Errors, misconduct, or illegal activity on the part of our customers may result in claims against us. We rely on our customers, and we contractually obligate them, to provide us with accurate and appropriate data and directives for our actions. We rely upon our customers, as users of our solutions and systems infrastructure, for key activities to produce proper claims for reimbursement. Failure of customers to provide these data and directives or to perform these activities may result in claims against us that our reliance was misplaced. Our services present the potential for embezzlement, identity theft or other similar illegal behavior by our employees or subcontractors with respect to third parties. Our services also involve the use and disclosure of personal and business information that could be used to impersonate third parties or otherwise gain access to their data or funds. If any of our employees or subcontractors takes, converts or misuses such funds, documents or data, we could be liable for damages, and our business reputation could be damaged or destroyed. Risks related to our convertible notes Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2021 Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. For example, on April 13, 2021 we and our wholly owned subsidiary, NaviNet, as guarantor, entered into a note purchase agreement with Highbridge Capital Management, LLC and certain other buyers, including Nant Capital, LLC, ("Nant Capital") to issue and sell $137.5 million in aggregate principal amount of our 2021 Notes in a private placement pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. The 2021 Notes were issued on April 27, 2021. In addition, under the terms of the 2021 Notes, we may be required to repurchase the notes of such series at a price equal to 100% of the principal amount of such notes to be repurchased, plus accrued and unpaid interest, upon the occurrence of a fundamental changes (as defined in the indenture governing the 2021 Notes). For example, in connection with the issuance of the 2021 Notes and the related amended and restated promissory notes on April 27, 2021, we provided a notice of fundamental change (as defined in the indenture governing our 5.5% senior convertible notes due 2021 (the “2016 Notes”)) and an offer to repurchase all of the outstanding 2016 Notes. On May 25, 2021, we purchased approximately $55.6 million of the outstanding 2016 Notes (“Fundamental Change Repurchase”) and paid approximately $1.4 million of accrued and unpaid interest thereon. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt, including the 2021 Notes, and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on our reported financial results. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. We early adopted this standard on January 1, 2021, and thus, the accounting for our convertible notes was transitioned to the application of this standard as of January 1, 2021. Upon the adoption of ASU 2020-06, the cash conversion model was eliminated, and we will no longer separate our convertible notes into liability and equity components. As a result, there is no longer an associated debt discount or subsequent amortization to be recognized as interest expense due to bifurcation. The elimination of these separation models will reduce our non-cash interest expense, and thereby reduce our net loss. In addition, ASU 2020-06 requires the use of the if-converted method to calculate our diluted shares outstanding for all convertible instruments, which could adversely affect our diluted earnings per share. - 62 -
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