. The division also
recognizes approximately 5% of its revenue on a monthly service fee and
per-transaction basis from the PPM product line. The Physician Services division
does not rely, to any material extent, on estimates in the recognition of
revenue. Revenue is recognized in accordance with Staff Accounting Bulletin No.
104, Revenue Recognition.
 
  HOSPITAL SERVICES
 
     Hospital Services provides Connective Healthcare solutions that improve
revenue cycle and resource management for hospitals.
 
     Revenue cycle management solutions primarily include services that allow a
hospital's CBO to more effectively manage its cash flow. These services include
electronic and paper transactions, such as claims processing, which can be
delivered via the Web or through dedicated electronic data interfaces and high-
speed print and mail services. Revenue related to these transactions is billed
and recognized when the services are performed on a per transaction basis.
Contracts are typically multi-year in length. The division also recognizes
revenue related to direct and indirect payments it receives from payers for the
electronic transmission of transactions to the payers. The division recognizes
revenue on these transactions at the time the electronic transactions are sent.
Revenue is recognized on these transactions in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition.
 
     Resource management solutions include staff and patient scheduling software
that enable hospitals to efficiently manage their resources, such as personnel
and the operating room, to reduce costs and improve their bottom-line. The
resource management software is sold as a one-time license fee plus
implementation services and an annual maintenance fee. Contracts are typically
structured to require a portion of the license fee and implementation services
to be paid periodically throughout the installation process, including a portion
due upon signing. For software contracts that require the division to make
significant production, modification or customization changes, the division
recognizes revenue for the license fee and implementation services using the
percentage-of-completion method over the implementation period.
 
     The division relies on estimates of work to be completed to determine the
amount of revenue to be recognized related to each contract. Because estimates
of the extent of completion that differ from actual results could affect
revenue, the division periodically reviews the estimated hours or days to
complete major projects and compares these estimates to budgeted hours or days
to support the revenue recognized on that project. Approximately 9%, 9% and 12%
of the division's revenue (or 2%, 2% and 2% of total company revenue) was
determined using percentage-of-completion accounting for the years ended
December 31, 2003, 2002, and 2001, respectively.
 
     When the division receives payment prior to shipment or fulfillment of its
significant obligations, we record such payments as deferred revenue and
recognize them as revenue upon shipment or fulfillment of significant vendor
obligations. An unbilled receivable is recorded when the division recognizes
revenue on the percentage-of-completion basis prior to achieving a contracted
billing milestone. For minor add-on software license sales where no significant
customization remains outstanding, the fee is fixed, an
 
                                        74

 
agreement exists and collectibility is probable, the division recognizes revenue
upon shipment. For software maintenance payments received in advance, the
division defers and recognizes as revenue these payments ratably over the term
of the maintenance agreement, which is typically one year. Revenue recognized on
the percentage-of-completion basis is done so in accordance with Statement of
Position 81-1, Accounting for Performance of Construction Type and Certain
Production Type Contracts. Revenue recognized upon software shipment is done so
in accordance with Statement of Position 97-2, Software Revenue Recognition.
 
     For arrangements that include one or more elements, or multiple-element
arrangements, to be delivered at a future date, revenue is recognized in
accordance with SOP 97-2 as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. SOP 97-2, as
amended, requires the Company to allocate revenue to each element in a
multiple-element arrangement based on the element's relative fair value
established by vendor-specific objective evidence, or VSOE, of fair value. Where
VSOE does not exist for all delivered elements (typically software license
fees), revenue from multiple-element arrangements is recognized using the
residual method. Under the residual method, if VSOE of the fair value of the
undelivered elements exists, the Company defers revenue recognition of the fair
value of the undelivered elements. The remaining portion of the arrangement fee
is then recognized either by using the percentage-of-completion method if
significant production, modification or customization is required or upon
delivery, assuming all other conditions for revenue recognition have been
satisfied. VSOE of fair value of maintenance services is based upon the amount
charged for maintenance when purchased separately, which is the renewal rate.
Maintenance services are stated separately in an arrangement. VSOE of fair value
of professional services (i.e. implementation and consulting services not
essential to the functionality of the software) is based upon the price charged
when professional services are sold separately and is based on an hourly rate
for professional services.
 
  AMORTIZATION AND VALUATION OF INTANGIBLES
 
     Amortization of intangible assets includes the amortization of client
lists, developed technology and software development costs (prior to our
adoption of SFAS No. 142 on January 1, 2002, amortization of intangible assets
also included the amortization of goodwill and other indefinite lived intangible
assets). We rely on estimates of the useful lives and net realizable value, as
appropriate, of these assets on which to base our amortization. We base these
estimates on historical experiences, market conditions, expected future revenues
and maintenance costs and the products or services provided. We periodically
evaluate whether to revise estimates of the remaining useful lives of the
intangible. Additionally, we evaluate whether any changes would render our
intangibles impaired or indicate that an asset has a different useful life.
Conditions that may indicate an impairment include an economic downturn or
change in future operations. In the event such a condition exists, we would
perform an assessment using a variety of methodologies, including cash flow
analysis, estimates of sales proceeds and independent appraisals. Where
applicable, the estimate uses an appropriate interest rate based on appropriate
discount rates.
 
     During 2001, in accordance with Accounting Principles Board, or APB,
Opinion No. 16, Business Combinations, we finalized the purchase price
allocation of Virtual Information Systems, Inc. and OfficeMed.com LLC in April
2001, with a portion of the amount previously allocated to goodwill being
reallocated to finite-lived intangible assets. The amounts reallocated to
finite-lived intangible assets totaled approximately $9.2 million. Due to this
reallocation, amortization expense related to these finite-lived intangibles
increased $1.8 million in 2002, which was offset by a reduction in goodwill
amortization of $3.5 million due to adoption of SFAS No. 142. The net reduction
in amortization expense in 2002 was $1.7 million, or $0.05 per share on a
diluted basis.
 
     Goodwill -- Goodwill represents the excess of the cost of businesses
acquired and the value of their workforce in the Physician Services division in
1995 and the Hospital Services division from 1995 to 2001, over the fair market
value of their identifiable net assets. As a result of our reorganization in
July 2003, we transferred the estimated fair value of the goodwill associated
with the PPM assets to the Physician Services division from the former e-Health
division. Prior to the adoption of SFAS No. 142 on January 1, 2002, we amortized
our goodwill over our estimated useful life of no greater than twenty years.
Under
 
                                        75

 
SFAS No. 142, we no longer amortize goodwill and indefinite lived intangible
assets but review them annually for impairment.
 
     Trademarks -- Trademarks represent the value of the trademarks acquired in
the Hospital Services division from 2000 to 2001. We expect the trademarks to
contribute to cash flows indefinitely and therefore deem the trademarks to have
indefinite useful lives. Under SFAS No. 142, we no longer amortize trademarks
but review them annually for impairment.
 
     SFAS No. 142 required companies with goodwill and indefinite lived
intangible assets to complete an initial impairment test by June 30, 2002. We
completed the initial impairment test of our goodwill and other indefinite lived
intangible assets and did not identify an asset impairment as a result of the
impairment test. Additionally, we performed our periodic review of our goodwill
and other indefinite lived intangible assets for impairment as of December 31,
2003, and did not identify an asset impairment as a result of the review. Our
initial impairment and periodic review of our goodwill and other indefinite
lived intangible assets were based upon a discounted future cash flow analysis
that included revenue and cost estimates, market growth rates and appropriate
discount rates. We will continue to test our goodwill and other indefinite lived
intangible assets annually for impairment as of December 31.
 
     Client Lists -- Client lists represent the value of clients acquired in the
Physician Services division from 1992 to 1996 and the Hospital Services division
from 1995 to 2001. We amortize client lists using the straight-line method over
their estimated useful lives, which range from five to ten years.
 
     Developed Technology -- Developed technology represents the value of the
systems acquired in the Hospital Services division from 2000 to 2001. We
amortize these intangible assets using the straight-line method over their
estimated useful lives of five years.
 
     Software Development Costs -- Software development includes costs incurred
in the development or the enhancement of software in the Physician Services and
Hospital Services divisions for resale or internal use.
 
     Software development costs related to external use software are capitalized
upon the establishment of technological feasibility for each product and
capitalization ceases when the product or process is available for general
release to customers. Technological feasibility is established when all
planning, designing, coding and testing activities required to meet a product's
design specifications are complete. We amortize external use software
development costs over the greater of the ratio that current revenues bear to
total and anticipated future revenues for the applicable product or
straight-line method over the estimated economic lives of the assets, which are
generally three to five years. We monitor the net realizable value of all
capitalized external use software development costs to ensure that we can
recover the investment through margins from future sales.
 
     Software development costs related to internal use software are capitalized
after the preliminary project stage is complete, management with the relevant
authority authorizes and commits to the funding of the software project, it is
probable that the project will be completed and the software will be used to
perform the function intended. Capitalization ceases no later than the point at
which the project is substantially complete and ready for its intended use. We
expense software development costs related to internal use software as incurred
during the planning and post-implementation phases of development. Internal-use
software is amortized on a straight-line basis over its estimated useful life,
generally five years. The estimated useful life considers the effects of
obsolescence, technology, competition and other economic factors.
 
  LLOYD'S OF LONDON SETTLEMENT
 
     On May 10, 2004, we reached a settlement with our former insurance carrier,
Lloyd's of London. We were in litigation with Lloyd's of London after its
attempt in May 2002 to rescind certain E&O policies and D&O policies that it had
issued to us from the period December 31, 1998, to June 30, 2002. In the
settlement, Lloyd's of London agreed to pay us $20 million in cash by July 9,
2004. Lloyd's of London also agreed to defend, settle or otherwise resolve at
their expense the two remaining pending claims
 
                                        76

 
covered under the E&O policies. In exchange, we provided Lloyd's of London with
a full release of all E&O and D&O policies. The California Superior Court
retained jurisdiction to enforce any aspect of the settlement agreement.
 
     As of the settlement date, we had an $18.3 million receivable from Lloyd's
of London, of which approximately $4.9 million represented additional amounts to
be paid by us under prior E&O policy settlements covered by Lloyd's of London.
Effective on May 12, 2004, as a result of negotiations among us, Lloyd's of
London, and a party to a prior E&O policy settlement with us, the Lloyd's of
London settlement was amended to reduce by $3.8 million the additional amounts
to be paid by us under the prior E&O policy settlements covered by Lloyd's of
London. This amendment reduced the amount of cash payable by Lloyd's of London
to us in the settlement from $20 million to $16.2 million, and reduced the
amount of our receivable from Lloyd's of London by $3.8 million. On July 7,
2004, pursuant to the settlement, as amended, Lloyd's of London paid us $16.2
million in cash. As of the payment date, we had an approximately $14.7 million
receivable from Lloyd's of London and recognized a gain of approximately $1.5
million on the settlement in the third quarter of 2004.
 
  OTHER
 
     Additionally, we do not have:
 
     - material exposure to foreign exchange fluctuations;
 
     - any derivative financial instruments;
 
     - any material off-balance sheet arrangements other than our operating
       leases disclosed in notes 10 and 11 to our consolidated financial
       statements for the year ended December 31, 2003, included in this
       prospectus, and certain vendor financing arrangements in the ordinary
       course of business; or
 
     - any material related party transactions.
 
GENERAL OVERVIEW
 
     Management believes the key elements for assessing our company's
performance are the ability to generate stable and improving operating profit
margins on our existing business, and to generate similar or better operating
profit margins on new business. An additional element is the ability to generate
positive cash flow from continuing operations. In assessing our performance, we
make adjustments for items we consider to be atypical or non-operational, such
as those noted below, to help ensure our analysis is performed on a consistent,
comparable basis from period to period.
 
     On a consolidated basis, we experienced margin expansion from 2002 to 2003
driven by revenue growth combined with decreased operating expenses. The
decreased operating expenses resulted from a company-wide initiative to limit
discretionary spending and general cost control efforts to maintain or decrease
other variable costs. Consolidated revenue for the nine months ended September
30, 2004 increased as compared to the same period of 2003, but consolidated
operating expenses increased at a higher rate, resulting in a decline in
consolidated operating margins from 10.9% in the 2003 period to 7.7% in the 2004
period. However, there were several non-operational items that contributed to
the increased operating expenses in 2004. In particular, we incurred expenses of
approximately $6.3 million in 2004 related to the additional procedures as part
of the year-end 2003 audit. We also incurred approximately $0.9 million of
expenses related to our initiative to comply with the requirements of Section
404(a) of the Sarbanes-Oxley Act, which were not in our 2003 results, as well as
approximately $1.0 million in expenses associated with the relocation of our
corporate office in July 2004. All three of these items were classified in the
Corporate segment. Consolidated operating margins were also negatively impacted
by the deferral of approximately $0.9 million in revenue in our Physician
Services division related to a large contract for which the division has
performance targets. This revenue was deferred during the third quarter of 2004,
and all expenses related to the contract were recorded during the quarter.
Partially offsetting these negative items was a gain of $1.5 million that we
recognized in the third quarter of 2004 in conjunction with a settlement with
our former insurance underwriters, Lloyd's of London, which was recorded in the
Corporate segment.
 
                                        77

 
     Excluding these non-operational items, operating profit generated from our
business has been stable through September 30, 2004, except for the expected
short-term impact of the implementation costs for the significant amount of net
new business that was sold in the Physician Services division in the first six
months of 2004 (a 162% increase over the comparable period of the prior year).
The underlying business conditions of our operations in the Physician Services
division remain positive. We have had positive net new business sold in the
division compared to the prior year -- a year over year increase of 230% for the
nine months ended September 30, 2004. In the Hospital Services division,
operating margins were in line with our expectations as we look to maintain
margins in the 20% to 25% range. Hospitals working towards HIPAA compliance
reduced their purchases of certain revenue cycle management products offered by
the division but sales of the remainder of the division's products compensated
for that, resulting in revenue growth and operating margins that were in line
with management's expectations.
 
     Another positive trend has been our ability to decrease interest expense.
Interest expense decreased approximately $3.4 million, or 19%, from 2002 to 2003
due to a debt refinancing undertaken in September 2003, which lowered our
interest rate from a fixed 9.50% to a LIBOR plus 4.25% rate (approximately 5.41%
at the time of the refinancing). Interest expense for the nine months ended
September 30, 2004 decreased approximately $7.0 million, or 56%, compared to the
same period of 2003, also due to a reduction in our effective interest rate.
This reduction resulted from the debt refinancing undertaken in September 2003
combined with another refinancing in June 2004, which further lowered our
interest rate to a fixed 3.25%. We incurred expenses of approximately $6.3
million related to the September 2003 refinancing and approximately $5.9 million
related to the June 2004 refinancing. We believe these refinancings, which
improved our borrowing rate, our earnings and our cash flow generation, were
important steps in effectively managing our capital structure.
 
     In addition, our business continues to generate positive cash flow from
continuing operations, with an increase of more than 140% in the nine months
ended September 30, 2004 as compared to the same period in 2003. This increase
included the non-operational cash flow items of $16.2 million cash received on
the Lloyd's of London settlement and the $6.3 million cash spent on the
additional procedures. Cash flow from continuing operations was $24.4 million
for the year ended December 31, 2003, which was essentially in line with our
performance in 2002.
 
RESULTS OF OPERATIONS
 
     This discussion and analysis should be read in conjunction with our
consolidated financial statements and accompanying notes as of and for the nine
months ended September 30, 2004, and 2003, and the years ended December 31,
2003, 2002, and 2001.
 
  NINE MONTHS ENDED SEPTEMBER 30, 2004, AS COMPARED TO NINE MONTHS ENDED
  SEPTEMBER 30, 2003
 
     Revenue.  Revenue classified by our reportable segments, or divisions, is
as follows:
 


                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2004       2003
                                                              --------   --------
                                                                   
Physician Services..........................................  $195,317   $189,668
Hospital Services...........................................    78,274     72,339
Eliminations................................................   (10,208)   (10,030)
                                                              --------   --------
                                                              $263,383   $251,977
                                                              ========   ========

 
     Revenue for the Physician Services division increased approximately 3% in
the nine months ended September 30, 2004, as compared to the same period in
2003. The revenue increase is due to the implementation of net new business sold
during prior periods. Net new business sold includes the annualized revenue
value of new contracts signed in a period, less the annualized revenue value of
terminated business in that same period. Revenue also increased due to one
additional business day in the
 
                                        78

 
nine months ended September 30, 2004, compared to the prior year. Pricing for
the division's services and products was stable compared to the prior year
period.
 
     For the nine months ended September 30, 2004, we deferred approximately
$0.9 million in revenue related to a large contract signed in 2004. The revenue
deferral was required because the interim measurement periods specified in the
contract do not coincide with our interim reporting periods. As a result, a
portion of the fees we received under this contract in the quarter ended
September 30, 2004, were subject to an interim performance target for a fiscal
quarter ending after September 30, 2004, and consequently, were not considered
fixed and determinable for revenue recognition purposes at the end of the
quarter. All expenses incurred by us related to the contract during the quarter
ended September 30, 2004, were recorded during the quarter.
 
     Net backlog at September 30, 2004, was approximately $3 million, compared
to the negative backlog for the Physician Services division of approximately $2
million at December 31, 2003. Net backlog represents the annualized revenue
related to new contracts signed with the business still to be implemented, less
the annualized revenue related to existing contracts where discontinuance
notification has been received and the customer has yet to be phased out. We
focus on maintaining a positive net backlog and believe it is a useful indicator
of future revenue growth.
 
     Revenue for the Hospital Services division increased approximately 8% for
the nine months ended September 30, 2004, as compared to the same period in
2003. Pricing for the division's services and products was stable compared to
the prior year period. Revenue growth in the division was positively impacted by
an increase in resource management revenue of approximately $3 million,
primarily attributable to previously unbilled maintenance for certain resource
management software customers for which revenue was recognized upon receipt of
payment. Revenue growth was also positively impacted by an increase in revenue
cycle management revenue of approximately $3 million. This growth is evidenced
by the medical transaction volume increase of approximately 13% for the period
over the same period of 2003. Transaction volume growth and revenue growth can
differ due to the mix of services and products sold by the division. We believe
transaction volume is a useful indicator of future revenue growth as business is
implemented into the division's recurring revenue model.
 
     The Hospital Services division revenue includes intersegment revenue for
services provided to the Physician Services division, which is shown in
Eliminations to reconcile to total consolidated revenue.
 
     Segment Operating Income.  Segment operating income is segment revenue less
segment operating expenses, which include salaries and wages expense, other
operating expenses, depreciation, amortization and other expenses. Segment
operating income, classified by our divisions, is as follows:
 


                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2004       2003
                                                              --------   --------
                                                                 IN THOUSANDS
                                                                   
Physician Services..........................................  $ 20,245   $ 22,604
Hospital Services...........................................    18,603     16,317
Corporate...................................................   (18,460)   (11,570)
                                                              --------   --------
                                                              $ 20,388   $ 27,351
                                                              ========   ========

 
     Physician Services' segment operating income decreased approximately 10% in
the nine months ended September 30, 2004, compared to the same period in 2003,
resulting in operating margins of approximately 10.4% in the nine months ended
September 30, 2004, versus approximately 11.9% in the same period in 2003.
Margins for the current year period were negatively impacted by costs associated
with the implementation of approximately $15 million of net new business sold
during the first six months of 2004, compared to net new business sold of $6
million in the first six months of 2003. The operating margin for the current
year period was negatively impacted by the deferral of approximately $0.9
million in revenue, as previously mentioned.
 
                                        79

 
     Hospital Services' segment operating income increased approximately 14% in
the nine months ended September 30, 2004, compared to the same period in 2003,
resulting in operating margins of approximately 23.8% in the nine months ended
September 30, 2004, versus approximately 22.6% in the prior year period. The
operating margin improvement is attributable to the previously unbilled
maintenance revenue for certain resource management software customers that was
recognized upon receipt of payment.
 
     Corporate overhead expenses, which include certain executive and
administrative functions, increased approximately 60% or approximately $6.9
million in the nine months ended September 30, 2004, compared to the same period
in 2003. The increase is attributable to approximately $6.3 million of expenses
incurred in 2004 to perform the additional procedures discussed below,
approximately $1.0 million of non-cash expense upon the exit of our former
corporate facility, and approximately $0.9 million of professional services
expense related to our initiative to comply with the requirements of Section
404(a) of the Sarbanes-Oxley Act. The increase is partially offset by
approximately $1.5 million gain recognized on the Lloyd's of London settlement.
 
     Other Expenses.  As a result of allegations of improprieties made during
2003 and 2004, our external auditors advised us and the Audit Committee of the
Board of Directors that additional procedures should be performed related to the
allegations. These additional procedures were required due to Statement of
Auditing Standards No. 99, Consideration of Fraud in a Financial Statement
Audit, ("SAS No. 99"), which became effective for periods beginning on or after
December 15, 2002. Due to the volume and, in some cases, vague nature of many of
the allegations, the scope of the additional procedures was broad and extensive.
 
     We recorded costs related to the additional procedures totaling
approximately $6.3 million during the nine months ended September 30, 2004, and
included these costs in other expenses in our consolidated statements of
operations. In segment reporting, these costs are classified in the corporate
segment.
 
     On May 10, 2004, we reached a settlement with our former insurance carrier,
Lloyd's of London. On July 7, 2004, pursuant to the settlement, as amended,
Lloyd's of London paid us $16.2 million in cash. As of the payment date, we had
an approximately $14.7 million receivable from Lloyd's of London and recognized
a gain of approximately $1.5 million on the settlement in the three months ended
September 30, 2004. The gain has been reflected in our corporate segment. In the
consolidated statement of operations, the gain is included in other expenses.
 
     On July 30, 2004, we relocated our principal executive office to
Alpharetta, Georgia. We entered into a noncancelable, operating lease for that
office space in February 2004, which will expire in June 2014. While the new
landlord assumed the payments for the lease of our former corporate office, we
recorded a non-cash expense of approximately $1.0 million upon our exit of the
former office facility. The expense has been reflected in the our corporate
segment. In the consolidated statement of operations, the expense is included in
other expenses.
 
     Interest.  Interest expense was approximately $5.5 million for the nine
months ended September 30, 2004, as compared to $12.5 million for the same
period in 2003. The decrease is attributable to us retiring $50 million of
long-term debt in the first nine months of 2003, and concurrently, entering into
a new credit agreement in September 2003 at substantially lower interest rates.
We further reduced our interest rates through the issuance of the debentures.
The average interest rate decreased approximately 4.6 percentage points during
the nine months ended September 30, 2004, versus the comparable period in 2003.
Interest income was $0.3 million for the nine-month periods ended September 30,
2004 and 2003.
 
     Loss on Extinguishment of Debt.  During the nine months ended September 30,
2004, in connection with the retirement of our then-outstanding $118.8 million
under the Term Loan B, we wrote off approximately $3.5 million of deferred debt
issuance costs associated with the Term Loan B. Additionally, we incurred a
prepayment penalty of approximately $2.4 million due to the early retirement of
the Term Loan B.
 
     During the nine months ended September 30, 2003, we wrote off approximately
$1.6 million of deferred debt issuance costs associated with the original
issuance of the notes (refer to note 10 to our financial statements as of
September 30, 2004, included in this prospectus for additional information) and
incurred expenses of approximately $4.7 million related to the retirement of the
notes.
 
                                        80

 
     Income Taxes.  Income tax expense, which was primarily related to state and
local income taxes, was approximately $0.3 million and $0.8 million for the nine
months ended September 30, 2004, and 2003, respectively. Our estimated federal
income tax expense for the nine months ended September 30, 2004, is offset by
the release of an equal amount of our valuation allowance.
 
     As of September 30, 2004, our net deferred tax asset was fully offset by a
valuation allowance. Realization of the net deferred tax asset is dependent upon
us generating sufficient taxable income prior to the expiration of the federal
net operating loss carryforwards. We are currently evaluating the realizability
of the deferred tax asset and anticipate releasing a portion of the valuation
allowance in the fourth quarter of 2004, when we develop our annual forecasts
for future periods. Any such reduction in the valuation allowance will be based
on the estimated net operating loss carryforwards to be utilized to offset
projected pre-tax income for the next two to three years.
 
     Discontinued Operations.  In June 2003, we announced that we agreed to sell
Patient1 to Misys Healthcare Systems, a division of Misys plc, for $30 million
in cash. Patient1 was our only clinical product line and its sale allowed us to
better focus on optimizing reimbursement and improving administrative
efficiencies for physician practices and hospitals. The sale was completed on
July 28, 2003, and we recognized a gain on the sale of Patient1 of approximately
$10.4 million, net of taxes of approximately $0.5 million, subject to closing
adjustments. Net proceeds on the sale of Patient1 were approximately $27.9
million, subject to closing adjustments. We entered into binding arbitration
with Misys regarding the final closing adjustments and on May 21, 2004, the
arbitrator awarded us approximately $4.3 million. On June 1, 2004, we received
payment of approximately $4.5 million, which included interest of approximately
$0.2 million. We recognized an additional gain on sale of approximately $3.6
million, net of taxes of approximately $0.2 million, in 2004.
 
     In September 2003, we initiated a process to sell Business1. As with the
sale of Patient1, the discontinuance of Business1 allowed us to focus resources
on solutions that provide meaningful, strategic returns for us, our customers
and our shareholders. Pursuant to SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"), we wrote down the net assets of
Business1 to fair market value less costs to sell and incurred an $8.5 million
expense. We completed the sale of Business1 effective January 31, 2004, to a
privately held company for $0.6 million, which will be received in three
payments through June 2006. No cash consideration was received at closing.
 
     Pursuant to SFAS No. 144, our consolidated financial statements have been
presented to reflect Patient1 and Business1 as discontinued operations for all
periods presented. Patient1 and Business1 were formerly reported as part of the
Hospital Services division.
 
     Summarized operating results for the discontinued operations are as
follows:
 


                                              NINE MONTHS ENDED SEPTEMBER 30,
                               -------------------------------------------------------------
                                           2004                            2003
                               ----------------------------   ------------------------------
                               PATIENT1   BUSINESS1   TOTAL   PATIENT1   BUSINESS1    TOTAL
                               --------   ---------   -----   --------   ---------   -------
                                                      (IN THOUSANDS)
                                                                   
Revenue......................    $ --       $ 106     $ 106   $15,247     $   330    $15,577
                                 ====       =====     =====   =======     =======    =======
Loss from discontinued
  operations before income
  taxes......................    $(18)      $(303)    $(321)  $(1,291)    $(2,851)   $(4,142)
Income tax expense...........      --          --        --        45          --         45
                                 ----       -----     -----   -------     -------    -------
Loss from discontinued
  operations, net of tax.....    $(18)      $(303)    $(321)  $(1,336)    $(2,851)   $(4,187)
                                 ====       =====     =====   =======     =======    =======

 
                                        81

 
     The major classes of assets and liabilities for the discontinued operations
are as follows:
 


                                                                      AS OF
                                                      --------------------------------------
                                                      SEPTEMBER 30, 2004   DECEMBER 31, 2003
                                                      ------------------   -----------------
                                                          BUSINESS1            BUSINESS1
                                                      ------------------   -----------------
                                                                  (IN THOUSANDS)
                                                                     
Current assets......................................         $ --                $129
Property and equipment..............................           --                  --
Other long-term assets..............................           --                  --
                                                             ----                ----
  Assets of discontinued operations.................         $                   $129
                                                             ====                ====
Current liabilities.................................         $ --                $422
Deferred revenue....................................           --                  --
Other long-term liabilities.........................           --                  --
                                                             ----                ----
  Liabilities of discontinued operations............         $ --                $422
                                                             ====                ====

 
     On November 30, 1998, we completed the sale of our MSC business. In 1999,
we completed the sale of both divisions of our Impact business.
 
     During the nine months ended September 30, 2004, and 2003, we incurred
expenses of approximately $0.1 million and $0.5 million, respectively, which
were primarily legal costs, associated with MSC and Impact. Pursuant to APB
Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions ("APB No. 30"), our consolidated financial
statements are presented to reflect the activity associated with MSC and Impact
as discontinued operations for all periods presented.
 
  YEARS ENDED DECEMBER 31, 2003, AND 2002
 
     Revenue.  Revenue classified by our reportable segments, or divisions, is
as follows:
 


                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                                2003         2002
                                                              --------   -------------
                                                                         (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                   
Physician Services..........................................  $251,251     $245,383
Hospital Services...........................................    97,240       92,854
Eliminations................................................   (13,322)     (12,673)
                                                              --------     --------
                                                              $335,169     $325,564
                                                              ========     ========

 
     Revenue for the Physician Services division increased approximately 2% in
2003 compared to 2002. Pricing for the division's services was stable compared
to the prior year. Revenue growth can be attributed to the implementation of net
new business sold of approximately $6 million in the first half of 2003. Net new
business sold is defined as the annualized revenue value of new contracts signed
in a period, less the annualized revenue value of terminated business in that
same period. Due to the timing of new sales, the division had a negative net
backlog of approximately $2 million as of December 31, 2003, compared to a
positive net backlog of approximately $4 million at December 31, 2002. At
January 31, 2004, the division had a positive net backlog of approximately $11
million due to the significant level of new business sold during the first month
of 2004. We focus on maintaining a positive net backlog and believe it is a
useful indicator of future revenue growth.
 
     Revenue for the Hospital Services division increased approximately 5% in
2003 compared to 2002, despite the phasing out of a large print and mail
customer, which began in the second half of 2002. This customer's business was
not related to medical claims. Pricing for the division's services and products
was stable compared to the prior year. Revenue growth in the division is a
result of an approximately 5%
 
                                        82

 
increase in revenue of the division's revenue cycle management solutions,
evidenced by the approximate 15% increase in the division's medical transaction
volume for the year compared to 2002, as well as a 5% increase in revenue of the
division's resource management software products. Revenue growth does not
necessarily correlate directly to transaction volume due to the mix of products
sold by the division. We believe transaction volume is a useful indicator of
future revenue growth as business is implemented into the division's recurring
revenue model.
 
     The Hospital Services division revenue includes intersegment revenue for
services provided to the Physician Services division, which is shown as
Eliminations to reconcile to total consolidated revenue.
 
     Segment Operating Profit.  Segment operating profit is revenue less segment
operating expenses, which include salaries and wages expenses, other operating
expenses, restructuring expenses, depreciation and amortization. Segment
operating profit, classified by our divisions, is as follows:
 


                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                                2003         2002
                                                              --------   -------------
                                                                         (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                   
Physician Services..........................................  $ 29,356     $ 25,864
Hospital Services...........................................    22,569       18,840
Corporate...................................................   (15,417)     (14,816)
                                                              --------     --------
                                                              $ 36,508     $ 29,888
                                                              ========     ========

 
     Physicians Services' segment operating profit increased 14% in 2003 over
2002, resulting in operating margins of approximately 11.7% versus approximately
10.5% in the prior year. The margin expansion can be attributed to incremental
margins achieved on increased revenue as well as a decrease in other operating
expenses of approximately 1.7 percentage points as a percentage of revenue. The
decrease in other operating expenses can be attributed to a company-wide
initiative to limit discretionary spending and general cost control efforts to
maintain or decrease other variable costs. The operating margins were negatively
affected by approximately $3.4 million of costs related to the conversion of the
current ASP-based physician practice management solution clients onto a new,
web-based platform.
 
     Hospital Services' segment operating profit increased approximately 20% in
2003 over 2002, resulting in operating margins of approximately 23.2% versus
approximately 20.3% in the prior year. The operating margin improvement can be
attributed to the previously mentioned increase in revenue as well as lower
operating expenses due to a company-wide initiative to limit discretionary
spending and general cost control efforts to maintain or decrease other variable
costs. Other operating expenses decreased 1.9 percentage points as a percentage
of revenue.
 
     Our corporate overhead expenses, which include certain executive and
administrative functions, increased approximately 4% in 2003 over 2002.
Corporate overhead expenses include approximately $0.3 million of restructuring
expenses in 2003 related to the July 2003 realignment of our company into the
Physician Services and Hospital Services divisions following the Patient1
divestiture. Corporate overhead expenses included approximately $2.8 million and
$3.0 million in 2003 and 2002, respectively, of increased insurance premiums and
litigation expenses related to Lloyd's of London's attempt to rescind certain
insurance policies (refer to note 12 to our consolidated financial statements
for the year ended December 31, 2003 included in this prospectus).
 
     Interest.  Interest expense was approximately $14.6 million for the twelve
months ended December 31, 2003, as compared to approximately $18.1 million for
the same period in 2002. During 2003, we retired our 2005 notes by permanently
retiring $50 million of the 2005 notes and refinancing the remaining $125
million (see Liquidity and Capital Resources section). This refinancing resulted
in a reduction of approximately $3.6 million of interest expense due to lower
debt levels and a substantially lower interest rate on the new debt (9.5% versus
LIBOR + 4.25% or 5.41% as of December 31, 2003). Interest income decreased to
$0.3 million in 2003 from $0.5 million in 2002, due to a decrease in investment
rates and lower cash-on-hand balances.
 
                                        83

 
     Loss on Extinguishment of Debt.  During the year ended December 31, 2003,
we incurred a write-off of approximately $1.6 million of deferred debt issuance
costs related to the retirement of our 2005 notes. In addition, we incurred
expenses associated with the retirement of our 2005 notes of approximately $4.7
million.
 
     Restructuring and Other Expenses.  During the year ended December 31, 2003,
the Hospital Services and Corporate divisions incurred approximately $0.5
million and $0.3 million, respectively, of restructuring expenses related to our
July 2003 realignment into the Physician Services and Hospital Services
divisions following the Patient1 divestiture.
 
     Income Taxes.  Income tax expense, which is related to state, local and
foreign income taxes, was approximately $0.8 million in the years ended December
31, 2003, and 2002. The 2003 income tax expense was offset by a benefit for a
federal income tax refund of approximately $0.8 million related to the gain on
the sale of Healthcare Recoveries, Inc., or HRI, resulting in a net tax expense
of $27,000. We identified a tax law revision that permitted us to file for an
automatic refund. We received the refund in May 2004.
 
     As of December 31, 2003, and 2002, we reassessed the recoverability of our
deferred tax asset. Based on our analysis, we determined a full valuation
allowance against the deferred tax asset of $185.6 million and $212.3 million
was required as of December 31, 2003, and 2002, respectively. Realization of the
net deferred tax asset is dependent upon us generating sufficient taxable income
prior to the expiration of the federal net operating loss carryforwards. When it
becomes more likely than not that we will generate sufficient taxable income to
realize the deferred tax asset, we will adjust this valuation allowance
accordingly. At December 31, 2003, we had federal net operating loss
carryforwards, or NOLs, for income tax purposes of approximately $406.9 million.
The NOLs will expire at various dates between 2004 and 2022 (refer to note 16 to
our consolidated financial statements for the year ended December 31, 2003, for
more information regarding NOL expiration dates and respective amounts).
 
     Discontinued Operations.  In June 2003, we announced that we agreed to sell
our Patient1 clinical product line to Misys for $30 million in cash. Patient1
was our only clinical product line and its sale allowed us to better focus on
improving reimbursement and administrative efficiencies for physician practices
and hospitals. The sale was completed on July 28, 2003. We recognized a gain on
the sale of Patient1 of approximately $10.4 million, subject to closing
adjustments, in 2003. Net proceeds on the sale of Patient1 were approximately
$27.9 million, subject to closing adjustments. We entered into binding
arbitration with Misys regarding the final closing adjustments and on May 21,
2004, the arbitrator awarded us approximately $4.3 million. On June 1, 2004, we
received payment of approximately $4.5 million, which included interest of
approximately $0.2 million. We recognized an additional gain on sale of
approximately $3.8 million, net of taxes of approximately $0.2 million, when the
cash payment was received.
 
     In September 2003, we initiated a process to sell our Business1 patient
accounting product line ("Business1"). As with the sale of Patient1, the
discontinuance of Business1 allowed us to focus resources on solutions that
provide meaningful, strategic returns for us, our customers and our
shareholders. Pursuant to SFAS No. 144, we wrote down the net assets of
Business1 to fair market value less costs to sell and incurred an $8.5 million
expense. On February 2, 2004, we announced the sale of Business1, effective
January 31, 2004, to a privately held company for $0.6 million, which will be
received in three payments through June 2006. No cash consideration was received
at closing.
 
                                        84

 
     Pursuant to SFAS No. 144, our consolidated financial statements have been
presented to reflect Patient1 and Business1 as discontinued operations for all
periods presented. Summarized operating results for the discontinued operations
are as follows:
 


                                                    YEAR ENDED DECEMBER 31,
                             ----------------------------------------------------------------------
                                           2003                                 2002
                             ---------------------------------   ----------------------------------
                                                                            (AS RESTATED)
                             PATIENT1(1)   BUSINESS1    TOTAL    PATIENT1     BUSINESS1      TOTAL
                             -----------   ---------   -------   --------   -------------   -------
                                                         (IN THOUSANDS)
                                                                          
Revenue....................    $15,247      $   474    $15,721   $25,855       $ 2,498      $28,353
                               =======      =======    =======   =======       =======      =======
(Loss) income from
  discontinued operations
  before income taxes......    $(1,270)     $(3,589)   $(4,859)  $   888       $(1,921)     $(1,033)
Income tax expense.........         46           --         46       443            --          443
                               -------      -------    -------   -------       -------      -------
(Loss) income from
  discontinued operations,
  net of tax...............    $(1,316)     $(3,589)   $(4,905)  $   445       $(1,921)     $(1,476)
                               =======      =======    =======   =======       =======      =======

 
---------------
 
(1) Patient1 financial information includes activity through the sale date of
    July 28, 2003.
 
     Revenue for the Patient1 product line decreased approximately 41% in 2003
compared 2002. We recognized revenue using the percentage-of-completion method
of accounting. The 2003 decrease in revenue was related to the short reporting
period due to the sale of the product line in July 2003.
 
     The loss for the Patient1 product line was approximately $1.3 million in
2003, as compared to operating income of approximately $0.4 million in 2002. The
decline was due to lower productivity pending the sale of the product line in
2003.
 
     Revenue for the Business1 product line decreased approximately 81% in 2003
compared to 2002. We recognized revenue using the percentage-of-completion
method of accounting, and the decrease over the prior year period was the result
of lower Business1 sales in prior periods in addition to implementation delays
at a major customer.
 
     The loss for the Business1 product line increased approximately $1.7
million in 2003 compared to 2002, due to lower Business1 revenue in the current
period.
 
     On November 30, 1998, we completed the sale of our MSC business segment. In
1999, we completed the sale of both divisions of our Impact business segment.
Pursuant to APB No. 30, our consolidated financial statements have been
presented to reflect the activity associated with MSC and Impact as discontinued
operations for all periods presented.
 
     For the year ended December 31, 2002, we expensed $0.7 million through
discontinued operations to reflect an agreement resolving an indemnification
claim by NCO, the buyer of our MSC division. When NCO bought MSC, we agreed to
indemnify NCO for limited periods of time in the event NCO incurred certain
damages related to MSC. NCO incurred such damages in connection with an alleged
environmental liability of MSC, and we agreed to reimburse NCO for a portion of
those damages, in satisfaction of our indemnification obligation. We paid $0.3
million to NCO on September 16, 2002. We intend to pay the remaining balance of
$0.4 million, plus interest at the then-current prime rate, in equal payments to
NCO, on the second and third anniversaries of that date.
 
     The limited periods of time for which we agreed to indemnify NCO for most
types of claims related to MSC have passed without the assertion by NCO of any
other significant claims. These limitations do not apply to a small number of
other types of potential claims to which statutory limitations apply, such as
those involving title to shares, taxes and billing and coding under Medicare and
Medicaid; however, management believes that such other types of claims are
unlikely to occur.
 
                                        85

 
     During the years ended December 31, 2003, and 2002, we incurred expenses of
approximately $0.9 million and $0.3 million, respectively, which were primarily
legal costs associated with MSC and Impact. These expenses were recognized
through (loss) income from discontinued operations in our consolidated
statements of operations.
 
  YEARS ENDED DECEMBER 31, 2002, AND 2001
 
     Revenue.  Revenue classified by our reportable segments, or divisions, is
as follows:
 


                                                                YEAR ENDED DECEMBER 31,
                                                             -----------------------------
                                                                 2002            2001
                                                             -------------   -------------
                                                             (AS RESTATED)   (AS RESTATED)
                                                                    (IN THOUSANDS)
                                                                       
Physician Services.........................................    $245,383        $236,627
Hospital Services..........................................      92,854          80,942
Eliminations...............................................     (12,673)        (11,747)
                                                               --------        --------
                                                               $325,564        $305,822
                                                               ========        ========

 
     Revenue for the Physician Services division increased approximately 4% in
2002 compared to 2001. Pricing for the division's services was stable compared
to the prior year. Revenue growth can be attributed to the implementation of net
new business sold of approximately $3 million as well as growth in the business
of the division's clients of approximately $6 million. Net revenue backlog at
December 31, 2002, was approximately $4 million compared to approximately $3
million at December 31, 2001. The increase in net backlog can be attributed to
the division's second half 2002 new sales performance. We focus on maintaining a
positive net backlog and believe it is a useful indicator of future revenue
growth.
 
     Revenue for the Hospital Services division increased approximately 15% in
2002 compared to 2001, despite the phasing out of a large print and mail
customer, which began in the second half of 2002. This customer's business was
not related to medical claims. Pricing for the division's services and products
was stable compared to the prior year. Revenue growth in the division is a
result of an approximately 25% increase in revenue of the division's revenue
cycle management solutions, evidenced by the approximate 26% increase in the
division's medical transaction volume for the year compared to 2001. This growth
was primarily driven by the implementation of new business sold of revenue cycle
management solutions. Revenue growth in the division was also driven by an
approximately 3% increase in revenue of the division's resource management
software products. Revenue growth does not necessarily correlate directly to
transaction volume due to the mix of products sold by the division. We believe
transaction volume is a useful indicator of future revenue growth as business is
implemented into the division's recurring revenue model.
 
     Segment Operating Profit.  Segment operating profit is revenue less segment
operating expenses, which include salaries and wages expenses, other operating
expenses, restructuring expenses, depreciation and amortization. Segment
operating profit, classified by our divisions, is as follows:
 


                                                                YEAR ENDED DECEMBER 31,
                                                             -----------------------------
                                                                 2002            2001
                                                             -------------   -------------
                                                             (AS RESTATED)   (AS RESTATED)
                                                                    (IN THOUSANDS)
                                                                       
Physician Services.........................................    $ 25,864        $ 10,526
Hospital Services..........................................      18,840          13,411
Corporate..................................................     (14,816)        (12,980)
                                                               --------        --------
                                                               $ 29,888        $ 10,957
                                                               ========        ========

 
     Physicians Services' segment operating profit increased 146% in 2002
compared to 2001, resulting in operating margins of approximately 10.5% versus
approximately 4.4% in the prior year. The margin expansion can be attributed in
part to incremental margins achieved on increased revenue. In addition,
 
                                        86

 
during 2001, the division incurred expenses of approximately $3.4 million
associated with the process improvement project, which it did not incur during
2002. This, together with cost savings realized as a result of the process
improvement project, also improved margins during 2002 (see Process Improvement
Project discussion below for additional information).
 
     Hospital Services' segment operating profit increased approximately 40% in
2002 over 2001, resulting in operating margins of approximately 20.3% versus
approximately 16.6% in the prior year. The margin expansion can be attributed to
the incremental margins achieved on increased revenue. The division's operating
income and margins also benefitted from the reduction of amortization expense of
approximately $1.7 million related to the adoption of SFAS No. 142.
 
     Our corporate overhead expenses increased approximately 14% in 2002
compared to 2001. The increase can be attributed to increased insurance premiums
and litigation expenses of approximately $3.0 million related to the attempt by
Lloyd's of London to rescind certain insurance policies (refer to note 12 to our
consolidated financial statements for the year ended December 31, 2003, included
in this prospectus).
 
     Interest.  Interest expense increased approximately $0.1 million to $18.1
million in 2002 from $18.0 million in 2001. Interest income decreased
approximately 58% to $0.5 million in 2002 from $1.1 million in 2001, due to a
decrease in investment rates.
 
     Process Improvement Project.  We incurred approximately $3.4 million of
expense in 2001, associated with the implementation of a process improvement
project within the Physician Services division, or the Project. The Project
installed a formalized set of productivity and quality measures, workflow
processes and a management operating system in certain of our major processing
centers. The Project focused on productivity improvements that resulted in both
improved client service and improved profitability for the division.
 
     We completed the first phase of the Project, which involved implementation
in twelve of the division's larger processing centers, in the third quarter of
2001 with all costs for this phase incurred as of September 30, 2001. In 2001,
the costs associated with the Project primarily consisted of professional fees
paid to outside consultants retained exclusively for implementation of the
Project. Annualized cost savings resulting from phase one are approximately $6
million, of which approximately $4 million were realized in 2001. The full
benefit of phase one cost savings was realized in 2002.
 
     We completed the second phase of the Project, which began in the first
quarter of 2002, as of September 30, 2002, with implementation into an
additional fifteen processing centers. We implemented the second phase with
internal resources and therefore did not incur any external project costs.
Annualized cost savings for phase two of the Project are approximately $2.5
million, of which approximately $1 million were realized in 2002.
 
     Restructuring and Other Expenses.  During the first quarter of 2001, we
recorded severance expense of approximately $0.6 million associated with former
executive management.
 
     Income Taxes.  Income tax expense, which was related to state, local and
foreign income taxes, was approximately $0.8 million in 2002, compared to
approximately $0.3 million in 2001.
 
     As of December 31, 2002, and 2001, we reassessed the recoverability of our
deferred tax asset. Based on our analysis, we determined a full valuation
allowance against the deferred tax asset was required as of December 31, 2002,
and 2001. Realization of the net deferred tax asset is dependent upon us
generating sufficient taxable income prior to the expiration of the federal net
operating loss carryforwards. When it becomes more likely than not that we will
generate sufficient taxable income to realize the deferred tax asset, we will
adjust this valuation allowance accordingly.
 
                                        87

 
     Discontinued Operations.  Summarized operating results of the discontinued
operations are as follows:
 


                                                    YEAR ENDED DECEMBER 31,
                            -----------------------------------------------------------------------
                                           2002                                 2001
                            ----------------------------------   ----------------------------------
                                       (AS RESTATED)                        (AS RESTATED)
                            PATIENT1     BUSINESS1      TOTAL    PATIENT1     BUSINESS1      TOTAL
                            --------   -------------   -------   --------   -------------   -------
                                                        (IN THOUSANDS)
                                                                          
Revenue...................  $25,855       $ 2,498      $28,353   $19,905       $ 2,272      $22,177
                            =======       =======      =======   =======       =======      =======
(Loss) income from
  discontinued operations
  before income taxes.....  $   888       $(1,921)     $(1,033)  $(2,167)      $(1,554)     $(3,721)
Income tax expense........      443            --          443         2            --            2
                            -------       -------      -------   -------       -------      -------
(Loss) income from
  discontinued operations,
  net of tax..............  $   445       $(1,921)     $(1,476)  $(2,169)      $(1,554)     $(3,723)
                            =======       =======      =======   =======       =======      =======

 
     Revenue for the Patient1 product line increased approximately 30% in 2002
compared to 2001. We recognized revenue using the percentage-of-completion
method of accounting, and the increase over the prior year period was the result
of two significant clinical sales made during 2001.
 
     The income for the Patient1 product line was approximately $0.4 million in
2002 compared to operating loss of approximately $2.2 million in 2001. The
improvement was due to the increased Patient1 revenue mentioned previously.
 
     Revenue for the Business1 product line increased approximately 10% in 2002
compared to 2001. We recognized revenue using the percentage-of-completion
method of accounting, and the increase over the prior year period was the result
of one significant sale made during 2001.
 
     The loss for the Business1 product line increased approximately $0.4
million in 2002 compared to 2001, due to the costs of amortizing capitalized
development expenses exceeding the revenue increase in 2002.
 
     On November 30, 1998, we completed the sale of our MSC business segment. In
1999, we completed the sale of both divisions of our Impact business segment.
Pursuant to SFAS No. 144, our consolidated financial statements have been
presented to reflect the activity associated with MSC and Impact as discontinued
operations for all periods presented.
 
     In October of 2001, we received $1.0 million in cash from the buyer of the
government division of Impact when the term of the purchase agreement escrow
expired. We recognized this amount through discontinued operations. In May of
2001, we received an insurance settlement related to a matter filed against the
commercial division of Impact of approximately $3.0 million, which was
recognized through discontinued operations. We continue to pursue claims against
a former vendor of this division for damages incurred in this matter.
 
     For the year ended December 31, 2002, we charged $0.7 million through
discontinued operations to reflect an agreement resolving an indemnification
claim by NCO, the buyer of our MSC division. When NCO bought MSC, we agreed to
indemnify NCO for limited periods of time in the event NCO incurred certain
damages related to MSC. NCO incurred such damages in connection with an alleged
environmental liability of MSC, and we agreed to reimburse NCO for a portion of
those damages, in satisfaction of our indemnification obligation. We paid $0.3
million to NCO on September 16, 2002. We intend to pay the remaining balance of
$0.4 million, plus interest at the then-current prime rate, in equal payments to
NCO, on the second and third anniversaries of that date.
 
     The limited periods of time for which we agreed to indemnify NCO for most
types of claims related to MSC have passed without the assertion by NCO of any
other significant claims. These limitations do not apply to a small number of
other types of potential claims to which statutory limitations apply, such as
 
                                        88

 
those involving title to shares, taxes and billing and coding under Medicare and
Medicaid; however, management believes that such other types of claims are
unlikely to occur.
 
     For the years ended December 31, 2002, and 2001, we incurred expenses of
approximately $0.3 million and $0.1 million, respectively, which were primarily
legal costs associated with MSC and Impact. These expenses were recognized
through (loss) income from discontinued operations in our consolidated
statements of operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  NINE MONTHS ENDED SEPTEMBER 30, 2004, AND 2003, AND AS OF DECEMBER 31, 2003
 
     The following table is a summary of our cash balances as of September 30,
2004, and December 31, 2003, and cash flows from continuing operations for the
nine months ended September 30, 2004, and 2003, (in thousands):
 


                                                      SEPTEMBER 30, 2004   DECEMBER 31, 2003
                                                      ------------------   -----------------
                                                                     
Unrestricted cash and cash equivalents..............       $36,573              $25,271

 



                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              --------------------
                                                                2004       2003
                                                              --------   ---------
                                                                            (AS
                                                                         RESTATED)
                                                                   
Cash provided by continuing operations......................  $ 41,388   $ 16,764
Cash (used for) provided by investing activities from
  continuing operations.....................................  $ (7,645)  $ 19,367
Cash used for financing activities from continuing
  operations................................................  $(21,927)  $(52,437)


 
     Unrestricted cash and cash equivalents include all highly liquid
investments with an initial maturity of no more than three months at the date of
purchase.
 
     Restricted cash of $0.07 million at both September 30, 2004, and December
31, 2003, represents amounts collected on behalf of certain Physician Services
and Hospital Services clients, a portion of which is held in trust until it is
remitted to such clients.
 
     During the nine months ended September 30, 2004, we generated approximately
$41.4 million in cash from continuing operations, which includes cash generated
from normal operations as well as the receipt of the $16.2 million settlement
from Lloyd's of London (refer to note 9 -- Legal Matters to our consolidated
financial statements as of September 30, 2004, included in this prospectus)
offset by cash payments related to additional procedures necessary under SAS No.
99 totaling approximately $6.3 million (refer to note 3 -- Additional Procedures
to our consolidated financial statements as of September 30, 2004, included in
this prospectus), the payment of approximately $5.7 million in expenses and
legal settlements related to the matter with Lloyd's of London and interest
payments of approximately $3.5 million.
 
     During the nine months ended September 30, 2003, cash provided by
continuing operations was approximately $16.8 million, which includes cash
provided by normal operations offset by the payment of approximately $4.7
million in expenses and legal settlements related to the matter with Lloyd's of
London (refer to note 9 -- Legal Matters to our consolidated financial
statements as of September 30, 2004, included in this prospectus) and interest
payments of approximately $16.6 million.
 
     During the nine months ended September 30, 2004, cash used for investing
activities from continuing operations was approximately $7.6 million consisting
primarily of approximately $10.0 million for capital expenditures and investment
in software development costs and approximately $1.1 million of cash used for an
acquisition, partially offset by approximately $3.5 million of net proceeds
related to the final closing adjustments from the July 2003 sale of Patient1.
 
     During the nine months ended September 30, 2003, cash provided by investing
activities from continuing operations totaled approximately $19.4 million, which
included approximately $27.1 million in
 
                                        89

 
net proceeds related to the July 2003 sale of Patient1, partially offset by
approximately $7.7 million for capital expenditures and software development
costs.
 
     During the nine months ended September 30, 2004, we used approximately
$21.9 million in cash for financing activities. On June 30, 2004, we raised $125
million from the sale of the debentures and retired the $118.8 million then
outstanding under the Term Loan B concurrently with the completion of the
offering of the debentures. On June 30, 2004, we also completed an amendment to
the revolving credit facility to increase its capacity and lower our borrowing
rate. The revolving credit facility's capacity was expanded from $50 million to
$75 million and the facility's maturity was extended to three years. We incurred
a prepayment penalty on the early retirement of the Term Loan B totaling $2.4
million in addition to financing costs of $3.5 million related to the debentures
offering and amendment to the revolving credit facility. We also repurchased,
for approximately $25 million, an aggregate of approximately 2.0 million shares
of our outstanding common stock, at the market price of $12.57 per share, in
negotiated transactions concurrently with the debentures offering. The cost of
the refinancing and purchase of common stock is partially offset by proceeds
from the exercise of stock options of approximately $5.9 million.
 
     During the nine months ended September 30, 2003, we used approximately
$52.4 million in cash for financing activities primarily for repayment of our
long-term debt. During the first nine months of 2003, we used cash-on-hand as
well as the net proceeds from the Patient1 divestiture to retire $50.0 million
of long-term debt and refinanced the remaining $125 million in long-term debt by
entering into a $175 million credit agreement. The credit agreement consisted of
a $125 million Term Loan B and a $50 million revolving credit facility. In
conjunction with the refinancing transaction, we capitalized approximately $5.4
million in expenses, including legal and other professional fees related to the
credit agreement and other costs, which are included in our other long-term
assets on the consolidated balance sheet. Financing cash flows associated with
the repayment of long-term debt in the nine months ended September 30, 2003,
were offset by approximately $7.0 million of proceeds from employees' exercise
of stock options.
 
     For more information about our long-term debt, refer to note
10 -- Long-Term Debt to our consolidated financial statements as of September
30, 2004, included in this prospectus.
 
     The level of our indebtedness could adversely impact our ability to obtain
additional financing. A substantial portion of our cash flow from operations
could be dedicated to the payment of principal and interest on our indebtedness.
 
     On May 10, 2004, we reached a settlement with our former insurance carrier,
Lloyd's of London. In the settlement, Lloyd's of London agreed to pay us $20
million in cash by July 9, 2004. Lloyd's of London also agreed to defend, settle
or otherwise resolve at their expense the two remaining pending claims covered
under the E&O policies issued to us by Lloyd's of London. In exchange, we
provided Lloyd's of London with a full release of all E&O and D&O policies. The
California Superior Court retained jurisdiction to enforce any aspect of the
settlement agreement.
 
     As of the settlement date, we had an $18.3 million receivable from Lloyd's
of London, of which approximately $4.9 million represented additional amounts to
be paid by us under prior E&O settlements covered by Lloyd's of London.
Effective on May 12, 2004, as a result of negotiations among us, Lloyd's, and a
party to a prior E&O settlement with us, the Lloyd's of London settlement was
amended to reduce by $3.8 million the additional amounts to be paid by us under
the prior E&O settlements covered by Lloyd's of London. This amendment reduced
the amount of cash payable by Lloyd's of London to us in the settlement from $20
million to $16.2 million, and reduced the amount of our Lloyd's of London
receivable by $3.8 million. On July 7, 2004, pursuant to the settlement as
amended, Lloyd's of London paid us $16.2 million in cash.
 
     During the course of litigation we funded the legal costs and litigation
settlements related to E&O claims covered by the Lloyd's of London E&O policies.
The negative impact of these items on our cash flow for the nine months ended
September 30, 2004, was approximately $5.7 million, which consisted of
 
                                        90

 
approximately $2.1 million related to the cost of pursuing the litigation
against Lloyd's of London and approximately $3.6 million related to the funding
of legal costs and litigation settlements covered by the Lloyd's of London E&O
policies. The negative impact of these items on our cash flow for the nine
months ended September 30, 2003, was approximately $4.7 million, which consisted
of approximately $1.8 million related to insurance premium increases for new
insurance coverage and the cost of pursuing the litigation against Lloyd's of
London and approximately $2.9 million related to the funding of legal costs and
litigation settlements covered by the Lloyd's of London E&O policies.
 
     With the exception of the cash received from our settlement with Lloyd's of
London and payments made for the additional procedures associated with the 2003
year-end audit, we have not experienced material changes in the underlying
components of cash generated by operating activities from continuing operations.
We believe that existing cash and the cash provided by operations will provide
sufficient capital to fund our working capital requirements, contractual
obligations, investing and financing needs.
 
  YEARS ENDED DECEMBER 31, 2003, AND 2002
 
     The following table is a summary of our cash balances and cash flows from
continuing operations for the years ended December 31, 2003, and 2002 (in
thousands):
 



                                                                 2003            2002
                                                             -------------   -------------
                                                             (AS RESTATED)   (AS RESTATED)
                                                                       
Unrestricted cash and cash equivalents at December 31,.....    $ 25,271        $ 46,748
Cash provided by continuing operations.....................    $ 28,471        $ 23,178
Cash provided by (used for) investing activities from
  continuing operations....................................    $ 17,527        $(11,486)
Cash (used for) provided by financing activities from
  continuing operations....................................    $(54,768)       $  4,004


 
     Unrestricted cash and cash equivalents include all highly liquid
investments with an initial maturity of no more than three months at the date of
purchase.
 

     During 2003, we generated approximately $28.5 million in cash from
continuing operations which includes cash generated from normal operations and a
release of restricted cash of approximately $4.2 million offset by interest
payments of approximately $18.4 million and the payment of approximately $7.4
million in expenses and legal settlements related to Lloyd's of London (refer to
note 12 -- Legal Matters to our consolidated financial statements for the year
ended December 31, 2003, included in this prospectus).

 
     The release of restricted cash is the result of using our revolving credit
facility (refer to note 10 -- Long-Term Debt to our consolidated financial
statements for the year ended December 31, 2003 included in this prospectus)
rather than cash as security for our letters of credit. Restricted cash at
December 31, 2003 represents amounts collected on behalf of certain Physician
Services and Hospital Services clients, a portion of which is held in trust
until it is remitted to such clients.
 
     During 2002, we generated approximately $23.2 million in cash from
continuing operations which includes cash generated from normal operations
offset by interest payments of approximately $16.8 million during 2002 and the
payment of approximately $8.9 million in expenses and legal settlements related
to Lloyd's of London (refer to note 12 -- Legal Matters to our consolidated
financial statements for the year ended December 31, 2003, included in this
prospectus).
 
     During 2003, we generated approximately $17.5 million in cash from
investing activities from continuing operations consisting of net proceeds of
$27.9 million from the sale of the Patient1 product line during July 2003 offset
by capital expenditures and software development costs of $10.3 million.
 
     During 2002, we used approximately $11.5 million in cash from investing
activities from continuing operations consisting of approximately $9.9 million
in capital expenditures and software development costs
 
                                        91

 
as well as approximately $1.5 million paid as additional consideration for a
2001 acquisition (refer to note 3 -- Acquisitions to our financial statements
for the year ended December 31, 2003, included in this prospectus).
 

     During 2003, we used approximately $54.8 million in cash from financing
activities primarily for repayment of our long-term debt. We used cash-on-hand
as well as the net proceeds from the Patient1 divestiture to retire $53.1
million of long-term debt during 2003. We refinanced the remaining $125 million
in long-term debt during September 2003 by entering into a $175 million credit
agreement. The credit agreement consists of a $125 million Term Loan B and a $50
million revolving credit facility. In conjunction with the refinancing
transaction, we capitalized approximately $5.5 million in expenses, including
legal and other professional fees related to the credit agreement and other
costs, which are included in our other long-term assets on the consolidated
balance sheet. We will amortize these costs over the next three and five years
and include them in interest expense. In addition, we incurred expenses
associated with the retirement of our 2005 notes and the 2001 credit facility of
approximately $6.3 million that are included in our interest expense for 2003,
including the tender offer premium, the call premium and the write-off of
unamortized debt issuance costs associated with our 2005 notes as well as the
unamortized debt issuance costs associated with entering into the 2001 credit
facility. Financing cash flows associated with the repayment of long-term debt
in 2003 were offset with approximately $8.0 million of proceeds from employees'
exercise of stock options.

 
     During 2002, we generated approximately $4.0 million in cash from financing
activities consisting of approximately $1.1 million of proceeds from employees'
exercise of stock options and an approximately $2.0 million payment related to a
capital contribution (refer to note 1 -- Summary of Significant Accounting
Policies to our consolidated financial statements for the year ended December
31, 2003, included in this prospectus).
 
     For more information about our long-term debt, refer to note
10 -- Long-Term Debt to our consolidated financial statements for the year ended
December 31, 2003, included in this prospectus.
 
     The level of our indebtedness could adversely impact our ability to obtain
additional financing. A substantial portion of our cash flow from operations
could be dedicated to the payment of principal and interest on our indebtedness.
 
     With the exception of the Lloyd's receivable discussed previously, we have
not experienced material changes in the underlying components of cash generated
from continuing operations. We believe that existing cash and the cash provided
by operations will provide sufficient capital to fund our working capital
requirements, contractual obligations, investing and financing needs.
 
     On September 11, 2003, we entered into the revolving credit facility. Under
the credit agreement, we have the option of entering into LIBOR based loans or
base rate loans, each as defined in the credit agreement. LIBOR based loans
under the revolving credit facility bear interest at LIBOR plus amounts ranging
from 3.0% to 3.5% based on our leverage ratio, as defined in the credit
agreement. Base rate loans under the revolving credit facility bear interest at
the Base Rate plus amounts ranging from 1.50% to 2.00% based on our leverage
ratio, as defined in the credit agreement. This revolving credit facility was
amended on June 30, 2004 to increase its capacity from $50 million to $75
million, to extend its maturity to three years, and to lower the interest rate
for LIBOR plus amounts ranging from 3.0% to 3.5% to LIBOR plus amounts ranging
from 2.5% to 3.0%.
 
     In addition, we pay a quarterly commitment fee on the unused portion of the
revolving credit facility of 0.50% per annum. We have not incurred any borrowing
under the revolving credit facility and do not expect to incur any borrowings
under the credit facility to fund our working capital or investing needs.
 
     We were in litigation with certain underwriters at Lloyd's of London
following an attempt by Lloyd's of London to rescind certain of our insurance
policies (refer to note 12 -- Legal Matters in our notes to financial statements
for the year ended December 31, 2003, included in this prospectus). For the
years ended December 31, 2003, and 2002, we incurred approximately $2.8 million
and $3.0 million, respectively, of expenses related to significantly increased
insurance premiums and the cost of pursuing
                                        92

 
litigation against Lloyd's of London. These costs have been reflected in our
Corporate segment. In the consolidated statements of operations these costs are
included in other operating expenses.
 
     Our 2003 cash flow was negatively impacted by approximately $7.4 million,
which consisted of approximately $2.1 million related to insurance premium
increases for new insurance coverage and the cost of pursuing litigation against
Lloyd's of London and approximately $5.3 million related to the funding of legal
costs and litigation settlements covered by the Lloyd's of London E&O policies.
The negative impact of these items on our 2002 cash flow was approximately $8.9
million, which consisted of approximately $3.6 million related to insurance
premium increases for new insurance coverage and the cost of pursuing litigation
against Lloyd's of London and approximately $5.3 million related to the funding
of legal costs and litigation settlements covered by the Lloyd's of London E&O
policies.
 
CONTRACTUAL OBLIGATIONS
 
     The following table sets forth our contractual obligations as of December
31, 2003:
 


                                                              PAYMENTS DUE BY PERIOD
                                                             AS OF DECEMBER 31, 2003
                                         ----------------------------------------------------------------
                                                    LESS THAN       1 - 3           3 - 5       MORE THAN
                                          TOTAL      1 YEAR         YEARS           YEARS        5 YEARS
                                         --------   ---------   -------------   -------------   ---------
                                                                  (IN THOUSANDS)
                                                                                 
CONTRACTUAL OBLIGATIONS
  Long-term debt.......................  $109,375    $    --       $32,813         $76,562       $   --
  Current portion of long-term debt....    12,500     12,500            --              --           --
  Operating lease obligations(1).......    35,535     12,635        13,945           5,647        3,308
  Purchase obligations
     Capital expenditure obligations...     1,025      1,025            --              --           --
     Other purchase obligations........     1,834      1,834            --              --           --
  Other long-term liabilities reflected
     on our balance sheet under GAAP:
     Restructuring reserves and
       other(2)........................     1,376        289           455             322          310
     Settlement obligations related to
       Lloyd's of London receivable....     6,300      2,100         4,200              --           --
     Settlement
       obligations -- NCO(3)...........       225         --           225              --           --
                                         --------    -------       -------         -------       ------
Total..................................  $168,170    $30,383       $51,638         $82,531       $3,618
                                         ========    =======       =======         =======       ======

 
---------------
 
(1) The operating lease obligations do not include amounts related to our lease
    for our new principal executive office that was entered into in February
    2004, and became effective July 2004. For more information, see note
    21 -- Subsequent Events to our consolidated financial statements for the
    year ended December 31, 2003, included in this prospectus.
 
(2) The amounts reflected under restructuring reserves and other are amounts
    reserved for estimated lease termination costs associated with our Physician
    Services division's 1995 restructuring. For more information, see note
    5 -- Restructuring and Other Expenses to our consolidated financial
    statements for the year ended December 31, 2003, included in this
    prospectus.
 
(3) For more information, see note 4 -- Discontinued Operations and Divestitures
    to our consolidated financial statements for the year ended December 31,
    2003, included in this prospectus.
 
                                        93

 
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
INTEREST RATE SENSITIVITY
 
     We invest excess cash in commercial paper, money market funds and other
highly liquid short-term investments. Due to the limited amounts of these
investments and their short-term nature, we do not expect any fluctuation in the
prevailing interest rates to have a material effect on our financial statements.
 
     We have the option of entering into loans based on LIBOR or base rates
under the revolving credit facility. As such, we could experience fluctuations
in the interest rates if we were to borrow amounts under the revolving credit
facility. We have not incurred any borrowings under the revolving credit
facility.
 
     We have a process in place to monitor fluctuations in interest rates and
could hedge against significant forecast changes in interest rates if necessary.
 
EXCHANGE RATE SENSITIVITY
 
     The majority of our sales and expenses are denominated in U.S. dollars. As
a result, we have not experienced any significant foreign exchange gains or
losses to date. We conduct only limited transactions in foreign currencies and
do not expect material foreign exchange gains or losses in the future. We do not
engage in any foreign exchange hedging activities.
 
                                        94

 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 

     Our executive officers and directors, and their ages as of March 1, 2005,
are as follows:

 



NAME                                        AGE                    POSITIONS
----                                        ---                    ---------
                                            
Philip M. Pead............................  52    Chairman, President, Chief Executive
                                                  Officer and Director of the Company
Chris E. Perkins..........................  42    Executive Vice President and Chief
                                                  Financial Officer of the Company
Philip J. Jordan..........................  56    Senior Vice President of the Company and
                                                  the President of the Company's Hospital
                                                  Services division
Paul J. Quiner............................  45    Senior Vice President, General Counsel and
                                                  Secretary of the Company
Patrick J. Leonard........................  39    Senior Vice President, Specialty Services
                                                  Operations, Physician Services Division
David F. Mason............................  47    Senior Vice President, Academic and
                                                  Multispecialty Operations, Physician
                                                  Services Division
John W. Clay, Jr. ........................  63    Director
John W. Danaher, M.D. ....................  46    Director
Stephen A. George, M.D....................  53    Director
David R. Holbrooke, M.D...................  63    Director
Craig Macnab..............................  49    Director
David E. McDowell.........................  62    Director
C. Christopher Trower.....................  56    Director
Jeffery W. Ubben..........................  43    Director


 
     Philip M. Pead has served as our Chairman, President and Chief Executive
Officer since May 2003. He was named President and Chief Executive Officer in
November 2000. He has also been a member of our Board of Directors since
November 2000 and his current term expires at the 2005 annual meeting of
stockholders. From August 1999 to November 2000, Mr. Pead served as our
Executive Vice President and Chief Operating Officer. Mr. Pead joined our
company in April 1997 as a senior executive in the hospital software business
and formed our electronic transaction processing business segment in 1999. He
served as President of the hospital software business from May 1997 until August
1999. From May 1996 to April 1997, Mr. Pead was employed by Dun & Bradstreet
Software as a senior executive, with responsibility for international
operations.
 
     Chris E. Perkins has served as our Executive Vice President and Chief
Financial Officer since February 2001. From April 2000 to February 2001, Mr.
Perkins served as Senior Vice President of Corporate Development. Prior to
joining our company in April 2000, Mr. Perkins held various executive management
positions with AGCO Corporation, a company specializing in manufacturing and
distributing agricultural equipment. He was appointed as AGCO's Chief Financial
Officer in January 1996, after serving as Vice President of Finance and
Administration for the Europe, Africa and Middle East division and in various
roles within corporate development. In July 1998, Mr. Perkins was named Vice
President of AGCO's parts division, a $500 million global business unit, for
which he was responsible for all operations. Mr. Perkins also spent seven years
in public accounting with Arthur Andersen LLP.
 
     Philip J. Jordan has served as President of the Hospital Services division
since August 2003. In this position, Mr. Jordan is responsible for the entire
operations of the Hospital Services division. Prior to
 
                                        95

 
joining our company in August 2003, Mr. Jordan led Kelvick Ltd., an investment
and management consulting company that he founded in 2002. From 2000 to 2002, he
was Chief Executive Officer of SmartStream Technologies Ltd., a company
specializing in "straight through processing" solutions for the banking
industry. Mr. Jordan also has held positions at Geac Computers Ltd. overseeing
its operations in Europe, Africa, Middle East and Latin America. He also has
held various leadership positions with software and services companies that
include Pilot Executive Software, TECS Ltd., and Comshare Computers Ltd.
 
     Paul J. Quiner has served as our Senior Vice President, General Counsel and
Secretary since May 2001. Prior to joining our company, Mr. Quiner was a private
investor from January 2000 to May 2001. He served as Senior Vice President,
Mergers & Acquisitions of Coram Healthcare Corporation, a company specializing
in home infusion therapies, from July 1998 to December 1999. Prior to serving in
that position, he had six years of experience in Coram's legal department,
including service from March 1995 to July 1998 as Senior Vice President and
General Counsel. Prior to joining Coram, Mr. Quiner was a partner in the law
firm of Alston & Bird LLP, where he specialized in healthcare, medical
malpractice defense, media and general corporate litigation.
 
     Patrick J. Leonard has served as our Senior Vice President, Specialty
Services Operations for our Physician Services Division since April 2004. In
this position, Mr. Leonard is responsible for the entire operations of the
Division's Anesthesia, Emergency Medicine, Pathology and Radiology groups. From
June 2002 to April 2004, Mr. Leonard served as the Division's Senior Vice
President, Radiology Operations, with responsibility for the entire operations
of that group. From June 2000 to June 2002, Mr. Leonard was responsible for the
Division's Central Radiology operation. Prior to June 2002, Mr. Leonard held
various operations and account management positions with our company. Before
joining our company in 1994, Mr. Leonard was employed by Rockwell International
as a consultant and spent four years in public accounting with Deloitte & Touche
LLP.
 
     David F. Mason has served as our Senior Vice President, Academic and
Multispecialty Operations for our Physician Services Division since February
2004. In this position, Mr. Mason is responsible for the entire operations of
the Division's Academic and Multispecialty groups. From October 2000 to February
2004, Mr. Mason served as the Division's Senior Vice President, Account
Management, with responsibility for client retention and cross-specialty
initiatives. Prior to joining our company in October 2000, Mr. Mason served as
the Chief Executive Officer and Executive Director of Optimum Physician
Services, a privately-held physician management company. Mr. Mason has also held
various practice management and administration positions with the Georgetown
University Hospital and Georgia's Northside Hospital systems.
 
     John W Clay, Jr. has served as a member of our Board of Directors since
October 2004 and his current term expires at the 2005 annual meeting of
stockholders. Mr. Clay retired in December 2004 as Vice Chairman of SunTrust
Banks, Inc., one of the nation's largest commercial banking organizations. In
his capacity as Vice Chairman of SunTrust Banks he was responsible for
SunTrust's four major geographic banking units, the Mid-Atlantic, Central,
Carolinas and Florida regions, as well as the corporate and investment banking
line of business and corporate sales and administration. He was elected Vice
Chairman in August 2000. Previously, Mr. Clay was Executive Vice President and
Managing Director of corporate and investment banking for SunTrust. Mr. Clay
continues in an advisory and consulting role with SunTrust until his announced
retirement in December 2005. Mr. Clay is a graduate of Vanderbilt University and
the Stonier Graduate School of Banking at Rutgers University.
 
     John W. Danaher, M.D. has served as a member of our Board of Directors
since December 2004 and his current term expires at the 2005 annual meeting of
stockholders. Dr. Danaher is the President and Chief Executive Officer of
QuickCompliance, Inc., a full-service e-learning company that enables healthcare
and governmental organizations to address a comprehensive range of business
imperatives. He has held that position since February 2001. From July 2000 until
February 2001, Dr. Danaher was the President and Chief Operating Officer of
HealthMarket, Inc., an on-line provider of consumer driven health plans. He
served as an Executive Vice President with WebMD Corporation (Nasdaq: HLTH) from
 
                                        96

 
February 1999 to July 2000. Dr. Danaher earned undergraduate degrees from
Trinity College and Bryn Mawr College. He earned his medical degree from
Dartmouth Medical School, completed his residency and chief residency in
Internal Medicine at Stanford University Medical Center and has also earned a
M.B.A. from Stanford University.
 
     Stephen A. George has served as a member of our Board of Directors since
2002 and his current term expires at the 2005 annual meeting of stockholders.
Dr. George is the President of Medvice, Inc., a provider of advisory services
and investment capital to healthcare and technology companies and has held that
position since October 1998. He serves as Clinical Assistant Professor at the
University of Washington in the Department of Health Services. Dr. George also
held the positions of Chairman and Chief Executive Officer of NexCura, Inc. from
September 2000 through May 2002. NexCura is a software development, medical
informatics and e-communications firm which serves the treatment decision
support needs of patients suffering from chronic diseases. From June 1993 to
July 1998, Dr. George held the positions of Chairman and Chief Executive Officer
of First Physician Care, Inc., a privately held physician practice management
company that he founded in 1993, which was sold to a publicly-held physician
practice management company in 1998.
 
     David R. Holbrooke has served as a member of our Board of Directors since
1994 and his current term expires at the 2005 annual meeting of stockholders.
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 33-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.
 
     Craig Macnab has served as a member of our Board of Directors since 2002
and his current term expires at the 2005 annual meeting of stockholders. Mr.
Macnab is a Director and the Chief Executive Officer of Commercial Net Lease
Realty, Inc. (NYSE: NNN), a real estate investment trust that owns primarily
single tenant net-leased retail properties. From 2000 until 2003, Mr. Macnab was
the Chief Executive Officer of JDN Realty Corporation, an Atlanta-based REIT
specializing in the development and management of retail shopping centers. From
1997 to 1999, Mr. Macnab was the President of Tandem Capital, a venture capital
firm that provided growth capital, primarily mezzanine debt, to small public
companies. Mr. Macnab's prior experience includes having been an investment
banker for seven years at Lazard Freres & Co. in New York and six years at J.C.
Bradford & Co., where he was co-head of the merger and acquisition department.
Mr. Macnab also serves on the Board of Directors of Developers Diversified
Realty Corporation, a self-administered and self-managed REIT operating as a
fully integrated real estate company that acquires, develops, leases and manages
shopping centers.
 
     David E. McDowell has served as a member of our Board of Directors since
1996 and his current term expires at the 2005 annual meeting of stockholders.
Mr. McDowell is our former Chairman and Chief Executive Officer. He served as
Chairman of the Board from October 1996 to May 2003, and as Chief Executive
Officer of the Company from October 1996 to July 1998. From 1992 to 1996, he was
President, Chief Operating Officer and a director of McKesson Corporation. 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.
 

     C. Christopher Trower has served as a member of our Board of Directors
since 1997 and his current term expires at the 2005 annual meeting of
stockholders. Mr. Trower, a member of the Georgia and Kentucky bars, is engaged
in the private practice of law. Since June 1997, he has been the owner of the
Atlanta law firm of electriclaw.com. From 1988 to June 1997, Mr. Trower was a
partner in the Atlanta law firm of Sutherland, Asbill & Brennan.

 
     Jeffrey W. Ubben has served as a member of our Board of Directors since
2003 and his current term expires at the 2005 annual meeting of stockholders.
Mr. Ubben is a founder and Managing Partner of VA Partners, L.L.C., an
investment partnership. From 1995 to 2000, Mr. Ubben was a Managing Partner of
Blum Capital. Prior to that, he was a portfolio manager for Fidelity Investments
from 1987 to 1995.
 
                                        97

 
Mr. Ubben is also a member of the Board of Directors of Mentor Corporation and
Martha Stewart Living Omnimedia, Inc.
 
NON-EMPLOYEE DIRECTORS' COMPENSATION
 
     We maintain a non-employee director compensation plan, which is intended to
compensate non-employee members of the Board fairly for their talents and time
spent on behalf of our company. The plan provides both cash and equity
compensation. The cash compensation consists of an annual retainer for Board
membership in the amount of $16,000, and a fee in the amount of $1,000 for each
Board meeting attended. In addition, the Lead Independent Director and the Board
committee chairmen receive annual retainers, and the members of the committees
including the committee chairmen receive fees for each committee meeting
attended. The annual retainer for the Lead Independent Director is $32,000, the
annual retainer for the Audit Committee chair is $4,000, the annual retainer for
the Compensation Committee chair is $3,000, and the annual retainer for the
other committee chairs is $2,000. The Audit Committee meeting fee is $2,000 per
meeting attended, and the meeting fee for the other committees is $1,000 per
meeting attended.
 
     We reimburse each director for out-of-pocket expenses associated with each
Board or committee meeting attended and for each other business meeting at which
we have requested the director's presence.
 
     Non-employee directors may elect to defer receipt and taxation of their
cash fees and retainers by participating in our Deferred Stock Unit Plan, under
which each of our non-employee directors and certain selected key employees are
permitted to defer cash compensation in the form of deferred stock units, each
of which is deemed to be equivalent to one share of common stock. At a
designated future distribution date selected by the participant, the stock units
accumulated in the participant's account under the Deferred Stock Unit Plan will
be distributed in the form of common stock, and will be taxable to the
participant at that time based on the fair market value of the common stock.
 

     As of March 1, 2005, the non-employee directors participating in the
Deferred Stock Unit Plan and the total deferred stock units accumulated by each
of them were as follows:

 



NAME                                                           DEFERRED STOCK UNITS
----                                                           --------------------
                                                            
Stephen A. George, M.D......................................           4,858
Craig Macnab................................................          14,220
C. Christopher Trower.......................................          34,900


 
     The equity compensation under the non-employee director compensation plan
consists of an initial grant of 10,000 stock options (upon first election or
appointment to the Board) and an annual grant of 10,000 stock options for each
year of service thereafter. Such options are granted under the Amended and
Restated Per-Se Technologies, Inc. Non-Employee Director Stock Option Plan,
which we refer to in this prospectus as the "Director Stock Option Plan".
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 

     Our Board of Directors has a Compensation Committee, which is composed of
Jeffrey W. Ubben, Chairman, John W. Danaher, M.D., Stephen A. George, M.D.,
David R. Holbrooke, M.D., John W. Clay, Jr., and C. Christopher Trower. None of
the members of the Compensation Committee were officers or employees of our
company or any of our subsidiaries during the last fiscal year, or at any other
time, and none of the members of the Compensation Committee had any relationship
with us during the last fiscal year requiring disclosure under Item 404 of
Regulation S-K. During the last fiscal year, none of our executive officers
served on the compensation committee (or equivalent), or the board of directors,
of another entity whose executive officer(s) served on our Board of Directors or
our Compensation Committee.

 
                                        98

 
EXECUTIVE COMPENSATION
 
     The following table provides certain summary information concerning
compensation paid or accrued by us to or on behalf of our Chief Executive
Officer and our other most highly compensated executive officers as of December
31, 2004, who we refer to in this prospectus as the named executive officers,
for 2004, 2003 and 2002.
 
                           SUMMARY COMPENSATION TABLE
 


                                                ANNUAL COMPENSATION                  LONG-TERM COMPENSATION
                                     ------------------------------------------   -----------------------------
                                                                     OTHER                           SECURITIES
                                                                    ANNUAL        RESTRICTED STOCK   UNDERLYING      ALL OTHER
NAME AND PRINCIPAL POSITIONS  YEAR    SALARY      BONUS         COMPENSATION(1)      AWARDS(2)        OPTIONS     COMPENSATION(3)
----------------------------  ----   --------    --------       ---------------   ----------------   ----------   ---------------
                                                                                             
Philip M. Pead.............   2004   $439,423    $       (4)             --                 --        250,000         $13,798
  Chairman, President and     2003    365,385     108,000                --                 --             --          13,896
  Chief Executive Officer     2002    353,077     176,539                --           $109,663             --          12,870
Chris E. Perkins...........   2004    309,615            (4)             --              9,000        100,000          16,207
  Executive Vice President    2003    250,000     222,000(5)             --             14,375             --          15,749
  and Chief Financial
    Officer                   2002    250,000     115,000          $ 37,599             70,097             --          14,592
Philip J. Jordan...........   2004    232,922            (4)             --                 --        150,000          10,183
  President of the Company's  2003    102,981(6)   82,385(7)        119,014                 --        290,000           1,620
  Hospital Services Division  2002         --          --                --                 --             --              --
Paul J. Quiner.............   2004    232,885            (4)             --                 --        150,000          12,051
  Senior Vice President       2003    205,000      65,600                --                 --             --           5,415
  and General Counsel         2002    194,038      58,093                --                 --         25,000           5,797
Patrick J. Leonard.........   2004    221,060            (4)             --                 --         70,000          11,182
  SVP, Physician Services     2003    184,851      25,568                --                 --             --           9,033
  Division Operations         2002    184,974      55,410                --                 --             --           7,152
David F. Mason.............   2004    193,769            (4)(8)          --                 --         50,000          14,031
  SVP, Physician Services     2003    162,154       3,648                --                 --             --          13,595
  Division Operations         2002    149,615      50,000                --                 --             --          12,236

 
---------------
 
(1) In accordance with rules of the SEC, amounts of perquisites and other
    personal benefits that did not exceed the lesser of $50,000 or 10% of the
    named executive officer's total annual salary and bonus have been omitted.
    The amount shown for Mr. Perkins for 2002 includes reimbursement of $12,610
    for an apartment maintained until October 2002 near our headquarters, and
    $13,086 for automobile expenses. The amount shown for Mr. Jordan reflects a
    payment made to assist Mr. Jordan in relocating himself and his family from
    London, England to Atlanta, Georgia.
 
(2) Represents enhancement bonuses paid in the form of unvested deferred stock
    units (restricted stock equivalents) granted under the Deferred Stock Unit
    Plan, which vest at the rate of 20% each year over a period of five years.
    Any dividend equivalents paid on such units would be converted to additional
    deferred stock units that vest on the same schedule as the units with
    respect to which they were granted. As of December 31, 2004, the aggregate
    unvested deferred stock units held by each of the named executive officers
    was as follows: 5,384 units valued at $85,235 for Mr. Pead; and 5,685 units
    valued at $89,992 for Mr. Perkins. No units were held by Messrs. Jordan,
    Quiner, Leonard or Mason.
 
(3) Includes amounts paid by us on behalf of each named executive officer for
    matching 401(k) plan contributions, and life, dental, medical, vision and/or
    short-term disability insurance premiums. Our company's contributions under
    the 401(k) plan for the 2004 fiscal year were $6,000 for each of Messrs.
    Pead, Perkins, Quiner and Leonard, and $3,900 for Mr. Mason. No such
    contributions were made to Mr. Jordan. The amount of life, dental, medical,
    vision and/or short-term disability insurance premiums paid for each of the
    named executive officers for the 2004 fiscal year was as follows: $7,798 for
    Mr. Pead, $10,207 for Mr. Perkins, $10,183 for Mr. Jordan, $6,051 for Mr.
    Quiner, $5,182 for Mr. Leonard, and $10,131 for Mr. Mason.
 

(4) The amount of bonus for each of the named executive officers for fiscal year
    2004 was not calculable as of March 1, 2005.

 
                                        99

 
(5) Includes a $150,000 payment made in satisfaction of an outstanding signing
    compensation obligation under Mr. Perkins' employment agreement.
 
(6) Reflects salary payments commencing as of the date of Mr. Jordan's
    employment by us in July 2003.
 
(7) Reflects non-discretionary 2003 incentive compensation paid to Mr. Jordan
    pursuant to the terms of his employment agreement.
 
(8) Includes a $146,000 sales commission paid in 2004.
 
STOCK OPTION GRANTS
 
     The following table sets forth information with respect to the stock
options granted to each of the named executive officers during 2004.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 


                                                   INDIVIDUAL GRANTS
                                  ---------------------------------------------------   POTENTIAL REALIZABLE VALUE
                                                PERCENT OF                                AT ASSUMED ANNUAL RATES
                                  NUMBER OF       TOTAL                                       OF STOCK PRICE
                                  SECURITIES     OPTIONS                                  APPRECIATION FOR OPTION
                                  UNDERLYING    GRANTED TO     EXERCISE                           TERM(2)
                                   OPTIONS     EMPLOYEES IN   PRICE (PER   EXPIRATION   ---------------------------
                                   GRANTED         2004       SHARE)(1)       DATE          5%             10%
                                  ----------   ------------   ----------   ----------   -----------   -------------
                                                                                    
Philip M. Pead..................    83,334         5.44%        $12.70      5/18/15      $751,782      $1,961,231
                                    83,333         5.44%        $13.97      5/18/15       645,940       1,855,374
                                    83,333         5.44%        $15.37      5/18/15       529,274       1,738,708
Chris E. Perkins................    33,334         2.18%        $12.70      5/18/15       300,716         784,502
                                    33,333         2.18%        $13.97      5/18/15       258,374         742,145
                                    33,333         2.18%        $15.37      5/18/15       211,708         695,479
Philip J. Jordan................    50,000         3.26%        $12.70      5/18/15       451,065       1,176,729
                                    50,000         3.26%        $13.97      5/18/15       387,565       1,113,229
                                    50,000         3.26%        $15.37      5/18/15       317,565       1,043,229
Paul J. Quiner..................    50,000         3.26%        $12.70      5/18/15       451,065       1,176,729
                                    50,000         3.26%        $13.97      5/18/15       387,565       1,113,229
                                    50,000         3.26%        $15.37      5/18/15       317,565       1,043,229
Patrick J. Leonard..............    50,000         3.26%        $14.02      3/09/15       497,983       1,299,127
                                     6,667         0.44%        $12.70      5/18/15        60,145         156,905
                                     6,667         0.44%        $13.97      5/18/15        51,678         148,438
                                     6,666         0.44%        $15.37      5/18/15        42,338         139,083
David F. Mason..................    30,000         1.96%        $14.02      3/09/15       298,790         779,476
                                     6,667         0.44%        $12.70      5/18/15        60,145         156,905
                                     6,667         0.44%        $13.97      5/18/15        51,678         148,438
                                     6,666         0.44%        $15.37      5/18/15        42,338         139,083

 
---------------
 
(1) All options were granted at an exercise price equal to or in excess of the
    fair market value of our common stock on the date of grant. Such options
    expire eleven years after the date of grant, and generally vest over a
    three-to-five year period.
 
(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 our common stock and overall market conditions. The amounts
    reflected in this table may not necessarily be achieved.
 
                                       100

 
STOCK OPTION EXERCISES
 
     None of the named executive officers exercised any stock options during
2004, with the exception of Mr. Leonard. 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, 2004. 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, 2004.
 
         AGGREGATED OPTION EXERCISES IN 2004 AND YEAR-END OPTION VALUES
 


                                                          NUMBER OF SECURITIES
                                                         UNDERLYING UNEXERCISED      VALUE OF UNEXERCISED IN-THE-
                              NUMBER OF                        OPTIONS AT                  MONEY OPTIONS AT
                            COMMON SHARES                   DECEMBER 31, 2004              DECEMBER 31, 2004
                             ACQUIRED ON     VALUE     ---------------------------   -----------------------------
NAME                          EXERCISE      REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
----                        -------------   --------   -----------   -------------   ------------   --------------
                                                                                  
Philip M. Pead............         --            --      955,000        599,998       $7,695,911      $3,632,150
Chris E. Perkins..........         --            --      365,002        209,998        3,476,719       1,180,450
Philip J. Jordan..........         --            --       58,000        382,000          134,560         810,740
Paul J. Quiner............         --            --      116,667        158,333        1,087,802         316,398
Patrick J. Leonard........      8,143       $56,515        5,132         84,352            2,478         257,101
David F. Mason............         --            --       16,850         59,899          158,998         180,488

 
EMPLOYMENT AGREEMENTS
 
     In November 2000, in connection with his promotion to President and Chief
Executive Officer of our company, we entered into a three-year employment
agreement with Philip M. Pead, which contains certain non-competition,
non-solicitation and change in control provisions. That agreement provides that
Mr. Pead will be paid a base salary of $310,000 per year, subject to adjustments
in the normal course of business, and that he is eligible for an annual
incentive compensation payment of up to 100% of his base salary, payable at the
discretion of the Board. Upon early termination of Mr. Pead's employment other
than for cause or by Mr. Pead for "good reason," Mr. Pead is entitled to
severance consideration equal to two years of salary continuation at his then
current salary level, but without the right to receive any incentive bonus
payments, and two years of health and welfare benefits continuation. In the
event Mr. Pead's employment is terminated in connection with a change in
control, 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 we are not the surviving entity or certain changes
in the composition of the Board. In all such events of termination, Mr. Pead is
entitled to a tax equalization payment with respect to any tax that may be
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, which
we refer to in this prospectus as the Code. We also agreed to loan Mr. Pead the
amount of $250,000 to purchase shares of common stock, and Mr. Pead used that
amount in November 2000 to purchase an aggregate of 74,000 shares of common
stock. The loan is evidenced by a promissory note executed by Mr. Pead and
secured by those shares. Its terms are described herein under the caption
"Certain Relationships and Related Transactions." In May 2003, in connection
with Mr. Pead's election as Chairman of the Board, the employment agreement was
amended to extend its term for three years, to increase his base salary to
$375,000, and to provide that he is eligible for a bonus payment of up to 130%
of his base salary. As a result of subsequent evaluations by the Board of Mr.
Pead's performance and reviews by the Compensation Committee of his
compensation, Mr. Pead's base salary was increased to $425,000, effective as of
January 1, 2004, and to $500,000 effective as of January 14, 2005.
 
     In April 2000, we and Chris E. Perkins, then our Senior Vice President,
Corporate Development, entered into a three-year employment agreement, which
contains certain non-competition, non-solicitation and change in control
provisions. That agreement provides that Mr. Perkins will be paid a base salary
of $230,000 per year, subject to adjustments in the normal course of business,
and that he is eligible for an annual incentive compensation payment of up to
80% of his base salary, payable at the discretion of the
 
                                       101

 
Board. Upon early termination of Mr. Perkins' employment other than for cause or
by Mr. Perkins for "good reason," Mr. Perkins is entitled to elect severance
consideration equal to the greater of two years of salary 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, plus
benefit continuation for the lesser of eighteen months and the number of months
remaining in the initial term of the agreement. In the event Mr. Perkins'
employment is terminated in connection with a change in control, he is entitled
to receive a severance payment equal to two years of salary, including incentive
bonus payments. A change in control is generally defined in the agreement as any
consolidation, merger, reorganization or other transaction in which we are not
the surviving entity or certain changes in the composition of the Board. Mr.
Perkins also received options to purchase up to 100,000 shares of common stock,
and a commitment from us to provide $150,000 to Mr. Perkins as signing
compensation to be earned upon the completion of two years of service with us.
In February 2001, in connection with his promotion to our Executive Vice
President and Chief Financial Officer, the employment agreement was amended to
increase Mr. Perkins' base salary to $250,000, and to provide for Mr. Perkins to
receive options to purchase an additional 100,000 shares of common stock. As
provided in the agreement, the term thereof has continued in effect beyond the
initial three-year term for successive one-year terms. The current term of the
agreement extends to April 2, 2005. Beginning with our 2003 incentive
compensation plan, Mr. Perkins is eligible for a bonus payment of up to 100% of
his base salary. His base salary beginning effective January 14, 2005, is
$325,000 per year.
 
     In July 2003, we and Philip J. Jordan, a Senior Vice President of our
company and President of our Hospital Services Division, entered into a one-year
employment agreement, which contains certain non-competition, non-solicitation
and change in control provisions. That agreement provides that Mr. Jordan will
be paid a base salary of $225,000 per year subject to adjustments by any
increases given in the normal course of business, and that he is eligible for an
annual incentive compensation payment of up to 80% of his base salary, payable
at the discretion of the Board; however, his incentive compensation for 2003 was
not discretionary but was instead payable pro-rated based on the number of
months he was employed by us during 2003. Upon early termination of Mr. Jordan's
employment other than for cause or by Mr. Jordan for "good reason," Mr. Jordan
is entitled to receive a severance payment equal to his then current monthly
salary multiplied by the greater of the number of months remaining in the term
of the agreement or twelve, in each case excluding any incentive bonus payments,
and he is also entitled to continuation of certain health and welfare benefits.
In the event Mr. Jordan's employment is terminated in connection with a change
in control, he is entitled to receive a severance payment equal to one year of
salary continuation at his then current base salary, or the payments due and
owing to him under the remaining term of the agreement, whichever is greater. A
change in control is generally defined in the agreement as any consolidation,
merger, reorganization or other transaction in which we are not the surviving
entity. Mr. Jordan also received options to purchase up to 290,000 shares of
common stock. His base salary beginning effective January 14, 2005, is $275,000
per year.
 
     In May 2001, we and Paul J. Quiner, our Senior Vice President and General
Counsel, entered into a two-year employment agreement, which contains certain
non-competition, non-solicitation and change in control provisions. That
agreement provides that Mr. Quiner will be paid a base salary of $190,000 per
year subject to adjustments by any increases given in the normal course of
business, and that he is eligible for an annual incentive compensation payment
of up to 60% of his base salary, payable at the discretion of the Board. Upon
early termination of Mr. Quiner's employment other than for cause or by Mr.
Quiner for "good reason," Mr. Quiner is entitled to receive a severance payment
equal to his then current monthly salary multiplied by the greater of the number
of months remaining in the term of the agreement or twelve, in each case
excluding any incentive bonus payments, and he is also entitled to continuation
of certain health and welfare benefits. In the event Mr. Quiner's employment is
terminated in connection with a change in control, he is entitled to receive a
severance payment equal to one year of salary continuation at his then current
base salary, or the payments due and owing to him under the remaining term of
the agreement, whichever is greater. A change in control is generally defined in
the agreement as any consolidation, merger, reorganization or other transaction
in which we are not the surviving entity. Mr. Quiner also received options to
purchase up to 100,000 shares of common stock. As provided in the
 
                                       102

 
agreement, the term thereof has continued in effect beyond the initial two-year
term for successive one-year terms. The current term of the agreement extends to
May 31, 2005. Beginning with our 2003 incentive compensation plan, Mr. Quiner is
eligible for a bonus payment of up to 80% of his base salary. His base salary
beginning effective January 14, 2005, is $245,000 per year.
 
     We have not entered into employment agreements with Patrick J. Leonard and
David F. Mason.
 
                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 

     Set forth below is certain information as of March 1, 2005, regarding an
outstanding loan made in November 2000 pursuant to the employment agreement
between us and Philip M. Pead.

 



                                                       LARGEST AGGREGATE AMOUNT   BALANCE AS
NAME AND POSITION            NATURE OF INDEBTEDNESS      OUTSTANDING IN 2004      OF 3/1/05    INTEREST
-----------------            -----------------------   ------------------------   ----------   --------
                                                                                   
Philip M. Pead, Chairman,
  President and Chief
  Executive Officer........  common stock purchase(1)          $250,000            $250,000      (2)


 
---------------
 
(1) The loan is secured by an aggregate of 74,000 shares of our common stock,
    and is payable in full upon the earlier to occur of the termination of Mr.
    Pead's employment or the sale of all or any part of those shares.
 
(2) The terms of the loan provide that any overdue payment shall bear interest
    at a rate equal to the rate of interest then imputed by the Internal Revenue
    Service plus 4% per annum, or the maximum rate permitted by law, whichever
    is lower, but such terms do not otherwise require the payment of interest.
 
INDEMNIFICATION AGREEMENTS WITH CERTAIN OFFICERS AND DIRECTORS
 
     David E. McDowell, a member of our Board of Directors and our former
Chairman and Chief Executive Officer, is party to an agreement with us pursuant
to which we have agreed to indemnify and hold him harmless to the fullest extent
permitted by the Delaware General Corporation Law as it presently exists or to
such greater extent as such law may subsequently be amended.
 
                                       103

 
                             PRINCIPAL STOCKHOLDERS
 
DIRECTOR AND EXECUTIVE OFFICER COMMON STOCK OWNERSHIP
 

     The following table sets forth certain information regarding the beneficial
ownership of common stock, as of March 1, 2005, by (i) each of our directors;
(ii) our named executive officers, as defined herein under the caption
"Management -- Executive Compensation" and (iii) such directors and all
executive officers as a group. As of March 1, 2005 there were 30,397,876 shares
of our common stock issued and outstanding.

 



NAME                                                         BENEFICIAL OWNERSHIP(1)   PERCENT OF CLASS
----                                                         -----------------------   ----------------
                                                                                 
John W. Clay, Jr. .........................................                 0                   *
John W. Danaher, M.D. .....................................                 0                   *
Stephen A. George, M.D.....................................            34,858(2)                *
David R. Holbrooke, M.D....................................            57,163(3)                *
Craig Macnab...............................................            44,220(4)                *
David E. McDowell..........................................         1,263,150(5)              4.1%
Philip M. Pead.............................................         1,277,534(6)              4.1%
C. Christopher Trower......................................            91,918(7)                *
Jeffrey W. Ubben...........................................         5,392,472(8)             17.8%
Chris E. Perkins...........................................           445,147(9)              1.4%
Philip J. Jordan...........................................            58,000(10)               *
Paul J. Quiner.............................................           122,667(11)               *
Patrick J. Leonard.........................................            28,975(12)               *
David F. Mason.............................................            31,800(13)               *
All executive officers and directors as a group (14
  persons).................................................         8,847,904(14)            26.7%


 
---------------
 
  *  Beneficial ownership represents less than 1% of the outstanding common
     stock.
 
 (1) Under the rules of the SEC, 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 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 30,000 shares that are not currently outstanding, but which may be
     acquired under the Director Stock Option Plan. Also includes 4,858 deferred
     stock units credited under the Deferred Stock Unit Plan.
 
 (3) Includes 500 shares held in a bank account for the benefit of Dr.
     Holbrooke's son. Also includes 56,663 shares that are not currently
     outstanding, but which may be acquired under the Director Stock Option
     Plan.
 
 (4) Includes 30,000 shares that are not currently outstanding, but which may be
     acquired under the Director Stock Option Plan. Also includes 14,220
     deferred stock units credited under the Deferred Stock Unit Plan.
 
 (5) Includes 7,100 shares held in a trust for Mr. McDowell's son. Also includes
     777,572 shares that are not currently outstanding, but which may be
     acquired under the Second Amended and Restated Per-Se Technologies, Inc.
     Stock Option Plan, as amended, which we refer to in this prospectus as the
     Executive Stock Option Plan.
 
                                       104

 
 (6) Includes 2,716 shares held by family members, for which Mr. Pead disclaims
     beneficial ownership. Also includes 966,667 shares that are not currently
     outstanding, but which may be acquired under the Executive Stock Option
     Plan, 163,332 shares that are not currently outstanding, but which may be
     acquired under the Non-Qualified Stock Option Plan for Non-Executive
     Employees, which we refer to in this prospectus as the Employee Stock
     Option Plan, and 17,948 deferred stock units credited under the Deferred
     Stock Unit Plan.
 

 (7) Includes 1,883 shares held by family members, for which Mr. Trower
     disclaims beneficial ownership. Also includes 54,665 shares that are not
     currently outstanding, but which may be acquired under the Director Stock
     Option Plan, and 34,900 deferred stock units credited under the Deferred
     Stock Unit Plan.

 

 (8) Includes 10,000 shares that are not currently outstanding, but which may be
     acquired under the Director Stock Option Plan. Also includes 5,382,472
     shares beneficially owned by VA Partners, L.L.C. as general partner of
     ValueAct Capital Partners, L.P. and ValueAct Capital Partners II, L.P., and
     as investment advisor of ValueAct Capital International, Ltd. Mr. Ubben is
     attributed beneficial ownership of these shares as a managing partner of VA
     Partners, L.L.C., but disclaims beneficial ownership except to the extent
     of his pecuniary interest in each fund.

 

(9) Includes 320,001 shares that are not currently outstanding, but which may be
    acquired under the Executive Stock Option Plan and 100,000 shares that are
    not currently outstanding, but which may be acquired under the Employee
    Stock Option Plan. Also includes 24,479 deferred stock units credited under
    the Deferred Stock Unit Plan.

 

(10) Consists of 58,000 shares that are not currently outstanding, but which may
     be acquired under the Executive Stock Option Plan.

 

(11) Includes 121,667 shares that are not currently outstanding, but which may
     be acquired under the Executive Stock Option Plan.

 

(12) Includes 28,975 shares that are not currently outstanding, but which may be
     acquired under the Employee Stock Option Plan.

 

(13) Includes 31,800 shares that are not currently outstanding, but which may be
     acquired under the Employee Stock Option Plan.

 

(14) Includes 181,328 shares that are not currently outstanding, but which may
     be acquired under the Director Stock Option Plan. Includes 2,243,907 shares
     that are not currently outstanding, but which may be acquired under the
     Executive Stock Option Plan. Includes 324,107 shares that are not currently
     outstanding but which may be acquired under the Employee Stock Option Plan.
     Includes 96,405 deferred stock units credited under the Deferred Stock Unit
     Plan.

 
                                       105

 
OTHER PRINCIPAL STOCKHOLDERS
 

     The table below sets forth certain information concerning each person known
to the Board to be a beneficial owner, as such term is defined by the rules of
the SEC, of more than 5% of the outstanding shares of our common stock.

 



                                                              SHARES BENEFICIALLY   PERCENT
NAME AND ADDRESS                                                   OWNED(1)         OF CLASS
----------------                                              -------------------   --------
                                                                              
VA Partners, L.L.C., and affiliates(2)......................       5,382,472          17.8%
  One Maritime Plaza, Suite 1400, San Francisco, CA 94111
FMR Corp.(3)................................................       4,520,139          14.9%
  82 Devonshire Street, Boston, MA 02109
Basil P. Regan(4)...........................................       2,178,132           7.2%
  c/o Regan Partners, L.P., 32 East 57th Street, 20th Floor,
  New York, NY 10022
Regan Partners, L.P.(5).....................................       1,538,468           5.1%
  32 East 57th Street, 20th Floor, New York, NY 10022
AMVESCAP PLC(6).............................................       2,926,748           9.7%
  11 Devonshire Square, London EC2M 4YR, England
Wellington Management Company, LLP(7).......................       2,506,015           8.3%
  75 State Street, Boston, MA 02109
Wachovia Corporation(8).....................................       1,960,298           6.5%
  One Wachovia Center, Charlotte, NC 28288


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

(1) See Note (1) under "Director and Executive Officer Common Stock Ownership."

 

(2) The number of shares reported was derived from a Schedule 13F-HR filed on
    February 14, 2005 by VA Partners, L.L.C., or VA Partners. Shares reported as
    being beneficially owned by VA Partners are also beneficially owned in whole
    or in part by its affiliates ValueAct Capital Partners, L.P., ValueAct
    Capital Partners II, L.P., ValueAct Capital International, Ltd., Jeffrey W.
    Ubben, George F. Hamel, Jr. and Peter H. Kamin.

 

(3) The number of shares reported and the information included in this footnote
    were derived from a Schedule 13G/A filed on February 14, 2005 by FMR Corp.,
    or FMR. Edward C. Johnson, III, as Chairman of FMR, and Abigail Johnson, as
    a Director of FMR, are deemed beneficial owners of the 4,520,139 shares of
    such common stock and jointly executed the Schedule 13G/A. FMR reports that
    it has sole voting power over 1,188,282 shares and sole dispositive power
    over 4,520,139 shares. FMR also reports that various persons have the right
    to receive or the power to direct the receipt of dividends from, or the
    proceeds from the sale of, such shares of common stock. Fidelity Management
    & Research Company, or Fidelity, is a wholly-owned subsidiary of FMR and a
    registered investment adviser. Fidelity is the beneficial owner of 3,342,057
    shares or 11.01% of such outstanding common stock as a result of acting as
    investment adviser to various investment companies, or the Fidelity Funds.
    The ownership of one such investment company, Fidelity Small Cap Stock Fund,
    amounted to 2,611,800 shares or 8.61% of the Company's total outstanding
    common stock. Mr. Johnson and FMR, through its control of Fidelity, each has
    sole power to dispose of 3,342,057 shares owned by the Fidelity Funds.
    Neither FMR nor Mr. Johnson has the sole power to vote or direct the voting
    of the shares owned directly by the Fidelity Funds, which power resides with
    the Funds' Boards of Trustees. Fidelity carries out the voting of the shares
    under written guidelines established by the Funds' Boards of Trustees.
    Fidelity Management Trust Company, or FMTC, a wholly-owned subsidiary of FMR
    and a bank as defined in Section 3(a)(6) of the Exchange Act, is the
    beneficial owner of 1,178,082 shares or 3.88% of the Company's outstanding
    common stock as a result of serving as investment manager of institutional
    account(s). Mr. Johnson and FMR, through its control of FMTC, each has sole
    dispositive power over 1,178,082 shares and sole power to vote or to direct
    the voting of 1,178,082 shares owned by the institutional account(s).

 

(4) The number of shares reported was derived from a Schedule 13G/A filed on
    February 14, 2005 by Regan Partners, L.P. and Basil P. Regan. Mr. Regan
    reports that he has sole voting power and sole

 
                                       106

 

    dispositive power over 83,398 shares, shared voting power over 2,094,734
    shares and shared dispositive power over 2,178,132 shares.

 

(5) The number of shares reported was derived from a Schedule 13G/A filed on
    February 14, 2005 by Regan Partners, L.P. and Basil P. Regan. Regan
    Partners, L.P. reports that it has shared voting power and shared
    dispositive power over the 1,538,468 shares.

 

(6) The number of shares reported was derived from a Schedule 13G filed on
    February 15, 2005 by AMVESCAP PLC, or AMVESCAP. AMVESCAP reports that it has
    sole voting power over 2,926,748 shares and sole dispositive power over
    2,926,748 shares, and that such shares are held by the following
    subsidiaries in the following respective amounts: Atlantic Trust Company,
    N.A., 9,000 shares, INVESCO Institutional (N.A.), 45,300 shares, and Stein
    Roe Investment Counsel, Inc., 2,872,448 shares.

 

(7) The number of shares reported was derived from a Schedule 13G/A filed on
    February 14, 2005 by Wellington Management Company, LLP, or WMC. WMC reports
    that it has shared voting power over 2,047,255 shares and shared dispositive
    power over 2,451,915 shares.

 

(8) The number of shares reported was derived from a Schedule 13G filed on
    February 14, 2005 by Wachovia Corporation, or Wachovia. Wachovia reports
    that it has sole voting power over 1,960,057 shares and sole dispositive
    power over 1,397,698 shares. Wachovia reports that these shares are held by
    certain of its subsidiaries: Wachovia Securities, LLC and Evergreen
    Investment Management Company, as investment advisors for mutual funds
    and/or other clients, and Wachovia Bank, N.A., in a fiduciary capacity for
    its respective customers.

 
                                       107

 
                                 LEGAL MATTERS
 
     The opinion of counsel as to the validity of the debentures and the common
stock issuable upon conversion of the debentures will be given by Paul J.
Quiner, our Senior Vice President and General Counsel. As of the date hereof,
Mr. Quiner beneficially owns 117,667 shares of our common stock.
 
                                    EXPERTS
 
     Our consolidated financial statements and schedule as of December 31, 2003
and 2002, and for each of the three years in the period ended December 31, 2003
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent registered public accounting firm, as stated in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report, given on the authority of such firm as experts in accounting
and auditing.
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
     We filed a registration statement on Form S-1 with the SEC with respect to
the registration of the debentures and common stock offered for sale with this
prospectus. We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy materials that we have
filed with the SEC at their public reference room located at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. The SEC maintains an
Internet website that contains reports, proxy and information statements, and
other information regarding registrants that file electronically with the SEC.
The address of the site is http://www.sec.gov.
 
     Our common stock is quoted on the Nasdaq National Market under the symbol
"PSTI," and our SEC filings can also be read at the following address:
 
         Nasdaq Operations, 1735 K Street, N.W. Washington, D.C. 20006.
 
     Our SEC filings are also available to the public at our Internet website at
http://www.per-se.com.
 
     You may request a copy of these filings, at no cost, by writing to or
telephoning us at the following address:
 
                           Per-Se Technologies, Inc.
                             1145 Sanctuary Parkway
                                   Suite 200
                              Alpharetta, GA 30004
                             Phone: (770) 237-7827
 
                                       108

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

                                                            
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited), September 30, 2004,
  and December 31, 2003.....................................    F-2
Consolidated Statements of Operations (unaudited) for the
  nine months ended September 30, 2004, and 2003............    F-3
Consolidated Statements of Cash Flows (unaudited) for the
  nine months ended September 30, 2004, and 2003............    F-4
Notes to Consolidated Financial Statements (unaudited)......    F-5
AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm.....   F-15
Consolidated Balance Sheets, December 31, 2003, and December
  31, 2002..................................................   F-16
Consolidated Statements of Operations for the years ended
  December 31, 2003, 2002, and 2001.........................   F-17
Consolidated Statements of Cash Flows for the years ended
  December 31, 2003, 2002, and 2001.........................   F-18
Consolidated Statements of Stockholders' Deficit for the
  period from December 31, 2000, to December 31, 2003.......   F-19
Notes to Consolidated Financial Statements..................   F-20

 
                                       F-1

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 


                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2004            2003
                                                              -------------   ------------
                                                                 (IN THOUSANDS, EXCEPT
                                                                    PAR VALUE DATA)
                                                                        
CURRENT ASSETS:
  Cash and cash equivalents.................................    $ 36,573        $ 25,271
  Restricted cash...........................................          70              66
                                                                --------        --------
    Total cash and cash equivalents.........................      36,643          25,337
  Accounts receivable, billed (less allowances of $3,851 and
    $4,267 as of September 30, 2004, and December 31, 2003,
    respectively)...........................................      49,505          46,335
  Accounts receivable, unbilled (less allowances of $432 and
    $528 as of September 30, 2004, and December 31, 2003,
    respectively)...........................................       1,356           1,613
  Lloyd's receivable........................................          --          17,405
  Prepaid expenses..........................................       3,189           2,676
  Other.....................................................       4,074           3,507
                                                                --------        --------
    Total current assets....................................      94,767          96,873
Property and equipment, net of accumulated depreciation.....      14,970          16,434
Goodwill, net of accumulated amortization...................      32,549          32,549
Other intangible assets, net of accumulated amortization....      21,323          19,787
Other.......................................................       5,573           5,881
Assets of discontinued operations, net......................          --             129
                                                                --------        --------
    Total assets............................................    $169,182        $171,653
                                                                ========        ========
CURRENT LIABILITIES:
  Accounts payable..........................................    $  6,961        $  6,587
  Accrued compensation......................................      15,662          18,102
  Accrued expenses..........................................      16,261          19,037
  Current portion of long-term debt.........................          --          12,500
                                                                --------        --------
                                                                  38,884          56,226
  Deferred revenue..........................................      25,261          20,334
                                                                --------        --------
    Total current liabilities...............................      64,145          76,560
Long-term debt..............................................     125,000         109,375
Other obligations...........................................       4,683           2,908
Liabilities of discontinued operations......................          --             422
                                                                --------        --------
    Total liabilities.......................................     193,828         189,265
                                                                --------        --------
STOCKHOLDERS' DEFICIT:
  Preferred stock, no par value, 20,000 authorized; none
    issued..................................................          --              --
  Common stock, voting, $0.01 par value, 200,000 authorized,
    32,110 and 31,322 issued and outstanding as of September
    30, 2004, and December 31, 2003, respectively...........         321             313
  Common stock, non-voting, $0.01 par value, 600 authorized;
    none issued.............................................          --              --
  Paid-in capital...........................................     793,652         786,297
  Warrants..................................................          --           1,495
  Accumulated deficit.......................................    (793,155)       (805,286)
  Treasury stock at cost, 2,124 and 122 as of September 30,
    2004, and December 31, 2003, respectively...............     (26,492)         (1,303)
  Deferred stock unit plan obligation.......................       1,443           1,303
  Accumulated other comprehensive loss......................        (415)           (431)
                                                                --------        --------
    Total stockholders' deficit.............................     (24,646)        (17,612)
                                                                --------        --------
    Total liabilities and stockholders' deficit.............    $169,182        $171,653
                                                                ========        ========

 
                See notes to consolidated financial statements.
                                       F-2

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 


                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              ---------------------
                                                                2004        2003
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                 PER SHARE DATA)
                                                                    
Revenue.....................................................  $263,383    $251,977
                                                              --------    --------
Salaries and wages..........................................   153,861     146,086
Other operating expenses....................................    71,511      65,792
Depreciation................................................     5,979       7,154
Amortization................................................     5,799       5,417
Other (income) expenses.....................................     5,845         177
                                                              --------    --------
  Operating income..........................................    20,388      27,351
Interest expense............................................     5,483      12,524
Interest income.............................................      (332)       (245)
Loss on extinguishment of debt..............................     5,896       6,255
                                                              --------    --------
  Income before income taxes................................     9,341       8,817
Income tax expense..........................................       314         803
                                                              --------    --------
  Income (loss) from continuing operations..................     9,027       8,014
                                                              --------    --------
Discontinued operations (see Note 8)
     Loss from discontinued operations, net of
      tax -- Patient1.......................................       (18)     (1,336)
     (Loss) gain on sale of Patient1, net of tax............     3,649       9,797
     Loss from discontinued operations, net of
      tax -- Business1......................................      (303)     (2,851)
     Loss on sale of Business1, net of tax..................      (130)     (7,708)
     Loss from discontinued operations, net of
      tax -- Other..........................................       (94)       (492)
                                                              --------    --------
                                                                 3,104      (2,590)
                                                              --------    --------
       Net income...........................................  $ 12,131    $  5,424
                                                              ========    ========
Net income per common share -- basic:
     Income from continuing operations......................  $   0.29    $   0.26
     Loss from discontinued operations, net of
      tax -- Patient1.......................................        --       (0.04)
     Gain on sale of Patient1, net of tax...................      0.11        0.32
     Loss from discontinued operations, net of
      tax -- Business1......................................     (0.01)      (0.09)
     Loss on sale of Business1, net of tax..................        --       (0.25)
     Loss from discontinued operations, net of
      tax -- Other..........................................        --       (0.02)
                                                              --------    --------
       Net income per common share -- basic.................  $   0.39    $   0.18
                                                              ========    ========
Weighted average shares used in computing basic earnings per
  share.....................................................    31,046      30,364
                                                              ========    ========
Net income per common share -- diluted:
     Income from continuing operations......................  $   0.27    $   0.25
     Loss from discontinued operations, net of
      tax -- Patient1.......................................        --       (0.04)
     Gain on sale of Patient1, net of tax...................      0.10        0.30
     Loss from discontinued operations, net of
      tax -- Business1......................................     (0.01)      (0.09)
     Loss on sale of Business1, net of tax..................        --       (0.24)
     Loss from discontinued operations, net of
      tax -- Other..........................................        --       (0.01)
                                                              --------    --------
       Net income per common share -- diluted...............  $   0.36    $   0.17
                                                              ========    ========
Weighted average shares used in computing diluted earnings
  per share.................................................    33,273      32,199
                                                              ========    ========

 
                See notes to consolidated financial statements.
                                       F-3

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 



                                                                  NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                              -------------------------
                                                                2004          2003
                                                              ---------   -------------
                                                                          (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $  12,131     $   5,424
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................     11,778        12,571
  Loss from discontinued operations.........................        545        12,387
  Gain on sale of Patient1..................................     (3,649)       (9,797)
  Amortization of deferred financing costs..................        963           932
  Loss on extinguishment of debt............................      5,896         6,255
  Changes in assets and liabilities, excluding effects of
    acquisitions and divestitures:
    Restricted cash.........................................         --         4,162
    Accounts receivable, billed.............................     (3,170)       (5,413)
    Accounts receivable, unbilled...........................        257           342
    Accounts payable........................................        357         1,868
    Accrued compensation....................................     (2,453)       (4,171)
    Accrued expenses........................................        731        (5,836)
    Deferred revenue........................................      4,927         1,447
    Other, net..............................................     13,075        (3,407)
                                                              ---------     ---------
      Net cash provided by continuing operations............     41,388        16,764
      Net cash used for discontinued operations.............       (514)       (9,672)
                                                              ---------     ---------
      Net cash provided by operating activities.............     40,874         7,092
                                                              ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.........................     (4,624)       (4,850)
Software development costs..................................     (5,334)       (2,821)
Net proceeds from sale of Patient1 and Business1, net of
  tax.......................................................      3,520        27,092
Acquisition, net of cash acquired...........................     (1,141)           --
Other.......................................................        (66)          (54)
                                                              ---------     ---------
      Net cash (used for) provided by continuing
       operations...........................................     (7,645)       19,367
      Net cash used for discontinued operations.............         --        (2,289)
                                                              ---------     ---------
      Net cash (used for) provided by investing
       activities...........................................     (7,645)       17,078
                                                              ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................................    125,000       125,000
Treasury stock purchase.....................................    (24,999)           --
Proceeds from the exercise of stock options.................      5,853         7,012
Debt issuance costs.........................................     (6,013)       (9,737)
Payments of debt............................................   (121,875)     (175,020)
                                                              ---------     ---------
Other.......................................................        107           308
      Net cash used for financing activities................    (21,927)      (52,437)
                                                              ---------     ---------
CASH AND CASH EQUIVALENTS:
Net change..................................................     11,302       (28,267)
Balance at beginning of period..............................     25,271        46,748
                                                              ---------     ---------
Balance at end of period....................................  $  36,573     $  18,481
                                                              =========     =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
  Interest..................................................  $   3,587     $  16,565
  Extinguishment of debt....................................      2,375         5,412
  Income taxes..............................................        342           421


 
                See notes to consolidated financial statements.
                                       F-4

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1 -- BASIS OF PRESENTATION
 
     The accompanying condensed consolidated financial statements (interim
financial statements) include the accounts of Per-Se Technologies, Inc. and its
subsidiaries ("Per-Se" or the "Company"). Intercompany accounts and transactions
have been eliminated.
 
     These interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP") for interim financial information, the rules and regulations of the
Securities and Exchange Commission for interim financial statements, and
accounting policies consistent, in all material respects, with those applied in
preparing the Company's audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2003, filed with the Securities and Exchange Commission ("SEC") on May 13, 2004,
("2003 Form 10-K"). These interim financial statements are unaudited but reflect
all adjustments management considers necessary for a fair presentation of the
Company's financial position, operating results and cash flows for the interim
periods presented. The information included in this report should be read in
conjunction with the 2003 Form 10-K.
 
     The consolidated financial statements of the Company have been presented to
reflect the former operations of the Hospital Services division's Patient1
clinical product line ("Patient1") and Business1-PFM patient accounting product
line ("Business1") as discontinued operations. Patient1 was sold effective July
28, 2003, and Business1 was sold effective January 31, 2004. Additionally, the
activity related to the Company's former Medaphis Services Corporation ("MSC")
and Impact Innovations Group ("Impact") businesses, which were sold in 1998 and
1999, respectively, are also reflected as discontinued operations for all
periods presented (refer to Note 8 for additional information).
 
NOTE 2 -- STOCK-BASED COMPENSATION PLANS
 
     At September 30, 2004, the Company has four stock-based compensation plans.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"). No significant stock-based compensation cost is
reflected in the Company's Statements of Operations, as all options granted
under those plans had an exercise price equal to the market value of the
underlying Common Stock on the date of grant. The following table illustrates
the effect on net income and net income per share if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), to
this stock-based compensation.
 


                                                                 NINE MONTHS ENDED
                                                                   SEPTEMBER 30,
                                                               ---------------------
                                                                 2004        2003
                                                               ---------   ---------
                                                               (IN THOUSANDS, EXCEPT
                                                                  PER SHARE DATA)
                                                                     
Net income as reported......................................    $12,131     $ 5,424
Deduct: total stock-based employee compensation expense
  determined under fair value based method for all awards,
  net of related tax effects................................    $(3,153)    $(4,570)
                                                                -------     -------
Pro forma net income........................................    $ 8,978     $   854
                                                                =======     =======
Net income per common share:
  Basic -- as reported......................................    $  0.39     $  0.18
                                                                =======     =======
  Basic -- pro forma........................................    $  0.29     $  0.03
                                                                =======     =======
  Diluted -- as reported....................................    $  0.36     $  0.17
                                                                =======     =======
  Diluted -- pro forma......................................    $  0.27     $  0.03
                                                                =======     =======

 
                                       F-5

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
NOTE 3 -- OTHER EXPENSES
 
  ADDITIONAL PROCEDURES
 
     As a result of allegations of improprieties made during 2003 and 2004, the
Company's independent auditors advised the Company and the Audit Committee of
the Board of Directors that additional procedures should be performed related to
the allegations. These additional procedures were required due to Statement of
Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit
("SAS No. 99"), which became effective for periods beginning on or after
December 15, 2002. Due to the volume and, in some cases, vague nature of many of
the allegations, the scope of the additional procedures was broad and extensive.
 
     The Company recorded costs related to the additional procedures totaling
approximately $6.3 million during the nine months ended September 30, 2004, and
included these costs in other expenses in the Company's Consolidated Statements
of Operations. In segment reporting, these expenses are classified in the
Corporate segment.
 
  GAIN ON SETTLEMENT WITH LLOYD'S
 
     On May 10, 2004, the Company reached a settlement with the Company's former
insurance carrier, Certain Underwriters at Lloyd's of London (collectively
"Lloyd's"). On July 7, 2004, pursuant to the settlement, as amended, Lloyd's
paid the Company $16.2 million in cash. As of the payment date, the Company had
an approximately $14.7 million receivable from Lloyd's and recognized a gain of
approximately $1.5 million on the settlement in the nine months ended September
30, 2004.
 
  EXECUTIVE OFFICE RELOCATION
 
     On July 30, 2004, the Company relocated its principal executive office to
Alpharetta, Georgia. The Company entered into a noncancelable operating lease
for that office space commencing July 1, 2004, which will expire in June 2014.
While the new landlord will assume the payments for the lease of the Company's
former corporate office space, the Company recorded a non-cash expense related
to the lease expense of approximately $1.0 million upon its exit of the former
office facility. Amounts received from the landlord are considered incentives,
which are being amortized over the lease term.
 
NOTE 4 -- REVENUE RECOGNITION
 
     The Physician Services division signed an agreement ("the Agreement") in
2004 with a customer to provide physician practice management services. Under
the Agreement, Physician Services and the customer agreed to certain performance
goals. The performance goals will be measured on an interim basis through
February 28, 2009. At each interim measurement period, Physician Services will
determine if the performance goals for that period have been achieved.
 
     If Physician Services achieves the performance goal for an interim
measurement period, Physician Services will recognize revenue as a percentage of
the customer's net collections pursuant to its standard revenue recognition
practice. If the Physician Services division does not achieve the performance
goal for an interim measurement period, revenue will not be recognized to the
extent the goal is not achieved.
 
                                       F-6

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
NOTE 5 -- EARNINGS PER SHARE
 
     Basic earnings per share ("EPS") is calculated by dividing net income by
the weighted average number of shares of Common Stock outstanding during the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options and warrants. The following sets forth the
computation of basic and diluted net income per share for the nine months ended
September 30, 2004, and 2003:
 


                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              ----------------------
                                                                 2004        2003
                                                              ----------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                 PER SHARE DATA)
                                                                     
Net income..................................................    $12,131      $5,424
Common shares outstanding:
  Shares used in computing net income per common
     share -- basic.........................................     31,046      30,364
  Effect of potentially dilutive stock options and
     warrants...............................................      2,227       1,835
                                                                -------      ------
  Shares used in computing net income per common
     share -- diluted.......................................     33,273      32,199
                                                                =======      ======
Net income per common share:
  Basic.....................................................    $  0.39      $ 0.18
                                                                =======      ======
  Diluted...................................................    $  0.36      $ 0.17
                                                                =======      ======

 
     Options and warrants to purchase 1.8 million shares of Common Stock
outstanding during the nine months ended September 30, 2004, were excluded from
the computation of diluted earnings per share because the exercise prices of the
options and warrants were greater than the average market price of the common
shares, and therefore, the effect would have been antidilutive.
 
     The conditions required for conversion of the Company's Convertible
Subordinated Debentures (see Note 10) have not been met. Therefore, the Company
did not assume conversion of the Debentures in calculating diluted EPS for the
nine months ended September 30, 2004.
 
     In September 2004, the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") reached a tentative conclusion on Issue
Number 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings
per Share ("EITF No. 04-08"). The EITF concluded that contingently convertible
debt instruments should be included in diluted earnings per share computations
regardless of whether the market price trigger has been met. The effective date
is expected to be for periods ending after December 15, 2004. In November 2004,
the Company exercised its irrevocable option to pay the principal of Debentures
submitted for conversion in cash. The Company will satisfy any amount above the
conversion trigger price of $17.85 through the issuance of stock. Therefore,
only stock appreciation above the conversion trigger price would be included in
the Company's dilutive shares for purposes of calculating diluted earnings per
share under EITF No. 04-08.
 
     Options and warrants to purchase 3.0 million shares of Common Stock
outstanding during the nine months ended September 30, 2003, were excluded from
the computation of diluted earnings per share because the exercise prices of the
options and warrants were greater than the average market price of the common
shares, and therefore, the effect would have been antidilutive.
 
NOTE 6 -- FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME
 
     The functional currency of the Company's operations outside of the United
States is the local country's currency. Consequently, assets and liabilities of
operations outside the United States are
 
                                       F-7

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
translated into dollars using exchange rates at the end of each reporting
period. Revenue and expenses are translated at the average exchange rates
prevailing during the period. Cumulative translation gains and losses are
reported in accumulated other comprehensive loss. In the nine month periods
ended September 30, 2004, and 2003, the only component of other comprehensive
loss was the net foreign currency translation.
 


                                                                NINE MONTHS
                                                                   ENDED
                                                               SEPTEMBER 30,
                                                               --------------
                                                               2004     2003
                                                               -----    -----
                                                               (IN THOUSANDS)
                                                                  
Net foreign currency translation............................    $16     $153

 
NOTE 7 -- ACQUISITION
 
     On May 28, 2004, the Company entered into a five-year contract to provide
print and mail services for a new customer. As part of the transaction, the
Company purchased substantially all of the production assets and personnel of
that customer's hospital and physician patient statement and paper claims print
and mail business for cash consideration of approximately $1.1 million. In
addition, the Company recorded acquisition liabilities of approximately $1.0
million associated with the transaction.
 
     The Company recorded the acquisition using the purchase method of
accounting and, accordingly, has preliminarily allocated the purchase price to
the assets acquired and liabilities assumed based on their estimated fair market
value at the date of acquisition. Approximately $1.9 million of the purchase
price was allocated to a finite-lived intangible asset with a five-year life.
The remaining $0.2 million of the purchase price was allocated to tangible
assets acquired. The operating results of the acquisition are included in the
Company's Consolidated Statements of Operations from the date of acquisition in
the Hospital Services division. The Company has not yet obtained all the
information related to acquisition liabilities required to finalize the purchase
price allocation.
 
     The pro-forma impact of this acquisition is immaterial to the financial
statements of the Company and therefore has not been presented.
 
NOTE 8 -- DISCONTINUED OPERATIONS AND DIVESTITURES
 
     In June 2003, the Company announced that it agreed to sell Patient1 to
Misys Healthcare Systems, a division of Misys plc ("Misys") for $30 million in
cash. Patient1 was the Company's only clinical product line and its sale allowed
the Company to better focus on optimizing reimbursement and improving
administrative efficiencies for physician practices and hospitals. The sale was
completed on July 28, 2003, and the Company recognized a gain on the sale of
Patient1 of approximately $10.4 million, net of taxes of approximately $0.5
million, subject to closing adjustments. Net proceeds on the sale of Patient1
were approximately $27.9 million, subject to closing adjustments. The Company
and Misys entered into binding arbitration regarding the final closing
adjustments and on May 21, 2004, the arbitrator awarded the Company
approximately $4.3 million. On June 1, 2004, the Company received payment of
approximately $4.5 million, which included interest of approximately $0.2
million. The Company recognized an additional gain on sale of approximately $3.6
million, net of taxes of approximately $0.2 million, in 2004.
 
     In September 2003, the Company initiated a process to sell Business1. As
with the sale of Patient1, the discontinuance of Business1 allowed the Company
to focus resources on solutions that provide meaningful, strategic returns for
the Company, its customers and its shareholders. Pursuant to SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"),
the Company wrote down the net assets of Business1 to fair market value less
costs to sell and incurred an $8.5 million expense during 2003. The Company
completed the sale of Business1 effective January 31,
 
                                       F-8

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
2004, to a privately held company for $0.6 million, which will be received in
three payments through June 2006. No cash consideration was received at closing.
 
     Pursuant to SFAS No. 144, the consolidated financial statements of the
Company have been presented to reflect Patient1 and Business1 as discontinued
operations for all periods presented. Patient1 and Business1 were formerly
reported as part of the Hospital Services division.
 
     Summarized operating results for the discontinued operations are as
follows:
 


                                              NINE MONTHS ENDED SEPTEMBER 30,
                               -------------------------------------------------------------
                                           2004                            2003
                               ----------------------------   ------------------------------
                               PATIENT1   BUSINESS1   TOTAL   PATIENT1   BUSINESS1    TOTAL
                               --------   ---------   -----   --------   ---------   -------
                                                      (IN THOUSANDS)
                                                                   
Revenue......................    $ --       $ 106     $ 106   $15,247     $   330    $15,577
                                 ====       =====     =====   =======     =======    =======
Loss from discontinued
  operations before income
  taxes......................    $(18)      $(303)    $(321)  $(1,291)    $(2,851)   $(4,142)
Income tax expense...........      --          --        --        45          --         45
                                 ----       -----     -----   -------     -------    -------
Loss from discontinued
  operations, net of tax.....    $(18)      $(303)    $(321)  $(1,336)    $(2,851)   $(4,187)
                                 ====       =====     =====   =======     =======    =======

 
     The major classes of assets and liabilities for the discontinued operations
are as follows:
 


                                                                      AS OF
                                                      --------------------------------------
                                                      SEPTEMBER 30, 2004   DECEMBER 31, 2003
                                                          BUSINESS1            BUSINESS1
                                                      ------------------   -----------------
                                                                  (IN THOUSANDS)
                                                                     
Current assets......................................        $  --                $129
Property and equipment..............................           --                  --
Other long-term assets..............................           --                  --
                                                            -----                ----
  Assets of discontinued operations.................        $  --                $129
                                                            =====                ====
Current liabilities.................................        $  --                $422
Deferred revenue....................................           --                  --
Other long-term liabilities.........................           --                  --
                                                            -----                ----
  Liabilities of discontinued operations............        $  --                $422
                                                            =====                ====

 
     On November 30, 1998, the Company completed the sale of its MSC business.
In 1999, the Company completed the sale of both divisions of its Impact
business.
 
     During the nine months ended September 30, 2004 and 2003, the Company
incurred expenses of approximately $0.1 million and $0.5 million, respectively,
which were primarily legal costs, associated with MSC and Impact. Pursuant to
APB Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions ("APB No. 30"), the consolidated
financial statements of the Company are presented to reflect the activity
associated with MSC and Impact as discontinued operations for all periods
presented.
 
                                       F-9

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
NOTE 9 -- LEGAL MATTERS
 
  PENDING LEGAL MATTERS
 
     The Company is subject to claims, litigation and official billing inquiries
arising in the ordinary course of its business. These matters include, but are
not limited to, lawsuits brought by former customers with respect to the
operation of the Company's business. The Company has also received written
demands from customers and former customers that have not resulted in legal
action. Within the Company's industry, federal and state civil and criminal laws
govern medical billing and collection activities. These laws provide for various
fines, penalties, multiple damages, assessments and sanctions for violations,
including possible exclusion from federal and state healthcare payer programs.
 
     The Company believes that it has meritorious defenses to the claims and
other issues asserted in pending legal matters; however, there can be no
assurance that such matters or any future legal matters will not have an adverse
effect on the Company. Amounts of awards or losses, if any, in pending legal
matters have not been reflected in the financial statements unless probable and
reasonably estimable.
 
  SETTLED LEGAL MATTERS
 
     On May 10, 2004, the Company reached a settlement with the Company's former
insurance carrier, Certain Underwriters at Lloyd's of London (collectively
"Lloyd's"). In the settlement, Lloyd's agreed to pay the Company $20 million in
cash by July 9, 2004. Lloyd's also agreed to defend, settle or otherwise resolve
at their expense the two remaining pending claims covered under the errors and
omissions ("E&O") policies issued to the Company by Lloyd's. In exchange, the
Company provided Lloyd's with a full release of all E&O and directors and
officers and company reimbursement ("D&O") policies. The California Superior
Court retained jurisdiction to enforce any aspect of the settlement agreement.
 
     As of the settlement date, the Company had an $18.3 million receivable from
Lloyd's, of which approximately $4.9 million represented additional amounts to
be paid by the Company under prior E&O settlements covered by Lloyd's. Effective
on May 12, 2004, as a result of negotiations among the Company, Lloyd's, and a
party to a prior E&O settlement with the Company, the Lloyd's settlement was
amended to reduce by $3.8 million the additional amounts to be paid by the
Company under the prior E&O settlements covered by Lloyd's. This amendment
reduced the amount of cash payable by Lloyd's to the Company in the settlement
from $20 million to $16.2 million, and reduced the amount of the Company's
receivable from Lloyd's by $3.8 million. On July 7, 2004, pursuant to the
settlement, as amended, Lloyd's paid the Company $16.2 million in cash. As of
the payment date, the Company had an approximately $14.7 million receivable from
Lloyd's and recognized a gain of approximately $1.5 million on the settlement in
the nine months ended September 30, 2004.
 
NOTE 10 -- LONG-TERM DEBT
 
     On February 20, 1998, the Company issued $175 million of 9 1/2% Senior
Notes due 2005 (the "Notes"). On March 17, 2003, the Company repurchased $15.0
million of the Notes at par plus accrued interest of approximately $0.1 million.
The Company wrote off approximately $0.2 million of deferred debt issuance costs
associated with the original issuance of the Notes related to this repurchase,
which is included in loss on extinguishment of debt in the Company's
Consolidated Statements of Operations.
 
     On August 12, 2003, the Company commenced a cash tender offer for its
then-outstanding $160 million of Notes. On September 11, 2003, the Company
repurchased $143.6 million of the Notes that were tendered at the redemption
price of 102.625% of the principal amount, as required under the Indenture
governing the Notes, and accrued interest of approximately $1.0 million. The
remaining $16.4 million of the Notes were retired on September 18, 2003, through
a call initiated by the Company
 
                                       F-10

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
on August 12, 2003, at the redemption price of 102.375% of the principal amount
plus accrued interest of approximately $10,000.
 
     On September 11, 2003, the Company entered into a $175 million Credit
Agreement (the "Credit Agreement"), consisting of a $125 million Term Loan B
(the "Term Loan B") and a $50 million revolving credit facility (the "Revolving
Credit Facility"). The Company had approximately $118.8 million outstanding
under the Term Loan B as of June 30, 2004, under a LIBOR-based interest contract
bearing interest at 5.36%. The Company has had no borrowings outstanding under
the Revolving Credit Facility since its inception.
 
     On June 30, 2004, the Company issued $125 million aggregate principal
amount of 3.25% Convertible Subordinated Debentures due 2024 (the "Debentures")
to qualified institutional buyers pursuant to Rule 144A of the Securities Act of
1933, as amended. As originally issued, the Debentures were convertible into
shares of the Company's Common Stock at an initial conversion rate of 56.0243
shares per $1,000 principal amount (a conversion price of approximately $17.85)
once the Company's Common Stock share price reaches 130% of the conversion
price, or a share price of approximately $23.20. In November 2004, the Company
exercised its irrevocable option to pay the principal of Debentures submitted
for conversion in cash. The Company will satisfy any amount above the conversion
trigger price of $17.85 through the issuance of Common Stock. The Debentures
mature on June 30, 2024, and are unsecured. Interest on the Debentures is
payable semiannually at the rate of 3.25% per annum on June 30 and December 30
of each year, beginning on December 30, 2004. The Company may redeem the
Debentures either in whole or in part beginning July 6, 2009. The holders may
require the Company to repurchase the Debentures on June 30, 2009, 2014, and
2019, or upon a fundamental change as defined in the Indenture governing the
Debentures. The Company used the proceeds from issuance of the Debentures,
together with cash on hand, to retire the $118.8 million outstanding under the
Term Loan B as well as to repurchase, for approximately $25 million, an
aggregate of approximately 2.0 million shares of the Company's outstanding
common stock, at the market price of $12.57 per share, in negotiated
transactions concurrently with the Debentures offering. In addition, the Company
incurred expenses associated with the retirement of the Term Loan B of
approximately $5.9 million, which included the write-off of approximately $3.5
million of deferred debt issuance costs, and which is classified as loss on
extinguishment of debt in the Company's Consolidated Statements of Operations.
 
     In connection with the sale of the Debentures, the Company agreed to file
with the SEC, within 90 days after the original issuance of the Debentures, a
shelf registration statement with respect to the resale of the Debentures and
the common stock issuable upon conversion of the Debentures. The Company agreed
to use commercially reasonable efforts to cause the shelf registration statement
to become effective within 210 days after the original issuance of the
Debentures. If the Company does not fulfill certain of its obligations under the
registration rights agreement, including the timely filing and effective date of
the shelf registration statement, it will be required to pay additional interest
to holders of the Debentures until the shelf registration statement is
effective. On September 15, 2004, the Company filed the shelf registration
statement with the SEC. The Company is currently addressing the SEC staff's
comments on the shelf registration.
 
     On June 30, 2004, the Company also amended the Revolving Credit Facility to
increase its capacity from $50 million to $75 million, to extend its maturity to
three years, and to lower the interest rate from LIBOR plus amounts ranging from
3.0% to 3.5% to LIBOR plus amounts ranging from 2.5% to 3.0%. The Company did
not incur any borrowings under the Revolving Credit Facility in connection with
the retirement of the Term Loan B or the share repurchase.
 
     All obligations under the Revolving Credit Facility are fully and
unconditionally guaranteed, on a senior secured basis, jointly and severally by
all of the Company's present and future domestic and material foreign
subsidiaries (the "Subsidiary Guarantors"). The financial statements of the
Subsidiary
                                       F-11

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
Guarantors have not been presented as all subsidiaries, except for certain minor
foreign subsidiaries, have provided guarantees and the parent company does not
have any significant operations or assets separate from its investment in those
subsidiaries. Any non-guarantor subsidiaries are minor individually and in the
aggregate to the Company's consolidated financial statements. There are no
restrictions on the Subsidiary Guarantors that would prohibit the transfer of
funds or assets to the parent company by dividend or loan.
 
     The Revolving Credit Facility contains financial and other restrictive
covenants, including, without limitation, those restricting additional
indebtedness, lien creation, dividend payments, asset sales and stock offerings,
and those requiring a minimum net worth, maximum leverage and minimum fixed
charge coverage, each as defined in the Revolving Credit Facility. The Company
was in compliance with all applicable covenants as of September 30, 2004.
 
     The Company intends to use the Revolving Credit Facility, as needed, for
future investments in its operations, including capital expenditures, strategic
acquisitions, to secure its letters of credit, and other general corporate
purposes.
 
NOTE 11 -- INCOME TAXES
 
     Income tax expense, which was primarily related to state and local income
taxes, was approximately $0.3 million for the nine months ended September 30,
2004, as compared to income tax expense of approximately $0.8 million for the
same period in 2003. The Company's estimated federal income tax expense for the
nine month period ended September 30, 2004, is offset by the release of an equal
amount of the Company's valuation allowance.
 
     As of September 30, 2004, the Company's remaining net deferred tax asset
was fully offset by a valuation allowance. Realization of the net deferred tax
asset is dependent upon the Company generating sufficient taxable income prior
to the expiration of the federal net operating loss carryforwards. The Company
is currently evaluating the realizability of the deferred tax asset and
anticipates releasing a portion of the valuation allowance in the fourth quarter
of 2004, when the Company develops its annual forecasts for future periods. Any
such reduction in the valuation allowance will be based on the estimated net
operating loss carryforwards to be utilized to offset projected pre-tax income
for the next two to three years.
 
NOTE 12 -- RESTRUCTURING EXPENSES
 
     The amount of lease termination costs associated with a 1995 restructuring
applied against the reserve in the nine months ended September 30, 2004, is as
follows:
 


                                         RESERVE BALANCE     COSTS APPLIED     RESERVE BALANCE
                                        DECEMBER 31, 2003   AGAINST RESERVE   SEPTEMBER 30, 2004
                                        -----------------   ---------------   ------------------
                                                             (IN THOUSANDS)
                                                                     
Lease termination costs...............       $1,430              $(225)             $1,205

 
     During the nine months ended September 30, 2004, the Company incurred
approximately $41,000 of restructuring expenses related to the realignment of
the Company into the Physician Services and Hospital Services divisions.
 
NOTE 13 -- SEGMENT REPORTING
 
     The Company's reportable segments are operating units that offer different
services and products. Per-Se provides its services and products through its two
operating divisions: Physician Services and Hospital Services.
 
                                       F-12

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 
     The Physician Services division provides Connective Healthcare services and
solutions that manage the revenue cycle for physician groups. The division is
the largest provider of business management outsourced services that supplant
all or most of the administrative functions of a physician group. The target
market is primarily hospital-affiliated physician groups in the specialties of
radiology, anesthesiology, emergency medicine and pathology as well as physician
groups practicing in the academic setting and other large physician groups. The
division recognizes revenue primarily on a contingency fee basis, which aligns
the division's interests with the interests of the physician groups it services.
The outsourced services business recognizes revenue as a percentage of the
physician group's cash collections for the services performed. Since this is an
outsourced service delivered on the Company's proprietary technology, license
fees or maintenance fees are not required to be paid by the division's
hospital-affiliated physician groups. The division also sells a physician
practice management ("PPM") solution that is delivered via an ASP model. The PPM
solution collects a monthly usage fee from the office-based physician practices
using the system. The division's revenue model is 100% recurring in nature due
to the transaction-based nature of its fee revenue in the outsourced services
business and the monthly usage fee in the PPM business. The business of the
Physician Services division is conducted by PST Services, Inc., a Georgia
corporation d/b/a "Per-Se Technologies," which is a wholly owned subsidiary of
the Company.
 
     The Hospital Services division provides Connective Healthcare solutions
designed to increase revenue and decrease expenses for hospitals, with a focus
on revenue cycle management and resource management. The division's revenue
cycle management solutions enable a hospital's central billing office to improve
its revenue cycle. The division has one of the largest clearinghouses in the
medical industry, which provides an important infrastructure to support its
revenue cycle offering. The division also provides resource management solutions
that enable hospitals efficiently to manage resources, such as personnel and the
operating room, to reduce costs and improve their bottom line. The division
primarily recognizes revenue on a per-transaction basis for its revenue cycle
management solutions and primarily recognizes revenue on a
percentage-of-completion basis or upon software shipment for sales of its
resource management software solutions. Approximately 88% of the division's
revenue is recurring due to its transaction-based business and the maintenance
revenue from its substantial installed base for the resource management software
solutions. The business of the Hospital Services division is conducted by the
following wholly owned subsidiaries of the Company: Per-Se Transaction Services,
Inc., an Ohio corporation; Patient Account Management Services, Inc., an Ohio
corporation; PST Products, LLC, a California limited liability company; and
Knowledgeable Healthcare Solutions, Inc., an Alabama corporation. All of these
subsidiaries do business under the name "Per-Se Technologies."
 
     The Company evaluates each segment's performance based on its segment
operating profit. Segment operating profit is revenue less segment operating
expenses, which include salaries and wages expenses, other operating expenses,
restructuring expenses, depreciation and amortization.
 
     The Hospital Services segment revenue includes intersegment revenue for
services provided to the Physician Services segment, which are shown as
eliminations to reconcile to total consolidated revenue.
 
     The Company's segment information from continuing operations is as follows:
 


                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2004       2003
                                                              --------   --------
                                                                (IN THOUSANDS)
                                                                   
Revenue:
  Physician Services........................................  $195,317   $189,668
  Hospital Services.........................................    78,274     72,339
  Eliminations..............................................   (10,208)   (10,030)
                                                              --------   --------
                                                              $263,383   $251,977
                                                              ========   ========

 
                                       F-13

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 


                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2004       2003
                                                              --------   --------
                                                                (IN THOUSANDS)
                                                                   
Segment operating expenses:
  Physician Services........................................  $175,072   $167,064
  Hospital Services.........................................    59,671     56,022
  Corporate.................................................    18,460     11,570
  Eliminations..............................................   (10,208)   (10,030)
                                                              --------   --------
                                                              $242,995   $224,626
                                                              ========   ========
Segment operating income:
  Physician Services........................................  $ 20,245   $ 22,604
  Hospital Services.........................................    18,603     16,317
  Corporate.................................................   (18,460)   (11,570)
                                                              --------   --------
                                                              $ 20,388   $ 27,351
                                                              ========   ========
Interest expense............................................  $  5,483   $ 12,524
                                                              ========   ========
Interest income.............................................  $   (332)  $   (245)
                                                              ========   ========
Loss on extinguishment of debt..............................  $  5,896   $  6,255
                                                              ========   ========
Income before income taxes..................................  $  9,341   $  8,817
                                                              ========   ========
Depreciation and amortization:
  Physician Services........................................  $  7,273   $  8,003
  Hospital Services.........................................     4,114      3,967
  Corporate.................................................       391        601
                                                              --------   --------
                                                              $ 11,778   $ 12,571
                                                              ========   ========
Capital expenditures and capitalized software development
  costs:
  Physician Services........................................  $  5,234   $  3,773
  Hospital Services.........................................     4,006      3,707
  Corporate.................................................       718        191
                                                              --------   --------
                                                              $  9,958   $  7,671
                                                              ========   ========

 


                                                                         AS OF
                                                              ----------------------------
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2004            2003
                                                              -------------   ------------
                                                                     (IN THOUSANDS)
                                                                        
Identifiable assets:
  Physician Services........................................    $ 65,627        $ 63,222
  Hospital Services.........................................      59,019          58,021
  Corporate.................................................      44,536          50,281
  Discontinued operations...................................          --             129
                                                                --------        --------
                                                                $169,182        $171,653
                                                                ========        ========

 
                                       F-14

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --  (CONTINUED)
 

NOTE 14  STATEMENT OF CASH FLOWS -- RESTATED

 

     Certain amounts in the Company's Consolidated Statement of Cash Flows
related to Funds due Clients have been reclassified for the nine months ended
September 30, 2004 and 2003. The reclassification decreased net cash provided by
operating activities and increased net cash used for financing activities by
approximately $0.1 million and $0.3 million for the nine months ended September
30, 2004 and 2003, respectively. Additionally, for the nine months ended
September 30, 2003, the Company reclassified approximately $4.3 million related
to its debt financing from cash flows from operating activities to cash used for
financing activities.

 
                                       F-15

 
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders
Per-Se Technologies, Inc.
 
     We have audited the accompanying consolidated balance sheets of Per-Se
Technologies, Inc. and subsidiaries (the "Company") as of December 31, 2003 and
2002, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the three years in the period ended December
31, 2003 (as restated -- see Note 2). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 

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

 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Per-Se
Technologies, Inc. and subsidiaries at December 31, 2003 and 2002, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003 (as restated), in conformity with
U.S. generally accepted accounting principles.
 

     As discussed in Note 2 to the accompanying consolidated financial
statements, the Company restated its financial statements for the years ended
December 31, 2003, 2002 and 2001.

 
                                                 /s/ ERNST & YOUNG LLP
 
Atlanta, Georgia

May 12, 2004, except for the last paragraph in Note 2, as to which the date is
March 2, 2005

 
                                       F-16

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 


                                                                    DECEMBER 31,
                                                              -------------------------
                                                                2003          2002
                                                              ---------   -------------
                                                                          (AS RESTATED)
                                                              (IN THOUSANDS, EXCEPT PAR
                                                                     VALUE DATA)
                                                                    
Current Assets:
  Cash and cash equivalents.................................  $  25,271     $  46,748
  Restricted cash...........................................         66         4,296
                                                              ---------     ---------
     Total cash and cash equivalents........................     25,337        51,044
  Accounts receivable, billed (less allowances of $4,267 and
     $3,880, respectively)..................................     46,335        41,117
  Accounts receivable, unbilled (less allowances of $528 and
     $408, respectively)....................................      1,613         2,176
  Lloyd's receivable........................................     17,405            --
  Other.....................................................      6,183         3,838
                                                              ---------     ---------
     Total current assets...................................     96,873        98,175
Property and equipment, net of accumulated depreciation.....     16,434        19,549
Goodwill, net of accumulated amortization...................     32,549        32,549
Other intangible assets, net of accumulated amortization....     19,787        22,945
Other.......................................................      5,881         3,485
Lloyd's receivable..........................................         --         6,849
Assets of discontinued operations, net......................        129        26,079
                                                              ---------     ---------
     Total assets...........................................  $ 171,653     $ 209,631
                                                              =========     =========
Current Liabilities:
  Accounts payable..........................................  $   6,587     $   3,525
  Accrued compensation......................................     18,102        19,741
  Accrued expenses..........................................     19,037        20,915
  Current portion of long-term debt.........................     12,500        15,020
                                                              ---------     ---------
                                                                 56,226        59,201
  Deferred revenue..........................................     20,334        18,372
                                                              ---------     ---------
     Total current liabilities..............................     76,560        77,573
Long-term debt..............................................    109,375       160,000
Other obligations...........................................      2,908         2,140
Liabilities of discontinued operations......................        422         7,890
                                                              ---------     ---------
     Total liabilities......................................    189,265       247,603
                                                              ---------     ---------
Commitments and contingencies (Notes 11 and 12)
  Stockholders' Deficit:
  Preferred stock, no par value, 20,000 authorized; none
     issued.................................................         --            --
  Common stock, voting, $0.01 par value, 200,000 authorized,
     31,322 and 30,163 issued and outstanding as of December
     31, 2003, and December 31, 2002, respectively..........        313           302
  Common stock, non-voting, $0.01 par value, 600 authorized;
     none issued............................................         --            --
  Paid-in capital...........................................    786,297       778,021
  Warrants..................................................      1,495         1,495
  Accumulated deficit.......................................   (805,286)     (817,275)
  Treasury stock at cost, 122 shares as of December 31,
     2003, and 90 as of December 31, 2002...................     (1,303)       (1,045)
  Deferred stock unit plan obligation.......................      1,303         1,045
  Accumulated other comprehensive loss......................       (431)         (515)
                                                              ---------     ---------
     Total stockholders' deficit............................    (17,612)      (37,972)
                                                              ---------     ---------
     Total liabilities and stockholders' deficit............  $ 171,653     $ 209,631
                                                              =========     =========

 
                See notes to consolidated financial statements.
                                       F-17

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 


                                                                      YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------
                                                                2003         2002            2001
                                                              --------   -------------   -------------
                                                                         (AS RESTATED)   (AS RESTATED)
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                
Revenue.....................................................  $335,169     $325,564        $305,822
                                                              --------     --------        --------
Salaries and wages..........................................   194,139      186,075         182,597
Other operating expenses....................................    87,183       90,857          86,800
Depreciation................................................     9,375       10,908          12,223
Amortization................................................     7,134        7,836           9,229
Process improvement project.................................        --           --           3,423
Restructuring expenses......................................       830           --             593
                                                              --------     --------        --------
  Operating income..........................................    36,508       29,888          10,957
Interest expense............................................    14,646       18,069          18,009
Interest income.............................................      (297)        (471)         (1,121)
Loss on extinguishment of debt..............................     6,255           --              --
                                                              --------     --------        --------
  Income (loss) before income taxes.........................    15,904       12,290          (5,931)
Income tax expense..........................................        27          800             343
                                                              --------     --------        --------
  Income (loss) from continuing operations..................    15,877       11,490          (6,274)
                                                              --------     --------        --------
Discontinued operations (see Note 4)
  (Loss) income from discontinued operations, net of
    tax -- Patient1.........................................    (1,316)         445          (2,169)
  Gain on sale of Patient1, net of tax......................    10,417           --              --
  Loss from discontinued operations, net of
    tax -- Business1........................................    (3,589)      (1,921)         (1,554)
  Loss from discontinued operations, net of tax -- Business1
    write-down of assets....................................    (8,528)          --              --
  (Loss) income from discontinued operations, net of
    tax -- Other............................................      (872)      (1,025)          3,888
                                                              --------     --------        --------
                                                                (3,888)      (2,501)            165
                                                              --------     --------        --------
    Net income (loss).......................................  $ 11,989     $  8,989        $ (6,109)
                                                              ========     ========        ========
Net income (loss) per common share-basic:
  Income (loss) from continuing operations..................  $   0.52     $   0.38        $  (0.21)
  (Loss) income from discontinued operations, net of
    tax -- Patient1.........................................     (0.04)        0.01           (0.07)
  Gain on sale of Patient1, net of tax......................      0.34           --              --
  Loss from discontinued operations, net of
    tax -- Business1........................................     (0.12)       (0.06)          (0.05)
  Loss from discontinued operations, net of tax -- Business1
    write-down of assets....................................     (0.28)          --              --
  (Loss) income from discontinued operations, net of
    tax -- Other............................................     (0.03)       (0.03)           0.13
                                                              --------     --------        --------
    Net income (loss) per common share-basic................  $   0.39     $   0.30        $  (0.20)
                                                              ========     ========        ========
Weighted average shares used in computing basic income
  (loss) per common share...................................    30,594       30,061          29,915
                                                              ========     ========        ========
Net income (loss) per common share-diluted:
  Income (loss) from continuing operations..................  $   0.49     $   0.36        $  (0.21)
  (Loss) income from discontinued operations, net of
    tax -- Patient1.........................................     (0.04)        0.01           (0.07)
  Gain on sale of Patient1, net of tax......................      0.32           --              --
  Loss from discontinued operations, net of
    tax -- Business1........................................     (0.11)       (0.06)          (0.05)
  Loss from discontinued operations, net of tax -- Business1
    write-down of assets....................................     (0.26)          --              --
  (Loss) income from discontinued operations, net of
    tax -- Other............................................     (0.03)       (0.03)           0.13
                                                              --------     --------        --------
    Net income (loss) per common share-diluted..............  $   0.37     $   0.28        $  (0.20)
                                                              ========     ========        ========
Weighted average shares used in computing diluted income
  (loss) per common share-diluted...........................    32,661       31,966          29,915
                                                              ========     ========        ========

 
                See notes to consolidated financial statements.
                                       F-18

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 



                                                                   YEAR ENDED DECEMBER 31,
                                                          -----------------------------------------
                                                            2003          2002            2001
                                                          ---------   -------------   -------------
                                                             (AS      (AS RESTATED)   (AS RESTATED)
                                                          RESTATED)    (IN THOUSANDS)
                                                                             
Cash Flows From Operating Activities:
  Net income (loss).....................................  $  11,989     $  8,989        $ (6,109)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Depreciation and amortization......................     16,509       18,744          21,452
     Loss (income) from discontinued operations.........     14,305        2,501            (165)
     Gain on sale of Patient1...........................    (10,417)          --              --
     Amortization of deferred financing costs...........      1,269        1,403           1,329
     Loss on extinguishment of debt.....................      6,255           --              --
     Changes in assets and liabilities, excluding
       effects of acquisitions and divestitures:
       Restricted cash..................................      4,162          337           2,062
       Accounts receivable, billed......................     (5,326)        (327)          4,457
       Accounts receivable, unbilled....................        563         (458)          1,091
       Accounts payable.................................      3,062       (2,446)         (4,287)
       Accrued compensation.............................     (1,639)      (1,144)          3,665
       Accrued expenses.................................     (6,655)       1,671          (1,830)
       Accrued litigation settlements...................         --           --          (1,602)
       Deferred revenue.................................      1,962          231            (694)
       Other, net.......................................     (7,568)      (6,323)         (1,034)
                                                          ---------     --------        --------
       Net cash provided by continuing operations.......     28,471       23,178          18,335
       Net cash (used for) provided by discontinued
          operations....................................    (10,419)      (1,283)          6,641
                                                          ---------     --------        --------
          Net cash provided by operating activities.....     18,052       21,895          24,976
                                                          ---------     --------        --------
Cash Flows From Investing Activities:
  Purchases of property and equipment...................     (6,367)      (6,471)         (4,752)
  Software development costs............................     (3,976)      (3,425)         (2,398)
  Proceeds from sale of Patient1, net of tax............     27,925           --              --
  Proceeds from sale of property and equipment..........         23           50           1,537
  Acquisitions, net of cash acquired....................        (78)      (1,640)        (10,846)
                                                          ---------     --------        --------
          Net cash provided by (used for) continuing
            operations..................................     17,527      (11,486)        (16,459)
          Net cash used for discontinued operations.....     (2,288)      (4,172)         (3,590)
                                                          ---------     --------        --------
          Net cash provided by (used for) investing
            activities..................................     15,239      (15,658)        (20,049)
                                                          ---------     --------        --------
Cash Flows From Financing Activities:
  Proceeds from borrowings..............................    125,000           --              --
  Debt issuance costs...................................     (9,797)          --            (539)
  Proceeds from the exercise of stock options...........      7,969        1,071             299
  Payments of debt......................................   (178,145)         (94)            (74)
  Capital contribution (see Note 1).....................         --        1,969              --
  Other.................................................        205        1,058             924
                                                          ---------     --------        --------
          Net cash (used for) provided by financing
            activities..................................    (54,768)       4,004             610
                                                          ---------     --------        --------
Cash and Cash Equivalents:
  Net change............................................    (21,477)      10,241           5,537
  Balance at beginning of period........................     46,748       36,507          30,970
                                                          ---------     --------        --------
  Balance at end of period..............................  $  25,271     $ 46,748        $ 36,507
                                                          =========     ========        ========


 
                See notes to consolidated financial statements.
                                       F-19

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
 


                                                                                           DEFERRED     ACCUMULATED
                                                                                            STOCK          OTHER           TOTAL
                         COMMON   COMMON   PAID-IN               ACCUMULATED   TREASURY   UNIT PLAN    COMPREHENSIVE   STOCKHOLDERS'
                         SHARES   STOCK    CAPITAL    WARRANTS     DEFICIT      STOCK     OBLIGATION   (LOSS)/INCOME      DEFICIT
                         ------   ------   --------   --------   -----------   --------   ----------   -------------   -------------
                                                                       (IN THOUSANDS)
                                                                                            
BALANCE AT DECEMBER 31,
  2000.................  29,902    $299    $774,603    $1,495     $(820,155)   $    --      $   --         $(378)        $(44,136)
Net loss (as
  restated)............     --       --          --        --        (6,109)        --          --            --           (6,109)
Foreign currency
  translation
  adjustment...........     --       --          --        --            --         --          --           (37)             (37)
                                                                                                                         --------
TOTAL COMPREHENSIVE
  LOSS (AS RESTATED)...                                                                                                    (6,146)
Issuance of common
  stock in
  acquisitions.........      5       --          35        --            --         --          --            --               35
Exercise of stock
  options..............     62        1         295        --            --         --          --            --              296
Other..................     --       --          50        --            --         --          --            --               50
                         ------    ----    --------    ------     ---------    -------      ------         -----         --------
BALANCE AT DECEMBER 31,
  2001 (AS RESTATED)...  29,969     300     774,983     1,495      (826,264)        --          --          (415)         (49,901)
Net income (as
  restated)............     --       --          --        --         8,989         --          --            --            8,989
Foreign currency
  translation
  adjustment...........     --       --          --        --            --         --          --          (100)            (100)
                                                                                                                         --------
TOTAL COMPREHENSIVE
  INCOME (AS
  RESTATED)............                                                                                                     8,889
Exercise of stock
  options..............    194        2       1,069        --            --         --          --            --            1,071
Deferred stock unit
  plan activity........     --       --          --        --            --     (1,045)      1,045            --               --
Capital contribution
  (see Note 1)              --       --       1,969        --            --         --          --            --            1,969
                         ------    ----    --------    ------     ---------    -------      ------         -----         --------
BALANCE AT DECEMBER 31,
  2002 (AS RESTATED)...  30,163     302     778,021     1,495      (817,275)    (1,045)      1,045          (515)         (37,972)
Net income.............     --       --          --        --        11,989         --          --            --           11,989
Foreign currency
  translation
  adjustment...........     --       --          --        --            --         --          --            84               84
                                                                                                                         --------
TOTAL COMPREHENSIVE
  INCOME...............                                                                                                    12,073
Exercise of stock
  options..............  1,159       11       7,958        --            --         --          --            --            7,969
Tax effect of exercise
  of stock options.....     --       --         318        --            --         --          --            --              318
Deferred stock unit
  plan activity........     --       --          --        --            --       (258)        258            --               --
                         ------    ----    --------    ------     ---------    -------      ------         -----         --------
BALANCE AT DECEMBER 31,
  2003.................  31,322    $313    $786,297    $1,495     $(805,286)   $(1,303)     $1,303         $(431)        $(17,612)
                         ======    ====    ========    ======     =========    =======      ======         =====         ========

 
                See notes to consolidated financial statements.
                                       F-20

 
                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Basis of Presentation.  The consolidated financial statements include the
accounts of Per-Se Technologies, Inc. and its subsidiaries ("Per-Se" or the
"Company"). All intersegment accounts have been eliminated. The Hospital
Services division revenue includes intersegment revenue for services provided to
the Physician Services division, which has been eliminated in total consolidated
revenue. Certain amounts in the prior years' consolidated financial statements
have been reclassified to conform to the current year presentation,
specifically, the realignment of the Company's segments and the presentation of
the Company's two non-core software product lines as discontinued operations.
 
     The consolidated financial statements of the Company have been presented to
reflect the operations of the Hospital Services division's Patient1 clinical
product line ("Patient1") and Business1-PFM patient accounting product line
("Business1") as discontinued operations. Patient1 was sold on July 28, 2003,
and Business1 was sold effective January 31, 2004. Additionally, the activity
related to the Medaphis Services Corporation ("MSC") and Impact Innovations
Group ("Impact") businesses, which were sold in 1998 and 1999, respectively, are
also reflected as discontinued operations for all periods presented. For more
information about the Company's discontinued operations, refer to "Note 4  --
Discontinued Operations" in the Company's Notes to Consolidated Financial
Statements.
 
     Restatement of Previously Reported Financial Information.  The accompanying
consolidated financial information as of December 31, 2002 and for the two years
then ended, as well as quarterly information in the periods ended September 30,
2003 and December 31, 2002, has been restated to correct errors in those
periods. See further discussion of the restatement in Note 2.
 
     Recent Accounting Pronouncements.  On December 17, 2003, the Securities and
Exchange Commission (the "Commission") issued Staff Accounting Bulletin Number
104, Revenue Recognition ("SAB 104"). SAB 104 revises or rescinds portions of
the interpretative guidance included in Topic 13 of the codification of staff
accounting bulletins in order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance and the Commission's
rules and regulations. The principal revisions relate to the rescission of
material no longer necessary because of private sector developments in U.S.
generally accepted accounting principles. Revisions include those necessitated
by the Financial Accounting Standards Board ("FASB") Emerging Issues Task Force
("EITF") Issue No. 00-21, Revenue Arrangements With Multiple Deliverables ("EITF
No. 00-21"). SAB 104 did not affect the Company's Consolidated Statements of
Operations.
 
     In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity ("SFAS No. 150"). SFAS No. 150
establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument within its scope as a
liability (or in some circumstances an asset). Many of those instruments were
previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of nonpublic
entities. The Company adopted SFAS No. 150 on May 31, 2003; however, SFAS No.
150 did not affect the Company's Consolidated Statements of Operations.
 
     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The Company adopted
 
                                       F-21

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
SFAS No. 149 on June 30, 2003; however, SFAS No. 149 did not affect the
Company's Consolidated Statements of Operations.
 
     In January 2003 the FASB issued and subsequently revised in December 2003,
FIN No. 46, Consolidation of Variable Interest Entities ("FIN No. 46"), which
clarifies the consolidation accounting guidance of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entities to finance their
activities without additional subordinated financial support from other parties.
Such entities are known as variable interest entities ("VIE"). Controlling
financial interests of a VIE are identified by the exposure of a party to the
VIE to a majority of either the expected losses or residual rewards of the VIE,
or both. Such parties are primary beneficiaries of the VIE, and FIN No. 46
requires that the primary beneficiary of a VIE consolidate the VIE. FIN No. 46
also requires new disclosures for significant relationships with VIEs, whether
or not consolidation accounting is either used or anticipated. Application of
FIN No. 46 is required in the financial statements of public entities that have
interests in VIEs or potential VIEs commonly referred to as special-purpose
entities for periods after December 15, 2003. Application by public entities for
all other types of entities is required in financial statements for periods
ending after March 15, 2004. The Company currently believes that it does not
have any relationships with a VIE; however, the Company will evaluate all new
business relationships.
 
     At the November 21, 2002 EITF meeting, the EITF reached a consensus on EITF
00-21. EITF 00-21 addresses how to determine if an arrangement involving
multiple deliverables contains more than one unit of accounting. In applying
EITF 00-21, separate contracts with the same entity or related parties that are
entered into at or near the same time are presumed to have been negotiated as a
package and should, therefore, be evaluated as a single arrangement in
considering whether there are one or more units of accounting. That presumption
may be overcome if there is sufficient evidence to the contrary. EITF 00-21 also
addresses how arrangement consideration should be measured and allocated to the
separate units of accounting in the arrangement. The EITF indicated that the
guidance in EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company adopted EITF 00-21 on
January 1, 2003; however, EITF 00-21 did not have a material effect on the
Company's Consolidated Statements of Operations.
 
     In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN No. 45"). The Interpretation requires
that a guarantor recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken by issuing the guarantee. The
Interpretation also requires the guarantor to make additional disclosures in its
interim and annual financial statements about its obligations under certain
guarantees it has issued. FIN No. 45 does not have a material effect on the
Company's consolidated financial statements for the year ended December 31,
2003. Certain of the Company's sales agreements contain infringement indemnity
provisions that are covered by FIN No. 45. Under these sales agreements, the
Company agrees to defend and indemnify a customer in connection with
infringement claims made by third parties with respect to the customer's
authorized use of the Company's products and services. The indemnity obligations
contained in sales agreements generally have no specified expiration date and
generally limit the award to the amount of fees paid. The Company has not
previously incurred costs to settle claims or pay awards under these
indemnification obligations. Also, the Company maintains membership in a group
captive insurance company for its workers compensation insurance. The member
companies agree to jointly insure the group's liability risks up to a certain
threshold. As a member, the Company guarantees to pay an assessment, if an
assessment becomes due as a result of insured losses by its members. This
guarantee will never exceed a percentage of the Company's loss funds. Based on
the Company's historical experience, the Company does not anticipate such an
assessment. As a result, the Company's estimated fair value of the infringement
indemnity provision obligations and the captive insurance guarantee is nominal.
                                       F-22

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Use of Estimates.  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
 
     Bad debt estimates.  The Company relies on estimates to determine the bad
debt expense and the adequacy of the reserve for doubtful accounts receivable.
These estimates are based on the historical experience of the Company and the
industry in which it operates. If the financial condition of the Company's
customers deteriorated, resulting in an impairment of their ability to make
payments, additional allowances may be required. The Company actively reviews
its accounts receivable and does not believe actual results will vary materially
from the Company's estimates.
 
     Accrued expenses.  The Company relies on estimates to determine the amounts
that are recorded in accrued expenses. Estimates of requirements for legal
services and settlements expected to be incurred in connection with a loss
contingency and to meet regulatory demands within our business and industry are
used to accrue legal expenses. Income tax accruals are estimated based on
historical experience of the Company, prevailing tax rates and the current
business environment. Restructuring and severance cost accruals are made using
estimates of the costs required to effect the desired change within the Company.
 
     Revenue Recognition.  The Company derives revenue from products and
services delivered to the healthcare industry through its two operating
divisions:
 
          Physician Services provides Connective Healthcare solutions that
     manage the revenue cycle for physician groups. The division provides
     outsourced revenue cycle management services that are targeted at
     hospital-affiliated and academic physician practices. Fees for these
     services are primarily based on a percentage of net collections on our
     clients' accounts receivable. The division recognizes revenue and bills its
     customers when the customers receive payment on those accounts receivable.
     Contracts are typically multi-year in length and require no payment from
     the customer upon contract signing. Since this is an outsourced service
     delivered on our proprietary technology, there are no license or
     maintenance fees to be paid by the physician group customers. The division
     also recognizes approximately 5% of its revenue, for all periods presented,
     on a monthly service fee and per-transaction basis from the MedAxxis
     product line, an application service provider ("ASP") physician practice
     management system. The Physician Services division does not rely, to any
     material extent, on estimates in the recognition of this revenue. Revenue
     is recognized in accordance with Staff Accounting Bulletin No. 104, Revenue
     Recognition.
 
          Hospital Services provides Connective Healthcare solutions that
     improve revenue cycle and resource management for hospitals.
 
          Revenue cycle management solutions primarily include services that
     allow a hospital's central billing office to more effectively manage its
     cash flow. These services include electronic and paper transactions, such
     as claims processing, which can be delivered via the Web or through
     dedicated electronic data interfaces and high-speed print and mail
     services. Revenue related to these transaction services are billed and
     recognized when the services are performed on a per transaction basis.
     Contracts are typically multi-year in length. The division also recognizes
     revenue related to direct and indirect payments it receives from payers for
     the electronic transmission of transactions to the payers. The division
     recognizes revenue on these transactions at the time the electronic
     transactions are sent. Revenue is recognized in accordance with Staff
     Accounting Bulletin No. 104, Revenue Recognition.
 
          Resource management solutions include staff and patient scheduling
     software that enable hospitals to efficiently manage resources, such as
     personnel and the operating room, to reduce costs and improve their bottom
     line. The resource management software is sold as a one-time license fee
                                       F-23

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     plus implementation services and an annual maintenance fee. Contracts are
     typically structured to require a portion of the license fee and
     implementation services to be paid periodically throughout the installation
     process, including a portion due upon signing. For software contracts that
     require the division to make significant production, modification or
     customization changes, the division recognizes revenue for the license fee
     and implementation services using the percentage-of-completion method over
     the implementation period. The division relies on estimates of work to be
     completed to determine the amount of revenue to be recognized related to
     each contract. Because estimates of the extent of completion that differ
     from actual results could affect revenue, the division periodically reviews
     the estimated hours or days to complete major projects and compares these
     estimates to budgeted hours or days to support the revenue recognized on
     that project. Approximately 9%, 9% and 12% of the division's revenue (or
     2%, 2% and 2% of total Company revenue) was determined using percentage-
     of-completion accounting for the years ended December 31, 2003, 2002, and
     2001, respectively.
 
          When the division receives payment prior to shipment or fulfillment of
     its significant obligations, the Company records such payments as deferred
     revenue and recognizes them as revenue upon shipment or fulfillment of
     significant obligations. An unbilled receivable is recorded when the
     division recognizes revenue on the percentage-of-completion basis prior to
     achieving a contracted billing milestone. For minor add-on software license
     sales where no significant customization remains outstanding, the fee is
     fixed, an agreement exists and collectibility is probable, the division
     recognizes revenue upon shipment. For software maintenance payments
     received in advance, the division defers and recognizes as revenue these
     payments ratably over the term of the maintenance agreement, which is
     typically one year. Revenue recognized on the percentage-of-completion
     basis is done so in accordance with Statement of Position 81-1, Accounting
     for Performance of Construction Type and Certain Production Type Contracts.
     Revenue recognized upon software shipment is done so in accordance with
     Statement of Position 97-2, Software Revenue Recognition.
 
          For arrangements that include one or more elements, or
     multiple-element arrangements, to be delivered at a future date, revenue is
     recognized in accordance with SOP 97-2 as amended by SOP 98-9, Modification
     of SOP 97-2, Software Revenue Recognition, with Respect to Certain
     Transactions. SOP 97-2, as amended, requires the Company to allocate
     revenue to each element in a multiple-element arrangement based on the
     element's relative fair value established by vendor-specific objective
     evidence, or VSOE, of fair value. Where VSOE does not exist for all
     delivered elements (typically software license fees), revenue from
     multiple-element arrangements is recognized using the residual method.
     Under the residual method, if VSOE of the fair value of the undelivered
     elements exists, the Company defers revenue recognition of the fair value
     of the undelivered elements. The remaining portion of the arrangement fee
     is then recognized either by using the percentage-of-completion method if
     significant production, modification or customization is required or upon
     delivery, assuming all other conditions for revenue recognition have been
     satisfied. VSOE of fair value of maintenance services is based upon the
     amount charged for maintenance when purchased separately, which is the
     renewal rate. Maintenance services are stated separately in an arrangement.
     VSOE of fair value of professional services (i.e. implementation and
     consulting services not essential to the functionality of the software) is
     based upon the price charged when professional services are sold separately
     and is based on an hourly rate for professional services.
 
     Cash and Cash Equivalents.  Cash and cash equivalents include all highly
liquid investments with an initial maturity of no more than three months at the
date of purchase.
 
     Restricted Cash.  At December 31, 2003, restricted cash primarily
represents amounts collected on behalf of certain Physician Services and
Hospital Services clients, a portion of which is held in trust until it is
remitted to such clients. At December 31, 2002, restricted cash included amounts
held in trust and approximately $4.2 million restricted as security for the
Company's letters of credit.
 
                                       F-24

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Fair Value of Financial Instruments.  The carrying amount of all of the
Company's financial instruments approximates fair value. Additionally, the
Company had unused letters of credit in the amount of $3.2 million and $4.2
million at December 31, 2003, and 2002, respectively.
 
     Property and Equipment.  Property and equipment, including equipment under
capital leases, are stated at cost, less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, generally ten years for furniture and fixtures, three to ten years
for equipment and twenty years for buildings. Leasehold improvements are
recorded at cost and amortized over the remaining term of the lease.
 
     Goodwill.  Goodwill represents the excess of the cost of businesses
acquired and the value of their workforce in the Physician Services division in
1995 and the Hospital Services division from 1995 to 2001 over the fair market
value of their identifiable net assets.
 
     Trademarks.  Trademarks represent the value of the trademarks acquired in
the Hospital Services division from 2000 to 2001. The Company expects the
trademarks to contribute to cash flows indefinitely and therefore deems the
trademarks to have indefinite useful lives.
 
     In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets ("SFAS No. 142"). SFAS No. 142 requires goodwill and indefinite lived
intangible assets to be reviewed periodically for impairment and no longer
amortized. The Company adopted SFAS No. 142 on January 1, 2002. SFAS No. 142
required companies with goodwill and indefinite lived intangible assets to
complete an initial impairment test by June 30, 2002. The Company completed the
initial impairment test of its goodwill and other indefinite-lived intangible
assets and did not identify an impairment of its trademark intangible assets,
which have an indefinite life. The Company also concluded that the fair value of
its reporting units exceeded the book value of the respective reporting units.
Additionally, the Company performs a periodic review of its goodwill and other
indefinite lived intangible assets for impairment as of December 31 each year.
The Company's initial impairment and periodic review of its goodwill and other
indefinite lived intangible assets were based upon a discounted future cash flow
analysis that included revenue and cost estimates, market growth rates and
appropriate discount rates. As of December 31, 2003, and 2002, the Company did
not identify an impairment of goodwill or indefinite-lived intangible assets as
a result of the review.
 
     In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill and indefinite lived intangible assets effective January 1, 2002.
For the year ended December 31, 2002, the Company had a reduction in
amortization expense of approximately $1.7 million related to the adoption of
SFAS No. 142. For the year ended December 31, 2001 a reconciliation has been
provided of previously reported net loss and net loss per share amounts. These
amounts exclude the amortization expense recognized related to goodwill and
intangible assets that are no longer amortized (in thousands, except per share
data):
 


                                                            YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------
                                                     2003         2002            2001
                                                    -------   -------------   -------------
                                                              (AS RESTATED)   (AS RESTATED)
                                                                     
Reported net income (loss)........................  $11,989      $8,989          $(6,109)
Add back:
  Goodwill amortization, net of tax...............       --          --            2,300
  Trademark amortization, net of tax..............       --          --               56
  Workforce amortization, net of tax..............       --          --               42
                                                    -------      ------          -------
Adjusted net income (loss)........................  $11,989      $8,989          $(3,711)
                                                    =======      ======          =======

 
                                       F-25

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


                                                            YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------
                                                     2003         2002            2001
                                                    -------   -------------   -------------
                                                              (AS RESTATED)   (AS RESTATED)
                                                                     
Net income (loss) per common share-basic:
Reported net income (loss) per common
  share-basic.....................................  $  0.39      $ 0.30          $ (0.20)
  Goodwill amortization, net of tax...............       --          --             0.08
  Trademark amortization, net of tax..............       --          --               --
  Workforce amortization, net of tax..............       --          --               --
                                                    -------      ------          -------
Adjusted net income (loss) per common
  share-basic.....................................  $  0.39      $ 0.30          $ (0.12)
                                                    =======      ======          =======
Net income (loss) per common share-diluted:
Reported net income (loss) per common
  share-diluted...................................  $  0.37      $ 0.28          $ (0.20)
  Goodwill amortization, net of tax...............       --          --             0.08
  Trademark amortization, net of tax..............       --          --               --
  Workforce amortization, net of tax..............       --          --               --
                                                    -------      ------          -------
Adjusted net income (loss) per common
  share-diluted...................................  $  0.37      $ 0.28          $ (0.12)
                                                    =======      ======          =======

 
     Client Lists.  Client lists represent the value of clients acquired in the
Physician Services division from 1992 to 1996 and the Hospital Services division
from 1995 to 2001. The Company amortizes client lists over their estimated
useful lives, which range from five to ten years.
 
     Developed Technology.  Developed technology represents the value of the
systems acquired in the Hospital Services division from 2000 to 2001. The
Company amortizes these intangible assets over their estimated useful lives of
five years.
 
     Software Development Costs.  Software development includes costs incurred
in the development or the enhancement of software in the Physician Services and
Hospital Services divisions for resale or internal use.
 
     Software development costs, related to external use software, are
capitalized upon the establishment of technological feasibility for each product
and capitalization ceases when the product or process is available for general
release to customers. Technological feasibility is established when all
planning, designing, coding and testing activities required to meet a product's
design specifications are complete. The Company amortizes external use software
development costs over the greater of the ratio that current revenues bear to
total and anticipated future revenues for the applicable product or
straight-line method over the estimated economic lives of the assets, which are
generally three to five years. The Company monitors the net realizable value of
all capitalized external use software development costs to ensure that it can
recover its investment through margins from future sales.
 
     Software development costs, related to internal use software, are
capitalized after the preliminary project stage is complete, when management
with the relevant authority authorizes and commits to the funding of the
software project, when it is probable that the project will be completed and
when the software will be used to perform the function intended. Capitalization
ceases no later than the point at which the project is substantially complete
and ready for its intended use. The Company expenses software development costs,
related to internal use software, as incurred during the planning and post-
implementation phases of development. The Company amortizes internal-use
software on a straight-line basis over its estimated useful life, generally five
years. The estimated useful life considers the effects of obsolescence,
technology, competition and other economic factors.
 
                                       F-26

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Research and Development Costs.  The Company expenses research and
development costs as incurred. The Company recorded research and development
costs of approximately $8.0 million, $10.1 million and $5.3 million in 2003,
2002 and 2001, respectively.
 
     Advertising Costs.  The Company expenses advertising costs as incurred. The
Company recorded advertising costs of approximately $0.7 million, $0.3 million
and $0.5 million in 2003, 2002 and 2001, respectively.
 
     Shipping and Postage Costs.  The Company expenses shipping and postage
costs as incurred. These costs are primarily incurred related to providing print
and mail services to customers, which are billed to the customer and included in
revenue. The Company recorded postage costs of approximately $19.3 million,
$20.5 million and $18.4 million in 2003, 2002 and 2001, respectively, in Other
Operating Expenses in the Company's Consolidated Statements of Operations.
 
     Stock-Based Compensation Plans.  In December 2002, the FASB issued SFAS No.
148, Accounting for Stock-Based Compensation -- Transition and Disclosure ("SFAS
No. 148"). SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002 and for interim
periods beginning after December 15, 2002. The annual disclosure requirements of
SFAS No. 148 were adopted by the Company on January 1, 2003.
 
     At December 31, 2003, the Company has four stock-based compensation plans
described more fully in Note 14. The Company accounts for its stock-based
compensation plans under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). No stock-based compensation cost
is reflected in the Company's Consolidated Statement of Operations, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income (loss) and net income (loss) per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based compensation.
 


                                                            YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------
                                                     2003         2002)           2001
                                                    -------   -------------   -------------
                                                              (AS RESTATED)   (AS RESTATED)
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                     
Net income (loss) as reported.....................  $11,989      $8,989         $ (6,109)
Deduct: total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects......   (4,210)     (5,288)          (5,001)
                                                    -------      ------         --------
Pro forma net income (loss).......................  $ 7,779      $3,701         $(11,110)
                                                    =======      ======         ========
Net income (loss) per common share:
  Basic -- as reported............................  $  0.39      $ 0.30         $  (0.20)
                                                    =======      ======         ========
  Basic -- pro forma..............................  $  0.25      $ 0.12         $  (0.37)
                                                    =======      ======         ========
  Diluted -- as reported..........................  $  0.37      $ 0.28         $  (0.20)
                                                    =======      ======         ========
  Diluted -- pro forma............................  $  0.24      $ 0.12         $  (0.37)
                                                    =======      ======         ========

 
                                       F-27

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Legal Costs.  The Company expenses ordinary legal and administrative fees,
costs and expenses as incurred. Legal and administrative fees, costs, expenses,
damages or settlement losses for specific legal matters that the Company
determines to be probable are accrued at such time when they are reasonably
estimable.
 
     Income Taxes.  The Company recognizes deferred income taxes for the tax
consequences of "temporary differences" between financial statement carrying
amounts and the tax bases of existing assets and liabilities. The Company
determines deferred tax assets and liabilities by reference to the tax laws and
changes to such laws. Management includes the consideration of future events in
assessing the likelihood that the Company will realize tax benefits. See Note 16
where the Company discusses the realizability of the deferred tax assets.
 
     Net Income (Loss) Per Share.  Net income per common share-basic is
calculated by dividing net income (loss) by the weighted average number of
shares of common stock outstanding during the period. Net income per common
share-diluted reflects the potential dilution that could occur from common
shares issuable through stock options and warrants. The following sets forth the
computation of basic and diluted net income (loss) per common share for the
years ended December 31, 2003, 2002 and 2001 (in thousands, except per share
data):
 


                                                        YEAR ENDED DECEMBER 31,
                                                ---------------------------------------
                                                 2003         2002            2001
                                                -------   -------------   -------------
                                                          (AS RESTATED)   (AS RESTATED)
                                                                 
Net income (loss).............................  $11,989      $ 8,989         $(6,109)
                                                =======      =======         =======
Common shares outstanding:
  Shares used in computing net income (loss)
     per common share-basic...................   30,594       30,061          29,915
  Effect of potentially dilutive stock options
     and warrants.............................    2,067        1,905            --(a)
                                                -------      -------         -------
  Shares used in computing net income (loss)
     per common share-diluted.................   32,661       31,966          29,915
                                                =======      =======         =======
Net income (loss) per common share:
  Basic.......................................  $  0.39      $  0.30         $ (0.20)
                                                =======      =======         =======
  Diluted.....................................  $  0.37      $  0.28         $ (0.20)
                                                =======      =======         =======

 
---------------
 
(a)  The Company has excluded all stock options and warrants from the diluted
     loss per common share because such securities are antidilutive for 2001.
 
     Options and warrants to purchase 2.5 and 3.3 million shares of common stock
outstanding during 2003 and 2002, respectively, were excluded from the
computation of diluted earnings per share because the exercise prices were
greater than the average market price of the common shares, and therefore, the
effect would have been antidilutive.
 
     Options and warrants to purchase 8.7 million shares of common stock
outstanding during 2001 were excluded from the computation of diluted earnings
per share due to their antidilutive effect as a result of the Company's loss
from continuing operations for the period.
 
     Capital Contribution.  The Company recorded an approximately $2 million
capital contribution paid to the Company in November 2002 as a result of
recovering short-swing profits from an outside stockholder in accordance with
Section 16(b) of the Securities Exchange Act of 1934. Section 16(b) provides
that any profit realized by an insider (defined as an officer, director or
principal stockholder of an
 
                                       F-28

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
issuer) from any purchase and sale, or any sale and purchase, of an equity
security of the issuer within any period of less than six months are recoverable
by the issuer, irrespective of the intention of the insider in entering into
such transaction.
 
     Foreign Currency Translation and Comprehensive Income (Loss).  The
functional currency of the Company's operations outside of the United States is
the local country's currency. Consequently, assets and liabilities of operations
outside the United States are translated into dollars using exchange rates at
the end of each reporting period. Revenue and expenses are translated at the
average exchange rates prevailing during the period. Cumulative translation
gains and losses are reported in accumulated other comprehensive income (loss).
In the years ended December 31, 2003, 2002 and 2001, the only component of other
comprehensive loss is the net foreign currency translation, which was $0.1
million, $0.1 million and $37,000, respectively.
 
     Related Party Transactions.  In November 2000, pursuant to the employment
agreement between the Company and Philip M. Pead, the Company's Chairman of the
Board, Chief Executive Officer, and President, the Company entered into a
promissory note agreement with Mr. Pead for $250,000. This amount is included in
Other assets in the accompanying consolidated balance sheet. The loan is secured
by an aggregate of 74,000 shares of Common Stock, which Mr. Pead purchased in
the open market with the proceeds of the note, and is payable in full upon the
earlier to occur of the termination of Mr. Pead's employment or the sale of all
or any part of those shares. Any overdue payment on the loan bears interest at a
rate equal to the rate of interest then imputed by the Internal Revenue Service
plus 4% per annum, or the maximum rate permitted by law, whichever is lower.
Because the shares were purchased in the open market by Mr. Pead, and the note
only bears interest in the event of an overdue payment, the Company did not
record any compensation expense associated with this arrangement at inception,
and has not recorded any compensation expense in any subsequent period.
 
2.  ADDITIONAL PROCEDURES AND RESTATEMENTS OF THE CONSOLIDATED FINANCIAL
    STATEMENTS
 
     As a result of allegations of improprieties made during 2003 and 2004, the
Company's external auditors advised the Company and the Audit Committee of the
Board of Directors that additional procedures should be performed related to the
allegations. These additional procedures were required due to Statement of
Auditing Standards No. 99, Consideration of Fraud in a Financial Statement
Audit, ("SAS No. 99") that became effective for periods beginning on or after
December 15, 2002. Due to the volume and, in some cases, vague nature of many of
the allegations, the scope of the additional procedures was broad and extensive
(see Note 22 for additional information). The additional procedures included the
review of certain of the Company's revenues, expenses, assets and liabilities
accounts for the years 2001 through 2003. Certain financial items were
identified during the additional procedures that warranted further review by the
Company. The Company reviewed these items and determined that it was appropriate
to restate prior period financial statements. The restatements affect the
financial statements as of December 31, 2002 and 2001, for the years ended
December 31, 2002 and 2001 and for the nine months ended September 30, 2003, and
are included in this report.
 
     By year, the net decrease to the reported net loss for 2001 is
approximately $0.2 million or $.01 per share, and the net increase to reported
net income for 2002 is approximately $1.0 million or $.03 per share on a fully
diluted basis, and for the nine months ended September 30, 2003, is
approximately $0.8 million or $.03 per share on a fully diluted basis. In the
periods presented on a quarterly basis, the impact of the restatements is a net
increase to reported net income, except for the second quarter of 2002, which
has a decrease to reported net income of $0.2 million. The restatements were
generally related to the recording of accruals for sales commissions, vacation
liabilities, legal expenses, health insurance, incentive compensation and other
liabilities.
 
                                       F-29

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The impact of the restatements is presented below:
 


                                                              AS PREVIOUSLY
                                                               REPORTED(1)    AS RESTATED
                                                              -------------   -----------
                                                               (IN THOUSANDS, EXCEPT PER
                                                                      SHARE DATA)
                                                                        
FOR THE YEAR ENDED DECEMBER 31, 2001
  Revenue...................................................    $ 306,683      $ 305,822
  Loss from continuing operations...........................       (6,655)        (6,274)
  Net loss..................................................       (6,338)        (6,109)
  Loss from continuing operations per common
     share -- basic.........................................        (0.22)         (0.21)
  Loss from continuing operations per common
     share -- diluted.......................................        (0.22)         (0.21)
  Net loss per common share -- basic........................        (0.21)         (0.20)
  Net loss per common share -- diluted......................        (0.21)         (0.20)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
  Revenue...................................................    $  79,133      $  78,996
  Income from continuing operations.........................        2,334          2,725
  Net income................................................        1,299          1,792
  Income from continuing operations per common
     share -- basic.........................................         0.07           0.09
  Income from continuing operations per common
     share -- diluted.......................................         0.07           0.08
  Net income per common share -- basic......................         0.04           0.06
  Net income per common share -- diluted....................         0.04           0.05
FOR THE THREE MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
  Revenue...................................................    $  81,657      $  81,607
  Income from continuing operations.........................        2,298          2,120
  Net income................................................        2,022          1,846
  Income from continuing operations per common
     share -- basic.........................................         0.08           0.07
  Income from continuing operations per common
     share -- diluted.......................................         0.07           0.07
  Net income per common share -- basic......................         0.07           0.06
  Net income per common share -- diluted....................         0.06           0.06
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
  Revenue...................................................    $  82,842      $  83,048
  Income from continuing operations.........................        2,474          2,820
  Net income................................................        1,287          1,682
  Income from continuing operations per common
     share -- basic.........................................         0.08           0.09
  Income from continuing operations per common
     share -- diluted.......................................         0.08           0.09
  Net income per common share -- basic......................         0.04           0.05
  Net income per common share -- diluted....................         0.04           0.05
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED)
  Revenue...................................................    $  82,069      $  81,913
  Income from continuing operations.........................        3,598          3,825
  Net income................................................        3,332          3,669
  Income from continuing operations per common
     share -- basic.........................................         0.12           0.13
  Income from continuing operations per common
     share -- diluted.......................................         0.11           0.12
  Net income per common share -- basic......................         0.11           0.13
  Net income per common share -- diluted....................         0.11           0.12

 
                                       F-30

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


                                                              AS PREVIOUSLY
                                                               REPORTED(1)    AS RESTATED
                                                              -------------   -----------
                                                               (IN THOUSANDS, EXCEPT PER
                                                                      SHARE DATA)
                                                                        
FOR THE YEAR ENDED DECEMBER 31, 2002
  Revenue...................................................    $ 325,701      $ 325,564
  Income from continuing operations.........................       10,704         11,490
  Net income................................................        7,940          8,989
  Income from continuing operations per common
     share -- basic.........................................         0.35           0.38
  Income from continuing operations per common
     share -- diluted.......................................         0.33           0.36
  Net income per common share -- basic......................         0.26           0.30
  Net income per common share -- diluted....................         0.25           0.28
FOR THE THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
  Revenue...................................................    $  81,903      $  81,998
  Income from continuing operations.........................        2,863          3,121
  Net income................................................        1,578          1,837
  Income from continuing operations per common
     share -- basic.........................................         0.10           0.10
  Income from continuing operations per common
     share -- diluted.......................................         0.09           0.10
  Net income per common share -- basic......................         0.06           0.06
  Net income per common share -- diluted....................         0.05           0.06
FOR THE THREE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
  Revenue...................................................    $  85,412      $  85,456
  Income from continuing operations.........................        4,882          5,013
  Net income................................................        2,950          3,081
  Income from continuing operations per common
     share -- basic.........................................         0.16           0.16
  Income from continuing operations per common
     share -- diluted.......................................         0.15           0.16
  Net income per common share -- basic......................         0.10           0.10
  Net income per common share -- diluted....................         0.09           0.10
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
  Revenue...................................................    $  84,511      $  84,523
  Income from continuing operations.........................         (191)          (120)
  Net income................................................           74            506
  Income from continuing operations per common
     share -- basic.........................................        (0.01)         (0.00)
  Income from continuing operations per common
     share -- diluted.......................................        (0.01)         (0.00)
  Net income per common share -- basic......................           --           0.02
  Net income per common share -- diluted....................           --           0.02
AS OF DECEMBER 31, 2002
  Current assets............................................    $  98,233      $  98,175
  Total assets..............................................      209,850        209,631
  Current liabilities.......................................       79,024         77,573
  Total liabilities.........................................      249,102        247,603
  Accumulated deficit.......................................     (818,553)      (817,275)
  Total stockholders' deficit...............................      (39,252)       (37,972)

 
---------------
 
(1) As Previously Reported has been presented to reflect Patient1 and Business1
    as discontinued operations for all periods presented (see Note 4).
 
                                       F-31

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 

     Certain amounts in the Company's Consolidated Statement of Cash Flows
related to Funds Due to Clients have been reclassified for the years ended
December 31, 2003, 2002, and 2001. The reclassification decreased net cash
provided by operating activities and increased net cash provided by financing
activities by approximately $0.2 million, $1.1 million, and $0.9 million in the
years ended December 31, 2003, 2002, and 2001, respectively. Additionally, for
the year ended December 31, 2003, the Company reclassified approximately $4.3
million related to its debt refinancing from cash flows from operating
activities to cash used for financing activities.

 
3.  ACQUISITIONS
 
     On April 27, 2001, the Company acquired all of the assets of Virtual
Information Systems, Inc. ("VIS") for consideration of $7.0 million in cash. The
purchase agreement also provided for a purchase price adjustment of up to $1.5
million payable in cash should VIS meet certain financial targets over the
twelve months following the date of acquisition. As of December 31, 2001, the
Company had recorded the purchase price adjustment of $1.5 million. During the
first quarter of 2002, VIS met the financial targets in the purchase agreement
and accordingly, on May 10, 2002, the payment for the purchase price adjustment
of $1.5 million was made. VIS' core product, Virtual Processing Systems, is an
automated remittance processing solution for hospitals, which ensures accurate
and efficient processing of cash collections and payment of denial management
codes.
 
     Additionally, on April 27, 2001, the Company acquired all of the assets of
OfficeMed.com LLC ("OfficeMed") for consideration of $3.25 million in cash.
OfficeMed offers a Web-based ASP solution that gives healthcare and payer
organizations the ability to perform secure, real time benefits inquiries
against patients' insurance plans, ensuring eligibility at the point of care.
 
     The Company recorded the VIS and OfficeMed acquisitions using the purchase
method of accounting and, accordingly, allocated the purchase price to the
assets acquired and the liabilities assumed based on their estimated fair market
value at the date of acquisition. Approximately $7.3 million of the purchase
price was allocated to goodwill and prior to adoption of SFAS No. 142 was being
amortized using the straight-line method over 20 years. In 2001, the Company
finalized the purchase price allocation of these acquisitions, and approximately
$5.3 million previously allocated to goodwill was reallocated to finite-lived
intangible assets with lives ranging from five to ten years. The operating
results of VIS and OfficeMed are included in the Company's Consolidated
Statements of Operations from the date of acquisition in the Hospital Services
division.
 
     On February 9, 2000, the Company acquired the outstanding capital stock of
Knowledgeable Healthcare Solutions, Inc. ("KHS") for consideration of $3.1
million, consisting of $1.1 million cash and approximately 236,000 shares, or
$2.0 million, of the Company's Common Stock. In addition, the purchase agreement
provided for a purchase price adjustment of up to $6.0 million, which was
recorded in December 2000, payable in cash and the Company's Common Stock,
should KHS meet certain operational targets over the three years from the date
of acquisition. The Company was required under the purchase agreement to make a
purchase price adjustment in April 2001 totaling $0.1 million, 25% of which was
paid through the issuance of the Company's Common Stock.
 
     The Company recorded the KHS acquisition using the purchase method of
accounting and, accordingly, allocated the purchase price to the assets acquired
and the liabilities assumed based on their estimated fair market value at the
date of acquisition. Approximately $8.9 million of the purchase price was
allocated to goodwill and prior to adoption of SFAS No. 142, a portion of which
was being amortized using the straight-line method over five years. In February
2003, the Company determined that KHS would not meet its purchase agreement
operational targets and reduced the purchase price allocation to goodwill by
approximately $5.9 million. This adjustment is reflected in the Company's
December 31, 2002,
 
                                       F-32

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Consolidated Balance Sheet. The operating results of KHS are included in the
Company's Consolidated Statements of Operations from the date of acquisition.
 
     The pro-forma impact of these acquisitions was immaterial to the financial
statements of the Company and therefore has not been presented.
 
4.  DISCONTINUED OPERATIONS AND DIVESTITURES
 
     In June 2003, the Company announced that it agreed to sell Patient1 to
Misys Healthcare Systems, a division of Misys plc ("Misys") for $30 million in
cash. Patient1 was the Company's only clinical product line and its sale allows
the Company to better focus on optimizing reimbursement and improving
administrative efficiencies for physician practices and hospitals. The sale was
completed on July 28, 2003. The Company recognized a gain on the sale of
Patient1 of approximately $10.4 million, net of taxes of approximately $.5
million, subject to closing adjustments, in 2003. Net proceeds on the sale of
Patient1 were approximately $27.9 million, subject to closing adjustments. The
Company is currently in arbitration with Misys regarding the final closing
adjustments, which would represent additional purchase price payments to the
Company. The Company expects the arbitration process to be completed by the end
of the second quarter of 2004.
 
     In September 2003, the Company initiated a process to sell Business1. As
with the sale of Patient1, the discontinuance of Business1 will allow the
Company to focus resources on solutions that provide meaningful, strategic
returns for the Company, its customers and its shareholders. Pursuant to SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
No. 144"), the Company wrote down the net assets of Business1 to fair market
value less costs to sell and incurred an $8.5 million expense. The Company
completed the sale of Business1 effective January 31, 2004, to a privately held
company for $0.6 million, which will be received in three payments through June
2006. No cash consideration was received at closing.
 
     Pursuant to SFAS No. 144, the consolidated financial statements of the
Company have been presented to reflect Patient1 and Business1 as discontinued
operations for all periods presented. Summarized operating results for the
discontinued operations are as follows:


                                                     YEAR ENDED DECEMBER 31,
                               -------------------------------------------------------------------
                                            2003                               2002
                               ------------------------------   ----------------------------------
                                                                          (AS RESTATED)
                               PATIENT1   BUSINESS1    TOTAL    PATIENT1     BUSINESS1      TOTAL
                               --------   ---------   -------   --------   -------------   -------
                                                         (IN THOUSANDS)
                                                                         
Revenue......................  $15,247     $   474    $15,721   $25,855       $ 2,498      $28,353
                               =======     =======    =======   =======       =======      =======
(Loss) income from
  discontinued operations
  before income taxes........  $(1,270)    $(3,589)   $(4,859)  $   888       $(1,921)     $(1,033)
Income tax expense...........       46          --         46       443            --          443
                               -------     -------    -------   -------       -------      -------
(Loss) income from
  discontinued operations,
  net of tax.................  $(1,316)    $(3,589)   $(4,905)  $   445       $(1,921)     $(1,476)
                               =======     =======    =======   =======       =======      =======
 

                                    YEAR ENDED DECEMBER 31,
                               ----------------------------------
                                              2001
                               ----------------------------------
                                         (AS RESTATED)
                               PATIENT1     BUSINESS1      TOTAL
                               --------   -------------   -------
                                         (IN THOUSANDS)
                                                 
Revenue......................  $19,905       $ 2,272      $22,177
                               =======       =======      =======
(Loss) income from
  discontinued operations
  before income taxes........  $(2,167)      $(1,554)     $(3,721)
Income tax expense...........        2            --            2
                               -------       -------      -------
(Loss) income from
  discontinued operations,
  net of tax.................  $(2,169)      $(1,554)     $(3,723)
                               =======       =======      =======

 
                                       F-33

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The major classes of assets and liabilities for the discontinued operations
are as follows:
 


                                             AS OF
                                          DECEMBER 31,         AS OF DECEMBER 31, 2002
                                              2003        ----------------------------------
                                         --------------             (AS RESTATED)
                                           BUSINESS1      PATIENT1     BUSINESS1      TOTAL
                                         --------------   --------   -------------   -------
                                         (IN THOUSANDS)             (IN THOUSANDS)
                                                                         
Current assets.........................       $129        $10,385       $2,395       $12,780
Property and equipment.................         --          1,889          226         2,115
Other long-term assets.................         --          4,723        6,461        11,184
                                              ----        -------       ------       -------
  Assets of discontinued operations....       $129        $16,997       $9,082       $26,079
Current liabilities....................       $422        $ 3,316       $  532       $ 3,848
Deferred revenue.......................         --          3,237           13         3,250
Other long-term liabilities............         --            792           --           792
                                              ----        -------       ------       -------
  Liabilities of discontinued
     operations........................       $422        $ 7,345       $  545       $ 7,890
                                              ====        =======       ======       =======

 
     On November 30, 1998, the Company completed the sale of its MSC business
segment. In 1999, the Company completed the sale of both divisions of its Impact
business segment.
 
     In October of 2001, the Company received $1.0 million in cash from the
buyer of the government division of Impact when the term of the purchase
agreement escrow expired. This amount was recognized through discontinued
operations. In May of 2001, the Company received an insurance settlement related
to a matter filed against the commercial division of Impact of approximately
$3.0 million, which was recognized through discontinued operations. The Company
continues to pursue claims against a former vendor of this division for damages
incurred in this matter.
 
     For the year ended December 31, 2002, the Company expensed $0.7 million
through discontinued operations to reflect an agreement resolving an
indemnification claim by NCO Group, Inc. ("NCO"), the buyer of the Company's MSC
division. When NCO bought MSC, the Company agreed to indemnify NCO for limited
periods of time in the event NCO incurred certain damages related to MSC. NCO
incurred such damages in connection with an alleged environmental liability of
MSC, and the Company agreed to reimburse NCO for a portion of those damages, in
satisfaction of the Company's indemnification obligation. The Company paid $0.3
million to NCO on September 16, 2002. The Company intends to pay the remaining
balance of $0.4 million, plus interest at the then-current prime rate, in equal
payments to NCO, on the second and third anniversaries of that date.
 
     The limited periods of time for which the Company agreed to indemnify NCO
for most types of claims related to MSC have passed without the assertion by NCO
of any other significant claims. These limitations do not apply to a small
number of other types of potential claims to which statutory limitations apply,
such as those involving title to shares, taxes and billing and coding under
Medicare and Medicaid; however, management believes that such other types of
claims are unlikely to occur.
 
     During the years ended December 31, 2003 and 2002, the Company also
incurred expenses of approximately $0.9 million and $0.3 million, respectively,
which were primarily legal costs, associated with MSC and Impact. Pursuant to
SFAS No. 144, the consolidated financial statements of the Company have been
presented to reflect the activity associated with MSC and Impact as discontinued
operations for all periods presented.
 
     The net operating results of these segments have been reported in the
Consolidated Statements of Operations as "(Loss) income from discontinued
operations, net of tax -- Other" and the net cash flows
 
                                       F-34

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
have been reported in the Consolidated Statements of Cash Flows as "Net cash
(used for) provided by discontinued operations."
 
5.  RESTRUCTURING AND OTHER EXPENSES
 
     Components of other expenses are as follows:
 


                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                              2003   2002   2001
                                                              ----   ----   ----
                                                                (IN THOUSANDS)
                                                                   
Severance costs.............................................  $504   $--    $593
Other.......................................................   326    --      --
                                                              ----   ---    ----
                                                              $830   $--    $593
                                                              ====   ===    ====

 
     Severance Costs.  In 2003, the Company recorded net expenses of $0.5
million for severance costs related to the realignment of the Company into the
Physician Services and Hospital Services divisions. In 2001, the Company
recorded net expenses of $0.6 million for severance costs associated with former
executive management.
 
     A description of the amount of severance costs recorded and subsequently
incurred is as follows:


                        ACCRUED     ADDITION                  ACCRUED                    ACCRUED      ADDITION
                       SEVERANCE       TO         COSTS      SEVERANCE       COSTS      SEVERANCE        TO
                       LIABILITY     ACCRUED     PAID OR     LIABILITY      PAID OR     LIABILITY      ACCRUED
                       JANUARY 1,   SEVERANCE   OTHERWISE   DECEMBER 31,   OTHERWISE   DECEMBER 31,   SEVERANCE
                          2001      LIABILITY    SETTLED        2001        SETTLED        2002       LIABILITY
                       ----------   ---------   ---------   ------------   ---------   ------------   ---------
                                                            (IN THOUSANDS)
                                                                                 
Severance costs......    $1,387       $593        $(845)       $1,135        $(822)        $313         $504
 

                                     ACCRUED
                         COSTS      SEVERANCE
                        PAID OR     LIABILITY
                       OTHERWISE   DECEMBER 31,
                        SETTLED        2003
                       ---------   ------------
                            (IN THOUSANDS)
                             
Severance costs......    $(299)        $518

 
     Other.  In 2003, the Company incurred approximately $0.3 million of
restructuring expenses related to the realignment of the Company into the
Physician Services and Hospital Services divisions.
 
     Restructuring Expenses.  Under SFAS No. 146, the Company discloses certain
information related to restructuring expenses.
 
     In early 1995, the Company initiated a reengineering program focused upon
its billing and accounts receivable management operations (the "Reengineering
Project"). As part of the Physician Services Restructuring Plan, the Company
recorded restructuring reserves in 1995 through 1996. In 1996, the Company
abandoned its Reengineering Project. The Company periodically reevaluates the
adequacy of the reserves established for the Physician Services Restructuring
Plan. In 1997 and 1999 the Company recorded an additional expense of $1.7
million and $0.3 million, respectively, for lease termination costs.
 
     A description of the type and amount of restructuring costs recorded at the
commitment date and subsequently incurred for the restructurings discussed above
is as follows:
 


                               RESERVE       COSTS       RESERVE        COSTS       RESERVE        COSTS       RESERVE
                               BALANCE      PAID OR      BALANCE       PAID OR      BALANCE       PAID OR      BALANCE
                              JANUARY 1,   OTHERWISE   DECEMBER 31,   OTHERWISE   DECEMBER 31,   OTHERWISE   DECEMBER 31,
                                 2001       SETTLED        2001        SETTLED        2002        SETTLED        2003
                              ----------   ---------   ------------   ---------   ------------   ---------   ------------
                                                                    (IN THOUSANDS)
                                                                                        
Lease termination costs.....    $2,873       $(535)       $2,338        $(358)       $1,980        $(550)       $1,430

 
     The terminated leases have various expiration dates through 2011. The
estimated lease termination costs to be incurred within the next 12 months are
classified in Accrued expenses in the Company's Consolidated Balance Sheets. The
estimated lease termination costs to be incurred beyond the next 12 months are
classified in Other obligations in the Company's Consolidated Balance Sheets.
 
                                       F-35

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6.  PROCESS IMPROVEMENT PROJECT
 
     The Company incurred approximately $3.4 million of expense in 2001,
associated with the implementation of a process improvement project within the
Physician Services division (the "Project"). The Project installed a formalized
set of productivity and quality measures, workflow processes and a management
operating system in certain of the Company's major processing centers. The
Project focused on productivity improvements that resulted in both improved
client service and improved profitability for the division.
 
     The Company completed the first phase of the Project, which involved
implementation in twelve of the division's larger processing centers, in the
third quarter of 2001 with all costs for this phase incurred as of September 30,
2001. In 2001, the costs associated with the Project primarily consisted of
professional fees paid to outside consultants retained exclusively for
implementation of the Project.
 
     The Company completed the second phase of the Project, which began in the
first quarter of 2002, as of September 30, 2002, with implementation into an
additional fifteen processing centers. The Company implemented the second phase
with internal resources, and therefore the Company did not incur any external
project costs.
 
7.  PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following:
 


                                                                2003          2002
                                                              ---------   -------------
                                                                          (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                    
Land........................................................  $     590     $     590
Buildings...................................................      2,751         2,751
Furniture and fixtures......................................     15,886        15,380
Equipment...................................................    110,443       114,150
Leasehold improvements......................................      6,101         5,355
                                                              ---------     ---------
                                                                135,771       138,226
Less accumulated depreciation...............................   (119,337)     (118,677)
                                                              ---------     ---------
                                                              $  16,434     $  19,549
                                                              =========     =========

 
8.  INTANGIBLE ASSETS
 
     Intangible assets consist of the following:
 


                                                                2003         2002
                                                              --------   -------------
                                                                         (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                   
Goodwill....................................................  $ 39,057     $ 39,057
Client lists................................................    44,308       44,308
Developed technology........................................     4,616        4,616
Trademarks..................................................     1,316        1,316
Software development costs..................................    19,112       15,136
                                                              --------     --------
                                                               108,409      104,433
Less accumulated amortization...............................   (56,073)     (48,939)
                                                              --------     --------
                                                              $ 52,336     $ 55,494
                                                              ========     ========

 
                                       F-36

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In accordance with Accounting Principles Board Opinion No. 16, Business
Combinations, as of December 31, 2001, the Company finalized the purchase price
allocation of its most recent acquisitions, with a portion of the amount
previously allocated to goodwill being reallocated to finite-lived intangible
assets. The amounts reallocated to finite-lived intangible assets totaled
approximately $9.2 million. The amortization period of the amounts allocated to
client lists ranges from five to ten years. The amortization period of the
amounts allocated to developed technology is five years.
 
     In February 2003, the Company determined that its KHS acquisition would not
meet its purchase agreement operational targets and reduced the purchase price
allocation to goodwill by approximately $5.9 million. This adjustment is
reflected in the Company's December 31, 2002, Consolidated Balance Sheet.
 
     Expenditures on capitalized software development costs were approximately
$4.0 million, $3.4 million and $2.4 million in 2003, 2002 and 2001,
respectively. Amortization expense related to the Company's capitalized software
costs totaled $2.1 million, $2.0 million (as restated) and $1.9 million (as
restated) in 2003, 2002 and 2001, respectively. The unamortized balance of
software development costs at December 31, 2003 and 2002 was $6.9 million and
$5.1 million (as restated), respectively. The Company amortizes software
development costs using the straight-line method over the estimated useful lives
of the assets, which are generally three to five years.
 
     The acquired intangible asset amortization expense estimated as of December
31, 2003, for the five years following 2003 and thereafter is as follows (in
thousands):
 

                                                            
2004........................................................   $ 4,942
2005........................................................     4,159
2006........................................................       869
2007........................................................       404
2008........................................................       404
Thereafter..................................................       773
                                                               -------
                                                               $11,551
                                                               =======

 
9.  ACCRUED EXPENSES
 
     Accrued expenses consist of the following:
 


                                                               2003         2002
                                                              -------   -------------
                                                                        (AS RESTATED)
                                                                  (IN THOUSANDS)
                                                                  
Interest....................................................  $    44      $ 6,270
Accrued restructuring and severance costs, current..........      357          793
Accrued legal costs.........................................    3,548        3,460
Accrued legal settlements -- Lloyd's related................    5,200        1,666
Accrued taxes...............................................    1,869          862
Funds due clients...........................................    3,026        2,888
Accrued costs of businesses acquired........................      159          237
Other.......................................................    4,834        4,739
                                                              -------      -------
                                                              $19,037      $20,915
                                                              =======      =======

 
                                       F-37

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  LONG-TERM DEBT
 
     Long-term debt consists of the following:
 


                                                                2003       2002
                                                              --------   --------
                                                                (IN THOUSANDS)
                                                                   
9 1/2% Senior Notes due February 15, 2005 (the "Notes").....  $     --   $175,000
Term Loan B due September 11, 2008, weighted average
  interest rate of 5.73% in 2003............................   121,875         --
Capital lease obligations, weighted average effective
  interest rate of 0.5% in 2002.............................        --         20
                                                              --------   --------
                                                               121,875    175,020
Less current portion........................................   (12,500)   (15,020)
                                                              --------   --------
                                                              $109,375   $160,000
                                                              ========   ========

 
     On February 20, 1998, the Company issued $175 million of 9 1/2% Senior
Notes due 2005 (the "Notes"). Under the Indenture that governed the Notes, the
balance of net proceeds, as defined, from the sale of any assets having a fair
value in excess of $1.0 million was required to be invested in the Company's
business within 360 days of receipt of proceeds related to the sale or they
would become "excess proceeds," as defined. If the aggregate of excess proceeds
became greater than $10.0 million, the Company was required to offer to
repurchase the Notes at par with such excess proceeds. In February 2003, the
Company reduced its unpaid portion of the purchase price allocation for the
Company's 2000 acquisition of KHS (refer to Note 3 for more information). Due to
the reduction of the KHS purchase price allocation, excess proceeds exceeded
$10.0 million. Therefore, on March 17, 2003, the Company repurchased $15.0
million of the Notes at par plus accrued interest of approximately $0.1 million.
The Company incurred a write-off of approximately $0.2 million of deferred debt
issuance costs associated with the original issuance of the Notes related to
this repurchase, which is included in loss on extinguishment of debt in the
Company's Consolidated Statements of Operations.
 
     On August 12, 2003, the Company commenced a cash tender offer for its
then-outstanding $160 million of Notes (the "Tender Offer"). On September 11,
2003, the Company repurchased $143.6 million of the Notes that were tendered at
the redemption price of 102.375% of the principal amount, as required under the
Indenture governing the Notes, and accrued interest of approximately $1.0
million. The Notes tendered by August 25, 2003 included a premium of 0.25% of
the principal amount in addition to the redemption price of 102.375% of the
principal amount. The remaining $16.4 million of the Notes were retired on
September 18, 2003, through a call initiated by the Company on August 12, 2003,
at the redemption price of 102.375% of the principal amount plus accrued
interest of approximately $10,000 (the "Call"). The Company incurred a write-off
of approximately $1.4 million of deferred issuance costs associated with the
original issuance of the Notes related to their retirement through the Tender
Offer and the Call, which are included in loss on extinguishment of debt in the
Company's Consolidated Statements of Operations. In addition, the Company
incurred expenses associated with the retirement of the Notes of approximately
$4.7 million, including the Tender Offer premium and the Call premium which are
also included in loss on extinguishment of debt in the Company's Consolidated
Statements of Operations.
 
     On April 16, 2001, the Company entered into a $50 million credit facility
(the "2001 Credit Facility"). The Company did not incur any borrowings under the
2001 Credit Facility, and, on September 11, 2003, the Company terminated the
2001 Credit Facility.
 
     On September 11, 2003, the Company entered into a $175 million Credit
Agreement (the "Credit Agreement"). The Credit Agreement consists of a $125
million Term Loan B (the "Term Loan B") and
 
                                       F-38

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
a $50 million revolving credit facility (the "Revolving Credit Facility"). Under
the Credit Agreement, the Company has the option of entering into LIBOR-based
loans or base rate loans, each as defined in the Credit Agreement. The Company
had approximately $121.9 million outstanding under the Term Loan B as of
December 31, 2003, under a LIBOR-based interest contract, bearing interest at
5.39%. The Term Loan B bears interest at a rate of either LIBOR plus 4.25% or
the base rate, which approximates prime, plus 2.75%, and matures in five years.
The Term Loan B includes mandatory quarterly principal payments based on annual
amortization of 10% for the first two years, 15% for years three and four and
50% in year five. LIBOR-based loans under the Revolving Credit Facility bear
interest at LIBOR plus amounts ranging from 3.0% to 3.5% based on the Company's
leverage ratio, as defined in the Credit Agreement. Base-rate loans under the
Revolving Credit Facility bear interest at the Base Rate, which approximates
prime, plus amounts ranging from 1.50% to 2.00% based on the Company's leverage
ratio, as defined in the Credit Agreement. In addition, the Company pays a
quarterly commitment fee on the unused portion of the Revolving Credit Facility
of 0.50% per annum.
 
     Proceeds from the Term Loan B, proceeds from the sale of Patient1 and cash
on hand were used to fund the Tender Offer. The Company used cash on hand to
fund the Call. During 2003, the Company capitalized expenses related to the
refinancing transactions of approximately $5.5 million, including legal and
other professional fees related to the Credit Agreement, which are included in
the Company's Other Long-term Assets on the Consolidated Balance Sheets. The
Company will amortize these costs over the term of the Revolving Credit Facility
and the Term Loan B agreements, for three and five years, respectively, and
include them in interest expense.
 
     All obligations under the Credit Agreement are fully and unconditionally
guaranteed, on a senior secured basis, jointly and severally by all of the
Company's present and future domestic and material foreign subsidiaries (the
"Subsidiary Guarantors"). The financial statements of the Subsidiary Guarantors
have not been presented as all subsidiaries, except for certain minor foreign
subsidiaries, have provided guarantees and the parent company does not have any
significant operations or assets, separate from its investment in subsidiaries.
Any non-guarantor subsidiaries are minor individually and in the aggregate to
the Company's consolidated financial statements.
 
     The Credit Agreement contains financial and other restrictive covenants,
including, without limitation, those restricting additional indebtedness, lien
creation, dividend payments, asset sales and stock offerings, and those
requiring a minimum net worth, maximum leverage and minimum fixed charge
coverage, each as defined in the Credit Agreement. The Company was in compliance
with all applicable covenants as of December 31, 2003.
 
     The initial term of the Revolving Credit Facility is three years. The
Company and the Lender can mutually agree to extend this term by up to two
years. The Company intends to use the Revolving Credit Facility, as needed, for
future investments in its operations, including capital expenditures, strategic
acquisitions, to secure its letters of credit, as needed, and other general
corporate purposes. The Company has not incurred any borrowings under the
Revolving Credit Facility as of December 31, 2003.
 
     The Company's policy is to amortize debt issuance costs using the
straight-line method over the life of the debt agreement. Amortization expense
related to debt issuance costs on the Notes, the 2001 Credit Facility and the
Credit Agreement for the years ended 2003, 2002, and 2001 were $1.5 million,
$1.4 million and $1.3 million, respectively.
 
                                       F-39

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The aggregate maturities of long-term debt are as follows (in thousands):
 

                                                            
2004........................................................   $ 12,500
2005........................................................     14,063
2006........................................................     18,750
2007........................................................     29,687
2008........................................................     46,875
                                                               --------
                                                               $121,875
                                                               ========

 
     The Company's capital leases consisted principally of leases for equipment.
As of December 31, 2002, the net book value of equipment subject to capital
leases totaled $0.01 million.
 
11.  LEASE COMMITMENTS
 
     The Company leases office space and equipment under noncancelable operating
leases, which expire at various dates through 2011. Rent expense was $14.4
million, $14.8 million and $14.8 million for the years ended December 31, 2003,
2002 and 2001, respectively.
 
     Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
 

                                                            
2004........................................................   $12,635
2005........................................................     8,682
2006........................................................     5,263
2007........................................................     3,450
2008........................................................     2,197
Thereafter..................................................     3,308
                                                               -------
                                                               $35,535
                                                               =======

 
12.  LEGAL MATTERS
 
  PENDING LEGAL MATTERS
 
     The Company is subject to claims, litigation and official billing inquiries
arising in the ordinary course of its business. These matters include, but are
not limited to, lawsuits brought by former customers with respect to the
operation of the Company's business. The Company has also received written
demands from customers and former customers that have not resulted in legal
action. Within the Company's industry, federal and state civil and criminal laws
govern medical billing and collection activities. These laws provide for various
fines, penalties, multiple damages, assessments and sanctions for violations,
including possible exclusion from federal and state healthcare payer programs.
 
     The Company believes that it has meritorious defenses to the claims and
other issues asserted in pending legal matters; however, there can be no
assurance that such matters or any future legal matters will not have an adverse
effect on the Company. Amounts of awards or losses, if any, in pending legal
matters have not been reflected in the financial statements unless probable and
reasonably estimable.
 
  SETTLED LEGAL MATTERS
 
     In February 2002, the Company settled claims for alleged breach of contract
arising out of a 1997 contract for billing services provided by the Physician
Services division to a former client. The Company and its insurance carrier at
the time, Certain Underwriters at Lloyd's of London (collectively "Lloyd's"),
each paid the plaintiff $2.0 million in cash in exchange for a release of all
claims asserted against the
                                       F-40

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Company. Under the terms of its insurance policy with Lloyd's, the Company is
seeking reimbursement from Lloyd's for the $2.0 million it paid in this
settlement.
 
     On May 30, 2002, the Company received a letter from Lloyd's purporting to
rescind various managed healthcare professional liability, or errors and
omissions ("E&O") and directors and officers and company reimbursement ("D&O")
insurance policies (collectively the "Policies") issued to the Company by
Lloyd's. The E&O policies were for the term of December 31, 1998, through June
30, 2002, and the D&O policies were for the term of July 1, 2000, through June
30, 2002. The purported rescission was based on allegations that the Company had
failed to advise Lloyd's about the existence of several lawsuits that were
alleged to be related to the risk covered under the Policies.
 
     On May 31, 2002, Lloyd's filed a lawsuit in the Circuit Court for Kent
County, Michigan, against the Company seeking rescission of the E&O and D&O
policies based on the allegations in its letter, dated May 30, 2002, or a
declaration that coverage is unavailable for the claim related to the February
2002 settlement (discussed above) under the policies issued by Lloyd's. Lloyd's
also claimed restitution of the $2.0 million paid by Lloyd's on behalf of the
Company in that settlement. On June 5, 2002, the Company filed a lawsuit in the
Superior Court of the State of California for the County of Los Angeles against
Lloyd's seeking damages for breach of contract and breach of obligations of good
faith and fair dealing, including punitive damages. The Company also seeks a
declaratory judgment to enforce the E&O and D&O policies according to their
terms.
 
     The lawsuit filed by Lloyd's was dismissed during December 2002 with the
Michigan court citing California as a more suitable forum in which to hear the
litigation. During June 2003, the California Superior Court ordered the Company
and Lloyd's to engage in nonbinding mediation to be completed by October 30,
2003.
 
     The Company's insurance coverage for both the E&O and D&O policies was
scheduled to be renewed as of June 30, 2002, and the Company was in the process
of actively pursuing new coverage with insurance carriers, including Lloyd's,
when the attempted rescission notice was received from Lloyd's. Due to the
attempted rescission, the Company expedited its insurance proposal process, and
in mid-June 2002, the Company secured insurance coverage with a policy period of
12 months. The Company experienced a significant, above-market increase in
insurance premiums and deductibles with its June 2002 policies as a result of
the actions of Lloyd's and is seeking reimbursement for a portion of the
increased premium costs and increased deductibles in its lawsuit against
Lloyd's. During June 2003, the Company secured new insurance policies in the
ordinary course of business, at substantially reduced premiums compared to the
previous twelve-month policies. For the years 2003 and 2002, the Company
incurred approximately $2.8 million and $3.0 million, respectively, in expenses
related to its litigation with Lloyd's and increased insurance premiums. These
costs are reflected in the Company's Corporate segment. In the Company's
Consolidated Statements of Operations, these costs are included in Other
operating expenses.
 
     On May 10, 2004, the Company reached a settlement with its former insurance
carrier, Lloyd's of London. The Company was in litigation with Lloyd's of London
after its attempt in May 2002 to rescind certain E&O policies and D&O policies
that it had issued to the Company from the period December 31, 1998 to June 30,
2002. In the settlement, Lloyd's of London agreed to pay the Company $20 million
in cash by July 9, 2004. Lloyd's of London also agreed to defend, settle or
otherwise resolve at their expense the two remaining pending claims covered
under the E&O policies. In exchange, the Company provided Lloyd's of London with
a full release of all E&O and D&O policies. The California Superior Court
retained jurisdiction to enforce any aspect of the settlement agreement.
 
     During the course of the litigation, the Company was required to fund the
legal costs and any litigation settlements related to E&O claims covered by the
Lloyd's E&O policies. At December 31, 2003, the Company's receivable from
Lloyd's was $17.4 million associated with legal and settlement costs in
 
                                       F-41

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
excess of the Lloyd's E&O deductible. This $17.4 million balance includes $10.6
million that was paid during 2002 and 2003, and additional obligations to be
paid of approximately $6.8 million. The additional obligations of approximately
$6.8 million have been paid or are scheduled to be paid as follows: $2.0 million
was paid in February 2004, an additional $0.6 million will be paid during the
first half of 2004, $1.1 million will be paid in January 2005 and $3.1 million
will be paid upon a favorable outcome with Lloyd's. As of the settlement date,
the Company had an $18.3 million receivable from Lloyd's, of which approximately
$5 million has not been paid.
 
13.  STOCKHOLDERS' RIGHTS PLAN
 
     On January 21, 1999, the Board approved a stockholders' rights plan (the
"Rights Plan"). Pursuant to the Rights Plan, the Company declared a dividend of
one right for each outstanding share of Common Stock to stockholders of record
at the close of business on February 16, 1999. Each right entitles the
registered holder to purchase from the Company a unit (a "Unit") consisting of
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
without par value, at a purchase price of $75 per Unit.
 
     Initially, the rights are deemed to be attached to certificates
representing all outstanding shares of Common Stock, and they are not
represented by separate rights certificates. Subject to certain exceptions
specified in the Rights Plan, the rights will separate from the Common Stock and
become exercisable upon the earlier to occur of (i) 10 business days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding Common Stock or (ii) 10 business days following the commencement of
a tender offer for the Common Stock.
 
     In the event that a person becomes an Acquiring Person, except pursuant to
an offer for all outstanding shares of Common Stock that the independent
directors of the Company determine to be fair and otherwise in the best
interests of the Company and its stockholders (after receiving advice from one
or more investment banking firms), each holder of a right will thereafter have
the right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the exercise price of the right (i.e., $150 per Unit).
 
     Until a right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the rights become
exercisable for Common Stock (or other consideration) of the Company, or for
common stock of the acquiring company, or in the event of the redemption of the
rights as set forth above. As of December 31, 2003 and 2002, no rights have
become exercisable under this plan.
 
     On May 4, 2000, the Company amended the Rights Plan to provide that the
meaning of the term "Acquiring Person" shall not include Basil P. Regan and
Regan Partners, L.P. (collectively, "Regan Fund Management"), so long as Regan
Fund Management does not become the beneficial owner of 20% or more of the
outstanding shares of Common Stock. Effective March 6, 2002, the Company amended
the Rights Plan to rescind the May 4, 2000, amendment, thereby making Regan Fund
Management subject to the 15% beneficial ownership threshold described above. On
March 10, 2003, the Company amended the Rights Plan to provide that the term
"Acquiring Person" shall not include ValueAct Capital Partners, L.P. ("ValueAct
Partners"), ValueAct Capital Partners II, L.P. ("ValueAct Partners II"),
ValueAct Capital International, Ltd. ("ValueAct International"), VA Partners,
L.L.C. ("VA Partners"), Jeffrey W. Ubben, George F. Hamel, Jr., and Peter H.
Kamin (ValueAct Partners, ValueAct Partners II, ValueAct International, VA
Partners and Messrs. Ubben, Hamel and Kamin, and their affiliates, collectively
"ValueAct"), so long as ValueAct does not become the Beneficial Owner of 20% or
more of the then
                                       F-42

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
outstanding shares of Common Stock. As of December 31, 2003, ValueAct Partners
was the beneficial owner of approximately 17.1% of the outstanding shares of
Common Stock.
 
14.  COMMON STOCK OPTIONS AND STOCK AWARDS
 
     The Company has several stock option plans including a Non-Qualified Stock
Option Plan, a Non-Qualified Stock Option Plan for Employees of Acquired
Companies and a Non-Qualified Stock Option Plan for Non-Executive Employees.
Options expire ten to eleven years after the date of grant and generally vest
over a three-to-five year period. The total number of options available for
future grant under these stock option plans was approximately 1.7 million at
December 31, 2003.
 
     The Company also has a Non-Qualified Non-Employee Director Stock Option
Plan (the "Director Plan") for non-employees who serve on the Company's Board of
Directors. The Director Plan provides for an initial grant of 10,000 options at
a strike price equal to the average of the fair market values for the five
trading days prior to the date of the grant. Additionally, each non-employee
director receives an annual grant of 10,000 options at each subsequent annual
meeting in which the non-employee director is a member of the Board of
Directors. All options granted under the Director Plan originally vested over a
five-year period and expired eleven years from the date of grant. On April 1,
1999, the Director Plan was amended so that all future options granted under the
Director Plan fully vest as of the date of grant but are not exercisable until
one year after the date of grant. As of December 31, 2003, the Company had
228,543 options available for future grant under this plan.
 
     The Company's Senior Executive Non-Qualified Stock Option Plan permitted
certain former Company executive officers to purchase shares of the Company's
Common Stock. All options under this plan expired on January 16, 2001.
 
     In June of 1999, in connection with the settlement with the former
shareholders of MMS, the Company issued warrants to purchase 166,667 shares of
Common Stock. These warrants are currently exercisable at an exercise price of
$15.94 per share and will expire on June 25, 2004. The Company has reserved
166,667 shares for future issuance for these warrants outstanding.
 
     Activity related to all stock option plans is summarized as follows (shares
in thousands):
 


                                     2003                        2002                         2001
                          --------------------------   -------------------------   --------------------------
                                    WEIGHTED-AVERAGE            WEIGHTED-AVERAGE             WEIGHTED-AVERAGE
                          SHARES     EXERCISE PRICE    SHARES    EXERCISE PRICE    SHARES     EXERCISE PRICE
                          -------   ----------------   ------   ----------------   -------   ----------------
                                                                           
Options outstanding as
  of January 1..........    7,319        $ 8.36         6,934        $8.07           4,449        $10.90
Granted.................      685         11.66           890         9.97           4,250          6.77
Exercised...............   (1,159)         6.87          (194)        5.53             (62)         4.80
Canceled................     (210)         8.84          (311)        8.35          (1,703)        11.73
                          -------                      ------                      -------
Options outstanding as
  of December 31........    6,635        $ 8.94         7,319        $8.36           6,934        $ 8.07
                          =======                      ======                      =======
Options exercisable as
  of December 31........    3,838        $ 9.31         3,057        $9.76           1,831        $12.00
                          =======                      ======                      =======
Weighted-average fair
  value of options
  granted during the
  year..................  $  5.25                      $ 4.44                      $  3.10
                          =======                      ======                      =======

 
                                       F-43

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table summarizes information about stock options outstanding
and exercisable at December 31, 2003 (shares in thousands):
 


                                           OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                                 ----------------------------------------   --------------------------
                                                   WEIGHTED-
                                     NUMBER         AVERAGE     WEIGHTED-       NUMBER       WEIGHTED-
                                 OUTSTANDING AT    REMAINING     AVERAGE    EXERCISABLE AT    AVERAGE
                                  DECEMBER 31,    CONTRACTUAL   EXERCISE     DECEMBER 31,    EXERCISE
RANGE OF EXERCISE PRICES              2003           LIFE         PRICE          2003          PRICE
------------------------         --------------   -----------   ---------   --------------   ---------
                                                                              
$2.25 to $6.00.................      1,455           7.99        $ 5.32           922         $ 4.93
$6.02 to $9.06.................      3,566           8.04          7.57         1,865           7.50
$10.00 to $13.05...............        460           7.80         11.64           281          11.62
$13.51 to $19.96...............      1,012           6.14         15.31           628          16.26
$21.19 to $22.31...............         81           4.15         21.30            81          21.30
$26.10 to $29.34...............         49           4.82         28.80            49          28.80
$30.00 to $135.00..............         12           2.15         45.97            12          45.97
                                     -----                                      -----
$2.25 to $135.00...............      6,635           7.64          8.94         3,838           9.31
                                     =====                                      =====

 
     The Company accounts for its stock-based compensation plans under APB No.
25. As a result, the Company has not recognized compensation expense for stock
options granted to employees with an exercise price equal to the quoted market
price of the Common Stock on the date of grant and that vest based solely on
continuation of employment by the recipient of the option award. The Company
adopted SFAS No. 123 for disclosure purposes in 1996. For SFAS No. 123 purposes,
the Company estimates the fair value of each option grant as of the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
 


                                                              2003    2002    2001
                                                              -----   -----   -----
                                                                     
Expected life (years).......................................    5.0     4.7     4.8
Risk-free interest rate.....................................   3.00%   3.55%   3.85%
Dividend rate...............................................   0.00%   0.00%   0.00%
Expected volatility.........................................  53.05%  54.65%  64.96%

 
     Per-Se has never paid cash dividends on its Common Stock. The Credit
Agreement entered into on September 11, 2003, contains restrictions on the
Company's ability to declare or pay cash dividends on its Common Stock.
 
15.  DEFERRED STOCK UNIT PLAN
 
     Effective October 1, 2001, and approved by the stockholders at the annual
meeting held on May 2, 2002, the Board of Directors adopted the Per-Se
Technologies, Inc. Deferred Stock Unit Plan (the "Plan"). The purpose of the
Plan is to further align the interests of the Company's non-employee directors
and a select group of key employees of the Company (and its affiliates) with the
interests of stockholders by encouraging additional ownership of the Common
Stock. The Plan also provides the participants with an opportunity to defer
taxation of income in consideration of the valuable services that they provide
to the Company. Non-employee directors of the Company are automatically eligible
to participate in the Plan. The Compensation Committee of the Board of Directors
may select key employees of the Company from time to time as eligible
participants. Currently, five non-employee directors and six executives
(including two employee directors) are eligible to participate in the Plan.
 
     Pursuant to the Plan, a non-employee director may elect to defer up to 100%
of his Board and committee meeting fees and his annual retainer each year.
Eligible employees may elect each year to defer
 
                                       F-44

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
up to 50% of their annual incentive bonus and receive an enhancement bonus equal
to $0.25 for each dollar of compensation deferred. The Compensation Committee
may also from time to time in its sole discretion designate such other
enhancement bonus contributions as it deems appropriate. The cash amount of such
deferrals and, in the case of employee participants, the enhancement bonuses
will be converted to stock units, by dividing the amount to be deferred, plus
any enhancement bonus, by the fair market value of the Common Stock on the date
the amounts are credited to the participant's account.
 
     Participants are always fully vested in the stock units converted from
deferrals of compensation. However, stock units that are converted from an
enhancement bonus credited to an employee participant, and any related dividend
equivalent stock units, will vest at the rate of 20% each year over a period of
five years from the date of deferral of the related compensation. If a
participant's employment is terminated for "cause" (as defined in the Plan) or
if he or she resigns without "good reason" (as defined in the Plan) before the
enhancement bonus stock units are vested, he or she will forfeit any such
unvested stock units.
 
     For the years ended December 31, 2003 and 2002, the Plan purchased a total
of 31,842 shares and 89,857 shares, respectively, of the Company's Common Stock
at a total cost of approximately $0.3 million and $1.0 million, respectively. In
accordance with the FASB Emerging Task Force ("EITF") Issue 97-14, Accounting
for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested, these amounts and the Company's obligation are reflected as
treasury stock and deferred compensation obligation, respectively, in the
financial statements.
 
16.  INCOME TAXES
 
     Income tax expense attributable to continuing operations comprises the
following:
 


                                                                                        2001 (AS
                                                             2003         2002          RESTATED)
                                                           --------   -------------   -------------
                                                                      (AS RESTATED)   (AS RESTATED)
                                                                        (IN THOUSANDS)
                                                                             
Current:
  Federal................................................  $   (701)     $    --         $    --
  State..................................................       728          800             343
Deferred:
  Federal................................................     6,624        3,260           1,166
  State..................................................    10,869       (3,740)            146
Valuation allowance......................................   (17,493)         480          (1,312)
                                                           --------      -------         -------
Income tax expense attributable to continuing
  operations.............................................  $     27      $   800         $   343
                                                           ========      =======         =======

 
     In 2003, the Company recognized the benefit of a federal income tax refund
of approximately $0.8 million related to the gain on the sale of Healthcare
Recoveries, Inc. ("HRI"). A tax law revision identified by the Company permitted
the Company to file for an automatic refund. The Company expects to receive the
refund in late 2004.
 
                                       F-45

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A reconciliation between the amount determined by applying the federal
statutory rate to income (loss) before income taxes and income tax expense is as
follows:
 


                                                     2003         2002            2001
                                                   --------   -------------   -------------
                                                              (AS RESTATED)   (AS RESTATED)
                                                                (IN THOUSANDS)
                                                                     
Income tax expense (benefit) at federal statutory
  rate...........................................  $  5,315      $ 3,764         $(2,926)
State taxes, net of federal benefit..............       480          528             226
Change in tax rates..............................    10,869       (4,236)             --
Nondeductible goodwill amortization..............        --           --             208
Valuation allowance..............................   (17,493)         480          (1,312)
Other............................................       856          264           4,147
                                                   --------      -------         -------
                                                   $     27      $   800         $   343
                                                   ========      =======         =======

 
     Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards. The components of deferred taxes at December 31, 2003 and 2002,
are as follows:
 


                                                                2003          2002
                                                             ----------   -------------
                                                                          (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                    
CURRENT:
Accounts receivable, unbilled..............................  $     (624)   $     (823)
Accrued expenses...........................................       6,056         6,797
Valuation allowance........................................      (7,125)       (7,301)
Other......................................................       1,693         1,327
                                                             ----------    ----------
                                                             $       --    $       --
                                                             ==========    ==========

 


                                                                2003          2002
                                                              ---------   -------------
                                                                          (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                    
NONCURRENT:
Net operating loss carryforwards............................  $ 156,792     $ 163,444
Valuation allowance.........................................   (178,430)     (205,047)
Depreciation and amortization...............................     20,266        39,590
Other.......................................................      1,372         2,013
                                                              ---------     ---------
                                                              $      --     $      --
                                                              =========     =========

 
     At December 31, 2003, the Company had federal net operating loss
carryforwards ("NOLs") for income tax purposes of approximately $406.9 million,
which consist of $344.8 million of consolidated
 
                                       F-46

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOLs and $62.1 million of separate return limitation year NOLs. The NOLs will
expire at various dates between 2004 and 2022 as follows:
 


                                                                  AMOUNTS
                                                                 EXPIRING
                                                               -------------
                                                               (IN MILLIONS)
                                                            
between 2004 and 2006.......................................      $ 31.7
between 2007 and 2010.......................................        81.7
between 2011 and 2014.......................................       142.7
between 2015 and 2022.......................................       150.8
                                                                  ------
                                                                  $406.9
                                                                  ======

 
     As of December 31, 2003, the Company has a net deferred tax asset of $185.5
million, which is offset by a valuation allowance of $185.5 million. Realization
of the net deferred tax asset is dependent upon the Company generating
sufficient taxable income prior to the expiration of the NOLs. If, during future
periods, management believes the Company will generate sufficient taxable income
to realize the net deferred tax asset, the Company will adjust this valuation
reserve accordingly.
 
17.  EMPLOYEE BENEFIT PLANS
 
     The Company has various defined contribution plans whereby employees
meeting certain eligibility requirements can make specified contributions to the
plans. The Company matches a percentage of the employee contributions. The
Company's contribution expense was $1.8 million, $1.6 million and $1.4 million
for the years ended December 31, 2003, 2002 and 2001, respectively.
 
18.  CASH FLOW INFORMATION
 
     Supplemental disclosures of cash flow information and non-cash investing
and financing activities are as follows:
 


                                                           2003      2002      2001
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
                                                                     
Non-cash investing and financing activities:
  Additions to capital lease obligations................  $    --   $    --   $   165
  Liabilities assumed in acquisitions...................       --        --       311
  KHS purchase price adjustment.........................       --    (5,789)       --
  Common Stock issued in acquisition....................       --        --        35
Cash paid for:
  Interest..............................................   18,375    16,829    16,731
  Extinguishment of debt................................    5,412        --        --
  Income taxes..........................................      565       807       189

 
19.  SEGMENT REPORTING
 
     The Company's reportable segments are operating units that offer different
services and products. Per-Se provides its services and products through its two
operating divisions: Physician Services and Hospital Services.
 
     On July 1, 2003, the Company realigned its operations to better focus on
its core healthcare constituents -- physician practices and hospitals. The
Company created the Hospital Services division by combining the offerings of the
former e-Health Solutions and Application Software divisions, with the
 
                                       F-47

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
exception of the Company's ASP-based physician practice management ("PPM")
solution, which was transferred to the Physician Services division.
 
     The Physician Services division provides Connective Healthcare services and
solutions that manage the revenue cycle for physician groups. The division is
the largest provider of business management outsourced services that supplant
all or most of the administrative functions of a physician group. The target
market is primarily hospital-affiliated physician groups in the specialties of
radiology, anesthesiology, emergency medicine and pathology as well as physician
groups practicing in the academic setting and other large physician groups. The
division recognizes revenue primarily on a contingency fee basis, which aligns
the division's interests with the interests of the physician groups it services.
The outsourced services business recognizes a percentage of the physician
group's revenue for the services performed. Since this is an outsourced service
delivered on our proprietary technology, license fees or maintenance fees are
not required to be paid by the division's hospital-affiliated physician groups.
The division also sells a PPM solution that is delivered via an ASP model. The
PPM solution collects a monthly usage fee from the physician practices using the
system. The division's revenue model is 100% recurring in nature due to the
transaction-based nature of its fee revenue in the outsourced services business
and the monthly usage fee in the PPM business. The business of the Physician
Services division is conducted by PST Services, Inc., a Georgia corporation
d/b/a "Per-Se Technologies," which is a wholly owned subsidiary of the Company.
 
     The Hospital Services division provides Connective Healthcare solutions
that increase revenue and decrease expenses for hospitals, with a focus on
revenue cycle management and resource management. The division's revenue cycle
management solutions enable a hospital's central billing office to improve its
revenue cycle. The division has one of the largest electronic clearinghouses in
the medical industry, which provides an important infrastructure to support its
revenue cycle offering. The division also provides resource management solutions
that enable hospitals to efficiently manage resources, such as personnel and the
operating room, to reduce costs and improve their bottom line. The division
primarily recognizes revenue on a per-transaction basis for its revenue cycle
management solutions and primarily recognizes revenue on a
percentage-of-completion basis or upon software shipment for sales of its
resource management software solutions. Approximately 88% of the division's
revenue is recurring due to its transaction-based business and the maintenance
revenue from its substantial installed base for the resource management software
solutions. The business of the Hospital Services division is conducted by the
following wholly owned subsidiaries of the Company: Per-Se Transaction Services,
Inc., an Ohio corporation; Patient Account Management Services, Inc., an Ohio
corporation; PST Products, LLC, a California limited liability company; and
Knowledgeable Healthcare Solutions, Inc., an Alabama corporation. All of these
subsidiaries do business under the name "Per-Se Technologies."
 
     The Company evaluates each segment's performance based on its segment
operating profit. Segment operating profit is revenue less segment operating
expenses, which include salaries and wages expenses, other operating expenses,
restructuring expenses, depreciation and amortization.
 
     The Hospital Services segment revenue includes intersegment revenue for
services provided to the Physician Services segment, which are shown as
Eliminations to reconcile to total consolidated revenue.
 
                                       F-48

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company's segment information from continuing operations is as follows:
 


                                                              AS OF DECEMBER 31,
                                                   ----------------------------------------
                                                     2003         2002            2001
                                                   --------   -------------   -------------
                                                              (AS RESTATED)   (AS RESTATED)
                                                                (IN THOUSANDS)
                                                                     
Revenue:
  Physician Services.............................  $251,251     $245,383        $236,627
  Hospital Services..............................    97,240       92,854          80,942
  Eliminations...................................   (13,322)     (12,673)        (11,747)
                                                   --------     --------        --------
                                                   $335,169     $325,564        $305,822
                                                   ========     ========        ========
Segment operating expenses:
  Physician Services.............................  $221,895     $219,519        $226,101
  Hospital Services..............................    74,671       74,014          67,531
  Corporate......................................    15,417       14,816          12,980
  Eliminations...................................   (13,322)     (12,673)        (11,747)
                                                   --------     --------        --------
                                                   $298,661     $295,676        $294,865
                                                   ========     ========        ========
Segment operating profit:
  Physician Services.............................  $ 29,356     $ 25,864        $ 10,526
  Hospital Services..............................    22,569       18,840          13,411
  Corporate......................................   (15,417)     (14,816)        (12,980)
                                                   --------     --------        --------
                                                   $ 36,508     $ 29,888        $ 10,957
                                                   ========     ========        ========
Interest expense.................................  $ 14,646     $ 18,069        $ 18,009
                                                   ========     ========        ========
Interest income..................................  $   (297)    $   (471)       $ (1,121)
                                                   ========     ========        ========
Loss on extinguishment of debt...................  $  6,255     $     --        $     --
                                                   ========     ========        ========
Income (loss) before income taxes................  $ 15,904     $ 12,290        $ (5,931)
                                                   ========     ========        ========
Depreciation and amortization:
  Physician Services.............................  $ 10,475     $ 12,114        $ 13,249
  Hospital Services..............................     5,270        5,694           7,084
  Corporate......................................       764          936           1,119
                                                   --------     --------        --------
                                                   $ 16,509     $ 18,744        $ 21,452
                                                   ========     ========        ========
Capital expenditures and capitalized software
  development costs:
  Physician Services.............................  $  5,467     $  5,718        $  3,349
  Hospital Services..............................     4,655        3,809           3,385
  Corporate......................................       221          369             416
                                                   --------     --------        --------
                                                   $ 10,343     $  9,896        $  7,150
                                                   ========     ========        ========

 
                                       F-49

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


                                                                 AS OF DECEMBER 31,
                                                              ------------------------
                                                                2003         2002
                                                              --------   -------------
                                                                         (AS RESTATED)
                                                                   (IN THOUSANDS)
                                                                   
Identifiable Assets:
  Physician Services(1).....................................  $ 63,222     $ 64,524
  Hospital Services(1)......................................    58,021       56,362
  Corporate.................................................    50,281       62,666
  Discontinued operations...................................       129       26,079
                                                              --------     --------
                                                              $171,653     $209,631
                                                              ========     ========

 
---------------
 
(1) Identifiable assets in the Physician Services and Hospital Services
    divisions include approximately $8,936 and $23,613 of goodwill,
    respectively, for all periods presented.
 
20.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 


                                                           QUARTER ENDED
                                    -----------------------------------------------------------
                                      MARCH 31         JUNE 30      SEPTEMBER 30    DECEMBER 31
                                    -------------   -------------   -------------   -----------
                                    (AS RESTATED)   (AS RESTATED)   (AS RESTATED)
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                        
2003
Revenue...........................     $81,998         $85,456         $84,523        $83,192
Income (loss) from continuing
  operations......................       3,121           5,013            (120)         7,863
Discontinued operations, net of
  tax.............................      (1,284)         (1,932)            626         (1,298)
Net income........................       1,837           3,081             506          6,565
Net income (loss) per common
  share -- basic from continuing
  operations......................        0.10            0.16           (0.00)          0.25
  Discontinued operations, net of
     tax, per common share........       (0.04)          (0.06)           0.02          (0.04)
  Net income per common share --
     basic........................        0.06            0.10            0.02           0.21
  Shares used to compute net
     income per common
     share -- basic...............      30,172          30,238          30,677         31,276
Net income per common share --
  diluted from continuing
  operations......................        0.10            0.16           (0.00)          0.23
  Discontinued operations, net of
     tax, per common share........       (0.04)          (0.06)           0.02          (0.04)
  Net income per common share --
     diluted......................        0.06            0.10            0.02           0.19
  Shares used to compute net
     income per common
     share -- diluted.............      31,037          31,866          30,677         34,039

 
                                       F-50

                   PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 


                                                           QUARTER ENDED
                                   -------------------------------------------------------------
                                     MARCH 31         JUNE 30      SEPTEMBER 30     DECEMBER 31
                                   -------------   -------------   -------------   -------------
                                   (AS RESTATED)   (AS RESTATED)   (AS RESTATED)   (AS RESTATED)
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                       
2002
Revenue..........................     $78,996         $81,607         $83,048         $81,913
Income from continuing
  operations.....................       2,725           2,120           2,820           3,825
Discontinued operations, net of
  tax............................        (933)           (274)         (1,138)           (156)
Net income.......................       1,792           1,846           1,682           3,669
Net income per common share --
  basic from continuing
  operations.....................        0.09            0.07            0.09            0.13
  Discontinued operations, net of
     tax, per common share.......       (0.03)          (0.01)          (0.04)           0.00
  Net income per common share --
     basic.......................        0.06            0.06            0.05            0.13
  Shares used to compute net
     income per common
     share -- basic..............      29,990          30,049          30,083          30,119
Net income per common share --
  diluted from continuing
  operations.....................        0.08            0.07            0.09            0.12
  Discontinued operations, net of
     tax, per common share.......       (0.03)          (0.01)          (0.04)          (0.00)
  Net income per common share --
     diluted.....................        0.05            0.06            0.05            0.12
  Shares used to compute net
     income per common
     share -- diluted............      32,527          32,491          31,258          31,585

 
21.  SUBSEQUENT EVENTS
 
     Effective July 30, 2004, the Company relocated its principal executive
office from Atlanta to Alpharetta, Georgia. The Company entered into a
noncancelable operating lease for that office space in February 2004 that will
expire in June 2014. The new landlord has reimbursed the Company for the
remaining payments due under the lease of the Company's former office space;
however, the Company recorded a one-time non-cash expense of approximately $1.0
million upon its exit of the former office facility. Future minimum lease
payments through 2014 under the new lease are $13.4 million. The Company intends
to meet this and its other contractual obligations with cash from continuing
operations.
 
22.  COST OF ADDITIONAL PROCEDURES (UNAUDITED)
 
     The Company expects to record costs totaling approximately $6 million to $7
million during 2004 for the additional procedures discussed in Note 2.
Approximately $4 million of costs associated with the additional procedures were
recorded for the three months ended March 31, 2004 with the remainder to be
recorded during the three months ended June 30, 2004.
 
                                       F-51

 
                ------------------------------------------------
 
                                  $125,000,000
 
                           PER-SE TECHNOLOGIES, INC.
 
                   3.25% CONVERTIBLE SUBORDINATED DEBENTURES
                                    DUE 2024
                                      AND
                UP TO 7,003,037 SHARES OF COMMON STOCK ISSUABLE
                       UPON CONVERSION OF THE DEBENTURES
 
                ------------------------------------------------
 
                                   PROSPECTUS
                ------------------------------------------------
 
                                               , 2005

 
                                    PART II
 
                   INFORMATION NOT REQUIRED IN THE PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following is a list of anticipated expenses in connection with the
issuance and distribution of the securities being registered. All amounts other
than the SEC and NASDAQ fees are estimated.
 

                                                           
SEC registration fee........................................  $ 15,837.50
Printing costs..............................................  $ 29,850.00
Legal fees..................................................  $140,000.00
Accounting fees.............................................  $135,000.00
Miscellaneous...............................................           --
                                                              -----------
  Total.....................................................  $320,687.50
                                                              ===========

 
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     Under Delaware law, directors of a Delaware corporation can generally be
held liable for certain types of negligence and other acts and omissions in
connection with the performance of their duties to the corporation and our
stockholders. As permitted by Delaware law, however, our Certificate of
Incorporation contains a provision eliminating the liability of our directors
for monetary damages for breaches of their duty of care to us and our
stockholders, except as described below.
 
     Such provision does not eliminate liability for (i) breaches of the duty of
loyalty to us and our stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
transactions from which improper personal benefit is derived, or (iv) unlawful
declaration of dividends or repurchases or redemptions of shares of our capital
stock. Such provision applies to officers only if they are directors and are
acting in their capacity as directors. Although the issue has not been
determined by any court, such provision would probably have no effect on claims
arising under federal securities laws. Such provision does not eliminate the
duty of care, but only eliminates liability for monetary damages for breaches of
such duty under various circumstances. Accordingly, such provision has no effect
on the availability of equitable remedies, such as an injunction or rescission,
based upon a breach of the duty of care. Equitable remedies may not, however, be
wholly effective to remedy the injury caused by any such breach.
 
     Section 145 of the Delaware General Corporation Law permits a corporation
to provide discretionary indemnification to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement, if such indemnified person acted in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
 
     With respect to any threatened, pending or completed action or suit by or
in the right of the corporation, Section 145 also permits a corporation to
provide discretionary indemnification if such indemnified person acted in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the corporation; provided, however, that
indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines otherwise in light of all the
circumstances.
 
                                       II-1

 
     Section 145 of the Delaware General Corporation Law provides for mandatory
indemnification against expenses (including attorney's fees), actually and
reasonably incurred by such indemnified person in connection with the defense,
to the extent that a director, officer, employee or agent of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the preceding two paragraphs, or in defense of any
claim, issue or matter therein.
 
     Section 145 of the Delaware General Corporation Law and Article VI, Section
4 of our Bylaws permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, whether or not the corporation would have
the power to indemnify such person against such liability under Section 145.
 
     Article VI, Section 4 of our Bylaws provides that we shall indemnify and
hold harmless, to the full extent permitted by the Delaware General Corporation
Law, any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person or such
person's legal representative, is or was a director, officer, employee or agent
of Per-Se Technologies, Inc. or is or was serving, at our request, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person.
 
     David E. McDowell, a member of our Board of Directors and our former
Chairman and Chief Executive Officer, is party to an agreement with us pursuant
to which we have agreed to indemnify and hold him harmless to the fullest extent
permitted by the Delaware General Corporation Law as it presently exists or to
such greater extent as such law may subsequently be amended.
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.
 
     The following information relates to all securities issued or sold by us in
the last three years that were not registered under the Securities Act.
 
     On June 30, 2004, the Company issued $125 million aggregate principal
amount of 3.25% Convertible Subordinated Debentures Due 2024 (the "Debentures")
to the initial purchasers pursuant to Rule 506 of Regulation D and Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). The initial
purchasers' aggregate discounts and offering expenses totaled $4 million. The
initial purchasers in turn sold the Debentures to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. As originally issued, the
Debentures were convertible into the Company's common stock at an initial
conversion rate of 56.0243 shares per $1,000 principal amount of the Debentures.
This conversion rate represents a share price of approximately $17.85. However,
the Company has made an irrevocable election to satisfy in cash up to 100% of
the principal amount of Debentures submitted for conversion, with any remaining
amount to be satisfied in shares of common stock. The Debentures will be
convertible when the share price reaches 130% of the conversion price, or a
share price of approximately $23.21, and in other circumstances set forth in the
Indenture relating to the Debentures. The Debentures mature on June 30, 2024,
and are unsecured. Interest on the Debentures is payable semiannually at the
rate of 3.25% per annum on June 30 and December 30 of each year, beginning on
December 30, 2004. Beginning on July 6, 2009, the Company may redeem some or all
of the Debentures for cash. In addition, on June 30, 2009, 2014 and 2019, or
upon a fundamental change as defined in the Indenture, holders may require the
Company to repurchase their Debentures for cash. The Company used the proceeds
from issuance of the Debentures, together with cash on hand, to retire its
$118.8 million outstanding Term Loan B as well as to repurchase, for
approximately $25 million, an aggregate of approximately 2.0 million shares of
the Company's outstanding common stock that were sold short by purchasers of the
Debentures in negotiated transactions concurrently with the offering of the
Debentures. Banc of America Securities LLC, Wachovia Securities and Jeffries &
Co., Inc. acted as initial purchasers of the Debentures.
 
                                       II-2

 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
     (a) Exhibits.
 



 EXHIBIT
 NUMBER                                     DOCUMENT
 -------                                    --------
            
     2.1    --    Asset Purchase Agreement dated as of June 18, 2003, among
                  Misys Hospital Systems, Inc., Misys Healthcare Systems
                  (International) Limited, Misys plc, Registrant, and PST
                  Products, LLC., together with the First Amendment thereto
                  dated as of June 28, 2003 (incorporated by reference to
                  Exhibit 2.1 to Current Report on Form 8-K filed on August 5,
                  2003).
     3.1    --    Restated Certificate of Incorporation of Registrant
                  (incorporated by reference to Exhibit 3.1 to Annual Report
                  on Form 10-K for the year ended December 31, 1999 (the "1999
                  Form 10-K")).
     3.2    --    Restated By-laws of Registrant, as amended (incorporated by
                  reference to Exhibit 3.2 to Annual Report on Form 10-K for
                  the year ended December 31, 2003).
     4.1    --    Specimen Common Stock Certificate (incorporated by reference
                  to Exhibit 4.1 to the 1999 Form 10-K).
     4.2    --    Form of Option Agreement relating to Registrant's Amended
                  and Restated Non-Employee Director Stock Option Plan
                  (incorporated by reference to Appendix B to Definitive Proxy
                  Statement dated April 1, 2003, relating to Registrant's 2003
                  Annual Meeting of Stockholders).
     4.3    --    Form of Option Agreement relating to Registrant's Second
                  Amended and Restated Non-Qualified Stock Option Plan
                  (incorporated by reference to Exhibit 4.2 to the 1999 Form
                  10-K).
     4.4    --    Form of Option Agreement relating to Registrant's
                  Non-Qualified Stock Option Plan for Non-Executive Employees
                  (incorporated by reference to Exhibit 4.6 to the 1999 Form
                  10-K).
     4.5    --    Form of Option Agreement relating to Registrant's
                  Non-Qualified Stock Option Plan for Employees of Acquired
                  Companies (incorporated by reference to Exhibit 4.4 to
                  Registration Statement on Form S-3, File No. 33-71552).
     4.6    --    Form of Option Agreement relating to Registrant's Restricted
                  Stock Plan (incorporated by reference to Exhibit 4.5 to
                  Annual Report on Form 10-K for the year ended December 31,
                  1995 (the "1995 Form 10-K")).
     4.7    --    Rights Agreement dated as of February 11, 1999, between
                  Registrant and American Stock Transfer & Trust Company
                  (including form of rights certificates) (incorporated by
                  reference to Exhibit 4 to Current Report on Form 8-K filed
                  on February 12, 1999).
     4.8    --    First Amendment to Rights Agreement dated as of February 11,
                  1999, between Registrant and American Stock Transfer & Trust
                  Company, entered into as of May 4, 2000 (incorporated by
                  reference to Exhibit 4.4 to Quarterly Report of Form 10-Q
                  for the quarter ended March 31, 2000).
     4.9    --    Second Amendment to Rights Agreement dated as of February
                  11, 1999, between Registrant and American Stock Transfer &
                  Trust Company, entered into as of December 6, 2001, to be
                  effective as of March 6, 2002 (incorporated by reference to
                  Exhibit 4.12 to Annual Report on Form 10-K for the year
                  ended December 31, 2001 (the "2001 Form 10-K")).
     4.10   --    Third Amendment to Rights Agreement dated as of February 11,
                  1999, between Registrant and American Stock Transfer & Trust
                  Company, entered into as of March 10, 2003 (incorporated by
                  reference to Exhibit 4.13 to Annual Report on Form 10-K for
                  the year ended December 31, 2002 (the "2002 Form 10-K")).
     4.11   --    Fourth Amendment to Rights Agreement dated as of February
                  11, 1999, between Registrant and American Stock Transfer &
                  Trust Company, entered into as of February 18, 2005
                  (incorporated herein by reference to Exhibit 4.1 to Current
                  Report on Form 8-K filed on February 22, 2005).


 
                                       II-3

 



 EXHIBIT
 NUMBER                                     DOCUMENT
 -------                                    --------
            
     4.12   --    Indenture dated as of June 30, 2004, between Registrant and
                  U.S. Bank National Association, as Trustee, relating to
                  Registrant's 3.25% Convertible Subordinated debentures Due
                  2024 (incorporated by reference to Exhibit 4.5 to Quarterly
                  Report on Form 10-Q for the quarter ended June 30, 2004).
     4.13   --    Resale Registration Rights Agreement dated as of June 30,
                  2004, between Registrant and Banc of America Securities LLC,
                  as representative of the several initial purchasers of
                  Registrant's 3.25% Convertible Subordinated debentures Due
                  2024 (incorporated by reference to Exhibit 4.6 to Quarterly
                  Report on Form 10-Q for the quarter ended June 30, 2004).
     5      --    Opinion of Paul J. Quiner, Senior Vice President and General
                  Counsel of the Registrant, regarding validity of the
                  securities being registered (previously filed with the
                  Registrant's registration statement on Form S-1 dated
                  September 15, 2004).
    10.1    --    Credit agreement dated as of September 11, 2003, by and
                  among Registrant, certain subsidiaries of Registrant
                  identified therein, as Guarantors, the Lenders identified
                  therein, and Bank of America, N.A., as Administrative Agent
                  (incorporated by reference to Exhibit 10.1 to Current Report
                  on Form 8-K filed on September 12, 2003).
    10.2    --    First Amendment to Credit Agreement dated as of June 30,
                  2004, among Registrant, the Guarantors party thereto, the
                  Lenders party thereto and Bank of America, N.A., as
                  Administrative Agent (incorporated by reference to Exhibit
                  10.1 to Quarterly Report on Form 10-Q for the quarter ended
                  June 30, 2004).
    10.3    --    Amended and Restated Per-Se Technologies, Inc. Non-Employee
                  Director Stock Option Plan (incorporated by reference to
                  Appendix B to Definitive Proxy Statement dated April 1,
                  2003, relating to Registrant's 2003 Annual Meeting of
                  Stockholders).
    10.4    --    Second Amended and Restated Per-Se Technologies, Inc.
                  Non-Qualified Stock Option Plan (incorporated by reference
                  to Exhibit 10.1 to the 1999 Form 10-K).
    10.5    --    First Amendment to Second Amended and Restated Per-Se
                  Technologies, Inc. Non-Qualified Stock Option Plan
                  (incorporated by reference to Exhibit 10.45 to the 1999 Form
                  10-K).
    10.6    --    Registrant's Non-Qualified Stock Option Plan for
                  Non-Executive Employees (incorporated by reference to
                  Exhibit 10.23 to Annual Report on Form 10-K for the year
                  ended December 31, 1996 (the "1996 Form 10-K")).
    10.7    --    First Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.24 to the 1996 Form 10-K).
    10.8    --    Second Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.25 to Annual Report on Form 10-K for the year
                  ended December 31, 1997 (the "1997 Form 10-K")).
    10.9    --    Third Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.26 to the 1997 Form 10-K).
    10.10   --    Fourth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.27 to the 1997 Form 10-K).
    10.11   --    Fifth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.28 to the 1997 Form 10-K).
    10.12   --    Sixth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.32 to Annual Report on Form 10-K for the year
                  ended December 31, 1998 (the "1998 Form 10-K")).
    10.13   --    Seventh Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.24 to the 1999 Form 10-K).
    10.14   --    Eighth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.26 to Annual Report on Form 10-K for the year
                  ended December 31, 2000 (the "2000 Form 10-K")).


 
                                       II-4

 


 EXHIBIT
 NUMBER                                     DOCUMENT
 -------                                    --------
            
    10.15   --    Ninth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 2002).
    10.16   --    Tenth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Non-Executive Employees (incorporated by reference
                  to Exhibit 10.31 to the 2002 Form 10-K).
    10.17   --    Registrant's Non-Qualified Stock Option Plan for Employees
                  of Acquired Companies (incorporated by reference to Exhibit
                  99.1 to Registration Statement on Form S-8, File No.
                  33-67752).
    10.18   --    First Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 99 to Registration Statement on Form
                  S-8, File No. 33-71556).
    10.19   --    Second Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 99 to Registration Statement on Form
                  S-8, File No. 33-88442).
    10.20   --    Third Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 10.14 to the 1995 Form 10-K).
    10.21   --    Fourth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 99.2 to Registration Statement on Form
                  S-8, File No. 333-3213).
    10.22   --    Fifth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 99.1 to Registration Statement on Form
                  S-8, File No. 333-07627).
    10.23   --    Sixth Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 10.21 to the 1996 Form 10-K).
    10.24   --    Seventh Amendment to Registrant's Non-Qualified Stock Option
                  Plan for Employees of Acquired Companies (incorporated by
                  reference to Exhibit 10.23 to the 1998 Form 10-K).
    10.25   --    Eighth Amendment to Registrant's Non-Qualified Stock Option
                  Plan For Employees of Acquired Companies (incorporated by
                  reference to Exhibit 10.12 to the 1999 Form 10-K).
    10.26   --    Ninth Amendment to Registrant's Non-Qualified Stock Option
                  Plan For Employees of Acquired Companies (incorporated by
                  reference to Exhibit 10.12 to the 2000 Form 10-K).
    10.27   --    Tenth Amendment to Registrant's Non-Qualified Stock Option
                  Plan For Employees of Acquired Companies (incorporated by
                  reference to Exhibit 10.1 to Quarterly Report of Form 10-Q
                  for the quarter ended June 30, 2002).
    10.28   --    Restricted Stock Plan of Registrant, dated as of August 12,
                  1994 (incorporated by reference to Exhibit 10.2 to
                  Registration Statement on Form S-4, File No. 33-88910).
    10.29   --    The Per-Se Technologies Employees' Retirement Savings Plan
                  (incorporated by reference to Exhibit 10.26 to the 1999 Form
                  10-K).
    10.30   --    First Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (incorporated by reference to
                  Exhibit 10.29 to the 2000 Form 10-K).
    10.31   --    Second Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (incorporated by reference to
                  Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 2001).
    10.32   --    Third Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (incorporated by reference to
                  Exhibit 10.1 to Quarterly Report on Form 10-Q for the
                  quarter ended September 30, 2001).
    10.33   --    Fourth Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (incorporated by reference to
                  Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                  quarter ended September 30, 2002).
    10.34   --    Fifth Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (incorporated by reference to
                  Exhibit 10.38 to the 2002 Form 10-K).

 
                                       II-5

 


 EXHIBIT
 NUMBER                                     DOCUMENT
 -------                                    --------
            
    10.35   --    Sixth Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (incorporated by reference to
                  Exhibit 10.34 to Annual Report on Form 10-K for the year
                  ended December 31, 2003).
    10.36   --    Seventh Amendment to the Per-Se Technologies Employees'
                  Retirement Savings Plan (previously filed with the
                  Registrant's registration statement on Form S-1 dated
                  September 15, 2004).
    10.37   --    Retirement Savings Trust (incorporated by reference to
                  Exhibit 10.10 to Registration Statement on Form S-1, File
                  No. 33-42216).
    10.38   --    Registrant's Deferred Compensation Plan (incorporated by
                  reference to Exhibit 99 to Registration Statement on Form
                  S-8, Registration No. 33-90874).
    10.39   --    First Amendment to Registrant's Deferred Compensation Plan
                  (incorporated by reference to Exhibit 10.2 to Quarterly
                  Report on Form 10-Q for the quarter ended September 30,
                  1997).
    10.40   --    Second Amendment to Registrant's Deferred Compensation Plan
                  (incorporated by reference to Exhibit 10.3 to Quarterly
                  Report on Form 10-Q for the quarter ended September 30,
                  1997).
    10.41   --    Third Amendment to Registrant's Deferred Compensation Plan
                  (incorporated by reference to Exhibit 10.76 to the 1997 Form
                  10-K).
    10.42   --    Fourth Amendment to Registrant's Deferred Compensation Plan
                  (incorporated by reference to Exhibit 10.32 to the 1999 Form
                  10-K).
    10.43   --    Fifth Amendment to Registrant's Deferred Compensation Plan
                  (incorporated by reference to Exhibit 10.36 to the 2000 Form
                  10-K).
    10.44   --    Per-Se Technologies, Inc. Executive Deferred Compensation
                  Plan effective as of January 1, 2002 (incorporated by
                  reference to Exhibit 10.40 to the 2001 Form 10-K).
    10.45   --    Per-Se Technologies, Inc. Non-Qualified Deferred
                  Compensation Plan Trust Agreement dated as of February 12,
                  2002, between Registrant and Merrill Lynch Trust Company,
                  FSB (incorporated by reference to Exhibit 10.1 to Quarterly
                  Report on Form 10-Q for the quarter ended March 31, 2002).
    10.46   --    Written description of Registrant's Non-Employee Director
                  Compensation Plan (incorporated by reference to Exhibit 10.2
                  to Quarterly Report on Form 10-Q for the quarter ended
                  September 30, 2003).
    10.47   --    Per-Se Technologies, Inc. Deferred Stock Unit Plan
                  (incorporated by reference to Exhibit 10.44 to the 2001 Form
                  10-K).
    10.48   --    First Amendment to Per-Se Technologies, Inc. Deferred Stock
                  Unit Plan (incorporated by reference to Exhibit 10.3 to
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  2002).
    10.49   --    Per-Se Technologies, Inc. Deferred Stock Unit Plan Trust
                  Agreement dated as of May 1, 2002, between Registrant and
                  Merrill Lynch Trust Company, FSB (incorporated by reference
                  to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                  quarter ended March 31, 2002).
    10.50   --    Registrant's Long Term Incentive Plan (incorporated by
                  reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
                  for the quarter ended September 30, 1998).
    10.51   --    Employment Agreement dated November 19, 1996, between
                  Registrant and David E. McDowell (incorporated by reference
                  to Exhibit 10.49 to the 1996 Form 10-K).
    10.52   --    Amendment Number 1 to Employment Agreement between
                  Registrant and David E. McDowell, dated October 20, 1999
                  (incorporated by reference to Exhibit 10.37 to the 1999 Form
                  10-K).
    10.53   --    Employment Agreement dated as of November 13, 2000, between
                  Registrant and Philip M. Pead (incorporated by reference to
                  Exhibit 10.42 to the 2000 Form 10-K).

 
                                       II-6

 


 EXHIBIT
 NUMBER                                     DOCUMENT
 -------                                    --------
            
    10.54   --    Amendment No. 1 to Employment Agreement between Registrant
                  and Philip M. Pead, dated May 8, 2003 (incorporated by
                  reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
                  for the quarter ended June 30, 2003).
    10.55   --    Employment Agreement dated April 14, 2000, between
                  Registrant and Chris E. Perkins (incorporated by reference
                  to Exhibit 10.43 to the 2000 Form 10-K).
    10.56   --    Amendment Number 1 to Employment Agreement between
                  Registrant and Chris E. Perkins, dated as of February 7,
                  2001 (incorporated by reference to Exhibit 10.44 to the 2000
                  Form 10-K).
    10.57   --    Employment Agreement dated July 1, 2003, between Registrant
                  and Philip J. Jordan (incorporated by reference to Exhibit
                  10.3 to Quarterly Report on Form 10-Q for the quarter ended
                  September 30, 2003).
    10.58   --    Employment Agreement dated as of May 31, 2001, between
                  Registrant and Paul J. Quiner (incorporated by reference to
                  Exhibit 10.57 to Annual Report on Form 10-K for the year
                  ended December 31, 2003).
    10.59   --    Purchase Agreement, dated June 24, 2004, by and between
                  Registrant and Banc of America Securities LLC as
                  representative of the several Initial Purchasers (previously
                  filed with the Registrant's registration statement on Form
                  S-1 dated September 15, 2004).
    12      --    Statement re: Computation of Ratio of Earnings to Fixed
                  Charges (previously filed with Amendment No. 1 to the
                  Registrant's registration statement on Form S-1 dated
                  November 23, 2004).
    21      --    Subsidiaries of Registrant (previously filed with the
                  Registrant's registration statement on Form S-1 dated
                  September 15, 2004).
    23.1    --    Consent of Ernst & Young LLP.
    23.2    --    Consent of Paul J. Quiner (previously filed with the
                  Registrant's registration statement on Form S-1 dated
                  September 15, 2004).
    24      --    Powers of Attorney (previously filed with the Registrant's
                  registration statement on Form S-1 dated September 15,
                  2004).
    25      --    Statement re: Eligibility of Trustee (previously filed with
                  the Registrant's registration statement on Form S-1 dated
                  September 15, 2004).

 
---------------
 
     (b) Financial Statement Schedules.
 
     Schedule II -- Valuation and Qualifying Accounts -- Years ended December
31, 2003, 2002 and 2001.
 
ITEM 17.  UNDERTAKINGS
 
     (a) The undersigned registrant hereby undertakes:
 
          (1) To file, during any period in which offers or sales are being
     made, a post-effective amendment to this registration statement:
 
             (i) To include any prospectus required by Section 10(a)(3) of the
        Securities Act of 1933;
 
             (ii) To reflect in the prospectus any facts or events arising after
        the effective date of the registration statement (or the most recent
        post-effective amendment thereof) which, individually or in the
        aggregate, represent a fundamental change in the information set forth
        in the registration statement. Notwithstanding the foregoing, any
        increase or decrease in the volume of securities offered (if the total
        dollar value of securities offered would not exceed that which was
        registered) and any deviation from the low or high end of the estimated
        maximum offering range may be reflected in the form of prospectus filed
        with the Commission pursuant to Rule 424(b)) if, in the aggregate, the
        changes in volume and price represent no more than a 20 percent change
 
                                       II-7

 
        in the maximum aggregate offering price set forth in the "Calculation of
        Registration Fee" table in the effective registration statement; and
 
             (iii) To include any material information with respect to the plan
        of distribution not previously disclosed in the registration statement
        or any material change to such information in the registration
        statement.
 
          (2) That, for the purpose of determining any liability under the
     Securities Act of 1933, each such post-effective amendment shall be deemed
     to be a new registration statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be initial bona fide offering thereof.
 
          (3) To remove from registration by means of a post-effective amendment
     any of the securities being registered which remain unsold at the
     termination of the offering.
 
     (b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
 
     (c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
 
                                       II-8

 
                                   SIGNATURES
 

     Pursuant to the requirements of the Securities Act of 1933, the registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Alpharetta, State of
Georgia, on the 4th day of March, 2005.

 
                                          PER-SE TECHNOLOGIES, INC.
 
                                          By:      /s/ PHILIP M. PEAD
                                            ------------------------------------
                                                       Philip M. Pead
                                               Chairman, President and Chief
                                                      Executive Officer
 

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 4, 2005.

 



                    SIGNATURE                                              TITLE
                    ---------                                              -----
                                               

                        *                             Chairman, President and Chief Executive Officer
 ------------------------------------------------              (principal executive officer)
                  Philip M. Pead

 
                        *                               Executive Vice President and Chief Financial
 ------------------------------------------------                         Officer
                 Chris E. Perkins                              (principal financial officer)

 
                        *                                 Vice President and Corporate Controller
 ------------------------------------------------              (principal accounting officer)
                 Richard A. Flynt

 
                        *                                                 Director
 ------------------------------------------------
                Stephen A. George

 
                        *                                                 Director
 ------------------------------------------------
                David R. Holbrooke

 
                        *                                                 Director
 ------------------------------------------------
                   Craig Macnab

 
                        *                                                 Director
 ------------------------------------------------
                David E. McDowell

 
                        *                                                 Director
 ------------------------------------------------
              C. Christopher Trower


 
                                       II-9

 


                    SIGNATURE                                              TITLE
                    ---------                                              -----
 
                                               

                        *                                                 Director
 ------------------------------------------------
                 Jeffrey W. Ubben

 
 *By:               /s/ PHILIP M. PEAD
        ------------------------------------------
                      Philip M. Pead
                     Attorney-in-Fact

 
                                      II-10

 
                           PER-SE TECHNOLOGIES, INC.
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
 


                                                               ADDITIONS
                                                         ---------------------
                                            BALANCE AT   CHARGED TO   CHARGED
                                            BEGINNING    COSTS AND    TO OTHER                BALANCE AT
DESCRIPTION                                  OF YEAR      EXPENSES    ACCOUNTS   DEDUCTIONS   END OF YEAR
-----------                                 ----------   ----------   --------   ----------   -----------
                                                                               
YEAR ENDED DECEMBER 31, 2003
  Allowance for doubtful accounts.........    $4,288       $1,159         --      $  (652)      $4,795
YEAR ENDED DECEMBER 31, 2002
  Allowance for doubtful accounts (As
  Restated)...............................    $4,759       $1,489         --      $(1,960)      $4,288
YEAR ENDED DECEMBER 31, 2001
  Allowance for doubtful accounts (As
  Restated)...............................    $8,900       $2,712         --      $(6,853)      $4,759

 
                                       S-1

 
                                 EXHIBIT INDEX
 



EXHIBIT
NUMBER                                    DOCUMENT
-------                                   --------
          
  2.1     --    Asset Purchase Agreement dated as of June 18, 2003, among
                Misys Hospital Systems, Inc., Misys Healthcare Systems
                (International) Limited, Misys plc, Registrant, and PST
                Products, LLC., together with the First Amendment thereto
                dated as of June 28, 2003 (incorporated by reference to
                Exhibit 2.1 to Current Report on Form 8-K filed on August 5,
                2003).
  3.1     --    Restated Certificate of Incorporation of Registrant
                (incorporated by reference to Exhibit 3.1 to Annual Report
                on Form 10-K for the year ended December 31, 1999 (the "1999
                Form 10-K")).
  3.2     --    Restated By-laws of Registrant, as amended (incorporated by
                reference to Exhibit 3.2 to Annual Report on Form 10-K for
                the year ended December 31, 2003).
  4.1     --    Specimen Common Stock Certificate (incorporated by reference
                to Exhibit 4.1 to the 1999 Form 10-K).
  4.2     --    Form of Option Agreement relating to Registrant's Amended
                and Restated Non-Employee Director Stock Option Plan
                (incorporated by reference to Appendix B to Definitive Proxy
                Statement dated April 1, 2003, relating to Registrant's 2003
                Annual Meeting of Stockholders).
  4.3     --    Form of Option Agreement relating to Registrant's Second
                Amended and Restated Non-Qualified Stock Option Plan
                (incorporated by reference to Exhibit 4.2 to the 1999 Form
                10-K).
  4.4     --    Form of Option Agreement relating to Registrant's
                Non-Qualified Stock Option Plan for Non-Executive Employees
                (incorporated by reference to Exhibit 4.6 to the 1999 Form
                10-K).
  4.5     --    Form of Option Agreement relating to Registrant's
                Non-Qualified Stock Option Plan for Employees of Acquired
                Companies (incorporated by reference to Exhibit 4.4 to
                Registration Statement on Form S-3, File No. 33-71552).
  4.6     --    Form of Option Agreement relating to Registrant's Restricted
                Stock Plan (incorporated by reference to Exhibit 4.5 to
                Annual Report on Form 10-K for the year ended December 31,
                1995 (the "1995 Form 10-K")).
  4.7     --    Rights Agreement dated as of February 11, 1999, between
                Registrant and American Stock Transfer & Trust Company
                (including form of rights certificates) (incorporated by
                reference to Exhibit 4 to Current Report on Form 8-K filed
                on February 12, 1999).
  4.8     --    First Amendment to Rights Agreement dated as of February 11,
                1999, between Registrant and American Stock Transfer & Trust
                Company, entered into as of May 4, 2000 (incorporated by
                reference to Exhibit 4.4 to Quarterly Report of Form 10-Q
                for the quarter ended March 31, 2000).
  4.9     --    Second Amendment to Rights Agreement dated as of February
                11, 1999, between Registrant and American Stock Transfer &
                Trust Company, entered into as of December 6, 2001, to be
                effective as of March 6, 2002 (incorporated by reference to
                Exhibit 4.12 to Annual Report on Form 10-K for the year
                ended December 31, 2001 (the "2001 Form 10-K")).
  4.10    --    Third Amendment to Rights Agreement dated as of February 11,
                1999, between Registrant and American Stock Transfer & Trust
                Company, entered into as of March 10, 2003 (incorporated by
                reference to Exhibit 4.13 to Annual Report on Form 10-K for
                the year ended December 31, 2002 (the "2002 Form 10-K")).
  4.11    --    Fourth Amendment to Rights Agreement dated as of February
                11, 1999, between Registrant and American Stock Transfer &
                Trust Company, entered into as of February 18, 2005
                (incorporated herein by reference to Exhibit 4.1 to Current
                Report on Form 8-K filed on February 22, 2005).
  4.12    --    Indenture dated as of June 30, 2004, between Registrant and
                U.S. Bank National Association, as Trustee, relating to
                Registrant's 3.25% Convertible Subordinated debentures Due
                2024 (incorporated by reference to Exhibit 4.5 to Quarterly
                Report on Form 10-Q for the quarter ended June 30, 2004).
  4.13    --    Resale Registration Rights Agreement dated as of June 30,
                2004, between Registrant and Banc of America Securities LLC,
                as representative of the several initial purchasers of
                Registrant's 3.25% Convertible Subordinated debentures Due
                2024 (incorporated by reference to Exhibit 4.6 to Quarterly
                Report on Form 10-Q for the quarter ended June 30, 2004).



 


EXHIBIT
NUMBER                                    DOCUMENT
-------                                   --------
          
  5       --    Opinion of Paul J. Quiner, Senior Vice President and General
                Counsel of the Registrant, regarding validity of the
                securities being registered (previously filed with the
                Registrant's registration statement on Form S-1 dated
                September 15, 2004).
 10.1     --    Credit Agreement dated as of September 11, 2003, by and
                among Registrant, certain subsidiaries of Registrant
                identified therein, as Guarantors, the Lenders identified
                therein, and Bank of America, N.A., as Administrative Agent
                (incorporated by reference to Exhibit 10.1 to Current Report
                on Form 8-K filed on September 12, 2003).
 10.2     --    First Amendment to Credit Agreement dated as of June 30,
                2004, among Registrant, the Guarantors party thereto, the
                Lenders party thereto and Bank of America, N.A., as
                Administrative Agent (incorporated by reference to Exhibit
                10.1 to Quarterly Report on Form 10-Q for the quarter ended
                June 30, 2004).
 10.3     --    Amended and Restated Per-Se Technologies, Inc. Non-Employee
                Director Stock Option Plan (incorporated by reference to
                Appendix B to Definitive Proxy Statement dated April 1,
                2003, relating to Registrant's 2003 Annual Meeting of
                Stockholders).
 10.4     --    Second Amended and Restated Per-Se Technologies, Inc.
                Non-Qualified Stock Option Plan (incorporated by reference
                to Exhibit 10.1 to the 1999 Form 10-K).
 10.5     --    First Amendment to Second Amended and Restated Per-Se
                Technologies, Inc. Non-Qualified Stock Option Plan
                (incorporated by reference to Exhibit 10.45 to the 1999 Form
                10-K).
 10.6     --    Registrant's Non-Qualified Stock Option Plan for
                Non-Executive Employees (incorporated by reference to
                Exhibit 10.23 to Annual Report on Form 10-K for the year
                ended December 31, 1996 (the "1996 Form 10-K")).
 10.7     --    First Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.24 to the 1996 Form 10-K).
 10.8     --    Second Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.25 to Annual Report on Form 10-K for the year
                ended December 31, 1997 (the "1997 Form 10-K")).
 10.9     --    Third Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.26 to the 1997 Form 10-K).
 10.10    --    Fourth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.27 to the 1997 Form 10-K).
 10.11    --    Fifth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.28 to the 1997 Form 10-K).
 10.12    --    Sixth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.32 to Annual Report on Form 10-K for the year
                ended December 31, 1998 (the "1998 Form 10-K")).
 10.13    --    Seventh Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.24 to the 1999 Form 10-K).
 10.14    --    Eighth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.26 to Annual Report on Form 10-K for the year
                ended December 31, 2000 (the "2000 Form 10-K")).
 10.15    --    Ninth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                quarter ended June 30, 2002).
 10.16    --    Tenth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Non-Executive Employees (incorporated by reference
                to Exhibit 10.31 to the 2002 Form 10-K).
 10.17    --    Registrant's Non-Qualified Stock Option Plan for Employees
                of Acquired Companies (incorporated by reference to Exhibit
                99.1 to Registration Statement on Form S-8, File No.
                33-67752).


 


EXHIBIT
NUMBER                                    DOCUMENT
-------                                   --------
          
 10.18    --    First Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 99 to Registration Statement on Form
                S-8, File No. 33-71556).
 10.19    --    Second Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 99 to Registration Statement on Form
                S-8, File No. 33-88442).
 10.20    --    Third Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 10.14 to the 1995 Form 10-K).
 10.21    --    Fourth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 99.2 to Registration Statement on Form
                S-8, File No. 333-3213).
 10.22    --    Fifth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 99.1 to Registration Statement on Form
                S-8, File No. 333-07627).
 10.23    --    Sixth Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 10.21 to the 1996 Form 10-K).
 10.24    --    Seventh Amendment to Registrant's Non-Qualified Stock Option
                Plan for Employees of Acquired Companies (incorporated by
                reference to Exhibit 10.23 to the 1998 Form 10-K).
 10.25    --    Eighth Amendment to Registrant's Non-Qualified Stock Option
                Plan For Employees of Acquired Companies (incorporated by
                reference to Exhibit 10.12 to the 1999 Form 10-K).
 10.26    --    Ninth Amendment to Registrant's Non-Qualified Stock Option
                Plan For Employees of Acquired Companies (incorporated by
                reference to Exhibit 10.12 to the 2000 Form 10-K).
 10.27    --    Tenth Amendment to Registrant's Non-Qualified Stock Option
                Plan For Employees of Acquired Companies (incorporated by
                reference to Exhibit 10.1 to Quarterly Report of Form 10-Q
                for the quarter ended June 30, 2002).
 10.28    --    Restricted Stock Plan of Registrant, dated as of August 12,
                1994 (incorporated by reference to Exhibit 10.2 to
                Registration Statement on Form S-4, File No. 33-88910).
 10.29    --    The Per-Se Technologies Employees' Retirement Savings Plan
                (incorporated by reference to Exhibit 10.26 to the 1999 Form
                10-K).
 10.30    --    First Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (incorporated by reference to
                Exhibit 10.29 to the 2000 Form 10-K).
 10.31    --    Second Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (incorporated by reference to
                Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                quarter ended June 30, 2001).
 10.32    --    Third Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (incorporated by reference to
                Exhibit 10.1 to Quarterly Report on Form 10-Q for the
                quarter ended September 30, 2001).
 10.33    --    Fourth Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (incorporated by reference to
                Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                quarter ended September 30, 2002).
 10.34    --    Fifth Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (incorporated by reference to
                Exhibit 10.38 to the 2002 Form 10-K).
 10.35    --    Sixth Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (incorporated by reference to
                Exhibit 10.34 to Annual Report on Form 10-K for the year
                ended December 31, 2003).
 10.36    --    Seventh Amendment to the Per-Se Technologies Employees'
                Retirement Savings Plan (previously filed with the
                Registrant's registration statement on Form S-1 dated
                September 15, 2004).
 10.37    --    Retirement Savings Trust (incorporated by reference to
                Exhibit 10.10 to Registration Statement on Form S-1, File
                No. 33-42216).


 


EXHIBIT
NUMBER                                    DOCUMENT
-------                                   --------
          
 10.38    --    Registrant's Deferred Compensation Plan (incorporated by
                reference to Exhibit 99 to Registration Statement on Form
                S-8, Registration No. 33-90874).
 10.39    --    First Amendment to Registrant's Deferred Compensation Plan
                (incorporated by reference to Exhibit 10.2 to Quarterly
                Report on Form 10-Q for the quarter ended September 30,
                1997).
 10.40    --    Second Amendment to Registrant's Deferred Compensation Plan
                (incorporated by reference to Exhibit 10.3 to Quarterly
                Report on Form 10-Q for the quarter ended September 30,
                1997).
 10.41    --    Third Amendment to Registrant's Deferred Compensation Plan
                (incorporated by reference to Exhibit 10.76 to the 1997 Form
                10-K).
 10.42    --    Fourth Amendment to Registrant's Deferred Compensation Plan
                (incorporated by reference to Exhibit 10.32 to the 1999 Form
                10-K).
 10.43    --    Fifth Amendment to Registrant's Deferred Compensation Plan
                (incorporated by reference to Exhibit 10.36 to the 2000 Form
                10-K).
 10.44    --    Per-Se Technologies, Inc. Executive Deferred Compensation
                Plan effective as of January 1, 2002 (incorporated by
                reference to Exhibit 10.40 to the 2001 Form 10-K).
 10.45    --    Per-Se Technologies, Inc. Non-Qualified Deferred
                Compensation Plan Trust Agreement dated as of February 12,
                2002, between Registrant and Merrill Lynch Trust Company,
                FSB (incorporated by reference to Exhibit 10.1 to Quarterly
                Report on Form 10-Q for the quarter ended March 31, 2002).
 10.46    --    Written description of Registrant's Non-Employee Director
                Compensation Plan (incorporated by reference to Exhibit 10.2
                to Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2003).
 10.47    --    Per-Se Technologies, Inc. Deferred Stock Unit Plan
                (incorporated by reference to Exhibit 10.44 to the 2001 Form
                10-K).
 10.48    --    First Amendment to Per-Se Technologies, Inc. Deferred Stock
                Unit Plan (incorporated by reference to Exhibit 10.3 to
                Quarterly Report on Form 10-Q for the quarter ended June 30,
                2002).
 10.49    --    Per-Se Technologies, Inc. Deferred Stock Unit Plan Trust
                Agreement dated as of May 1, 2002, between Registrant and
                Merrill Lynch Trust Company, FSB (incorporated by reference
                to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
                quarter ended March 31, 2002).
 10.50    --    Registrant's Long Term Incentive Plan (incorporated by
                reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
                for the quarter ended September 30, 1998).
 10.51    --    Employment Agreement dated November 19, 1996, between
                Registrant and David E. McDowell (incorporated by reference
                to Exhibit 10.49 to the 1996 Form 10-K).
 10.52    --    Amendment Number 1 to Employment Agreement between
                Registrant and David E. McDowell, dated October 20, 1999
                (incorporated by reference to Exhibit 10.37 to the 1999 Form
                10-K).
 10.53    --    Employment Agreement dated as of November 13, 2000, between
                Registrant and Philip M. Pead (incorporated by reference to
                Exhibit 10.42 to the 2000 Form 10-K).
 10.54    --    Amendment No. 1 to Employment Agreement between Registrant
                and Philip M. Pead, dated May 8, 2003 (incorporated by
                reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
                for the quarter ended June 30, 2003).
 10.55    --    Employment Agreement dated April 14, 2000, between
                Registrant and Chris E. Perkins (incorporated by reference
                to Exhibit 10.43 to the 2000 Form 10-K).
 10.56    --    Amendment Number 1 to Employment Agreement between
                Registrant and Chris E. Perkins, dated as of February 7,
                2001 (incorporated by reference to Exhibit 10.44 to the 2000
                Form 10-K).
 10.57    --    Employment Agreement dated July 1, 2003, between Registrant
                and Philip J. Jordan (incorporated by reference to Exhibit
                10.3 to Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2003).


 


EXHIBIT
NUMBER                                    DOCUMENT
-------                                   --------
          
 10.58    --    Employment Agreement dated as of May 31, 2001, between
                Registrant and Paul J. Quiner (incorporated by reference to
                Exhibit 10.57 to Annual Report on Form 10-K for the year
                ended December 31, 2003).
 10.59    --    Purchase Agreement, dated June 24, 2004, by and between
                Registrant and Banc of America Securities LLC as
                representative of the several Initial Purchasers (previously
                filed with the Registrant's registration statement on Form
                S-1 dated September 15, 2004).
 12       --    Statement re: Computation of Ratio of Earnings to Fixed
                Charges (previously filed with Amendment No. 1 to the
                Registrant's registration statement on Form S-1 dated
                November 23, 2004).
 21       --    Subsidiaries of Registrant (previously filed with the
                Registrant's registration statement on Form S-1 dated
                September 15, 2004).
 23.1     --    Consent of Ernst & Young LLP.
 23.2     --    Consent of Paul J. Quiner (previously filed with the
                Registrant's registration statement on Form S-1 dated
                September 15, 2004).
 24       --    Powers of Attorney (previously filed with the Registrant's
                registration statement on Form S-1 dated September 15,
                2004).
 25       --    Statement re: Eligibility of Trustee (previously filed with
                the Registrant's registration statement on Form S-1 dated
                September 15, 2004).