1035185--3/17/2008--GEVITY_HR

related topics

{system, service, information}

{loss, insurance, financial}

{personnel, key, retain}

{product, market, service}

{regulation, change, law}

{debt, indebtedness, cash}

{regulation, government, change}

{acquisition, growth, future}

{customer, product, revenue}

{financial, litigation, operation}

{operation, natural, condition}

{tax, income, asset}

{loan, real, estate}

{provision, law, control}

Our acquisition strategy subjects us to numerous risks. Our quarterly results of operations may fluctuate, and we may not be able to grow as we have planned. Our short-term results may be negatively impacted due to changes in health insurance claims, state unemployment tax rates and workers' compensation rates, which we may not be able to immediately pass through to our clients. We are dependent upon key personnel, and the recruitment and retention of key employees may be difficult and expensive. If we cannot attract and retain qualified individuals, the quality of our services may deteriorate and our results of operations could be adversely affected. Our insurance-related loss reserves may be inadequate to cover our ultimate liability for losses and as a result our financial results could be materially and adversely affected. Our results of operations may be adversely affected if insurance coverage for workers' compensation or medical benefits is not available or if we lose relationships with our key providers. We may be required to provide significant cash collateral for our obligations to our insurance providers and the amount of cash necessary to provide that collateral may increase in the future. Our workers' compensation receivable from AIG represents a significant concentration of credit risk. If AIG were to default on its obligations our results of operations would be materially and adversely affected. Our ability to manage health care costs affects our profitability. Our business is subject to risks associated with vendor agreements. Our business is subject to risks associated with geographic market concentration. Our headquarters, many of our clients' headquarters, and the facilities of many of the third parties on which we rely to provide us and our clients with critical services are located in an area of the United States that is susceptible to hurricane damage and other natural disasters. We may find it difficult to expand or maintain our business in certain states due to varying state regulatory requirements and the existing competitive environment. We operate in a complex regulatory environment and failure to comply with applicable laws and regulations could adversely affect our business. If our captive insurance subsidiary is not recognized as an insurance company we may be subject to additional and/or accelerated tax payments. We face direct and overlapping competition from a number of other companies which may affect our ability to retain existing clients and attract new clients. Certain of our existing or potential competitors may have substantially greater financial, technical and marketing resources, larger customer bases, greater name recognition and more established relationships with their clients and key product and service suppliers than we do. This may enable them to develop and expand their delivery infrastructure and service offerings more quickly, which could adversely affect our ability to attain new clients. The market for our services and our revenue growth depends on our ability to use the Internet as a means of delivering HR services and this exposes us to various security risks. We are dependent upon technology services, and any damage, interruption, security breach or failure in our computer and telecommunications systems could adversely affect our existing client relationships and our ability to attract new clients. We may not be able to keep pace with changes in technology We depend on the technology of third parties licensed to us, and the loss or inability to maintain these licenses or errors in the software we license could result in increased costs, reduced service levels and delayed sales of our products and services. Our business depends on the confidentiality, integrity and availability of the data in our technology infrastructure. Our professional services agreement allows clients to terminate their relationship with us upon either 30 or 45 days notice, and as a result, we could lose a significant number of customers in a short period of time. As a result of our co-employment relationship with most of our clients and client employees, we may be subject to liabilities as a result of their acts or omissions. Because we assume the obligation to make wage, tax and regulatory payments of behalf of our clients, we are exposed to certain credit risks with respect to our clients. We may make errors and omissions in performing our services, which could subject us to losses and fines and harm our reputation. If we are determined not to be an "employer" pursuant to applicable ERISA and IRS rules and regulations, we may be subject to additional regulations and liabilities. Laws and regulations relating to verifying individuals' eligibility for employment could subject us to significant penalties and compliance costs. We may be liable for 401(k) testing failures and any such liability may have an adverse effect on our results of operations and financial condition. We rely on one financial institution to handle direct deposit payroll. Should this financial institution delay or stop processing these transactions, our business could suffer. Our credit agreement contains restrictive covenants that may restrict our financial and operating flexibility. The discontinuation of Gevity Edge Select and the Charlotte service center could materially and adversely affect our business and operating results. Anti-takeover provisions in our organizational documents and Florida law may limit the ability of our shareholders to control our policies and effect a change of control of our company, which may not be in your best interests.

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1035185--3/17/2008--GEVITY_HR_INC