The parties have reached a tentative $11 million settlement of several class actions filed against electronic data interchange provider Envoy Corporation (formerly Nasdaq: ENVY) and certain of its officers and directors by stockholders who purchased the company's common stock between February 12, 1997, and August 18, 1998. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. To recover under the settlement, a completed proof of claim postmarked no later than February 20, 2004, must be mailed to the claims administrator.

In particular, the stockholders allege that Envoy improperly recorded large one-time write-offs to in-process research and development in connection with its acquisitions of National Electronic Information Corporation in 1996, Diverse Software Solutions in 1997, and Healthcare Data Interchange Corporation in 1997. For example, in connection with its purchase of National Electronic, Envoy wrote off $30 million — more than 30% of the purchase price — to in-process research and development. In connection with its purchase of Diverse Software Solutions, Envoy wrote off $3 million — more than 48% of the purchase price — to in-process research and development and in connection with its purchase of Healthcare Data, Envoy wrote off $35 million — more than 68% of the purchase price. The stockholders allege that the allocations of purchase price to, and one-time write-offs of, in-process research and development were excessive and allowed the defendants to avoid recurring expenses associated with the amortization of goodwill and thereby boost Envoy’s reported earnings during the applicable period and, in turn, artificially inflate the price of Envoy common stock.

The stockholders further allege that, by taking improperly large one-time write-offs, the defendants were able to understate Envoy’s reported net losses for the fourth quarter of 1996 and the first, second, and fourth quarters of 1997 by a total of more than $4 million and to overstate Envoy’s reported net income for the first three quarters of 1998 by more than $6.5 million. Following questions raised by the Securities and Exchange Commission regarding the write-offs, in November 1998, Envoy restated and decreased the amounts of these write-offs by $22 million in the case of the National Electronic acquisition,$2.4 million in the case of the Diverse Software Solutions acquisition, and $29 million in the case of the Healthcare Data acquisition.

The action alleges that the truth regarding the defendants’ alleged improper allocations of purchase price to in-process research and development emerged when, on August 18, 1998, Envoy disclosed that the SEC was investigating Envoy’s valuation and amortization of purchased research and development costs in connection with recent acquisitions. The August 18, 1998, press release also stated that any significant changes to the amounts allocated or to the periods over which such amounts were amortized could have a material adverse impact on Envoy’s reported operating results for 1996, 1997, the six months ending June 30, 1998, and beyond.

On August 18, 1998, the closing price of Envoy common stock declined from $35.8125 per share to $26.50 per share. The following day, August 19, the price of Envoy common stock declined to $22.8125 per share.

Claim forms may be requested from the claims administrator by writing:

Envoy Corporation Securities Litigation
Heffler Radetich & Saitta, LLP
P.O. Box 1050
Philadelphia, PA 19105-1050

Or by calling (800) 528-7199.

The settlement will not be effective until the court grants it final approval. The court has scheduled a hearing on the matter for December 17, 2003.