**EXHIBIT 99.1**
**TROVER SOLUTIONS, INC.**
**PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995****SAFE HARBOR COMPLIANCE STATEMENT****FOR FORWARD-LOOKING STATEMENTS**
     In passing the Private Securities Litigation Reform Act of 1995(“the Reform Act”), 15 U.S.C.A.Section 77z-2 and 78u-5 (Supp. 1996), Congress encouragedpublic companies to make “forward-looking statements”by creating a safe harbor to protect companies from securitieslaw liability in connection with forward-looking statements.Trover Solutions, Inc. (the “Company”) intends toqualify both its written and oral forward-looking statements forprotection under the Reform Act and any other similar safeharbor provisions.
     “Forward-looking statements” are defined by the ReformAct. Generally, forward-looking statements include expressedexpectations of future events and the assumptions on which theexpressed expectations are based. All forward-looking statementsare inherently uncertain as they are based on variousexpectations and assumptions concerning future events and theyare subject to numerous known and unknown risks anduncertainties, which could cause actual events or results todiffer materially from those projected. Due to thoseuncertainties and risks, the investment community is urged notto place undue reliance on written or oral forward-lookingstatements of the Company. The Company undertakes no obligationto update or revise this Safe Harbor Compliance Statement forForward-Looking Statements (the “Safe HarborStatement”) to reflect future developments. In addition,the Company undertakes no obligation to update or reviseforward-looking statements to reflect changed assumptions, theoccurrence of unanticipated events or changes to futureoperating results over time.
     The Company provides the following risk factor disclosure inconnection with its continuing effort to qualify its written andoral forward-looking statements for the safe harbor protectionof the Reform Act and any other similar safe harbor provisions.Important factors currently known to management that could causeactual results to differ materially from those inforward-looking statements include the following:
**Regulatory and Political Risks**
     The healthcare industry is subject to numerous laws andregulations which may affect the Company’s business. Inaddition to laws and regulations affecting healthcare andinsurance, changes in the federal fair debt collection laws andlaws governing the privacy of personal health information mayalso adversely affect the Company’s business.
     *General.* From time to time, legislation is introduced inCongress and various state legislatures which would materially,and potentially adversely, affect the Company’s business.Moreover, courts (particularly the United States Supreme Court,the federal appellate courts and the state supreme and appellatecourts) have the power to create and interpret laws in ways thatmay also materially and adversely affect the Company’sbusiness. The most significant legislation, laws and regulationsmay, for clarity, be grouped into three categories:(i) legislation that would substantially limit the abilityof healthcare insurers to recover from third-partiesaccident-related medical benefits incurred by injured insureds(“Health Insurance Primacy Laws”);(ii) legislation that would substantially limit theCompany’s ability to receive and utilize individual claiminformation from healthcare insurers (“ConfidentialityLaws”); and (iii) other federal and state laws andcertain legal doctrines. The following identifies specific risksin these three categories: *Health Insurance Primacy Laws*
     *Auto Choice Reform Act.* In May 2001, Congress proposed,but failed to enact, legislation known as the Auto Choice ReformAct of 2001 (the “Proposed Act”). Similar bills wereintroduced but not enacted in each of the two previousCongresses. Under the Proposed Act, in those states not optingout of its provisions, individual drivers would have been ableto choose to be covered by an auto insurance system in which

 
healthcare insurers, with some exceptions, might have beenunable to recover for healthcare costs incurred by those injuredin automobile accidents. Consequently, even if theinsured’s injuries were caused by the negligence of anotherdriver, the healthcare insurer might not have had any rights ofrecovery against the negligent party or that party’sliability insurer. Revenue generated from recoveries againstautomobile liability insurers historically representedapproximately 64% of the Company’s revenues. Should similarlegislation be enacted, it could have a material adverse effecton the Company’s business, results of operations andfinancial condition.
     Proponents of the Proposed Act asserted that (i) the costsof operating a motor vehicle are excessive due to legal andadministrative costs associated with the processing of claimsunder the fault-based liability system; and (ii) the costlyfault-based liability insurance system often fails to providecompensation commensurate with loss and takes too long to paybenefits. Even if the Proposed Act is not introduced in Congressagain in the future, these policy reasons may result in futurelegislation designed to significantly alter the fault-basedliability system used in most states, eliminate recovery rightsof healthcare insurers and materially adversely affect theCompany’s business.
     *Certain No Fault Insurance Systems.* Certain states haveadopted versions of automobile “no fault” insurancesystems in which the injured party’s health insurancecarrier or provider is primarily responsible for healthcarerelated expenses (and not the responsible party and his or herinsurer or the injured insured’s automobile liabilityinsurer). In 1996, California voters rejected a no-faultautomobile insurance measure, Proposition 200, which wouldhave required drivers with bodily injuries to be compensated bytheir healthcare insurers. Although Proposition 200 wasrejected by the voters, there can be no assurance that similarmeasures will not again be presented in a ballot initiative oras legislation in California or elsewhere in the future. Growthin the number of states adopting similar systems couldsignificantly reduce the amounts otherwise recoverable by theCompany in connection with automobile injuries in such states. *Confidentiality Laws*
     *Confidentiality Provisions of the Health InsurancePortability and Accountability Act of 1996 and RelatedRegulations.* The Company’s activities involve thereceipt and use of confidential health information from or onbehalf of its clients. In December 2000, the Secretary (the“Secretary”) of Health and Human Services(“HHS”) promulgated the Standards for Privacy ofIndividually Identifiable Health Information, 45 C.F.R.Parts 160 and 164 (as modified, the “PrivacyRule”), which deals with the use and disclosure of healthinformation and implements certain requirements of theAdministrative Simplification subtitle of the Health InsurancePortability and Accountability Act of 1996 (“HIPAA”).The Privacy Rule became effective on April 14, 2001 andhealth plans, health care clearinghouses, and certain healthcare providers covered by the Privacy Rule (“CoveredEntities”) generally were required to comply byApril 14, 2003. The Privacy Rule prescribes the manner inwhich Covered Entities are permitted or required to use anddisclose individually identifiable health information subject tothe Privacy Rule’s requirements, known as “protectedhealth information”. The Privacy Rule also requires CoveredEntities to implement certain “administrative”requirements, such as establishing relevant policies andprocedures, designating a privacy official responsible for thedevelopment and implementation of the policies and procedures,and training affected members of the workforce regarding thepolicies and procedures. The Privacy Rule establishes a complexregulatory framework on a variety of subjects, including, butnot limited to, (a) disclosures and uses of protectedhealth information , (b) individuals’ rights toaccess, amendment, and accounting regarding their protectedhealth information, and (c) individuals’ rights toreceive notice of Covered Entities’ practices with respectto protected health information.
     The Privacy Rule affects other entities that are not necessarilyCovered Entities under the Privacy Rule but which performcertain functions or activities on behalf of Covered Entities.Entities performing certain functions or activities on behalf ofa Covered Entity are treated as “business associates”of a Covered Entity under the Privacy Rule. The Company’sactivities make it a business associate of customers that areCovered Entities, such as health plans. The Privacy Rulerequires the Covered Entity and its business associates to enterinto contracts that meet certain requirements. Therefore,although a business associate to a Covered Entity is notdirectly subject to the Privacy Rule, it will be subject tocertain similar requirements imposed

 
through its business associate contracts. Significantly,however, the Privacy Rule does not require business associatecontracts to obligate business associates to implement certainorganizational requirements the Privacy Rule imposes uponCovered Entities, such as appointing a privacy officer orestablishing and distributing a notice of privacy practices. Thebusiness associate provisions of the Privacy Rule do require aCovered Entity that becomes aware of a pattern of activity orpractice of a business associate that constitutes a materialviolation of the business associate’s obligations under thecontract to take reasonable steps to end the violation and, ifsuch steps are not successful, terminate the contract with thebusiness associate, if feasible.
     In August 2000, HHS issued pursuant to HIPAA, a final ruleestablishing transaction standards and code sets for theelectronic transmission of health information, 45 C.F.R.Part 162 (the “Transaction Standards”). TheTransaction Standards adopt uniform standards that must be usedif one health care provider or health plan conducts certainelectronic transactions with another health care provider orhealth plan. Moreover, the Transaction Standards establishcertain code sets to be used in connection with the standardtransactions. Health plans and other entities subject to theTransaction Standards were generally required to comply byOctober 16, 2003. The Company currently does not engage inany transactions covered by the Transaction Standards. However,additional transactions, possibly including transactions engagedin by the Company, will be covered by the Transaction Standardsin the future.
     In addition to the Privacy Rule and the Transactions Standard,in February 2003 HHS published, pursuant to HIPAA, a final rulegoverning the security of health information maintained ortransmitted electronically by health plans and certainclearinghouses and providers (the “SecurityStandards”). The Security Standards impose extensiveadditional administrative, physical, technological, andorganizational requirements on Covered Entities and theirbusiness associates. As noted above, certain of theCompany’s activities make it a business associate of theCompany’s clients; therefore the Company will have somecontractual obligations related to the Security Standards. TheSecurity Standards have a compliance date of April 21, 2005.
     HIPAA, the Privacy Rule, the Transactions Standard and theSecurity Standard (collectively, the “Rules”) couldimpair the Company’s subrogation recovery practices bycreating administrative burdens (for example, by requiringbusiness associates of Covered Entities to amend healthinformation in certain circumstances or to restrict subsequentuses of protected health information) or liability risks thatlead health plans to voluntarily restrict their subrogationrecovery practices. The provisions of the Rules or of futurefederal legislation and regulations could impair or prevent theacquisition and use by the Company of claims and insuranceinformation necessary to process recovery claims on behalf ofits clients. However, the Company believes that it will be ableto comply fully with the Rules on a timely basis and withoutmaterial adverse effect.
     In addition to the federal protection of health information,state laws governing privacy of medical or insurance records andrelated matters may significantly affect the Company’sbusiness. Most states have enacted health care informationconfidentiality laws that limit the disclosure of confidentialmedical information. The Rules do not preempt state lawsregarding health information privacy that are more restrictivethan the Rules. The costs and efforts associated with compliancewith the various state laws could increase in the future ifstates begin to enact additional and more comprehensive privacylegislation and may have a material adverse effect on theCompany. *Other Federal and State Laws*
     Changes in a variety of laws could also affect theCompany’s business. One such area is insurance law, whichcomprises a complex network of state and federal laws, such asthe federal Employee Retirement Income Security Act of 1974(ERISA), the regulations and orders promulgated under thoselaws, and the pertinent case law created by state and federalcourts. Similarly, federal or state laws that would bar orimpair healthcare subrogation or an injured party’s abilityto collect insured damages (that is, an injured person would beprevented from recovering from the wrongdoer damages foraccident-related medical benefits covered by health insurance)could similarly adversely affect the Company’s business.Existing debt collection laws also may be amended or interpretedin a manner that could adversely affect the Company’sbusiness.

 
Additionally, although the Company does not believe that itengages in the unauthorized practice of law, changes in the lawor a judicial or administrative decision defining some of theCompany’s activities as the practice of law, could have amaterial adverse effect on the Company’s business *Certain Legal Doctrines*
     With respect to recoverable claims, the rights of healthcaresubrogation and reimbursement may be limited in some cases bythree principles of general application. The first of these isthe “made whole doctrine,” which subordinates thehealthcare provider’s ability to recover to that of theinjured party when the settlement damage award received by theinjured party is inadequate to cover the injured party’sdamages. The second is the “common fund doctrine,”which permits plaintiffs’ attorneys to deduct their feesfor the claim based on the entire amount covered by a damageaward and may, in some cases, proportionally diminish the amountrecoverable by the Company on behalf of the healthcare payor outof that damage award. Finally, federal courts have in somevenues, most notably the Ninth Circuit which covers Californiaand several other western states, begun to apply a doctrineunder ERISA that prevents or hinders health plans (and theirrecovery agents) from bringing healthcare reimbursement actionsin federal court.
**Dependence on Large Clients**
     The Company’s clients include national and regionalhealthcare payors, large third-party administrators andself-insured corporations. The loss of one or more of theCompany’s clients could have a material adverse effect onthe Company’s business, results of operations, financialcondition and stock price. During the year endedDecember 31, 2003, clients terminated healthcare recoveryservices covering 9.0 million lives; certain of these sameclients, however, kept in place or bought from the Company otherhealthcare recovery services with respect to 1.4 millionlives. During the three-year period ended December 31,2003, clients terminated healthcare recovery services covering23.9 million lives; these same clients, however, kept inplace or bought from the Company other healthcare recoveryservices covering 4.1 million lives. Terminations occurreddue to, among other things, consolidations of healthcare payors,bankruptcy, the selection of another vendor, or because theprocess was taken in-house. The Company’s revenues areearned under written contracts with its clients that generallyprovide for contingency fees from recoveries under a variety ofpricing regimes. These contracts are generally terminable on 60to 180 days’ notice by either party, although in a fewcases the contracts extend over a period of years. TheCompany’s contracts generally provide that in the event oftermination, the Company is entitled to complete the recoveryprocess on the existing backlog or to receive a cash payment,designed to approximate the gross margin that would otherwisehave been earned from the recovery on the backlog of theterminating client.
     During 2002, UHG management informed the Company of itsintention to terminate subrogation services with respect to allbut 1.8 million lives of the 9.7 million lives thensubject to the Company’s services under a contract withUHG. UHG’s termination of these services resulted from itsdecision to bring subrogation recovery services back inside UHG,where they will be performed by its Ingenix strategic businessunit. The Company’s contract with UHG expired in accordancewith its terms on February 1, 2003, except with respect tothe 1.8 million lives. In December 2003, UHG gave notice ofthe termination of the remaining business under contract,effective February 1, 2004. The Company expects to continuerecovering on the backlog as to which UHG terminated theCompany’s services, a process that the Company expects willbe completed in 5 to 6 years from the dates of termination.
**Lengthy Revenue Cycle and Fluctuation in Operating Results**
     The Company’s operating results may fluctuate from time totime as a result of a number of factors. These factors includebut are not limited to:
 •     the addition of new clients;  •     the cancellation of client contracts;  •     the loss of business by a client or the acquisition of a client    by a non-client;

 

 •     the postponement of client decisions to enter into contracts;  •     delays in transmission of clients’ claims data;  •     changes in prices offered to new or renewing clients;  •     timing of client acquisitions; and  •     introduction of new services or introduction of new technologies    to the Company’s business processes.
     The Company expends substantial time, effort and funds toinstall lives and generate active files. As a result, theCompany incurs expenses related to its revenue before revenue isreceived which can result in fluctuations in operating results.
     In particular, during a fiscal quarter it is difficult toforecast when and how many clients’ claims data will bereceived. The Company’s clients continuously update andmodify their claims and medical encounter processing systems,often causing delays in or errors to the transmission of claimsdata. The Company’s expense levels are based in part onexpectations of future receipt of claims data and the Companyhas been significantly increasing and intends to continue toincrease operating expenditures and working capital balances asit expands its operations. Specifically, material increases innew clients and lives installed, and consequently client claimsdata received, will cause the Company to increase its operatingcapacity before it expects to earn revenues from such newclients. If operating results in any particular quarter do notmeet the expectations of securities analysts it is likely tocause volatility in the price of the Company’s Common Stock.
**Litigation**
     The Company is engaged in the business of identifying andrecovering subrogation and related claims of its clients, manyof which arise in the context of personal injury lawsuits. Assuch, the Company operates in a litigation-intensiveenvironment. Consequently, since its founding in 1988 theCompany has been involved with many litigation matters relatedto its subrogation business, sometimes as a defendant andsometimes through a defendant client. The plaintiffs’attorneys attempting to defeat the clients’ subrogationliens often threaten litigation against the Company and itsclients as a negotiating tactic. Most of the lawsuits that havebeen filed against the Company or its clients concern theentitlement to recover a specific, individual subrogation claimor the amount of the subrogation claim. Typically, these actionsdo not ask for punitive damages, are not pled as class actions,and do not have wide implications with respect to theCompany’s ongoing business practices.
     To date, however, the Company has encountered eight noteworthyinstances in addition to the pending lawsuits described under“Current Litigation”, below, in which lawsuits werefiled against it or its clients that sought punitive damages,were pled as class actions, or otherwise made claims orrequested relief that could have materially affected theCompany’s business practices. The risk profile for thissort of business practices litigation includes not only theusual considerations of the potential amount, effect, andlikelihood of loss, but also specifically the potential forpunitive damages and class certification, the possible effectsof an adverse verdict on the Company’s business practices,and the likelihood of specific plaintiffs’ attorneysbringing similar actions in other jurisdictions.
     Each of these cases has been completely resolved, by decision ofa court or settlement by the parties, but prior to resolutionthe Company did not regard all of these cases as being materialin and of themselves. In management’s opinion, these eightcases share a common profile with each other and with thelawsuits described below under the caption “CurrentLitigation”.
     Five of the eight lawsuits named the Company as a defendant andwere pled as class actions. Two of these five cases, one infederal court and the other in state court, alleged that theCompany violated state and federal laws on fair debt collectionpractices. In the state court action, the court granted theCompany’s motion for summary judgment on all claims in thecomplaint, which the court of appeals affirmed. In the federalcourt action, the Company settled the matter, prior to thecourt’s ruling on the Company’s motion for summaryjudgment, for a nominal amount.

 

     Three of those five lawsuits, pled as class actions and namingthe Company as a defendant, were filed in federal court andcharged the Company with a variety of violations of laws andsought punitive damages. The complaints alleged, among otherthings, that the Company committed negligence, fraud and breachof its duties under ERISA by attempting to recover and actuallyrecovering, by subrogation, the reasonable value of medicalbenefits which were provided by the Company’s clients undercapitation or discounted-fee-for-service arrangements. One ofthese lawsuits was dismissed in a ruling on the merits. Anotherwas settled, after the court denied class certification, for anominal amount paid by the Company’s client, a co-defendantin the case. The third case, *DeGarmo et al. v. HealthcareRecoveries, Inc.*, was concluded in mid-July 2001 for asettlement payment of $3 million and nonmonetary terms thatmanagement regards as immaterial to the Company’s ongoingbusiness.
     The remaining three lawsuits did not name the Company as adefendant. These three lawsuits did, however, involve theCompany’s clients and implicate important Company businesspractices. The complaints in these cases alleged, among otherthings, violation of state law with respect to the payment ofplaintiffs’ attorneys’ fees and unfair tradepractices, violation of the federal Health MaintenanceOrganization Act of 1973, misrepresentation of the rightfulamounts of subrogation claims, and impermissible enforcement ofrecovery rights. Two of these cases resulted in judgments infavor of the Company’s clients after litigation of themerits before trial and appellate courts. The other case wassettled for an immaterial amount.
     Management believes that the lawsuits described above will not,as a general matter, have precedential value for either thecases described below under the caption “CurrentLitigation” or for any future litigation matters (all thesecases being referred to as the “Pending and PotentialCases”). Indeed, the courts hearing the Pending andPotential Cases may not even become aware of the outcomes in theeight lawsuits described above. Management expects that each ofthe Pending and Potential Cases will be decided on its ownmerits under the relevant state and federal laws, which willvary from case to case and jurisdiction to jurisdiction. Thedescriptions of the outcomes in the eight cases dealing withbusiness practices are included here in order to describe thecontext for these kinds of litigation and the Company’srelative successes in handling past business practiceslitigation, but are not necessarily predictive of the outcomesof any of the Pending and Potential Cases.
     Moreover, there can be no assurance that the Company will not besubject to further class action litigation similar to thatdescribed below under the caption “CurrentLitigation”, that existing and/or future class actionlitigation against the Company and its clients will not consumesignificant management time and/or attention or that the cost ofdefending and resolving such litigation will not be material.
**Current Litigation** *Cajas et al. v. Prudential Health Care Plan and Healthcare    Recoveries*
     On October 28, 1999, a class action plaintiff’sOriginal Petition (“Petition”) was filed against theCompany and one of the Company’s clients in the DistrictCourt for the 150th Judicial District, Bexar County, Texas,*Joseph R. Cajas, on behalf of himself and all otherssimilarly situated v. Prudential Health Care Plan, Inc. andHealthcare Recoveries, Inc.*The plaintiff asserts that theCompany’s subrogation recovery efforts on behalf of itsclient Prudential Health Care Plan, Inc.(“Prudential”) violated a number of common law duties,as well as the Texas Insurance Code and the Texas Business andCommerce Code. The Petition alleges that the Company, as thesubrogation agent for Prudential, made fraudulentmisrepresentations in the course of unlawfully pursuingsubrogation and reimbursement claims that the plaintiff assertsare unenforceable because (1) prepaid medical service plansmay not exercise rights of subrogation and reimbursement;(2) the subrogation and reimbursement claims asserted bythe Company are not supported by contract documents that provideenforceable recovery rights and/or do not adequately describethe recovery rights; and (3) the sums recovered pursuant tosuch claims unlawfully exceed the amount Prudential paid formedical goods and services. The Company was served with thePetition in November 1999, and has answered, denying allallegations. After the defendants filed a motion for summaryjudgment in January 2002, the plaintiff moved the court to delayconsideration of the motion until the plaintiff could completeadditional discovery. The plaintiff’s motion to delayconsideration was granted. On October 25, 2002, theplaintiff filed an amended

 
petition naming one additional plaintiff as a purported classrepresentative. The amended petition did not add any new claims.The defendants filed a motion for summary judgment onJanuary 24, 2003, and the plaintiffs filed a cross motionfor summary judgment. On February 25, 2003, a state courtjudge denied the defendants’ motion for summary judgmentthat the defendants were entitled to enforce the terms ofPrudential’s policies. The same judge granted theplaintiffs’ motion for partial summary judgment to theeffect that Prudential could not recover more than its costs.That ruling is not final nor yet appealable. The plaintiffs havenot yet moved the court to certify the case as a class action. *Martin et al. v. Companion Health Care and Healthcare    Recoveries*
     In December 1999, a purported class action complaint(“Complaint”) was filed against the Company and one ofthe Company’s clients in the Court of Common Pleas ofRichland County, South Carolina, *Estalita Martin et al. vs.Companion Health Care Corp., and Healthcare Recoveries, Inc.*In January 2000, the defendant Companion Healthcare Corp.(“CHC”) filed an Answer and Counterclaim and theplaintiff Martin filed a First Amended Complaint (“AmendedComplaint”). The Amended Complaint asserts that theCompany’s subrogation recovery efforts on behalf of itsclient, CHC, violated a number of common law duties, as well asthe South Carolina Unfair Trade Practices Act. The AmendedComplaint alleges that the Company, as the subrogation agent forCHC, made fraudulent misrepresentations in the course ofunlawfully pursuing subrogation and reimbursement claims thatthe plaintiffs assert are unenforceable because (1) prepaidmedical service plans may not exercise rights of subrogation andreimbursement; (2) the subrogation and reimbursement claimsasserted by the Company are not supported by contract documentsthat provide enforceable recovery rights and/or do notadequately describe the recovery rights; and (3) the sumsrecovered pursuant to such claims unlawfully exceed the amountCHC was entitled to collect for such medical goods and services.The Amended Complaint further alleges that the Company and CHCunlawfully pursued subrogation and reimbursement claims by(1) failing to pay pro rata costs and attorney’s feesto attorneys who represented purported class members withrespect to tort claims underlying the subrogation andreimbursement claims; and (2) failing to include insubrogation and reimbursement claims all applicable discountsthat CHC received for such medical goods and services. Theplaintiffs, on behalf of the purported class, demandcompensatory damages, punitive damages, and treble damages,disgorgement of unjust profits, costs, prejudgment interest andattorneys’ fees. The Company was served with the originalComplaint in late December 1999 and answered denying allallegations. The Company filed a motion to dismiss in August2000 and in June 2001 the court granted the Company’smotion to dismiss. The plaintiffs filed a notice of appeal inJuly 2001. On March 1, 2004, the Court of Appeals of SouthCarolina filed an order and opinion affirming the trialcourt’s order dismissing the case. The time period in whichthe plaintiff may move for a rehearing in the Court of Appealsor pursue a further appeal to the South Carolina Supreme Courthas not expired. *Hamilton v. Healthcare Recoveries*
     On March 12, 2001, a Complaint (“Complaint”) wasfiled against the Company in the United States District Courtfor the Eastern District of Louisiana, in a putative classaction brought by Kyle M. Hamilton. In that action, *Hamiltonv. Healthcare Recoveries, Inc.*, No. 01-650, theplaintiff asserts that the Company’s subrogation recoveryefforts on behalf of its clients violate certain Louisiana statelaws, the federal Fair Debt Collection Practices Act and theLouisiana Unfair Trade Practices Act. The Complaint alleges thatthe Company intentionally and negligently interfered with theplaintiff’s and the putative class members’ rights tosettle certain personal injury claims. The Complaint furtheralleges that the Company unlawfully pursued subrogation andreimbursement claims that the plaintiff asserts areunenforceable because the clauses in the Company’sclients’ coverage documents that create such recoveryrights are rendered null and void by Louisiana statutes thatgenerally prohibit coordination of benefits with individuallyunderwritten insurance coverages. The plaintiff purports torepresent a class consisting of all persons covered under grouphealth policies that were issued or delivered in the State ofLouisiana and who received any communication from the Companyattempting to enforce any clauses that allegedly were renderednull and void by Louisiana law. The plaintiff seeks on behalf ofthe purported class compensatory and statutory damages,interest, costs, attorneys’ fees and such additionaldamages and relief as may be allowed by any applicable law. InJuly 2001, the court granted a motion for summary judgment filedby the Company as concerned the plaintiff’s Fair Debt

 
Collection Practices Act (“FDCPA”) claim, dismissingthose claims with prejudice. The court denied the Company’smotion for summary judgment, without prejudice to the right ofthe Company to reassert its motion, with respect to theplaintiff’s state law claims. The court ordered that theparties submit memoranda addressing whether the court still hadsubject matter jurisdiction, given dismissal of the federalclaim. In August 2001, the court ruled that it lacked subjectmatter jurisdiction, thus dismissing the remaining claims,without prejudice. The plaintiff filed an appeal to the UnitedStates Fifth Circuit Court of Appeals. In November 2002, theCourt of Appeals rendered its opinion reversing the dismissal ofthe FDCPA claims. The court also affirmed the trial court’sdetermination that diversity jurisdiction did not exist in thecase. The court remanded the case to the federal district courtfor further proceedings. On April 29, 2003, the Companyfiled a Petition for Writ of Certiorari asking the U.S. SupremeCourt to accept an appeal of the Court of Appeals ruling. TheSupreme Court denied the Petition on June 9, 2003.
     After the case was remanded to the trial court, the Companyfiled a second Motion for Summary Judgment. On May 13,2003, the Court entered an Order granting the Company’sMotion for Summary Judgment, dismissing with prejudice thePlaintiff’s claims under the FDCPA and dismissing withoutprejudice the Plaintiff’s remaining state law claims. OnMay 27, 2003, the plaintiff filed a Notice of Appeal to theUnited States Fifth Circuit Court of Appeals which heard oralargument of the appeal on December 3, 2003. The Court hasnot yet ruled on the appeal.
     The Company disputes the plaintiff’s allegations regardingthe applicability of the FDCPA and intends to vigorously defendits position in this case.
     In addition to filing the appeal in federal court, the*Hamilton*plaintiff in October 2001 filed a new complaintin the Civil District Court for the Parish of Orleans,Louisiana, in a putative class action styled *Hamilton v.Healthcare Recoveries, Inc.*, 2001-15989. This state courtaction asserts claims substantially similar to those in thefederal court action. In November 2001, the Company filedpreliminary exceptions to this new complaint. There were nofurther proceedings in the case until March 2003 when theCompany filed a motion to stay any further proceedings in thatcase due to the related case pending in federal court. OnApril 25, 2003, the state court entered an order grantingthe Company’s motion to stay the lawsuit. Thereafter, theCompany removed the case from state court to Federal court onAugust 5, 2003. On September 4, 2003, the plaintifffiled a Motion to Remand the case back to state court, whichmotion was granted on November 21, 2003. Thus the caseremains in the state court. *Bruun et al. v. Prudential Health Care Plan, Prudential    Insurance Company of America, Aetna, Inc. and Trover    Solutions*
     On October 30, 2002, plaintiffs’ counsel in the*Cajas*and *Franks*cases filed a class actionlawsuit in the United States District Court for the District ofNew Jersey on behalf of two Texas residents against the Company,Prudential Insurance Company, one of the Company’s clients,PruCare HMO, a subsidiary of Prudential Insurance Company, andAetna, a company which had acquired the business of another ofthe Company’s clients. The complaint was served on theCompany on February 27, 2003.
     In the complaint, plaintiffs Kimberly Bruun and Ashley Emanis,on behalf of themselves and similarly situated persons, assertedclaims on behalf of a putative nationwide class of persons whowere members of PruCare HMO health plans governed by ERISA fromwhom the Company, under its contract with the client, recoveredreimbursement. The complaint alleged that reimbursementrecoveries made by PruCare HMO and the Company violate the termsof the standard PruCare HMO plan documents, and thatreimbursement recoveries violate the Conformity with Lawprovision in the standard plan documents because subrogation andreimbursement are prohibited under the federal HMO Act. Thecomplaint further alleged that the defendants’ subrogationand reimbursement recoveries resulted in a double recovery toPruCare HMO because PruCare HMO did not account for subrogationand reimbursement recoveries as offsets to expenses when settingpremium rates. The complaint further alleged that the defendantsimproperly recovered in subrogation or reimbursement forservices provided by capitated providers, or that in thealternative, the defendants improperly recovered more forcapitated services than was paid for the services, oralternatively, that the defendants improperly collected amountsthat exceeded the reasonable cash value of capitated services.The

 
plaintiffs allege that PruCare HMO, Prudential, Aetna and theCompany are fiduciaries and that they each have breached theirfiduciary duty to the plaintiffs. Alternatively, the plaintiffsallege that if Aetna, Prudential and the Company are notfiduciaries, that they knowingly participated in PruCareHMO’s breach of fiduciary duty.
     The plaintiffs, on behalf of the class, demand enforcement ofthe plan documents under certain sections of ERISA. Theplaintiffs also demand restitution and disgorgement of sumsrecovered by defendants and the establishment of a constructivetrust. The plaintiffs also demand an accounting of PruCareHMO’s and Aetna’s rate documents, the subrogation andreimbursement claims for capitated services, and/or the actualcosts paid by PruCare HMO and Aetna for the capitated services.
     On April 16, 2003, the defendants filed motions seeking todismiss the lawsuit or to change the venue of the lawsuit to afederal court in Texas. On October 16, 2003, the courtentered an order granting the defendants’ motions todismiss and dismissing all of the plaintiff’s claims. OnNovember 13, 2003, the plaintiffs filed a Notice of Appealto the United States Third Circuit Court of Appeals. Theplaintiffs filed their appellate briefs on February 23,2004. The Company has not yet filed briefs or argued the appeal. *Godair v. American Home Assurance Company, Trover Solutions,    and HMO Partners*
     On March 14, 2003, Lawrence Godair, the plaintiff in aputative class action against a motor vehicle insurer, amendedhis complaint to add the Company, and a client of the company,HMO Partners, as defendants in *Lawrence Godair v. AmericanHome Assurance Company, Trover Solutions, Inc. and HMO Partners,Inc.,*No. 4:02 CV 00407 SMR, United StatesDistrict Court for the Eastern District of Arkansas, WesternDivision. In the amended complaint (the “AmendedComplaint”), the plaintiff makes allegations on behalf ofhimself and a purported class of others similarly situated. Thecomplaint asserts that the Company, as subrogation agent for HMOPartners, unlawfully demanded payment of a subrogation claimagainst proceeds of a medical payments insurance policy issuedto the plaintiff by American Home. The Amended Complaint alsoalleges that the Company was unjustly enriched because theplaintiff was not fully compensated (“made whole”) forhis injuries in violation of the Arkansas no-fault motor vehicleinsurance statute and because the payment constituted a doublerecovery to the Company and to HMO Partners, in violation of theArkansas Health Maintenance Organizations Act. The AmendedComplaint further alleges that in recovering the subrogationclaim the Company acted negligently, that it interfered with theplaintiff’s contractual relationship with the motor vehicleinsurer and that the Company may be directly or vicariouslyliable for the acts of other defendants. The Amended Complaintdemands relief on behalf of a purported class of persons whopurchased medical payments coverage as required by the Arkansasno-fault motor vehicle insurance statute and who were entitledto but did not receive benefits under such policies due to thepayment of those benefits to third parties, including theCompany and HMO Partners. The Amended Complaint demandscompensatory and punitive damages, 12% statutory penalties,costs, expenses, interest and attorney’s fees.
     The Company was served with the Amended Complaint onMarch 18, 2003 and filed an Answer denying theplaintiff’s claims on May 5, 2003. The Company intendsto vigorously defend itself against these allegations. TheCompany and the plaintiff are currently engaged in the discoveryprocess.
     The *Cajas, Martin*or *Bruun*lawsuits, or any one ofthem, if successful, could prevent the Company from recoveringthe “reasonable value” of medical treatment underdiscounted fee for service (“DFS”), capitation andother payment arrangements. The *Cajas, Martin, Hamilton,*and *Bruun*lawsuits, or any one or more of them, ifsuccessful, could require the Company to refund, on behalf ofits clients, recoveries in a material number of cases. Inaddition, an adverse outcome in any of the above referencedlawsuits could impair materially the Company’s ability toassert subrogation or reimbursement claims on behalf of itsclients in the future. Based on the current disposition of theselawsuits, the Company regards such an adverse outcome to be aremote possibility.
     In terms of the Company’s business practices and theallegations underlying the *Cajas, Martin*and *Bruun*cases, at the end of 1993 the Company had ceased thepractice of recovering the “reasonable value” ofmedical treatment provided by medical providers under DFSarrangements with the Company’s clients. From

 
that date, the Company’s policy has been not to recover the“reasonable value” of medical treatment in DFSarrangements. However, the Company historically and currentlyrecovers the “reasonable value” of medical treatmentprovided under capitation arrangements and other paymentarrangements with medical providers on behalf of those clientsthat compensate medical providers under these paymentmechanisms, to the extent that these benefits are related totreatment of the injuries as to which clients have recoveryrights. The Company believes that its clients’ contracts,including the contracts that provide for recovery under DFS,capitation and other payment arrangements are enforceable underthe laws potentially applicable in these cases. As a result, andtaking into account the underlying facts in each of these cases,the Company believes it has meritorious grounds to defend theselawsuits, it intends to defend the cases vigorously, and itbelieves that the defense and ultimate resolution of thelawsuits should not have a material adverse effect upon thebusiness, results of operations or financial condition of theCompany. Nevertheless, if any of these lawsuits or one or moreother lawsuits seeking relief under similar theories were to besuccessful, it is likely that such resolution would have amaterial adverse effect on the Company’s business, resultsof operations and financial condition.
     Management of the Company has observed that, in parallel withwidely-reported legislative concerns with the healthcare paymentsystem, there also has occurred an increase in litigation,actual and threatened, including class actions brought bynationally prominent attorneys, directed at healthcare payorsand related parties. As a result of the foregoing, there can beno assurance that the Company will not be subject to furtherclass action litigation, that existing and/or future classaction litigation against the Company and its clients will notconsume significant management time and/or attention or that thecost of defending and resolving such litigation will not bematerial.
**Competition**
     *Healthcare Recovery Services.* The Company competesprimarily with the internal recovery departments of potentialcustomers and other outsource healthcare recovery servicevendors. To the Company’s knowledge, there are foursmaller, but significant, independent providers of healthcaresubrogation recovery services in addition to the Company. Thereare four different vendors that provide competitive overpaymentrecovery outsourcing services, as well as three nationalcompanies that provide competing provider bill auditing services.
     *Property and Casualty Recovery Services.* The Company hasassessed the competitive environment for P&C subrogationoutsourcing and believes that the competition is fragmented andcharacterized by claims adjusting companies that operate on alocal or regional basis and by law firms that specialize in alow volume of legally complex subrogation claims. The Companyhas identified five competitors that attempt to serve a nationalmarket. Two of these competitors are owned and controlled byP&C insurers, and the Company believes that this fact maydeter potential buyers of these competitors’ services ifthose potential buyers also compete against thecompetitors’ parent organizations.
     With respect to both its healthcare recovery services and itsP&C recovery services, the Company believes that there arebarriers to entry in the bulk of its market, including processexpertise, capital requirements necessitated by the unusuallylong revenue cycle in the recovery industry, assembling andtraining a qualified and productive employee base possessingappropriate industry expertise, and an information processingsystem designed to aid investigators and examiners engaged inthe recovery process. However, there are participants in thehealthcare, insurance, transaction processing and softwaredevelopment industries that possess sufficient capital, andmanagerial and technical expertise to develop competitiveservices.
     *Software.* The Company is not aware of any competition insubrogation software in an ASP model for the healthcare payorindustry, and it has identified only one large competitor in theP&C insurance industry. This competitor is partially ownedand controlled by a major P&C insurer, and the Companybelieves that this relationship will reduce the ability of thecompetitor to sell its services to other P&C insurers.
     With respect to its software segment, the Company believes thatthere are barriers to entry in its market, including processexpertise. However, there are participants in the healthcare,insurance, transaction processing and software developmentindustries that possess sufficient capital and managerial andtechnical expertise to develop competitive software.

 

**Dependence on Key Personnel**
     The Company’s success depends to a significant degree uponthe continued contributions of members of the Company’ssenior management and other key sales, marketing, computersystems and operations personnel, and the loss of any suchpersons could have a materially adverse effect on the businessof the Company. The Company’s success also depends upon itsability to attract and retain highly qualified and skilledmanagerial, sales, marketing and computer software developmentand operations personnel, the competition for whom is intense.There can be no assurance that the Company will be successful inhiring or retaining the requisite personnel, which could have amaterial adverse effect on the Company’s business, resultsof operations and financial condition. The Company does notmaintain insurance on key personnel. The Company has anemployment agreement with Patrick B. McGinnis, Chairman andChief Executive and has severance agreements with certain of itsother executive officers.
     The Company employs, and facilitates the development of, skilledknowledge-workers. The Company maintains an extensive, in-housetraining program, which it believes is attractive to employeesand essential in developing the necessary industry-specificskills. All of the Company’s recovery and managementemployees participate in one of four incentive compensationplans, depending upon the responsibilities of each employee.Trover Solutions, Inc. employed 591 persons as ofDecember 31, 2003.
**Proprietary Technology**
     *Dependence on Proprietary Software Applications.* TheCompany’s success depends, in part, upon its proprietarytechnology, specifically the integrated software programs (the“SubroSystem”) that supports its subrogationoperations. Although federal copyright law protects certainelements of the SubroSystem, such protection neither confers amonopoly on the use of subrogation recovery software systems norprevents competitors from developing similar systems. TheSubroSystem, like all other software programs, may be subject toa variety of replication techniques (for example, reverseengineering, logic tracing, disassembly and decompilation) thatwould produce a functionally similar software system not coveredby the Company’s registered copyright. Therefore, there canbe no assurance that the Company’s registered copyright onthe SubroSystem will preclude or deter circumvention by currentor future competitors, with the effect that the Company mightlose any advantage conferred by the SubroSystem.
     *Migration to New System.* The Company completeddevelopment of a web-enabled subrogation software applicationfor health insurance in the second quarter of 2001 and anapplication for P&C insurance in the third quarter of 2001,and markets both applications under the trade name“Troveris”. The Complete completed migration of bothits healthcare subrogation internal recovery units and P&Csubrogation internal recovery units in the third quarter of2003. Notwithstanding the Company’s success in developingand deploying Troveris internally, the Troveris software isstill relatively new and problems with the Troveris applicationsmay emerge from time to time in the future. If theCompany’s management is unable to resolve any such problemswith the Troveris applications on a timely basis, its results ofoperations and financial condition could be adversely affectedas could its future ability to sell either its subrogationrecovery services or the Troveris software to healthcare payorsand P&C insurers.
     *New Product Development.* The Company’s futureperformance will depend in part upon the Company’s abilityto develop and successfully introduce new products and to createand implement enhancements to its existing suite of products,including those software applications sold by or throughTroveris. The Company has devoted increasingly more resources toproduct and system development and enhancements and believesthat significant continuing development and enhancement effortswill be necessary to adapt to changing marketplace requirements,to sustain its operations, and to integrate the products andtechnologies of acquired businesses. There can be no assurancethat the Company will successfully or in a timely mannerdevelop, acquire, integrate, introduce, and market new productenhancements or products. There can be no assurance that suchproduct enhancements or new products developed by the Companywill meet the requirements or achieve or sustain the marketacceptance of payors or others in target markets, and anyfailure to do so could have a material adverse affect on theCompany’s business, results of operations and financialcondition.

 

     *Limited Proprietary Rights; Risk of Infringement.* TheCompany’s success is dependent to a significant extent onits ability to maintain the proprietary and confidential aspectsof its data processing and computer software technology. TheCompany relies on a combination of trade secrets, copyright andtrademark laws, nondisclosure, patents, and other contractualprovisions to protect its proprietary rights. There can be noassurance that the measures taken by the Company to protect itsintellectual property will be adequate, or that patents appliedfor or to be applied for by the Company will be granted by theUnited States Patent and Trademark Office or enforced by thecourts, or that the Company’s current competitors or otherswill not independently develop products and services that aresubstantially equivalent or superior to those of the Company.
     Substantial litigation regarding intellectual property rightsexists in the software industry, and the Company expects thatsoftware products may be increasingly subject to third-partyinfringement claims as the number of competitors in theCompany’s industry segment grows and the functionality ofproducts overlaps. Although the Company does not believe, basedon its current analysis, that its products infringe upon theproprietary rights of third parties, there can be no assurancethat third parties will not assert infringement claims againstthe Company in the future or that a license or similar agreementwill be available on reasonable terms in the event of anunfavorable ruling on any such claim. In addition, any claim mayrequire the Company to incur substantial litigation expenses orsubject the Company to significant liabilities and could have amaterial adverse effect on the Company’s business, resultsof operations and financial condition. There can be no assurancethat the Company will be successful in its defense of any suchclaims.
     *Risk of Product Defects; Failure to Meet PerformanceCriteria.* Software products, such as those to be offered bythe Company, at times contain errors or failures, especiallywhen initially introduced or when new versions are released orprocesses implemented. Although the Company conducts extensivetesting, software errors are sometimes discovered in certainenhancements and products and services after their introduction.There can be no assurance that, despite testing by the Companyand by current and potential customers, errors or performancefailures will not occur in software products and services underdevelopment or in other enhancements or products aftercommencement of availability or implementations. Such errors orperformance failures could result in the loss of revenue andcustomers, delay in market acceptance, diversion of developmentresources, damage to the Company’s reputation or increasedservice and warranty costs, any of which could have a materialadverse effect upon the Company’s business, results ofoperations and financial condition.
**Consolidation Among Healthcare Payors: Pressure on Margins**
     Consolidation among healthcare payors could increase theirbargaining strength as the number of lives insured or otherwisecovered by such healthcare payors grows. This consolidation mayplace downward pressure on the Company’s historic marginsand may create additional competition from such healthcarepayors in the form of better-equipped in-house recoverydepartments. Additionally, existing clients have been and may inthe future be lost through acquisition by non-client healthcarepayors.
**Limitation on Dividends**
     Since the initial public offering of the Company’s CommonStock in May 1997 (the “Offering”), the Company hasretained earnings to finance the growth and development of itsbusiness and does not anticipate paying cash dividends on itsCommon Stock in the foreseeable future. The Company’scredit facility limits its ability to pay dividends on itsCommon Stock. Any future determination to pay cash dividendswill be at the discretion of the Board and will be dependentupon the Company’s financial condition, results ofoperations, credit agreements, capital requirements and suchother factors as the Board deems relevant.
**Ability to Manage Change**
     The Company has experienced significant changes in its businessand business environment. The Company has added new products byacquisition and internal development. The Company also has addedmultiple clients to its installed base, lost multiple clientsbecause of terminations and acquisitions, and

 
experienced changes in the continuity of many clientrelationships because of client personnel turnover. The Companylikewise has experienced alterations in the composition of itsHealthcare Recovery Services segment’s backlog ofpotentially recoverable claims, which is the primary source ofthe Company’s revenues. The value of healthcare subrogationfiles from terminated clients and clients that have given noticeof termination has substantially increased, constituting atDecember 31, 2002 approximately 24% of Healthcare RecoveryServices backlog and 40% of healthcare subrogation backlog (asubset of the Healthcare Recovery Services backlog), and atDecember 31, 2003 approximately 19% of the HealthcareRecovery Services backlog and approximately 39% of thehealthcare subrogation backlog. Additionally, the value ofprovider bill audit files has substantially increased,constituting at December 31, 2002 approximately 41% of theHealthcare Recovery Services backlog and at December 31, 2003approximately 51% of the Healthcare Recovery Services backlog.
     The Company has responded to its changing environment, in part,by replacing or re-aligning management, systems development andsupport, marketing, sales and customer services personnel. Therecan be no assurance that the Company will successfully meet thechallenges of these changes in its business or its businessenvironment; and if the Company’s management is unable toaddress these matters effectively, the Company’s business,operating results and financial condition could be adverselyaffected.
**Ability to Execute Growth Strategy**
     In addition to growing its existing claims recovery business andother cost management services, the Company is in the process ofextending its systems-driven, process-oriented approach, throughacquisitions and internal development, to outsourcingopportunities in other service industries, including theproperty and casualty insurance industry. The Company believesthat future development opportunities are likely to becharacterized by:
 •     outsourcing services that produce predictable and recurring    revenue streams;  •     the sale of unbundled components of the Company’s    traditional subrogation outsourcing services;  •     competitive advantages from effective process management,    proprietary systems and the provision of knowledge-rich services;  •     the development of niche markets;  •     value-based pricing; and  •     a non-exclusive focus on healthcare information services.
     There can be no assurance that the Company will be successful inthe internal development or acquisition of additional claimsrecovery service or new lines of business or that it will beable to successfully integrate or manage additional claimsrecovery services or new lines of business which it may developor acquire, and if the Company’s management is unableeither to execute this growth strategy or to manage theresulting growth, the Company’s business, results ofoperations and financial condition could be adversely affected.Furthermore, there can be no assurance that the Company will besuccessful in attaining adequate funding to complete suchdevelopments or acquisitions. In addition, there can be noassurance that the Company’s entrance into the property andcasualty market will be successful, that the Company will beable to leverage its healthcare subrogation expertise andresources to provide services to this market effectively or thatit will be able to achieve profitability in this market. If theCompany is unable to successfully penetrate the property andcasualty market, leverage its existing expertise in healthcareor achieve anticipated revenue and gross margin targets, theCompany’s business, results of operations and financialcondition could be adversely affected.
**Certain Anti-Takeover Provisions**
     Certain provisions of the Amended and Restated Certificate ofIncorporation and Bylaws of the Company may be deemed to havethe effect of making difficult an acquisition of control of theCompany in a transaction not approved by the Company’sBoard of Directors. These provisions include the ability of theCompany’s Board of Directors to issue shares of preferredstock in one or more series without further authorization of the

 
Company’s stockholders. Accordingly, the Company’sBoard of Directors is empowered, without stockholder approval,to issue preferred stock with dividend, liquidation, conversion,voting or other rights which could adversely affect the votingpower or other rights of the holders of Common Stock. In theevent of such issuance, the preferred stock could also beutilized, under certain circumstances, as a method ofdiscouraging, delaying or preventing a change in control of theCompany. Although the Company has no current intention to issueany shares of its preferred stock, there can be no assurancethat the Company will not do so in the future. These provisionsmay also have the effect of discouraging a third-party frommaking a tender offer or otherwise attempting to obtain controlof the Company even though such a transaction might beeconomically beneficial to the Company and its stockholders.Furthermore, the Company is subject to the anti-takeoverprovisions of Section 203 of the Delaware GeneralCorporation Law which prohibits the Company from engaging in a“business combination” with an “interestedstockholder” for a period of three years after the time ofthe transaction in which the person first becomes an“interested stockholder”, unless the businesscombination is approved in a prescribed manner. The applicationof Section 203 could have the effect of delaying orpreventing a change of control of the Company. Certain otherprovisions of the Company’s Amended and RestatedCertificate of Incorporation and Bylaws may have the effect ofdelaying or preventing changes of control or management of theCompany, which could adversely affect the market price of theCommon Stock. Among these are provisions:
 •     requiring a classified board of directors;  •     limiting the persons able to, and the procedures for, calling a    special meeting of the stockholders; and  •     requiring certain supermajority stockholder votes to amend    certain of the foregoing provisions.
     On February 12, 1999, the Board of Directors adopted aStockholder Rights Plan and declared a dividend of one preferredstock purchase right (a “Right”) for each outstandingshare of Common Stock of the Company. The dividend was payableto stockholders of record on March 1, 1999. The Rights,which will initially trade with the Common Stock, separate andbecome exercisable only upon the earlier to occur of(i) 10 days after the date (the “StockAcquisition Date”) of a public announcement that a personor group of affiliated persons has acquired 20% or more of theCommon Stock (such person or group being hereinafter referred toas an “Acquiring Person”) or (ii) 10 days(or such later date as the Board of Directors shall determine)after the commencement of, or announcement of an intention tomake, a tender offer or exchange offer that could result in suchperson or group owning 20% or more of the Common Stock (theearlier of such dates being called the “DistributionDate”). When exercisable, each Right initially entitles theregistered holder to purchase from the Company one one-hundredthof a share of a newly created class of preferred stock of theCompany at a purchase price of $65 (the “PurchasePrice”). The Rights are redeemable for $0.001 per Right atthe option of the Board of Directors. The Rights expire onMarch 1, 2009.
     If any person becomes an Acquiring Person, each holder of aRight will thereafter have the right (the “Flip-InRight”) to receive, in lieu of shares of preferred stockand upon payment of the Purchase Price, shares of Common Stockhaving a value equal to two times the Purchase Price of theRight. Also, if at any time on or after the Stock AcquisitionDate, (i) the Company is acquired in a transaction in whichthe holders of all the outstanding shares of Common Stockimmediately prior to the consummation of the transaction are notthe holders of all of the surviving corporation’s votingpower, or (ii) more than 50% of the Company’s assets,cash flow or earning power is sold or transferred other than inthe ordinary course of business, then each holder of a Rightshall thereafter have the right (the “Flip-OverRight”) to receive, in lieu of shares of preferred stockand upon exercise and payment of the Purchase Price, commonshares of the acquiring company having a value equal to twotimes the Purchase Price. If a transaction would otherwiseresult in a holder having a Flip-In as well as a Flip-OverRight, then only the Flip-Over Right will be exercisable. If atransaction results in a holder having a Flip-Over Rightsubsequent to a transaction resulting in the holder having aFlip-In Right, a holder will have a Flip-Over Right only to theextent such holder’s Flip-In Rights have not been exercised.
     On February 19, 2004, in connection with the ProposedTransaction, the Company and National City Bank, as RightsAgent, executed a First Amendment to Rights Agreement, whichamends the Stockholders Rights Plan and renders the Rightsinapplicable to the transactions contemplated by the Agreementand Plan

 
of Merger dated as of February 19, 2004 among TSI HoldingCo., Inc., TSI Acquisition Co., Inc. (both of which are Delawarecorporations and subsidiaries of Tailwind) and the Company.
**Professional Liability and Indemnity Obligations toClients**
     From time to time, the Company may be subject to claims from itsclients that it failed to provide services in accordance withits contract or that its recovery activities have harmed theclient. The Company has agreed to indemnify and hold certain ofits clients harmless from negligent acts or omissions of theCompany in the performance of recovery services. Although theCompany maintains, and intends to continue maintaining,insurance covering these types of risks, there can be noassurance that such insurance will be in an adequate amount orwill be available at reasonable costs in the future.
**Stock Price Volatility**
     The Company believes that a variety of factors could cause theprice of the Common Stock to fluctuate, perhaps substantially,including:
 •     announcements of developments related to the Company’s    business;  •     changes in financial estimates by securities analysts; and  •     developments in the Company’s relationships with its    customers, distributors and suppliers.
     In addition, in recent years the stock prices of companies haveexperienced extreme price fluctuations, which have often beenunrelated to the operating performance of such companies.Similar fluctuations may adversely affect the market price ofthe Common Stock in the future.
     Over the past three years, the market for the Company’sCommon Stock experienced material price and volume fluctuations.An investment in the Company’s Common Stock is not suitablefor any investor who is unwilling to assume the risk associatedwith any such price and volume fluctuations.
     This Safe Harbor Statement supersedes the Safe Harbor Statementsfiled as Exhibit 99.1 to the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31,2002.