MEDPARTNERS MULLIKIN INC, POS AM, 1996-08-21

MEDPARTNERS MULLIKIN INC
POS AM, 1996-08-21
SPECIALTY OUTPATIENT FACILITIES, NEC

Previous: CHEVY CHASE MASTER CREDIT CARD TRUST II, 8-K, 1996-08-21

Next: WEST UNIVERSITY FUND INC, NSAR-A, 1996-08-21

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1996

REGISTRATION NO. 333-4348
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 1

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MEDPARTNERS/MULLIKIN, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 8099 63-1151076
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>

---------------------
3000 GALLERIA TOWER, SUITE 1000, BIRMINGHAM, ALABAMA 35244-2331
(205) 733-8996
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)

LARRY R. HOUSE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDPARTNERS/MULLIKIN, INC.
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244-2331
(205) 733-8996
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)

COPIES TO:

<TABLE>
<S> <C> <C> <C>
GLENN D. SMITH, ESQ. PHILIP FLAME, ESQ. J. BROOKE JOHNSTON, JR. ESQ. ROBERT E. LEE GARNER, ESQ.
STROOCK & STROOCK & LAVAN COHAN, COHEN & FLAME, SENIOR VICE PRESIDENT & GENERAL F. HAMPTON MCFADDEN, JR., ESQ.
2029 CENTURY PARK EAST PROFESSIONAL CORPORATION COUNSEL HASKELL SLAUGHTER & YOUNG, LLC
SUITE 1800 15821 VENTURA BOULEVARD MEDPARTNERS/MULLIKIN, INC. 1200 AMSOUTH/HARBERT PLAZA
LOS ANGELES, CALIFORNIA 90067 SUITE 600 3000 GALLERIA TOWER, SUITE 1000 1901 SIXTH AVENUE NORTH
(310) 556-5800 ENCINO, CALIFORNIA 91436 BIRMINGHAM, ALABAMA 35244-2331 BIRMINGHAM, ALABAMA 35203
(818) 783-2045 (205) 733-8996 (205) 251-1000
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
Effective Time of the Merger of a wholly-owned subsidiary of the Registrant, CHS
Merger Corporation (the "Subsidiary"), with CHS Management, Inc. and the
consummation of the acquisition by the Registrant of substantially all of the
assets of New Management, as described in the Prospectus-Proxy Statements
included herein.

If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share
(including the Common Stock Purchase
Rights)................................. 2,000,000 shares Inapplicable $40,000,000(2) $144.41(2)
- -------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share
(including the Common Stock Purchase
Rights)................................. 350,000 shares Inapplicable $7,000,000(3) $0(3)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated based on the closing price of the MedPartners/Mullikin Common
Stock on the New York Stock Exchange on April 29, 1996.
(2) Computed in accordance with Rule 457(f)(2), solely for the purpose of
calculating the registration fee, based upon the book value of the CHS
Shares ($418,795) (as defined herein) at January 1, 1996, the latest
practicable date prior to the date of filing of this Registration
Statement.
(3) Computed in accordance with Rule 457(f)(2), solely for the purpose of
calculating the registration fee, based upon the book value of the assets
of New Management ($0) at January 1, 1996 the latest practicable date prior
to the date of filing of this Registration Statement.
---------------------
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 SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This Registration Statement on Form S-4 contains two Prospectus-Proxy
Statements, one to be utilized in connection with the Special Meeting of
Stockholders to be held by CHS Management, Inc. and one to be utilized in
connection with the Special Meeting of Partners to be held by New Management,
the entities whose businesses are to be acquired by the Registrant as described
herein. Each of the transactions is conditioned upon the consummation of the
other and is subject to the satisfaction of other conditions typical to business
combinations.
<PAGE> 3

CHS MANAGEMENT, INC.
4505 LAS VIRGENES ROAD
CALABASAS, CALIFORNIA 91302

To Our Stockholders:

You are cordially invited to attend the Special Meeting of Stockholders of
CHS Management, Inc. ("CHS") to be held on August 30, 1996, at 7:00 a.m. local
time, at 2029 Century Park East, Suite 1800, Los Angeles, California 90067 (the
"Special Meeting"). You will be asked to consider and vote upon a proposal to
approve an Amended and Restated Plan and Agreement of Merger, dated as of March
11, 1996, as amended by Amendment No. 1 dated as of June 28, 1996 (the "Plan of
Merger"), among MedPartners/Mullikin, Inc., a Delaware corporation
("MedPartners/Mullikin"), CHS Merger Corporation (the "Subsidiary"), a Delaware
corporation and wholly owned subsidiary of MedPartners/Mullikin and CHS, and the
transactions contemplated thereby. The Plan of Merger is included in the
accompanying Prospectus-Proxy Statement as Annex A. Pursuant to the Plan of
Merger, the Subsidiary will merge with and into CHS, with CHS as the surviving
corporation (the "Merger"). The result of the Merger will be that CHS will
become a wholly owned subsidiary of MedPartners/Mullikin, a New York Stock
Exchange listed company, and each outstanding share of CHS common stock, par
value $0.01 per share (the "CHS Common Stock"), will be converted into the right
to receive approximately 40.32 shares of MedPartners/Mullikin Common Stock, par
value $.001 per share. Assuming a Base Period Trading Price of 20.31, the CHS
stockholders would receive a total of 1,969,473 shares of MedPartners/Mullikin
Common Stock in the Merger. Consummation of the Merger is subject to certain
conditions, including the approval and adoption of the Plan of Merger by holders
of at least a majority of the outstanding shares of CHS Common Stock and the
consummation of the asset acquisition of New Management, a California general
partnership which is owned by the beneficial owners of 50% of the CHS Common
Stock. The Merger is intended to be a tax-free reorganization for federal income
tax purposes. The Merger is described in greater detail in the accompanying
Prospectus-Proxy Statement.

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION
OF THE PLAN OF MERGER, WHICH APPROVAL AND ADOPTION WILL CONSTITUTE APPROVAL OF
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.

Approval of the matters related to the Merger to be voted on at the Special
Meeting requires a favorable vote of a majority of the outstanding shares of CHS
Common Stock. Accordingly, failure to vote or abstentions will have the effect
of a vote against the transaction for the purposes of determining whether
approval by a majority of the outstanding shares is obtained.

WE URGE YOU TO CONSIDER CAREFULLY THESE IMPORTANT MATTERS, WHICH ARE
DESCRIBED IN THE ACCOMPANYING PROSPECTUS-PROXY STATEMENT. In order to ensure
that your vote is represented at the meeting, please indicate your choice on the
proxy form, date and sign it, and return it in the enclosed envelope. A prompt
response will be appreciated.

Sincerely,

Martin J. Coyne, M.D.
Chairman of the Board

Marvin V.H. Kanter, M.D.
President and Chief Executive Officer
<PAGE> 4

CHS MANAGEMENT, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 30, 1996

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of CHS Management, Inc., a Delaware corporation ("CHS"), will be
convened at 7:00 a.m. local time, on August 30, 1996, at 2029 Century Park East,
Suite 1800, Los Angeles, California 90067, for the following purposes:

1. To consider and vote upon a proposal to approve an Amended and
Restated Plan and Agreement of Merger, dated as of March 11, 1996, as
amended by Amendment No. 1 dated as of June 28, 1996 (the "Plan of
Merger"), among MedPartners/Mullikin, Inc., a Delaware corporation
("MedPartners/ Mullikin"), CHS Merger Corporation, a Delaware corporation
and wholly owned subsidiary of MedPartners/Mullikin (the "Subsidiary") and
CHS and the transactions contemplated thereby. The Plan of Merger is
included in the accompanying Prospectus-Proxy Statement as Annex A.

2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.

As more fully described in the Prospectus-Proxy Statement of which this
notice forms a part, pursuant to the Plan of Merger, the Subsidiary will merge
with and into CHS, with CHS as the surviving corporation (the "Merger"). The
result of the Merger will be that CHS will become a wholly owned subsidiary of
MedPartners/Mullikin and each issued and outstanding share of the common stock
of CHS, par value $0.01 per share ("CHS Common Stock"), other than shares held
by dissenting stockholders, will be converted into the right to receive
approximately 40.32 shares of MedPartners/Mullikin common stock, par value $.001
per share (assuming a Base Period Trading Price of $20.31). Consummation of the
Merger is subject to certain conditions, including the approval and adoption of
the Plan of Merger by holders of at least a majority of the CHS Common Stock and
the consummation of the asset acquisition of New Management, a California
general partnership which is owned by the beneficial owners of 50% of the CHS
Common Stock.

Stockholders who do not vote to approve the Plan of Merger and who comply
with certain other requirements of law may, as an alternative to receiving the
consideration specified in the Plan of Merger, dissent from the Merger and
obtain payment of the appraised or fair value of their shares of CHS Common
Stock. The full text of Section 262 of the Delaware General Corporation Law and
Sections 1300-1312 of the California Corporations Code, which sets forth the
procedures to be followed by stockholders who choose to dissent under applicable
law, are included as Annexes C and D to the Prospectus-Proxy Statement and
should be read carefully in their entirety.

The Board has fixed July 31, 1996 as the record date for determining
stockholders entitled to notice of and to vote at the Special Meeting.
Accordingly, only stockholders of record at the close of business on such date
will be entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.

BY ORDER OF THE BOARD OF DIRECTORS

Joan Rose, Secretary

August 20, 1996

THE AFFIRMATIVE VOTE OF THE BENEFICIAL HOLDERS OF AT LEAST A MAJORITY OF
THE CHS COMMON STOCK IS REQUIRED TO APPROVE THE MERGER. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE
PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU AT ANY
TIME PRIOR TO THE EXERCISE THEREOF IN THE MANNER DESCRIBED IN THE
PROSPECTUS-PROXY STATEMENT.
<PAGE> 5

PROXY STATEMENT
OF
CHS MANAGEMENT, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 30, 1996

PROSPECTUS
OF
MEDPARTNERS/MULLIKIN, INC.

THIS PROSPECTUS RELATES TO UP TO 2,000,000 SHARES OF THE COMMON STOCK, PAR
VALUE $.001 PER SHARE (THE "MEDPARTNERS/ MULLIKIN COMMON STOCK"), OF
MEDPARTNERS/MULLIKIN, INC. (TOGETHER WITH ITS SUBSIDIARIES,
"MEDPARTNERS/MULLIKIN"), ISSUABLE TO THE STOCKHOLDERS OF CHS MANAGEMENT, INC., A
DELAWARE CORPORATION ("CHS"), UPON CONSUMMATION OF THE MERGER (AS DEFINED BELOW)
AS CONSIDERATION FOR THE MERGER (THE "MERGER CONSIDERATION"). SUCH NUMBER OF
SHARES REPRESENTS THE MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED, ASSUMING THAT
THE BASE PERIOD TRADING PRICE (AS HEREIN DEFINED) OF THE MEDPARTNERS/MULLIKIN
COMMON STOCK IS 20.31. THIS PROSPECTUS ALSO SERVES AS THE PROXY STATEMENT OF CHS
FOR ITS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 30, 1996, AND ANY
ADJOURNMENTS AND POSTPONEMENTS THEREOF (THE "SPECIAL MEETING"). SEE "THE SPECIAL
MEETING".
---------------------
This Prospectus-Proxy Statement describes the terms of the acquisition by
MedPartners/Mullikin of CHS by means of the merger (the "Merger") of CHS Merger
Corporation, a Delaware corporation and wholly-owned subsidiary of MedPartners/
Mullikin (the "Subsidiary"), with and into CHS, with CHS being the surviving
corporation (the "Surviving Corporation"). After the Merger, the combined
operations of MedPartners/Mullikin and CHS are expected to be conducted with CHS
as a subsidiary of MedPartners/Mullikin. If the proposed Merger is approved at
the Special Meeting, as a condition to its consummation, upon the satisfaction
of certain conditions, MedPartners/Mullikin will concurrently acquire the assets
of New Management, a California general partnership ("New Management") owned by
the beneficial owners of 50% of CHS, and assume disclosed liabilities (the
"Acquisition"). At the Special Meeting, the stockholders of CHS will be asked to
approve and adopt the Plan of Merger (as defined below), which approval and
adoption will also constitute approval of the transactions contemplated thereby,
including the Merger. The Merger will be effected pursuant to the terms and
subject to the conditions of the Amended and Restated Plan and Agreement of
Merger, dated as of March 11, 1996, as amended by Amendment No. 1 dated as of
June 28, 1996, among MedPartners/Mullikin, the Subsidiary and CHS (the "Plan of
Merger"). The Plan of Merger is attached to this Prospectus-Proxy Statement as
Annex A and is incorporated herein by reference.

Upon consummation of the Merger, all of the issued and outstanding shares of
Common Stock of CHS, par value $.01 per share (the "CHS Common Stock" and
sometimes collectively hereinafter referred to as the "CHS Shares") (other than
dissenting shares) will be converted into the right to receive the number of
shares of MedPartners/Mullikin Common Stock equal to the Merger Consideration.
The number of shares of MedPartners/Mullikin Common Stock which shall constitute
the Merger Consideration shall be determined by dividing $40 million by the Base
Period Trading Price. CHS stockholders will receive cash (without interest) in
lieu of fractional shares of MedPartners/Mullikin Common Stock. For a more
complete description of the terms of the Merger, see "The Merger".

As used herein, "Base Period Trading Price" means the average of the last
reported sale price per share of MedPartners/ Mullikin Common Stock on each of
the 10 consecutive trading days on which such shares are actually traded on The
New York Stock Exchange, Inc. (the "NYSE") ending at the close of trading on the
second trading day immediately preceding the date of the consummation of the
Merger. For the ten consecutive trading days ended August 15, 1996, the average
of the last reported sale prices of the MedPartners/Mullikin Common Stock was
$20.31. At such price, a share of CHS Common Stock would be exchanged for 40.32
shares of MedPartners/Mullikin Common Stock. THE BASE PERIOD TRADING PRICE MAY
DIFFER FROM THE ACTUAL MARKET PRICE OF THE MEDPARTNERS/MULLIKIN COMMON STOCK
REPORTED ON THE NYSE FOR THE DATE OF THE SPECIAL MEETING, THE DATE OF
CONSUMMATION OF THE MERGER OR THE DATE THAT CHS STOCKHOLDERS ACTUALLY RECEIVE
THEIR SHARES OF MEDPARTNERS/ MULLIKIN COMMON STOCK AFTER THE MERGER IS
COMPLETED. SINCE THE ACTUAL NUMBER OF SHARES OF MEDPARTNERS/MULLIKIN COMMON
STOCK ISSUABLE TO CHS STOCKHOLDERS IN THE MERGER DEPENDS ON THE BASE PERIOD
TRADING PRICE, THERE IS NO GUARANTEE AS TO THE NUMBER OF SHARES OR VALUE OF THE
MEDPARTNERS/MULLIKIN COMMON STOCK THAT CHS STOCKHOLDERS WILL RECEIVE.

The shares of MedPartners/Mullikin Common Stock which would have been issued
with respect to the shares of CHS Common Stock that are subject to Dissenting
Stockholders' Rights (as defined herein), i.e. CHS Common Stock held by holders
of CHS Common Stock outstanding at the time of the vote of the stockholders of
CHS to approve the Plan of Merger who shall not have voted in favor of the Plan
of Merger and who properly demands to be paid the fair cash value for such
shares in accordance with Section 262 of the Delaware General Corporation Law
(the "DGCL") and Sections 1300 through 1312 of the California Corporations Code,
shall not be issued as part of the Merger Consideration. See "Dissenting
Stockholders Rights". For a discussion of the right of MedPartners/Mullikin to
terminate the Plan of Merger at any time prior to the Closing of the Merger if
the holders of more than 10% of the shares of CHS Common Stock properly give
written demand for appraisal of the value of such shares. See "Summary of
Prospectus-Proxy Statement -- Termination" and "The Merger -- Termination".

This Prospectus-Proxy Statement and the form of Proxy are first being mailed
to stockholders of CHS on or about August 20, 1996.
---------------------

SEE "RISK FACTORS" AT PAGE 13 FOR A DISCUSSION OF CERTAIN RISK FACTORS RELATED
TO THE MERGER AND
TO MEDPARTNERS/MULLIKIN.

THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS-PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS AUGUST 20, 1996.
<PAGE> 6

AVAILABLE INFORMATION

MedPartners/Mullikin has filed a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act") with the Securities and Exchange Commission (the "SEC")
covering the shares of MedPartners/Mullikin Common Stock to be issued in
connection with the Merger. This Prospectus-Proxy Statement does not contain all
of the information set forth in the Registration Statement covering the
securities offered hereby which MedPartners/Mullikin has filed with the SEC,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC, and to which portions reference is hereby made for
further information with respect to MedPartners/Mullikin, CHS and the securities
offered hereby. Statements contained herein concerning certain documents are not
necessarily complete, and in each instance, reference is made to the copies of
such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference.

MedPartners/Mullikin is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (SEC File No.
0-27276), and in accordance therewith files periodic reports, proxy statements
and other information with the SEC relating to its business, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected and copied at
prescribed rates at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. and should
be available for inspection and copying at the regional offices of the SEC
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Chicago, Illinois. Copies of such
material can be obtained at prescribed rates by writing to the SEC, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. As of
February 22, 1996, the Common Stock has been listed on the NYSE. The reports,
proxy statements and certain other information can be inspected at the office of
the NYSE, 20 Broad Street, New York, New York.

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. When used
in this Prospectus-Proxy Statement, the words "estimate," "project," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward looking statements. For a discussion of such risks, see "Risk Factors".
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Neither MedPartners/Mullikin
nor CHS undertakes any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
---------------------

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THE INFORMATION CONTAINED HEREIN WITH RESPECT TO
MEDPARTNERS/MULLIKIN AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY
MEDPARTNERS/MULLIKIN; THE INFORMATION CONTAINED HEREIN WITH RESPECT TO CHS HAS
BEEN SUPPLIED BY CHS; AND THE INFORMATION CONTAINED HEREIN WITH RESPECT TO NEW
MANAGEMENT HAS BEEN SUPPLIED BY NEW MANAGEMENT. THIS PROSPECTUS-PROXY STATEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE,
THE SECURITIES OFFERED BY THIS PROSPECTUS-PROXY STATEMENT, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION
IN SUCH JURISDICTION.

i
<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. i
SUMMARY OF PROSPECTUS-PROXY STATEMENT................................................. 1
The Companies....................................................................... 1
The Caremark Acquisition............................................................ 3
Recent Developments................................................................. 4
Risk Factors........................................................................ 5
The Special Meeting................................................................. 5
Vote Required....................................................................... 5
The Merger.......................................................................... 6
Market and Market Prices............................................................ 10
Comparative Per Share Information................................................... 11
RISK FACTORS.......................................................................... 13
Risks Relating to the Merger and the Acquisition; Acquisitions...................... 13
Risks Relating to MedPartners/Mullikin's Growth Strategy............................ 13
Risks Relating to Capital Requirements.............................................. 14
Risks Relating to Capitated Nature of Revenues; Control of Health Care Costs........ 14
Potential Reductions in Third-Party Reimbursement................................... 15
Risks Relating to Dependence on Affiliated Physicians............................... 15
Risks Relating to Exposure to Professional Liability; Liability Insurance........... 16
Risks Relating to Concentration of Customers........................................ 16
Competition......................................................................... 16
Government Regulation............................................................... 17
Risks Relating to Regulatory Requirements of Knox-Keene Act......................... 18
Risks Relating to Health Care Reform................................................ 18
Anti-Takeover Considerations........................................................ 18
Control by Certain Stockholders..................................................... 19
Possible Volatility of Stock Price.................................................. 19
Risks Relating to Federal Income Taxes.............................................. 19
Caremark Risk Factors............................................................... 19
SELECTED FINANCIAL INFORMATION -- MEDPARTNERS/MULLIKIN................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--MEDPARTNERS/MULLIKIN.................................................... 24
THE SPECIAL MEETING................................................................... 31
General............................................................................. 31
Date, Place and Time................................................................ 31
Record Date, Quorum and Voting...................................................... 31
Vote Required....................................................................... 31
Voting and Revocation of Proxies.................................................... 32
Solicitation of Proxies............................................................. 32
THE MERGER............................................................................ 33
Terms of the Merger................................................................. 33
Bridge Loan......................................................................... 33
Management Services Agreement....................................................... 33
New Management Acquisition.......................................................... 34
Background of the Merger............................................................ 34
Recommendation of the CHS Board of Directors........................................ 36
Opinion of CHS's Financial Advisor.................................................. 37
Effective Time of the Merger........................................................ 40
</TABLE>

ii
<PAGE> 8

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange of Certificates............................................................ 40
Conditions to the Merger............................................................ 41
Representations and Covenants....................................................... 41
Regulatory Approvals................................................................ 42
Business Pending the Merger......................................................... 42
Waiver and Amendment................................................................ 43
Termination......................................................................... 43
New York Stock Exchange Listing..................................................... 43
Resale of MedPartners/Mullikin Common Stock by Affiliates........................... 43
Additional Interests of Certain Persons in the Merger; Employment Agreements........ 44
Accounting Treatment................................................................ 45
Federal Income Tax Consequences..................................................... 45
No Solicitation of Transactions..................................................... 46
Expenses; Breakup Fees.............................................................. 47
Indemnification..................................................................... 47
RIGHTS OF DISSENTING STOCKHOLDERS..................................................... 47
Delaware............................................................................ 47
California.......................................................................... 49
OPERATIONS AND MANAGEMENT OF MEDPARTNERS/MULLIKIN AFTER THE MERGER.................... 50
Operations.......................................................................... 50
Management.......................................................................... 51
BUSINESS OF MEDPARTNERS/MULLIKIN...................................................... 52
General............................................................................. 52
The Caremark Acquisition............................................................ 52
Recent Developments................................................................. 53
Industry............................................................................ 55
Strategy............................................................................ 56
Recent Major Acquisitions........................................................... 57
Development and Operations.......................................................... 57
Information Systems................................................................. 60
Competition......................................................................... 61
Government Regulation............................................................... 61
Legal Proceedings................................................................... 62
Employees........................................................................... 63
Corporate Liability and Insurance................................................... 63
Properties.......................................................................... 63
MANAGEMENT OF MEDPARTNERS/MULLIKIN.................................................... 64
Directors and Executive Officers.................................................... 64
Classified Board of Directors....................................................... 67
Committees of the Board of Directors................................................ 67
Executive Officer Compensation...................................................... 67
Director Compensation............................................................... 69
Compensation Committee Interlocks and Insider Participation......................... 70
Non-Competition and Severance Agreements............................................ 71
Stock Option Plan................................................................... 71
401(k) Plans........................................................................ 72
CERTAIN TRANSACTIONS--MEDPARTNERS/MULLIKIN............................................ 73
MME Acquisition Agreements.......................................................... 73
Financings.......................................................................... 73
</TABLE>

iii
<PAGE> 9

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINCIPAL STOCKHOLDERS OF MEDPARTNERS/MULLIKIN........................................ 75
SELECTED FINANCIAL DATA -- CHS........................................................ 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- CHS.................................................................... 78
Overview............................................................................ 78
Results of Operations............................................................... 78
Liquidity and Capital Resources..................................................... 79
BUSINESS OF CHS MANAGEMENT, INC....................................................... 81
The Managed Health Care Industry.................................................... 81
CHS Management, Inc................................................................. 82
Medical Providers................................................................... 82
The Management Agreements and Services Provided..................................... 83
Hospital Consulting Services........................................................ 85
Competition......................................................................... 85
Governmental Regulation............................................................. 85
Litigation.......................................................................... 86
Risk Management; Malpractice Insurance.............................................. 86
Employees........................................................................... 86
Properties.......................................................................... 86
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- CHS................................................................... 87
PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)................................. 88
DESCRIPTION OF CAPITAL STOCK OF MEDPARTNERS/MULLIKIN.................................. 98
Authorized Capital Stock............................................................ 98
MedPartners/Mullikin Common Stock................................................... 98
MedPartners/Mullikin Preferred Stock................................................ 98
Certain Provisions of the MedPartners/Mullikin Certificate and the DGCL............. 98
MedPartners/Mullikin Stockholder Rights Plan........................................ 100
Limitations on Liability of Officers and Directors.................................. 102
Registration Rights................................................................. 102
Transfer Agent and Registrar........................................................ 103
COMPARISON OF RIGHTS OF CHS AND MEDPARTNERS/MULLIKIN STOCKHOLDERS..................... 104
Classes and Series of Capital Stock................................................. 104
Size and Election of the Board of Directors......................................... 104
Removal of Directors................................................................ 105
Conversion and Dissolution.......................................................... 105
Amendment or Repeal of the Certificate of Incorporation and By-laws................. 105
Special Meetings of Stockholders.................................................... 106
Liability of Directors.............................................................. 106
Stockholder Rights Plan............................................................. 107
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of
Directors........................................................................ 107
Action by Written Consent........................................................... 108
Indemnification of Directors and Officers........................................... 108
EXPERTS............................................................................... 109
LEGAL MATTERS......................................................................... 109
ADDITIONAL INFORMATION................................................................ 109
Other Business...................................................................... 109
</TABLE>

iv
<PAGE> 10

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEXES:
A. Amended and Restated Plan and Agreement of Merger, dated as of
March 11, 1996, as amended June 28, 1996......................................... A-1
B. Opinion of Sutro & Co., Incorporated.............................................. B-1
C. Appraisal Rights -- Section 262 of the DGCL....................................... C-1
D. Appraisal Rights -- Sections 1300-1312 of the California Corporations Code........ D-1
</TABLE>

v
<PAGE> 11

SUMMARY OF PROSPECTUS-PROXY STATEMENT

The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement. Certain capitalized terms used in this Summary
are defined elsewhere in this Prospectus-Proxy Statement. Reference is made to,
and this Summary is qualified in its entirety by, the more detailed information
contained in this Prospectus-Proxy Statement and in the Annexes hereto.

THE COMPANIES

MedPartners/Mullikin. MedPartners/Mullikin, Inc. is a leading physician
practice management ("PPM") company that develops, consolidates and manages
integrated health care delivery systems. Through its network of affiliated group
and independent practice association ("IPA") physicians, MedPartners/ Mullikin
provides primary and specialty health care services to prepaid managed care
enrollees and fee-for-service patients. MedPartners/Mullikin enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
At June 30, 1996, MedPartners/Mullikin operated in 23 states and was affiliated
with 5,777 physicians, including 1,461 in group practices, 3,206 through IPA
relationships and 736 hospital-based physicians. At June 30, 1996
MedPartners/Mullikin physicians provided prepaid health care to over 798,000
enrollees through 45 HMO (as defined herein) relationships.

MedPartners/Mullikin offers medical group practices and independent
physicians a range of affiliation models. These affiliations are carried out by
the acquisition of physician practice management entities or practice assets,
either for cash or through an equity exchange, or by affiliation on a
contractual basis. In all instances, MedPartners/Mullikin enters into long-term
practice management agreements with the affiliated physicians that provide for
the management of the practices by MedPartners/Mullikin while at the same time
allowing the physicians to maintain their clinical independence.

MedPartners/Mullikin's revenue is derived from the provision, through its
affiliated physicians, of fee-for-service medical services and from contracts
with health maintenance organizations and other third-party payors which
compensate MedPartners/Mullikin and its affiliated physicians on a prepaid basis
(collectively, "HMOs"). In the prepaid arrangements, MedPartners/Mullikin,
through its affiliated physicians, typically is paid by the HMO a fixed amount
per member ("enrollee") per month ("professional capitation") or a percentage of
the premium per member per month ("percent of premium") paid by employer groups
and other purchasers of health coverage to the HMOs. In return,
MedPartners/Mullikin, through its affiliated physicians, is responsible for
substantially all of the medical services required by enrollees. In many
instances, MedPartners/Mullikin and its affiliated physicians accept financial
responsibility for hospital and ancillary health care services in return for
payment from HMOs on a capitated or percent of premium basis ("institutional
capitation"). In exchange for these payments (collectively, "global
capitation"), MedPartners/ Mullikin, through its affiliated physicians, provides
the majority of covered health care services to enrollees and contracts with
hospitals and other health care providers for the balance of the covered
services.

MedPartners/Mullikin's strategy is to develop locally prominent, integrated
health care delivery networks that provide high quality, cost-effective health
care in selected geographic markets. MedPartners/Mullikin implements this
strategy through growth in its existing markets, expansion into new markets
through acquisitions and affiliations, creation of strategic alliances with
hospital partners, HMOs and other third-party payors in its market areas, use of
sophisticated information systems and increasing the operational efficiency of,
and reducing costs associated with, operating MedPartners/Mullikin's network.

At June 30, 1996, MedPartners/Mullikin had consolidated assets of
approximately $618 million and consolidated stockholders' equity of
approximately $415 million, and employed 9,433 persons.

MedPartners/Mullikin was incorporated under the laws of Delaware in August
1995 to be the surviving corporation in the combination of the businesses of
MedPartners, Inc., incorporated under the laws of Delaware in 1993
("MedPartners"), and Mullikin Medical Enterprises, L.P. ("MME"), a California
limited partnership which, directly or through its predecessor entities, had
operated since 1957. See "Business of MedPartners/Mullikin -- Recent Major
Acquisitions". As used herein, the term "MedPartners/Mullikin"

1
<PAGE> 12

refers to MedPartners/Mullikin, Inc. and its predecessors, MedPartners and MME,
and their respective subsidiaries and affiliates, unless the context otherwise
requires. The executive offices of MedPartners/ Mullikin are located at 3000
Galleria Tower, Suite 1000, Birmingham, Alabama 35244, and its telephone number
is (205) 733-8996. See "Business of MedPartners/Mullikin".

CHS. CHS primarily engages in the organization and management of physician
practices which contract with HMOs to provide physician and related health care
services to enrollees. CHS's services are designed to relieve certain
administrative burdens placed on physicians, allowing them to focus on the
practice of medicine. CHS currently provides management services to a primary
care medical group and an IPA. CHS has expertise in claims processing and
utilization review and management using an approach based upon physician control
of the process. CHS also provides consulting services to hospitals and others in
connection with managed care contracting.

Pursuant to long-term management service agreements ("MSAs"), CHS provides
management services to Health Source Medical Group, Inc., a California
professional corporation ("HSMG"), and Community Medical Group of the West
Valley, a California general partnership ("CMG") (collectively, the "Medical
Groups"). HSMG is an IPA of 325 primary care and specialist physicians. Most of
the HSMG primary care physicians and specialists are on the staff of the
Cedars-Sinai Medical Center in Los Angeles, one of the leading medical
facilities in Southern California. HSMG contracts with 12 HMOs to provide
physician and related health care services to those enrollees who select HSMG
physicians under 19 HMO plans. HSMG physicians are also affiliated with three
OrNda Health Corporation hospitals: Midway Hospital Medical Center, Brotman
Medical Center and Centinela Hospital. CMG, founded in 1979, is a medical group
of 43 primary care physicians. These primary care physicians have referral
relationships with 200 specialists. Many CMG physicians are on staff at West
Hills Hospital and Los Robles Regional Medical Center, both Columbia/HCA-owned
facilities and Encino-Tarzana Regional Medical Center, a Tenet-Columbia/HCA
joint venture. CMG contracts with 11 HMOs to provide medical services to
enrollees who select CMG physicians under 22 HMO plans. Collectively, HSMG and
CMG provide health care services to 114,000 prepaid members of major health
plans in the greater Los Angeles area. Approximately 68,000 of those enrollees
live in West Los Angeles and receive services from HSMG. Another 46,000
enrollees receive their health care services through CMG in San Fernando Valley,
Conejo Valley and Simi Valley. Effective April 1, 1996, CHS entered into an MSA
with MedPartners/Mullikin whereby MedPartners/Mullikin will provide management
services to CHS prior to the consummation of the Merger.

CHS also provides certain financial services to New Management, which is
engaged in the business of providing certain management and administrative
services to West Hills Hospital. In addition, CHS provides medical management
consulting services to, among others, Midway Hospital Medical Center.

CHS was formed in August 1995 through the combination (the
"Restructurings") of CMG's management operations and the acquisition of
substantially all of the assets of Health Source Management Group, Inc. ("Health
Source Management"). Health Source Management previously provided management
services to HSMG. CHS is a Delaware corporation whose principal executive
offices are located at (i) 8701 West Third Street, Los Angeles, California
90048, and its telephone number is (310) 273-2334; and (ii) 4505 Las Virgenes
Road, Suite 105, Calabasas, California 91302, and its telephone number is (818)
706-2211.

At June 30, 1996, CHS had assets of approximately $3,740,762 and
stockholders' deficit of approximately $(306,862), and employed approximately
174 persons.

CHS Merger Corporation. The Subsidiary is a direct, wholly-owned
subsidiary of MedPartners/ Mullikin and has not engaged in any business activity
unrelated to the Merger. The principal executive offices of the Subsidiary are
located at 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244 and its
telephone number is (205) 733-8996.

2
<PAGE> 13

the record owner of 50% of the CHS Common Stock). The principal executive
offices of New Management are located at 4505 Las Virgenes Road, Suite 105,
Calabasas, California 91302, and its telephone number is (818) 706-2211.

THE CAREMARK ACQUISITION

On May 13, 1996, MedPartners/Mullikin agreed to acquire Caremark
International Inc. ("Caremark") pursuant to a Plan and Agreement of Merger by
and among MedPartners/Mullikin, PPM Merger Corporation, a wholly-owned
subsidiary of MedPartners/Mullikin and Caremark. Under the Plan of Merger, PPM
Merger Corporation will be merged with and into Caremark, with Caremark to
continue as the surviving corporation as a wholly-owned subsidiary of
MedPartners/Mullikin (the "Caremark Acquisition"). After the consummation of the
Caremark Acquisition, each Caremark stockholder will receive 1.21 shares of
MedPartners/Mullikin Common Stock in exchange for each share of Caremark Common
Stock owned by such stockholder.

Consummation of this acquisition is subject to a number of conditions,
usual in a transaction of this type, including: that the stockholders of
MedPartners/Mullikin and Caremark approve the transaction; that the transaction
qualify for pooling of interests accounting treatment; and that the transaction
qualify as a tax free reorganization. There is no guarantee that such conditions
will be met. If such conditions are not met, the Caremark Acquisition may not be
consummated. After consummation of the Caremark Acquisition,
MedPartners/Mullikin will operate under the name "MedPartners, Inc." See
"Businesses of MedPartners/ Mullikin -- Caremark Acquisition"; "Pro Forma
Condensed Financial Information"; and the "Consolidated Financial Statements"
beginning at Page F-1.

Caremark is a leading provider of health care services through its PPM,
pharmaceutical services, disease management and international business. In its
PPM business, Caremark provides PPM services to approximately 1,000 affiliated
physicians delivering comprehensive care to over one million people. Caremark
also operates one of the largest independent prescription drug benefit
management ("PBM") businesses in the United States with four mail service
pharmacies. Caremark's disease management business provides services and
therapies to patients with certain chronic conditions, primarily hemophilia and
growth disorders. Caremark's international business provides health care
services in a number of locations outside the United States which have different
regulatory environments and payor systems.

Initiated in 1992, Caremark's PPM business provides comprehensive
management services to large multi-speciality physician practices in major
metropolitan areas. Caremark is a leader in providing capitated health care
arrangements to payors. As of June 30, 1996, Caremark provided management
services to approximately 1,000 affiliated physicians and 210 other licensed
health care professionals who deliver comprehensive health care services to over
one million people. As of June 30, 1996, Caremark had affiliated with large,
established multi-specialty physician practices in six major metropolitan
markets, including Friendly Hills HealthCare Network (that includes CIGNA
Medical Group) in Southern California, Kelsey-Seybold Clinic in Houston, North
Suburban and Glen Ellyn Clinics in Chicago, Diagnostic Clinic in Tampa/ St.
Petersburg, Oklahoma City Clinic and Atlanta Medical Clinic.

Caremark's pharmaceutical services business manages outpatient prescription
drug benefit programs for more than 1,200 clients, including corporations,
insurance companies, unions, government employee groups and managed care
organizations throughout the United States. Caremark's prescription benefit
management business is one of the largest independent PBMs, dispensing 42,000
prescriptions daily from four mail services pharmacies. Caremark also manages
patients' immediate prescription needs through a network of approximately 53,000
pharmacies.

Caremark's disease management business designs and directs comprehensive
programs, including drug therapies, to meet the health care needs of individuals
with chronic diseases or conditions. Caremark currently provides therapies and
services for individuals suffering from hemophilia, growth disorders, immune
deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.
Caremark continually develops additional programs to address other chronic
diseases and conditions.

3
<PAGE> 14

Caremark's international business is developing and implementing new
approaches to health care delivery to provide services in different regulatory
environments and payor systems in six countries.

Caremark was formed as a wholly-owned subsidiary of Baxter International
Inc. ("Baxter") in August 1992, and on November 30, 1992, Baxter distributed to
the holders of Baxter common stock all of the outstanding shares of Caremark
Common Stock. As used herein, the term "Caremark" refers to Caremark and its
predecessors, and their respective subsidiaries and affiliates, unless the
context otherwise requires. The principal executive offices of Caremark are
located at 2215 Sanders Road, Northbrook, Illinois 60062, and its telephone
number is (847) 559-4700.

At June 30, 1996, Caremark had consolidated assets of approximately $1.4
billion and stockholders' equity of approximately $388.0 million, and employed
approximately 11,600 persons.

RECENT DEVELOPMENTS

On March 19, 1996, MedPartners/Mullikin completed a public offering of a
total of 8,250,000 shares of MedPartners/Mullikin Common Stock, 6,632,800 of
which were sold for the account of MedPartners/ Mullikin and 1,617,200 of which
were sold for the account of certain selling stockholders of MedPartners/
Mullikin. The public offering resulted in net proceeds to MedPartners/Mullikin
of approximately $194 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations --
MedPartners/Mullikin -- Liquidity and Capital Resources" and "Business of
MedPartners/Mullikin -- Recent Developments".

On June 28, 1996, MedPartners/Mullikin entered into a Plan and Agreement of
Merger to acquire Summit Medical Group, P.A. ("Summit"), Summit, New Jersey, in
exchange for shares of MedPartners/ Mullikin Common Stock. The transaction is to
be a tax free reorganization accounted for as a pooling of interests. Summit is
a multi-specialty group of approximately 70 physicians which serves the northern
area in New Jersey. Concurrently with, and as a condition to, the consummation
of the acquisition of Summit, MedPartners/Mullikin or its subsidiaries will
acquire the assets of Medical Realty Associates, a New Jersey general
partnership ("MRA"), which owns certain real estate used in the operations of
Summit. MRA is owned by 54 of the 59 shareholders of Summit.
MedPartners/Mullikin intends to file a Registration Statement with the SEC with
respect to the shares of MedPartners/Mullikin Common Stock to be issued to the
shareholders of Summit and the partners of MRA in connection with such
acquisition. Consummation of this acquisition is subject to a number of
conditions, including that the shareholders of Summit and the partners of MRA
approve the transaction, that the transaction qualify as a tax free
reorganization and other conditions usual in transactions of this type. In
addition, the closing of the transaction is conditioned upon the receipt by the
parties of a letter from Ernst & Young LLP, MedPartners/Mullikin's independent
auditors, that the transaction will qualify for pooling of interests accounting
treatment. See "Notes To Pro Forma Condensed Financial Information". There is no
guarantee that such conditions will be met. If such conditions are not met, the
acquisition of Summit and MRA may not be consummated. See "Business of
MedPartners/ Mullikin -- Recent Developments".

On July 3, 1996, MedPartners/Mullikin entered into a Plan and Agreement of
Merger to acquire Cardinal Healthcare, P.A., ("Cardinal") Raleigh, North
Carolina in exchange for shares of MedPartners/ Mullikin Common Stock. The
transaction is to be a tax-free reorganization accounted for as a pooling of
interests. Cardinal is a multi-specialty group of 75 physicians which serves the
Triangle area in Raleigh-Durham and includes Research Triangle Park. In addition
to the main campus, Cardinal provides services at 16 clinical facilities and 15
satellite locations. Cardinal is also affiliated with almost 500 physicians
through three IPAs, including Cardinal IPA, Piedmont Physicians Alliance, Inc.
and Eastern Carolina Primary Care Alliance, Inc. The three IPAs, which are in
the early stages of development, already have contracts with five managed care
companies providing service to almost 6,000 enrollees. MedPartners/Mullikin
intends to file a Registration Statement with the SEC with respect to the shares
of MedPartners/Mullikin Common Stock to be issued to the shareholders of
Cardinal in connection with such acquisition. Consummation of this acquisition
is subject to a number of conditions, including that the shareholders of
Cardinal approve the transaction, that the transaction qualify as a tax free
reorganization and other conditions usual in transactions of this type. In
addition, the closing of the transaction is conditioned upon the receipt by the
parties of a letter

4
<PAGE> 15

from Ernst & Young LLP, MedPartners/Mullikin's independent auditors, that the
transaction will qualify for pooling of interests accounting treatment. See
"Notes To Pro Forma Condensed Financial Information". There is no guarantee that
such conditions will be met. If such conditions are not met, the acquisition of
Cardinal may not be consummated. See "Business of MedPartners/Mullikin -- Recent
Developments".

On July 24, 1996, MedPartners/Mullikin announced that it had entered into a
Plan and Agreement of Merger to acquire Emergency Professional Services, Inc.
("Emergency Professional Services"), Cleveland, Ohio, in exchange for shares of
MedPartners/Mullikin Common Stock. The transaction is to be a tax free
reorganization accounted for as a pooling of interests. Emergency Professional
Services provides emergency department contract management, in-house physician
staff services and staffing to 16 hospitals and six urgent care centers in
northern Ohio and western Pennsylvania. The professional staff of Emergency
Professional Services includes 115 physicians, all of whom are individual
independent contractors. MedPartners/Mullikin intends to file a Registration
Statement with the SEC with respect to the shares of MedPartners/Mullikin Common
Stock to be issued to the shareholders of Emergency Professional Services in
connection with such acquisition. Consummation of this acquisition is subject to
a number of conditions, usual in a transaction of this type, including: that the
shareholders of Emergency Professional Services approve the transaction; that
the transaction qualify for pooling of interests accounting treatment; and that
the transaction qualify as a tax free reorganization. There is no guarantee that
such conditions will be met. If such conditions are not met, the acquisition of
Emergency Professional Services may not be consummated. See "Business of
MedPartners/ Mullikin -- Recent Developments", "Pro Forma Condensed Financial
Information" and the Financial Statements beginning at page F-1.

RISK FACTORS

Certain factors to be considered in connection with an investment in
MedPartners/Mullikin Common Stock and approval of the Merger are set forth under
"Risk Factors". These risk factors include risks associated with the Merger and
MedPartners/Mullikin's growth strategy in general, and risks associated with the
businesses of MedPartners/Mullikin and CHS, including: capital requirements; the
capitated nature of revenues; control of health care costs; reduction in third
party reimbursement; dependence on affiliated physicians; federal income taxes;
certain Caremark legal matters; professional liability concerns; concentration
of customers; competition; government regulation; pharmacy licensing and
operations; health care reform; and possible volatility of
MedPartners/Mullikin's stock price. For a complete discussion of the risk
factors see "Risk Factors".

THE SPECIAL MEETING

At the Special Meeting and any adjournment or postponement thereof, the
stockholders of CHS will be asked to consider and vote upon the proposal to
approve and adopt the Plan of Merger and the transactions contemplated thereby.
The Special Meeting is to be held at 2029 Century Park East, Suite 1800, Los
Angeles, California 90067 on August 30, 1996, at 7:00 a.m. Only stockholders of
record at the close of business on the Record Date will be entitled to notice of
and to vote at the Special Meeting; there were two stockholders of record, CMG
and Health Source Management, on the Record Date. Subsequent to the Record Date
and prior to the closing of the Merger, CMG and Health Source Management have
both indicated that they will consummate the planned distribution of the CHS
Common Stock to the beneficial owners thereof. Each of CMG and Health Source
Management will seek the approval of its partners and shareholders,
respectively, to vote the CHS Common Stock in favor of the Plan of Merger, among
other matters, at meetings to be held prior to the Special Meeting. Copies of
certain information relating to these meetings will be available for the
beneficial owners of CHS upon request and without charge. The enclosed proxy
card, and the accompanying Notice of Special Meeting of Stockholders and this
Prospectus-Proxy Statement are being first mailed to stockholders of CHS on or
about August 20, 1996.

For additional information relating to the Special Meeting, see "The
Special Meeting".

VOTE REQUIRED

Approval and adoption of the Plan of Merger by the stockholders of CHS
requires the affirmative vote of a majority of the issued and outstanding shares
of CHS Common Stock; as a result, abstentions will be the

5
<PAGE> 16

equivalent of votes against the Plan of Merger. Accordingly, approval and
adoption of the Plan of Merger at the Special Meeting will require the
affirmative vote of the holders of the shares of CHS Common Stock entitled to
cast a minimum of 24,423 votes.

CMG and Health Source Management, as the stockholders of record of CHS,
will ask the partners of CMG and the shareholders of Health Source Management,
respectively, to consider and vote on the Plan of Merger as beneficial
stockholders of CHS. Each partner or shareholder, in connection with their
respective meetings, will receive, among other information, a copy of this
Prospectus-Proxy Statement concurrently with its receipt by CMG or Health Source
Management. The partners of CMG have determined that a vote of a majority of the
partnership interests will be necessary to direct the executive committee of CMG
to vote the shares of CHS held of record by CMG on the Record Date; CMG will,
upon the demand of any of its partners, perfect dissenters rights with respect
to those CHS Shares beneficially owned by such partners. A vote of a majority of
the issued and outstanding shares of Health Source Management will be necessary
to direct the voting of the shares of CHS held of record by Health Source
Management on the Record Date. Health Source Management's shareholders may
perfect, under California law, dissenters rights and obtain payment of the
appraised value of their shares of Health Source Management if the Plan of
Merger is approved by the shareholders of Health Source Management.

The executive committee of CMG owns approximately 18.25% of the partnership
interests of CMG and have expressed their intention to vote such interests FOR
the Plan of Merger. The Board of Directors and executive officers of Health
Source Management owns approximately 13.5% of the issued and outstanding shares
of Health Source Management and have indicated their intention to vote such
shares FOR the Plan of Merger.

If after the partners of CMG and the shareholders of Health Source
Management have considered and voted on the Plan of Merger, CHS determines that
both of the CHS stockholders of record have been directed to vote FOR the Plan
of Merger, it is possible that the stockholder vote required under the DGCL to
approve the Merger will be accomplished without a meeting by unanimous written
action of the CHS stockholders.

See "The Special Meeting -- Vote Required", "The Merger -- Conditions to
the Merger" and "-- Additional Interests of Certain Persons in the Merger;
Employment Agreements".

THE MERGER

Terms of the Merger. Upon consummation of the Merger, all of the CHS Shares
(other than dissenting shares) will be converted into the right to receive the
number of shares of MedPartners/Mullikin Common Stock equal to the Merger
Consideration. The number of shares of MedPartners/Mullikin Common Stock which
shall constitute the Merger Consideration shall be determined by dividing $40
million (the "Merger Price") by the Base Period Trading Price. For the ten
consecutive trading days ended August 15, 1996, the average of the last reported
sale prices of the MedPartners/Mullikin Common Stock was $20.31. At such price,
a share of CHS Common Stock would be exchanged for 40.32 shares of
MedPartners/Mullikin Common Stock. THE BASE PERIOD TRADING PRICE MAY DIFFER FROM
THE ACTUAL MARKET PRICE OF THE MEDPARTNERS/MULLIKIN COMMON STOCK REPORTED ON THE
NYSE FOR THE DATE OF THE SPECIAL MEETING, THE DATE OF CONSUMMATION OF THE MERGER
OR THE DATE THAT CHS STOCKHOLDERS ACTUALLY RECEIVE THEIR SHARES OF
MEDPARTNERS/MULLIKIN COMMON STOCK AFTER THE MERGER IS COMPLETED. SINCE THE
ACTUAL NUMBER OF SHARES OF MEDPARTNERS/MULLIKIN COMMON STOCK ISSUABLE TO CHS
STOCKHOLDERS IN THE MERGER DEPENDS ON THE BASE PERIOD TRADING PRICE, THERE IS NO
GUARANTEE AS TO THE NUMBER OF SHARES OF THE MEDPARTNERS/MULLIKIN COMMON STOCK
THAT CHS STOCKHOLDERS WILL RECEIVE.

As used herein, the "Base Period Trading Price" shall mean the average of
the last repeated sale price for the shares of MedPartners/Mullikin Common Stock
for the 10 consecutive trading days on which such shares are actually traded on
the NYSE ending at the close of trading on the second trading day immediately
preceding the date of the Merger.

If the Merger has not been consummated by August 31, 1996 and
MedPartners/Mullikin and CHS have extended the Plan of Merger through September
30, 1996, the Merger Price shall be increased by $6,500 for each day after
August 31, 1996 that the consummation of the Merger is delayed.

6
<PAGE> 17

During the period between the date of this Prospectus-Proxy Statement and
the time of the Special Meeting, CHS stockholders may obtain updated information
regarding the market price for the MedPartners/ Mullikin Common Stock, the Base
Period Trading Price and the estimated number of shares of MedPartners/ Mullikin
Common Stock that constitute the Merger Consideration by calling toll free at
1-800-563-7126.

After consummation of the Merger, CHS will operate under the name "CHS
Management, Inc." No material disposition or restructuring of either
MedPartners/Mullikin or CHS or any material part thereof is contemplated as a
result of the Merger. See "Operations and Management of MedPartners/Mullikin
after the Merger".

Acquisition of New Management as a Condition to the Merger. New Management is a
management consulting services organization which provides services in
connection with certain managed care contracts under a management contract with
West Hills Hospital and CMG. The partners of New Management also beneficially
own 50% of the CHS Shares. MedPartners/Mullikin proposes to acquire
substantially all of the assets of New Management pursuant to an Amended and
Restated Agreement to Purchase Assets, dated as of March 11, 1996, as amended by
Amendment No. 1 dated June 28, 1996 (the "Acquisition Agreement"). The
consummation of this transaction is a condition to the closing of the Merger.
The transactions are discussed in detail in the Prospectus-Proxy Statement of
New Management and the Annexes thereto (the "New Management Proxy Statement"),
which also constitutes a part of the Registration Statement of which this
Prospectus-Proxy Statement is a part. A copy of the New Management Proxy
Statement will be available upon request to each stockholder of CHS, without
charge and each CHS stockholder is encouraged to obtain a copy and read it
carefully.

Recommendation of the Board of Directors of CHS. The Board of Directors of CHS
has approved the Plan of Merger, and recommends a vote FOR the Plan of Merger.
CHS' Board of Directors believes the Plan of Merger is fair to and in the best
interests of the stockholders of CHS.

The Board of Directors of CHS believes that the Merger is desirable for the
following reasons, among others:

(i) the terms and conditions of the Plan of Merger, including the
number of shares of MedPartners/ Mullikin Common Stock to be exchanged for
CHS Common Stock, which is considered to be fair in light of the financial
condition, business, prospects and opportunities of CHS and
MedPartners/Mullikin and the stock trading history of MedPartners/Mullikin;

(ii) a comparison of the financial terms of certain other transactions
that have recently been effected in CHS' industry as considered by Sutro &
Co., Incorporated ("Sutro") and the terms of certain other potential
transactions which CHS had discussed with potential acquirors and potential
investors;

(iii) a review of possible alternatives to the sale of CHS, including
continuing to operate CHS as a privately-owned entity subject to an
additional equity investment;

(iv) the health care industry is rapidly evolving and currently
characterized by intensified competition and increasing consolidation. In
the prepaid segment of the health care industry, particularly in
California, entities, such as the Medical Groups, which contract with HMOs
to provide medical care on a capitated basis have been pressured to
maintain or decrease rates. Together, these trends have increased pressure
on CHS, driving CHS's expansion strategy to capitalize on the benefits of
economies of scale and operating efficiencies by combining the operations
and resources of MedPartners/Mullikin and CHS;

(v) the Merger combines two companies that share similar fundamental
business and operating strategies oriented toward building and managing
primary care physician networks to deliver managed healthcare.
MedPartners/Mullikin management has indicated its commitment to expanding
both of the Medical Group operations with the goal of enhancing stockholder
value and strengthening existing operations;

(vi) because the Merger Consideration consists of MedPartners/Mullikin
Common Stock, the Merger will offer the opportunity for CHS stockholders to
continue to participate in the growth and appreciation that may result from
the continued business conducted by MedPartners/Mullikin;

7
<PAGE> 18

(vii) the opinion of Sutro that, as of the date of its opinion, the
Merger Consideration to be received by the stockholders of CHS as specified
in the Plan of Merger was fair, from a financial point of view, to the
stockholders of CHS; and

(viii) the Merger is expected to be treated as a tax-free
reorganization under the Code.

On February 22, 1996, the MedPartners/Mullikin Board of Directors approved
the Merger. The MedPartners/Mullikin Board of Directors believes that the Merger
is desirable because the Merger will allow MedPartners/Mullikin to expand and
strengthen its presence in the Southern California market. See "The
Merger -- Reasons for the Merger; Recommendation of CHS's Board of Directors"
"-- Opinion of CHS's Financial Advisors" and "-- Effective Time of the Merger".

Effective Time of the Merger. The Merger will become effective upon the filing
of the Certificate of Merger by the Subsidiary and CHS under the DGCL, or at
such later time as may be specified in such Certificate of Merger. The Plan of
Merger requires that these filings be made, subject to satisfaction of the
separate conditions to the obligations of each party to consummate the Merger,
as soon as practicable on or after the Closing Date, or at such other time as
may be agreed by MedPartners/Mullikin and CHS. It is presently anticipated that
such filing will be made as soon as practicable after the Special Meeting on
August 30, 1996, and that the Effective Time will occur upon such filing,
although there can be no assurance as to whether or when the Merger will occur.
See "The Merger -- Effective Time of the Merger".

Opinion of CHS's Financial Advisor. Sutro has acted as financial advisor to CHS
in connection with the Merger. Sutro assisted the CHS Board in its negotiation
of the terms of the Plan of Merger and its examination of the fairness to the
stockholders of CHS from a financial point of view of the consideration the
stockholders are to receive in connection with the Merger. At the March 10,
1996, meeting of the Board, prior to the execution of the Plan of Merger, Sutro
rendered its oral opinion (subsequently confirmed by delivery of a written
opinion) stating that, as of the date thereof, the consideration to be received
pursuant to the terms and conditions of the Plan of Merger was fair, from a
financial point of view, to the stockholders of CHS. Sutro's fairness opinion is
attached hereto as Annex B and should be read carefully in its entirety.

In the ordinary course of business, Sutro and its affiliates may actively
trade the securities of MedPartners/Mullikin for its own account or for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities. See "The Merger -- Opinion of CHS's Financial
Advisor".

Exchange of Certificates. As soon as reasonably practicable on or after the
Effective Time, transmittal materials will be provided to each holder of record
of shares of CHS Common Stock for use in exchanging such holder's stock
certificates for certificates evidencing shares of MedPartners/Mullikin Common
Stock and for receiving cash in lieu of fractional shares and any dividends or
other distributions to which such holder is entitled as a result of the Merger.
Notwithstanding the foregoing, to the extent practicable, arrangements will be
made to effect the exchange of certificates directly between
MedPartners/Mullikin and the holders of shares of CHS Common Stock on the
Closing Date. See "The Merger -- Exchange of Certificates".

Conditions to the Merger. The obligation of each of MedPartners/Mullikin, the
Subsidiary and CHS to consummate the Merger is subject only to the effectiveness
of the Registration Statement of which this Prospectus/Proxy Statement forms a
part and the approval of the CHS stockholders. The obligation of CHS to
consummate the Merger is also conditioned upon MedPartners/Mullikin concurrently
acquiring the assets of New Management. See "The Merger -- Conditions to the
Merger".

Representations and Covenants. Under the Plan of Merger, MedPartners/Mullikin
and CHS have each made a number of representations regarding the organization
and capital structures of the respective companies and their affiliates, their
operations, financial condition and other matters, including their authority to
enter into the Plan of Merger and to consummate the Merger. Under the Plan of
Merger, MedPartners/ Mullikin and CHS have each agreed not to encourage,
solicit, participate in or initiate discussions or negotiations with or provide
any information to any third party concerning any merger, sale of assets, sale
of or tender offer for its shares or similar transactions, except that each of
the companies may furnish information to and negotiate with an unsolicited third
party consistent with the good faith exercise by the Board of Directors of its
fiduciary obligations. See "The Merger -- Representations and Covenants".

8
<PAGE> 19

Regulatory Approvals. No federal or state regulatory requirements must be
complied with or approvals obtained in connection with the Merger. See "The
Merger -- Regulatory Approvals".

Business Pending the Merger. The Plan of Merger provides that, until the
Effective Time, except as otherwise provided in the Plan of Merger, CHS will
conduct its business in the ordinary course and will use all reasonable best
efforts to preserve intact its present business organization, maintain its
rights and franchises and preserve its relationships with customers, suppliers
and others having business dealings with CHS. CHS has also agreed to abide by
certain restrictions and limitations with respect to its business (as set forth
in the Plan of Merger) prior to the Effective Time and to cooperate on certain
matters relating to the Merger. See "The Merger -- Business Pending the Merger".

Waiver and Amendment. The Plan of Merger provides that, at any time prior to
the Effective Time, MedPartners/Mullikin and the Subsidiary, on the one hand,
and CHS, on the other hand, may, under certain circumstances, waive compliance
with covenants or conditions for the benefit of that company or amend or
otherwise change the Plan of Merger, except that, after approval by the
stockholders of CHS, no amendment may be made that, under the DGCL, would
require further stockholder approval, without such further approval. See "The
Merger -- Waiver and Amendment".

Termination. The Plan of Merger may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the Plan of
Merger by the stockholders of CHS under certain circumstances which are set
forth under "The Merger -- Termination".

Additional Interests of Certain Persons in the Merger; Employment
Agreements. In considering the recommendations of the Board of Directors of
CHS, with respect to the Plan of Merger and the transactions contemplated
thereby, CHS stockholders should be aware that certain members of the Board of
Directors and management of CHS have certain interests in the Merger that are in
addition to the interests of CHS stockholders generally.

Pursuant to the Plan of Merger, MedPartners/Mullikin will assume the
existing employment agreements (the "Employment Agreements") with Martin J.
Coyne, M.D., currently the Chairman of the Board of CHS, Marvin V.H. Kanter,
M.D., currently the President and Chief Executive Officer of CHS, Stewart
Gleischman, M.D., currently the Vice Chairman of the Board and Executive for
Strategic Planning of CHS, and Joan Rose, Executive Vice President and Chief
Operating Officer of CHS. See "The Merger -- Interests of Certain Persons in the
Merger; Employment Agreements".

It is anticipated that CMG and Health Source Management will seek to
provide for bonus arrangements for certain key individuals related to the
success of each organization, some of whom are expected to be directors and
officers of CHS.

Thomas R. Weinberger, a director of CHS and Health Source Management, is
Executive Vice President of Sutro, which acted as financial advisor to CHS in
connection with the Merger. The CHS Board believes that the terms of such
engagement are no less favorable to CHS than would be available from an
independent third party. See "The Merger -- Opinion of CHS's Financial Advisor"
and "-- Additional Interests of Certain Persons in the Merger; Employment
Agreements".

Assuming a Base Period Trading Price of 20.31, all of the shares of CHS
Common Stock would be converted into an aggregate of 1,969,473 shares of
MedPartners/Mullikin Common Stock in the Merger. If the Merger were consummated,
the directors and executive officers of CHS would receive a total of 15.85% of
the MedPartners/Mullikin Common Stock issued to CHS stockholders in the Merger.
These individuals have unanimously indicated their intentions to vote the shares
of CHS Common Stock beneficially owned by them FOR the Plan of Merger. See
"Security Ownership of Certain Beneficial Owners and Management -- CHS".

The Plan of Merger provides that CHS will maintain in effect following the
Merger the rights to indemnification of CHS' officers and directors provided for
in CHS' Certificate of Incorporation and By-laws. See "The
Merger -- Indemnification of Officers and Directors", and "-- Additional
Interests of Certain Persons in the Merger; Employment Agreements".

Accounting Treatment. It is intended that the Merger will be accounted for as a
pooling of interests under GAAP. See "The Merger -- Accounting Treatment" and
"Pro Forma Condensed Financial Information".

9
<PAGE> 20

Federal Income Tax Consequences. CHS has received an opinion from its counsel,
Stroock & Stroock & Lavan to the effect that the Merger will constitute a
reorganization within the meaning of Code Section 368(a) which opinion is based
upon the facts that are described herein, and upon certain customary
representations of fact provided by MedPartners/Mullikin, the Subsidiary and
CHS. Based on the foregoing, the opinion of counsel states, among other matters,
that: (i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and MedPartners/Mullikin, the Subsidiary and CHS will each be a party to the
reorganization within the meaning of Section 368(b) of the Code; (ii) no gain or
loss will be recognized by MedPartners/Mullikin, CHS or the Subsidiary as a
result of the Merger; (iii) no gain or loss will be recognized by a CHS
stockholder who receives solely shares of MedPartners/Mullikin Common Stock in
exchange for CHS Shares; (iv) the receipt of cash in lieu of fractional shares
of MedPartners/Mullikin Common Stock will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
MedPartners/Mullikin and these payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed as provided
in Section 302(a) of the Code; (v) the tax basis of the shares of
MedPartners/Mullikin Common Stock received by a CHS stockholder will be equal to
the tax basis of the CHS Shares exchanged therefor, excluding any basis
allocable to a fractional share of MedPartners/Mullikin Common Stock for which
cash is received; (vi) the holding period of the shares of MedPartners/Mullikin
Common Stock received by a CHS stockholder will include the holding period or
periods of the CHS Shares exchanged therefor, provided that the CHS Shares are
held as a capital asset within the meaning of Section 1221 of the Code at the
Effective Time; and (vii) based on CHS' representation that CHS will comply with
the terms of and fully repay the indebtedness evidenced by the Bridge Loan, and
based on MedPartners/Mullikin's representation that MedPartners/Mullikin will
enforce the terms of and make every effort to collect the indebtedness evidenced
by the Bridge Loan, the Bridge Loan is bona fide indebtedness and consequently
the cash received by CHS in connection with the Bridge Loan should not be deemed
to be cash proceeds received by CHS in the Merger. EACH HOLDER OF CHS COMMON
STOCK IS URGED TO CONSULT HIS OR HER OWN PERSONAL TAX AND FINANCIAL ADVISORS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AS WELL AS ANY
APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, BASED UPON SUCH
HOLDER'S OWN PARTICULAR FACTS AND CIRCUMSTANCES. See "The Merger -- Federal
Income Tax Consequences".

Resale Restrictions. All shares of MedPartners/Mullikin Common Stock received
by CHS stockholders in the Merger will be freely transferable, except that
shares of MedPartners/Mullikin Common Stock received by persons who are deemed
to be "affiliates" (as such term is defined under the Securities Act) of CHS at
the time of the Special Meeting may be resold by them only in certain permitted
circumstances under the Securities Act, other applicable securities laws and
rules related to pooling-of-interests accounting treatment. See "The
Merger -- Resale of MedPartners/Mullikin Common Stock by Affiliates".

Rights of Dissenting Stockholders. Holders of CHS Shares at the time of the
vote of the stockholders of CHS to approve the Plan of Merger who shall not have
voted in favor of the Plan of Merger and who properly demand to be paid the fair
cash value for such CHS Shares in accordance with Section 262 of the DGCL and
Sections 1300 through 1312 of the California Corporations Code will be entitled
to receive the fair cash value for such CHS Shares in accordance with such
Section 262 of the DGCL and Sections 1300 through 1312 of the California
Corporations Code. For discussion of the right of MedPartners/Mullikin to
terminate the Plan of Merger at any time prior to the Closing Date if holders of
more than 10% of the CHS Shares properly give written demand for appraisal of
the value of such CHS Shares, see "Rights of Dissenting Stockholders" and "The
Merger -- Termination".

NYSE Listing. A Subsequent Listing Application will be filed with the NYSE to
list the shares of MedPartners/Mullikin to be issued to the CHS stockholders.
Although no assurance can be given that the NYSE will accept such shares of
MedPartners/Mullikin Common Stock for listing, MedPartners/Mullikin anticipates
that these shares will qualify for listing. See "The Merger -- NYSE Listing".

MARKET AND MARKET PRICES

10
<PAGE> 21

Stock was traded on the Nasdaq National Market under the symbol "MPTR" from
February 21, 1995 until February 21, 1996. On February 22, 1996, the
MedPartners/Mullikin Common Stock was listed on the NYSE under the symbol "MDM".

The following table sets forth for the quarterly periods indicated the high
and low reported bid prices for the MedPartners/Mullikin Common Stock through
February 21, 1996, as reported on the Nasdaq National Market. After February 21,
1996, the table sets forth the high and low last sale price as reported on the
NYSE Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter (from February 21)............................................. $24.00 $14.75
Second Quarter............................................................... 24.50 17.75
Third Quarter................................................................ 30.00 18.00
Fourth Quarter............................................................... 33.00 26.00
1996
First Quarter................................................................ $34.75 $28.50
Second Quarter............................................................... 30.25 20.13
Third Quarter (through August 15, 1996)...................................... 21.50 16.63
</TABLE>

There were approximately 743 holders of record of the MedPartners/Mullikin
Common Stock as of July 22, 1996.

STOCKHOLDERS OF CHS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
MEDPARTNERS/MULLIKIN COMMON STOCK. No assurance can be given as to the market
price of MedPartners/Mullikin Common Stock at the Effective Time or at any other
time.

COMPARATIVE PER SHARE INFORMATION

The following summary presents selected comparative per share information
for (i) MedPartners/ Mullikin on a historical basis in comparison with pro forma
information giving effect to the Merger on a pooling of interests basis, (ii)
CHS on a historical basis in comparison with pro forma equivalent information
after giving effect to the Merger, assuming that 40.32 shares of
MedPartners/Mullikin Common Stock are issued in exchange for each share of CHS
Common Stock in the Merger, and (iii) New Management on a historical basis in
comparison with their pro forma equivalent information after giving effect to
the Acquisition, including the receipt of shares of MedPartners/Mullikin Common
Stock by the Partners of New Management in accordance with the Acquisition
Agreement. The historical and pro forma financial information should be read in
conjunction with the historical consolidated financial statements of
MedPartners/Mullikin, the historical financial statements of CHS and New
Management, and the related notes thereto and with the unaudited pro forma
financial information and the related notes thereto, appearing elsewhere in this
Prospectus-Proxy Statement. See "Consolidated Financial Statements of
MedPartners/ Mullikin", "Pro Forma Condensed Financial Information," "Financial
Statements of CHS", and "Financial Statements of New Management".

MedPartners/Mullikin has not paid cash dividends since inception. It is
anticipated that MedPartners/ Mullikin will retain all earnings for use in the
expansion of the business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The payment of future dividends will be at
the discretion of the Board of Directors of MedPartners/Mullikin and will
depend, among other things, upon MedPartners/ Mullikin's earnings, capital
requirements, financial condition and debt covenants.

11
<PAGE> 22

The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger and the Acquisition been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of the combined results of
operations in future periods or future combined financial position.

<TABLE>
<CAPTION>
PER COMMON AND COMMON EQUIVALENT SHARE
---------------------------------------------------------------------
NET INCOME
------------------------ STOCKHOLDERS' EQUITY
SIX MONTHS ENDED (BOOK VALUE)
YEAR ENDED DECEMBER 31, JUNE 30, -----------------------
------------------------ ---------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1995 1996 1995 1996
------ ------ ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss):
MedPartners/Mullikin
Historical(1)........................... $(0.06) $(0.08) $ 0.01 $ 0.26 $ (0.11) $ 4.77 $ 8.29
Pro forma combined...................... 0.64 (0.61) (0.83) (0.72) (0.20) 4.19 4.78
CHS(6)
Historical.............................. -- -- $ 3.43 -- (14.16) $ 8.57 $ (5.61)
Pro forma equivalent(2)................. -- -- 33.47 -- (8.06) 168.94 192.73
New Management
Historical pro forma(3)................. $ 8.08 $ 7.63 $ 6.99 $ 3.66 $ 2.90 $ (8.10) (5.84)
Pro forma equivalent(4)................. 0.0 0.0 0.0 0.0 0.0 0.01 0.01
Income (loss) from continuing
operations(5):
MedPartners/Mullikin
Historical.............................. (0.06) (0.08) 0.01 0.26 (0.11)
Pro forma combined...................... 0.39 0.41 0.13 0.32 0.24
CHS(6)
Historical.............................. -- -- 3.43 -- (14.16)
Pro forma equivalent(2)................. -- -- 5.24 -- 9.68
New Management
Historical(3)........................... 8.08 7.63 6.99 3.66 2.90
Pro forma equivalent(4)................. 0.0 0.0 0.0 0.0 0.0
</TABLE>

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

(1) MedPartners/Mullikin's historical pro forma net (loss) income per common
share is computed, after adjusting historical net income for the estimated
tax provision applicable to the pooled companies, by dividing net income
(loss) by the number of common equivalent shares outstanding during the
period in accordance with the applicable rules of the SEC. All stock
options and warrants issued have been considered as outstanding common
share equivalents, even if anti-dilutive, under the treasury stock method.
Shares of MedPartners. Common Stock issued in February 1995 upon conversion
of the then outstanding Convertible Preferred Stock are assumed to be
common share equivalents.
(2) CHS pro forma equivalent per common share data is calculated by multiplying
the pro forma MedPartners/Mullikin amounts by an assumed Exchange Ratio of
40.32, which is based on an assumed Base Period Trading Price of $20.31 per
share.
(3) New Management historical pro forma per common share data has been computed
by dividing their historical amounts by the number of shares of
MedPartners/Mullikin Common Stock to be exchanged for the Assets
($7,000,000/$20.31 = 344,658). The assumed Base Period Trading Price is
$20.31 per share.
(4) New Management pro forma equivalent per common share data has been computed
by multiplying MedPartners/Mullikin pro forma combined amounts by the ratio
of the number of shares to be exchanged for the Assets to the total pro
forma shares (0.01).
(5) Income (loss) from continuing operations per share data is computed, after
adjusting historical net income (loss) to eliminate the effects of
discontinued operations, by dividing adjusted net income (loss) by the
number of common equivalent shares outstanding during the period in
accordance with applicable rules of the SEC. All stock options and warrants
issued have been considered as outstanding common share equivalents, even
if anti-dilutive, under the treasury stock method. Shares of MedPartners
Common Stock issued in February 1995, upon conversion of the then
outstanding Convertible Preferred Stock, are assumed to be common share
equivalents. The pro forma combined per share data for income (loss) from
continuing operations relates to Caremark excluding results from its
Clozaril(R) Patient Management System, Home Infusion business, Oncology
Management Service business, Caremark Orthopedic Services Inc. subsidiary
and Nephrology Services division, all of which have been reflected as
discontinued operations in accordance with APB Opinion No. 30.
(6) CHS was incorporated in August 1995 and commenced operations in September
1995.

12
<PAGE> 23

RISK FACTORS

In addition to the other information contained in this Prospectus-Proxy
Statement, CHS stockholders should consider carefully the factors listed below
in evaluating the Merger.

RISKS RELATING TO THE MERGER AND THE ACQUISITION; ACQUISITIONS

MedPartners/Mullikin believes that the Merger and the related Acquisition
represent another step in MedPartners/Mullikin's consolidation initiative in the
PPM business to develop integrated health care delivery systems through
affiliation with individual physicians, physician practices, hospitals and
third-party payors. In addition, MedPartners/Mullikin has recently completed
major acquisitions and is still in the process of integrating those acquired
businesses. While the business plans of these acquired companies are similar,
their histories, geographical location, business models and cultures are
different in many respects. The MedPartners/Mullikin Board of Directors and
senior management of MedPartners/Mullikin face a significant challenge in their
efforts to integrate the businesses of MedPartners/Mullikin and the acquired
companies so that the different cultures and the varying emphases on managed
care and fee-for-service can be effectively managed to continue to grow these
businesses. The dedication of management resources to such integration may
detract attention from the day-to-day business of MedPartners/Mullikin. There
can be no assurance that there will not be substantial costs associated with
such activities or that there will not be other material adverse effects of
these integration efforts. Such effects could have a material adverse effect on
the financial results of MedPartners/Mullikin. While management of
MedPartners/Mullikin and CHS believe that the diverse experience of each of the
combined companies will serve to strengthen MedPartners/Mullikin, there can be
no assurance that management's efforts to integrate the operations of
MedPartners/Mullikin will be successful or that the anticipated benefits of the
Merger and the Acquisition will be fully realized.

The profitability of MedPartners/Mullikin is largely dependent on its
ability to develop and integrate networks of physicians from the affiliated
practices, to manage and control costs and to realize economies of scale.
MedPartners/Mullikin's operating results could be adversely affected in the
event it incurs costs associated with developing networks without generating
sufficient revenues from such networks.

RISKS RELATING TO MEDPARTNERS/MULLIKIN'S GROWTH STRATEGY

MedPartners/Mullikin's growth strategy involves growth through acquisitions
and internal development. MedPartners/Mullikin is subject to various risks
associated with its growth strategy. Because the major acquisitions carried out
by MedPartners/Mullikin in 1995 and the first six months of 1996 have been
structured as poolings of interests, the operating income of
MedPartners/Mullikin has been reduced by the merger expenses incurred in
connection therewith, resulting in a net loss for the six months ended June 30,
1996. The expenses of the mergers completed in 1996 are expected to result in a
net loss for the year ended December 31, 1996. In addition,
MedPartners/Mullikin, and the combined company, is subject to the risk that it
will be unable to identify and recruit suitable acquisition candidates in the
future or to integrate and manage the affiliated physicians.

MedPartners/Mullikin is also largely dependent on the continued increase in
the number of HMO enrollees who use its physician networks. This growth may come
from the development or acquisition of other PPM entities, additional affiliated
physicians, increased enrollment in HMOs currently contracting with
MedPartners/Mullikin through its affiliated physicians, or from agreements with
new HMOs. There can be no assurance that MedPartners/Mullikin will be successful
in identifying, acquiring and integrating additional medical groups or other PPM
companies or in increasing the number of enrollees. A decline in enrollees in
HMOs could also have a material adverse effect on MedPartners/Mullikin's
profitability.

MedPartners/Mullikin's current and anticipated future expansion has placed,
and will continue to place, significant demands on the management, operational
and financial resources of MedPartners/Mullikin. MedPartners/Mullikin will need
to continue to augment its management and operational systems to support growth
both within existing and into new geographic markets. There can be no assurance
that MedPartners/ Mullikin will be able to manage its expanded operations
effectively.

13
<PAGE> 24

RISKS RELATING TO CAPITAL REQUIREMENTS

MedPartners/Mullikin's growth strategy requires substantial capital for the
acquisition of assets of physician practices and for the effective integration,
operation and expansion of the affiliated practices. Affiliated physician
practices may also require capital for renovation, expansion and additional
medical equipment and technology. MedPartners/Mullikin believes that, without
taking into consideration the Caremark Acquisition, its existing cash resources,
the use of MedPartners/Mullikin's Common Stock for selected practice and other
acquisitions, and available borrowings under the Bank Credit Facility dated as
of November 21, 1995 between MedPartners/Mullikin and NationsBank of Georgia,
N.A. (the "Bank Credit Facility") or any successor credit facility, will be
sufficient to meet MedPartners/Mullikin's anticipated acquisition, expansion and
working capital needs for the foreseeable future. It is expected that an
increased bank credit facility will be put into effect in connection with the
consummation of the Caremark Acquisition in order to refinance the indebtedness
under the bank Credit Facility and the current indebtedness under the Caremark
bank facility, so that the combined company will not have a working capital
deficit. MedPartners/ Mullikin may raise additional capital through the issuance
of long-term or short-term indebtedness or the issuance of additional equity
securities in private or public transactions, at such times as management deems
appropriate and the market allows. Any of such financings could result in
dilution of existing equity positions, increased interest and amortization
expense, or decreased income to fund future expansion. There can be no assurance
that acceptable financing for future acquisitions or for the integration and
expansion of existing networks can be obtained.

RISKS RELATING TO CAPITATED NATURE OF REVENUES; CONTROL OF HEALTH CARE COSTS

A substantial portion of the revenue of MedPartners/Mullikin is derived
from agreements with HMOs that provide for the receipt of capitated fees. Under
these agreements, MedPartners/Mullikin, through its affiliated physicians, is
generally responsible for the provision of all covered outpatient benefits,
regardless of whether the affiliated physicians directly provide the medical
services associated with the covered benefits. MedPartners/Mullikin is
statutorily and contractually prohibited from controlling any medical decisions
made by any health care provider. To the extent that enrollees require more care
than is anticipated or require supplemental medical care which is not otherwise
reimbursed by the HMO, aggregate capitation rates may be insufficient to cover
the costs associated with the treatment of enrollees. If revenue is insufficient
to cover costs, MedPartners/Mullikin's operating results could be adversely
affected. As a result, the success of MedPartners/Mullikin will depend in large
part on the effective management of health care costs through various methods,
including utilization management, competitive pricing for purchased services and
favorable agreements with payors. Recently, many providers, including
MedPartners/Mullikin, have experienced pricing pressures with respect to
negotiations with HMOs. In addition, employer groups are becoming increasingly
successful in negotiating reductions in the growth of premiums paid for their
employees' health insurance, which tends to depress the reimbursement for health
care services. At the same time, employer groups are demanding higher
accountability from payors and providers of health care services with respect to
measurable accessibility, quality and service. If these trends continue, the
cost of providing physician services could increase while the level of
reimbursement could grow at a lower rate or decrease. There can be no assurance
that these pricing pressures will not have a material adverse effect on the
operating results of MedPartners/ Mullikin. Changes in health care practices,
inflation, new technologies, major epidemics, natural disasters and numerous
other factors affecting the delivery and cost of health care are beyond the
control of MedPartners/ Mullikin and may adversely affect its operating results.

Under the HMO agreements, MedPartners/Mullikin is frequently responsible
for the provision of all covered hospital benefits regardless of whether it is
responsible for provision of the hospital services associated with the covered
benefits. MedPartners/Mullikin has contracted with a number of hospitals to
provide covered services to HMO enrollees who have been assigned to the
physician practices affiliated with MedPartners/ Mullikin. MedPartners/Mullikin
expects to seek additional hospital providers to provide covered services to HMO
enrollees assigned to its affiliated physicians. To the extent that enrollees
require more care than is anticipated or require supplemental care that is not
otherwise reimbursed by the HMOs, aggregate capitation

14
<PAGE> 25

rates may be insufficient to cover the costs associated with the treatment of
enrollees. If such revenue is insufficient, MedPartners/Mullikin's operating
results could be adversely affected.

In addition, MedPartners/Mullikin's financial statements include estimates
of costs for covered medical benefits incurred by HMO enrollees, but not yet
reported. While these estimates are based on information available at the time
of calculation, there can be no assurance that actual costs will approximate the
estimates of such amounts. If the actual costs significantly exceed the amounts
estimated and accrued, operating results of MedPartners/Mullikin could be
materially adversely affected.

The HMO agreements often contain shared-risk provisions under which
additional revenue can be earned or economic penalties can be incurred based
upon the utilization of hospital and non-professional services by HMO enrollees.
MedPartners/Mullikin's financial statements contain accruals for estimates of
shared-risk amounts receivable from or payable to the HMOs that contract with
their affiliated physicians. These estimates are based upon inpatient
utilization and associated costs incurred by HMO enrollees compared to budgeted
costs. Differences between actual contract settlements and amounts estimated as
receivable or payable relating to HMO risk-sharing arrangements are generally
reconciled annually, which may cause fluctuations from amounts previously
accrued.

In connection with the HMO agreements, MedPartners/Mullikin negotiates
stop-loss catastrophic reinsurance with third-party insurers. Coverage under
this reinsurance commences at the threshold at which the risk of further
financial exposure for critically ill or injured HMO enrollees is contractually
shifted to the HMOs or another third party. There can be no assurance that
MedPartners/Mullikin will be able to negotiate favorable catastrophic
reinsurance in connection with future HMO agreements.

POTENTIAL REDUCTIONS IN THIRD-PARTY REIMBURSEMENT

Physician groups that render services on a fee-for-service basis (as
opposed to a capitated plan), typically bill various third-party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans and
managed care plans, for the health care services provided to their patients. A
significant portion of the revenue of MedPartners/Mullikin is derived from
payments made by these third-party payors. These third-party payors increasingly
are negotiating the prices charged for medical services, with the goal of
lowering reimbursement and utilization rates. The success of
MedPartners/Mullikin therefore depends in large part on the effective management
of health care costs, including controlling utilization of specialty care
physicians and other ancillary providers and purchasing services from
third-party providers at competitive prices. There can be no assurance that
payments under governmental programs or from other third-party payors will
remain at present levels. In addition, third-party payors can deny reimbursement
if they determine that treatment was not performed in accordance with the
cost-effective treatment methods established by such payors, was experimental or
for other reasons. Any loss of revenues by the affiliated physicians caused by
this trend in the health care industry toward cost containment and oversight
could have a material adverse effect on MedPartners/Mullikin's operating
results.

RISKS RELATED TO DEPENDENCE ON AFFILIATED PHYSICIANS

MedPartners/Mullikin's revenue depends on revenues generated by the
physicians with whom MedPartners/Mullikin has practice management agreements.
These agreements define the responsibilities of the physicians and
MedPartners/Mullikin and govern all terms and conditions of their relationship.
The practice management agreements have terms generally of 20 to 44 years,
subject to termination for cause, which includes bankruptcy or a material
breach. Practice management agreements with certain of the affiliated practices
contain provisions giving the physician practice the option to terminate the
agreement without cause, subject to significant limitations. Because
MedPartners/Mullikin cannot control the provision of medical services by its
affiliated physicians contractually or otherwise under the laws of California
and most other states in which MedPartners/Mullikin operates, affiliated
physicians may decline to enter into HMO agreements that are negotiated for them
by MedPartners/Mullikin or may enter into contracts for the provision of medical
services or make other financial commitments which are not intended to benefit

15
<PAGE> 26

MedPartners/Mullikin and which could have a material adverse effect on
MedPartners/Mullikin's operating results. See "Business of
MedPartners/Mullikin -- Development and Operations -- Affiliated Physicians".

RISKS RELATING TO EXPOSURE TO PROFESSIONAL LIABILITY; LIABILITY INSURANCE

In recent years, physicians, hospitals and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
medical malpractice and related legal theories. Many of these lawsuits involve
large claims and substantial defense costs. Although MedPartners/Mullikin does
not engage in the practice of medicine or provide medical services, and does not
control the practice of medicine by its affiliated physicians or the compliance
with regulatory requirements directly applicable to the affiliated physicians
and physician groups, there can be no assurance that MedPartners/Mullikin will
not become involved in such litigation in the future. Through the ownership and
operation of Pioneer Hospital ("Pioneer Hospital") and U.S. Family Care Medical
Center ("USFMC"), acute care hospitals located in Artesia and Montclair,
California, respectively, MedPartners/Mullikin could be subject to allegations
of negligence and wrongful acts arising out of providing nursing care, emergency
room services, credentialing of medical staff members and other activities
incident to the operation of an acute care hospital. In addition, through its
management of clinic locations and provision of non-physician health care
personnel, MedPartners/Mullikin could be named in actions involving care
rendered to patients by physicians employed by or contracting with affiliated
medical organizations and physician groups.

MedPartners/Mullikin maintains professional and general liability
insurance. Nevertheless, certain types of risks and liabilities are not covered
by insurance and there can be no assurance that the limits of coverage will be
adequate to cover losses in all instances. In addition, MedPartners/Mullikin's
practice management agreements require the affiliated physicians to maintain
professional liability insurance coverage on the practice and on each employee
and agent of the practice, and MedPartners/Mullikin generally is indemnified
under each of the practice management agreements by the affiliated physicians
for liabilities resulting from the performance of medical services. However,
there can be no assurance that a future claim or claims will not exceed the
limits of these available insurance coverages or that indemnification will be
available for all such claims. See "Business of
MedPartners/Mullikin -- Corporate Liability and Insurance".

RISKS RELATING TO CONCENTRATION OF CUSTOMERS

Three HMOs, PacifiCare, Health Net and CaliforniaCare, accounted for
approximately 29% of net revenue of MedPartners/Mullikin for the six months
ended June 30, 1996. MedPartners/Mullikin's HMO agreements are generally for
one-year terms and are thus subject to annual negotiation of rates, covered
benefits and other terms and conditions. HMO agreements are often negotiated and
executed in arrears. There can be no assurance that such agreements will be
renewed or, if renewed, that they will contain terms favorable to
MedPartners/Mullikin and its affiliated physicians. The loss of any of the above
HMO customers could have a material adverse effect on MedPartners/Mullikin's
operating results.

COMPETITION

The PPM industry is highly competitive. The industry is also subject to
continuing changes in the provision of services and the selection and
compensation of providers. In addition, certain companies, including hospitals
and insurers, are expanding their presence in the physician management market.
The provision of physician contract management services for hospitals and other
health care providers is also highly competitive, and MedPartners/Mullikin's
hospital-based operations compete with national, regional and local companies in
providing its services. Certain of MedPartners/Mullikin's competitors are larger
and better capitalized, provide a wider variety of services, may have greater
experience in providing health care management services and may have longer
established relationships with buyers of such services.

16
<PAGE> 27

health care professionals to serve as employees or independent contractors of
MedPartners/Mullikin and its affiliates. There can be no assurance that
MedPartners/Mullikin will be able to recruit or retain a sufficient number of
competent physicians and other health care professionals to continue to expand
its operations.

GOVERNMENT REGULATION

Federal and state laws regulate the relationships among providers of health
care services, physicians and other clinicians. These laws include the fraud and
abuse provisions of the Medicare and Medicaid statutes, which prohibit the
solicitation, payment, receipt or offering of any direct or indirect
remuneration for the referral of Medicare or Medicaid patients or for
recommendation, leasing, arranging, ordering or purchasing of Medicare or
Medicaid covered services, as well as laws that impose significant penalties for
false or improper billings for physician services. These laws also impose
restrictions on physicians' referrals for designated health services to entities
with which they have financial relationships. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil money penalties and exclusion from participation in the
Medicare and Medicaid programs. Such exclusion and penalties, if applied to
MedPartners/Mullikin's affiliated physicians, could result in significant loss
of reimbursement.

Moreover, the laws of many states, including California, from which a
significant portion of MedPartners/Mullikin's revenues are derived, prohibit
physicians from splitting fees with non-physicians and prohibit non-physician
entities from practicing medicine. These laws and their interpretations vary
from state to state and are enforced by the courts and by regulatory authorities
with broad discretion. As stated in the Notes to its Consolidated Financial
Statements, MedPartners/Mullikin believes that it has perpetual and unilateral
control over the assets and operations of the various affiliated professional
corporations. There can be no assurance that regulatory authorities will not
take the position that such control conflicts with state laws regarding the
practice of medicine or other federal restrictions. Although
MedPartners/Mullikin believes its operations as currently conducted are in
material compliance with existing applicable laws, there can be no assurance
that the existing organization of MedPartners/Mullikin and its contractual
arrangements with affiliated physicians will not be successfully challenged as
constituting the unlicensed practice of medicine or that the enforceability of
the provisions of such arrangements, including non-competition agreements, will
not be limited. There can be no assurance that review of the business of
MedPartners/Mullikin and its affiliates by courts or regulatory authorities will
not result in a determination that could adversely affect their operations or
that the health care regulatory environment will not change so as to restrict
existing operations or expansion of MedPartners/Mullikin and its affiliates. In
the event of action by any regulatory authority limiting or prohibiting
MedPartners/Mullikin or its affiliates from carrying on its business or from
expanding the operations of MedPartners/Mullikin to certain jurisdictions,
structural and organizational modifications of such organization or arrangements
of MedPartners/Mullikin may be required, which could have an adverse effect on
MedPartners/Mullikin.

Approximately 10% of the revenues of MedPartners/Mullikin's affiliated
physician groups is derived from payments made by government-sponsored health
care programs (principally, Medicare and state reimbursed programs). As a
result, any change in reimbursement regulations, policies, practices,
interpretations or statutes could adversely affect the operations of
MedPartners/Mullikin. There are also state and federal civil and criminal
statutes imposing substantial penalties, including civil and criminal fines and
imprisonment, on health care providers that fraudulently or wrongfully bill
governmental or other third-party payors for health care services.
MedPartners/Mullikin believes it is in material compliance with such laws, but
there can be no assurance that MedPartners/Mullikin's activities will not be
challenged or scrutinized by governmental authorities.

17
<PAGE> 28

criminal penalties include fines up to $25,000 per violation and imprisonment
for five years or more. Additionally, the Department of Health and Human
Services ("DHHS") has the authority to exclude anyone, including individuals or
entities, who has committed any of the prohibited acts from participation in the
Medicare and Medicaid programs. If applied to MedPartners/Mullikin or any of its
subsidiaries or affiliated physicians, such exclusion could result in a
significant loss of reimbursement for MedPartners/Mullikin, up to a maximum of
the approximately 10% of revenues derived from such programs. Although
MedPartners/Mullikin believes that it is not in violation of the Anti-kickback
Statute or similar state statutes, its operations do not fit within any of the
existing or proposed federal safe harbors.

Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. Subject to certain
exemptions, a physician or a member of his immediate family is prohibited from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest
or with which the physician has entered into a compensation arrangement. While
MedPartners/Mullikin believes it is in compliance with such legislation, future
regulations could require MedPartners/Mullikin to modify the form of its
relationships with physician groups. Some states have also enacted similar
self-referral laws and MedPartners/Mullikin believes it is likely that more
states will follow. MedPartners/Mullikin believes that its practices fit within
exemptions contained in such statutes. Nevertheless, expansion of the operations
of MedPartners/Mullikin to certain jurisdictions may require structural and
organizational modifications of MedPartners/Mullikin's relationships with
physician groups to comply with new or revised state statutes.

RISKS RELATING TO REGULATORY REQUIREMENTS OF KNOX-KEENE ACT

On March 5, 1996 the California Department of Corporations ("DOC") issued
to Pioneer Provider Network, Inc. ("PPN"), a wholly owned subsidiary of
MedPartners/Mullikin, a license (the "Restricted License") in accordance with
the requirements of the Knox-Keene Health Care Service Plan Act of 1975 (the
"Knox- Keene Act"). The Restricted License authorizes PPN to operate as a health
care service plan in the State of California. MedPartners/Mullikin, through PPN,
intends to utilize the Restricted License for purposes of contracting with HMOs
for a broad range of health care services, including both institutional and
professional medical services, through a consolidated contract with the HMO.

The Knox-Keene Act and the regulations promulgated thereunder subject
entities which are licensed as health care service plans in California to
substantial regulation by the DOC. In addition, licensees under the Knox-Keene
Act are required to file periodic financial data and other information (which
generally become available to the public), maintain substantial tangible net
equity on their balance sheets and maintain adequate levels of medical,
financial and operational personnel dedicated to fulfilling the licensee's
statutory and regulatory requirements. The DOC is empowered by law to take
enforcement actions against licensees which fail to comply with such
requirements. PPN is a newly-created organization without an operating history
and there is no assurance that the DOC will view its operations to be fully in
compliance with applicable laws and regulations. If this were to occur, it could
have an adverse effect on MedPartners/ Mullikin.

RISKS RELATING TO HEALTH CARE REFORM

As a result of the continued escalation of health care costs and the
inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the U.S. Congress and state legislatures
relating to health care reform. There can be no assurance as to the ultimate
content, timing or effect of any health care reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material, on MedPartners/Mullikin.

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of MedPartners/Mullikin's Second Amended and Restated
Certificate of Incorporation (the "MedPartners/Mullikin Certificate"),
MedPartners/Mullikin's Amended and Restated By-laws (the "MedPartners/Mullikin
By-laws") and the DGCL could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of
MedPartners/Mullikin and limit the price that

18
<PAGE> 29

certain investors might be willing to pay in the future for shares of
MedPartners/Mullikin's Common Stock. These provisions include a classified Board
of Directors and the issuance, without further stockholder approval, of
preferred stock with rights and privileges which could be senior to
MedPartners/Mullikin's Common Stock. MedPartners/Mullikin also is subject to
Section 203 of the DGCL which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder. In
addition, MedPartners/Mullikin's Stockholders' Rights Plan, which provides for
discount purchase rights to certain stockholders of MedPartners/Mullikin upon
certain acquisitions of 10% or more of the outstanding shares of
MedPartners/Mullikin's Common Stock, may also inhibit a change in control of
MedPartners/Mullikin. See "Management of MedPartners/Mullikin -- Classified
Board of Directors", "Description of Capital Stock of
MedPartners/Mullikin -- Certain Provisions of MedPartners/Mullikin's Certificate
and the DGCL" and "Description of Capital Stock of MedPartners/Mullikin --
MedPartners/Mullikin Stockholders' Rights Plan".

CONTROL BY CERTAIN STOCKHOLDERS

After giving effect to the issuance of shares of MedPartners/Mullikin
Common Stock in the Merger and the Acquisition, the executive officers and
directors of MedPartners/Mullikin and entities in which such directors are
principals own or control approximately 18% of the outstanding shares of
MedPartners/ Mullikin's Common Stock. See "Principal Stockholders of
MedPartners/Mullikin". Accordingly, such persons, if they were to act in
concert, would likely control MedPartners/Mullikin's Board of Directors and
therefore the business and policies of MedPartners/Mullikin. Furthermore, such
control could preclude any unsolicited acquisition of MedPartners/Mullikin and,
consequently, adversely affect the market price of the MedPartners/Mullikin
Common Stock.

POSSIBLE VOLATILITY OF STOCK PRICE

There may be significant volatility in the market price for
MedPartners/Mullikin's Common Stock. Quarterly operating results of
MedPartners/Mullikin, changes in general conditions in the economy, the
financial markets or the health care industry, or other developments affecting
MedPartners/Mullikin or its competitors, could cause the market price of
MedPartners/Mullikin's Common Stock to fluctuate substantially. In addition, in
recent years, the stock market, and in particular, the health care industry
segment, has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance.

RISKS RELATING TO FEDERAL INCOME TAXES

If the Merger were not to constitute a tax-free reorganization under
Section 368(a) of the Code, each holder of CHS Common Stock would recognize gain
or loss equal to the difference between the fair market value of the
MedPartners/Mullikin Common Stock received and cash received in lieu of
fractional shares and such holder's basis in the shares of CHS Common Stock
exchanged therefor. See "The Merger -- Federal Income Tax Consequences".

CAREMARK RISK FACTORS

In addition to the information contained in this Prospectus-Proxy Statement
and the risk factors described above, there are additional risk factors relating
solely to Caremark and the Caremark Acquisition. In anticipation of the
consummation of the Caremark Acquisition the CHS stockholders should also
consider the following Caremark Risk Factors.

Certain Caremark Legal Matters

OIG Settlement and Related Claims. Caremark agreed in June 1995 to settle
an approximately four year investigation of Caremark with the Office of the
Inspector General of the United States Department of Health and Human Services
(the "OIG"), DOJ, the Veteran's Administration, the Federal Employee Health
Benefits Program, the Civilian Health and Medical Program of the Uniformed
Services and related state investigative agencies in all 50 states and the
District of Columbia (the "OIG Settlement"). Under the terms of the settlement,
which covered allegations dating back to 1986, a subsidiary of Caremark pled
guilty to two

19
<PAGE> 30

counts of mail fraud -- one each in Minnesota and Ohio -- resulting in the
payment of civil penalties and criminal fines. The basis of these guilty pleas
was Caremark's failure to provide certain information to Civilian Health and
Medical Payments for the Uniformed Services ("CHAMPUS") and Federal Employees
Health Benefit Plan ("FEHBP"), federally funded health care benefit programs,
concerning financial relationships between Caremark and a physician in each of
Minnesota and Ohio.

In its agreement with the OIG and DOJ, Caremark agreed to continue to
maintain certain compliance-related oversight procedures. Should these oversight
procedures reveal credible evidence of legal or regulatory violations, Caremark
is required to report such violations to the OIG and DOJ. Caremark is therefore
subject to increased regulatory scrutiny and, in the event it commits legal or
regulatory violations, Caremark may be subject to an increased risk of sanctions
or penalties, including disqualification as a provider of Medicare or Medicaid
services.

Caremark is a party to various non-governmental claims in connection with
matters relating to the OIG Settlement. Caremark is a party to, or the subject
of, various private suits and claims (including stockholder derivative actions
and an alleged class action suit) being asserted in connection with matters
relating to the OIG Settlement by Caremark's stockholders, patients who received
health care services from Caremark and such patients' insurers. In March 1996,
Caremark agreed to settle all disputes with a number of private payors and, in
the first quarter of 1996, took an aggregate $65.6 million after-tax charge for
payments required under such settlements. The waivers granted by Caremark's
lenders of the impact of these settlements on the financial covenants under the
credit facility expire on September 15, 1996. It is anticipated that
MedPartners/Mullikin will refinance Caremark's existing credit facility in
connection with the Merger. In the event the Merger is not consummated, Caremark
expects to enter into a revised credit facility, although there can be no
assurances as to the certainty or terms of any such agreement. See the
discussion contained in Note 14 to Caremark's Consolidated Financial
Statements".

As of June 30, 1996, the pre-tax reserve for the costs of settlement of the
OIG Settlement and the settlement with the private payors referred to above and
related matters was approximately $110 million. This reserve represented
Caremark's management's estimate of the ultimate costs relating to the
disposition of these matters. Caremark's management cannot determine at this
time whether there will be additional costs relating to any disposition of
non-governmental litigation. Therefore, there can be no assurance that the
ultimate costs of these matters will not exceed the reserve or that additional
costs, claims and damages will not occur. Such additional costs, if incurred,
could have a material negative impact on Caremark's future results. See Note 14
to Caremark's Consolidated Financial Statements.

Coram Litigation. On September 11, 1995, Coram Healthcare Corp. ("Coram")
filed a complaint in the San Francisco Superior Court against Caremark and its
subsidiary, Caremark Inc., and 50 unnamed individual defendants. The complaint,
which arises from Caremark's sale to Coram of Caremark's home infusion therapy
business in April 1995 for approximately $209 million in cash and $100 million
in securities, alleges breach of the Asset Sale and Note Purchase Agreement,
dated January 29, 1995, as amended April 1, 1995, between Coram and Caremark,
breach of related contracts, fraud, negligent misrepresentation and a right to
contractual indemnity. Requested relief in Coram's amended complaint includes
specific performance, declaratory relief, injunctive relief and damages of $5.2
billion. Caremark filed motions in October 1995 in the Superior Court of
California seeking (i) to strike certain causes of action due to the speculative
nature of the claims and damages asserted and (ii) dismissal of Coram's lawsuit
on grounds of lack of jurisdiction over Illinois-based Caremark. The Superior
Court of California subsequently dismissed the case against Caremark (but not
against Caremark Inc.) on the basis of lack of jurisdiction. Caremark also filed
a lawsuit in the U.S. District Court in Chicago claiming that Coram committed
securities fraud in its sale to Caremark of its securities in connection with
the sale of Caremark's home infusion business to Coram. This case, which has
been dismissed, is on appeal and Caremark has filed counterclaims to the lawsuit
pending in San Francisco against Caremark Inc. Coram's lawsuit is currently in
the discovery phase.

Although Caremark management believes, based on information currently
available, that the ultimate resolution of this matter is not likely to have a
material adverse effect on Caremark's results of operations, cash flows or
financial position, there can be no assurance that the ultimate resolution of
this matter, if

20
<PAGE> 31

adversely determined, would not have a material adverse effect on Caremark's
results of operations, cash flows or financial position.

Recently Filed Litigation. In May 1996, two stockholders, each purporting
to represent a class, filed (but have not yet served) complaints against
Caremark and each of its directors in the Court of Chancery of the State of
Delaware alleging breaches of the directors' fiduciary duty in connection with
Caremark's proposed merger with MedPartners/Mullikin. The complaints seek
unspecified damages, injunctive relief and attorneys' fees and expenses.
Caremark intends, if served, to defend these cases vigorously. Caremark believes
these complaints will not have a material adverse effect on its financial
condition or results of operations.

Pharmaceutical Sales

In addition to the regulations referred to above, significant aspects of
Caremark's businesses are subject to state and federal statutes and regulations
governing the operation of pharmacies, repackaging of drug products, dispensing
of controlled substances, medical waste disposal and workplace health and
safety. Caremark's businesses may also be affected by changes in ethical
guidelines and operating standards of professional and trade associations and
private accreditation commissions such as the American Medical Association and
the Joint Commission on Accreditation of Healthcare Organizations. Accordingly,
changes in existing laws and regulations, adverse judicial or administrative
interpretations of such laws and regulations or enactment of new legislation
could have an adverse effect on the businesses of Caremark.

Pharmacy Licensing and Operation

Caremark is subject to federal and state laws and regulations governing
pharmacies. Federal controlled substance laws require Caremark to register its
pharmacies with the United States Drug Enforcement Administration and comply
with security, record-keeping, inventory control and labeling standards in order
to dispense controlled substances. State controlled substance laws require
registration and compliance with the licensing, registration or permit standards
of the state pharmacy licensing authority. State pharmacy licensing,
registration and permit laws impose standards on the qualifications of the
applicant's personnel, the adequacy of its prescription fulfillment and
inventory control practices and the adequacy of its facilities. In general,
pharmacy licenses are renewed annually. Pharmacists must also satisfy state
licensing requirements.

21
<PAGE> 32

SELECTED FINANCIAL INFORMATION
MEDPARTNERS/MULLIKIN

SELECTED FINANCIAL DATA

The following tables set forth selected financial data for
MedPartners/Mullikin derived from its Consolidated Financial Statements. The
selected financial data should be read in conjunction with the Consolidated
Financial Statements of MedPartners/Mullikin and the related notes thereto
included elsewhere in this Prospectus-Proxy Statement.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................. $266,447 $394,878 $549,695 $815,041 $1,153,557 $547,450 $703,683
Operating Expenses:
Cost of Affiliated Physician Services...... 97,364 167,488 224,770 349,036 506,811 240,225 301,280
Clinic salaries, wages & benefits.......... 66,596 89,439 112,489 159,010 216,119 105,133 116,600
Outside hospitalization expense............ 17,411 27,842 59,861 86,974 109,934 50,364 83,516
Clinic rent & lease expense................ 9,467 11,970 18,832 27,515 41,825 19,744 23,814
Clinic supplies............................ 15,552 17,996 24,529 34,453 47,744 22,519 30,953
Other clinic costs......................... 19,227 22,648 41,248 67,645 88,991 43,776 59,154
General corporate expenses................. 18,060 38,099 42,196 56,653 64,713 32,167 39,540
Depreciation & amortization................ 6,404 9,575 14,057 21,892 29,088 13,962 16,482
Interest, net.............................. 2,098 2,396 3,338 5,958 8,443 3,367 2,811
Merger expenses............................ -- -- -- -- 66,564 1,051 34,448
Loss (gain) from disposal of assets........ (3) -- 122 1,627 -- -- --
-------- -------- -------- -------- ---------- -------- --------
Income (loss) form continuing operations
before pro forma income taxes &
cumulative effect of change in method of
accounting............................... 14,271 7,425 8,253 4,278 (26,675) 15,142 (4,915)
Pro forma income tax expense............... 2,190 7,703 9,723 7,350 (27,233) 4,411 360
-------- -------- -------- -------- ---------- -------- --------
Pro forma income (loss) from continuing
operations before cumulative effect of
change in method of accounting........... 12,081 (278) (1,470) (3,072) 558 10,731 (5,275)
Cumulative effect of change in method of
accounting for income taxes.............. (120) -- 298 -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Pro forma income (loss) from continuing
operations............................... 12,201 (278) (1,768) (3,072) 558 $ 10,731 (5,275)
Loss from discontinued operation of
clinics.................................. 279 702 -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Pro forma net income (loss)(1)............. $ 11,922 $ (980) $ (1,768) $ (3,072) $ 558 $ 10,731 $ (5,275)
========= ========= ========= ========= ========== ========= =========
Pro forma net income (loss) per share(2)..... $ 0.97 $ (0.06) $ (0.06) $ (0.08) $ 0.01 $ 0.26 $ (0.11)
Number of shares used in pro forma net income
(loss) per share........................... 12,249 15,308 28,403 36,553 42,720 41,867 50,034
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 23,677 $ 22,312 $ 43,367 $ 66,623 $ 55,328 $ 56,221
Working capital (deficit).............................. 11,425 (3,358) 13,023 75,605 91,892 101,038
Total assets........................................... 111,478 181,032 243,758 417,974 576,733 618,184
Long-term debt, less current portion................... 29,369 46,678 48,340 146,498 200,814 35,080
Total stockholders' equity............................. 30,708 49,281 71,577 109,232 202,717 414,611
</TABLE>

22
<PAGE> 33

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

(1) Includes pro forma income tax provision giving effect to pooling with
non-taxable entities. See Note 1 to Consolidated Financial Statements of
MedPartners/Mullikin, Inc.
(2) Pro forma net income (loss) per share is computed, after giving effect to
the pro forma tax provision described above, by dividing net income (loss)
by the number of common equivalent shares outstanding during the periods
presented in accordance with the applicable rules of the Commission. All
stock options issued have been considered as outstanding common equivalent
shares for all periods presented, even if anti-dilutive, under the treasury
stock method. Shares of the common stock of MedPartners issued in February
1995 upon conversion of the then outstanding convertible preferred stock are
assumed to be common equivalent shares for all periods presented.

23
<PAGE> 34

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- MEDPARTNERS/MULLIKIN

The following discussion of the results of operations and financial
condition of MedPartners/Mullikin should be read in conjunction with the
Consolidated Financial Statements of MedPartners/Mullikin, Inc. and notes
thereto included elsewhere in this Prospectus-Proxy Statement.

GENERAL

MedPartners was incorporated in January 1993, and affiliated with its
initial physician practice in November 1993. MME was formed by the merger of
several physician partnerships in 1994, and the original business was organized
in 1957.

MedPartners/Mullikin is the result of the business combination between
MedPartners and MME, which was consummated on November 29, 1995. As described in
Note 1 to MedPartners/Mullikin's Consolidated Financial Statements, the
financial information referred to in this discussion reflects the combined
operations of several entities. During 1995, MedPartners/Mullikin combined with
MEDCTR, Inc., Vanguard Healthcare Group, Inc., Texas Back Institute, Inc., MME,
Cerritos Investment Group, Cerritos Investment Group II, and 5000 Airport Plaza,
L.P. and in business combinations that were accounted for as poolings of
interests (collectively, the "1995 Mergers"). In February of 1996,
MedPartners/Mullikin combined with Pacific Physician Services, Inc. ("PPSI") in
a business combination that was accounted for as a pooling of interests. During
1995 PPSI combined with Team Health in a business combination accounted for as a
pooling of interests.

Because of MedPartners' limited operating history and the business
combinations described above, MedPartners/Mullikin does not believe that the
period-to-period comparisons, percentage relationships within periods and
apparent trends set forth below are meaningful.

MedPartners/Mullikin acquires existing medical practices and enters into
long-term contractual relationships pursuant to practice management agreements,
for periods ranging from 20 to 44 years, to provide management and
administrative services. MedPartners/Mullikin believes that the practice
management agreements convey to MedPartners/Mullikin perpetual, unilateral
control over the assets and operations of the various affiliated professional
corporations. Notwithstanding the lack of technical majority ownership of the
stock of such entities, consolidation of the professional corporations is
necessary to present fairly the financial position and results of operations of
MedPartners/Mullikin, because there exists a parent-subsidiary relationship by
means other than record ownership of a majority of voting stock. Control by
MedPartners/Mullikin is perpetual rather than temporary because of (i) the
length of the original term of the agreements, (ii) the continuing investment of
capital by MedPartners/Mullikin, (iii) the employment of the majority of the
non-physician personnel, and (iv) the nature of the services provided to the
professional corporations by MedPartners/Mullikin. MedPartners/Mullikin's
financial relationship with each practice offers the physicians access to
capital, management expertise, sophisticated information systems, and managed
care contracts. MedPartners/Mullikin's revenue is derived from medical services
provided by physicians under the practice management agreements, which revenue
has been assigned to MedPartners/Mullikin. Approximately 50% of this revenue is
derived through contracts for prepaid health care with HMOs.
MedPartners/Mullikin contracts directly with the HMOs to provide medical
services to HMO enrollees who have chosen MedPartners/ Mullikin's affiliated
physicians, or, in some cases, physicians who are members of Mullikin
Independent Physicians Association ("MIPA"). Through its wholly-owned
subsidiaries, MedPartners/Mullikin also contracts with hospitals to provide
medical staff for various hospital departments. MedPartners/Mullikin's
profitability depends on enhancing operating efficiency, expanding health care
services provided, increasing market share and assisting affiliated physicians
in managing the delivery of medical care.

The nature of the affiliated practices affects the cost of affiliated
physician services, clinic salaries, wages and benefits, clinic supplies and
depreciation and amortization. These expenses as a percentage of net revenue
will vary based on the mix of primary care and office-based (i.e., non-surgery)
practices to specialty care practices and the mix of capitated business. Primary
care includes family practice, internal medicine, pediatrics and
obstetrics/gynecology. Generally, primary care and office-based practices are
less capital

24
<PAGE> 35

intensive but require a higher number of employees per physician to operate and
maintain than specialty care practices. Typically, MedPartners/Mullikin
endeavors to achieve an equal number of primary care physicians and specialists
in each network. Institutional capitation increases revenues without a material
impact on many of the clinic expenses.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of net revenue represented by the following items:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue(1)............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of affiliated physician
services(2)........................... 40.9 42.8 43.9 43.9 42.8
Clinic salaries, wages and benefits...... 20.5 19.5 18.7 19.2 16.6
Outside hospitalization expense.......... 10.9 10.7 9.5 9.2 11.9
Clinic rent and lease expense............ 3.4 3.4 3.6 3.6 3.4
Clinic supplies.......................... 4.5 4.2 4.1 4.1 4.4
Other clinic costs....................... 7.5 8.3 7.7 8.0 8.4
General corporate expenses............... 7.7 7.0 5.6 5.9 5.6
Depreciation and amortization............ 2.6 2.7 2.6 2.6 2.3
Net interest expense..................... 0.5 0.7 0.7 0.6 0.4
Merger expenses.......................... 0.0 0.0 5.9 0.2 4.9
Loss on disposal of assets............... 0.0 0.2 0.0 0.0 0.0
Pro forma income tax expense (benefit)... 1.8 0.9 (2.3) 0.8 0.1
----- ----- ----- ----- -----
Pro forma net loss............... (0.3)% (0.4)% 0.0% 1.9% (0.8)%
===== ===== ===== ===== =====
</TABLE>

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

(1) "Net revenue" means gross clinic charges less allowances for contractual
adjustments.
(2) "Cost of affiliated physician services" consists solely of the total
payments made to each of the affiliated practices for medical services
rendered under its respective practice management agreement.

The following table sets forth the breakdown of net revenue for the periods
indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Prepaid health care........................ 66.7% 62.5% 53.8% 53.4% 48.5%
Fee-for-service............................ 31.4 36.1 44.7 45.3 50.5
Other...................................... 1.9 1.4 1.5 1.3 1.0
----- ----- ----- ----- -----
Net revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>

Enrollment

MedPartners/Mullikin's prepaid health care revenue is reflective of the
number of HMO enrollees for whom it receives monthly capitation payments.
Enrollment is categorized as either "commercial enrollment" (enrollees generally
under the age of 65 whose health coverage is sponsored by employers) or "senior
enrollment" (enrollees over the age of 65 who are retired and whose coverage is
sponsored by Medicare). MedPartners/Mullikin receives professional capitation to
provide physician services and institutional capitation to provide hospital care
and other non-professional services. The table below sets forth the changes in

25
<PAGE> 36

enrollment for professional and institutional capitation. Most of the enrollment
growth is related to acquisitions and increased enrollment in the northern
California operations.

<TABLE>
<CAPTION>
COMMERCIAL SENIOR TOTAL
ENROLLEES ENROLLEES OTHER ENROLLEES
---------- --------- ------ ---------
<S> <C> <C> <C> <C>
PROFESSIONAL CAPITATION:
December 31, 1995.................................. 607,772 60,345 14,427 682,544
December 31, 1994.................................. 550,672 50,330 3,374 604,376
December 31, 1993.................................. 500,229 44,563 1,239 546,031
INSTITUTIONAL CAPITATION:
December 31, 1995.................................. 313,630 34,744 7,747 356,121
December 31, 1994.................................. 235,174 20,014 -- 255,188
December 31, 1993.................................. 227,561 11,431 -- 238,992
PROFESSIONAL CAPITATION:
June 30, 1996...................................... 694,093 66,457 37,715 798,265
June 30, 1995...................................... 551,176 56,133 55,194 662,503
INSTITUTIONAL CAPITATION:
June 30, 1996...................................... 318,331 36,345 11,636 366,312
June 30, 1995...................................... 258,305 32,681 7,223 298,209
</TABLE>

Six Months Ended June 30, 1996 and 1995

For the six months ended June 30, 1996, net revenue was $704 million,
compared to $547 million for the same period in 1995. The increase in net
revenue partially resulted from the affiliation with new physician practices and
the increase in prepaid enrollees, which accounted for $73.1 million and $48.7
million of the increase in net revenue, respectively. The remaining increase
primarily related to existing clinic growth.

Excluding non-recurring items related to the PPSI Merger, operating
expenses at the clinic level were $615 million, or 87.4% of net revenue for the
six months ended June 30, 1996 compared to $482 million or 88% of net revenue
for the same period in 1995. Clinic salaries, wages and benefits decreased as a
percentage of net revenue from the six months ended June 30, 1995 to the six
months ended June 30, 1996 as certain operational efficiencies were implemented
and the IPA business, which requires a low support staff ratio, continued to
grow. Outside hospitalization expense increased from $50 million for the six
months ended June 30, 1995 to $84 million for the six months ended June 30,
1996, and also increased as a percentage of net revenue from 9.2% for the six
months ended June 30, 1995 to 11.9% for the six months ended June 30, 1996. This
is directly related to the increase of MedPartners/Mullikin global capitation
and increase in IPA business. General corporate expenses increased from $32
million during the six months ended June 30, 1995 to $40 million during the six
months ended June 30, 1996. As a percent of net revenue, general corporate
expenses decreased from 5.9% in the six months ended June 30, 1995 to 5.6% in
the six months ended June 30, 1996.

Included in pre-tax loss for the six months ended June 30, 1996 were merger
expenses totaling $34.4 million relating to the business combination with PPSI.
The major components of the $34.4 million included: $13.8 million for
restructuring of operations, $6.6 million in brokerage fees, $5.9 million in
severance costs, $2.6 million in professional fees, $2.4 million for the
impairment of assets and $1.9 million in unamortized bond issue costs.

Years Ended December 31, 1995 and 1994

Net revenue for the year ended December 31, 1995 was $1,154 million, an
increase of $339 million, or 41.5%, over the year ended December 31, 1994. The
increase in net revenue primarily resulted from affiliation with physician
groups in nine new markets and the increase in prepaid enrollees, which
accounted for $76 million and $111 million of the increase in net revenue,
respectively. The remaining increase primarily related to existing clinic growth
and a full year of operations in 1995 for affiliations only in effect for a
portion of 1994.

Excluding nonrecurring items related to the 1995 Mergers, operating
expenses at the clinic level were $1,011 million, or 87.6% of net revenue for
the year ended December 31, 1995, compared to $725 million, or

26
<PAGE> 37

88.9% of net revenue for 1994. Clinic salaries, wages and benefits decreased as
a percentage of net revenue during 1995 as certain operational efficiencies were
implemented and the IPA business, which requires a low support staff ratio,
continued to grow. Outside hospitalization expense increased from $87 million
for the year ended December 31, 1994 to $110 million for the year ended December
31, 1995, but decreased as a percentage of net revenue from 10.7% for the year
ended December 31, 1994 to 9.5% for the year ended December 31, 1995. This
percentage decrease related to the decline in the relationship of prepaid health
care to total net revenue. General corporate expenses increased from $57 million
during the year ended December 31, 1994 to $65 million during the year ended
December 31, 1995. As a percentage of net revenue, however, general corporate
expenses decreased from 7.0% in 1994 to 5.6% in 1995. Net income (excluding
merger expenses) for the year ended December 31, 1995 was $25.3 million compared
to a loss of $3.1 million for 1994.

Including merger expenses, net income for the year ended December 31, 1995
was $0.6 million compared to a net loss of $3.1 million for 1994. Included in
operating expenses for 1995 are merger expenses totaling $66.6 million related
to business combinations accounted for as poolings of interests. Approximately
$55.6 million related to the business combination with MME and its real estate
partnerships. The components of the total $66.6 million charge included: $8.8
million in investment banking fees, $7.3 million in professional fees, $5
million in other transaction costs and $45.5 million in restructuring charges.
The major components of the restructuring charge included: $19.6 million in
severance for identified employees, $8.1 million impairment of assets, $6.4
million abandonment of facilities, $2.6 in noncompatible technology, $2.3
million in unamortized loan costs, $2.2 million related to conforming of
accounting policies and $1.9 million in restructuring of benefit packages.

At December 31, 1995, MedPartners/Mullikin had a cumulative net operating
loss carryforward for federal income tax purposes of approximately $57 million
available to reduce future amounts of taxable income. If not utilized to offset
future taxable income, the net operating loss carryforwards will expire on
various dates through 2010. Approximately $1 million of the $57 million net
operating loss carryforward (which was generated in 1993) is available at a
reduced rate due to certain tax limitations.

In 1994, MedPartners/Mullikin established a valuation allowance of $14.6
million because it was more likely than not that the deferred tax asset would
not be utilized in future periods. The valuation allowance was decreased by
$14.2 million in 1995 because the realization of the deferred tax asset is now
more likely than not. The primary factor in the determination of the realization
of the deferred tax asset is the profitability of the ongoing business of
MedPartners/Mullikin ($25.3 million net income for 1995 excluding merger
expenses).

Years Ended December 31, 1994 and 1993

For the year ended December 31, 1994, net revenue was $815 million compared
to $550 million for the year ended December 31, 1993. The increase in net
revenue resulted from the affiliation with 46 physician groups (representing 283
physicians) since December 31, 1993 and the enrollment growth of 58,000 lives
under professional capitation and 16,000 lives under institutional capitation.

The percentage increase in cost of affiliated physician services from 40.9%
of net revenues in 1993 to 42.8% in 1994 was a result of the commencement of
operations of MedPartners/Mullikin's clinics. MedPartners/Mullikin (exclusive of
the 1995 Mergers) had a comparable percentage of 62.2%. The decrease in clinic
salaries, wages and benefits from 20.5% of net revenues in 1993 to 19.5% in 1994
was also a result of the commencement of operations of MedPartners' clinics.
MedPartners (exclusive of the 1995 Mergers) had a comparable percentage of
16.5%.

Clinic rent and lease expense was 3.4% of net revenue for the years ended
December 31, 1994 and December 31, 1993. Other clinic costs were 7.5% of net
revenue for 1993 and 8.3% for 1994.

Net interest expense (income) as a percentage of net revenue will vary
based on the purchase price for the assets of additional practices, the interest
rates for additional borrowings and the amount of excess cash

27
<PAGE> 38

available for investment. The increase in net interest expense in 1994 was the
result of increased borrowings to fund acquisitions.

Due to MedPartners/Mullikin's limited operating history and cumulative
operating losses, a valuation allowance was established to eliminate deferred
tax benefits generated through December 31, 1994.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1996, MedPartners/Mullikin had working capital of $101
million, including cash and cash equivalents of $56 million. For the first six
months of 1996, cash flow from operations, excluding $25.9 million cash paid
during the six months for merger expenses, was $6.0 million. For the year ended
December 31, 1995, cash flow used in operations was ($13.5) million. This
included $28 million in cash paid for merger expenses. Net of these expenses,
MedPartners/Mullikin experienced cash flow from operations of $14.5 million. For
the years ending December 31, 1993 and 1994, cash flow provided by operations
was $30.6 million and $13.7 million, respectively. MedPartners/Mullikin has
reduced the medical claims outstanding to levels below that required in its
agreements with HMOs, and it does not expect this to have a negative impact on
future cash flows from operations. On a monthly basis, MedPartners/Mullikin's
most significant expenditure is for affiliated physician services. Payment is
made on the fifteenth day of the month following the month in which the services
were provided.

For the six months ended June 30, 1996, MedPartners/Mullikin invested $29.7
million in acquisitions of the assets of physician practices, $21.8 million in
equipment for the physician practices and the corporate office and $4.5 million
in intangible assets related to corporate name/trademarks and other intangible
assets. For the year ended December 31, 1995, MedPartners/Mullikin invested
$61.5 million in acquisitions of the assets of physician practices, $39.4
million in equipment for the physician practices and the corporate office and
$7.2 million in intangible assets related to debt issue costs, corporate
name/trademarks and other intangible assets. For the year ended December 31,
1994, MedPartners/Mullikin's investing activities totaled $108.5 million, which
primarily was composed of $57.6 million related to practice acquisitions and
$32.1 million related to the purchase of property and equipment. These
expenditures were funded from approximately $116.3 million from equity proceeds
and $7.8 million in net incremental borrowings. For the year ended December 31,
1993, MedPartners/Mullikin's investing activities totaled $37.6 million of which
$14.3 million related to practice acquisitions and $15.6 million related to the
purchase of property and equipment. These expenditures were funded by $42.7
million derived from equity proceeds.

On February 21, 1995, MedPartners sold 4.4 million shares of Common Stock
at $13.00 per share. Subsequent to that date, the underwriters exercised their
overallotment option for an additional 660,000 shares. MedPartners raised net
proceeds of $60.4 million from the offering, $30.4 million of which was applied
to reduce the indebtedness under MedPartners' then existing credit facility.

On March 13, 1996, MedPartners/Mullikin sold 6.6 million shares of Common
Stock at $30.25 per share. MedPartners/Mullikin raised net proceeds of $194
million, $70 million of which was applied to reduce the indebtedness under the
Bank Credit Facility. In April 1996, $69 million of the proceeds were used to
pay-off MedPartners/Mullikin's convertible subordinated debentures.

Effective November 29, 1995, MedPartners/Mullikin entered into the $150.0
million Bank Credit Facility replacing its then existing revolving credit
facility. Interest is paid quarterly based on LIBOR plus a two percent margin.
No principal is due on the facility until its maturity date of May 10, 1998.
MedPartners/ Mullikin provided a negative pledge on substantially all assets and
granted the banks a first priority security interest in all shares of stock of
its subsidiaries. As of June 30, 1996, there was no balance outstanding under
the facility.

The Bank Credit Facility contains affirmative and negative covenants which,
among other things, require MedPartners/Mullikin to maintain certain financial
ratios (including minimum net worth, minimum fixed charge coverage ratio,
maximum indebtedness to cash flow), limit the amount of additional indebtedness,
and set certain restrictions on investments, mergers and sales of assets. As of
December 31, 1995, MedPartners/ Mullikin was in compliance with the covenants in
the Bank Credit Facility. Additionally, MedPartners/

28
<PAGE> 39

Mullikin is required to obtain bank consent for acquisitions with an aggregate
purchase price of $15.0 million or more.

MedPartners/Mullikin intends to acquire the assets of additional physician
practices and to fund this growth with existing cash and cash equivalents and
borrowings under the Bank Credit Facility. MedPartners/ Mullikin believes that
its existing cash resources, the use of MedPartners/Mullikin's Common Stock for
selected practice and other acquisitions, and available borrowings under the
Bank Credit Facility and the increased bank credit facility anticipated to be
entered into in connection with the consummation of the Caremark Acquisition
will be sufficient to meet MedPartners/Mullikin's anticipated acquisition,
expansion and working capital needs for the next twelve months.
MedPartners/Mullikin will raise additional capital through the issuance of
long-term or short-term indebtedness or the issuance of additional equity
securities in private or public transactions, at such times and terms as
management deems appropriate and the market allows, in order to meet the capital
needs of MedPartners/Mullikin on a long term basis (i.e. for a period in excess
of 12 months).

QUARTERLY RESULTS (UNAUDITED)

The following table sets forth certain unaudited quarterly financial data
for 1994, 1995 and 1996. In the opinion of MedPartners/Mullikin's management,
this unaudited information has been prepared on the same basis as the audited
information and includes all adjustments (consisting of normal recurring items)
necessary to present fairly the information set forth therein. The operating
results for any quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- ------------- ------------ --------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net
revenue... $191,176 $ 210,189 $234,422 $259,750 $287,700 $ 299,272 $306,835 $343,285 $360,398
Operating
expenses:
Cost of
affiliated
physician
services... 83,846 91,791 97,001 114,272 125,953 132,631 133,955 148,662 152,618
Clinic
salaries,
wages
and
benefits... 38,776 38,862 43,889 50,570 54,563 53,760 57,226 56,762 59,838
Outside
hospitalization
expense... 21,008 20,436 26,435 22,193 28,171 30,796 28,774 35,668 47,849
Clinic
rent and
lease
expense... 6,223 7,094 8,370 9,717 10,027 10,518 11,563 11,693 12,121
Clinic
supplies... 7,939 8,002 10,568 10,983 11,536 11,704 13,521 15,014 15,938
Other
clinic
costs... 15,594 15,953 21,005 20,711 23,065 23,661 21,554 31,285 27,868
General
corporate
expenses... 13,086 15,808 13,809 15,703 16,464 15,697 16,849 19,414 20,126
Depreciation
and
amortiz-
ation... 5,097 5,631 6,448 6,605 7,357 7,384 7,742 8,174 8,308
Net
interest
expense... 1,130 1,654 1,903 1,885 1,482 2,042 3,034 3,232 (421)
Merger
expenses... -- -- -- -- 1,051 3,473 62,040 34,448 --
Loss on
disposal
of
assets... 401 412 413 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income
(loss)
before
taxes..... (1,924) 4,546 4,581 7,111 8,031 7,606 (49,423) (21,067 ) 16,153
Pro forma
income tax
expense
(benefit)... 1,017 2,363 2,764 2,176 2,235 2,427 (34,071) (5,769 ) 6,129
-------- -------- -------- -------- -------- -------- -------- -------- --------
Pro forma
net income
(loss).... $ (2,941) $ 2,183 $ 1,817 $ 4,935 $ 5,796 $ 5,179 $(15,352) $(15,298 ) $ 10,024
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

29
<PAGE> 40

MedPartners/Mullikin's historical unaudited quarterly financial data for
all periods prior to the effective dates of the 1995 Mergers have been restated
to include the results of the merged companies. MedPartners' Quarterly Reports
on Form 10-Q were filed prior to the 1995 Mergers and the merger with PPSI and
thus differ from the amounts for the quarters included herein. The differences
caused solely by the operation of the merged companies are summarized as
follows:

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 MARCH 31, 1996
-------------------- -------------------- -------------------- --------------------
AS AS AS AS
FORM 10-Q RESTATED FORM 10-Q RESTATED FORM 10-Q RESTATED FORM 10-Q RESTATED
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue... $45,667 $259,750 $57,272 $287,700 $76,019 $299,272 $332,549 $343,285
Income before
income
taxes....... 765 7,111 820 8,031 2,265 7,606 (21,435 ) (21,067)
Income tax
expense..... 291 2,176 260 2,235 770 2,427 (5,935 ) (5,769)
Net income.... 474 4,935 560 5,796 1,495 5,179 (15,500 ) (15,298)
</TABLE>

30
<PAGE> 41

THE SPECIAL MEETING

GENERAL

This Prospectus-Proxy Statement is being furnished to holders of shares of
CHS Common Stock in connection with the solicitation of proxies by the Board of
Directors of CHS for use at the Special Meeting to consider and vote upon the
approval of the Plan of Merger and to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Prospectus-Proxy Statement mailed or delivered to
holders of shares of CHS Common Stock is accompanied by a form of Proxy for use
at the Special Meeting.

This Prospectus-Proxy Statement is also furnished to CHS stockholders as a
Prospectus in connection with the issuance to them of the shares of
MedPartners/Mullikin Common Stock upon consummation of the Merger.

DATE, PLACE AND TIME

The Special Meeting is to be held at 2029 Century Park East, Suite 1800,
Los Angeles, California 90067 on August 30, 1996, at 7:00 a.m.

RECORD DATE, QUORUM AND VOTING

The Board of Directors of CHS has fixed the close of business on July 31,
1996, as the Record Date for the determination of the holders of shares of CHS
Common Stock entitled to receive notice of and to vote at the Special Meeting.
The presence, in person or by Proxy, of the holders of shares of CHS Common
Stock entitled to cast a majority of the votes entitled to be cast at the
Special Meeting will constitute a quorum at the Special Meeting. As of the
Record Date, the outstanding voting securities of the Company consisted of
shares of CHS Common Stock which were held by two stockholders of record, CMG
and Health Source Management. Each stockholder of record as of that date is
entitled to one vote for each share then held. The CHS Common Stock is
beneficially owned 50% by the partners of CMG and 50% by the shareholders of
Health Source Management. Subsequent to the Record Date and prior to the closing
of the Merger, CMG and Health Source Management have both indicated that they
will consummate the planned distribution of the CHS Common Stock to the
beneficial owners thereof. Each of CMG and Health Source Management will seek
the approval of its partners and shareholders, respectively, to vote the CHS
Common Stock in favor of the Plan of Merger, among other matters, at meetings to
be held prior to the Special Meeting. The shareholders of Health Source
Management and the partners of CMG will be asked to vote to authorize Health
Source Management and CMG, respectively, to vote the shares of CHS Common Stock
held by them in favor of the Plan of Merger, among other matters, at meetings to
be held prior to the Special Meeting.

VOTE REQUIRED

Approval and adoption of the Plan of Merger by the stockholders of CHS
requires the affirmative vote of a majority of the votes cast by the holders of
shares of CHS Common Stock entitled to vote thereon; as a result, abstentions
will be the equivalents of votes against the Plan of Merger. Accordingly,
approval and adoption of the Plan of Merger at the Special Meeting will require
the affirmative vote of the holders of the shares of CHS Common Stock entitled
to cast a minimum of 24,423 votes.

CMG and Health Source Management, as the stockholders of record of CHS,
will ask the partners of CMG and the stockholders of Health Source Management,
respectively, to consider and vote on the Plan of Merger as beneficial
shareholders of CHS. Each partner or shareholder, in connection with their
respective meetings, will receive, among other information, a copy of this
Prospectus-Proxy Statement concurrently with its receipt by CMG or Health Source
Management. The partners of CMG have determined that a vote of a majority of the
partnership interests will be necessary to direct the executive committee of CMG
to vote the shares of CHS held of record by CMG on the Record Date; CMG will,
upon the demand of any of its partners, perfect dissenters rights with respect
to those CHS Shares beneficially owned by such partners. A vote of a majority of
the issued and outstanding shares of Health Source Management will be necessary
to

31
<PAGE> 42

direct the voting of the shares of CHS held of record by Health Source
Management on the Record Date. Health Source Management's shareholders may
perfect, under California law, dissenters rights and obtain payment of the
appraised value of their shares of Health Source Management if the Plan of
Merger is approved by the shareholders of Health Source Management.

The members of the Executive Committee of CMG own approximately 18.25% of
the partnership interests of CMG and have expressed their intent to vote such
interests FOR the Plan of Merger. The members of the Board of Directors and
executive officers of Health Source Management own approximately 13.5% of the
issued and outstanding shares of Health Source Management and have indicated
their intent to vote such shares FOR the Plan of Merger.

If, after the partners of CMG and the shareholders of Health Source
Management have considered and voted on the Plan of Merger, CHS determines that
both of the CHS stockholders of record have been directed to vote FOR the Plan
of Merger, it is possible that the stockholder vote required under the DGCL to
approve the Merger will be accomplished without a meeting by unanimous written
action of the CHS stockholders.

See "The Special Meeting -- Vote Required", "The Merger -- Conditions to
the Merger" and "-- Additional Interests of Certain Persons in the Merger;
Employment Agreements".

VOTING AND REVOCATION OF PROXIES

Shares of CHS Common Stock represented by a Proxy properly signed and
received at or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF A PROXY IS PROPERLY
EXECUTED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF CHS
COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF
THE PLAN OF MERGER. Any Proxy given pursuant to the solicitation may be revoked
by the person giving it at any time before the Proxy is voted by the filing of
an instrument revoking it or of a duly executed Proxy bearing a later date with
the Secretary of CHS prior to or at the Special Meeting, or by voting in person
at the Special Meeting. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a Proxy. The persons named as proxies with
respect to the Special Meeting, may propose and vote for one or more
adjournments or postponements of the respective Special Meetings to permit
further solicitation of proxies in favor of the respective proposals to approve
and adopt the Plan of Merger; provided however, that no proxy which is voted
against the respective proposals to approve and adopt the Plan of Merger will be
voted in favor of any such adjournment or postponement. Only votes cast FOR
approval of the Plan of Merger or other matters constitute affirmative votes.
Abstentions and votes that are withheld will, therefore, have the same effect as
votes AGAINST approval of the Plan of Merger.

The Board of Directors of CHS is not aware of any business to be acted upon
at the Special Meeting other than as described in this Prospectus-Proxy
Statement. If, however, other matters are properly brought before the Special
Meeting, or any adjournments or postponements thereof, the persons appointed as
proxies will have discretion to vote or act thereon according to their best
judgment and subject to applicable rules of the SEC.

SOLICITATION OF PROXIES

In addition to solicitation by mail, directors, officers and employees of
CHS, CMG, HSMG, or Health Source Management, who will not be specifically
compensated for such services, may solicit proxies from the stockholders of CHS
personally or by telephone or telegram or other forms of communication. Except
as otherwise provided in the Plan of Merger, CHS will bear its own expenses in
connection with the solicitation of proxies for the Special Meeting. See "The
Merger -- Expenses; Breakup Fees".

CHS STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE MERGER -- EXCHANGE OF
CERTIFICATES".

32
<PAGE> 43

THE MERGER

The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan of Merger; it is not complete
and is qualified in its entirety by reference to the Plan of Merger, the full
text of which is attached hereto as Annex A. All CHS stockholders are urged to
read Annex A carefully in its entirety.

TERMS OF THE MERGER

The acquisition of CHS by MedPartners/Mullikin will be effected by means of
the merger of the Subsidiary with and into CHS, with CHS being the surviving
corporation. The Certificate of Incorporation and the By-laws of the Subsidiary
in effect at the Effective Time will govern the Surviving Corporation until
amended or repealed in accordance with applicable law. At the Effective Time,
CHS shall continue as the surviving corporation under the name "CHS Management,
Inc."

Upon consummation of the Merger, all of the CHS Shares (other than
dissenting shares) will be converted into the right to receive the number of
shares of MedPartners/Mullikin Common Stock equal to the Merger Consideration.
The number of shares of MedPartners/Mullikin Common Stock which shall constitute
the Merger Consideration shall be determined by dividing $40 million by the Base
Period Trading Price. For the ten consecutive trading days ended August 15,
1996, the average of the last reported sale price per share of
MedPartners/Mullikin Common Stock was $20.31. At such price, each share of CHS
Common Stock would be converted into 40.32 shares of MedPartners/Mullikin Common
Stock. THE BASE PERIOD TRADING PRICE MAY DIFFER FROM THE ACTUAL MARKET PRICE OF
THE MEDPARTNERS/MULLIKIN COMMON STOCK REPORTED ON THE NYSE FOR THE DATE OF THE
SPECIAL MEETING, THE DATE OF CONSUMMATION OF THE MERGER, OR THE DATE THAT CHS
STOCKHOLDERS ACTUALLY RECEIVE THEIR SHARES OF MEDPARTNERS/MULLIKIN COMMON STOCK
AFTER THE MERGER IS COMPLETED. SINCE THE ACTUAL NUMBER OF SHARES OF
MEDPARTNERS/MULLIKIN COMMON STOCK ISSUABLE TO CHS STOCKHOLDERS IN THE MERGER
DEPENDS ON THE BASE PERIOD TRADING PRICE, THERE IS NO GUARANTEE AS TO THE NUMBER
OF SHARES OF THE MEDPARTNERS/MULLIKIN COMMON STOCK THAT CHS STOCKHOLDERS WILL
RECEIVE.

If the Merger has not been consummated by August 31, 1996 and the CHS
stockholders have extended the Plan of Merger through September 30, 1996, the
Merger Consideration shall be increased by $6,500 for each day after August 31,
1996 that the consummation of the Merger is delayed.

During the period between the date of this Prospectus-Proxy Statement and
the time of the Special Meeting, CHS stockholders may obtain updated information
regarding the market prices for the MedPartners/Mullikin Common Stock, the Base
Period Trading Price and the estimated Exchange Ratio by calling a
representative of MedPartners/Mullikin toll free at 1-800-563-7126.

Assuming a Base Period Trading Price of $20.31, the stockholders of CHS
would own less than 3.8% of the MedPartners/Mullikin Common Stock that would be
outstanding after the Merger. See "-- Additional Interests of Certain Persons in
the Merger; Employment Agreements".

BRIDGE LOAN

Pursuant to the Plan of Merger MedPartners/Mullikin agreed to provide a
short-term working capital loan to CHS in the principal amount of $2,539,250.
The loan, which is represented by a promissory note, bears interest at the prime
rate and matures on December 31, 1996. The loan is guaranteed by each of CMG and
Health Source Management, which is secured by a pledge of an aggregate of 25% of
the shares of CHS Common Stock. See "-- Expenses; Breakup Fees".

MANAGEMENT SERVICES AGREEMENT

Effective April 1, 1996, CHS and MedPartners/Mullikin entered into a
Management Services Agreement. Pursuant to such agreement, CHS assigned to
MedPartners/Mullikin all of its revenues and MedPartners/Mullikin agreed to
manage CHS and to perform, or cause to be performed, all of CHS's obligations.
In performing its obligations, MedPartners/Mullikin may not, without CHS's
consent: (i) enter into any contract that is not terminable by CHS without
penalty upon sixty days notice, (ii) obligate CHS in

33
<PAGE> 44

excess of $100,000, or (iii) make any CHS personnel decisions. This agreement
terminates upon the earlier of the consummation or the termination of the Plan
of Merger.

Notwithstanding the foregoing, shares of CHS Common Stock outstanding
immediately prior to the Effective Time held by a CHS stockholder who is
entitled to demand, and who properly demands, appraisal for such shares in
accordance with Section 262 of the DGCL and Sections 1300 through 1312 of the
California Corporations Code shall not be converted into a right to receive
MedPartners/Mullikin Common Stock, as set forth hereinabove, unless such
stockholder fails to perfect or otherwise loses his right to appraisal, if any.
If, after the Effective Time, such stockholder fails to perfect or loses any
such right to appraisal, such shares shall be treated as if they had been
converted as of the Effective Time into the right to receive
MedPartners/Mullikin Common Stock, cash in lieu of fractional shares of
MedPartners/Mullikin Common Stock and any dividends or distributions to which
such holder is entitled as a result of the Merger, as set forth hereinabove. See
"Rights of Dissenting Stockholders".

NEW MANAGEMENT ACQUISITION

It is a condition to the consummation of the Merger that
MedPartners/Mullikin concurrently acquire substantially all of the assets and
assume the disclosed liabilities of New Management, a management consulting
services organization which provides services in connection with certain managed
care contracts under a management contract with West Hills Hospital and CMG. All
of the partners of CMG, and therefore beneficial owners of 50% of CHS, are also
general partners of New Management. MedPartners/Mullikin proposes to acquire
substantially all of the assets of New Management pursuant to the Acquisition
Agreement. Under the terms of the Acquisition Agreement, MedPartners/Mullikin
will issue MedPartners/Mullikin Common Stock to New Management with a value, as
calculated under the Acquisition Agreement, of $7,000,000, and assume all of the
disclosed liabilities of New Management, in return for all of the assets of New
Management. The transactions are discussed in detail in the New Management Proxy
Statement, which also constitutes a part of the Registration Statement of which
this Prospectus-Proxy Statement is a part. A copy of the New Management Proxy
Statement will be available upon request to each stockholder of CHS, without
charge and each CHS stockholder is encouraged to obtain a copy and read it
carefully.

BACKGROUND OF THE MERGER

The terms of the Plan of Merger resulted from arm's length negotiations
between representatives of CHS and representatives of MedPartners/Mullikin.

CHS was organized in August 1995 in response to the increasingly
competitive managed care environment, which environment has generated
substantial cost containment pressures for all medical care providers. CHS and
its predecessors pursued a policy of recruiting and integrating physicians into
a managed care environment and expanding its strategic alliances with hospitals
and HMOs. CHS' strategy has been to create a vertically integrated system of
health care delivery and to expand into different geographic regions through
acquisitions and strategic alliances. In order to fund its expansion strategy,
CHS retained Sutro in August 1995 as its financial advisor to introduce CHS to
prospective equity investors. CHS prepared confidential offering materials that
were used for soliciting a substantial equity investment. A number of parties
expressed interest in pursuing discussions with CHS; many of these expressions
of interest contemplated a business combination with CHS. In part due to the
interest of several parties in acquiring CHS and a general consolidation trend
in the healthcare industry, CHS began considering a sale of CHS as a strategic
alternative to funding expansion through the sale of equity.

The Board of Directors (the "Board") of CHS authorized Sutro to pursue each
of the parties who expressed interest in CHS (including MedPartners/Mullikin,
who had expressed an interest in acquiring CHS). The Board of CHS established
December 5, 1995 as the deadline for receiving proposals for an investment in,
or acquisition of, CHS. Generally, the valuation of CHS offered by prospective
acquirors exceeded the valuation assigned to CHS by the equity investors. A
number of prospective acquirors conditioned their acquisition of CHS on an
acquisition of New Management. The Board of CHS determined, after reviewing all
proposals received by CHS with its legal and financial advisors, to pursue
discussions with

34
<PAGE> 45

three parties (two of whom sought to acquire CHS). Sutro and management of CHS
conducted discussions and due diligence sessions with each of the three
entities. Revised proposals were requested in January 1996, which were
considered when received by the Board of CHS; the Board of CHS received and
considered an additional unsolicited proposal from a potential acquiror. In
January, the Board of CHS also discussed concerns relating to a potential
conflict of interest between CHS and New Management, in the event of a business
combination involving CHS or both CHS and New Management, since certain
directors and officers of CHS were partners and executives of New Management.
The Board of CHS also considered whether Sutro should act as New Management's
financial advisor, if requested, in any such business combination. After careful
consideration, the Board of CHS determined it to be in the best interests of CHS
if management of CHS and Sutro continue to work with New Management.
Additionally, it was agreed that New Management would be represented in any
negotiations by separate legal counsel and New Management executives who were
not also officers of CHS.

After careful consideration, the Board of CHS, on February 5, 1996,
authorized management and Sutro to proceed with three prospective offerors (two
of which were among the original bidders and the new bidder). Management and
CHS' advisors engaged in further discussions and due diligence reviews of the
parties. On February 15, 1996, the Board, having received revised proposals from
the remaining bidders, determined to proceed with two parties,
MedPartners/Mullikin for a potential business combination and a group of venture
capital investors (the "Investor Group") seeking to acquire a significant
minority interest in CHS. During the final two weeks of February, CHS provided
various legal and financial documentation to and conducted additional
discussions with both bidders. From February 16, 1996 through March 2, 1996,
representatives of CHS and MedPartners/Mullikin, and their respective legal
advisors and Sutro, discussed the terms of the proposed combination, including
the structure of the transaction and the form of the consideration to be
received.

On March 3, 1996, the Board of CHS held a special meeting to discuss a
draft of the Plan of Merger proposed by MedPartners/Mullikin and the final
proposed term sheet from the Investor Group, at which representatives of CHS's
management, legal and financial advisors were present. The Board of CHS reviewed
and discussed the terms of the proposed merger agreement and the form of
consideration to be received, the proposed term sheet, the strategic
alternatives available to CHS and the results of the due diligence conducted by
CHS. The Board authorized management of CHS to continue negotiating a definitive
agreement with MedPartners/Mullikin. MedPartners/Mullikin and CHS continued to
negotiate the terms of a definitive agreement, including the nature and value of
the consideration.

The Board of CHS held a meeting on March 7, 1996 to receive a progress
report on the negotiations and to respond to the term sheet from the Investor
Group; the Board of CHS determined to continue to negotiate a definitive
agreement with MedPartners/Mullikin and to defer any determination on the term
sheet until a definitive proposal had been received from MedPartners/Mullikin.
On March 8, 1996, a letter was executed between CHS and Sutro providing for
Sutro's additional engagement to render a fairness opinion to the Board of CHS
in connection with any acquisition of CHS.

On March 10, 1996, a special meeting of the Board of CHS was held to
discuss the proposed definitive agreement which had been delivered by
MedPartners/Mullikin; members of CHS management and CHS's legal and financial
advisors were present. At this meeting, the Board of CHS discussed the actions
taken by CHS executive officers in connection with MedPartners/Mullikin's
proposed acquisition of CHS; the results of management's and CHS' advisors due
diligence review of MedPartners/Mullikin; the form and terms of the Plan of
Merger, including the amount and form of consideration to be received by the CHS
stockholders; and the potential benefits of combining the operations of CHS and
MedPartners/Mullikin, including operational efficiencies and the ability to
diversify risk geographically. The Board of CHS noted that the value placed on
CHS by MedPartners/Mullikin substantially exceeded the value assumed by the
Investor Group. The Board of CHS also discussed the draft of the Plan of Merger
with legal counsel. Sutro rendered its oral opinion, subsequently confirmed in
writing, to the effect that, as of such date and subject to certain matters, the
Merger Consideration was fair, from a financial point of view, to the CHS
stockholders. Based on the foregoing discussions, the Board of CHS, without
assigning more weight to one factor than any other, approved the form, terms and
conditions of the proposed Plan of Merger, in the form submitted to the Board of
CHS,

35
<PAGE> 46

together with such changes as the executive committee of the Board of CHS might
authorize in their sole discretion.

As a result of the rapid consolidation of physician practices and the
entrance of other physician practice management companies into the market,
MedPartners/Mullikin's management determined that it was important for
MedPartners/Mullikin's to accelerate its rate of expansion through acquisitions
and mergers with companies who already had market penetration that could
accelerate the development of a multi-specialty network of physician practices.

The proposal to acquire CHS and New Management was presented by management
of MedPartners/ Mullikin to the MedPartners/Mullikin Board of Directors on
February 22, 1996, at their regularly scheduled meeting. The
MedPartners/Mullikin Board of Directors unanimously approved the communication
of a binding offer to CHS and approved entering into a merger on substantially
similar terms.

On March 11, 1996, MedPartners/Mullikin and CHS agreed on the terms of the
Plan of Merger and MedPartners/Mullikin, CHS and the Subsidiary executed the
Plan of Merger. On March 12, 1996, MedPartners/Mullikin issued a press release
announcing the transaction.

As a result of MedPartners/Mullikin's agreement to acquire Caremark,
MedPartners/Mullikin and CHS determined that the acquisition of CHS could not be
consummated by June 30, 1996 as required in the Plan of Merger. Additionally,
the MedPartners/Mullikin stock price had reached an average price which gave
rise to CHS's right to terminate the Plan of Merger. MedPartners/Mullikin
approached CHS to waive its termination rights and extend the Merger deadline to
September 30, 1996. On May 28, 1996, the Board of Directors of CHS discussed the
likelihood of consummating another merger or capital transaction prior to the
proposed deadline and reviewed the financial position of CHS for the first
quarter. The Board of CHS, after consultation with its legal and financial
advisors, authorized management to engage in discussions with
MedPartners/Mullikin to extend the deadline and waive CHS's termination rights.
Representatives of CHS and MedPartners/Mullikin negotiated the terms of an
amendment to the Plan of Merger, including the liquidity needs faced by CHS
during any extension of the consummation of the Merger.

On June 14, 1996, the Board of Directors of CHS held a special meeting to
discuss the proposed amendment to the Plan of Merger extending the deadline for
the Merger, adjusting the calculation of the Merger Consideration, eliminating
most of the closing conditions for the Merger, providing for a termination fee
to CHS and a loan from MedPartners/Mullikin to CHS. In connection with its
consideration of the proposed amendment, the Board of Directors of CHS revisited
the factors described above in light of the amendment, without assigning more
weight to one factor than any other. The Board of Directors of CHS approved the
Merger upon the terms and subject to the conditions contained in the Plan of
Merger and reiterated its view that the Merger Consideration is fair from a
financial point of view to, and in the best interests of, the CHS stockholders.

RECOMMENDATION OF THE CHS BOARD OF DIRECTORS

By the unanimous vote of the members of the Board of Directors of CHS at
special meetings held on March 10, 1996 and June 14, 1996, the Board of
Directors of CHS determined that the proposed Merger, and the terms and
conditions of the Plan of Merger, were fair to and in the best interest of CHS
and its stockholders and resolved to recommend that the stockholders of CHS vote
FOR approval and adoption of the Plan of Merger. See "-- Background of the
Merger". In reaching its conclusion to enter into the Plan of Merger and to
recommend that the stockholders of CHS vote FOR the approval and adoption of the
Plan of Merger, the Board of Directors of CHS considered a number of factors,
including, without limitation and without assigning relative weights thereto,
the following:

(i) the terms and conditions of the Plan of Merger, including the
Exchange Ratio of MedPartners/ Mullikin Common Stock for CHS Common Stock
which was considered to be fair in light of the financial condition,
business, prospects and opportunities of CHS and MedPartners/Mullikin and
the stock trading history of MedPartners/Mullikin;

36
<PAGE> 47

(ii) a comparison of the financial terms of certain other transactions
that have recently been effected in CHS' industry as considered by Sutro
and the terms of certain other potential transactions which CHS had
discussed with potential acquirors and potential investors, including the
Investor Group;

(iii) a review of possible alternatives to the sale of CHS, including
continuing to operate CHS as a privately-owned entity subject to an
additional equity investment;

(iv) the health care industry is rapidly evolving and currently
characterized by intensified competition and increasing consolidation. In
the prepaid segment of the health care industry, particularly in
California, entities, such as the Medical Groups, that contract with HMOs
to provide medical care on a capitated basis have been pressured to
maintain or decrease rates. Together, these trends have increased pressure
on CHS, driving CHS' expansion strategy to capitalize on the benefits of
economies of scale and operating efficiencies by combining the operations
and resources of MedPartners/Mullikin and CHS;

(v) the Merger combines two companies that share a similar fundamental
business and operating strategies oriented toward building and managing
primary care physician networks to deliver managed healthcare.
MedPartners/Mullikin management has indicated its commitment to expanding
both of the Medical Group operations with the goal of enhancing stockholder
value and strengthening existing operations;

(vii) the opinion of Sutro that, as of March 10, 1996, the Merger
Consideration to be received by the stockholders of CHS as specified in the
Plan of Merger is fair, from a financial point of view, to the stockholders
of CHS; and

(viii) the Merger is expected to be treated as a tax-free
reorganization under the Code.

OPINION OF CHS'S FINANCIAL ADVISOR

Sutro was retained by CHS to render financial advisory services. On
February 9, 1996, Sutro was also retained by New Management to render financial
advisory services to New Management in connection with a possible acquisition.
In connection with the Merger, CHS also requested that Sutro evaluate the
fairness, from a financial point of view, to the stockholders of CHS of the
consideration to be received from MedPartners/ Mullikin pursuant to the terms
and conditions set forth in the Plan of Merger. On March 10, 1996, at a meeting
of the Board of CHS held to evaluate the proposed Plan of Merger, Sutro rendered
its oral opinion (subsequently confirmed by delivery of a written opinion) to
the Board of Directors of CHS to the effect that, as of such date and based upon
and subject to certain matters stated in such opinion, the Merger Consideration
was fair, from a financial point of view, to the stockholders of CHS.

In arriving at its opinion, Sutro did not conduct a physical inspection of
any MedPartners/Mullikin properties or facilities. Sutro did not assume any
obligation to independently verify the accuracy and completeness of the
financial and other information it used in arriving at its opinion. Sutro did
not assume any responsibility for independent verification of any information
furnished to it by CHS or MedPartners/ Mullikin, nor did it assume any
responsibility for, or make or obtain, any independent evaluation or appraisal
of any of the properties or facilities or other assets of MedPartners/Mullikin
and CHS.

In rendering its opinion, Sutro utilized the financial projections prepared
by the management of CHS which were represented to Sutro as the best current
judgment of CHS management as to the future financial condition and results of
operations of CHS. Sutro did not assume responsibility for and expressed no view
as to such forecasts and projections or the assumptions on which they were
based. Sutro further assumed that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code and that for

37
<PAGE> 48

accounting purposes, the Merger is intended to be accounted for as a pooling of
interests. Sutro did not express any opinion as to what the value of the
MedPartners/Mullikin Common Stock actually will be when issued to CHS
stockholders pursuant to the Merger, or the price at which the
MedPartners/Mullikin Common Stock will trade prior or subsequent to the Merger.
Sutro was not asked to consider, and Sutro's opinion does not address, the
relative merits of the Merger over any other alternative transactions which may
be available to CHS and does not address the underlying business decision of the
Board of Directors of CHS to proceed with or effect the Merger. Further, Sutro's
opinion does not constitute a recommendation to the stockholders of CHS to vote
in favor of the Merger.

THE FULL TEXT OF THE WRITTEN OPINION OF SUTRO WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. OWNERS OF
CHS COMMON STOCK ARE URGED TO READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY.
SUTRO'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED IN THE MERGER FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROSPECTUS-PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.

The following is a summary description of the analyses performed by Sutro.
The following does not purport to be a complete description of the analyses
performed. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to particular circumstances. Therefore, such an
opinion is not readily susceptible to summary description and Sutro's analyses
must be considered as a whole.

In its analyses, Sutro made numerous assumptions with respect to CHS,
MedPartners/Mullikin, the health care services industry, general business,
market, economic and financial conditions and other matters, many of which are
beyond the control of CHS and MedPartners/Mullikin. In forming its analyses,
Sutro considered the fact that CHS is a privately held company and, therefore,
applied a discount to CHS's valuation as compared to selected publicly traded
companies. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
Further, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.

Selected Public Company Analysis. Using publicly available information,
Sutro reviewed, among other things, the market values and trading multiples of
MedPartners/Mullikin and the following selected companies (the "Selected
Companies") in the physician practice management industry: AHI Healthcare
Systems, Inc., Coastal Physician Group, Inc., FPA Medical Management, Inc.,
InPhyNet Medical Management, Inc., PhyCor, Inc., and Physician Reliance Network,
Inc. With respect to the Selected Companies, Sutro considered, among other
things, (i) selected balance sheet data; (ii) operating statement data,
including data for the latest 12 months (previous reported four quarters, or
"LTM") revenue, earnings before interest, taxes, depreciation and amortization
("EBITDA"), earnings before interest and taxes ("EBIT") and net income; (iii)
estimated earnings per share ("EPS") based on publicly available estimates; and
(iv) historical stock price performance.

Sutro calculated a range of multiples for the Selected Companies by
dividing the adjusted market value (total shares outstanding multiplied by the
closing price per share on March 8, 1996, plus latest reported total long term
debt and minority interests, minus cash and cash equivalents) for each Selected
Company by such Selected Company's LTM revenue, LTM EBITDA and LTM EBIT. For the
Selected Companies, the LTM revenue multiples ranged from 0.5x to 4.3x, the LTM
EBITDA multiples ranged from 15.5x to 29.8x, and the LTM EBIT multiples ranged
from 15.5x to 48.4x. Sutro also calculated a range of multiples for the Selected
Companies by dividing each such Selected Company's closing sale price per share
on March 8, 1996 (the last trading date immediately preceding the delivery of
Sutro's oral opinion) by the respective estimated fiscal 1996 EPS and estimated
fiscal 1997 EPS. Such stock price to estimated fiscal 1996 EPS multiples ranged
from 15.4x to 42.7x and such stock price to estimated fiscal 1997 EPS multiples
ranged from 9.3x. to 37.0x.

38
<PAGE> 49

The multiples of LTM revenue, LTM EBITDA and LTM EBIT of MedPartners/Mullikin
were 1.3x, 18.3x and 29.3x respectively, and the multiples of fiscal 1996 and
1997 EPS were 40.5x and 30.1x, respectively. The Merger Consideration (assuming
a MedPartners/Mullikin Common Stock price of $31.05) equated to implied
multiples of estimated LTM revenue, LTM EBITDA, and LTM EBIT of 0.6x, 18.9x and
25.9x, respectively, and an estimated fiscal 1996 EPS multiple of 14.5x. CHS'
multiples reflect, in part, CHS' relatively short operating history and, since
CHS is privately held, reflect a discount for the illiquidity of the CHS Common
Stock.

Because of the inherent differences in the operations and prospects of CHS
and the Selected Companies, Sutro believed it was inappropriate to, and
therefore did not, rely solely on the quantitative results of this analysis, but
rather made qualitative judgments concerning CHS and the Selected Companies that
could effect the implied public trading value of CHS.

Precedent Transactions Analysis. Using publicly available information,
Sutro analyzed the purchase price and implied transaction multiples paid or
proposed to be paid in selected transactions in the physician practice and
medical services industries. Sutro analyzed the purchase price and implied
transaction multiples paid in seven recent transactions (occurring since January
1, 1995), including: (i) the acquisition of Pacific Physician Services, Inc. by
MedPartners/Mullikin; (ii) the acquisition of PSICOR, Inc. by Baxter Healthcare
Corp.; (iii) the acquisition of Mullikin Medical Enterprises, L.P. by
MedPartners/Mullikin; (iv) the acquisition of Texas Back Institute, Inc./Texas
Back Institute Physicians P.A. by MedPartners/Mullikin; (v) the acquisition of
Melbourne Internal Medicine Associates, P.A. by MedPartners/Mullikin; (vi) the
acquisition of Arizona Managed Care Services by FPA Medical Management, Inc.;
and (vii) the acquisition of MEDCTR, Inc. by MedPartners/Mullikin.

Sutro calculated revenue, EBITDA and EBIT multiples based on the ratio of
the adjusted purchase price (offer price plus latest reported total debt and
preferred stock minus total cash and cash equivalents) to LTM revenue, LTM
EBITDA and LTM EBIT for each of the acquired companies. For the selected
precedent transactions, the multiple ranges were as follows: (i) 0.3x to 1.3x
LTM revenue; (ii) 7.3x to 28.9x for LTM EBITDA; and (iii) 9.5x to 37.0x for LTM
EBIT. Sutro also calculated multiples by dividing the implied per share value of
each transaction by the estimated fiscal 1996 EPS, where such estimate was
available. For the selected precedent transactions, this multiple range was
19.4x to 22.0x. Based on the Merger Consideration (assuming a
MedPartners/Mullikin Common Stock price of $31.05), the implied CHS multiple of
estimated LTM revenue, LTM EBITDA and LTM EBIT equated to 0.6x, 18.9x and 25.9x
respectively, and the CHS multiple of estimated fiscal 1996 EPS equated to
14.5x.

No company, transaction or business reviewed in the Precedent Transaction
analysis is identical to CHS or the Merger. Sutro noted among other things, that
many of the transactions involved the acquisition of the physician practices as
well as the management operations. Accordingly, an analysis of the results of
the foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition values of
the companies selected or the business segment, company or transaction to which
they are being compared.

Other Matters. In rendering its opinion, Sutro considered certain factors
and conducted certain other comparative analyses, including, among other things,
a review of (i) the MedPartners/Mullikin historical and projected financial
results; (ii) the history of trading prices and volume for MedPartners/Mullikin
Common Stock; and (iii) selected analysts' reports on MedPartners/Mullikin,
including EPS estimates of such analysts.

Sutro is an investment banking firm engaged in, among other things, the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Sutro is a
nationally recognized investment banking firm with substantial experience in
merger and acquisition transactions. In the ordinary course of its business,
Sutro may actively trade in the equity and debt securities of
MedPartners/Mullikin for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities
for the accounts of its customers, the firm and/or the officers of the firm.
Sutro also performed financial advisory services for Health Source Management in
connection with the Restructurings, for which it received a fee.

39
<PAGE> 50

Pursuant to the terms of an engagement letter, CHS has agreed to pay Sutro
a fee equal to approximately $500,000 at the closing for financial advisory
services provided to CHS in connection with the Merger and $50,000 upon Sutro's
delivery of its written fairness opinion. CHS also has agreed to reimburse Sutro
for its out-of-pocket expenses, including reasonable fees and expenses of its
legal counsel, and to indemnify Sutro and certain related parties against
certain liabilities, including liabilities under the federal securities laws,
arising out of or in connection with the services rendered by Sutro under the
engagement letter.

Thomas R. Weinberger, a director of CHS and of Health Source Management, is
Executive Vice President of Sutro, which acted as financial advisor to the
Company in connection with the Merger. The Board believes that the terms of such
engagement are no less favorable to the Company than would be available from an
independent third party. Mr. Weinberger also beneficially owns 243 shares of CHS
Common Stock through Health Source Management and has been recommended to
receive a bonus of $30,000 in connection with the Merger, as a participant in a
bonus pool anticipated to be established by Health Source Management and subject
to the ratification of the shareholders of Health Source Management.

EFFECTIVE TIME OF THE MERGER

The Merger will become effective upon the filing of the Certificate of
Merger, executed in accordance with the relevant provisions of the DGCL, with
the Secretary of State of the State of Delaware, or at such other time as
MedPartners/Mullikin, the Subsidiary and CHS agree should be specified in the
Certificate of Merger. The Plan of Merger requires that all filings required
under the DGCL be made, subject to satisfaction of the separate conditions to
the obligations of each party to consummate the Merger as soon as practicable on
or after the date of the Special Meeting, or at such other time as may be agreed
upon by MedPartners/ Mullikin and CHS.

EXCHANGE OF CERTIFICATES

Exchange Agent. Prior to the Effective Time, MedPartners/Mullikin will
enter into an agreement with such bank or trust company as may be designated by
MedPartners/Mullikin (the "Exchange Agent"), which will provide that
MedPartners/Mullikin shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of the CHS Shares, certificates
representing the shares of MedPartners/Mullikin Common Stock issuable pursuant
to the Plan of Merger in exchange for outstanding CHS Shares.
MedPartners/Mullikin and CHS will make an effort to exchange certificates of
MedPartners/Mullikin Common Stock for outstanding CHS Shares at the Closing. If
that exchange does not occur, the following Exchange Procedures will be used.

Exchange Procedures. As soon as reasonably practicable after the Effective
Time, the Exchange Agent will mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of CHS Common Stock (the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as MedPartners/Mullikin may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of MedPartners/Mullikin Common Stock. Upon
surrender of a Certificate to the Exchange Agent or to such other agent or
agents as may be appointed by MedPartners/Mullikin, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of MedPartners/Mullikin Common Stock which such holder has the right to
receive pursuant to the provisions of the Plan of Merger. In the event of a
transfer of ownership of CHS Common Stock which is not registered in the
transfer records of CHS, a certificate representing the proper number of shares
of MedPartners/Mullikin Common Stock may be issued to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay any transfer or other
taxes required by reason of the issuance of shares of MedPartners/Mullikin
Common Stock to a person other than the registered holder of such Certificate or
establish to the satisfaction of MedPartners/Mullikin that such tax has been
paid or is not applicable. Until surrendered as contemplated by the Plan of
Merger, each Certificate shall be deemed at any time after the

40
<PAGE> 51

Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of MedPartners/Mullikin Common Stock and cash in
lieu of any fractional shares of MedPartners/Mullikin Common Stock as
contemplated by the Plan of Merger. No interest will be paid or will accrue on
any cash payable in lieu of any fractional shares of MedPartners/Mullikin Common
Stock. To the extent permitted by law, former holders of record of CHS Common
Stock shall be entitled to vote after the Effective Time at any meeting of
MedPartners/Mullikin stockholders the number of shares of MedPartners/Mullikin
Common Stock into which their respective shares of CHS Common Stock are
converted, regardless of whether such holders have received their certificates
representing MedPartners/Mullikin Common Stock in accordance with the Plan of
Merger.

No certificates or scrip representing fractional shares of
MedPartners/Mullikin Common Stock shall be issued upon conversion of CHS Common
Stock, and such fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of MedPartners/Mullikin. Notwithstanding
any other provision of the Plan of Merger, each holder of CHS Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of MedPartners/Mullikin Common Stock shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of MedPartners/Mullikin Common Stock multiplied by
the Base Period Trading Price.

At the Effective Time, holders of CHS Common Stock immediately prior to the
Effective Time will cease to be, and shall have no rights as, holders of CHS
Common Stock, other than the right to receive shares of MedPartners/Mullikin
Common Stock into which such shares have been converted and any fractional share
payment and any dividends or other distributions to which they may be entitled
under the Plan of Merger.

None of MedPartners/Mullikin or CHS will be liable to any holder of CHS
Common Stock for any shares of MedPartners/Mullikin Common Stock (or dividends
or other distributions with respect thereto) or cash in lieu of fractional
shares delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.

CONDITIONS TO THE MERGER

The obligation of MedPartners/Mullikin and the Subsidiary to consummate the
Merger is subject to, among others, receipt of all consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
commission, board or other regulatory body required in connection with the
execution, delivery and performance of the Plan of Merger shall have been
obtained or made, except for filings in connection with the Merger and any
documents required to be filed after the Effective Time.

The obligation of CHS to consummate the Merger is subject to, among others,
MedPartners/Mullikin shall have acquired substantially all of the assets of New
Management as described herein under "-- New Management Acquisition".

The obligation of each of MedPartners/Mullikin, the Subsidiary and CHS to
consummate the Merger is subject to certain additional conditions, including the
following: (i) the Registration Statement, of which this Prospectus-Proxy
Statement forms a part, shall have been declared effective under the Securities
Act and shall not be subject to any stop order; and (ii) the Merger shall have
been approved by the requisite votes of the holders of the outstanding shares of
CHS Common Stock entitled to vote thereon.

REPRESENTATIONS AND COVENANTS

Under the Plan of Merger, MedPartners/Mullikin and CHS have each made a
number of representations regarding the organization and capital structures of
the respective companies and their affiliates, their operations, financial
condition and other matters, including their authority to enter into the Plan of
Merger and to consummate the Merger. Under the Plan of Merger,
MedPartners/Mullikin and CHS have each agreed not to encourage, solicit,
participate in or initiate discussions or negotiations with or provide any
information to any third party concerning any merger, sale of assets, sale of or
tender offer for its shares or similar

41
<PAGE> 52

transactions, except that each of the companies may furnish information to and
negotiate with an unsolicited third party consistent with the good faith
exercise by the Board of Directors of its fiduciary obligations.

REGULATORY APPROVALS

No federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the Merger.

As conditions precedent to the consummation of the Merger, the Plan of
Merger requires, among other things, that no statute, rule or regulation shall
have been enacted by the government (or any governmental agency) of the United
States or any state, county, municipality or other political subdivision thereof
that makes the consummation of the Merger and any other transaction contemplated
thereby illegal.

Certain persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also seek to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, that it
will not be successful. Neither MedPartners/Mullikin nor CHS intends to seek any
further stockholder approval or authorization of the Plan of Merger as a result
of any action that it may take to resist or resolve any objections by the
Federal Trade Commission or other objections, unless required to do so by
applicable law.

BUSINESS PENDING THE MERGER

The Plan of Merger provides that, during the period from the date of the
Plan of Merger to the Effective Time, except as provided in the Plan of Merger,
CHS will use its reasonable best efforts to preserve intact its present business
organization, to keep available to MedPartners/Mullikin and the surviving
corporation the services of the present employees of CHS, maintain the goodwill
of customers, suppliers and others having business dealings with CHS.

Under the Plan of Merger, CHS has agreed that it will not (other than as
required pursuant to or contemplated by the terms of the Plan of Merger and
related documents and other than with respect to transactions for which binding
commitments have been entered into prior to the date of the Plan of Merger and
certain other transactions disclosed to MedPartners/Mullikin), without first
obtaining the written consent of MedPartners/Mullikin, (i) encumber any asset or
enter into any transaction or make any contract or commitment relating to its
properties, assets and business, other than in the ordinary course of business
or as otherwise disclosed in the Plan of Merger; (ii) enter into any employment
contract which is not terminable upon notice of 30 days or less, at will and
without penalty to it, except as provided in the Plan of Merger; (iii) enter
into any contract or agreement which cannot be performed within three months or
which involves the expenditure of over $100,000; (iv) issue or sell, or agree to
issue or sell, any shares of capital stock or other securities of CHS; (v) make
any payment or distribution to the trustee under any bonus, pension, profit
sharing or retirement plan or incur any obligation to make any such payment or
contribution which is not in accordance with its usual past practice, or make
any payment or contributions or incur any obligation pursuant to or with respect
to any other plan or contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement payments,
profit sharing or the like, establish or enter into any such plan, contract or
arrangement, or terminate any plan; (vi) extend credit to anyone other than CMG
or HSMG except in the ordinary course of business consistent with prior
practices; (vii) guarantee the obligation of any person, firm or corporation
other than CMG or HSMG, except in the ordinary course of business consistent
with prior practices; (viii) incur any material adverse change; (ix) discharge
or satisfy any material lien or encumbrance, or pay or satisfy any material
obligation or liability (absolute, accrued, contingent or otherwise) other than
liabilities shown or reflected on the CHS Balance Sheet or liabilities incurred
since the date of the CHS Balance Sheet in the ordinary course of business,
which discharge or satisfaction would have a material adverse effect on CHS; (x)
increase or establish any reserve for taxes or any other liability on its books
or otherwise provided therefor which would have a material adverse effect on
CHS, except as may have been required due to income or operations of CHS since
the date of the CHS Balance Sheet; (xi) mortgage, pledge or subject to any lien,
charge or other encumbrance any of the assets, tangible or

42
<PAGE> 53

intangible, which assets are material to the business or financial condition of
CHS; (xii) sell or transfer any of the assets material to the business of CHS,
cancel any material debts or claims or waived any material rights, except in the
ordinary course of business; (xiii) grant any general or uniform increase in the
rates of pay of employees or any material increase in salary payable or to
become payable by CHS to any officer or employee, consultant or agent (other
than normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increase in a material respect the compensation of any
officer, employee, consultant or agent; (xiv) except for this Plan of Merger and
any other agreement executed and delivered pursuant to this Plan of Merger,
enter into any material transaction other than in the ordinary course of
business or permitted under the Plan of Merger; (xv) issue any stock, bonds or
other securities or any options or rights to purchase any of its securities; or
(xvi) amend its Certificate of Incorporation or By-Laws.

WAIVER AND AMENDMENT

The Plan of Merger provides that, at any time prior to the Effective Time,
MedPartners/Mullikin and the Subsidiary, on the one hand, and CHS, on the other
hand, may (i) extend the time for the performance of any of the obligations or
other acts of the other party contained in the Plan of Merger; (ii) waive any
inaccuracies in the representations and warranties of the other party contained
in the Plan of Merger or in any document delivered pursuant to the Plan of
Merger; and (iii) subject to the following sentence, waive compliance with the
agreements or conditions under the Plan of Merger. In addition, the Plan of
Merger may be amended at any time upon the written agreement of the parties to
the Plan of Merger provided that, after the Special Meeting, no amendment may be
made which requires further approval of the CHS stockholders under the DGCL
without such further approval being obtained.

TERMINATION

The Plan of Merger may be terminated at any time prior to the Effective
Time, whether before or after the requisite approval of the Plan of Merger by
the stockholders of CHS: (i) by mutual written consent of MedPartners/Mullikin,
the Subsidiary and CHS; (ii) by either MedPartners/Mullikin or CHS, if the
Merger has not been consummated on or before August 31, 1996 (unless
MedPartners/Mullikin and CHS have extended the Plan of Merger through September
30, 1996 as provided in the Plan of Merger), unless the failure to consummate
the Merger by such time is due to the willful and material breach of the Plan of
Merger by the party seeking to terminate the Plan of Merger; provided, however,
that the passage of such period shall be tolled for any part thereof (not to
exceed 60 days in the aggregate) during which any party shall be subject to a
non-final order, decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger or the calling or holding of a
meeting of stockholders; (iii) by either MedPartners/Mullikin or CHS, if any
required approval of the Plan of Merger by holders of CHS Common Stock has not
been obtained at the Special Meeting; and (iv) by MedPartners/Mullikin if the
holders of more than 10% of the CHS Shares shall have given proper written
demand for appraisal, the value of such CHS Shares as provided in Section 262 of
DGCL and Sections 1300 through 1312 of the California Corporations Code before
the taking of the vote on the Merger by the CHS stockholders.

NEW YORK STOCK EXCHANGE LISTING

A Subsequent Listing Application will be filed with the NYSE to list the
shares of MedPartners/ Mullikin Common Stock to be issued to CHS stockholders in
connection with the Merger. Although no assurance can be given that the shares
of MedPartners/Mullikin Common Stock so issued will be accepted for listing,
MedPartners/Mullikin anticipates that these shares will qualify for listing on
the NYSE, upon official notice of issuance thereof.

RESALE OF MEDPARTNERS/MULLIKIN COMMON STOCK BY AFFILIATES

MedPartners/Mullikin Common Stock to be issued to CHS stockholders in
connection with the Merger has been registered under the Securities Act.
MedPartners/Mullikin Common Stock received by the CHS stockholders upon
consummation of the Merger will be freely transferable under the Securities Act,
except for shares issued to any person who may be deemed an "Affiliate" (as
defined below) of CHS or MedPartners/

43
<PAGE> 54

Mullikin within the meaning of Rule 145 under the Securities Act. "Affiliates"
are generally defined as persons who control, are controlled by, or are under
common control with CHS or MedPartners/Mullikin at the time of the Special
Meeting (generally, directors and certain executive officers of CHS or
MedPartners/ Mullikin and major stockholders of MedPartners/Mullikin or CHS).
Generally, all shares of MedPartners/ Mullikin Common Stock received by such
Affiliates may not be sold until MedPartners/Mullikin publishes at least one
full month of the combined results of operations of MedPartners/Mullikin and
CHS. MedPartners/ Mullikin has agreed to publish (as defined in SEC Authority
Series Release No. 135) such results within 30 days after the end of the first
calendar month following the Effective Time. In addition, Affiliates of CHS or
MedPartners/Mullikin may not sell their shares of MedPartners/Mullikin Common
Stock acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for two years
following the Effective Time, an Affiliate (together with certain related
persons) would be entitled to sell shares of MedPartners/Mullikin Common Stock
acquired in connection with the Merger only through unsolicited "broker
transactions" or in transactions directly with a "market maker", as such terms
are defined in Rule 144 under the Securities Act. Additionally, the number of
shares to be sold by an Affiliate (together with certain related persons and
certain persons acting in concert) during such two-year period within any
three-month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding shares of MedPartners/Mullikin Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 would remain available to Affiliates only if
MedPartners/Mullikin remained current with its information filings with the SEC
under the Exchange Act. Two years after the Effective Time, an Affiliate would
be able to sell such MedPartners/Mullikin Common Stock without such manner of
sale or volume limitations, provided that MedPartners/Mullikin was current with
its Exchange Act information filings and such Affiliate was not then an
Affiliate of MedPartners/Mullikin. Three years after the Effective Time, an
Affiliate would be able to sell such shares of MedPartners/Mullikin Common Stock
without any restrictions so long as such Affiliate was not, and had not been for
at least three months prior thereto, an Affiliate of MedPartners/Mullikin.

ADDITIONAL INTERESTS OF CERTAIN PERSONS IN THE MERGER; EMPLOYMENT AGREEMENTS

In considering the recommendation of the Board of Directors of CHS with
respect to the Plan of Merger and the transactions contemplated thereby, CHS
stockholders should be aware that certain members of the management of CHS and
the Board of Directors of CHS have certain interests in the Merger that are in
addition to the interests of stockholders of CHS generally.

Pursuant to the Plan of Merger, MedPartners/Mullikin will assume the
existing the Employment Agreements with Martin J. Coyne, M.D., currently the
Chairman of the Board of CHS, Marvin V.H. Kanter, M.D., currently the President
and Chief Executive Officer of CHS, Stewart Gleischman, M.D., currently the Vice
Chairman of the Board and Executive for Strategic Planning of CHS, and Joan
Rose, Executive Vice President and Chief Operating Officer of CHS.

It is anticipated that CMG and Health Source Management will seek to
provide for bonus arrangements for key individuals related to the success of
each organization, some of whom are expected to be directors and officers of
CHS.

Thomas R. Weinberger, a director of CHS and of Health Source Management, is
Executive Vice President of Sutro, which acted as financial advisor to the
Company in connection with the Merger. The Board believes that the terms of such
engagement are no less favorable to the Company than would be available from an
independent third party. Mr. Weinberger also beneficially owns 243 shares of CHS
Common Stock through Health Source Management and has been recommended to
receive a bonus of $30,000 in connection with the Merger, as a participant in a
bonus pool to be established by Health Source Management and subject to the
ratification of the shareholders of Health Source Management.

Assuming a Base Period of $20.31, all of the shares of CHS Common Stock
would be converted into an aggregate of 1,969,473 shares of MedPartners/Mullikin
Common Stock in the Merger. If the Merger were

44
<PAGE> 55

consummated, the directors and executive officers of CHS would receive a total
of approximately 15.85% of the MedPartners/Mullikin Common Stock issued to CHS
stockholders in the Merger. These individuals have unanimously indicated their
intentions to vote the shares of CHS Common Stock beneficially owned by them FOR
the Plan of Merger. See "Security Ownership of Certain Beneficial Owners and
Management -- CHS".

ACCOUNTING TREATMENT

MedPartners/Mullikin and CHS expect to receive a letter from Ernst & Young
LLP to the effect that they concur with the conclusion of management of
MedPartners/Mullikin and CHS that the Merger will qualify for
pooling-of-interests accounting treatment if consummated in accordance with the
Plan of Merger. If the Merger does not qualify for pooling of interests
treatment for accounting purposes, the Merger would be treated as a purchase for
accounting purposes. The Merger is expected to qualify for pooling-of-interests
accounting treatment if consummated in accordance with the Plan of Merger.
MedPartners/Mullikin, the Subsidiary and CHS have agreed not to intentionally
take any action that would disqualify treatment of the Merger as a pooling of
interests for accounting purposes.

Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of MedPartners/Mullikin and CHS will be combined
at the Effective Time and carried forward at their previously recorded amounts,
the stockholders' equity accounts of MedPartners/Mullikin and CHS will be
combined on the consolidated balance sheet of MedPartners/Mullikin and no
goodwill or other intangible assets will be created. Consolidated financial
statements of MedPartners/Mullikin issued after the Merger will be restated
retroactively to reflect the consolidated operations of MedPartners/Mullikin and
CHS as if the Merger had taken place prior to the periods covered by such
consolidated financial statements.

The unaudited pro forma financial information contained in this
Prospectus-Proxy Statement has been prepared using the pooling of interests
accounting method to account for the Merger. Consistent with pooling-
of-interests accounting treatment, the direct costs related to the Merger will
be taken as a non-recurring charge to earnings in the quarter in which the
Merger is consummated. See "Pro Forma Condensed Financial Information".

FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of the material federal income tax
consequences of the Merger and the exchange by the holders of CHS Shares of such
shares for shares of MedPartners/Mullikin Common Stock. This summary is not a
complete description of all the consequences of the Merger. Each stockholder's
individual circumstances may affect the tax consequences of the Merger to him or
her. In addition, no information is provided herein with respect to the tax
consequences of the Merger under applicable foreign, state or local laws.
Accordingly, each CHS stockholder is urged to consult his or her own tax advisor
as to the specific tax consequences of the Merger to him or her.

Neither MedPartners/Mullikin nor CHS has requested or will receive an
advance ruling from the Internal Revenue Service (the "Service") as to the
federal income tax consequences of the Merger. CHS will obtain an opinion of
counsel as to the federal income tax consequences of the Merger, which opinion
is based upon the facts that are described herein, and upon certain customary
representations made by the management of CHS and by the management of
MedPartners/Mullikin. Such opinion is also based upon the Code, regulations
currently in effect thereunder, current administrative rulings and practice by
the Service, and judicial authority, all of which are subject to change. Any
such change could affect the continuing validity of such opinion and this
discussion. In addition, an opinion of counsel is not binding upon the Service,
and there can be no assurance, and none is hereby given, that the Service will
not take a position which is contrary to one or more positions reflected in the
opinion of such counsel, or that such opinion will be upheld by the courts if
challenged by the Service. Furthermore, MedPartners/Mullikin and CHS have agreed
in the Plan of Merger not to take any action which would disqualify the Merger
as a reorganization which is tax-free to the

45
<PAGE> 56

stockholders of CHS pursuant to Section 368(a) of the Code. Based on the
foregoing, the opinion of counsel states, among other matters, that: (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and MedPartners/
Mullikin, the Subsidiary and CHS will each be a party to the reorganization
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by MedPartners/Mullikin, CHS or the Subsidiary as a result of the
Merger; (iii) no gain or loss will be recognized by a CHS stockholder who
receives solely shares of MedPartners/Mullikin Common Stock in exchange for CHS
Shares; (iv) the receipt of cash in lieu of fractional shares of
MedPartners/Mullikin Common Stock will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
MedPartners/Mullikin and these payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed as provided
in Section 302(a) of the Code; (v) the tax basis of the shares of
MedPartners/Mullikin Common Stock received by a CHS stockholder will be equal to
the tax basis of the CHS Shares exchanged therefor, excluding any basis
allocable to a fractional share of MedPartners/Mullikin Common Stock for which
cash is received; (vi) the holding period of the shares of MedPartners/Mullikin
Common Stock received by a CHS stockholder will include the holding period or
periods of the CHS Shares exchanged therefor, provided that the CHS Shares are
held as a capital asset within the meaning of Section 1221 of the Code at the
Effective Time; and (vii) based on CHS' representation that CHS will comply with
the terms of and fully repay the indebtedness evidenced by the Bridge Loan, and
based on MedPartners/Mullikin's representation that MedPartners/Mullikin will
enforce the terms of and make every effort to collect the indebtedness evidenced
by the Bridge Loan, the Bridge Loan is bona fide indebtedness and consequently,
the cash received by CHS in connection with the Bridge Loan should not be deemed
to be cash proceeds received by CHS in the Merger. EACH HOLDER OF CHS SHARES IS
URGED TO CONSULT SUCH HOLDER'S PERSONAL TAX AND FINANCIAL ADVISORS AS TO THE
SPECIFIC FEDERAL INCOME TAX CONSEQUENCES TO SUCH HOLDER, BASED ON SUCH HOLDER'S
OWN PARTICULAR STATUS AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL,
FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.

The foregoing discussion is intended only as a summary of certain federal
income tax consequences of the Merger and does not purport to be a complete
analysis or listing of all potential tax effects relevant to a decision whether
to vote in favor of approval and adoption of the Plan of Merger and the Merger.
The discussion does not address the tax consequences arising under the laws of
any state, locality or foreign jurisdiction. Holders of CHS Shares are urged to
consult their own tax advisors concerning the federal, state, local and foreign
tax consequences of the Merger to them.

NO SOLICITATION OF TRANSACTIONS

Under the Plan of Merger, CHS may furnish information and access, in
response to unsolicited requests therefor, concerning CHS to other corporations,
partnerships, persons or other entities or groups, and may participate in
discussions and negotiate with such entities concerning any proposal to acquire
CHS upon a merger, purchase of assets, purchase of or tender offer for CHS
Shares or similar transaction (an "Acquisition Transaction"), in response to
unsolicited requests therefor, if (i) the Board of Directors of CHS determines
in its good faith judgment in the exercise of its fiduciary duties that such
action is appropriate in furtherance of the best interest of its stockholders
and (ii) the other party involved enters into a confidentiality agreement with
CHS substantially similar to the provisions respecting confidentiality
applicable to CHS and MedPartners/Mullikin. Except as described in the preceding
sentence, CHS has agreed that it will not, and will direct each officer,
director, employee, representative and agent of CHS not to, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with or provide any information to any corporation, partnership,
person or other entity or group (other than MedPartners/Mullikin or an affiliate
or associate or agent of MedPartners/Mullikin) concerning any merger, sale of
assets, sale of or tender offer for CHS Shares or similar transactions involving
CHS. CHS has further agreed that it will notify MedPartners/ Mullikin if it
enters into a confidentiality agreement with any third party in response to any
unsolicited request for information and access in connection with a possible
Acquisition Transaction, including providing MedPartners/Mullikin with the
identity of the third party and the proposed terms of such Acquisition
Transaction.

46
<PAGE> 57

EXPENSES; BREAKUP FEES

The Plan of Merger provides that all costs and expenses incurred in
connection with the Plan of Merger and the transactions contemplated thereby
shall be paid by the party incurring such expense. If the Merger is not
consummated by August 31, 1996, MedPartners/Mullikin shall pay CHS a breakup fee
in the amount of $2,050,000 plus all expenses incurred by CHS in connection with
the Plan of Merger. The consummation of the Merger may be extended through
September 30, 1996, provided, the breakup fee shall increase to $3,065,000 plus
all expenses incurred by CHS in connection with the Plan of Merger. No breakup
fee shall be payable to CHS if the CHS stockholders vote against the Merger. The
obligation to pay the break up fee may be satisfied in part by the cancellation
of the indebtedness of CHS to MedPartners/Mullikin. See "-- Bridge Loan".

INDEMNIFICATION

MedPartners/Mullikin's Certificate and MedPartners/Mullikin's By-laws
provide for the elimination of directors' liability for monetary damages arising
from a breach of certain fiduciary obligations and for the indemnification of
directors, officers and agents to the full extent permitted by the DGCL. These
provisions generally provide for indemnification in the absence of gross
negligence or willful misconduct and cannot be amended without the affirmative
vote of a majority of the outstanding shares of MedPartners/Mullikin Common
Stock entitled to vote thereon.

The Plan of Merger provides that all rights to indemnification for acts or
omissions occurring prior to the Effective Time now existing in favor of the
current or former directors or officers of CHS as provided in its Articles of
Incorporation or By-laws shall survive the Merger and shall continue in effect
in accordance with their terms.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling
MedPartners/Mullikin pursuant to the foregoing provisions, MedPartners/ Mullikin
has been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.

RIGHTS OF DISSENTING STOCKHOLDERS

CHS stockholders may be entitled to demand dissenters rights under Delaware
and California law.

DELAWARE

The following is a brief summary of the procedures for stockholders of CHS
who dissent from the Merger and demand statutory appraisal rights. This summary
is qualified in its entirety by reference to Annex C which sets forth the full
text of Section 262 of the Delaware General Corporation Law ("Section 262").

If the Merger is consummated, holders of record of CHS Common Stock on the
date of the making of a demand pursuant to the provisions of Section 262, who
continuously hold such shares through the Effective Time, have otherwise
complied with Section 262 and have not voted in favor of the Merger will be
entitled to have their shares of CHS Common Stock ("the "Dissenting Stock")
appraised by the Delaware Court of Chancery (the "Chancery Court") and to
receive payment of the fair value of such Dissenting Stock at the Effective Time
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) as determined by such court.

Section 262 represents the exclusive statutory remedy available under the
Delaware General Corporation Law to holders of CHS Common Stock who elect to
seek appraisal of the fair value of their shares. Persons who are beneficial
owners of shares of CHS Common Stock but whose shares are held of record by
another person, such as a broker, bank or nominee, should instruct the record
holder to follow the procedures outlined below if such persons wish to dissent
with respect to any or all of their shares. Failure to take any necessary step
may result in a termination or waiver of appraisal rights under Section 262.

47
<PAGE> 58

Under Section 262, not less than 20 days prior to the Special Meeting, CHS
is required to notify each stockholder eligible for appraisal rights of the
availability of such appraisal rights. This Prospectus-Proxy Statement
constitutes notice to CHS's stockholders that appraisal rights are available to
them. Stockholders of
record who desire to exercise their appraisal rights must satisfy all of the
following conditions. A written demand for appraisal of any shares of CHS Common
Stock must be filed with CHS before the taking of the vote on the Merger. Such
written demand must reasonably inform CHS of the identity of the stockholder of
record and of such stockholder's intention to demand appraisal of CHS Common
Stock held by such stockholder. This written demand for appraisal of shares must
be in addition to and separate from any proxy or vote abstaining from or voting
against the Merger. Neither voting against, abstaining from voting on, failing
to return a proxy with respect to, nor failing to vote on the Merger will
constitute a demand for appraisal under Section 262.

Stockholders electing to exercise their appraisal rights under Section 262
must not vote for the approval and adoption of the Plan of Merger (a failure to
return a proxy will satisfy this condition). If a stockholder returns a signed
proxy but does not specify a vote against the approval and adoption of the Plan
of Merger or a direction to abstain, the proxy will be voted for the approval
and adoption of the Plan of Merger, which will have the effect of waiving such
stockholder's appraisal rights.

Only the holder of record of CHS Common Stock is entitled to seek appraisal
of the fair value of the shares registered in such holder's name. A demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the certificate(s) for CHS
Common Stock. If CHS Common Stock is owned of record in a fiduciary capacity
(such as by a trustee, guardian or custodian), such demand must be executed by
the fiduciary. If CHS Common Stock is owned of record by more than one person
(as in a joint tenancy or tenancy in common), such demand must be executed by
all owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such agent is acting as agent for the
record owner.

A record owner, such as a person who holds CHS Common Stock as a nominee
for others, may exercise the right of appraisal with respect to the shares held
for all or fewer than all beneficial owners of shares of CHS Common Stock as to
which the holder is the record owner. In such case, the written demand must set
forth the number of shares covered by such demand. Where the number of shares is
not expressly stated, the demand will be presumed to cover all shares of CHS
Common Stock outstanding in the name of such record owner. A dissent submitted
by a beneficial owner who is not the record owner will not be honored.

A stockholder who elects to exercise appraisal rights should mail or
deliver such stockholder's written demand to CHS at 4505 Las Virgenes Road,
Suite 105, Calabasas, California 91302, Attention: Secretary. The written demand
for appraisal should specify the stockholder's name and mailing address and the
number of shares of CHS Common Stock owned by such stockholder and that such
stockholder is demanding appraisal of such shares. Within 10 days after the
Effective Time, CHS must provide notice of the Effective Time to all
stockholders who have complied with Section 262 and have not voted for the
approval and adoption of the Plan of Merger.

Within 120 days after the Effective Time, either CHS or any stockholder who
has complied with Section 262 may file a petition in the Chancery Court
demanding a determination of the fair value of such stockholder's Dissenting
Stock. If a petition for an appraisal is timely filed, after a hearing on such
petition, the Chancery Court will determine those stockholders entitled to
appraisal rights and will appraise the shares of CHS Common Stock owned by such
stockholder, determining the fair value of such Dissenting Stock, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest to be paid, if any, upon the
amount determined to be the fair value. In determining fair value, the Chancery
Court is to take into account all relevant factors. In Weinberger v. UOP, Inc.
457 A.2d 701 (1983), the Delaware Supreme Court expanded the factors that could
be considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered and that "fair price obviously requires consideration of all
relevant factors involving the value of a company. . . ."

48
<PAGE> 59

The Delaware Supreme Court stated that in making this determination of fair
value, the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Weinberger, the Delaware Supreme Court held that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."

Stockholders considering seeking appraisal should be aware that the fair
value of their Dissenting Stock determined under Section 262 could be more than,
the same as or less than the Merger Consideration, which they would receive
pursuant to the Plan of Merger if they did not seek appraisal of their
Dissenting Stock, and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value under
Section 262. Moreover, in view of CHS's financial position, it is possible that
CHS may not have sufficient resources immediately available to pay dissenting
stockholders the fair value of their Dissenting Stock.

The cost of the appraisal proceeding may be determined by the Chancery
Court and taxed against the parties as the Chancery Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Chancery Court
may order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all Dissenting Stock entitled to
appraisal. In the absence of such a determination or assessment, each party
bears his own expenses.

Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
Dissenting Stock subject to such demand or to receive payment of dividends or
other distributions on such Dissenting Stock, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.

At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
Merger Consideration; after this period, the stockholder may withdraw the demand
for appraisal only with the consent of CHS. If no petition for appraisal is
filed with the Chancery Court within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease, and all stockholders shall be
entitled to receive the Merger Consideration under the Plan of Merger. Inasmuch
as CHS has no obligation to file such a petition, and has no present intention
to do so, any stockholder who desires such a petition to be filed is advised to
file it on a timely basis. However, no petition timely filed in the Chancery
Court demanding appraisal shall be dismissed as to any stockholder without the
approval of the Chancery Court, and such approval may be conditioned upon such
terms as the Chancery Court deems just.

CALIFORNIA

The following discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by reference to Annex D,
which sets forth the full text of Sections 1300 through 1312 of the California
Corporations Code. As used in this summary and in Sections 1300 through 1312,
the term "dissenting stockholder" means the record holder of the dissenting
shares. A person having a beneficial interest in Common Stock which is held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record stockholder to timely and properly follow the steps
summarized below to perfect whatever dissenter's rights the beneficial
stockholder may have.

Pursuant to Sections 1300 through 1312 of the California Corporations Code,
any stockholder of CHS entitled to vote at the Special Meeting may require CHS
to purchase his shares of CHS Common Stock for cash if they qualify as
dissenting shares under said Sections ("Dissenting Shares"). The purchase price
of Dissenting Shares purchased pursuant to said Sections is the fair market
value as of the day before the first announcement of the terms of the Merger,
excluding any appreciation or depreciation in contemplation of the Merger.

49
<PAGE> 60

A stockholder may not vote such shares in favor of the Merger. Assuming
that the Merger is approved at the Special Meeting, CHS will, within 10 days
thereafter, mail a Notice of Approval by Stockholders to each stockholder whose
shares could qualify as Dissenting Shares. The Notice of Approval will state the
price determined by CHS as the fair market value and will constitute an offer to
purchase Dissenting Shares at that price. The stockholder must make a separate
written demand for purchase of such shares for cash at their fair market value
which must be received by CHS not later than 30 days after the Notice of
Approval. Any demand which is not timely received is not effective for any
purpose.

The written demand must (i) state the number of shares which are held of
record by the stockholder which the stockholder demands that CHS purchase and
(ii) state the amount which the stockholder claims to be the fair market value
as of March 11, 1996, the day before the first announcement of the terms of the
Merger. The claim as to fair market value constitutes an offer by the
stockholder to sell the shares at that price.

Certificates representing Dissenting Shares must be surrendered to CHS
within 30 days after the Notice of Approval by Stockholders is mailed by CHS.
Surrendered certificates will be stamped or endorsed with a statement that the
shares are Dissenting Shares, and returned to the dissenting stockholder.

If CHS and a stockholder agree that his shares qualify as Dissenting Shares
and agree on the price of the shares, payment for the Dissenting Shares must be
made by CHS within 30 days of such agreement upon surrender of the certificates
representing the Dissenting Shares. The purchase price will bear interest from
the date of agreement until paid at the legal rate on judgments.

If CHS and a stockholder do not agree either that such shares qualify as
Dissenting Shares, or on the purchase price, the stockholder may within six
months after CHS mails the Notice of Approval by Stockholders, file a complaint
in Superior Court to determine the issues. Two or more stockholders may join
together in any such action, or a stockholder may intervene in any pending
action on such issues.

The court will determine whether the shares which are the subject of the
complaint qualify as Dissenting Shares and will determine or appoint appraisers
to determine the fair market value of the shares. The court may award costs and
attorney's fees in such an action in the manner the court considers equitable.
If the price determined in the court action exceeds the price offered by CHS,
CHS will be required to pay costs and, if the appraisal price is more than 125%
of the price offered by CHS, the court may award attorneys fees and interest at
the legal rate on judgments. If the price determined in the court action is less
than the price offered by CHS, dissenting stockholders who joined in the court
action would receive the lower amount.

A dissenting stockholder may not withdraw a demand for payment without the
consent of CHS. Dissenting Shares may otherwise lose their status as Dissenting
Shares (i) if the Merger is abandoned, (ii) if CHS and the dissenting
stockholder disagree as to whether the shares qualify as Dissenting Shares, or
(iii) as to the price, the dissenting stockholder does not file a complaint in
Superior Court or intervene in a pending action within six months of the date of
the mailing by CHS of the Notice of Approval by Stockholders.

No stockholder having a right to demand payment of the fair market value of
shares of CHS Common Stock has any right at law or in equity to attack the
Merger, except in an action to test whether the number of shares of Common Stock
required to adopt the Plan of Merger and approve the Merger has been legally
voted in favor thereof.

OPERATIONS AND MANAGEMENT
OF MEDPARTNERS/MULLIKIN AFTER THE MERGER

OPERATIONS

After consummation of the Merger, CHS will operate under the name CHS
Management, Inc. and will continue to engage in the business of an MSO engaging
in the organization and management of and affiliations with primary care and
multi-specialty physician groups and IPAs and assist the medical groups in the
negotiation of contracts with HMOs to provide physician and related healthcare
services to enrollees who

50
<PAGE> 61

select physicians in CHS-managed physician groups. It is expected that the
operations of CHS and New Management will be integrated where appropriate with
the operations of MedPartners/Mullikin in the greater Los Angeles area. No
material disposition or restructuring of either MedPartners/Mullikin or CHS or
any material part thereof is contemplated as a result of the Merger.

MANAGEMENT

After the consummation of the Merger, MedPartners/Mullikin will be managed
by the same Board of Directors and executive officers as existed prior to the
Merger.

51
<PAGE> 62

BUSINESS OF MEDPARTNERS/MULLIKIN

GENERAL

MedPartners/Mullikin is a leading physician practice management company
that develops, consolidates and manages integrated health care delivery systems.
Through its network of affiliated group and IPA physicians, MedPartners/Mullikin
provides primary and specialty health care services to prepaid managed care
enrollees and fee-for-service patients. MedPartners/Mullikin enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
At June 30, 1996, MedPartners/Mullikin operated in 23 states and was affiliated
with more than 5,777 physicians, including 1,461 in group practices, 3,580
through IPA relationships and 736 hospital-based physicians.
MedPartners/Mullikin physicians provided prepaid health care to over 687,000
enrollees through 45 HMO relationships.

MedPartners/Mullikin's revenue is derived from the provision of
fee-for-service medical services and from contracts with HMOs which compensate
MedPartners/Mullikin and its affiliated physicians on a prepaid basis. In the
prepaid arrangements, MedPartners/Mullikin, through its affiliated physicians,
typically is paid by the HMO a fixed amount per member ("enrollee") per month
("professional capitation") or a percentage of the premium per member per month
("percent of premium") paid by employer groups and other purchasers of health
coverage to the HMOs. In return, MedPartners/Mullikin, through its affiliated
physicians, is responsible for substantially all of the medical services
required by enrollees. In many instances, MedPartners/Mullikin and its
affiliated physicians accept financial responsibility for hospital and ancillary
health care services in return for payment from HMOs on a capitated or percent
of premium basis ("institutional capitation"). In exchange for these payments
(collectively, "global capitation"), MedPartners/ Mullikin, through its
affiliated physicians, provides the majority of covered health care services to
enrollees and contracts with hospitals and other health care providers for the
balance of the covered services.

THE CAREMARK ACQUISITION

On May 13, 1996, MedPartners/Mullikin agreed to acquire Caremark pursuant
to a Plan and Agreement of Merger by and among MedPartners/Mullikin, PPM Merger
Corporation and Caremark. Under the Plan of Merger, PPM Merger Corporation will
be merged with and into Caremark, with Caremark to continue as the surviving
corporation as a wholly owned subsidiary of MedPartners/Mullikin. After the
consummation of the Caremark Acquisition, MedPartners/Mullikin will operate
under the name of "MedPartners, Inc." Upon the consummation of the Caremark
Acquisition, each Caremark stockholder will receive 1.21 shares of
MedPartners/Mullikin Common Stock in exchange for each share of Caremark Common
Stock owned by such stockholder. Consummation of this acquisition is subject to
a number of conditions, usual in a transaction of this type, including: that the
stockholders of MedPartners/Mullikin and Caremark approve the transaction; that
the transaction qualify for pooling of interests accounting treatment; and that
the transaction qualify as a tax free reorganization. There is no guarantee that
such conditions will be met. If such conditions are not met, the acquisition of
Caremark may not be consummated. After consummation of the Caremark Acquisition,

52
<PAGE> 63

MedPartners/Mullikin will operate under the name "MedPartners, Inc." See "Pro
Forma Condensed Financial Information" and the Financial Statements beginning at
Page F-1.

Caremark is a leading provider of health care services through its PPM,
pharmaceutical services, disease management and international businesses. In its
PPM business, Caremark provides PPM services to approximately 1,000 affiliated
physicians delivering comprehensive care to over one million people. Caremark
also operates one of the largest independent prescription drug benefit
management ("PBM") businesses in the United States with four mail service
pharmacies. Caremark's disease management business provides services and
therapies to patients with certain chronic conditions, primarily hemophilia and
growth disorders. Caremark's international business provides health care
services in a number of locations outside the United States which have different
regulatory environments and payor systems.

Initiated in 1992, Caremark's PPM business provides comprehensive
management services to large multi-speciality physician practices in major
metropolitan areas. Caremark is a leader in providing capitated health care
arrangements to payors. As of March 31, 1996, Caremark provided management
services to approximately 1,000 affiliated physicians and 210 other licensed
health care professionals who deliver comprehensive health care services to over
one million people. As of March 31, 1996, Caremark had affiliated with large,
established multi-specialty physician practices in six major metropolitan
markets, including Friendly Hills HealthCare Network (that includes CIGNA
Medical Group) in Southern California, Kelsey-Seybold Clinic in Houston, North
Suburban and Glen Ellyn Clinics in Chicago, Diagnostic Clinic in Tampa/ St.
Petersburg, Oklahoma City Clinic and Atlanta Medical Clinic.

Caremark's pharmaceutical services business manages outpatient prescription
drug benefit programs for more than 1,200 clients, including corporations,
insurance companies, unions, government employee groups and managed care
organizations throughout the United States. Caremark's prescription benefit
management business is one of the largest independent PBMs dispensing 42,000
prescriptions daily from four mail services pharmacies. Caremark also manages
patients' immediate prescription needs through a network of approximately 53,000
pharmacies.

Caremark's international business is developing and implementing new
approaches to health care delivery to provide services in different regulatory
environments and payor systems in six countries.

Caremark was formed as a wholly-owned subsidiary of Baxter in August 1992,
and on November 30, 1992, Baxter distributed to the holders of Baxter common
stock all of the outstanding shares of Caremark Common Stock. As used herein,
the term "Caremark" refers to Caremark and its predecessors, and their
respective subsidiaries and affiliates, unless the context otherwise requires.
The principal executive offices of Caremark are located at 2215 Sanders Road,
Northbrook, Illinois 60062, and its telephone number is (847) 559-4700.

At June 30, 1996, Caremark had consolidated assets of approximately $1.40
billion and stockholders' equity of approximately $388.0 million, and employed
approximately 11,600 persons.

RECENT DEVELOPMENTS

53
<PAGE> 64

On June 28, 1996, MedPartners/Mullikin entered into a Plan and Agreement of
Merger to acquire Summit, in exchange for shares of MedPartners/Mullikin Common
Stock. The transaction is to be a tax free reorganization accounted for as a
pooling of interests. Summit is a multi-specialty group of approximately 70
physicians which serves northern New Jersey. Concurrently with, and as a
condition to, the consummation of the acquisition of Summit,
MedPartners/Mullikin or its subsidiaries will acquire the assets of MRA, which
owns certain real estate and equipment used in the operations of Summit. MRA is
owned by 54 of the 59 shareholders of Summit. MedPartners/Mullikin intends to
file a Registration Statement with the SEC with respect to the shares of
MedPartners/Mullikin Common Stock to be issued to the shareholders of Summit and
the partners of MRA in connection with such acquisition. Consummation of this
acquisition is subject to a number of conditions, including that the
shareholders of Summit and the partners of New Management approve the
transaction, that the transaction qualify as a tax free reorganization and other
conditions usual in transactions of this type. In addition, the closing of the
transaction is conditioned upon the receipt by the parties of a letter from
Ernst & Young LLP, MedPartners/Mullikin's independent auditors, that the
transaction will qualify for pooling of interests accounting treatment. See
"Notes to Pro Forma Condensed Financial Information". There is no guarantee that
such conditions will be met. If such conditions are not met, the acquisition of
Summit and MRA may not be consummated.

On July 3, 1996, MedPartners/Mullikin entered into a Plan and Agreement of
Merger to acquire Cardinal in exchange for shares of MedPartners/Mullikin Common
Stock. The transaction is to be a tax-free reorganization accounted for as a
pooling of interests. Cardinal is a multi-specialty group of 75 physicians which
serves the Triangle area in Raleigh-Durham and includes Research Triangle Park.
In addition to the main campus, Cardinal provides services at 16 clinical
facilities and 15 satellite locations. Cardinal is also affiliated with almost
500 physicians through three IPAs, including Cardinal IPA, Piedmont Physicians
Alliance, Inc. and Eastern Carolina Primary Care Alliance, Inc. The three IPAs,
which are in the early stages of development, already have contracts with five
managed care companies providing service to almost 6,000 enrollees.
MedPartners/Mullikin intends to file a Registration Statement with the SEC with
respect to the shares of MedPartners/Mullikin Common Stock to be issued to the
shareholders of Cardinal in connection with such merger. Consummation of this
merger is subject to a number of conditions, including: that the shareholders of
Cardinal approve the transaction, that the transaction qualify as a tax-free
reorganization and other conditions usual in transactions of this type. In
addition, the closing of the transaction is conditioned upon the receipt by the
parties of a letter from Ernst & Young LLP, MedPartners/Mullikin's independent
auditors, that the transaction will qualify for pooling of interests accounting
treatment. See "Notes to Pro Forma Condensed Financial Information". There is no
guarantee that such conditions will be met. If such conditions are not met, the
acquisition of Cardinal may not be consummated.

On July 24, 1996, MedPartners/Mullikin announced that it had entered into a
Plan and Agreement of Merger to acquire Emergency Professional Services, in
exchange for shares of MedPartners/Mullikin Common Stock. The transaction is to
be a tax free reorganization accounted for as a pooling of interests. Emergency
Professional Services provides emergency department contract management,
in-house physician staff services and staffing to 16 hospitals and six urgent
care centers in northern Ohio and western Pennsylvania. The professional staff
of Emergency Professional Services includes 115 physicians, all of whom are
individual independent contractors. MedPartners/Mullikin intends to file a
Registration Statement with the SEC with respect to the shares of
MedPartners/Mullikin Common Stock to be issued to the shareholders of Emergency
Professional Services in connection with such acquisition. Consummation of this
acquisition is subject to a number of conditions, usual in a transaction of this
type, including: that the shareholders of Emergency Professional Services
approve the transaction; that the transaction qualify for pooling of interests
accounting treatment; and that the transaction qualify as a tax free
reorganization. There is no guarantee that such conditions will be met. If such
conditions are not met, the acquisition of Emergency Professional Services may
not be consummated. See "Pro Forma Condensed Financial Information" and the
"Financial Statements" beginning at page F-1.

54
<PAGE> 65

INDUSTRY

The Health Care Financing Administration ("HCFA") estimates that national
health spending in 1994 was approximately $1 trillion, with physicians
controlling more than 80% of the overall expenditures. The American Medical
Association reports that approximately 565,000 physicians are actively involved
in patient care in the United States, with a growing number participating in
multi-specialty or single-specialty groups. The physician practice management
market is estimated at $200 billion.

Concerns over the accelerating cost of health care have resulted in the
increasing prominence of managed care. As markets evolve from traditional
fee-for-service medicine to managed care, HMOs and health care providers
confront market pressures to provide high quality health care in a
cost-effective manner. Employer groups have begun to bargain collectively in an
effort to reduce the cost of premiums and to bring about greater accountability
of HMOs and providers with respect to accessibility, choice of provider, quality
of care and other indicators of consumer satisfaction. The focus on
cost-containment has placed small to mid-sized physician groups and solo
practices at a disadvantage because they typically have higher operating costs
and little purchasing power with suppliers, they often lack the capital to
purchase new technologies that can improve quality and reduce costs and they do
not have the cost accounting and quality management systems necessary to allow
these physicians to enter into sophisticated risk-sharing contracts with payors.

Industry experts expect the medical delivery system to evolve into a system
where the primary care physician, often part of a multi-specialty group, manages
and directs health care expenditures. As a result of these developments, primary
care physicians have increasingly become the conduit for the delivery of medical
care by acting as "case managers" and directing referrals to certain
specialists, hospitals, alternate-site facilities and diagnostic facilities. By
contracting directly with payors, organizations that control primary care
physicians are able to reduce the administrative overhead expenses incurred by
HMOs and insurers and thereby reduce the cost of delivering medical services.

As a result of the trends toward increased HMO enrollment and physician
membership in group medical practices, health care providers have sought to
reorganize themselves into health care delivery systems that are better suited
to the managed care environment. Physician groups and IPAs are joining with
hospitals and other institutional providers in various ways to create vertically
integrated delivery systems which provide medical and hospital services ranging
from community-based primary medical care to specialized inpatient services.
These health care delivery systems contract with HMOs to provide hospital and
medical services to enrollees under full risk contracts, under which providers
assume the obligation of providing both the professional and institutional
components of covered health care services to the HMO enrollees.

In order to compete effectively in such an emerging environment, physicians
are concluding that they must have control over the delivery and financial
impact of a broader range of health care services through the acceptance of
global capitation. To this end, groups of independent physicians and medium to
large medical groups are taking steps to assume responsibility and risk for
health care services which they do not provide, such as hospitalization.
Physicians are increasingly abandoning traditional private practice in favor of
affiliations with larger organizations, such as MedPartners/Mullikin, which
offer skilled and innovative management, sophisticated information systems and
capital resources. Many payors and their intermediaries, including governmental
entities and HMOs, are increasingly looking to outside providers of physician
services to develop and maintain quality outcomes, management programs and
patient care data. In addition, such payors and intermediaries look to share the
risk of providing health care services through capitation arrangements which
provide for fixed payments for patient care over a specified period of time.
While the acceptance of greater responsibility and risk provides the opportunity
to retain and enhance market share and operate at a higher level of
profitability, medical groups and independent physicians are concluding that the
acceptance of global capitation carries with it significant requirements for
infrastructure, information systems, capital, network resources and financial
and medical management. Physicians are increasingly turning to organizations
such as MedPartners/Mullikin to provide the resources necessary to function
effectively in a managed care environment.

55
<PAGE> 66

STRATEGY

Expansion of Existing Markets. MedPartners/Mullikin's principal
strategy for expanding its existing markets is through the acquisition of
(through purchase, merger or otherwise) or affiliation with physicians and
medical groups within those markets. MedPartners/Mullikin seeks to acquire
or otherwise affiliate with physician groups, IPAs and other providers with
significant market shares in their local markets and established
reputations for providing quality medical care in order to increase market
share in targeted regions. MedPartners/Mullikin also develops
multi-specialty physician networks that are designed to meet the specific
medical needs of a targeted geographic market. MedPartners/Mullikin seeks
to further enhance its existing market share by increasing enrollment and
fee-for-service business in its existing clinics and IPAs.
MedPartners/Mullikin anticipates further internal growth by expanding more
of its payor contracts to global capitation through PPN. Additionally,
MedPartners/Mullikin believes that increasing marketing activities,
enhancing patient service and improving the accessibility of care will
increase MedPartners/Mullikin's market share.

Expansion into New Markets. MedPartners/Mullikin expands into new
markets through the acquisition of or affiliation with other physician
practice management entities and medical groups. MedPartners/Mullikin
believes it is a leading consolidator in the physician practice management
industry and that the MME acquisition was the first major consolidation in
the industry. As a result of the consolidation of physician practices and
the entry of other physician practice management companies into the market,
MedPartners/Mullikin's management has determined that it is important for
MedPartners/ Mullikin to accelerate its rate of expansion through
acquisitions and mergers with entities which already have significant
market penetration. MedPartners/Mullikin believes that by concentrating on
larger acquisitions and continuing to expand its core of physician groups
and IPAs, as well as its network of hospital affiliations, it will be able
to create vertically integrated health care delivery systems and enhance
its competitive position. MedPartners/Mullikin continually reviews
potential acquisitions and physician affiliations and is currently in
preliminary negotiations with various candidates.

Strategic Alliances. MedPartners/Mullikin believes that strategic
alliances with hospitals and health plans improve the delivery of managed
health care. MedPartners/Mullikin has entered into arrangements with
various hospitals under which a portion of the capitation revenue received
from HMOs for institutional care of enrollees assigned to designated
Company clinics and IPA physicians is deposited into "subcapitated risk
pools" managed by MedPartners/Mullikin. MedPartners/Mullikin believes that
such arrangements can be enhanced through the implementation of the
Restricted License held by PPN. Under these arrangements, the hospital is
at risk in the event that the costs of institutional care exceed the
available funds and MedPartners/Mullikin shares in cost savings and revenue
enhancements. MedPartners/Mullikin believes that through these and other
similar alliances, the providers will devote greater resources to ensuring
the wellness of HMO enrollees, provide high-quality and cost-effective care
and seek to retain and expand their respective market shares. As a result,
it is anticipated that the overall cost of providing care will be
contained, rendering both MedPartners/Mullikin and the participating
providers more appealing to both HMOs and medical care consumers.
MedPartners/ Mullikin and its affiliated physicians have also established
relationships with HMOs pursuant to which MedPartners/Mullikin and the HMOs
share proportionately in the risks and rewards of market trends.

Sophisticated Information Systems. MedPartners/Mullikin believes that
information technology is critical to the growth of integrated health care
delivery systems and that the availability of detailed clinical data is
fundamental to quality control and cost containment. MedPartners/Mullikin
develops and maintains sophisticated management information systems which
collect and analyze clinical and administrative data to allow
MedPartners/Mullikin to effectively control overhead expenses, maximize
reimbursement and provide effective utilization management.
MedPartners/Mullikin evaluates the administrative and clinical operations
of affiliated practices and re-engineers these functions as appropri-

56
<PAGE> 67

ate in conjunction with the implementation of MedPartners/Mullikin's
management information systems to maximize the benefits of the systems.

Increased Operational Efficiencies and Cost
Reductions. MedPartners/Mullikin is seeking to increase its operating
efficiency through expansion of its market area and number of HMO
enrollees, refinement of its utilization management programs that deliver
information used by its physicians to monitor and improve their practice
patterns, increased specialization, the development of additional in-house
services and through increased emphasis on outpatient care.
MedPartners/Mullikin's networks take advantage of economies of scale
through centralized billing, scheduling, information management and other
functions.

RECENT MAJOR ACQUISITIONS

On November 29, 1995, a business combination between MedPartners and MME
was consummated, pursuant to which MedPartners acquired MME by exchanging a
total of 13,476,855 shares of MedPartners/ Mullikin's Common Stock for all of
the outstanding partnership interests of MME. In connection with MME
acquisition, MedPartners/Mullikin also issued a total of 547,010 shares of its
Common Stock to acquire a controlling interest in three real estate partnerships
that own properties leased to and utilized in connection with the business of
MedPartners/Mullikin. The transaction, which was consummated as a tax-free
reorganization and pooling of interests for accounting purposes, was valued at
approximately $413 million. See the Consolidated Financial Statements of
MedPartners/Mullikin, Inc. included elsewhere in this Prospectus-Proxy
Statement.

On February 22, 1996, MedPartners/Mullikin acquired PPSI, a publicly traded
physician management company based in Redlands, California, in exchange for
approximately 10,968,458 shares of MedPartners/ Mullikin Common Stock having a
total value of approximately $343.0 million (the "PPSI Merger"). The PPSI Merger
was a tax-free exchange accounted for as a pooling of interests. See the
Consolidated Financial Statements of MedPartners/Mullikin, Inc., included
elsewhere in this Prospectus-Proxy Statement.

In addition to growth through the acquisition of physician groups, the MME
acquisition and the PPSI Merger, MedPartners/Mullikin has consummated business
combinations with MEDCTR, Inc., a family medicine provider located in Ohio,
Vanguard Healthcare Group, Inc., an obstetrics/gynecology practice management
entity operating in the Philadelphia and New Jersey areas, Texas Back Institute,
Inc. and its affiliated medical practice, a spine care center operating in Texas
and Retina and Vitreous Associates of Alabama, P.C., an ophthalmology practice
in Alabama. MedPartners/Mullikin issued a total of 2,788,263 shares of Common
Stock in connection with these additional acquisitions. See the Consolidated
Financial Statements of MedPartners/Mullikin, Inc. included elsewhere in this
Prospectus-Proxy Statement.

Prior to the 1995 Mergers, MedPartners had affiliated with 190 physicians
through December 31, 1994. At June 30, 1996, MedPartners/Mullikin had affiliated
with over 5,777 physicians.

DEVELOPMENT AND OPERATIONS

Prior to affiliation with MME, MedPartners concentrated its development
efforts in the southeastern United States, affiliating primarily with physician
groups who practice on a fee-for-service basis. With the MME and PPSI
organizations, MedPartners/Mullikin acquired additional business models,
specifically designed to operate efficiently in the capitated managed care
environment. These business models, which are replicable and flexible, allow
MedPartners/Mullikin to capitalize on the full range of market opportunities in
the physician practice management industry and enable MedPartners/Mullikin to
build integrated physician networks attractive to payors of all types.
MedPartners/Mullikin has networks currently under development in 23 states.

To meet payor demand for price competitive, quality services,
MedPartners/Mullikin utilizes a market-based approach that incorporates primary
care and specialty physicians into a network of providers serving a targeted
geographic area. MedPartners/Mullikin engages in research activities and market
analysis to determine the network configuration for a particular market.
Typically, MedPartners/Mullikin aims to achieve

57
<PAGE> 68

an equal number of primary care physicians and specialists in each network.
Primary care includes family practice, internal medicine, pediatrics and
obstetrics/gynecology. Key specialties include orthopedics, cardiology,
neurosciences, urology, surgery, ear, nose and throat and ophthalmology. At
certain locations, affiliated physicians and support personnel operate centers
for diagnostic imaging, urgent care, cancer management, mental health treatment
and health education. Network physicians also treat fee-for-service patients on
a per-occurrence basis. After-hours care is available in several of
MedPartners/Mullikin's clinics. Each network is configured to contain, when
complete, the physician services necessary to capture at least 20% of market
share and to provide at least 90% of the physician services required by payors.
MedPartners/Mullikin markets its networks to managed care and third-party
payors, referring physicians and hospitals.

Affiliated Physicians. The relationship between MedPartners/Mullikin and
its affiliated physicians is set forth in asset purchase and practice management
agreements. Through the asset purchase agreement, MedPartners/Mullikin acquires
the assets utilized in the practice and may also assume certain leases and other
contracts of the physician group. The practice management agreements generally
have terms ranging from 20 to 44 years, although certain of the agreements
acquired in the PPSI Merger have terms as short as ten years, and provide the
physicians with access to capital, management expertise, sophisticated
information systems and managed care contracts, while enabling affiliated
physicians to retain their autonomy through their professional corporations,
thereby maintaining governance of physician-specific issues and clinical
control.

Under a practice management agreement, a physician group delegates to
MedPartners/Mullikin administrative, management and support functions required
in connection with its medical practice. MedPartners/Mullikin provides the
physician group with the equipment and facilities used in its medical practice,
manages practice operations and employs substantially all of the practice's
non-physician personnel, except certain allied health professionals, such as
nurses and physical therapists. The physicians are responsible for all decisions
regarding patient health care, including diagnosis, treatment, surgery and
therapy. The agreement also provides that the affiliated professional
corporation will not compete with MedPartners/ Mullikin. See also Notes 1 and 10
to Consolidated Financial Statements of MedPartners/Mullikin, Inc. included
elsewhere in this Prospectus-Proxy Statement.

Pursuant to the practice management agreement, the affiliated professional
corporation assigns to MedPartners/Mullikin all or substantially all its rights
and interest in the revenue it receives. For providing services pursuant to such
agreement, the physicians receive compensation, as negotiated, either as a fixed
percentage of net revenues, a pre-determined salary and incentive arrangement or
an arrangement based directly on the profitability of the practice.

Physicians in practice groups acquired by MedPartners/Mullikin typically
sign three-year employment agreements with the affiliated medical group
containing noncompetition covenants. The employment agreements provide for a
physician to be paid either a fixed salary or pursuant to a negotiated formula.
The medical group provides the physician with health, death and disability and
professional liability insurance and other benefits. Physicians are also paid
for any management responsibilities they assume.

MedPartners/Mullikin enhances growth in its practices by expanding managed
care arrangements, assisting in the recruitment of new physicians and expanding
and adding services that have historically been performed outside of the
practices. MedPartners/Mullikin works closely with affiliated physicians in
targeting and recruiting physicians and in merging sole practice or single
specialty groups into the affiliated physician groups. MedPartners/Mullikin
assists in the development of new and expanded ancillary services by providing
the needed capital resources and management services. MedPartners/Mullikin
recognizes and develops opportunities to provide services throughout a market by
positioning its practices so that an entire market is covered geographically.
This approach provides patients with convenient medical facilities and services
and responds to coverage criteria essential to payors.

IPAs. MedPartners/Mullikin's networks include MIPA, which operates in 16
separate geographic regions in southern and northern California, as well as four
IPAs acquired in the PPSI Merger. Formed in 1989, MIPA currently has
approximately 3,450 primary care and specialist physicians and approximately
139,000 HMO enrollees in its network. The PPSI IPAs, operating in the Inland
Empire region of California,

58
<PAGE> 69

have approximately 75 physicians and approximately 35,000 HMO enrollees. An IPA
allows individual practitioners to access patients in their area through
contracts with HMOs without having to join a group practice or sign exclusive
contracts, and also coordinates utilization review and quality assurance
programs for its affiliated physicians. In addition to providing access to HMO
contracts, an IPA offers other benefits to physicians seeking to remain
independent, including economies of scale in the marketplace, enhanced risk-
sharing arrangements and access to other strategic alliances within
MedPartners/Mullikin's network. MedPartners/Mullikin believes that the expansion
of its IPA operations is important to the future growth of MedPartners/Mullikin,
because many of the physicians who contract with MedPartners/Mullikin's IPAs
have a significant number of patients who do not currently participate in a
prepaid health plan and because such physicians may facilitate the formation of
physician group practices which may become affiliated with, or acquired by,
MedPartners/Mullikin. MedPartners/Mullikin identifies IPAs that need access to
capitated HMO contracts, and such IPA organizations typically agree to assign
their existing HMO contracts to MedPartners/Mullikin. Individual physicians then
enter into contracts directly with the IPA. MedPartners/ Mullikin believes that
the expansion of its IPAs will enable it to increase its market share with
relatively low risk because of the low incremental investment required to
recruit additional physicians.

MedPartners/Mullikin has practice management agreements with its affiliated
IPAs pursuant to which it provides management and administrative services
including physician credentialing, contracting, accounting and marketing.
However, since IPA physicians are independent physicians with their own medical
practices, unlike the agreements with affiliated practice groups, the scope of
services provided to an IPA is limited to administrative, accounting,
contractual and marketing services. Pursuant to these agreements, substantially
all of the IPA's revenues are assigned to MedPartners/Mullikin and the
physicians receive payments similar to those provided in the practice management
agreements.

HMOs. MedPartners/Mullikin, through its affiliated physicians, began
contracting with HMOs to provide health care on a capitated reimbursement basis
in 1975. Under these contracts, which typically are automatically renewed on an
annual basis, MedPartners/Mullikin provides virtually all covered medical
services and receives a fixed monthly capitation payment from HMOs for each
member who chooses an affiliated physician as his or her primary care physician.
The capitation amount may be fixed, based upon a percentage of premium, or
adjusted based on the age and/or sex of the HMO enrollee. Contracts for prepaid
health care with HMOs accounted for approximately 50% of MedPartners/Mullikin's
pro forma combined net revenue for the second quarter of 1996.
MedPartners/Mullikin currently has 45 relationships with HMOs of which the
relationships with PacifiCare, Health Net and CaliforniaCare accounted for
approximately 29% of net revenue of MedPartners/Mullikin for the six months
ended June 30, 1996.

To the extent that enrollees require more care than is anticipated or
require supplemental medical care which is not otherwise reimbursed by the HMOs
or other payors, aggregate capitation payments may be insufficient to cover the
costs associated with the treatment of enrollees. Stop-loss coverage is
maintained, which mitigates the effect of occasional high utilization of health
care services. At June 30, 1996, over 798,000 HMO enrollees were covered
beneficiaries for professional services in MedPartners/Mullikin's network, of
which approximately 622,000 were served by affiliated professionals and
approximately 176,000 were served by IPA professionals. These patients are
covered under either commercial (typically employer-sponsored) or senior
(Medicare-funded) HMOs. Higher capitation rates are typically received for
senior patients, because their medical needs are generally greater and
consequently the cost of covered care is higher. As of June 30, 1996,
MedPartners/Mullikin's HMO enrollees comprised approximately 694,093 commercial
enrollees and approximately 66,457 senior (over age 65) enrollees.

MedPartners/Mullikin seeks to contract with the same HMOs on a capitated or
similar prepaid basis to provide institutional care to substantially all the
enrollees who have selected an affiliated physician as their primary health care
provider. Under its institutional capitation agreements with HMOs, MedPartners/
Mullikin is obligated to pay for, in addition to inpatient hospitalization
costs, costs for ambulance service, emergency room facilities, outpatient
surgeries, home nursing care, skilled nursing care and, in some cases, pharmacy
and out-of-area services. At June 30, 1996, MedPartners/Mullikin was receiving
institutional capitation payments for approximately 366,000 enrollees.

59
<PAGE> 70

Hospitals. MedPartners/Mullikin operates Pioneer Hospital, a 99-bed acute
care hospital located in Artesia, California and USFMC, an 102-bed acute care
hospital in Montclair, California. Many of the physicians on professional staff
rosters of these hospitals are either employed by an affiliated professional
corporation or under contract with MedPartners/Mullikin's IPAs. The traditional
hospital-based physicians, such as emergency room physicians, anesthesiologists,
pathologists, radiologists and cardiologists, are all supplied through
contractual arrangements with an affiliated corporation. Several of
MedPartners/Mullikin's medical clinics are located sufficiently close to Pioneer
Hospital to allow the enrollees who utilize these clinics to also utilize
Pioneer Hospital. Under the HMO contracts, MedPartners/Mullikin is obligated to
pay for inpatient hospitalization and related services. Over 85% of Pioneer
Hospital's and approximately 50% of USFMC's daily census is made up of
MedPartners/Mullikin HMO enrollees. MedPartners/Mullikin has entered into
agreements with other hospitals in California for the delivery of hospital
services to the remainder of its enrollees. In each instance, the institutional
capitation payments received from HMOs are placed at risk for the benefit of the
applicable hospital, MedPartners/Mullikin and its affiliated physicians.
MedPartners/ Mullikin and these providers split any savings realized if hospital
utilization declines due to the success of MedPartners/Mullikin's programs for
early intervention, wellness and outpatient treatment.

Hospital-Based Physician Operations. MedPartners/Mullikin's Hospital-Based
Physician ("HBP") operations acquired in the PPSI Merger organizes and manages
physicians and other health care professionals engaged in the delivery of
emergency, radiology and teleradiology services, hospital-based primary care and
temporary staffing and support services to hospitals, clinics, managed care
organizations and physician groups. NorthWest Emergency Physicians ("NEP"), an
affiliate of CHS, is the largest provider of emergency physician contract
management services to hospital-based emergency departments in the Pacific
Northwest (Washington, Oregon and Alaska). NEP's emergency department contracts
provide physician coverage for 15 hospital emergency departments, 24 hours a day
throughout the year. Team Health, Inc. ("Team Health"), also an affiliate of
PPSI, principally operates in the Southeastern United States and currently
serves 57 hospital emergency departments in Tennessee, Kentucky, Alabama,
Arkansas and Virginia, and 15 hospital radiology departments. Under contracts
with hospitals and other clients, MedPartners/Mullikin's HBP operations identify
and recruit physicians and other health care professionals for admission to a
client's medical staff, monitor the quality of care and proper utilization of
services and coordinate the ongoing scheduling of staff physicians who provide
clinical coverage in designated areas of care. Hospitals have found it
increasingly difficult to recruit, schedule, retain and appropriately compensate
hospital-based physician specialists required to operate hospital emergency,
radiology and other departments. As a consequence, a large number of hospitals
have turned to contract management firms as a more cost-effective and reliable
alternative to the development of in-house physician staffing.

INFORMATION SYSTEMS

MedPartners/Mullikin develops and maintains integrated information systems
to support its growth and acquisition plans. MedPartners/Mullikin's overall
information systems design is open, modular and flexible. MedPartners/Mullikin
is implementing an individual patient electronic medical record ("EMR") to
complement primary practice management and billing functions.
MedPartners/Mullikin has configured its systems to give affiliated physicians
and their staff efficient and rapid access to complex clinical data.
MedPartners/ Mullikin's use of the EMR enhances operational efficiencies through
automation of many routine clinical functions, as well as the capacity to link
"physician-specific" treatment protocols by diagnosis, thus allowing physicians
to have treatments checked against pre-defined protocols at the time of service.

Effective and efficient access to key clinical patient data is critical in
improving costs and quality outcomes as MedPartners/Mullikin enters into more
capitation contracts. MedPartners/Mullikin utilizes its existing information
systems to improve productivity, manage complex reimbursement procedures,
measure patient care satisfaction and outcomes of care, and integrate
information from multiple facilities throughout the care spectrum. These systems
allow MedPartners/Mullikin to analyze clinical and cost data so that it is able
to determine effectively thresholds of profitability under various capitation
arrangements.

60
<PAGE> 71

COMPETITION

GOVERNMENT REGULATION

As a participant in the health care industry, MedPartners/Mullikin's
operations and relationships are subject to extensive and increasing regulation
by a number of governmental entities at the federal, state, and local levels.
MedPartners/Mullikin believes its operations are in material compliance with
applicable laws. Nevertheless, because of the uniqueness of the structure of the
relationship with the physician groups, many aspects of MedPartners/Mullikin's
business operations have not been the subject of state or federal regulatory
interpretation and there can be no assurance that a review of
MedPartners/Mullikin's or the affiliated physicians' business by courts or
regulatory authorities will not result in a determination that could adversely
affect the operations of MedPartners/Mullikin or the affiliated physicians or
that the health care regulatory environment will not change so as to restrict
MedPartners/Mullikin's or the affiliated physicians' existing operations or
their expansion.

The laws of many states prohibit business corporations such as
MedPartners/Mullikin from practicing medicine and employing physicians to
practice medicine. MedPartners/Mullikin performs only non-medical administrative
services, does not represent to the public or its clients that it offers medical
services and does not exercise influence or control over the practice of
medicine by the physicians with whom it contracts. Accordingly,
MedPartners/Mullikin believes that it is not in violation of applicable state
laws relating to the practice of medicine. In addition to prohibiting the
practice of medicine, numerous states prohibit entities like
MedPartners/Mullikin from engaging in certain health care-related activities,
such as fee-splitting with physicians.

Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute", prohibit the offer, payment, solicitation, or receipt
of any form of remuneration in return for the referral of Medicare or state
health program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. Although MedPartners/Mullikin believes
that it is not in violation of the Anti-kickback Statute or similar state
statutes, its operations do not fit within any of the existing or proposed
federal safe harbors.

61
<PAGE> 72

compensation arrangement. While MedPartners/Mullikin believes it is in
compliance with such legislation, future regulations could require
MedPartners/Mullikin to modify the form of its relationships with physician
groups. Some states have also enacted similar self-referral laws and
MedPartners/Mullikin believes it is likely that more states will follow.
MedPartners/Mullikin believes that its practices fit within exemptions contained
in such statutes. Nevertheless, expansion of the operations of
MedPartners/Mullikin to certain jurisdictions may require structural and
organizational modifications of MedPartners/Mullikin's relationships with
physician groups to comply with new or revised state statutes.

On March 5, 1996, the DOC issued the Restricted License to PPN in
accordance with the requirements of the Knox-Keene Act. The Restricted License
authorizes PPN to operate as a health care service plan in the State of
California. MedPartners/Mullikin, through PPN, intends to utilize the Restricted
License for purposes of contracting with HMOs for a broad range of health care
services, including both institutional and professional medical services,
through a consolidated contract with the HMO. The Knox-Keene Act and the
regulations promulgated thereunder subject entities which are licensed as health
care service plans in California to substantial regulation by the DOC. In
addition, licensees under the Knox-Keene Act are required to file periodic
financial data and other information (which generally become available to the
public), maintain substantial tangible net equity on their balance sheets and
maintain adequate levels of medical, financial and operational personnel
dedicated to fulfilling the licensee's statutory and regulatory requirements.
The DOC is empowered by law to take enforcement actions against licensees which
fail to comply with such requirements. PPN is a newly created organization
without an operating history and there is no assurance that the DOC will view
its operations to be fully in compliance with applicable laws and regulations.

The operation of Pioneer Hospital and USFMC is highly regulated. Pioneer
Hospital and USFMC are accredited by the Joint Commission on Accreditation of
Healthcare Organizations. Accreditation from this Joint Commission allows
Pioneer Hospital to serve Medicare patients and provides authorization from the
California Department of Health Services and the Los Angeles County Department
of Health to operate as a licensed hospital facility. Each of Pioneer Hospital
and USFMC is licensed and regulated as a general acute care hospital by the
State of California Department of Health Services. Additionally, each of Pioneer
Hospital and USFMC has a clinical laboratory license from the State of
California Department of Health Services, a clinical laboratory license for its
cardio-pulmonary laboratory and a pharmacy license for its inpatient pharmacy.

Because the affiliated practice groups remain separate legal entities, they
may be deemed competitors subject to a range of antitrust laws which prohibit
anti-competitive conduct, including price fixing, concerted refusals to deal and
division of market. MedPartners/Mullikin intends to comply with such state and
federal laws as may affect its development of integrated health care delivery
networks, but there can be no assurance that a review of MedPartners/Mullikin's
business by courts or regulatory authorities will not result in a determination
that could adversely affect the operation of MedPartners/Mullikin and its
affiliated physician groups.

LEGAL PROCEEDINGS

MedPartners/Mullikin is named as a defendant in various legal actions
arising primarily out of services rendered by physicians employed by its
affiliated physician entities and Pioneer Hospital and USFMC, personal injury
and employment disputes. In addition, certain of its affiliated medical groups
are named as defendants in numerous actions alleging medical negligence on the
part of their physicians. In certain of these actions, MedPartners/Mullikin's
and the medical group's insurance carrier has either declined to provide
coverage or has provided a defense subject to a reservation of rights.
MedPartners/Mullikin's management does not view any of these actions as likely
to result in an uninsured award which would have a material adverse effect on
MedPartners/Mullikin's financial condition, results of operations or liquidity.

62
<PAGE> 73

EMPLOYEES

As of June 30, 1996, MedPartners/Mullikin, including its affiliated
professional entities, employed 9,433 people on a full-time equivalent basis.

CORPORATE LIABILITY AND INSURANCE

MedPartners/Mullikin's business entails an inherent risk of claims of
physician professional liability. To protect its overall operations from such
potential liabilities, MedPartners/Mullikin has a multi-tiered corporate
structure and preserves the operational integrity of each of its operating
subsidiaries. In addition, MedPartners/Mullikin maintains professional liability
insurance, general liability and other customary insurance on a claims-made and
modified occurrence basis, in amounts deemed appropriate by management based
upon historical claims and the nature and risks of the business, for all of the
affiliated physicians, practices and operations. This insurance includes "tail"
coverage for claims against MedPartners/Mullikin's affiliated medical
organizations to cover incidents which were or are incurred but not reported
during the periods for which the related risk was covered by "claims made"
insurance. There can be no assurance that a future claim will not exceed the
limits of available insurance coverage or that such coverage will continue to be
available.

Moreover, MedPartners/Mullikin requires each physician group with which it
affiliates to obtain and maintain professional liability insurance coverage.
Such insurance would provide coverage, subject to policy limits, in the event
MedPartners/Mullikin were held liable as a co-defendant in a lawsuit for
professional malpractice against a physician. In addition, generally,
MedPartners/Mullikin is indemnified under the practice management agreements by
the affiliated physician groups for liabilities resulting from the performance
of medical services.

PROPERTIES

MedPartners/Mullikin leases approximately 48,000 square feet at 3000
Galleria Tower in Birmingham, Alabama, for its corporate headquarters.

In its western operations, MedPartners/Mullikin and its affiliated entities
own certain real estate assets in California, and lease their other facilities
from third parties. MedPartners/Mullikin leases, directly or through affiliated
real estate partnerships, real estate for its clinics in 79 locations in
southern California, 52 in northern California and six in the Portland, Oregon
area. MedPartners/Mullikin leases an approximately 60,000 square foot building
in Artesia which is occupied by Pioneer Hospital and owns the USFMC hospital
building. In addition, MedPartners/Mullikin leases approximately 22 properties
used for general administrative offices and storage.

MedPartners/Mullikin also leases, subleases or occupies, pursuant to the
asset purchase agreements, the clinic facilities for the affiliated physician
groups. The leases have varying terms ranging from one to 22 years and monthly
rents ranging from $250 to $97,170. MedPartners/Mullikin anticipates that, as
the affiliated practices continue to grow and add new services, expanded
facilities will be required.

63
<PAGE> 74

MANAGEMENT OF MEDPARTNERS/MULLIKIN

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information about the executive
officers and directors of MedPartners/Mullikin as of the date of this
Prospectus-Proxy Statement:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH MEDPARTNERS/MULLIKIN
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Larry R. House(1)...................... 53 Chairman of Board, President and Chief
Executive Officer
Mark L. Wagar.......................... 45 President -- Western Operations
John J. Gannon......................... 58 President -- Eastern Operations
Harold O. Knight, Jr................... 38 Executive Vice President and Chief
Financial Officer
Tracy P. Thrasher...................... 33 Executive Vice President of
Administration and Secretary
William R. Dexheimer................... 39 Executive Vice President and Chief
Operating Officer -- East
J. Rodney Seay......................... 49 Executive Vice President of Mergers and
Acquisitions
J. Brooke Johnston, Jr................. 56 Senior Vice President and General
Counsel
Peter J. Clemens, IV................... 31 Vice President of Finance and Treasurer
Richard M. Scrushy..................... 43 Director
Larry D. Striplin, Jr.(2).............. 66 Director
Charles W. Newhall III(1).............. 51 Director
Scott F. Meadow(2)..................... 42 Director
Ted H. McCourtney, Jr.(1).............. 57 Director
Walter T. Mullikin, M.D................ 78 Director
John S. McDonald, J.D.(1).............. 63 Director
Rosalio J. Lopez, M.D.(2).............. 43 Director
Richard J. Kramer...................... 53 Director
</TABLE>

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

(1) Member of the Compensation Committee
(2) Member of the Audit Committee

Larry R. House has been President and Chief Executive Officer of
MedPartners/Mullikin since August 27, 1993, and has been Chairman of the Board
since January 8, 1993. From 1985 to 1992, he was Chief Operating Officer of
HEALTHSOUTH Rehabilitation Corporation, now HEALTHSOUTH Corporation, a publicly
traded provider of rehabilitative health care services ("HEALTHSOUTH"). From
1992 to 1993, Mr. House was President of HEALTHSOUTH International, Inc. Mr.
House is a member of the Board of Directors of each of HEALTHSOUTH, Capstone
Capital Corporation, a publicly traded real estate investment trust, and the
American Sports Medicine Institute.

Mark L. Wagar has been President -- Western Operations of
MedPartners/Mullikin since January 1995. From March 1994 to December 1994, he
was the President of CIGNA HealthCare of California, a health care plan serving
enrollees in California, Oregon and Washington and, from January 1993 through
February 1994, was a Vice President of CIGNA HealthCare of California, an HMO.
From November 1989 to December 1992, he was the President of Managed Care
Partners, Inc., a private consulting management company specializing in managed
care services. He has been involved in health care management for over 20 years,
including 10 years in managed care companies.

64
<PAGE> 75

John J. Gannon has been President -- Eastern Operations of
MedPartners/Mullikin since July 27, 1996. For 23 years, Mr. Gannon was a Partner
with KPMG Peat Marwick. His most recent position with KPMG was that of National
Partner-in-Charge of Strategy and Marketing, Healthcare and Life Sciences. He
served as one of the firm's designated industry review specialists for health
care financial feasibility studies. Mr. Gannon is a certified public accountant
and is a member of the American Institute of Certified Public Accountants.

Harold O. Knight, Jr. has been Executive Vice President and Chief Financial
Officer of MedPartners/ Mullikin since November 10, 1994. Mr. Knight was Senior
Vice President of Finance and Treasurer of MedPartners/Mullikin from August 27,
1993 to November 10, 1994 and, from March 1, 1993 to August 27, 1993, Mr. Knight
served as Vice President of Finance of MedPartners/Mullikin. From 1980 to 1993,
Mr. Knight was with Ernst & Young LLP, most recently as Senior Manager. Mr.
Knight is a member of the Alabama Society of Certified Public Accountants and
the American Institute of Certified Public Accountants.

Tracy P. Thrasher has been Executive Vice President of Administration of
MedPartners/Mullikin since November 10, 1994 and has been Secretary since March
10, 1994. Ms. Thrasher was Senior Vice President of Administration from March
10, 1994 to November 10, 1994 and, from January 8, 1993 to March 10, 1994, she
served as Corporate Comptroller and Vice President of Development. From 1990 to
1993, Ms. Thrasher was the Audit and Health Care Management Advisory Service
Manager with Burton, Canady, Moore & Carr, P.C., independent public accountants.
Ms. Thrasher began her career with Ernst & Young LLP in 1985, and became a
certified public accountant in 1986.

William R. Dexheimer has been Executive Vice President and Chief Operating
Officer -- East of MedPartners/Mullikin since August 27, 1993. From 1989 to
1993, Mr. Dexheimer was a principal stockholder and Chief Executive Officer of
Strategic Health Resources of the South, Inc., a health care development and
consulting firm. From 1986 to 1989, Mr. Dexheimer was employed by AMI Brookwood
Medical Center as Senior Vice President of Development and Chief Executive
Officer of AMI Brookwood Primary Care Centers, Inc.

J. Rodney Seay has been Executive Vice President of Mergers and
Acquisitions of MedPartners/ Mullikin since April 20, 1995. From August 27, 1993
to April 20, 1995, he served as Executive Vice President of Development. Mr.
Seay was also Secretary of MedPartners/Mullikin from August 27, 1993 to March
10, 1994. From 1992 to 1993, he was Vice President of Finance of HEALTHSOUTH.
From 1988 to 1992, Mr. Seay was a Senior Manager with KPMG Peat Marwick. From
1982 to 1988, he served as Chief Executive Officer of Medical Data Services, a
physician practice management company with over 650 employees and over 1,500
physician clients.

J. Brooke Johnston, Jr. has been Senior Vice President and General Counsel
of MedPartners/Mullikin since April 25, 1996. Prior to that, Mr. Johnston was a
senior principal of the law firm of Haskell Slaughter Young & Johnston,
Professional Association, Birmingham, Alabama where he practiced corporate and
securities law for over seventeen years. Prior to that he was engaged in the
practice of law in New York, New York and at another firm in Birmingham. Mr.
Johnston is a member of the Alabama State Bar and the New York and American Bar
Associations. Mr. Johnston is a member of the Board of Directors of United
Leisure Corporation, a publicly traded leisure time company.

Peter J. Clemens IV has been Vice President of Finance and Treasurer of
MedPartners/Mullikin since April 20, 1995. From 1991 to 1995 Mr. Clemens worked
in Corporate Banking with Wachovia Bank of Georgia, N.A. Mr. Clemens began his
career with AmSouth Bank, N.A. in 1987, and received an M.B.A. from Vanderbilt
University in 1991.

Richard M. Scrushy has been a member of the MedPartners/Mullikin Board of
Directors since January 1993. Since 1984, Mr. Scrushy has been Chairman of the
Board and Chief Executive Officer of HEALTHSOUTH. Mr. Scrushy is also a member
of the Board of Directors of Capstone Capital Corporation, a publicly traded
real estate investment trust.

Larry D. Striplin, Jr. has been a member of the MedPartners/Mullikin Board
of Directors since January 1993. Since December 1995, Mr. Striplin has been the
Chairman and Chief Executive Officer of

65
<PAGE> 76

Nelson-Brantley Glass Contractors, Inc. and Chairman and CEO of Clearview
Properties, Inc. Until December 1995, Mr. Striplin had been Chairman of the
Board and Chief Executive Officer of Circle "S" Industries, Inc., a privately
owned bonding wire manufacturer. Mr. Striplin is a member of the Board of
Directors of Kulicke & Suffa, Inc. a publicly traded manufacturer of electronic
equipment, and of Capstone Capital Corporation, a publicly traded real estate
investment trust.

Charles W. Newhall III has been a member of the MedPartners/Mullikin Board
of Directors since September 1993. He has been a general partner of New
Enterprise Associates, a venture capital firm, since 1978. Mr. Newhall is a
member of the Board of Directors of HEALTHSOUTH, Integrated Health Services,
Inc. and OPTA Food Ingredients, Inc., all publicly traded companies. He is
Founder and Chairman of the Mid-Atlantic Venture Association, which was
organized in 1988.

Scott F. Meadow has been a member of the MedPartners/Mullikin Board of
Directors since September 1993. Since February 5, 1996, Mr. Meadow has been a
general partner of Sprout Group, a venture capital firm. He was a general
partner of the Frontenac Company, a venture capital firm, from August 1992 to
September 1995. Mr. Meadow was a general partner of William Blair Venture
Partners from 1982 to 1992 and a partner of William Blair and Company, an
investment banking firm, from 1985 to 1992.

Ted H. McCourtney, Jr. has been a member of the MedPartners/Mullikin Board
of Directors since September 1993. He has been a general partner of Venrock
Associates, a venture capital firm, since 1970. Mr. McCourtney is a member of
the Board of Directors of Cellular Communications, Inc., Cellular Communications
of Puerto Rico, Inc., Cellular Communications International, Inc., International
CabelTel Incorporated, SBSF, Inc. and Structural Dynamics Research Corporation,
all publicly traded companies.

Walter T. Mullikin, M.D., a surgeon, has been a member of the
MedPartners/Mullikin Board of Directors since November 29, 1995. Dr. Mullikin
had been Chairman of the Board of the general partner of MME since 1989. He
founded Pioneer Hospital and the predecessors to MME's principal professional
corporation in 1957. He was also the Chairman of the Board, President and a
shareholder of MME's IPA, MIPA, until November 1995. Dr. Mullikin is a member of
the Board of Directors of Health Net, a publicly traded HMO, and was one of the
founders and a past chairman of the Unified Medical Group Association.

John S. McDonald, J.D., has been a member of the MedPartners/Mullikin Board
of Directors since November 29, 1995. Mr. McDonald had been the Chief Executive
Officer of the general partner of MME since March 1, 1994, and he has been an
executive of MME's principal professional corporation, Pioneer Hospital, and
their related entities since 1967. Mr. McDonald was also a director, the
Secretary and a shareholder of MME's general partner. Mr. McDonald is on the
Board of Directors of the Truck Insurance Exchange and is a past president of
the Unified Medical Group Association.

Rosalio J. Lopez, M.D. has been a member of the MedPartners/Mullikin Board
of Directors since November 29, 1995. Mr. Lopez had been a director of the
general partner of MME since 1989. Dr. Lopez joined MME's principal professional
corporation in 1984 and serves as the Chairman of its Medical Council and Family
Practice and Managed Care committees. He also acted as a director and a Vice
President of MME's principal professional corporation. He is also a director and
shareholder of MIPA.

Richard J. Kramer has been a member of the MedPartners/Mullikin Board of
Directors since November 29, 1995. Mr. Kramer is President/Chief Executive
Officer and a Director of Catholic Healthcare West ("CHW"). Before joining CHW
in September 1989, Mr. Kramer served as the Executive Vice President of
LifeSpan, Inc., a multi-hospital/health care system headquartered in
Minneapolis. He had been with LifeSpan since 1971, serving in a variety of
capacities, including Vice President of Planning and Marketing and administrator
for Abbott-Northwestern Hospital. Mr. Kramer is currently a member of the Board
of Directors of the California Association of Hospitals and Health Systems and
the Hospital Council of Northern and Central California, the Board of Directors
of the California Chamber of Commerce, the Governing Council of the American
Hospital Association Section on Health Systems and the House of Delegates of the
American Hospital Association, the Advisory Council for the Center for Clinical
Integration and the Board of Directors of the Alumni Association of the
University of Minnesota Program in Health Care Administration.

66
<PAGE> 77

CLASSIFIED BOARD OF DIRECTORS

Pursuant to the terms of the MedPartners/Mullikin Certificate and the
MedPartners/Mullikin By-Laws, the MedPartners/Mullikin Board is divided into
three classes, with each class being as nearly equal in number as reasonably
possible. One class holds office for a term that will expire at the annual
meeting of stockholders to be held in 1997, a second class holds office for a
term that will expire at the annual meeting of stockholders to be held in 1998
and a third class holds office for a term that will expire at the annual meeting
of stockholders to be held in 1999. Each director holds office for the term to
which he is elected and until his successor is duly elected and qualified. At
each annual meeting of stockholders of MedPartners/Mullikin, the successors to
the class of directors whose terms expire at such meeting are elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. Messrs. Scrushy and McCourtney
and Dr. Lopez have terms expiring in 1997, Messrs. House, McDonald, Kramer and
Newhall have terms expiring in 1998, and Messrs. Meadow and Striplin and Dr.
Mullikin have terms expiring in 1999. The Board of Directors elects officers
annually and such officers serve at the discretion of the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors of MedPartners/Mullikin currently has two
committees: the Audit Committee and the Compensation Committee.

The Audit Committee has the responsibility for reviewing and supervising
the financial controls of MedPartners/Mullikin. The Audit Committee makes
recommendations to the MedPartners/Mullikin Board of Directors with respect to
MedPartners/Mullikin's financial statements and the appointment of independent
auditors, reviews significant audit and accounting policies and practices, meets
with MedPartners/Mullikin's independent public accountants concerning, among
other things, the scope of audits and reports, and reviews the performance of
overall accounting and financial controls of MedPartners/Mullikin. The Audit
Committee consists of Messrs. Striplin and Meadow and Dr. Lopez.

The Compensation Committee has the responsibility for reviewing the
performance of the officers of MedPartners/Mullikin and recommending to the
MedPartners/Mullikin Board of Directors annual salary and bonus amounts for all
officers of MedPartners/Mullikin. The Compensation Committee consists of Messrs.
House, Newhall, McCourtney and McDonald.

EXECUTIVE OFFICER COMPENSATION

Executive Officer Compensation. The following table presents certain
information concerning compensation paid or accrued for services rendered to
MedPartners/Mullikin in all capacities during the years ended December 31, 1995
and 1994, for the chief executive officer and the four other most highly
compensated executive officers of MedPartners/Mullikin whose total annual salary
and bonus in the last fiscal year exceeded $100,000 (collectively, the "Named
Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ------------
SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ------------------------------------------- ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Larry R. House(2).......................... 1995 $ 349,908 $ 600,000 828,000 $ 28,335(3)
Chairman of the Board, President and 1994 335,000 -- 457,000 25,474(4)
Chief Executive Officer
Harold O. Knight, Jr....................... 1995 132,920 102,230 200,000 12,227(5)
Executive Vice President and Chief 1994 90,000 -- 30,000 3,541(6)
Financial Officer
</TABLE>

67
<PAGE> 78

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ------------
SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ------------------------------------------- ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William R. Dexheimer....................... 1995 172,996 2,196 55,000 12,254(7)
Executive Vice President and Chief 1994 162,940 -- 15,000 6,596(8)
Operating Officer -- East
Mark L. Wagar(9)........................... 1995 346,601 -- 250,000 30,485(10)
President -- Western Operations
Tracy P. Thrasher.......................... 1995 115,250 42,240 185,000 12,145(11)
Executive Vice President of 1994 83,000 -- 50,000 3,510(12)
Administration and Secretary
</TABLE>

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

(1) Dollar value of perquisites and other benefits were less than the lesser of
$50,000 or 10% of total salary and bonus for each Named Executive Officer.
(2) Pursuant to a reimbursement agreement, MedPartners/Mullikin paid
HEALTHSOUTH the sum of $150,195 as reimbursement for services rendered by
Mr. House from January 1, 1994 to August 31, 1994, when the agreement
terminated. See "-- Compensation Committee Interlocks and Insider
Participation".
(3) Represents $585 paid for life, long-term disability, health, dental and
accidental death insurance; $2,750 paid for automobile allowance; and
$25,000 paid for split premium life insurance for Mr. House for 1995.
(4) Represents $434 paid for life, long-term disability, health, dental and
accidental death insurance; $2,200 paid for automobile allowance; and
$22,840 paid for split premium life insurance for Mr. House for 1994.
(5) Represents $477 paid for life, long-term disability, health, dental and
accidental death insurance; $1,750 paid for automobile allowance; and
$10,000 paid for split premium life insurance for Mr. Knight for 1995.
(6) Represents $391 paid for life, long-term disability, health, dental and
accidental death insurance; and $3,150 paid for automobile allowance for
Mr. Knight for 1994.
(7) Represents $504 paid for life, long-term disability, health, dental and
accidental death insurance; $1,750 paid for automobile allowance; and
$10,000 paid for split premium life insurance for Mr. Dexheimer for 1995.
(8) Represents $2,396 paid for life, long-term disability, health, dental and
accidental death insurance; and $4,200 paid for automobile allowance for
Mr. Dexheimer for 1994.
(9) Mr. Wagar commenced employment on January 1, 1995.
(10) Represents $5,084 paid for life, long-term disability, health, dental and
accidental death insurance; $1,548 paid as a flex allowance; and $23,853
paid as an executive life insurance benefit for Mr. Wagar for 1995.
(11) Represents $395 paid for life, long-term disability, health, dental and
accidental death insurance; $1,750 paid for automobile allowance; and
$10,000 paid for split premium life insurance for Ms. Thrasher for 1995.
(12) Represents $360 paid for life, long-term disability, health, dental and
accidental death insurance; and $3,150 paid for automobile allowance for
Ms. Thrasher for 1994.

68
<PAGE> 79

Option Grants in 1995. The following table contains information concerning
the grant of stock options under the MedPartners/Mullikin Option Plans (as
defined below) to the Named Executive Officers in 1995:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUALS GRANTS(1) POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(2) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------- ------------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry R. House............ 328,000(3) 11.9% $ 12.00 2005 $2,475,329 $6,272,970
500,000(3) 18.1 27.25 2005 8,568,689 21,714,741
Harold O. Knight, Jr. .... 50,000 1.8 12.00 2005 377,337 956,245
150,000 5.4 27.25 2005 2,570,607 6,514,422
William R. Dexheimer...... 15,000 0.5 12.00 2005 113,201 286,874
40,000 1.4 27.25 2005 685,495 1,737,179
Mark L. Wagar............. 150,000 5.4 28.25 2005 2,664,941 6,753,484
100,000(3) 3.6 28.25 2005 1,776,627 4,502,322
Tracy P. Thrasher......... 85,000 3.1 12.00 2005 641,473 1,625,617
100,000 3.6 27.25 2005 1,713,738 4,342,948
</TABLE>

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

(1) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. No gain to the optionee is possible unless the stock price increases
over the option term, which will benefit all stockholders.
(2) The vesting of each option is cumulative and no vested portion expires until
the expiration of the option. Unless otherwise noted, options vest at the
rate of 20% per year over a five-year period beginning on the date of
grant.
(3) These options are 100% vested.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table provides information with respect to options
exercised by the Named Executive Officers during 1995 and the number and value
of securities underlying unexercised options held by the Named Executive
Officers at December 31, 1995.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
NAME OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS AT FY-END(#) AT FY-END($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Larry House............... 402,000 $ 5,226,000 883,000/0 $11,567,000/$0
Harold O. Knight, Jr. .... 72,000 1,417,000 40,000/218,000 382,500/3,432,400
William R. Dexheimer...... 3,000 39,000 14,000/53,000 207,400/731,200
Mark L. Wagar............. -- -- 130,000/120,000 747,528/570,000
Tracy P. Thrasher......... 32,000 567,500 37,000/186,000 472,000/3,134,400
</TABLE>

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

(1) Based on the closing sale price of MedPartners/Mullikin Common Stock on
December 29, 1995, of $33.00 per share.

DIRECTOR COMPENSATION

Directors of MedPartners/Mullikin who are not also employed by
MedPartners/Mullikin are paid Directors' fees of $2,500 for each meeting of the
MedPartners/Mullikin Board of Directors attended in person,

69
<PAGE> 80

$500 for each meeting of the Board of Directors attended by phone, and $1,000
for each meeting of the Audit Committee or the Compensation Committee attended
in person. In addition, Directors are reimbursed for travel costs and other
out-of-pocket expenses incurred in attending each directors' meeting and
committee meeting. Outside directors are eligible to receive the grant of stock
options under the MedPartners/Mullikin Option Plans. In November 1995, each of
Messrs. Scrushy, Striplin, Newhall, Meadow, McCourtney, McDonald and Kramer and
Dr. Mullikin were granted ten-year options to purchase 10,000 shares of Common
Stock and Dr. Lopez was granted a ten-year option to purchase 20,000 shares, all
at an exercise price of $28.25 per share, the market price on the date of grant.
See " -- Executive Officer Compensation -- Option Grants in 1995" and "Principal
Stockholders of MedPartners/Mullikin".

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. House, Newhall and McCourtney served on the Compensation Committee
of the MedPartners/ Mullikin Board during 1995, joined by Mr. McDonald in
November 1995. Mr. House also served as Chairman of the Board, President and
Chief Executive Officer of MedPartners/Mullikin while serving on the
Compensation Committee.

On August 31, 1993, MedPartners entered into a Reimbursement Agreement with
HEALTHSOUTH to allow Mr. House to serve as President of HEALTHSOUTH
International, Inc. The Reimbursement Agreement provided for the reimbursement
by MedPartners to HEALTHSOUTH of one-half of Mr. House's compensation and
benefits. Under the Reimbursement Agreement, MedPartners paid HEALTHSOUTH the
sum of $150,195 for the period from January 1, 1994 to August 31, 1994, when the
Reimbursement Agreement terminated. On September 1, 1994, MedPartners entered
into a Consulting Agreement, terminated in February 1995, with HEALTHSOUTH,
under which MedPartners agreed to make available to HEALTHSOUTH from time to
time at reasonable times and upon reasonable requests the services of Mr. House
as a consultant in connection with the activities of HEALTHSOUTH International,
Inc. In exchange for such services, HEALTHSOUTH paid MedPartners/Mullikin a
consulting fee equal to one-half of Mr. House's compensation and benefits.

In connection with the sale of the Convertible Preferred Stock described
below, MedPartners/Mullikin entered into a non-competition and severance
agreement with Mr. House. The agreement provides, subject to certain
limitations, for severance payments equal to 12 months' salary if Mr. House's
employment is terminated without cause. Moreover, pursuant to this agreement,
Mr. House agreed that during the term of his employment with
MedPartners/Mullikin and for 18 months thereafter, he will not compete with
MedPartners/Mullikin, without the prior written consent of MedPartners/Mullikin,
by engaging in any capacity in any business which is competitive with the
business of MedPartners/Mullikin.

In September 1993 and March 1994, MedPartners issued shares of Series A and
Series B Convertible Preferred Stock in private transactions. Entities
affiliated with Messrs. House, Newhall and McCourtney purchased shares in each
transaction as follows: HEALTHSOUTH -- 157,500 shares of Series A and 250,000
shares of Series B; New Enterprise Associates VI, L.P. -- 875,000 shares of
Series A and 625,000 shares of Series B; New Venture Partners III,
L.P. -- 125,000 shares of Series A and 37,500 shares of Series B; and Venrock
Associates -- 750,000 shares of Series A and 500,000 shares of Series B. All of
such shares of Preferred Stock were automatically converted into shares of
Common Stock upon the consummation of the MedPartners initial public offering in
February 1995. See "Principal Stockholders of MedPartners/Mullikin".

In connection with the acquisition of MME described under "Business of
MedPartners/Mullikin -- Recent Major Acquisitions", MedPartners/Mullikin entered
into Termination and Consulting Agreements with Mr. McDonald. Under the
Termination Agreement, Mr. McDonald's employment agreement with MME was
terminated in consideration of which Mr. McDonald received a lump sum payment of
$796,000, continuation of certain fringe benefits and perquisites under the
former employment agreement for 36 months, access to an office and support staff
until death or disability, payments from MedPartners/Mullikin and a trust set up
by MedPartners/Mullikin to fund the remainder of MME's pension obligations to
Mr. McDonald, and payment of all health and medical care (including
prescriptions) for Mr. McDonald for the remainder of his life through a
Company-sponsored health insurance plan. MedPartners/Mullikin and Mr. McDonald
also

70
<PAGE> 81

entered into a five-year Consulting Agreement whereby Mr. McDonald will receive
in consideration for his services a consulting fee of $2,230,000, to be paid
over five years with an initial payment of $669,000 on November 29, 1995 and
equal payments of $390,250 on each anniversary of such date, access to an office
and support staff and certain other benefits. See "Certain
Transactions -- MedPartners/Mullikin -- MME Acquisition Agreements".

See also "Certain Transactions -- MedPartners/Mullikin".

NON-COMPETITION AND SEVERANCE AGREEMENTS

In September 1993, MedPartners/Mullikin entered into non-competition and
severance agreements with Mr. House and Mr. Dexheimer, each of which contains
the terms described above under "-- Compensation Committee Interlocks and
Insider Participation" related to the agreement with Mr. House. MedPartners/
Mullikin also entered into non-competition, nondisclosure and development
agreements with each of Messrs. Knight, Seay and Dexheimer and Ms. Thrasher
pursuant to which each has agreed not to disclose any of MedPartners/Mullikin's
confidential information or assist or work for any of MedPartners/Mullikin's
competitors for a period of one year after termination of employment. In
addition, each of such executive officers agreed to assign any rights in any
design, invention, software, process, trade secret or intellectual property that
relates to or resulted from work performed at MedPartners/Mullikin.

STOCK OPTION PLANS

MedPartners/Mullikin has a 1993 Stock Option Plan (the "1993 Option Plan")
and a 1995 Stock Option Plan (the "1995 Option Plan", together with the 1993
Option Plan, the "MedPartners/Mullikin Option Plans"). The objectives of the
MedPartners/Mullikin Option Plans are to attract and retain qualified personnel,
to provide incentives to employees, officers, and directors of
MedPartners/Mullikin and to promote the success of MedPartners/Mullikin. A total
of 1,555,000 shares of Common Stock, including 1,055,000 shares of Common Stock
for issuance upon the exercise of options granted to officers, directors,
consultants and employees of MedPartners/Mullikin and 500,000 shares of Common
Stock for issuance upon the exercise of options issued in connection with the
acquisition of the assets of physician practices, are covered by the 1993 Option
Plan. A total of 7,099,150 shares of Common Stock are covered by the 1995 Option
Plan. Additionally, the 1995 Option Plan contains a provision whereby the number
of shares of MedPartners/ Mullikin Common Stock for which options may be granted
under the 1995 Option Plan shall automatically increase on the first trading day
of each calendar year during the term of the 1995 Option Plan by an amount equal
to 1% of the shares of MedPartners/Mullikin's Common Stock outstanding on
December 31 of the immediately preceding year. However, such additional shares
shall be available only for the grant of non-qualified stock options and not for
the grant of incentive options. The MedPartners/Mullikin Option Plans authorize
the grant of options to purchase Common Stock intended to qualify as incentive
stock options ("Incentive Options") under Section 422 of the Code and the grant
of options that do not qualify as Incentive Options ("Non-Qualified Options")
under Section 422 of the Code.

The MedPartners/Mullikin Option Plans are administered by the Compensation
Committee of the MedPartners/Mullikin Board of Directors (the "Committee"). The
Committee, subject to the approval of the MedPartners/Mullikin Board of
Directors and the provisions of the MedPartners/Mullikin Option Plans, has full
power to select the individuals to whom awards will be granted, to fix the
number of shares that each optionee may purchase, to set the terms and
conditions of each option, and to determine all other matters relating to the
MedPartners/Mullikin Option Plans. The MedPartners/Mullikin Option Plans provide
that the Committee will select grantees from among full-time employees,
officers, directors and consultants of MedPartners/Mullikin or its subsidiaries,
and individuals or entities subject to an acquisition or management agreement
with MedPartners/Mullikin.

The option exercise price of each option shall be determined by the
Committee, but shall not be less than 100% of the fair market value of the
shares on the date of grant in the case of Incentive Options and not less than
85% of the fair market value of the shares on the date of grant in the case of
Non-Qualified Options granted to employees. No Incentive Option may be granted
to any employee who owns at the date of grant

71
<PAGE> 82

stock representing in excess of 10% of the combined voting power of all classes
of stock of MedPartners/ Mullikin or a parent or a subsidiary unless the
exercise price for stock subject to such options is at least 110% of the fair
market value of such stock at the time of grant and the option term does not
exceed five years. The aggregate fair market value of stock with regard to which
Incentive Options are exercisable by an individual for the first time during any
calendar year may not exceed $100,000.

The term of each option shall be fixed by the Committee and may not exceed
ten years from the date of grant. If a participant who holds options ceases to
be an employee, consultant or director or otherwise affiliated with
MedPartners/Mullikin (the "Termination"), for cause (as defined), and such
person shall not have fully exercised any option granted under the
MedPartners/Mullikin Option Plans, the option or the remaining portion thereof
will expire on the date of termination. Any option or portion thereof which has
not expired or been exercised on or before the date of Termination, without
cause, expires 90 days after the date of Termination. Notwithstanding the
foregoing, in the event of Termination due to the optionee's death or
incapacity, the option will terminate 12 months following the date of such
optionee's death or incapacity. Options granted under the MedPartners/Mullikin
Option Plans may be exercisable in installments.

Upon the exercise of options, the option exercise price must be paid in
full, either in cash or other form acceptable to the Committee, including
delivery of a full recourse promissory note, delivery of shares of Common Stock
already owned by the optionee or delivery of other property. Unless terminated
earlier, the 1993 Option Plan will terminate in 2003 and the 1995 Option Plan
will terminate in 2005.

As of June 30, 1996, MedPartners/Mullikin had outstanding options at
exercise prices ranging from $0.20 to $19.25 to acquire 648,370 shares of Common
Stock under the 1993 Option Plan. At the same date, there were outstanding
options under the 1995 Option Plan to acquire 5,116,040 shares of Common Stock
at exercise prices ranging from $12.00 to $33.00 per share.

401(K) PLANS

MedPartners/Mullikin has the MedPartners, Inc. and Subsidiaries Employee
Retirement Savings Plan (the "MedPartners Plan"). The MedPartners Plan is a Code
Section 401(k) plan which requires, subject to certain limited exceptions, the
attainment of age 21 and one year of service, with a minimum of 1,000 hours
worked, to become a participant in the plan. MedPartners/Mullikin, in its sole
discretion, may contribute an amount which it designates as a discretionary
employer contribution to all non-highly compensated and all non-key employees.
In years for which the MedPartners Plan is "top-heavy" (as defined in the Code),
a participant is entitled to the top heavy minimum allocation if the participant
was employed by MedPartners on the last day of the MedPartners Plan year, unless
the employee is a key employee. Participants in the MedPartners Plan may elect
to contribute from 2% to 15% of their gross compensation subject to annual Code
limitations.

Effective November 28, 1989, MME's principal professional corporation and
Pioneer Hospital adopted the Savings and Salary Deferral Plan (the "Mullikin
Plan"), which MedPartners/Mullikin has assumed. MME adopted the Mullikin Plan
retroactively to January 1, 1994, and assumed the administration responsibility
of the Mullikin Plan. The Mullikin Plan is also a Code Section 401(k) plan which
requires, subject to certain limited exceptions, the attainment of age 21 and
one year of service, with a minimum of 1,000 hours worked to become a
participant in the plan. Participants in the Mullikin Plan may elect to
contribute from 1% to 20% of their gross compensation, subject to annual Code
limitations. MedPartners/ Mullikin will make a minimum matching contribution of
50% of the first 3% of salary deferred into the Mullikin Plan, up to a maximum
of $750 for any Mullikin Plan year.

In addition to these Plans, certain of the employee retirement plans of
various of the entities acquired during 1995 have been or will be merged into
the MedPartners Plan or the Mullikin Plan, while others may continue as prior to
the acquisition. MedPartners/Mullikin continues to investigate the feasibility
of the combination of the MedPartners Plan and the Mullikin Plan consistent with
applicable law and regulations and its desire to provide a comprehensive benefit
package for all employees.

72
<PAGE> 83

CERTAIN TRANSACTIONS -- MEDPARTNERS/MULLIKIN

MME ACQUISITION AGREEMENTS

In connection with the acquisition of MME described under "Business of
MedPartners/Mullikin -- Recent Major Acquisitions", MedPartners/Mullikin entered
into certain termination and consulting agreements with Walter T. Mullikin, M.D.
and John S. McDonald, J.D., now directors of MedPartners/Mullikin, and an
employment agreement with Mark L. Wagar, Executive Vice President and Chief
Operating Officer -- West of MedPartners/Mullikin.

Termination Agreements. On November 29, 1995, MedPartners/Mullikin and
each of Dr. Walter T. Mullikin, M.D. and John S. McDonald, J.D., entered into a
Termination Agreement that terminated their previous employment agreements with
MME, in consideration of which they received, or shall receive, a lump sum
payment of $1,064,000, in the case of Dr. Mullikin, and $796,000 in the case of
Mr. McDonald, continuation of certain fringe benefits and perquisites for 36
months, payments from MedPartners/Mullikin and a trust set up by
MedPartners/Mullikin to fund the remainder of MME's pension obligations to Dr.
Mullikin or to Dr. Mullikin's spouse, should she survive him, and Mr. McDonald,
payment of all health and medical care (including prescriptions) for Dr.
Mullikin and his spouse and Mr. McDonald for the remainder of their lives
through a Company-sponsored health insurance plan, a death payment benefit to be
paid to Dr. Mullikin's designated beneficiary or estate of $2,700,000, and
certain other benefits. See "MedPartners/Mullikin's Management -- Compensation
Committee Interlocks and Insider Participation".

Consulting Agreements. On November 29, 1995, MedPartners/Mullikin and each
of Dr. Mullikin and Mr. McDonald entered into five-year Consulting Agreements
whereby they will receive in consideration for their services: consulting fees
of $2,480,000 to Dr. Mullikin, to be paid over five years with an initial
payment of $744,000 on November 29, 1995, and equal payments of $434,000 on each
anniversary of such date, and $2,230,000 to Mr. McDonald, to be paid over five
years with an initial payment of $669,000 on November 29, 1995, and equal
payments of $390,250 on each anniversary thereof, access to an office and
support staff and certain other benefits.

Wagar Employment Agreement. On November 29, 1995, MedPartners/Mullikin and
Mark L. Wagar, President -- Western Operations of MedPartners/Mullikin entered
into an amended employment agreement for the remainder of the term of Mr.
Wagar's employment agreement with MME which terminates on January 18, 1998,
subject to certain renewal provisions (the "Wagar Employment Agreement"),
pursuant to which Mr. Wagar will receive a base annual salary of $350,000,
participation in any long-term incentive plan designed specifically for Mr.
Wagar or provided to the Senior Executive Group (as defined in the Wagar
Employment Agreement), participation in any benefits and perquisites provided to
the Senior Executive Group, reasonable vacation and eligibility to participate
in a cash bonus plan. The Wagar Employment Agreement provides that if Mr. Wagar
voluntarily resigns such that such resignation constitutes constructive
termination or should his services be terminated by MedPartners/Mullikin without
"cause" (as defined in the Wagar Employment Agreement), Mr. Wagar (or his
beneficiaries should Mr. Wagar thereafter die) shall be entitled to receive (i)
the full amount of any previously unpaid base salary through the date of Mr.
Wagar's termination of service, (ii) payment of Mr. Wagar's annual base salary
in effect as of the date of Mr. Wagar's termination of service payable in 12
equal monthly installments, (iii) continuation of fringe benefits and
perquisites under the Wagar Employment Agreement, (iv) immediate vesting of any
stock options or other rights provided under MedPartners/Mullikin's long term
incentive plan, and (v) payment of any life insurance, disability or other
benefits provided to Mr. Wagar by MedPartners/Mullikin in accordance with the
terms and conditions of the Wagar Employment Agreement. The Wagar Employment
Agreement contains other severance arrangements relating to termination of Mr.
Wagar's services due to death, disability or resignation.

FINANCINGS

In September 1993 and February 1994, MedPartners, the predecessor of
MedPartners/Mullikin, issued an aggregate of 4,000,562 shares of Series A
Convertible Preferred Stock in a private placement transaction

73
<PAGE> 84

for aggregate consideration of $8,001,124. Certain directors and officers of
MedPartners/Mullikin, or entities affiliated with such individuals, purchased
shares of Series A Convertible Preferred Stock as follows: New Enterprise
Associates VI, L.P. -- 875,000 shares; New Venture Partners III, L.P.
-- 125,000 shares; Venrock Associates -- 750,000 shares; Frontenac Venture VI,
L.P. -- 1,000,000 shares; HEALTHSOUTH -- 157,500 shares; and Ms.
Thrasher -- 11,250 shares.

In March 1994 and May 1994, MedPartners issued an aggregate of 3,000,000
shares of Series B Convertible Preferred Stock in a private placement
transaction for aggregate consideration of $12,000,000. Certain directors and
officers of MedPartners, or entities affiliated with such individuals, purchased
shares of Series B Convertible Preferred Stock as follows: New Enterprise
Associates, VI, L.P. -- 625,000 shares; New Venture Partners III, L.P. -- 37,500
shares; Venrock Associates -- 500,000 shares; Frontenac Venture VI,
L.P. -- 625,000 shares; HEALTHSOUTH -- 250,000 shares; Mr. Scrushy -- 100,000
shares; Mr. Striplin -- 25,000 shares; and Ms. Thrasher -- 10,000 shares. See
"MedPartners/Mullikin's Management -- Compensation Committee Interlocks and
Insider Participation".

All of the shares of preferred stock of MedPartners were automatically
converted into shares of MedPartners common stock upon the consummation of
MedPartners' initial public offering in February 1995. See "Principal
Stockholders of MedPartners/Mullikin" for information about affiliations between
directors and executive officers of MedPartners/Mullikin and certain of the
entities who purchased shares of MedPartners Preferred Stock.

The Mullikin Family Trust, a trust formed for the benefit of Dr. Mullikin
and his spouse, was the holder of two notes issued in November 1992 by 5000
Airport Plaza, a California limited partnership which is controlled by
MedPartners/Mullikin, one in the principal amount of $2,975,000, having a
20-year term and bearing an interest rate of 10% per annum, and the other in the
principal amount of $850,000, having a 10-year term and bearing an interest rate
of 10% per annum, each secured by the 5000 Airport Plaza building, where
MedPartners/Mullikin's western executive offices are located.

74
<PAGE> 85

PRINCIPAL STOCKHOLDERS OF MEDPARTNERS/MULLIKIN

The following table sets forth certain information regarding beneficial
stock ownership of MedPartners/ Mullikin as of June 30, 1996: (i) each director
and Named Executive Officer of MedPartners/Mullikin. (ii) all directors and
executive officers as a group, and (iii) each stockholder known by
MedPartners/Mullikin to be the beneficial owner of more than 5% of the
outstanding MedPartners/Mullikin Common Stock. Except as otherwise indicated,
each person or entity listed below has sole voting and investment power with
respect to all shares shown to be beneficially owned by him or it except to the
extent such power is shared by a spouse under applicable law. Shares of Common
Stock subject to options held by directors and executive officers that are
exercisable within 60 days of June 30, 1996, are deemed outstanding for the
purpose of computing such director's or executive officer's beneficial ownership
and the beneficial ownership of all directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE
MEDPARTNERS/MULLIKIN OF COMMON
NAME POSITION HELD COMMON STOCK(16) STOCK OWNED
- ------------------------------- ------------------------------- -------------------- -----------
<S> <C> <C> <C>
Larry R. House................. Chairman, President and Chief 2,605,000(1) 4.85%
Executive Officer and
Director
William R. Dexheimer........... Executive Vice President and 254,000(2) *
Chief Operating
Officer -- East
Harold O. Knight, Jr........... Executive Vice President and 148,000(3) *
Chief Financial Officer
Tracy P. Thrasher.............. Executive Vice President of 129,800(4) *
Administration and Secretary
Mark L. Wagar.................. President -- Western Operations 163,005(5) *
Larry D. Striplin, Jr.......... Director 99,100(6) *
Richard M. Scrushy............. Director 1,915,500(7) 3.66
Charles W. Newhall III......... Director 1,502,000(8) 2.87
Scott F. Meadow................ Director 2,000(9) *
Ted H. McCourtney, Jr.......... Director 56,901(10) 1.05
Walter T. Mullikin, M.D........ Director 432,424(11) *
John S. McDonald............... Director 303,281(12) *
Richard J. Kramer.............. Director 1,869,674(13) 3.57
Rosalio J. Lopez, M.D.......... Director 93,069(14) *
All executive officers and 9,710,254(15) 17.91
directors as a group (17
persons).....................
</TABLE>

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

* Less than 1%.
(1) Includes options to purchase 1,428,000 shares.
(2) Includes options to purchase 40,000 shares and 1,000 shares held in trust.
(3) Includes options to purchase 86,000 shares.
(4) Includes options to purchase 74,000 shares and 2,000 shares held in trust
for a minor child.
(5) Includes options to purchase 160,000 shares.
(6) Includes options to purchase 2,000 shares.
(7) Includes options to purchase 17,000 shares, 250,000 shares held in trust
for minor children, and 1,098,500 shares owned of record by HEALTHSOUTH.
Mr. Scrushy is Chairman of the Board, President and Chief Executive Officer
of HEALTHSOUTH and disclaims beneficial ownership of the shares owned by
HEALTHSOUTH.
(8) Includes options to purchase 2,000 shares, and 1,500,000 shares owned of
record by New Enterprise Associates VI, Limited Partnership ("NEA"), of
which Mr. Newhall is the general partner. Mr. Newhall shares voting and
investment power with respect to such shares owned by NEA.
(9) Includes options to purchase 2,000 shares.

75
<PAGE> 86

(10) Includes options to purchase 2,000 shares, 45 shares owned of record by
Venrock Associates and 15 shares owned of record by Venrock Associates II,
L.P. Mr. McCourtney is a general partner of Venrock Associates and Venrock
Associates II, L.P., and shares voting and investment power with respect to
such shares. Mr. McCourtney disclaims beneficial ownership of the shares
owned by Venrock Associates and Venrock Associates, II, L.P., except to the
extent of his pro rata interest.
(11) Includes options to purchase 2,000 shares and 430,424 shares held by the
Mullikin Family Trust U/D/T, dated February 10, 1976.
(12) Includes options to purchase 2,000 shares and 301,281 shares held by
certain trusts for the benefit of Mr. McDonald.
(13) Includes options to purchase 2,000 shares and 1,867,674 shares owned of
record by DCNHS-West Partnership, L.P. Mr. Kramer is the President and
Chief Executive Officer of CHW, which is the sole general partner of DCNHS.
Mr. Kramer disclaims beneficial ownership of the shares owned by DCNHS.
(14) Includes options to purchase 4,000 shares and 89,069 shares held of record
by certain trusts for the benefit of Dr. Lopez and members of his family.
(15) Includes options to purchase a total of 1,911,000 shares.

76
<PAGE> 87

SELECTED FINANCIAL DATA
CHS MANAGEMENT, INC.

The following table sets forth selected financial data for CHS derived from
CHS's Financial Statements. The selected financial data should be read in
conjunction with the Financial Statements of CHS Management, Inc. and the
related notes thereto included elsewhere in this Prospectus-Proxy Statement.

<TABLE>
<CAPTION>
SEPTEMBER 1,
1995 SIX
(INCEPTION) MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1995 1996
--------------- --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Total operating revenue............................................... $ 2,658 $ 29,496
Transfers to affiliated Medical Groups................................ -- 24,575
Salaries and employee benefits........................................ 1,350 2,647
Outside professional services......................................... 170 186
Building and occupancy................................................ 335 959
Depreciation and amortization......................................... 10 9
Other administrative expenses......................................... 522 1,851(1)
------- --------
Total operating expenses.............................................. 2,387 30,227
------- --------
Operating income (loss)............................................... 271 (731)
Net interest income and gain on sale of assets........................ 4 7
Income taxes provision (benefit)...................................... 106 (30)
------- --------
Net income (loss)..................................................... $ 168 $ (694)
=========== =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash..................................................................... $ 719 $2,127
Due from affiliates...................................................... 752 729
Total assets............................................................. 2,106 3,772
Funds held on behalf of others........................................... 494 0
Total shareholders' equity (deficit)..................................... 419 (275)
</TABLE>

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

(1) Includes approximately $784,000, of accrued expenses relating to the Merger.

77
<PAGE> 88

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

The following discussion should be read in conjunction with the financial
statements of CHS and the notes thereto and other financial information included
elsewhere in this Prospectus-Proxy Statement.

OVERVIEW

CHS was incorporated in August 1995 for the purpose of effecting the
Restructurings and thereby continuing the management operations for the Medical
Groups. CHS's revenue is derived principally from a percentage of enrollee
revenue generated by the Medical Groups through their contracts with HMOs, which
constitute approximately 90.2% of operating revenue. For the period from
September 1, 1995 (inception) through December 31, 1995, CHS provided its
services to the Medical Groups in exchange for a percentage of the net revenues
of each such Medical Group. Effective January 1, 1996, CHS began providing its
services on a cost basis plus a percent of revenues in exchange for assuming all
nonmedical costs of the Medical Groups, and an assignment of revenues from such
Medical Groups.

CHS' operating results are affected significantly by the number of Medical
Groups it manages. CHS seeks to achieve increasing growth and profitability
through increased market penetration and operational efficiencies in its
existing markets and through the development of new Medical Groups in targeted
markets. In addition, CHS provides certain management services for New
Management under New Management's contract with West Hills Hospital Medical
Corporation. In exchange for these services, CHS receives a fee equal to a
percent of New Management's revenues, subject to adjustment under certain
circumstances.

The following table sets forth the number of primary care physicians
affiliated with the Medical Groups and enrollment in managed care programs for
the year ended June 30, 1996:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
-----------------
<S> <C>
Employed primary care physicians..................................... 15
Exclusive primary care physicians.................................... 112
Non-exclusive primary care physicians................................ 32
-----------------
Total primary care physicians.............................. 159
=============
Commercial HMO enrollees............................................. 101,000
Senior HMO enrollees................................................. 6,000
-----------------
Total HMO enrollees........................................ 107,000
=============
</TABLE>

RESULTS OF OPERATIONS

CHS has been affiliated with the Medical Groups for a limited period of
time. As a result, there are no period-to-period comparisons and percentage
relationships within periods are not meaningful measures of its operations.

78
<PAGE> 89

The following table sets forth CHS's statements of operations, expressed as
a percentage of total operating revenue, for the period from September 1, 1995
(inception) through December 31, 1995 and for the six months ended June 30,
1996.

<TABLE>
<CAPTION>
SEPTEMBER 1 THROUGH
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------
<S> <C> <C>
Total operating revenue....................................... 100.0% 100.0%
Transfers to affiliated medical groups........................ N.A. 83.3
Salaries and employee benefits................................ 50.8 9.0
Outside professional services................................. 6.4 0.6
Building and occupancy........................................ 12.6 3.3
Depreciation.................................................. 0.4 0.0
Other administrative expenses................................. 19.6 6.3
Total operating expenses...................................... 89.8 102.5
Operating income (loss)....................................... 10.2 (2.5)
Net interest income........................................... 0.1 0.0
Provision for income taxes.................................... 4.0 0.0
</TABLE>

Six Months Ended June 30, 1996

Total operating revenue was approximately $29.5 million for the six months
ended June 30, 1996. Revenue increased due to the assignment of revenue from the
Medical Groups to CHS under the new MSAs. Approximately $27.78 million, or 94.2%
of revenue, consisted of capitation revenue from the Medical Groups, while
approximately $0.36 million, or 1.2% of revenue, was generated from consulting
services.

Total operating expenses were approximately $30.3 million, or 102.5% of
revenue, for the six months ended June 30, 1996. Expenses increased as a result
of the assumption of nonmedical costs of the Medical Groups and the obligation
to transfer back sufficient amounts to the Medical Groups to cover the medical
costs, but in no event less than a specified amount. Transfers back to the
Medical Groups to cover the cost of medical services were approximately $24.58
million or 83.3% of revenue. Overhead expenses, consisting of building,
occupancy and other administrative expenses (including merger costs),
represented approximately $2.81 million, or 9.5% of revenue. Salaries and
employee benefits were approximately $2.65 million, or 9.0% of revenue. Interest
income was approximately $1,700 or less than 0.01% of revenue.

Net loss was $694,116.

For the Period September 1, 1995 (inception) through December 31, 1995

Total operating revenue was approximately $2.66 million for the period from
September 1, 1995 (inception) through December 31, 1995. Approximately $2.45
million, or 92.0% of revenue, consisted of management fees from the Medical
Groups and approximately $0.21 million, or 8.0% of revenue, was generated from
consulting services, including those rendered to New Management.

Total operating expenses were $2.39 million, or 89.8% of revenue, for the
period. Overhead expenses, consisting of building, occupancy and other
administrative expenses, represented approximately $0.86 million, or 32.2% of
revenue. Salaries and employee benefits were approximately $1.35 million, or
50.8% of revenue. Net interest income was approximately $3,600, or 0.1% of
revenue.

Net income was $.17 million.

LIQUIDITY AND CAPITAL RESOURCES

CHS requires capital primarily to acquire, affiliate with and develop
medical groups as well as to fund working capital. The management contracts in
effect between CHS and the Medical Groups at June 30, 1996 were the primary
source of cash flow to CHS. For the period ended June 30, 1996, CHS experienced
negative cash flows from operations of approximately $628,520. The amended and
restated management contracts between CHS and each of the Medical Groups are
expected to have a positive effect on the Company's cash

79
<PAGE> 90

flow from operations, as capitation payments are received in advance of when
management costs associated with those capitated services are incurred. Under
the amended and restated management contracts, cash flow to CHS should increase
as more revenue becomes available to the Company. However, shared-risk
arrangements will negatively impact cash flow since settlements in connection
with these arrangements are typically not collected until several months
following the period in which they were recognized.

CHS had a working capital deficit of approximately $361,000 at June 30,
1996, and cash was approximately $2.13 million. Due to the relatively short
operating history of CHS and expenses related to the Restructurings, CHS has not
had the opportunity to establish significant cash reserves. In order to fund
CHS' proposed expansion, significant additional capital would be required by
CHS. On June 21, 1996, CHS received a short term loan of approximately $2.5
million for working capital purposes from MedPartners/ Mullikin. The loan, which
is represented by a promissory note, bears interest at the prime rate of
NationsBank of Georgia, N.A., and is due December 31, 1996. The loan is
guaranteed by each of CMG and Health Source Management.

CHS is dependent on the Medical Groups' continued financial viability and
their ability to fund operations, including their ability to pay the management
fees. HSMG has historically incurred significant net operating losses and has a
significant net shareholders deficit. If HSMG failed to pay the amounts owed to
CHS when they become due or failed to continue operations, such failures could
have a substantial negative impact on the financial results of CHS. As of June
30, 1996, CHS had loaned approximately $725,000 to HSMG to pay certain overdue
obligations of HSMG. In order to fund CHS's growth, CHS will require significant
additional capital in the immediate future. CHS expects the Merger will provide
such capital. Failure to approve the Merger and to obtain capital by CHS could
have a material adverse effect on CHS and may result in a diminished ability of
CHS to expand and compete against larger, better funded competitors, such as
MedPartners/Mullikin.

80
<PAGE> 91

BUSINESS OF CHS MANAGEMENT, INC.

THE MANAGED HEALTH CARE INDUSTRY

Health Maintenance Organizations. Over the past decade, the cost of
medical services has increased at a rate significantly higher than the consumer
price index. The HCFA estimates health care expenditures in the United States
for 1994 at approximately $1 trillion which represented more than 14.4% of gross
national product.

In response to escalating health care costs, employers, insurers and
governmental entities have each sought cost-effective approaches to the delivery
of and payment for quality health care services. HMOs have emerged as integral
components in this effort. An HMO typically commits to provide, directly or
indirectly, through subcontracting with physicians groups, all or substantially
all of the medical services required by its members for a price to the member
which does not vary significantly based on utilization. HMOs therefore assume
some of the financial risk for the delivery of medical care and in this sense
function like traditional indemnity health care plans. Unlike traditional
indemnity health care plans, however, HMOs seek to reduce the cost of medical
services through volume discounts from their provider networks and through the
reduction of unnecessary medical services by implementing extensive utilization
review and quality assurance programs.

HMOs enroll members by entering into contracts with employer groups or
directly with individuals to provide a broad range of health care services for a
fixed monthly premium, with deductibles and co-payments required of the members.
HMOs typically contract directly with physicians, hospitals and other health
care providers to administer medical care to enrollees. These contracts provide
for payment to the provider on either a discounted fee-for-service, per diem
basis or professional capitation based on the number of enrollees, regardless of
the amount of necessary medical care required within the covered benefits.

In response to the growth in HMO penetration, five major provider group
models have evolved. These models include (i) the staff model; (ii) the
multi-specialty group model; (iii) the primary care group model; (iv) the IPA
model; and (v) the physician-hospital organization model ("PHO"). Staff models,
unlike the other models, involve the direct employment of physicians by an HMO
and compensation of each physician through salary and incentives.
Multi-specialty group models involve HMOs contracting with a single or limited
number of large multi-specialty physicians groups to provide health care
services to each member on a discounted fee-for-service or capitated basis.
Primary care group models involve HMOs contracting with individual and group
practice primary care physicians to provide health care on a capitated basis.
IPA models involve HMOs contracting with individual primary and specialty care
physicians, either directly or through a physicians' association, and typically
compensating each physician on a discounted fee-for-service or capitated basis.
PHO models link hospitals with groups of primary and specialty care physicians
in order to allow them to contract jointly with HMOs and to assure the hospitals
a broad patient base.

In each of these provider group models, with the exception of the staff
model, HMOs generally shift certain administrative and economic functions to
physicians. Administrative burdens include justifying medical costs and quality,
seeking authorization for tests and procedures and responding to additional
oversight from HMOs. These burdens have been exacerbated by the proliferation of
HMOs, which require physicians to comply with multiple formats for claims
processing, credentialing and other administrative reporting requirements. As a
result, physicians' operating expenses and the number of hours devoted to non-
medical activities have increased. Even in large practice groups, many
physicians have not been able to absorb efficiently the additional
administrative responsibilities delegated to them by HMOs. In addition to adding
these administrative pressures, by capitating payments to physicians, HMOs, in
effect, have also begun to shift to physicians a significant portion of the
economic risk of providing health care. These shared risk arrangements exert
more pressure on the physician to reduce costly, unnecessary medical treatments
while continuing to deliver quality medical care. In order to perform these
administrative and economic functions, physicians have begun to outsource to
third parties, such as CHS, both the management of economic risk and the
non-medical management tasks associated with the practice of medicine.

MSOs were created to provide certain of the economic and administrative
functions shifted to physicians by HMOs, and to assist physicians groups in
competing for business and controlling their medical practice in

81
<PAGE> 92

the era of managed care. MSOs provide the management and organizational
structures similar to an HMO yet allow individual physicians to maintain quality
assurance and utilization controls. MSOs provide management, claims payment and
other administrative services to physicians. MSOs also help physicians groups by
negotiating capitation rates and other incentive arrangements with HMOs. CHS
believes that managed care will continue to play an important role in the
delivery of and payment for health care services.

CHS MANAGEMENT, INC.

CHS is an MSO formed through the combination of CMG's management operations
and the acquisition of substantially all of the assets of Health Source
Management. CHS engages in the organization and management of, and affiliations
with, primary care and multi-specialty physicians groups and IPAs and assists
the Medical Groups in the negotiation of contracts with HMOs to provide
physician and related health care services to Enrollees who select physicians in
CHS-managed physicians groups. Upon consummation of the Restructurings, CHS
commenced management, pursuant to long term management agreements, of the
Medical Groups which are comprised of approximately 370 physicians covering
approximately 109,000 commercial Enrollees and 5,000 senior Enrollees in West
Los Angeles and the San Fernando, Conejo and Simi Valleys. CHS engages, on
behalf of HSMG and CMG, in the negotiation, monitoring and maintenance of 40
contracts consisting of 19 HMO contracts for HSMG and 22 HMO contracts for CMG,
including Secure Horizons, CaliforniaCare Health Plans, Cigna Healthcare of
Southern California, Aetna, CareAmerica, PacifiCare of California, Prudential
Healthcare Plan of California, Health Net California's Health Plan, and Blue
Shield HMO. Most of the HMO contracts provide for a fixed monthly capitation
payment or a fixed monthly service fee, in exchange for which the Medical Groups
are responsible for providing all covered medical care for their respective
enrollees. Contracts with HMOs and physicians generally include shared risk
arrangements and other financial incentives designed to encourage the provision
of high-quality, cost-effective health care. In addition, CHS assumed Health
Source Management's obligations under its contracts and provides medical
management consulting services to, among others, the Midway Hospital Medical
Center. CHS also structures and administers health education and community
outreach programs for the Medical Groups.

CMG is affiliated with West Hills Hospital, Los Robles Regional Medical
Center and Encino-Tarzana Regional Medical Center. CMG also maintains a
non-exclusive network of over 200 multi-specialty physicians on a sub-capitation
or discounted fee-for-service basis to provide cost effective medical services
to its enrollees on an as-needed basis. CMG currently provides health care
services to approximately 46,000 enrollees of major health plans and insurers
who reside in the San Fernando, Conejo and Simi Valleys through 43 affiliated
primary care physicians. HSMG provides health care services to approximately
68,000 enrollees of major health plans and insurers and residing in the West Los
Angeles area through approximately 325 affiliated physicians consisting of
approximately 120 primary care and approximately 205 specialist physicians. HSMG
is affiliated with five regional hospitals: Cedars-Sinai Medical Center, Century
City Hospital, Brotman Medical Center, Centinela Hospital and Midway Hospital
Medical Center.

MEDICAL PROVIDERS

Relationship with Physicians and Enrollees. Through its contractual
relationships with the Medical Groups acquired through the Restructurings, CHS
is affiliated with approximately 370 physicians, most of whom are on the staff
of Cedars-Sinai Medical Center or West Hills Hospital. Each HSMG contract with a
primary care physician contains an exclusivity provision which provides that as
long as they are affiliated with HSMG, the physician cannot provide managed care
services to any other entity within a five mile radius of HSMG's administrative
offices. In addition, 90% of specialty services provided are performed by
specialists whose contracts with HSMG contain similar exclusivity provisions.
All partners of CMG are exclusive to CMG for managed care services and may not
compete with CMG in managed care or contract with any HMO in any county in which
CMG conducts business.

Although the Medical Groups rely on numerous individual physicians and
practice groups to provide its enrollee base, the number of patients of several
of these physicians and practice groups is substantial. In particular, the
patient group of one physician comprised approximately 10% of HSMG's enrollees
during 1994.

82
<PAGE> 93

Although neither CHS nor the Medical Groups have any reason to believe that any
of the Medical Groups' affiliated physicians plan to terminate their contracts
with the Medical Groups following the Merger, there can be no assurance that the
contracts with these physicians will be renewed or, if renewed, will contain
terms as favorable to the Medical Groups as the existing agreements. The loss to
the Medical Groups of certain of these physicians and their patients could have
a material adverse effect on the Medical Groups and, consequently, on CHS.

Relationship with HMOs. The Medical Groups operate under contract with
HMOs. The Medical Groups currently have contracts with major HMOs, including
Aetna, Secure Horizons, MaxiCare, CaliforniaCare Health Plans, Cigna Healthcare
of Southern California, Care America, PacifiCare of California, Prudential
Healthcare Plan of California, Inc., Health Net California's Health Plan, and
Blue Shield HMO. Most of the Medical Groups' contracts with HMOs ("HMO
Agreements") provide for a fixed monthly capitation payment or a fixed monthly
service fee, in exchange for which the Medical Groups are responsible for
providing all covered medical care for each enrollee. HSMG and CMG have
stop-loss protection in connection with all of their capitated HMO contracts
which provide thresholds or "attachment points" at which the risk of financial
exposure for capitated services provided to an individual enrollee, beyond such
thresholds, is contractually shifted to a third party insurer. The Medical
Groups have acquired stop-loss coverage from third parties, generally at $25,000
per year attachment points. The Medical Groups' HMO agreements generally provide
for one year terms which renew automatically unless terminated. Termination is
generally permitted by either party without cause upon written notice 90 to 120
days prior to the anniversary date of the agreement and by either party for
cause upon 10 to 30 days written notice (with an opportunity to cure if
termination is pursuant to a breach of the agreement). HMO agreements are
usually amended annually to change capitation rates.

The Medical Groups' contracts with HMOs generally include shared-risk
arrangements and other financial incentives designed to encourage the provision
of high-quality, cost-effective health care. Shared-risk provisions generally
include the establishment of an annual budget for the provision of institutional
services authorized by Medical Group physicians, and pursuant to which the
Medical Groups retain a percentage of any unused amounts. CHS arranges for the
Medical Groups to continue to purchase reinsurance (through its HMOs) to limit
the Medical Groups' exposure under such shared-risk arrangements. In addition,
some agreements contain provisions for additional compensation based upon the
achievement by Medical Group physicians of certain standards of quality in the
provision of medical services to enrollees. Agreements for the provision of
services covered by Medicare generally allocate to the Medical Groups a
percentage of amounts received by the HMO from the HCFA.

During 1995 and 1994, enrollees of HealthNet HMO, California Care Health
Plans and PacifiCare of California accounted for 30.3%, 23.3% and 11.3% in 1995
and 30.9%, 23.2%, and 12.8% in 1994 of CMG's revenues, respectively. While each
of the Medical Groups recently entered into a 5 year strategic partnership
arrangement with PacifiCare of California, and while CHS has no reason to
believe that any of these HMOs intends to terminate their agreements with either
of the Medical Groups, there can be no assurance that these agreements will be
renewed in the future, or if renewed, that they will contain terms as favorable
to HSMG or to CMG as the existing agreements. The loss to the Medical Groups of
any of these HMOs or the failure to regain or retain these HMOs' enrollees or
the related revenues could have a material adverse effect on the Medical Groups,
and consequently, on CHS.

THE MANAGEMENT AGREEMENTS AND SERVICES PROVIDED

On August 31, 1995, CHS entered in a Management Agreement with each of CMG
and HSMG pursuant to which CHS provides management services to the Medical
Groups in exchange for each Medical Group paying to CHS 12% of their capitated
revenues, risk pool revenues, and any other operating revenues received from
HMOs from Medical Group services, and 12% of 55% of fee-for-service revenues as
compensation for the services of CHS. As of January 1, 1996, CHS and each of
HSMG and CMG amended their respective Management Agreement to provide that CHS
provides management services to the Medical Groups in exchange for each Medical
Group paying all of CHS' direct costs associated with the provision of
management services to the Medical Group plus a percent of net revenues (which
includes shared-risk pool

83
<PAGE> 94

payments and any other operating revenues received from HMOs for Medical Group
services). The term of the agreements with the Medical Groups is 20 years.
Either agreement is terminable for CHS's or the Medical Group's material breach
of its obligations thereunder, CHS's insolvency, the loss of a certain
percentage of revenue by the Medical Group, the departure of a specified number
of the Medical Group's affiliated physicians or the Medical Group's insolvency.
Each agreement is terminable when the other becomes terminable. CHS's services
under the Management Agreement include Medical Management Services and
Administrative Services, as described below.

CHS has entered into a services agreement with New Management to assist it
in providing hospital management and administrative services. CHS receives a
monthly nonaccountable reimbursement equal to 12% of the amount equal to the
number of capitated lives covered by New Management multiplied by one dollar
(which may increase or decrease in certain circumstances).

Medical Management Services. These services include administering the
Medical Groups' managed care medical and hospital referral authorization
procedures; designing, developing and implementing outcome-based management
programs; administering physician education programs and claims analysis
programs; providing administrative support for all managed care quality
management activities as they relate to non-medical policy and procedure
development; data collection, meeting administration, documentation of findings,
monitoring of the Medical Groups' developed requirements for medical record
documentation; and designing, developing and implementing a comprehensive
credentialing program for the Medical Groups' physicians.

Administrative Services.

Managed Care Contracting. These services include negotiating and
monitoring agreements with payors; negotiating agreements with ancillary service
providers; negotiating agreements with out-of-area hospital and ancillary
providers; and coordinating the Medical Groups' network and office expansion.
CHS also coordinates relations with HMOs and assists in resolving any grievances
between the Medical Groups and HMOs and in resolving any enrollee grievances.

Medical Group Provider Relations. CHS's services include negotiating
agreements with the Medical Groups' physicians, maintaining eligibility data in
a computerized database, tracking physician contract renewal dates, and
distributing updated physician lists. With respect to relations with such
physicians, CHS trains physicians in the Medical Groups' policies and procedures
and assists the Medical Groups in developing and updating manuals.

Financial Services. The financial services provided by CHS include
maintaining bookkeeping and accounting systems for the Medical Groups and New
Management, preparing a budget which reflects major operating objectives and
anticipated revenues, expenses and cash flow, establishing and maintaining bank
accounts and supervising short term investments and money management, preparing
financial statements, administering a claims processing system, generating
reports required by the Medical Groups for utilization management and financial
review, and administering capitation distribution from HMOs.

Management Information System. CHS's management information system
services include supervising and directing the development of a management
information system to include the handling of accounts receivable, accounts
payable, patient tracking, claims processing, utilization analysis and
eligibility determination.

Patient Eligibility and Services. CHS provides a variety of services
related to patient eligibility, including obtaining eligibility lists from
health plans, assisting with the determination of eligibility of patients for
health care coverage prior to the provision of medical services, maintaining a
computerized eligibility database, distributing eligibility reports, and
coordinating health education and wellness programs to enrollees of the Medical
Groups.

Physician Credentialing and Recruitment. CHS verifies that the credentials
of the physicians in the Medical Groups meet the requirements specified in HMO
contracts. All of the Medical Groups' physicians are licensed to practice
medicine in California and are generally either board certified or board
eligible.

84
<PAGE> 95

Other. CHS also provides other services, including services related to
insurance and risk management, personnel, marketing and public relations.

HOSPITAL CONSULTING SERVICES

With the consent of the hospital owners, CHS acquired consulting contracts
from Health Source Management pursuant to which CHS provides consulting services
designed to assist hospitals in maximizing the efficiency of their operations
and delivery systems in a managed care environment. These services include
assistance with contract management and review, evaluation of operational and
utilization review/case management systems, evaluation of quality assurance
methods, assistance with financial management, and medical staff evaluation.

COMPETITION

The businesses of providing health care and health care related services
are highly competitive and are subject to continuing changes in how services are
provided and how providers are selected and paid. CMG and HSMG compete with many
other physician practice groups, including other physician organizations, in its
service area. Pressures to reduce the cost of medical care, through legal reform
of the health care system or through market forces such as the continued
expansion of managed care, could adversely impact the revenues of CMG or HSMG
and, therefore, of CHS. Certain other physician practice management companies
are significantly larger and better capitalized, provide a wider variety of
services, have longer established relationships with HMOs, have more clients,
more employees, and better marketing channels, and can better afford to accept
low margin (or no margin) business than CHS. There can be no assurance that CHS
will be able to compete effectively with such competitors or that additional
competitors will not enter the market. CHS believes, however, that the
reputation of CMG and of HSMG for quality care in addition to the patient
relationships of its physician affiliates will contribute significantly to CHS
competitive position and to its ability to negotiate favorable arrangements with
HMOs and hospitals.

GOVERNMENTAL REGULATION

The health care industry is highly regulated and there can be no assurance
that the regulatory environment in which CHS operates will not change
significantly.

Various proposals affecting federal and state regulation of the health care
industry, including limitations on Medicare and Medicaid payments, have been
introduced in the past, including various plans to dramatically restructure the
financing and delivery of health care in the United States, and the
implementation of major new regulatory initiatives of the federal government.
During 1994, President Clinton proposed to cut $124 billion from projected
Medicare spending between the years 1996 and 2000 to help pay for universal
health insurance coverage as part of his health care reform plan. Although
President Clinton's proposal was not ultimately approved by Congress, there can
be no assurance that a similar proposal will not be approved in the future,
resulting in substantial reforms to the health care industry. In addition, a
number of states have enacted various forms of health care cost containment
legislation. These changes could have a material adverse effect on the
operations of CHS.

Federal law and the laws of the State of California generally specify who
may practice medicine and limit the scope of relationships between medical
practitioners and other parties. Under such laws, CHS is prohibited from
practicing medicine or exercising control over the provision of medical
services. In order to comply with such laws, the relationship between CHS and
each of HSMG and CMG is organized so that all physician services are offered by
physicians who are affiliated with HSMG or CMG. CHS does not employ physicians,
control their decisions regarding medical care, nor represent to the public that
it offers medical services. The Management Agreements between CHS and each of
CMG and HSMG delegates to CHS the performance of administrative, management and
support functions, while HSMG and CMG retain control over the provision of
medical services. CHS believes that the services it provides to CMG and HSMG
does not and will not constitute the practice of medicine under the current
interpretations of all applicable laws.

85
<PAGE> 96

Every state imposes licensing requirements on individual physicians and on
facilities operated and services offered by physicians. In addition, federal and
state laws regulate HMOs and other managed care organizations with which
physician groups may have contracts. CHS believes it is in compliance, in all
material respects, with such laws and regulations and the current
interpretations thereof, but there can be no assurance that such laws,
regulations or interpretations will not change in the future or that additional
laws and regulations will not be enacted. The ability of CHS to operate
profitably will depend in part upon CHS, HSMG and CMG obtaining and maintaining
all necessary licenses, certificates of need and other approvals, and operating
in compliance with applicable health care laws and regulations.

CHS is unable to predict what additional government regulations, if any,
affecting its business may be enacted in the future or how existing or future
laws and regulations might be interpreted. The failure of CHS, HSMG or CMG or
any future clients of CHS to comply with applicable laws or regulations could
have material adverse effect on CHS.

LITIGATION

A former officer made a claim against Health Source Management arising out
of his employment relationship and has filed a lawsuit against Health Service
Management claiming monetary damages and asserting a claim for options to
acquire stock of Health Source Management. Health Source Management believes
that it has valid defenses and counterclaims to the former officer's claims.

A provider of professional services to HSMG recently filed suit for payment
of past due obligations aggregating approximately $800,000. The suit also names
Health Source Management and CHS as additional defendants. Health Source
Management and CHS believe they have valid defenses to the provider's claims.
HSMG believes that it has available defenses and counterclaims to the provider's
claims and that the ultimate outcome of this action will not result in a
material adverse effect to HSMG. CHS has not assumed any contingent liabilities
of Health Source Management or CMG, including without limitation, any
liabilities relating to the foregoing.

RISK MANAGEMENT; MALPRACTICE INSURANCE

In recent years, physicians, hospitals and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
medical malpractice and related legal theories, including the withholding of
approval for necessary medical services. Many of these lawsuits involve large
claims and substantial defense costs. Although CHS does not engage in the
practice of medicine or provide medical services, there can be no assurance that
CHS will not become involved in such litigation in the future. Although neither
HSMG nor CMG is currently involved in any malpractice litigation, the results of
which would be expected to be material to their respective financial positions,
a material adverse result in any such litigation which may arise in the future
could have a material adverse effect on CHS.

As part of its management services, CHS negotiates and obtains malpractice
insurance on behalf of HSMG and CMG. Under the Management Agreements, CHS
requires CMG and HSMG to carry certain minimum amounts of professional liability
insurance coverage. CHS is named as an additional insured under HSMG's and CMG's
health care liability insurance policies, which include coverage for
professional liability claims. CHS believes such insurance is adequate to cover
claims for medical malpractice which may arise out of the practice of medicine
by physicians affiliated with CMG or HSMG. There can be no assurance, however,
that a future claim or claims will not exceed the limits of available insurance
coverage.

EMPLOYEES

CHS presently employs 174 full time equivalent employees involved in
non-clinical, nonphysician support.

PROPERTIES

CHS leases principal offices located at 8701 West Third Street, Los
Angeles, California 90048 (expiring April 30, 1997) and at 4505 Las Virgenes
Road, Suite 105, Calabasas, California 91302. CHS does not own any properties.

86
<PAGE> 97

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT -- CHS

The following table sets forth information regarding the beneficial
ownership of Common Stock as of July 31, 1996, unless otherwise indicated by
directors and executive officers and by all directors and officers of CHS as a
group. No person is known to CHS to beneficially own 5% or more of the
outstanding CHS Common Stock.

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE
- --------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Martin J. Coyne, M.D..................................... 994(1) 2.04%
Marvin V.H. Kanter, M.D.................................. 1,282(2) 2.63
Stewart Gleischman, M.D.................................. 864(1) 1.77
Bernard Siegel, M.D...................................... 1,282(2) 2.63
Joan Rose................................................ 0 0
Lawrence M. Bruksch, M.D................................. 685(1) 1.40
Philip C. Dragul, M.D.................................... 1,154(3) 2.37
David Frisch, M.D........................................ 500(1) 1.02
David Moskowitz, M.D..................................... 738(4) 1.51
Thomas R. Weinberger..................................... 243(1) 0.50
Steven J. Fishman........................................ 0 0
Directors and officers as a group (12 people)............ 7,742(1)(2)(3)(4) 15.85%
</TABLE>

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

(1) Assumes proportionate distribution of shares, including shares held in
escrow, from Health Source Management upon dissolution.
(2) Assumes allocation of 5.25% from CMG.
(3) Assumes allocation of 4.725% from CMG.
(4) Assumes allocation of 3.0228% from CMG.

87
<PAGE> 98

PRO FORMA CONDENSED FINANCIAL INFORMATION

MEDPARTNERS, INC.

SELECTED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following selected pro forma financial information for the combined
companies gives effect to the Merger as a pooling of interests. All of the
following selected pro forma financial information should be read in conjunction
with the pro forma financial information, including the notes thereto, appearing
elsewhere in this Prospectus-Proxy Statement. The pro forma financial
information set forth in this Prospectus-Proxy Statement is not necessarily
indicative of the results that actually would have occurred had the Merger been
consummated on the date indicated or that may be obtained in the future.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $1,787,021 $2,626,669 $3,637,914 $1,677,282 $2,352,731
Operating expenses:
Affiliated physician services............................ 296,318 436,927 689,740 298,418 469,011
Outside referral expenses................................ 70,427 102,496 149,185 64,556 156,506
Other clinic expenses.................................... 277,839 397,840 696,485 293,733 495,584
Cost of goods and services sold.......................... 884,009 1,365,203 1,688,075 829,681 985,231
Other nonclinic operating expenses....................... 72,576 88,064 92,527 46,378 42,062
General corporate expenses............................... 62,643 81,472 87,859 40,931 53,931
Depreciation and amortization............................ 25,453 40,847 61,549 26,878 43,090
Net interest expense..................................... 7,021 14,885 18,061 8,451 12,414
Merger expenses.......................................... -- -- 66,564 1,051 35,232
Loss on disposal of assets............................... 122 1,627 86,600 -- --
---------- ---------- ---------- ---------- ----------
Net operating expenses............................. 1,696,408 2,529,361 3,636,645 1,610,077 2,293,061
---------- ---------- ---------- ---------- ----------
Income (loss) before pro forma income taxes and
discontinued operations.................................. 90,613 97,308 1,269 67,205 59,670
Pro forma income tax expense (benefit)..................... 42,853 43,717 (16,638) 24,733 23,519
Cumulative effect of change in method of accounting for
income taxes............................................. 298 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income from continuing operations.......................... 47,462 53,591 17,907 42,472 36,151
Loss (income) from discontinued operations................. (30,808) (25,902) 136,528 139,531 66,799
---------- ---------- ---------- ---------- ----------
Pro forma net income (loss)................................ $ 78,270 $ 79,493 $ (118,621) $ (97,059) $ (30,648)
========== ========== ========== ========== ==========
Pro forma net income (loss) per share(1)................... $ 0.64 $ 0.61 $ (0.83) $ (0.72) $ (0.20)
========== ========== ========== ========== ==========
Number of shares used in pro forma net income (loss) per
share calculations(1)(2)................................. 121,396 129,425 142,851 134,740 152,870
========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................... $ 125,787
Working capital (deficit)....................................................................... (89,955)
Total assets.................................................................................... 2,119,435
Long-term debt, less current portion............................................................ 201,102
Total stockholders' equity...................................................................... 733,183
</TABLE>

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

(1) Pro forma net income (loss) per share is computed by dividing net income
(loss) by the number of common equivalent shares outstanding during the
periods in accordance with the applicable rules of the SEC. All stock
options and warrants issued have been considered as outstanding common
share equivalents for all periods presented, even if anti-dilutive, under
the treasury stock method. Shares of MedPartners Common Stock issued in
February 1995 upon conversion of the then outstanding MedPartners
Convertible Preferred Stock are assumed to be common share equivalents for
all periods presented.
(2) Number of shares used in pro forma net income (loss) per share gives effect
to the Merger by using the fixed exchange ratio of 1.21 to the Caremark
shares outstanding, an exchange ratio of 40.32 to the CHS shares
outstanding, 345,000 shares for the New Management Acquisition and gives
effect to the merger of insignificant entities.

88
<PAGE> 99

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>

HISTORICAL
-------------------------------------------------------
MEDPARTNERS/ NEW
MULLIKIN CAREMARK CARDINAL SUMMIT MRA CHS MANAGEMENT
----------- ---------- -------- ------- ------- ------ ----------
(A) (B)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 56,221 $ 63,000 $ 206 $1,275 $ 372 $2,127 $ 175
Accounts receivable less allowance for bad
debts........................................... 165,105 376,300 3,254 8,677 -- 211 --
Inventory......................................... 11,087 99,600 -- 188 -- -- --
Prepaid expenses and other current assets......... 23,839 23,800 21 44 -- 910 59
Deferred tax assets............................... 4,139 64,200 -- -- -- 97 --
-------- ---------- ------ ------- ------- ------- -----------
Total current assets........................ 260,391 626,900 3,481 10,184 372 3,345 234
Property and equipment.............................. 167,502 366,700 2,175 -- 9,626 133 --
Intangible assets, net.............................. 139,169 320,500 -- -- -- -- --
Deferred tax assets................................. 34,285 -- -- -- -- 227 --
Other assets........................................ 16,837 89,500 1,067 961 92 67 544
-------- ---------- ------ ------- ------- ------- -----------
Total assets................................ $ 618,184 $1,403,600 $ 6,723 $11,145 $10,090 $3,772 $ 778
======== ========== ====== ======= ======= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 29,084 $ 357,000 $ 733 $1,764 $ 79 $ 75 $ 5
Payable to physician groups....................... 28,616 -- -- -- -- -- --
Accrued medical claims payable.................... 44,235 29,700 -- -- -- -- --
Other accrued expenses and liabilities............ 49,770 137,200 2,247 4,634 -- 1,071 18
Short-term debt and current portion of long-term
debt............................................ 7,648 289,600 3,061 53 3,388 2,550 129
-------- ---------- ------ ------- ------- ------- -----------
Total current liabilities................... 159,353 813,500 6,041 6,451 3,467 3,696 152
Long-term debt, net of current portion.............. 35,080 130,200 1,636 -- 2,403 41 2,642
Other long-term liabilities......................... 9,140 71,900 -- 600 344 310 --
Stockholders' equity:
Common stock...................................... 52 82,200 -- -- -- 1 --
Additional paid-in capital........................ 435,618 199,600 566 -- -- 250 --
Shares held in trust.............................. -- (150,200) -- -- -- -- --
Notes receivable from shareholders................ (1,818) -- -- -- -- -- --
Unrealized loss on marketable equity securities... -- -- -- -- -- -- --
Accumulated earnings (deficit).................... (19,241) 256,400 (1,520 ) 4,094 3,876 (526) (2,016)
Treasury stock, at cost........................... -- -- -- -- -- -- --
-------- ---------- ------ ------- ------- ------- -----------
Total stockholders' equity.................. 414,611 388,000 (954 ) 4,094 3,876 (275) (2,016)
-------- ---------- ------ ------- ------- ------- -----------
Total liabilities and stockholders'
equity.................................... $ 618,184 $1,403,600 $ 6,723 $11,145 $10,090 $3,772 $ 778
======== ========== ====== ======= ======= ========= ==========

<CAPTION>
EMERGENCY
PROFESSIONAL PRO FORMA PRO FORMA
SERVICES ADJUSTMENTS COMBINED
------------- ----------- ----------
(C)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,411 $ -- $ 125,787
Accounts receivable less allowance for bad
debts........................................... 5,801 -- 559,348
Inventory......................................... -- -- 110,875
Prepaid expenses and other current assets......... 182 -- 48,855
Deferred tax assets............................... -- 96,500(D) 164,936
Total current assets........................ 8,394 96,500 1,009,801
Property and equipment.............................. 66 (130,350)(D) 415,852
Intangible assets, net.............................. -- 88,763(I) 548,432
Deferred tax assets................................. 1,760 -- 36,272
Other assets........................................ 10 -- 109,078
Total assets................................ $10,230 $ 54,913 $2,119,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 180 $ 100,550(D) $ 489,470
Payable to physician groups....................... -- -- 28,616
Accrued medical claims payable.................... -- -- 73,935
Other accrued expenses and liabilities............ 6,366 -- 201,306
Short-term debt and current portion of long-term
debt............................................ -- -- 306,429
Total current liabilities................... 6,546 100,550 1,099,756
Long-term debt, net of current portion.............. -- 29,100(D) 201,102
Other long-term liabilities......................... 3,100 -- 85,394
Stockholders' equity:
Common stock...................................... -- (82,098)(E) 155
Additional paid-in capital........................ 264 82,098(E) 656,959
(150,200)(F)
88,763(I)
Shares held in trust.............................. -- 150,200(F) --
Notes receivable from shareholders................ -- (1,818)
Unrealized loss on marketable equity securities... -- --
Accumulated earnings (deficit).................... 320 (163,500)(D) 77,887
Treasury stock, at cost........................... --
Total stockholders' equity.................. 584 (74,737) 733,183
Total liabilities and stockholders'
------- --------- ----------
equity.................................... $10,230 $ 54,913 $2,119,435
======= ========= ==========
</TABLE>

89
<PAGE> 100

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
MEDPARTNERS/
MULLIKIN CAREMARK CARDINAL SUMMIT MRA CHS
------------ ---------- -------- ------- ------ -------
(A) (B)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................................. $703,683 $1,569,587 $ 17,085 $23,770 $1,082 $29,496
Operating expenses:
Affiliated physician services......................... 301,280 121,663 6,994 8,512 -- 24,575
Outside referral expenses............................. 83,516 72,990 -- -- -- --
Other clinic expenses................................. 230,521 243,525 8,434 12,922 -- --
Cost of goods and services sold....................... -- 985,231 -- -- -- --
Other nonclinic operating expenses.................... -- 42,062 -- -- -- --
General corporate expenses............................ 39,540 5,687 708 2,185 449 4,792
Depreciation and amortization......................... 16,482 24,700 217 -- 565 9
Net interest expense.................................. 2,811 9,289 99 -- 107 --
Merger expenses....................................... 34,448 -- -- -- -- 784
Loss on disposal of assets............................ -- -- -- -- -- --
-------- -------- -------- -------- ------- -------
Net operating expenses.......................... 708,598 1,505,147 16,452 23,619 1,121 30,160
-------- -------- -------- -------- ------- -------
Income (loss) before pro forma income taxes and
discontinued operations............................... (4,915) 64,440 633 151 (39) (664)
Pro forma income tax expense (benefit).................. 360 22,988 11 60 -- 30
-------- -------- -------- -------- ------- -------
Income (loss) from continuing operations................ (5,275) 41,452 622 91 (39) (694)
Loss from discontinued operations....................... -- 66,799 -- -- -- --
-------- -------- -------- -------- ------- -------
Pro forma net income (loss)............................. $ (5,275) $ (25,347) $ 622 $ 91 $ (39) $ (694)
======== ======== ======== ======== ======= =======
Pro forma net income (loss) per share................... $ (0.11) $ (0.33) $ -- $ -- $(0.12) $(14.16)
======== ======== ======== ======== ======= =======
Number of shares used in pro forma net income (loss) per
share calculations.................................... 50,034 77,400 -- -- 330(G) 49
======== ======== ======== ======== ======= =======

<CAPTION>
HISTORICAL
-------------------------
EMERGENCY
NEW PROFESSIONAL PRO FORMA PRO FORMA
MANAGEMENT SERVICES ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
(C)
<S> <C> <C> <C> <C>
Net revenue............................................. $1,314 $ 7,796 $(1,082)(K) $2,352,731
Operating expenses:
Affiliated physician services......................... -- 5,987 -- 469,011
Outside referral expenses............................. -- -- -- 156,506
Other clinic expenses................................. -- 1,264 (1,082)(K) 495,584
Cost of goods and services sold....................... -- -- -- 985,231
Other nonclinic operating expenses.................... -- -- -- 42,062
General corporate expenses............................ 207 363 -- 53,931
Depreciation and amortization......................... -- 7 1,110(J) 43,090
Net interest expense.................................. 108 -- -- 12,414
Merger expenses....................................... -- -- -- 35,232
Loss on disposal of assets............................ -- -- -- --
----- ------ ------- ----------
Net operating expenses.......................... 315 7,621 28 2,293,061
----- ------ ------- ----------
Income (loss) before pro forma income taxes and
discontinued operations............................... 999 175 (1,110) 59,670
Pro forma income tax expense (benefit).................. -- 70 -- 23,519
----- ------ ------- ----------
Income (loss) from continuing operations................ 999 105 (1,110) 36,151
Loss from discontinued operations....................... -- -- -- 66,799
----- ------ ------- ----------
Pro forma net income (loss)............................. $ 999 $ 105 $(1,110) $ (30,648)
===== ====== ======= ==========
Pro forma net income (loss) per share................... $ 2.90 $ -- $ (0.20)
===== ====== ==========
Number of shares used in pro forma net income (loss) per
share calculations.................................... 345(G) -- 24,712(H) 152,870
===== ====== ======= ==========
</TABLE>

90
<PAGE> 101

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
MEDPARTNERS/ NEW
MULLIKIN CAREMARK CHS MANAGEMENT
------------ ---------- -------- ----------
(A) (B)
<S> <C> <C> <C> <C>
Net revenue............................................................. $547,450 $1,120,126 $ -- $1,524
Operating expenses:
Affiliated physician services......................................... 240,225 52,280 -- --
Outside referral expenses............................................. 50,364 14,192 -- --
Other clinic expenses................................................. 191,172 100,598 -- --
Cost of goods and services sold....................................... -- 829,681 -- --
Other nonclinic operating expenses.................................... -- 46,378 -- --
General corporate expenses............................................ 32,167 8,363 -- 148
Depreciation and amortization......................................... 13,962 12,909 -- --
Net interest expense.................................................. 3,367 4,971 -- 113
Merger expenses....................................................... 1,051 -- -- --
Loss on disposal of assets............................................ -- -- -- --
------------ ---------- -------- ----------
Net operating expenses.................................................. 532,308 1,069,372 -- 261
------------ ---------- -------- ----------
Income (loss) before pro forma income taxes and discontinued
operations............................................................ 15,142 50,754 -- 1,263
Pro forma income tax expense............................................ 4,411 20,302 -- --
------------ ---------- -------- ----------
Income from continuing operations....................................... 10,731 30,452 -- 1,263
(Income) from discontinued operations................................... -- 139,531 -- --
------------ ---------- -------- ----------
Pro forma net income.................................................... $ 10,731 $ (109,079) $ -- $1,263
=========== ========= ======== ==========
Pro forma net income per share.......................................... $ 0.26 $ (1.47) $ -- $ 3.66
=========== ========= ======== ==========
Number of shares issued in pro forma net income (loss) per share
calculations.......................................................... 41,867 74,800 -- 345(G)
=========== ========= ======== ==========

<CAPTION>
HISTORICAL
------------
EMERGENCY PRO PRO
PROFESSIONAL FORMA FORMA
SERVICE ADJUSTMENTS COMBINED
------------ ----------- ----------
(C)
<S> <C> <C> <C>
Net revenue............................................................. $8,182 $ -- $1,677,282
Operating expenses:
Affiliated physician services......................................... 5,913 -- 298,418
Outside referral expenses............................................. -- -- 64,556
Other clinic expenses................................................. 1,963 -- 293,733
Cost of goods and services sold....................................... -- -- 829,681
Other nonclinic operating expenses.................................... -- -- 46,378
General corporate expenses............................................ 253 -- 40,931
Depreciation and amortization......................................... 7 -- 26,878
Net interest expense.................................................. -- -- 8,451
Merger expenses....................................................... -- -- 1,051
Loss on disposal of assets............................................ -- -- --
------ ----------- ----------
Net operating expenses.................................................. 8,136 -- 1,610,077
------ ----------- ----------
Income (loss) before pro forma income taxes and discontinued
operations............................................................ 46 -- 67,205
Pro forma income tax expense............................................ 20 -- 24,733
------ ----------- ----------
Income from continuing operations....................................... 26 -- 42,472
(Income) from discontinued operations................................... -- -- 139,531
------ ----------- ----------
Pro forma net income.................................................... $ 26 $ -- $ (97,059)
========= ========== =========
Pro forma net income per share.......................................... $ -- $ (0.72)
========= =========
Number of shares issued in pro forma net income (loss) per share
calculations.......................................................... -- 17,728(H) 134,740
========= ========== =========
</TABLE>

91
<PAGE> 102

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------------------
MEDPARTNERS/
MULLIKIN CAREMARK CARDINAL SUMMIT MRA CHS
------------ ---------- -------- -------- -------- ------
(A) (B)
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................... $1,153,557 $2,374,263 $ 20,881 $ 48,576 $ 2,540 $2,658
Operating expenses:
Affiliated physician services................ 506,811 124,596 10,366 22,005 -- --
Outside referral expenses.................... 109,934 39,251 -- -- -- --
Other clinic expenses........................ 394,679 260,410 11,371 23,939 -- --
Cost of goods and services sold.............. -- 1,688,075 -- -- -- --
Other nonclinic operating expenses........... -- 92,527 -- -- -- --
General corporate expenses................... 64,713 14,044 1,068 3,289 933 2,374
Depreciation and amortization................ 29,088 28,555 297 -- 1,356 9
Net interest expense......................... 8,443 8,780 144 -- 470 --
Merger expenses.............................. 66,564 -- -- -- -- --
Loss on investment........................... -- 86,600 -- -- -- --
------------ ---------- -------- -------- -------- ------
Net operating expenses................. 1,180,232 2,342,838 23,246 49,233 2,759 2,383
------------ ---------- -------- -------- -------- ------
Income (loss) before pro forma income taxes and
discontinued operations...................... (26,675) 31,425 (2,365) (657) (219) 275
Pro forma income tax expense (benefit)......... (27,233) 11,267 (26) (483) -- 107
------------ ---------- -------- -------- -------- ------
Income (loss) from continuing operations....... 558 20,158 (2,339) (174) (219) 168
Loss from discontinued operations.............. -- 136,528 -- -- -- --
------------ ---------- -------- -------- -------- ------
Pro forma net income (loss).................... $ 558 $ (116,370) $ (2,339) $ (174) $ (219) $ 168
=========== ========= ======== ======== ======== ======
Pro forma net income (loss) per share.......... $ 0.01 $ (1.55) $ -- $ -- $ (0.66) $ 3.43
=========== ========= ======== ======== ======== ======
Number of shares used in pro forma net income
(loss) per share calculations................ 42,720 75,100 -- -- 330(G) 49
=========== ========= ======== ======== ======== ======

<CAPTION>
HISTORICAL
-----------------------------
EMERGENCY
NEW PROFESSIONAL PRO FORMA PRO FORMA
MANAGEMENT SERVICES ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
(C)
<S> <C> <C> <C> <C>
Net revenue.................................... $2,948 $ 35,031 $(2,540)(K) $3,637,914
Operating expenses:
Affiliated physician services................ -- 25,962 -- 689,740
Outside referral expenses.................... -- -- -- 149,185
Other clinic expenses........................ -- 8,626 (2,540)(K) 696,485
Cost of goods and services sold.............. -- -- -- 1,688,075
Other nonclinic operating expenses........... -- -- -- 92,527
General corporate expenses................... 314 1,124 -- 87,859
Depreciation and amortization................ -- 25 2,219(J) 61,549
Net interest expense......................... 224 -- -- 18,061
Merger expenses.............................. -- -- -- 66,564
Loss on investment........................... -- -- -- 86,600
---------- ------------ ----------- ----------
Net operating expenses................. 538 35,737 (321) 3,636,645
---------- ------------ ----------- ----------
Income (loss) before pro forma income taxes and
discontinued operations...................... 2,410 (706) (2,219) 1,269
Pro forma income tax expense (benefit)......... -- (270) -- (16,638)
---------- ------------ ----------- ----------
Income (loss) from continuing operations....... 2,410 (436) (2,219) 17,907
Loss from discontinued operations.............. -- -- -- 136,528
---------- ------------ ----------- ----------
Pro forma net income (loss).................... $2,410 $ (436) $(2,219) $ (118,621)
========== ========= ========== =========
Pro forma net income (loss) per share.......... $ 6.99 $ -- $ (0.83)
========== ========= =========
Number of shares used in pro forma net income
(loss) per share calculations................ 345(G) -- 24,307(H) (I) 142,851
========== ========= ========== =========
</TABLE>

92
<PAGE> 103

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------
MEDPARTNERS/ NEW
MULLIKIN CAREMARK CHS MANAGEMENT
------------ ---------- ------ ----------
(A) (B)
<S> <C> <C> <C> <C>
Net revenue......................................................... $815,041 $1,775,203 $ -- $3,085
Operating expenses:
Affiliated physician services..................................... 349,036 63,039 -- --
Outside referral expenses......................................... 86,974 15,522 -- --
Other clinic expenses............................................. 288,623 100,933 -- --
Cost of goods and services sold................................... -- 1,365,203 -- --
Other nonclinic operating expenses................................ -- 88,064 -- --
General corporate expenses........................................ 56,653 23,643 -- 220
Depreciation and amortization..................................... 21,892 18,924 -- --
Net interest expense.............................................. 5,958 8,695 -- 232
Merger expenses................................................... -- -- -- --
Loss on disposal of assets........................................ 1,627 -- -- --
-------- ---------- ------ ------
Net operating expenses...................................... 810,763 1,684,023 -- 452
-------- ---------- ------ ------
Income (loss) before pro forma income taxes and discontinued
operations........................................................ 4,278 91,180 -- 2,633
Pro forma income tax expense (benefit).............................. 7,350 36,672 -- --
-------- ---------- ------ ------
Income (loss) from continuing operations............................ (3,072) 54,508 -- 2,633
Income from discontinued operations................................. -- (25,902) -- --
-------- ---------- ------ ------
Pro forma net income (loss)......................................... $ (3,072) $ 80,410 $ -- $2,633
======== ========== ====== ======
Pro forma net income (loss) per share............................... $ (0.08) $ 1.08 $ -- $ 7.63
======== ========== ====== ======
Number of shares issued in pro forma net income (loss) per share.... 36,553 74,800 -- 345(G)
======== ========== ====== ======

<CAPTION>
HISTORICAL
------------
EMERGENCY PRO PRO
PROFESSIONAL FORMA FORMA
SERVICES ADJUSTMENTS COMBINED
------------ ----------- ----------
(C)
<S> <C> <C> <C>
Net revenue......................................................... $ 33,340 $ -- $2,626,669
Operating expenses:
Affiliated physician services..................................... 24,852 -- 436,927
Outside referral expenses......................................... -- -- 102,496
Other clinic expenses............................................. 8,284 -- 397,840
Cost of goods and services sold................................... -- -- 1,365,203
Other nonclinic operating expenses................................ -- -- 88,064
General corporate expenses........................................ 956 -- 81,472
Depreciation and amortization..................................... 31 -- 40,847
Net interest expense.............................................. -- -- 14,885
Merger expenses................................................... -- -- --
Loss on disposal of assets........................................ -- -- 1,627
------- ------- ----------
Net operating expenses...................................... 34,123 -- 2,529,361
------- ------- ----------
Income (loss) before pro forma income taxes and discontinued
operations........................................................ (783) -- 97,308
Pro forma income tax expense (benefit).............................. (305) -- 43,717
------- ------- ----------
Income (loss) from continuing operations............................ (478) -- 53,591
Income from discontinued operations................................. -- -- (25,902)
------- ------- ----------
Pro forma net income (loss)......................................... $ (478) $ -- $ 79,493
======= ======= ==========
Pro forma net income (loss) per share............................... $ -- $ 0.61
======= ==========
Number of shares issued in pro forma net income (loss) per share.... -- 17,727(H) 129,425
======= ======= ==========
</TABLE>

93
<PAGE> 104

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------
EMERGENCY
MEDPARTNERS/ NEW PROFESSIONAL
MULLIKIN CAREMARK CHS MANAGEMENT SERVICES
------------ ---------- ------ ---------- ----------
(A) (B) (C)
<S> <C> <C> <C> <C> <C>
Net revenue.................................................... $549,695 $1,203,957 $ -- $3,110 $ 30,259
Operating expenses:
Affiliated physician services................................ 224,770 48,913 -- -- 22,635
Outside referral expenses.................................... 59,861 10,566 -- -- --
Other clinic expenses........................................ 197,098 73,381 -- -- 7,360
Cost of goods and services sold.............................. -- 884,009 -- -- --
Other nonclinic operating expenses........................... -- 72,576 -- -- --
General corporate expenses................................... 42,196 19,449 -- 85 913
Depreciation and amortization................................ 14,057 11,353 -- -- 43
Net interest expense......................................... 3,338 3,444 -- 239 --
Merger expenses.............................................. -- -- -- -- --
Loss on disposal of assets................................... 122 -- -- -- --
------------ ---------- ------ ---------- ----------
Net operating expenses................................ 541,442 1,123,691 -- 324 30,951
------------ ---------- ------ ---------- ----------
Income (loss) before pro forma income taxes and discontinued
operations................................................... 8,253 80,266 -- 2,786 (692)
Pro forma income tax expense (benefit)......................... 9,723 33,403 -- -- (273)
Cumulative effect of change in method of accounting for income
taxes........................................................ 298 -- -- -- --
------------ ---------- ------ ---------- ----------
Income (loss) from continuing operations....................... (1,768) 46,863 -- 2,786 (419)
Income from discontinued operations............................ -- (30,808) -- -- --
------------ ---------- ------ ---------- ----------
Pro forma net income (loss).................................... $ (1,768) $ 77,671 $ -- $2,786 $ (419)
============ ========== ====== =========== ===========
Pro forma net income (loss) per share.......................... $ (0.06) $ 1.04 $ -- $ 8.08 $ --
============ ========== ====== =========== ===========
Number of shares used in pro forma net income (loss) per share
calculations................................................. 28,403 74,900 -- 345(G) --
============ ========== ====== =========== ===========

PRO PRO
FORMA FORMA
ADJUSTMENTS COMBINED
----------- ----------

<S> <C> <C>
Net revenue.................................................... $ -- $1,787,021
Operating expenses:
Affiliated physician services................................ -- 296,318
Outside referral expenses.................................... -- 70,427
Other clinic expenses........................................ -- 277,839
Cost of goods and services sold.............................. -- 884,009
Other nonclinic operating expenses........................... -- 72,576
General corporate expenses................................... -- 62,643
Depreciation and amortization................................ -- 25,453
Net interest expense......................................... -- 7,021
Merger expenses.............................................. -- --
Loss on disposal of assets................................... -- 122
----------- ----------
Net operating expenses................................ -- 1,696,408
----------- ----------
Income (loss) before pro forma income taxes and discontinued
operations................................................... -- 90,613
Pro forma income tax expense (benefit)......................... -- 42,853
Cumulative effect of change in method of accounting for income
taxes........................................................ -- 298
----------- ----------
Income (loss) from continuing operations....................... -- 47,462
Income from discontinued operations............................ -- (30,808)
----------- ----------
Pro forma net income (loss).................................... $ -- $ 78,270
=========== ==========
Pro forma net income (loss) per share.......................... $ 0.64
==========
Number of shares used in pro forma net income (loss) per share
calculations................................................. 17,748(H) 121,396
=========== ==========
</TABLE>

94
<PAGE> 105

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION

The proposed mergers with Caremark, CHS and Emergency Professional Services
and the acquisition of New Management are intended to be accounted for as
poolings-of-interests. The proposed mergers with Cardinal and Summit and the
acquisition of MRA are accounted for under the purchase method of accounting
(see below). The pro forma combined statements of operations assume that the
mergers were consummated at the beginning of the earliest period presented. The
pro forma condensed combined balance sheet assumes that the transactions were
consummated on June 30, 1996.

The pro forma financial information contains no adjustments to conform the
accounting policies of these companies because any such adjustments have been
determined to be immaterial.

The following adjustments are necessary to reflect the mergers:

A. These historical amounts for MedPartners/Mullikin for the years ended
December 31, 1995, 1994 and 1993 do not agree with the Form 10-K filed with the
SEC because the amounts have been restated to reflect the merger with PPSI which
was accounted for as a pooling-of-interests.

B. CHS was incorporated in August 1995 and commenced operations in
September 1995.

C. For purposes of combining with MedPartners/Mullikin, the Emergency
Professional Services balance sheet at April 30, 1996 was combined with the
MedPartners/Mullikin balance sheet at June 30, 1996. The Emergency Professional
Services income statements for the twelve month periods ended January 31, 1994,
1995 and 1996 and for the three month period ended April 30, 1995 and 1996 were
combined with the MedPartners/Mullikin statements of operations for the years
ended December 31, 1993, 1994 and 1995 and the six month period ended June 30,
1995 and 1996, respectively.

D. The pro forma combined statements of operations do not reflect
nonrecurring costs and charges resulting directly from the proposed mergers.
These costs and charges are estimated as follows:

<TABLE>
<CAPTION>
PROPERTY LONG-TERM TOTAL
DEFERRED AND ACCOUNTS DEBT, ACCUMULATED MERGER
TAX ASSET EQUIPMENT PAYABLE NET EARNINGS CHARGE
--------- --------- -------- --------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Caremark.................. $92,800 $(128,100) $ 92,800 $29,100 $(157,200) $250,000
CHS and New
Management.............. 1,900 -- 5,000 -- (3,100) 5,000
Emergency Professional
Services................ 1,800 (2,250) 2,750 -- (3,200) 5,000
------- --------- -------- ------- --------- --------
$96,500 $(130,350) $100,550 $29,100 $(163,500) $260,000
======= ========= ======== ======= ========= ========
</TABLE>

The following is a detail of the estimated merger expense related to the
Caremark Acquisition.

<TABLE>
<S> <C>
Severance and related benefits................................. $ 62,700
Operational restructuring...................................... 47,000
Lease abandonment.............................................. 30,500
Non-compatible technology...................................... 27,000
Brokerage fees................................................. 25,300
Professional fees.............................................. 24,900
Other transaction related costs................................ 20,600
Transition costs............................................... 6,000
Debt restructuring costs....................................... 5,000
Filing fees.................................................... 1,000
--------
$250,000
========
</TABLE>

The excess capacity, restructuring and market rationalization primarily
relates to computer hardware and software and leases that will be abandoned
after the merger. These assets are currently being utilized in the operations of
Caremark but are not compatible with the planned operations for
MedPartners/Mullikin. Severance and related benefits represent anticipated
payments to identified employees, as required by their respective employment
agreements, who will be terminated after the merger.

95
<PAGE> 106

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION -- (CONTINUED)

E. To reflect the approximate number of MedPartners/Mullikin Common Stock
exchanged for the stock or assets of the proposed acquirees as follows:

<TABLE>
<S> <C>
Caremark.................................................... 93,654,000
CHS......................................................... 1,969,000
New Management.............................................. 345,000
Emergency Professional Services............................. 2,166,000
Cardinal.................................................... 2,117,000
Summit...................................................... 2,255,000
MRA......................................................... 330,000
-----------
102,836,000
===========
</TABLE>

F. To reflect the termination of the trust holding the shares held in
trust.

G. Represents the approximate shares of MedPartners/Mullikin Common Stock
to be distributed in exchange for partnership interest based on an assumed
trading price of $20.31 per share.

<TABLE>
<S> <C> <C>
New Management........................... $(7,000,000/$20.31) 345,000
MRA...................................... $(6,700,000/$20.31) 330,000
</TABLE>

H. To adjust pro forma amounts based on historical share amounts,
converting each outstanding share of the acquirees stock into
MedPartners/Mullikin Common Stock based on the following exchange ratios:

<TABLE>
<CAPTION>
EXCHANGE
RATIO
---------
<S> <C>
Caremark...................................................... 1.21(1)
Cardinal...................................................... 46,025.73(2)
Summit........................................................ 39,562.22(2)
CHS........................................................... 40.32(2)
Emergency Professional Services............................... 8,144.44(2)
</TABLE>

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

(1) The exchange ratio is fixed.
(2) The exchange ratio was based on an assumed trading price of $20.31 per
share.

The proposed mergers with Cardinal, Summit and MRA are accounted for under
the purchase method of accounting in the pro forma condensed financial
information, although consummation of the transactions are conditioned upon the
mergers being accounted for as poolings of interests. The Company and its
independent auditors are in the process of determining compliance of the
transactions with pooling accounting requirements; however, that determination
is not complete. If the mergers were accounted for as poolings of interests,
amortization expense and net loss in the pro forma condensed statement of
operations for the year ended December 31, 1995 and six months ended June 30,
1996 would be reduced by the following amounts:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Amortization expense..................................... $ 2,219,000 $ 1,110,000
Pro forma net loss....................................... 1,331,000 660,000
</TABLE>

The following adjustments are necessary to reflect the Cardinal, Summit and
MRA mergers:

I. To reflect excess purchase price over net assets acquired related to the
purchase of Cardinal, Summit and MRA. For purposes of these pro forma financial
statements, all of the excess purchase price over net assets acquired is
allocated to goodwill. Goodwill is amortized over 40 years which is the period
of the practice management agreement.

96
<PAGE> 107

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION -- (CONTINUED)

The final amount of the excess purchase price and the allocation among the
net assets may differ from the amounts estimated. The approximate goodwill is as
follows:

<TABLE>
<S> <C>
Cardinal.................................................... $43,940,000
Summit...................................................... 42,054,000
MRA......................................................... 2,769,000
------------
$88,763,000
==========
</TABLE>

J. To record the amortization related to the recorded goodwill.

K. To eliminate rent income and expense between affiliated entities (Summit
and MRA).

97
<PAGE> 108

DESCRIPTION OF CAPITAL STOCK OF MEDPARTNERS/MULLIKIN

AUTHORIZED CAPITAL STOCK

The MedPartners/Mullikin Certificate of Incorporation currently provides
that MedPartners/Mullikin may issue 9,500,000 shares of Preferred Stock, par
value $.001 per share, 500,000 shares of MedPartners/ Mullikin Series C
Preferred Stock, par value $.001 per share, and 200,000,000 shares of
MedPartners/ Mullikin Common Stock, par value $.001 per share.

MEDPARTNERS/MULLIKIN COMMON STOCK

Holders of MedPartners/Mullikin Common Stock are entitled to one vote for
each share held of record on all matters to be submitted to a vote of the
stockholders and do not have preemptive rights. Subject to preferences that may
be applicable to any outstanding shares of MedPartners/Mullikin Preferred Stock,
holders of MedPartners/ Mullikin Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the
MedPartners/Mullikin Board of Directors out of funds legally available therefor.
See "Summary of Prospectus-Proxy Statement -- Market and Market Prices". All
outstanding shares of MedPartners/Mullikin Common Stock are, and the shares to
be issued in the Merger will be, when issued pursuant to the Plan of Merger,
fully paid and nonassessable. In the event of any liquidation, dissolution or
winding-up of the affairs of MedPartners/Mullikin, holders of MedPartners/
Mullikin Common Stock will be entitled to share ratably in the assets of
MedPartners/Mullikin remaining after payment or provision for payment of all of
MedPartners/Mullikin's debts and obligations and liquidation payments to holders
of any outstanding shares of MedPartners/Mullikin Preferred Stock.

MEDPARTNERS/MULLIKIN PREFERRED STOCK

The MedPartners/Mullikin Board of Directors, without further stockholder
authorization, is authorized to issue shares of MedPartners/Mullikin Preferred
Stock in one or more series and to determine and fix the rights, preferences and
privileges of each series, including dividend rights and preferences over
dividends on the MedPartners/Mullikin Common Stock and one or more series of
MedPartners/Mullikin Preferred Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the MedPartners/Mullikin Common Stock and one or more
series of MedPartners/Mullikin Preferred Stock. Although MedPartners/Mullikin
has no present plans to issue any shares of MedPartners/Mullikin Preferred
Stock, the issuance of shares of MedPartners/Mullikin Preferred Stock, or the
issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of MedPartners/ Mullikin or an
unsolicited acquisition proposal.

CERTAIN PROVISIONS OF THE MEDPARTNERS/MULLIKIN CERTIFICATE AND THE DGCL

Classified Board of Directors. The MedPartners/Mullikin Certificate and
MedPartners/Mullikin By-laws provide for the MedPartners/Mullikin Board of
Directors to be divided into three classes of directors, as nearly equal in
number as is reasonably possible, serving staggered terms so that directors'
terms expire either at the 1997, 1998 or 1999 annual meeting of stockholders of
MedPartners/Mullikin. One class, consisting of three directors (Richard M.
Scrushy, Ted H. McCourtney, Jr. and Rosalio J. Lopez, M.D.), has been elected to
a term which expires in 1997. One class, consisting of four directors (Larry R.
House, Charles W. Newhall III, John S. McDonald, J.D. and Richard J. Kramer),
has been elected to a term which expires in 1998. One class, consisting of three
directors (Scott F. Meadow, Larry D. Striplin, Jr. and Walter T. Mullikin,
M.D.), has been elected to a term which expires in 1999. See
"MedPartners/Mullikin's Management -- Classified Board of Directors".

MedPartners/Mullikin believes that a classified board of directors will
help to assure the continuity and stability of the MedPartners/Mullikin Board of
Directors and MedPartners/Mullikin's business strategies and policies as
determined by the MedPartners/Mullikin Board of Directors, since a majority of
the directors at any given time will have had prior experience as directors of
MedPartners/Mullikin. MedPartners/Mullikin

98
<PAGE> 109

believes that this, in turn, will permit the MedPartners/Mullikin Board of
Directors to more effectively represent the interests of stockholders.

With a classified board of directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
the majority of the MedPartners/Mullikin Board of Directors. As a result, a
provision relating to a classified MedPartners/Mullikin Board of Directors may
discourage proxy contests for the election of directors or purchases of a
substantial block of the MedPartners/Mullikin Common Stock because its
provisions could operate to prevent obtaining control of the
MedPartners/Mullikin Board of Directors in a relatively short period of time.
The classification provision could also have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
MedPartners/Mullikin. Under the DGCL, unless the certificate of incorporation
otherwise provides, a director on a classified board may be removed by the
stockholders of the corporation only for cause. The MedPartners/ Mullikin
Certificate does not provide otherwise.

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The MedPartners/Mullikin By-laws establish an advance
notice procedure with regard to the nomination, other than by or at the
direction of the MedPartners/Mullikin Board of Directors or a committee thereof,
of candidates for election as directors (the "Nomination Procedure") and with
regard to other matters to be brought by stockholders before an annual meeting
of stockholders of MedPartners/Mullikin (the "Business Procedure").

The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the MedPartners/Mullikin
Board of Directors to the Secretary of MedPartners/ Mullikin. The requirements
as to the form and timing of that notice are specified in the
MedPartners/Mullikin By-laws. If the Chairman of the MedPartners/Mullikin Board
of Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.

Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of MedPartners/Mullikin. The requirements as to the form and
timing of that notice are specified in the MedPartners/Mullikin By-Laws. If the
Chairman of the MedPartners/Mullikin Board of Directors determines that the
other business was not properly brought before such meeting in accordance with
the Business Procedure, such business will not be conducted at such meeting.

Although the MedPartners/Mullikin By-laws do not give the
MedPartners/Mullikin Board of Directors any power to approve or disapprove
stockholder nominations for the election of directors or of any other business
desired by stockholders to be conducted at an annual or any other meeting, the
MedPartners/ Mullikin By-laws (i) may have the effect of precluding a nomination
for the election of directors or precluding the conduct of business at a
particular annual meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
MedPartners/Mullikin, even if the conduct of such solicitation or such attempt
might be beneficial to MedPartners/Mullikin and its stockholders.

Delaware Takeover Statute. MedPartners/Mullikin is subject to Section 203
of the DGCL which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon 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 outstanding those shares owned (a) by persons
who are directors and also officers and (b) 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 (iii) on or after such date, the business combination is approved by the
Board of Directors and authorized at an annual

99
<PAGE> 110

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. An "interested stockholder" is defined
as any person that is (a) the owner of 15% or more of the outstanding voting
stock of the corporation or (b) an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the corporation
at any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested stockholder.

MEDPARTNERS/MULLIKIN STOCKHOLDER RIGHTS PLAN

The following is a description of the MedPartners/Mullikin Stockholder
Rights Plan (the "MedPartners/Mullikin Rights Plan"). The description thereof
set forth below is qualified in its entirety by reference to the
MedPartners/Mullikin Rights Plan, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus-Proxy Statement is a
part. See "Available Information".

The MedPartners/Mullikin Rights Plan provides that one right (a "Right")
will be issued with each share of MedPartners/Mullikin Common Stock (whether
originally issued or from MedPartners/Mullikin's treasury) prior to the Rights
Distribution Date (as defined below). The Rights are not exercisable until the
Rights Distribution Date and will expire at the close of business on the date
which is 10 years from the date of the distribution unless previously redeemed
by MedPartners/Mullikin as described below. When exercisable, each Right will
entitle the owner to purchase from MedPartners/Mullikin one one-hundredth of a
share of MedPartners/Mullikin Series C Preferred Stock (as defined herein) at a
purchase price of $52.00 per share. The MedPartners/Mullikin Series C Preferred
Stock may be issued in fractional shares.

Except as described below, the Rights will be evidenced by all the
MedPartners/Mullikin Common Stock certificates and will be transferred with the
MedPartners/Mullikin Common Stock certificates, and no separate Rights
certificates will be distributed. The Rights will separate from the
MedPartners/Mullikin Common Stock and a "Rights Distribution Date" will occur
upon the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 10% or more of the
outstanding MedPartners/ Mullikin Common Stock (the "Stock Acquisition Date")
and (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group becoming an Acquiring
Person.

After the Rights Distribution Date, Rights certificates will be mailed to
holders of record of shares of MedPartners/Mullikin Common Stock as of the
Rights Distribution Date and thereafter the separate Rights certificates alone
will represent the Rights.

The MedPartners/Mullikin Series C Preferred Stock issuable upon exercise of
the Rights will be entitled to a minimum preferential quarterly dividend payment
of $.001 per share and will be entitled to an aggregate dividend of 100 times
the dividend, if any, declared for each share of MedPartners/Mullikin Common
Stock. In the event of liquidation, the holders of the MedPartners/Mullikin
Series C Preferred Stock will be entitled to a minimum preferential liquidation
payment of $52.00 per share and will be entitled to an aggregate payment of 100
times the payment made per share of MedPartners/Mullikin Common Stock. Each
share of MedPartners/Mullikin Series C Preferred Stock will have 100 votes and
will vote together with the shares of MedPartners/Mullikin Common Stock. In the
event of any merger, consolidation or other transaction in which shares of
MedPartners/Mullikin Common Stock are changed or exchanged, each share of
MedPartners/Mullikin Series C Preferred Stock will be entitled to receive 100
times the amount received per share of MedPartners/Mullikin Common Stock. These
rights are protected by customary anti-dilution provisions. The
MedPartners/Mullikin Series C Preferred Stock will, if issued, be junior to any
other series of Preferred Stock which may be authorized and issued by
MedPartners/Mullikin, unless the terms of any such other series provide
otherwise. The MedPartners/Mullikin Series C Preferred Stock will not be
redeemable. Once the shares of MedPartners/Mullikin Series C Preferred Stock are
issued, the MedPartners/Mullikin Certificate may not be amended in a manner
which would materially alter or change the powers, preferences or special rights
of the MedPartners/Mullikin Series C Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds or more of
the outstanding shares of MedPartners/Mullikin Series C Preferred Stock, voting
separately as a class. Because of the nature of the MedPartners/Mullikin Series
C Preferred Stock dividend, liquidation and voting rights, the value of a share
of MedPartners/Mullikin

100
<PAGE> 111

Series C Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of MedPartners/Mullikin Common Stock.

In the event that (i) a person becomes an Acquiring Person (except pursuant
to a tender offer or an exchange offer for all outstanding shares of
MedPartners/Mullikin Common Stock at a price and on terms determined by at least
a majority of the members of the MedPartners/Mullikin Board of Directors who are
not officers of MedPartners/Mullikin and who are not representatives, nominees,
affiliates or associates of an Acquiring Person, to be (a) at a price which is
fair to MedPartners/Mullikin stockholders and (b) otherwise in the best
interests of MedPartners/Mullikin and its stockholders (a "Qualifying Offer")),
(ii) an Acquiring Person engages in certain self-dealing transactions involving
MedPartners/Mullikin, such as, (a) merging or consolidating into or with
MedPartners/Mullikin where MedPartners/Mullikin survives and the
MedPartners/Mullikin Common Stock remains outstanding, (b) transferring assets
to MedPartners/Mullikin in exchange for MedPartners/Mullikin securities, or
acquiring securities from MedPartners/Mullikin other than on the same basis as
from all other stockholders, (c) transferring assets to or from
MedPartners/Mullikin on terms less favorable than arm's length, (d) transferring
to or from MedPartners/Mullikin's assets having a fair market value in excess of
$5,000,000, (e) receiving unusual compensation or (f) receiving any other
financial benefit not provided to all other stockholders, or (iii) during such
time as there is an Acquiring Person, there is any reclassification of
securities, recapitalization, merger or consolidation which increases by more
than 1% the amount of MedPartners/Mullikin Common Stock beneficially owned by
the Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price, shares of
MedPartners/Mullikin Common Stock (or, in certain circumstances, cash, property
or other securities of MedPartners/Mullikin) having a value equal to two times
the exercise price of the Right. Notwithstanding any of the foregoing, following
the occurrence of any such events, all Rights that are, or (under certain
circumstances specified in the Rights Plan) were, beneficially owned by any
Acquiring Person (or certain related parties), will be null and void. However,
Rights are not exercisable following the occurrence of the events set forth
above until such time as the Rights are no longer redeemable by
MedPartners/Mullikin as set forth below.

In the event that, at any time following the Stock Acquisition Date, (i)
MedPartners/Mullikin is acquired in a merger or other business combination
transaction in which MedPartners/Mullikin is not the surviving corporation or
the MedPartners/Mullikin Common Stock is changed or exchanged (other than a
merger which follows an Qualifying Offer and satisfied certain other
requirements), or (ii) 50% or more of MedPartners/Mullikin's assets or earning
power is sold or transferred, each holder of a Right (except Rights which
previously have been voided as set forth above) shall thereafter have the right
to receive upon the exercise thereof at the then current exercise price, common
stock of the acquiring company having a value equal to two times the exercise
price of the Right.

At any time until 10 days following the Stock Acquisition Date,
MedPartners/Mullikin may redeem the Rights in whole, but not in part, at a price
of $.001 per Right. Immediately upon the action of the MedPartners/Mullikin
Board of Directors ordering redemption of the Rights, the Rights will terminate,
and the only right of the holders of the Rights will be to receive the $.001
redemption price.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of MedPartners/Mullikin, 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 MedPartners/Mullikin, stockholders
may, depending upon the circumstances, recognize taxable income in the event
that the Rights become exercisable for shares of MedPartners/Mullikin Common
Stock (or other consideration) or for common stock of the acquiring company as
set forth above.

Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Plan may be amended by the
MedPartners/Mullikin Board of Directors prior to the Rights Distribution Date.
After the Rights Distribution Date, the provisions of the Rights Agreement may
be amended by the MedPartners/Mullikin Board of Directors in order to cure any
ambiguity, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring

101
<PAGE> 112

Person) or to shorten or lengthen any time period under the Rights Agreement,
provided that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable.

The Rights have certain anti-takeover effects as they will cause
substantial dilution to a person or group that acquires a substantial interest
in MedPartners/Mullikin without the prior approval of the MedPartners/ Mullikin
Board of Directors. The effect of the Rights may be to inhibit a change in
control of MedPartners/ Mullikin (including through a third party tender offer
at a price which reflects a premium to then prevailing trading prices) that may
be beneficial to MedPartners/Mullikin stockholders.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

MedPartners/Mullikin's Certificate contains a provision eliminating or
limiting director liability to MedPartners/Mullikin and its stockholders for
monetary damages arising from acts or omissions in the director's capacity as a
director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
MedPartners/Mullikin or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under the DGCL making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the MedPartners/Mullikin
Board of Directors protection against awards of monetary damages resulting from
breaches of their duty of care (except as indicated above). As a result of this
provision, the ability of MedPartners/Mullikin or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care is limited. However, the provision does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. The SEC has taken the position that the provision
will have no effect on claims arising under the federal securities laws.

In addition, the MedPartners/Mullikin Certificate of Incorporation and the
MedPartners/Mullikin By-laws provide for mandatory indemnification rights,
subject to limited exceptions, to any director, officer, employee, or agent of
MedPartners/Mullikin who by reason of the fact that he or she is a director,
officer, employee, or agent of MedPartners/Mullikin, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee, or agent in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of the DGCL.

REGISTRATION RIGHTS

Pursuant to a Registration Agreement entered into in August 1993 and
amended in March 1994 (the "Registration Agreement"), the prior holders of the
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock of
MedPartners, which Preferred Stock has now been converted into
MedPartners/Mullikin Common Stock, were entitled to certain rights with respect
to the registration under the Securities Act of the 7,000,562 shares of Common
Stock into which the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock were converted. The shares of MedPartners/Mullikin
Common Stock covered by the foregoing registration rights are eligible for
resale either under Rule 144 of the Securities Act or without restriction.
Accordingly, at the request of MedPartners/Mullikin, most of the holders of the
Common Stock have agreed to terminate their rights with respect to the
Registration Agreement, leaving approximately 1,200,000 shares that are
presently covered by the Registration Agreement.

MedPartners/Mullikin has entered into a Registration Rights Agreement with
certain of the holders of MedPartners/Mullikin Common Stock pursuant to which
such persons will have the right to require that MedPartners/Mullikin register
shares of MedPartners/Mullikin Common Stock owned by them for sale, at one year
intervals up to three times during 1997, 1998 and 1999. Unlimited piggyback
registration rights have also been granted. The holders of these registration
rights are Walter T. Mullikin, M.D., John S. McDonald, Rosalio J. Lopez, M.D.
and DCNHS, who are the only persons deemed to be "affiliates" of MedPartners/
Mullikin, following the combination of MedPartners and MME. In the March 1996
public offering carried out by MedPartners/Mullikin, 1,358,921 shares of
MedPartners/Mullikin Common Stock were sold by

102
<PAGE> 113

Drs. Mullikin and Lopez and Mr. McDonald at $30.25 per share pursuant to the
rights granted under the Agreement. See "Principal Stockholders of
MedPartners/Mullikin".

In addition, from time-to-time, MedPartners/Mullikin will grant
registration rights, both on a contractual and a piggyback basis to various
persons in connection with acquisitions made on a private placement basis. At
June 30, 1996, a total of 2,207,318 shares of MedPartners/Mullikin Common Stock
were subject to such registration rights.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for MedPartners/Mullikin Common Stock is
ChaseMellon Shareholder Services, L.L.C., New York, New York.

103
<PAGE> 114

COMPARISON OF RIGHTS OF CHS
AND MEDPARTNERS/MULLIKIN STOCKHOLDERS

Both CHS and MedPartners/Mullikin are incorporated in Delaware. Holders of
the CHS Common Stock will continue to have their rights and obligations as
stockholders of MedPartners/Mullikin after the Merger governed by Delaware law.
Set forth below is a summary comparison of the material rights of a
MedPartners/Mullikin stockholder under the MedPartners/Mullikin Certificate and
the MedPartners/ Mullikin By-laws, on the one hand, and the rights of a CHS
stockholder under the CHS Certificate of Incorporation, as amended (the "CHS
Certificate"), and CHS' By-laws (the "CHS By-laws"), on the other hand. The
information set forth below is qualified in its entirety by reference to the
MedPartners/Mullikin Certificate, the MedPartners/Mullikin By-laws, the CHS
Certificate and the CHS By-laws.

After the Merger, the rights and obligations of the holders of CHS Common
Stock exchanged for MedPartners/Mullikin Common Stock with respect to the
classes and series of capital stock of MedPartners/ Mullikin and other matters
described below will be governed by the MedPartners/Mullikin Certificate and the
MedPartners/Mullikin By-laws.

CLASSES AND SERIES OF CAPITAL STOCK

CHS. The authorized capital stock of CHS consists of a total of 180,000
shares of common stock, par value $0.01 per share, and 20,000 shares of
Preferred Stock, par value $0.01 per share ("CHS Preferred Stock"). As of July
31, 1996, the Record Date, there were 48,844 shares of CHS Common Stock
outstanding.

MedPartners/Mullikin. MedPartners/Mullikin is authorized by the
MedPartners/Mullikin Certificate to issue up to 210,000,000 shares of capital
stock, of which 200,000,000 shares are designated MedPartners/ Mullikin Common
Stock, par value $.001 per share, 9,500,000 shares are designated Preferred
Stock, par value $.001 per share and 500,000 shares are designated Series C
Junior Participating Preferred Stock, par value $.001 per share (the
"MedPartners/Mullikin Series C Preferred Stock"). As of April 30, 1996, there
were 50,786,775 shares of MedPartners/Mullikin Common Stock outstanding. In
addition, there were outstanding options under MedPartners/Mullikin stock option
plans to purchase an additional 5,872,530 shares of MedPartners/Mullikin Common
Stock. An additional 1,920,900 shares of MedPartners/ Mullikin Common Stock have
been reserved for future option grants under such plans. The Board of Directors
of MedPartners/Mullikin has the authority to issue the MedPartners/Mullikin
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions for each such series, without any further vote or
action by the stockholders. As of April 30, 1996, there were no shares of
MedPartners/Mullikin Preferred Stock issued and outstanding, and the Board of
Directors of MedPartners/Mullikin has no present intention of issuing shares of
MedPartners/Mullikin Preferred Stock.

As a consequence of and following the Merger, CHS stockholders will not
hold CHS Common Stock but will instead hold shares of MedPartners/Mullikin
Common Stock with associated rights to acquire MedPartners/Mullikin Series C
Preferred Stock.

SIZE AND ELECTION OF THE BOARD OF DIRECTORS

CHS. The CHS By-laws provide that the CHS Board of Directors shall consist
of not less than ten members, with the exact number of directors to be fixed by
the CHS Board of Directors. The number of members is now fixed at ten. Directors
are elected by a majority of the votes cast at each annual meeting of
stockholders of CHS. Vacancies on the Board of Directors resulting from an
increase in the number, resignation or the removal of Directors may be filled by
a majority vote of the directors then in office. All other vacancies are filled
by the stockholders.

MedPartners/Mullikin. The MedPartners/Mullikin By-laws provide that the
MedPartners/Mullikin Board of Directors shall consist of eleven directors, but
in any event consist of at least three directors and that the size of the
MedPartners/Mullikin Board of Directors shall be fixed by the
MedPartners/Mullikin By-laws. Directors of MedPartners/Mullikin are elected by a
plurality of votes cast at the annual meeting of stockholders.

104
<PAGE> 115

As a consequence of and following the Merger, the rights and obligations of
holders of CHS Common Stock exchanged for MedPartners/Mullikin Common Stock with
respect to the size and composition of the MedPartners/Mullikin Board of
Directors will be as discussed under "Operations and Management of
MedPartners/Mullikin After the Merger -- Management" and as otherwise governed
by the MedPartners/ Mullikin By-laws as described in the immediately preceding
paragraph. At the Effective Time of the Caremark Acquisition, the
MedPartners/Mullikin By-laws shall be amended to provide that the
MedPartners/Mullikin Board of Directors shall consist of thirteen directors.

REMOVAL OF DIRECTORS

CHS. The CHS Certificate provides that any director, or the entire CHS
Board of Directors, may be removed, with or without cause, by a vote of the
holders of a majority of the outstanding shares of CHS Common Stock entitled to
vote thereon.

As a consequence of and following the Merger, the holders of CHS Common
Stock exchanged for MedPartners/Mullikin Common Stock will be able to remove a
director from the MedPartners/Mullikin Board of Directors only with cause and
only by the vote of the holders of a majority of the shares of capital stock
entitled to vote thereon.

CONVERSION AND DISSOLUTION

CHS. The CHS Common Stock has no conversion features. The CHS Certificate
authorizes for issuance 20,000 shares of CHS Preferred Stock, and provides that
such shares of CHS Preferred Stock may have such voting powers, preferences and
other special rights (including, without limitation, the right to convert the
shares of such CHS Preferred Stock into shares of CHS Common Stock) as shall be
stated in the CHS Certificate or resolutions providing for the issuance of CHS
Preferred Stock. If the Board of Directors were to designate such a series of
CHS Preferred Stock, such CHS Preferred Stock could be entitled to preferential
payments in the event of dissolution of CHS.

MedPartners/Mullikin. The MedPartners/Mullikin Common Stock has no
conversion features. The MedPartners/Mullikin Certificate authorizes for
issuance 9,500,000 shares of Preferred Stock, par value $.001 per share, and
provides that such shares of MedPartners/Mullikin Preferred Stock may have such
voting powers, preferences and other special rights (including, without
limitation, the right to convert the shares of such MedPartners/Mullikin
Preferred Stock into shares of MedPartners/Mullikin Common Stock) as shall be
stated in the MedPartners/Mullikin Certificate or resolutions providing for the
issuance of MedPartners/ Mullikin Preferred Stock. If the Board of Directors
were to designate such a series of MedPartners/Mullikin Preferred Stock in
addition to the MedPartners/Mullikin Series C Preferred Stock, such MedPartners/
Mullikin Preferred Stock could be entitled to preferential payments in the event
of dissolution of MedPartners/Mullikin.

As a consequence of and following the Merger, the rights and obligations of
holders of CHS Common Stock exchanged for MedPartners/Mullikin Common Stock with
respect to the conversion and dissolution features of the MedPartners/Mullikin
Common Stock will be governed by the MedPartners/Mullikin Certificate as
described in the preceding paragraph.

AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS

Under the DGCL, unless its certificate of incorporation or by-laws
otherwise provide, amendment of a corporation's certificate of incorporation
generally requires the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendment would increase or decrease
the number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of

105
<PAGE> 116

such class or series, requires the approval of the holders of a majority of the
outstanding stock of such class or series.

CHS. The CHS Certificate does not contain any provisions increasing the
vote required to amend the CHS Certificate. Under the CHS Certificate, the CHS
Board of Directors may make, alter or repeal the CHS By-laws.

MedPartners/Mullikin. The MedPartners/Mullikin Certificate provides that
the powers and rights of the Series C Preferred Stock cannot be materially
altered adversely without the affirmative vote of the holders of a majority of
the outstanding shares of MedPartners/Mullikin Series C Preferred Stock, voting
separately as a class. The MedPartners/Mullikin Certificate and
MedPartners/Mullikin By-laws provide that the MedPartners/Mullikin By-laws may
be altered, amended or repealed by a vote of a majority of the entire
MedPartners/Mullikin Board of Directors.

As a consequence of and following the Merger, the holders of CHS Common
Stock exchanged for MedPartners/Mullikin Common Stock will not be able to
materially alter adversely the powers and rights of the Series C Preferred Stock
without the affirmative vote of the holders of a majority of the outstanding
MedPartners/Mullikin Series C Preferred Stock, voting separately as a class.

SPECIAL MEETINGS OF STOCKHOLDERS

CHS. The CHS By-laws provide that a special meeting of stockholders may be
called by the Board of Directors.

MedPartners/Mullikin. The MedPartners/Mullikin By-laws provide that a
special meeting of the MedPartners/Mullikin stockholders may be called by the
President and shall be called by the President or the Secretary at the request
in writing by a majority of the MedPartners/Mullikin Board of Directors or by
the holders of at least a majority of the outstanding shares of capital stock of
MedPartners/Mullikin entitled to vote.

As a consequence of and following the Merger, the rights and obligations of
holders of CHS Common Stock exchanged for MedPartners/Mullikin Common Stock with
respect to Special Meetings of Stockholders will be governed by the
MedPartners/Mullikin By-laws as described in the preceding paragraph.

LIABILITY OF DIRECTORS

The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. Each of the
MedPartners/Mullikin Certificate and the CHS Certificate includes such a
provision which, as set forth below, limits such liability to the fullest extent
permitted under applicable law.

Each of the MedPartners/Mullikin Certificate and the CHS Certificate
provides that a director will not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends or
expenditures of funds for unlawful stock purchases or redemptions or (iv) for
any transaction from which the director derived an improper personal benefit.

While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.

106
<PAGE> 117

STOCKHOLDER RIGHTS PLAN

CHS. CHS does not have a stockholder rights plan.

MedPartners/Mullikin. The MedPartners/Mullikin Common Stock is subject to
a Rights Plan, which may inhibit a change in control of MedPartners/Mullikin
that might be beneficial to MedPartners/Mullikin stockholders. See "Description
of Capital Stock of MedPartners/Mullikin -- MedPartners/Mullikin Stockholder
Rights Plan".

As a consequence of and following the Merger, the rights and obligations of
holders of CHS Common Stock exchanged for MedPartners/Mullikin Common Stock will
be subject to the Stockholder Rights Plan which may inhibit a change of control
of MedPartners/Mullikin that might be beneficial to MedPartners/ Mullikin
Stockholders.

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS

CHS. CHS does not require advance notice of stockholder proposals or
nominations of directors.

MedPartners/Mullikin. The MedPartners/Mullikin By-laws establish an
advance notice procedure with regard to the nomination, other than by or at the
direction of the MedPartners/Mullikin Board of Directors or a committee thereof,
of candidates for election as directors and with regard to other matters to be
brought by stockholders before an annual meeting of stockholders of
MedPartners/Mullikin.

The MedPartners/Mullikin By-laws provide that nominations of persons for
election to the MedPartners/Mullikin Board of Directors may be made at a meeting
of stockholders by or at the direction of the MedPartners/Mullikin Board of
Directors, by any nominating committee or person appointed by the
MedPartners/Mullikin Board of Directors, or by any stockholder of
MedPartners/Mullikin who complies with the notice procedures set forth below.
Such nominations, other than those made by or at the direction of the
MedPartners/Mullikin Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of MedPartners/Mullikin. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of MedPartners/Mullikin not less than sixty days nor
more than ninety days prior to the meeting. Such notice shall set forth (i) the
name, age, business address and residence address of the nominee, (ii) the
principal occupation or employment of the nominee, (iii) the class and number of
shares of capital stock of MedPartners/Mullikin which are beneficially owned by
the nominee, and (iv) any other information relating to the nominee that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Exchange Act, and as to the stockholder giving the
notice, (i) the name and address of the stockholder, (ii) the class or series
and number of shares of capital stock of MedPartners/Mullikin which are owned by
the stockholder, (iii) a description of all arrangements or understandings
between the stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by the stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in
such notice, and (v) any other information relating to the stockholder that
would be required to be disclosed in a proxy statement or other filings required
to be made in connection with solicitations of proxies for the election of
directors pursuant to Section 14 of the Exchange Act. Such notice must be
accompanied by a written consent of each nominee to serve as a director if
elected. MedPartners/ Mullikin may require any proposed nominee to furnish such
other information as may reasonably be required by MedPartners/Mullikin to
determine the eligibility of such proposed nominee to serve as a director of
MedPartners/Mullikin.

107
<PAGE> 118

timely notice thereof in writing to MedPartners/Mullikin. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of MedPartners/Mullikin, not less than sixty days
nor more than ninety days prior to the meeting. The notice must set forth (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class or series and number of shares of capital stock of
MedPartners/Mullikin which are owned beneficially or of record by the
stockholder, (iv) a description of all arrangements or understandings between
the stockholder and any other person or persons (including their names) in
connection with the proposal of such business by the stockholder and any
material interest of the stockholder in such business, and (v) a representation
that the stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.

As a consequence of and following the Merger, CHS stockholders wishing to
nominate candidates to the MedPartners/Mullikin Board of Directors or bring
business before a meeting of stockholders will have to comply with notice
procedures of MedPartners/Mullikin, including with respect to the time such
notice must be given.

ACTION BY WRITTEN CONSENT

CHS. Any action which can be taken at any meeting of stockholders may be
taken, without prior notice, by written consent. Such consent must set forth the
action being taken and be signed by the holders of at least the number of votes
that would be necessary to take such action at a meeting at which all shares
entitled to vote were present and voting. Prompt notice of an action by less
than unanimous written consent shall be given to those stockholders who did not
consent.

MedPartners/Mullikin. The MedPartners/Mullikin Certificate provides that,
since MedPartners/Mullikin Common Stock is listed on a national securities
exchange, any action required or permitted to be taken by the stockholders of
MedPartners/Mullikin must be effected at a duly called meeting and may not be
effected by any consent in writing by such stockholders.

As a consequence of and following the Merger the holders of CHS Common
Stock exchanged for MedPartners/Mullikin Common Stock may not effect action by
any consent in writing.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorneys' fees, actually and reasonably incurred, and
permits a corporation to purchase and maintain liability insurance for its
directors and officers. The DGCL provides that indemnification may not be made
for any claim, issue or matter as to which 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 a court determines that
the person is entitled to indemnity for such expenses as the court deems proper.

CHS. The CHS Certificate and the CHS By-laws provide for indemnification
to the full extent permitted by the DGCL for directors, officers and employees.
The Plan of Merger provides that all rights to indemnification for acts or
omissions occurring prior to the Effective Time of the Merger now existing in
favor of the current or former directors, officers or employees of CHS as
provided in the CHS Certificate and CHS By-laws shall survive the Merger and
shall continue in full force and effect in accordance with their terms.

MedPartners/Mullikin. The MedPartners/Mullikin By-laws provide that each
person who is involved in any actual or threatened action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director, officer, employee or agent of
MedPartners/Mullikin, or

108
<PAGE> 119

is or was serving at the request of MedPartners/Mullikin as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, will be indemnified by MedPartners/Mullikin to the full extent permitted
by the DGCL, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits
MedPartners/Mullikin to provide broader indemnification rights than said law
permitted prior to such amendment) or by other applicable laws then in effect.

EXPERTS

The consolidated financial statements of MedPartners/Mullikin, Inc. and the
financial statements of Cardinal Healthcare, P.A., CHS Management, Inc., New
Management and Emergency Professional Services, Inc. for the indicated periods
detailed in the Index to Financial Statements appearing in this Prospectus-Proxy
Statement and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.

The consolidated financial statements of Caremark International Inc. as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 included in this Prospectus-Proxy Statement and Registration
Statement have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

LEGAL MATTERS

The validity of the shares of MedPartners/Mullikin Common Stock to be
issued to the stockholders of CHS pursuant to the Merger will be passed upon by
Haskell Slaughter & Young, LLC, Birmingham, Alabama.

ADDITIONAL INFORMATION

OTHER BUSINESS

The Board of Directors of CHS is not aware of any business to be acted upon
at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and applicable SEC rules.

109
<PAGE> 120

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
MEDPARTNERS/MULLIKIN, INC.
Report of Independent Auditors...................................................... F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-4
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995.......................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995............................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995.......................................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
MEDPARTNERS/MULLIKIN, INC. (UNAUDITED)
Consolidated Balance Sheet as of June 30, 1996 (unaudited).......................... F-22
Consolidated Statements of Operations for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-23
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-24
Notes to Unaudited Consolidated Financial Statements................................ F-25
CAREMARK INTERNATIONAL INC.
Report of Independent Accountants................................................... F-29
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-30
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995.......................................................................... F-31
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1994, and 1995.............................................................. F-32
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994,
and 1995.......................................................................... F-33
Notes to Consolidated Financial Statements.......................................... F-34
CAREMARK INTERNATIONAL INC. (UNAUDITED)
Consolidated Balance Sheet as of June 30, 1996 (unaudited).......................... F-50
Consolidated Statements of Operations for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-51
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-52
Notes to Consolidated Financial Statements (unaudited).............................. F-53
CARDINAL HEALTHCARE, P.A.(1)
Report of Independent Auditors...................................................... F-57
Balance Sheet as of December 31, 1995............................................... F-58
Statement of Operations for the year ended December 31, 1995........................ F-59
Statement of Changes in Stockholders' Deficit for the year ended December 31,
1995.............................................................................. F-60
Statement of Cash Flows for the year ended December 31, 1995........................ F-61
Notes to Financial Statements....................................................... F-62
CARDINAL HEALTHCARE, P.A. (UNAUDITED)(1)
Balance Sheet as of December 31, 1994 (unaudited)................................... F-67
Statements of Income for the years ended December 31, 1993 and 1994 (unaudited)..... F-68
Statements of Changes in Stockholders' Equity for the years ended December 31, 1993
and 1994 (unaudited).............................................................. F-69
Statements of Cash Flows for the years ended December 31, 1993 and 1994
(unaudited)....................................................................... F-70
Notes to Unaudited Financial Statements............................................. F-71
Balance Sheet as of June 30, 1996 (unaudited)....................................... F-75
Statements of Income for the six months ended June 30, 1995 and 1996 (unaudited).... F-76
Statements of Cash Flows for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-77
Note to Unaudited Financial Statements.............................................. F-78
</TABLE>

F-1
<PAGE> 121

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
CHS MANAGEMENT, INC.(1)
Report of Independent Auditors...................................................... F-79
Balance Sheet as of December 31, 1995............................................... F-80
Statement of Income for the period from September 1, 1995 (inception) through
December 31, 1995................................................................. F-81
Statement of Stockholders' Equity for the period from September 1, 1995 (inception)
through December 31, 1995......................................................... F-82
Statement of Cash Flows for the period from September 1, 1995 (inception) through
December 31, 1995................................................................. F-83
Notes to Financial Statements....................................................... F-84
CHS MANAGEMENT, INC. (UNAUDITED)(1)
Condensed Balance Sheet as of June 30, 1996 (unaudited)............................. F-89
Condensed Statement of Operations and Accumulated Deficit for the six months ended
June 30, 1996 (unaudited)......................................................... F-90
Condensed Statement of Cash Flows for the six months ended June 30, 1996
(unaudited)....................................................................... F-91
Notes to Unaudited Condensed Financial Statements................................... F-92
NEW MANAGEMENT(1)
Report of Independent Auditors...................................................... F-93
Balance Sheets as of December 31, 1994 and 1995..................................... F-94
Statements of Income for the years ended December 31, 1994 and 1995................. F-95
Statements of Partners' Deficiency for the years ended December 31, 1994 and 1995... F-96
Statements of Cash Flows for the years ended December 31, 1994 and 1995............. F-97
Notes to Financial Statements....................................................... F-98
NEW MANAGEMENT (UNAUDITED)(1)
Balance Sheet as of December 31, 1993 (unaudited)................................... F-100
Statement of Income for the year ended December 31, 1993 (unaudited)................ F-101
Statement of Cash Flows for the year ended December 31, 1993 (unaudited)............ F-102
Notes to Unaudited Financial Statements............................................. F-103
Condensed Balance Sheet as of June 30, 1996 Unaudited).............................. F-105
Condensed Statements of Income for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-106
Condensed Statements of Cash Flows for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-107
Note to Unaudited Condensed Financial Statements.................................... F-108
EMERGENCY PROFESSIONAL SERVICES, INC.(1)
Report of Independent Auditors...................................................... F-109
Balance Sheets as of January 31, 1995 and 1996...................................... F-110
Statements of Operations for the years ended January 31, 1994, 1995 and 1996........ F-111
Statements of Changes in Stockholders' Equity for the years ended January 31, 1994,
1995 and 1996..................................................................... F-112
Statements of Cash Flows for the years ended January 31, 1994, 1995 and 1996........ F-113
Notes to Financial Statements....................................................... F-114
EMERGENCY PROFESSIONAL SERVICES, INC. (UNAUDITED)(1)
Balance Sheet as of April 30, 1996 (unaudited)...................................... F-117
Statements of Income for the three months ended April 30, 1995 and 1996
(unaudited)....................................................................... F-118
Statements of Cash Flows for the three months ended April 30, 1995 and 1996
(unaudited)....................................................................... F-119
Note to Unaudited Financial Statements.............................................. F-120
</TABLE>

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

(1) These entities are probable combinations with or acquisitions of
MedPartners/Mullikin.

F-2
<PAGE> 122

REPORT OF INDEPENDENT AUDITORS

Board of Directors
MedPartners/Mullikin, Inc.

We have audited the accompanying consolidated balance sheets of
MedPartners/Mullikin, Inc. as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. 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 generally accepted auditing
standards. 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 opinions.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
MedPartners/Mullikin, Inc. at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Birmingham, Alabama
February 22, 1996

F-3
<PAGE> 123

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 66,623 $ 55,328
Marketable equity securities........................................... 37,689 35,567
Accounts receivable, less allowances for bad debts of
$21,504,000 and $29,777,000......................................... 88,340 135,176
Inventories............................................................ 5,543 9,779
Income taxes........................................................... -- 977
Prepaid expenses and other current assets.............................. 8,759 19,214
-------- --------
Total current assets........................................... 206,954 256,041
Property and equipment, net.............................................. 122,023 155,376
Intangible assets, net................................................... 74,933 111,971
Deferred tax asset....................................................... 1,267 35,002
Other assets............................................................. 12,797 18,343
-------- --------
Total assets................................................... $417,974 $576,733
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 21,980 $ 32,158
Payable to physician groups............................................ 24,669 31,810
Accrued compensation................................................... 15,557 15,949
Other accrued expenses and liabilities................................. 9,834 31,650
Accrued medical claims payable......................................... 44,924 43,433
Income taxes payable................................................... 1,729 --
Current portion of long-term liabilities............................... 12,656 9,149
-------- --------
Total current liabilities...................................... 131,349 164,149
Long-term debt, net of current portion................................... 146,498 200,814
Other long-term liabilities.............................................. 5,936 6,272
Estimated malpractice liability.......................................... 4,958 2,781
Redeemable convertible preferred stock:
Series A $.001 par value; 4,500,000 shares authorized; 4,001,000 shares
issued.............................................................. 8,001 --
Series B $.001 par value; 3,500,000 shares authorized; 3,000,000 shares
issued.............................................................. 12,000 --
Stockholders' equity:
Common stock, $.001 par value; 75,000,000 shares authorized; issued --
28,123,000 in 1994 and 42,508,000 in 1995........................... 28 42
Additional paid-in capital............................................. 116,240 214,422
Notes receivable from stockholders..................................... (2,349) (1,930)
Unrealized gain (loss) on marketable equity securities, net of deferred
taxes............................................................... 14 (7)
Unamortized deferred compensation...................................... (3,552) (2,682)
Accumulated deficit.................................................... (1,149) (7,128)
-------- --------
Total stockholders' equity..................................... 109,232 202,717
-------- --------
Total liabilities and stockholders' equity..................... $417,974 $576,733
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 124

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
-------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenue........................................... $549,695 $815,041 $1,153,557
Operating expenses:
Cost of affiliated physician services............... 224,770 349,036 506,811
Clinic salaries, wages and benefits................. 112,489 159,010 216,119
Outside hospitalization expense..................... 59,861 86,974 109,934
Clinic rent and lease expense....................... 18,832 27,515 41,825
Clinic supplies..................................... 24,529 34,453 47,744
Other clinic costs.................................. 41,248 67,645 88,991
General corporate expenses.......................... 42,196 56,653 64,713
Depreciation and amortization....................... 14,057 21,892 29,088
Net interest expense................................ 3,338 5,958 8,443
Merger expenses..................................... -- -- 66,564
Loss on disposal of assets.......................... 122 1,627 --
-------- -------- ----------
Net operating expenses...................... 541,442 810,763 1,180,232
-------- -------- ----------
Income (loss) before income taxes and cumulative
effect of change in method of accounting............ 8,253 4,278 (26,675)
Income tax expense (benefit).......................... 4,685 5,071 (27,233)
-------- -------- ----------
Income (loss) before cumulative effect of change in
method of accounting................................ 3,568 (793) 558
Cumulative effect of change in method of accounting
for income taxes.................................... 298 -- --
-------- -------- ----------
Net income (loss)..................................... 3,270 (793) 558
Pro forma income taxes................................ 5,038 2,279 --
-------- -------- ----------
Pro forma net income (loss)........................... $ (1,768) $ (3,072) $ 558
======== ======== =========
Pro forma net income (loss) per share................. $ (0.06) $ (0.08) $ 0.01
======== ======== =========
Number of shares used in pro forma net income (loss)
per share........................................... 28,403 36,553 42,720
======== ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 125

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
NOTES GAIN/(LOSS)
COMMON STOCK ADDITIONAL RECEIVABLE ON MARKETABLE UNAMORTIZED RETAINED TOTAL
--------------- PAID-IN FROM EQUITY DEFERRED EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS SECURITIES COMP. (DEFICIT) EQUITY
------ ------ ---------- ------------ ------------- ----------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1992..................... 15,709 $ 16 $ 33,466 $ (2,042) $ -- $ (11) $ 14,166 $ 45,595
Capital contributions.... 5,219 5 32,326 -- -- -- -- 32,331
Capital distributions.... (76) -- (389) -- -- -- -- (389)
Dividends and
distributions
paid................... -- -- -- -- -- -- (13,114) (13,114)
Net change in notes
receivable from
stockholders........... -- -- -- (354) -- -- -- (354)
Unrealized loss on
marketable equity
securities, net of
deferred taxes......... -- -- -- -- (166) -- -- (166)
Expenses related to
offering............... -- -- (71) -- -- -- -- (71)
Purchase of Medical
Business Solutions,
Inc.................... 60 -- 60 -- -- -- -- 60
Redemption of shares at
par on September 1,
1993................... (675) (1) -- -- -- -- -- (1)
Pro forma tax provision
of pooled entities..... -- -- -- -- -- -- 5,038 5,038
Stock options............ 251 -- 2,287 -- -- -- -- 2,287
Amortization of deferred
compensation........... -- -- -- -- -- 11 -- 11
Pro forma net loss....... -- -- -- -- -- -- (1,768) (1,768)
------ ------ ---------- ------------ ------ ----------- -------- -------------
Balances at December 31,
1993..................... 20,488 20 67,679 (2,396) (166) -- 4,322 69,459
Capital contributions.... 7,605 8 47,052 -- -- -- -- 47,060
Capital distributions.... (42) -- (3,594) -- -- -- -- (3,594)
Dividends and
distributions
paid................... -- -- -- -- -- -- (4,678) (4,678)
Net change in notes
receivable from
stockholders........... -- -- -- 47 -- -- -- 47
Unrealized gain on
marketable equity
securities, net of
deferred taxes......... -- -- -- -- 180 -- -- 180
Expenses related to
redeemable convertible
preferred stock........ -- -- (49) -- -- -- -- (49)
Pro forma tax provision
of pooled entities..... -- -- -- -- -- -- 2,279 2,279
Deferred compensation on
issuance of options.... -- -- 4,350 -- -- (4,350) -- --
Stock options............ 72 -- 802 -- -- -- -- 802
Amortization of deferred
compensation........... -- -- -- -- -- 798 -- 798
Pro forma net loss....... -- -- -- -- -- -- (3,072) (3,072)
------ ------ ---------- ------------ ------ ----------- -------- -------------
Balances at December 31,
1994..................... 28,123 28 116,240 (2,349) 14 (3,552) (1,149) 109,232
Balance for immaterial
pooling-of-interests
entities................. -- -- 2 -- -- -- (308) (306)
Capital contributions.... 6,605 6 77,532 -- -- -- -- 77,538
Capital distributions.... (26) -- (470) -- -- -- -- (470)
Dividends and
distributions
paid................... -- -- -- -- -- -- (6,229) (6,229)
Net change in notes
receivable from
stockholders........... -- -- -- 419 -- -- -- 419
Unrealized loss on
marketable equity
securities, net of
deferred taxes......... -- -- -- -- (21) -- -- (21)
Conversion of preferred
stock.................. 7,001 7 19,994 -- -- -- -- 20,001
Stock options............ 805 1 1,124 -- -- -- -- 1,125
Amortization of deferred
compensation........... -- -- -- -- -- 870 -- 870
Pro forma net income..... -- -- -- -- -- -- 558 558
------ ------ ---------- ------------ ------ ----------- -------- -------------
Balances at December 31,
1995..................... 42,508 $ 42 $214,422 $ (1,930) $ (7) $(2,682) $ (7,128) $ 202,717
====== ====== ======== ========== =========== ========== ======== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 126

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Pro forma net income (loss)................................. $(1,768) $ (3,072) $ 558
Adjustments to reconcile pro forma net income (loss) to net
cash and cash equivalents provided by (used in) operating
activities:
Depreciation and amortization............................ 14,057 21,892 29,088
Provision for deferred taxes............................. (371) (1,564) (33,171)
Merger expenses.......................................... -- -- 66,564
Loss on disposal of assets............................... 122 1,627 --
Amortization of premium on marketable securities......... 67 1,111 1,218
Pro forma tax provision of pooled entities............... 5,038 2,279 --
Other.................................................... (316) 349 (617)
Changes in operating assets and liabilities, net of effects
of acquisitions.......................................... 13,819 (8,896) (77,099)
------- --------- ---------
Net cash and cash equivalents provided by (used in)
operating activities.............................. 30,648 13,726 (13,459)
Investing activities:
Net cash used to fund acquisitions.......................... (14,313) (57,597) (61,531)
Additions to intangible assets, net of effects of
acquisitions............................................. (745) (1,728) (7,235)
Purchase of property and equipment.......................... (15,627) (32,082) (39,394)
Proceeds from sale of property and equipment................ 961 2,124 --
Net proceeds (purchases) of marketable securities........... (8,212) (17,560) 1,636
Other....................................................... 379 (1,701) 546
------- --------- ---------
Net cash and cash equivalents used in investing
activities........................................ (37,557) (108,544) (105,978)
Financing activities:
Capital contributions....................................... 42,713 116,298 65,764
Capital distributions....................................... (389) (3,625) (7,650)
Net proceeds from debt...................................... 16,334 35,075 139,496
Repayment of debt........................................... (17,940) (27,319) (83,011)
Dividends and distributions paid............................ (13,114) (4,453) (6,455)
Other....................................................... (188) 67 (2)
------- --------- ---------
Net cash and cash equivalents provided by financing
activities........................................ 27,416 116,043 108,142
------- --------- ---------
Net increase (decrease) in cash and cash equivalents.......... 20,507 21,225 (11,295)
Cash and cash equivalents at beginning of year................ 24,891 45,398 66,623
------- --------- ---------
Cash and cash equivalents at end of year...................... $45,398 $ 66,623 $ 55,328
======= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest................................................. $ 5,223 $ 7,809 $ 12,226
======= ========= =========
Income taxes............................................. $ 3,027 $ 6,036 $ 8,014
======= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 127

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ACCOUNTING POLICIES

Description of Business

MedPartners, Inc. (MedPartners) and Mullikin Medical Enterprises, L.P.
(MME) merged on November 29, 1995 to form MedPartners/Mullikin, Inc. (the
Company). MedPartners was incorporated in January 1993 in Delaware. MedPartners'
business is to operate and/or manage physician practices. MedPartners, through
wholly owned subsidiaries, acquires certain assets of and manages physician
practices under long-term practice management agreements with affiliated
physician groups that practice through such practices. MME was formed on March
26, 1994 through the merger of Mullikin Management Partnership, L.P. (MMP) and
the limited partners of Pioneer Hospital. The Company operates a 99-bed acute
care hospital (Pioneer) and a 102-bed acute care hospital (U.S. Family Care
Medical Center) and provides management systems and services, nonphysician
health care personnel, facilities and equipment to affiliated medical
organizations and independent hospitals. The affiliated medical organizations
employ and contract with physicians and health maintenance organizations (HMOs)
to provide professional health care services to members of HMOs. The Company
also contracts with the HMOs to provide institutional (hospital) services to a
majority of the same members. In addition, through its wholly owned
subsidiaries, the Company contracts with hospitals to provide Medical Staff for
various hospital departments.

Basis of Presentation

The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its wholly owned
subsidiaries. Through the 20 to 44-year practice management agreements between
the Company's wholly owned subsidiaries and the various professional
corporations, the Company has assumed full responsibility for the operating
expenses in return for the assignment of the revenue of the professional
corporations. The Company believes it has, as opposed to affiliates of the
Company, perpetual, unilateral control over the assets and operations of the
various professional corporations, and notwithstanding the lack of technical
majority ownership of the stock of such entities, consolidation of the various
professional corporations is necessary to present fairly the financial position
and results of operations of the Company because there exists a
parent-subsidiary relationship by means other than record ownership of a
majority of voting stock. Control by the Company is perpetual rather than
temporary because of (i) the length of the original terms of the agreements,
(ii) the successive extension periods provided by the agreements, (iii) the
continuing investment of capital by the Company, (iv) the employment of the
majority of the nonphysician personnel, and (v) the nature of the services
provided to the professional corporations by the Company. Two affiliated medical
organizations, Mullikin Medical Center, a Medical Group, Inc., and Moore-White
Medical Group have been treated as special purpose entities and consolidated
with the Company by virtue of the fact that these entities have nominal capital
and their activities and resulting substantive risks and rewards rest directly
or indirectly with the Company. On January 1, 1995, MMP entered into a long-term
management agreement with Mullikin Independent Physician Association, a Medical
Corporation (MIPA). This agreement expires in the year 2038 and provides for the
assignment of virtually all of MIPA's revenue to MMP. Accordingly, beginning
January 1, 1994, the revenues and expenses of MIPA are reflected in the
Company's consolidated statements of operations. All intercompany accounts and
transactions have been eliminated in the consolidation.

Nature of Physician Compensation Arrangements

MedPartners compensates PCs with which it has contracted to provide
healthcare services to MedPartners' clinics under four basic arrangements. In
all circumstances, MedPartners is responsible for the billing and collection of
the revenue related to services provided at MedPartners' clinics as well as for
paying all expenses of the clinic including physician compensation. In the
Company's financial statements, MedPartners records all such revenue for
services performed by the physicians at the clinics. In no instance is

F-8
<PAGE> 128

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MedPartners paid a fixed fee to cover clinic operating expenses. MedPartners
always remains at risk for the expenses of the clinics. In all four types of
arrangements described below, the Company is not sharing revenue with the PCs or
its physician owners.

Over one half of MedPartners' revenue (approximately 53.0% at December 31,
1995) is received under capitation arrangements. Under these arrangements,
MedPartners contracts with licensed HMOs for a broad range of health care
services and in turn subcontracts for the delivery of health care with
hospitals, ancillary providers, and professional medical organizations,
including PC's that are affiliated with MedPartners through management
agreements. Pursuant to these arrangements the PC is paid on a per member per
month basis by MedPartners. From this amount, the PC pays liability insurance
premiums and compensates its physician owners. The PCs do not have the authority
to participate in the negotiations of contracts with HMOs.

Under the second type of arrangement, which represents approximately 23.1%
of MedPartners' revenue at December 31, 1995, MedPartners pays the PC for the
health care services provided at MedPartners' clinics a negotiated fixed dollar
amount. At MedPartners' sole discretion, the physicians are eligible to receive
a bonus based on performance criteria and goals. The amount of the discretionary
bonus is determined solely by MedPartners management and is not directly
correlated to clinic revenue and gross profit. In these arrangements,
MedPartners is responsible for the billing and collection of all revenues for
the services provided at its clinics as well as paying all expenses, including
physicians compensation.

Under the third type of arrangement, which represents approximately 23.2%
of MedPartners' revenue at December 31, 1995, the PC is compensated on a
negotiated fee-for-service basis for health care services performed at
MedPartners' clinics. In these arrangements MedPartners bills and collects for
all services rendered at its clinics and pays all expenses of the clinics,
including physicians' compensation, which is based on the fee for service
revenue generated at the clinics (which typically represents between 40 to 70
percent of the clinic's net revenues). Again, the Company is not reimbursed for
the clinic expenses, rather it is responsible and at risk for all such expenses.

Under the fourth type of arrangement, representing approximately 0.7% of
MedPartners' revenue at December 31, 1995, MedPartners pays the PC a negotiated
percentage (typically 75 to 88 percent) of the gross profits of the clinic.
Gross profit represents net clinic revenues less operating expenses of the
clinic. In these arrangement, MedPartners is responsible for the billing and
collection for the services rendered at its clinics and the payment of the
clinic expenses, including physicians' compensation. In some instances under
these types of arrangements, the physicians are guaranteed a minimum salary.

The fee retained by MedPartners includes direct management expenses of
operating the clinics plus additional amounts which reflect a portion or all of
the residual equity interest in the clinics after payment of physician
compensation (including discretionary bonuses, if any), other medical costs and
management expenses. Under the four basic arrangements discussed above, these
additional amounts (representing clinic earnings) retained by MedPartners take
the following forms: (1) 100% of clinic earnings (as defined above); (2) 100% of
clinic earnings; (3) 100% of clinic earnings and (4) a variable percentage
(typically 12 to 25 percent) of the clinic's gross profits (as defined above).

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying consolidated
financial statements and notes. Actual results could differ from those
estimates.

F-9
<PAGE> 129

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
of all cash and cash equivalents approximates fair value.

Marketable Securities

Effective August 1, 1994, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires that investments in equity
securities that have readily determinable fair values and investments in debt
securities be classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
management's investment strategy, the Company's investments have been classified
as available-for-sale.

Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. The cost of securities sold is
based on the specific identification method.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

Property and Equipment

Property and equipment are stated at cost, which for the used assets being
acquired is usually determined by an independent appraisal. Depreciation of
property and equipment is calculated using either the declining balance or the
straight-line method over the shorter of the estimated useful lives of the
assets or the term of the underlying leases. Estimated useful lives range from 3
to 10 years for equipment, 5 to 20 years for leasehold improvements and 5 to 40
years for buildings and improvements based on type and condition of assets.
Routine maintenance and repairs are charged to expense as incurred, while costs
of betterments and renewals are capitalized.

Intangible Assets

Excess of cost over fair value of assets acquired (goodwill) is being
amortized using the straight-line method over terms of the related practice
management agreements, generally 20 to 40 years. As of December 31, 1995, the
Company had entered into practice management agreements with 14 physician groups
which contain a voluntary termination clause granting the affiliated physician
group the right to terminate the agreement after a specified time, typically on
the fifth anniversary of the agreement, these physician groups account for
approximately 6% of net revenue as of December 31, 1995, and the original
goodwill recorded related to the acquisition of these physician groups was
approximately $6,000,000. The Company believes that amortizing the related
goodwill over 20 years rather than the noncancellable term of the practice
management agreements generally is appropriate considering (i) termination
options are exercisable only during restrictive windows and (ii) the physician
groups exercising such option are required to purchase substantially all of the
assets used in the practice, which would make the termination of the practice
management agreements not probable. The goodwill that was previously on the
books of MME is generally being amortized over 30 years and that previously on
the books of PPSI over periods ranging from 5 to 25 years. The carrying value of
goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the carrying value of the goodwill is reduced by
the estimated shortfall of cash flows. Costs of obtaining practice management
agreements are capitalized as incurred and are amortized using the straight-line
method. These costs include all direct costs of obtaining such agreements, which
include such items as filing fees, legal fees and travel and related costs. The
Company has elected to amortize these costs over a shorter period than the term
of the

F-10
<PAGE> 130

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related practice management agreements. Currently, these costs are being
amortized over three years. Other intangible assets include costs associated
with obtaining long-term financing, which are being amortized, and included in
interest expense, systematically over the terms of the related debt agreements.

Payable to Physician Groups

Amounts payable to physician groups primarily represent monthly
compensation to the physicians which, based on the practice management
agreements, are generally payable to the physicians by the 15th day following
the end of each month.

Net Revenue

During 1993, 1994 and 1995, approximately 5% of net revenue was received
under the Medicare program and approximately 4% was received under state
reimbursement programs. The Medicare program and state reimbursement programs
pay physician services based on fee schedules which are determined by the
related government agency.

The Company has contracts with various managed care organizations to
provide physician services based on negotiated fee schedules. Under various
contracts with HMOs, capitation is received to cover all physicians and hospital
services needed by the HMO members. Capitation payments are recognized as
revenue on the accrual basis, and represents approximately 67%, 62% and 54% of
the Company's net revenue in 1993, 1994 and 1995, respectively. Liabilities for
physician services provided and hospital services incurred are accrued in the
month services are rendered. The provision for accrued claims payable which
represents the amount payable for services incurred by patients not yet paid is
validated by actuarial review. Management believes that the provision at
December 31, 1995 is adequate to cover claims which will ultimately be paid.

Income Taxes

The Company is a corporation subject to federal and state income taxes.
Deferred income taxes are provided for temporary differences between financial
and income tax reporting relating primarily to net operating losses which must
be carried forward to future periods for income tax reporting purposes.

Unamortized Deferred Compensation

Unamortized deferred compensation represents the difference between the
grant price and the market price on the date that stock options were granted to
the physicians at Riverside Medical Clinic, Inc. This cost is being amortized
over the five year vesting period.

Reinsurance

The Company cedes reinsurance to allow management to control exposure to
potential losses arising from large risks. Reinsurance expense is estimated
based on the terms of the respective reinsurance agreements. The estimated
expense is continually reviewed and any adjustments which become necessary are
included in current operations. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the
reinsured policies.

F-11
<PAGE> 131

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Restatement of Financial Statements

The Company has merged with the following entities during 1995 and in the
first quarter of 1996 in transactions that were accounted for as poolings of
interests. Accordingly, the financial statements for all periods prior to the
effective dates of these mergers have been restated to include the results of
these entities. The Company issued 27,819,000 shares of its common stock in
these and other immaterial transactions.

<TABLE>
<CAPTION>
EFFECTIVE DATE OF
ENTITY NAME MERGER
- ------------------------------------------------------------------------ -------------------
<S> <C>
MEDCTR, Inc. (MEDCTR)................................................... June 20, 1995
Team Health............................................................. June 30, 1995
Texas Back Institute, Inc. (TBI)........................................ November 2, 1995
Vanguard Healthcare Group, Inc. (Vanguard).............................. November 13, 1995
Mullikin Medical Enterprises, L.P. (MME) and related real estate
partnerships.......................................................... November 29, 1995
Pacific Physician Services, Inc. (PPSI)................................. February 22, 1996
</TABLE>

Prior to the pooling, MEDCTR, TBI and RVAA were S Corporations and MME and
related real estate entities were partnerships and were therefore not subject to
federal and state income taxes. Proforma income tax provisions are reflected in
the consolidated statements of operations to provide for additional federal and
state income taxes which would have been incurred had these entities been taxed
as C Corporations.

Fiscal Year

At December 31, 1993, MME changed its fiscal year-end from January 31 to
December 31. As a result, the consolidated financial statements for the year
ended December 31, 1993 contain only eleven months of operations for MME. PPSI's
financial statements are for twelve month periods ending October 31.

Pro Forma Net Income (Loss) Per Share

Pro forma net income (loss) per share is computed, after adjusting
historical net income for the estimated tax provisions applicable to the pooled
companies described above, by dividing net income (loss) by the number of common
and common equivalent shares outstanding during the periods in accordance with
the applicable rules of the Securities and Exchange Commission. All stock
options issued have been considered as outstanding common stock equivalents for
all periods presented, even if anti-dilutive, under the treasury stock method
(based on initial public offering price). Shares of common stock issuable upon
conversion of the Series A and Series B Convertible Preferred Stock of
MedPartners are assumed to be common share equivalents for all periods
presented.

Stock Option Plans

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Impairment of Long-Lived Assets

Effective December 31, 1995, the Company adopted FASB Statement 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The Statement also addresses the
accounting for long-lived assets that are expected to be disposed of. Statement
121 is applicable for most long-lived assets, identifiable intangibles, and
goodwill related to those assets; it does not apply to financial instruments and
deferred taxes. Management has

F-12
<PAGE> 132

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined that long-lived assets are fairly stated in the accompanying balance
sheet, and that no indicators of impairment are present. In accordance with the
new rules, the Company's prior year financial statements have not been restated
to reflect the change in accounting principle.

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash......................................................................... $ 6,467 $14,118
Certificates of deposit...................................................... 14,783 15,780
Commercial paper............................................................. 4,994 --
Money market accounts........................................................ 37,560 15,437
Repurchase agreements........................................................ 2,819 9,993
------- -------
$66,623 $55,328
======== ========
</TABLE>

The amounts above approximate the fair value of the respective cash
equivalents.

The repurchase agreements represent overnight funds purchased through a
bank and are secured by Treasury Bills held in the bank's name.

Interest income, including interest income from marketable debt securities,
was $2,150,000, $3,489,000 and $5,353,000 for the years ended December 31, 1993,
1994 and 1995, respectively.

3. MARKETABLE SECURITIES

The following is a summary of available-for-sale securities at December 31,
1995:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
GROSS COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities issued by:
Federal government..................................... $ 7,799 $ -- $ -- $ 7,799
State and state agencies............................... 13,884 3 (19) 13,868
Political subdivision of state......................... 13,895 38 (33) 13,900
---------- --- ----- ----------
$ 35,578 $ 41 $(52) $ 35,567
========= ======== ======== ========
</TABLE>

The amortized cost and estimated fair value of marketable securities
classified as available-for-sale at December 31, 1995, by contractual maturity,
are as follows:

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Debt securities:
Due in one year or less................................................... $19,180 $ 19,163
Due after one year through two years...................................... 13,506 13,480
Due after two years through three years................................... 1,007 1,004
Due after three years..................................................... 1,885 1,920
------- ----------
$35,578 $ 35,567
======== ========
</TABLE>

F-13
<PAGE> 133

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of available-for-sale securities at December 31,
1994:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
GROSS COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities issued by:
Federal government................................. $ 5,890 $-- $ -- $ 5,890
State and state agencies........................... 15,108 -- (351) 14,757
Political subdivision of state..................... 14,855 -- (323) 14,532
Equity securities.................................... 2,510 -- -- 2,510
---------- --- ------ ----------
$ 38,363 $-- $ (674) $ 37,689
========= ======== ============= ========
</TABLE>

4. INTANGIBLE ASSETS

Intangible assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess of cost over fair value of assets acquired........................... $59,471 $ 99,683
Noncompetition agreements................................................... 8,370 3,771
Medical records............................................................. 6,387 2,257
Favorable lease rate on facilities.......................................... 2,740 2,740
Organizational costs........................................................ 845 1,075
Clinic service agreements................................................... 2,554 7,879
Other intangible assets..................................................... 6,986 7,169
------- --------
87,353 124,574
Less accumulated amortization............................................... 12,420 12,603
------- --------
$74,933 $111,971
======== =========
</TABLE>

Amortization expense was $3,642,000, $6,820,000 and $9,040,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land....................................................................... $ 11,937 $ 12,798
Buildings and improvements................................................. 54,953 49,358
Equipment.................................................................. 82,014 117,165
Equipment under capital leases............................................. 10,790 5,855
Leasehold improvements..................................................... 22,185 43,269
Construction in progress................................................... 1,305 3,079
-------- --------
183,184 231,524
Less accumulated depreciation and amortization............................. 61,161 76,148
-------- --------
$122,023 $155,376
========= =========
</TABLE>

Depreciation and amortization expense was $10,415,000, $15,072,000 and
$20,048,000 for the years ended December 31, 1993, 1994 and 1995, respectively.

F-14
<PAGE> 134

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Advances under Bank Credit Facility........................................ $ 17,900 $ 90,000
Convertible subordinated debentures with interest at 5.50%, interest only
paid semi-annually, due in 2003.......................................... 69,000 69,000
Notes payable to banks, collateralized by deeds of trust including
interest, at rates ranging from 6.5% to 10.5%, payable in monthly
installments through 2002................................................ 12,595 10,611
Notes payable to lenders secured by deeds of trust payable in monthly
installments, bearing interest at rates ranging from 8.75% to 10.25%..... 10,271 7,778
Notes payable to physicians and shareholders in annual installments through
2001, interest rates ranging from 7.0% to 12.0%.......................... 3,000 2,332
Notes payable to medical groups in annual installments through 1998,
interest rates ranging from 5.0% to 9.0%................................. 5,080 3,996
Notes payable to former partners for buyout of partnership interests,
unsecured, maturing through 1999, interest rates at 7.0% and 10.0%....... 3,165 4,456
10.0% note payable to Walter T. Mullikin and Kathryn D. Mullikin as
trustees of the Mullikin Family Trust, collateralized by deed of trust on
partnership property..................................................... 3,706 3,477
Notes payable to stockholders.............................................. 7,180 --
Other long-term notes payable.............................................. 22,318 13,066
Capital lease obligations.................................................. 4,939 5,247
-------- --------
159,154 209,963
Less amounts due within one year........................................... (12,656) (9,149)
-------- --------
$146,498 $200,814
========= =========
</TABLE>

The amounts recorded above approximate the fair value of the obligations.

On November 29, 1995, the Company entered into a Revolving Credit and
Reimbursement Agreement with a syndicate of banks which provides a revolving
credit facility (the Bank Credit Facility) of up to $150 million. Advances under
the Bank Credit Facility initially bear interest at the London Interbank Offered
Rate (LIBOR) plus 2.0% which approximates 7.9% at December 31, 1995. The Bank
Credit Facility has an expiration date of May 10, 1998 and is renewable for two
additional one-year periods. In conjunction with the Bank Credit Facility, the
Company granted the banks a first priority security interest in all shares of
stock of its subsidiaries and provided a negative pledge on substantially all
assets.

The Bank Credit Facility contains affirmative and negative covenants which,
among other things, require the Company to maintain certain financial ratios
(including maintain net worth, minimum fixed charge overage ratio, maximum
indebtedness to cash flow), limit the amount of additional indebtedness, and set
certain restrictions on investments, mergers and sales of assets. As of December
31, 1995, the Company was in compliance with the covenants in the Bank Credit
Facility. Additionally, the Company is required to obtain bank consent for
acquisitions with an aggregate purchase price in excess of $15 million.

In December 1993, PPSI issued $69 million of convertible subordinated
debentures for net proceeds of approximately $66,547,000. The debentures are
convertible into common stock of PPSI at the option of the holder at a
conversion price of $29 per share. Interest on the debentures at 5 1/2% is
payable semi-annually on June 15 and December 15. The debentures are redeemable
for cash at any time, at the option of PPSI and are subordinated to all senior
indebtedness, as defined in the Indenture Agreement. The Indenture Agreement
governing the debentures provides that upon a change in control over PPSI, the
holders of the debentures have the right to require PPSI to purchase all or part
of the debentures at 100% of the principal amount plus accrued interest. There
are no restrictions on the incurrence of additional indebtedness by PPSI or any
subsidiary. At December 31, 1995, the fair value of the convertible subordinated
debentures, based on quoted

F-15
<PAGE> 135

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market price, was approximately $57,788,000. Subsequent to the acquisition of
PPSI in February of 1996, the Company paid off these debentures.

The following is a schedule of principal maturities of long-term debt as of
December 31, 1995.

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996........................................................ $ 9,215
1997........................................................ 8,577
1998........................................................ 96,967
1999........................................................ 4,962
2000........................................................ 2,266
Thereafter.................................................. 87,976
--------------
Total............................................. $209,963
===========
</TABLE>

Operating Leases: Operating leases generally consist of short-term lease
agreements for professional office space where the medical practices are
located. These leases generally have five-year terms with renewal options.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1995.

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996........................................................ $ 36,426
1997........................................................ 32,286
1998........................................................ 28,776
1999........................................................ 24,934
2000........................................................ 21,411
Thereafter.................................................. 111,110
--------------
$254,943
===========
</TABLE>

Interest expense was $5,488,000, $9,447,000 and $13,796,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.

7. INCOME TAX EXPENSE

At December 31, 1995, the Company had a cumulative net operating loss
carryforward for federal income tax purposes of approximately $57 million
available to reduce future amounts of taxable income. If not utilized to offset
future taxable income, the net operating loss carryforwards will expire on
various dates through 2010. Approximately $1 million of the total $57 million
net operating loss carryforward (which was generated in 1993), is available at a
reduced rate due to certain tax limitations.

In 1994, the Company established a valuation allowance of $14,571,000
because it was more likely than not that the deferred tax asset would not be
utilized in future periods. The valuation allowance has been decreased by
$14,240,000 in 1995 because the realization of the deferred tax asset is now
more likely than not.

F-16
<PAGE> 136

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- -------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Net operating losses............................................ $ 8,419 $22,992
Purchase reserves and restructuring............................. -- 14,724
Accrued payroll and vacation.................................... 2,129 3,383
Accrued and deferred compensation benefits...................... 2,464 3,375
Bad debts....................................................... 6,210 9,474
Other........................................................... 4,463 3,270
-------- -------
Gross deferred tax assets......................................... 23,685 57,218
Valuation allowance for deferred tax assets....................... (14,571) (331)
Deferred tax liabilities
Goodwill........................................................ -- 8,590
Excess tax depreciation......................................... 1,193 2,463
Prepaid expenses................................................ 504 2,419
Accrual to cash adjustment...................................... 1,863 273
Shared risk receivable.......................................... 4,041 7,182
Other........................................................... 246 958
-------- -------
Gross deferred tax liabilities.................................... 7,847 21,885
-------- -------
Net deferred tax asset............................................ $ 1,267 $35,002
======== =======
</TABLE>

Income tax expense (benefit) for the years ended December 31, 1993, 1994
and 1995 is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $4,109 $5,454 $ 5,414
State.................................................... 1,068 1,417 1,323
------ ------ --------
5,177 6,871 6,737
Deferred:
Federal.................................................. (466) (1,629) (29,793)
State.................................................... (26) (171) (4,177)
------ ------ --------
(492) (1,800) (33,970)
------ ------ --------
$4,685 $5,071 $(27,233)
====== ====== ========
</TABLE>

The differences between the provision (benefit) for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes were as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal tax at statutory rate.............................. $3,944 $4,216 $ (8,484)
Add (deduct):
State income tax, net of federal tax benefit............. 608 684 (3,355)
Decrease in valuation allowance.......................... -- -- (14,240)
Other.................................................... 133 171 (1,154)
------ ------ --------
$4,685 $5,071 $(27,233)
====== ====== ========
</TABLE>

F-17
<PAGE> 137

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. CAPITALIZATION

The Company's Restated Certificate of Incorporation provides that the
Company may issue 9,500,000 shares of Preferred Stock, par value $0.001 per
share, 500,000 shares of Series C Junior Participating Preferred Stock, par
value $0.001 per share, and 75,000,000 shares of Common Stock.

On September 1, 1993, the Company committed to sell 4,001,000 shares of
Series A Convertible Preferred Stock at $2.00 per share. The Company received,
net of expenses, $7,230,000 in 1993 and $698,000 on February 1, 1994. During
1994, the Company sold 3,000,000 shares of Series B Convertible Preferred Stock
at $4.00 per share. The Company received, net of expenses, $11,958,000. Upon
consummation of the Company's initial public offering on February 28, 1995, all
of the issued and outstanding shares of Series A and Series B Convertible
Preferred Stock were converted into 7,001,000 shares of the Company's Common
Stock.

On February 28, 1995, the Company completed an initial public offering of
5,060,000 shares of its common stock. Gross and net proceeds of the offering
were $65,780,000 and $60,417,000, respectively. Proceeds of the offering were
used to pay all outstanding indebtedness under the bank credit facility of
$30,400,000. The remainder of the net proceeds were used to fund acquisitions of
certain assets of physician practices, expansion of physician services, working
capital and other general corporate purposes.

In March of 1996, 6,632,800 shares of the Company's Common Stock were sold
in a secondary offering. The net proceeds from this offering were approximately
$194 million. The offering provided for over-allotments of 1,237,500 shares
which have not yet been exercised. If exercised, the Company would receive an
additional $36 million from the over-allotments. These proceeds were used to
pay-off the line of credit and the debentures discussed in Note 6.

9. STOCK OPTIONS

The Company's Board of Directors adopted and a majority of the Company's
stockholders approved the 1993 and 1995 Stock Option Plans (the Plans), covering
a maximum of 1,555,000 and 5,899,150 shares of Common Stock, respectively. The
number of shares covered under the 1995 Stock Option Plan is subject to
expansion to 7,099,150 at the Annual Shareholders' Meeting on April 25, 1996.
The Plans, under which both incentive stock options and non-qualified stock
options may be issued, provide that options may be granted to officers,
directors, consultants and employees of the Company. Options granted under the
Plans generally vest equally over five years from the date of grant and
terminate ten years from the date of grant. All stock options were granted prior
to the initial public offering of the Company at estimated fair market value. As
of December 31, 1995, the Company had granted options to acquire 4,426,750
shares of its Common Stock under the Plans at option prices ranging from $.20 to
$28.25. All stock options granted in 1995 were granted at fair market value.
During 1995 options to acquire 702,380 shares of the Company's Common Stock were
exercised at prices ranging from $.20 to $22.00 per share. Gross proceeds from
the exercise of these options totaled $377,000.

10. ACQUISITIONS

During the year ended December 31, 1995, the Company, through its
wholly-owned subsidiaries, acquired certain operating assets of various medical
practices. Simultaneously with each medical practice acquisition, the Company
entered into practice management agreements which generally have a 20-year term.
Pursuant to the practice management agreements, the Company manages all aspects
of the affiliated practice other than the provision of medical services, which
is controlled by the physician groups. For providing services under the practice
management agreement, the physicians receive a fixed percentage of the accrual
net revenue of the practice. The percentage varies from practice to practice and
is based upon the overhead structure of the practice at the time of affiliation.
Generally, the practice management agreements cannot be terminated by the
physician group or Company without cause, which includes material default or
bankruptcy. Upon termination for cause or expiration of the clinic services
agreement, the physician group has the option to purchase some or all of the
assets owned by the Company, generally at current book values.

F-18
<PAGE> 138

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the net
assets based on the estimated fair values at the date of acquisition. The
accounts receivable were valued at net collective value based upon detailed
analyses by the Company and the property and equipment values were based upon
independent appraisals. The estimated fair value of assets acquired is
summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Accounts receivable, net............................................... $ 22,117
Prepaid expenses and other current assets.............................. 2,100
Property and equipment................................................. 15,128
Liabilities assumed.................................................... (9,888)
Excess of costs over fair value of assets acquired..................... 45,521
-------
74,978
Less value of stock issued............................................. 13,447
-------
Cash purchase price, net of cash received.............................. $ 61,531
=======
</TABLE>

11. RETIREMENT SAVINGS PLAN

Effective April 4, 1994, the Company adopted the MedPartners, Inc. and
Subsidiaries Employee Retirement Savings Plan (the "Plan"). The Plan is a Code
Section 401(k) Plan which requires the attainment of age 21 and one year of
service, with a minimum of 1,000 hours worked, to become a participant in the
Plan. Service for a predecessor employer will be considered for participation
requirements in the Plan for all employees employed through acquisition
activities. The Company, at its sole discretion, may contribute an amount which
it designates as a qualified nonelective contribution. The Company anticipates a
required contribution of three percent of non-key employee salaries for the Plan
year ended December 31, 1995, however, no additional contributions are
anticipated at this time. Company contributions are gradually vested over a
six-year service period. The various entities that were acquired or merged into
the Company during 1995 also had varying employee retirement plans, which may be
incorporated into the Company's plan during 1995 and 1996. The expenses related
to all plans during the years ended December 31, 1993, 1994 and 1995 were
approximately $1,464,000, $1,858,000 and $3,195,000, respectively.

F-19
<PAGE> 139

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. MERGERS

The Company merged with the following entities in transactions that were
accounted for as pooling of interests. Accordingly, the Company's historical
financial statements for all periods have been restated to include the results
of all transactions accounted for as pooling of interests.

<TABLE>
<CAPTION>
MME AND
RELATED PPSI
REAL OTHER AND
ESTATE IMMATERIAL TEAM
MEDPARTNERS PARTNERSHIPS MEDCTR TBI VANGUARD POOLINGS HEALTH COMBINED
----------- ------------ ------- ------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Net revenue.......... $ 1,277 $298,415 $11,410 $25,881 $17,128 $7,972 $187,612 $ 549,695
Net (loss) income.... (1,206) (1,495) ( 369) (177) (873) 276 7,114 3,270
Year ended December 31,
1994
Net revenue.......... 77,432 370,798 10,963 20,816 18,493 8,313 308,226 815,041
Net (loss) income.... (1,601) (4,647) 76 (1,346) (847) (26) 7,598 (793)
Year ended December 31,
1995
Net revenue.......... 238,887 431,875 11,343 23,679 28,684 7,957 411,132 1,153,557
Net (loss) income.... 3,022 (9,412) (11) (453) (2,905) 112 10,205 558
</TABLE>

Included in pre-tax loss for the year ended December 31, 1995 are merger
costs totaling $66.6 million. Approximately $55.6 million relates to the merger
with MME and related real estate partnerships. The components of this cost are
as follows:

<TABLE>
<S> <C>
Investment banking fees............................................... $ 8,771,200
Professional fees..................................................... 7,267,075
Other transaction costs............................................... 5,028,820
Restructuring charges:
Severance costs for identified employees............................ 19,625,728
Impairment of assets................................................ 8,095,411
Abandonment of facilities........................................... 6,401,246
Noncompatible technology............................................ 2,601,578
Unamortized loan costs.............................................. 2,323,667
Conforming of accounting policies................................... 2,248,810
Restructuring of benefits........................................... 1,888,749
Other restructuring charges......................................... 2,311,654
-----------
Total................................................................. $66,563,938
==========
</TABLE>

The PPSI merger was effective February 22, 1996, therefore, the merger
costs related to this transaction are not included in the amounts above. They
will be included in the results of operations for 1996.

13. CONTINGENCIES

In addition to the general liability and malpractice insurance carried by
the individual physicians, the Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management is
not aware of any claims against the Company which might have a material impact
on the Company's consolidated financial position.

F-20
<PAGE> 140

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

opinion of management that the ultimate resolution of any asserted or unasserted
claims will not have a material adverse effect on the financial position or
operating results of the Company.

PPSI, through its wholly-owned captive insurance company, Pacific
Indemnity, Ltd., has provided for an estimate of the cost of the incurred but
not reported claims and deductible amounts for the employed physicians servicing
emergency departments. At July 31, 1995, Pacific Indemnity, Ltd. purchased
insurance to cover all claims for incidents occurring through July 31, 1995
("tail coverage") for all employee physicians of the affiliated medical
organizations. Team Health has an agreement with its insurance carrier to
purchase insurance associated with claims incurred and not yet reported.
Management believes that the recorded accruals for such losses and deductibles
related to malpractice claims for the hospital-based contracting physicians and
the hospital are sufficient to cover incidents occurring prior to December 31,
1995.

PPSI is self-insured for employee and dependent health insurance costs and
certain workers' compensation costs. Reinsurance of defined excess cost has been
purchased from an outside insurance company. Management believes that amounts
accrued are sufficient to cover claims and costs incurred through December 31,
1995.

14. MAJOR PAYORS

Two payors represented individually more than 10% of the Company's net
revenue as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF
NET REVENUE
----------------------
YEAR ENDED DECEMBER
31,
----------------------
CUSTOMER 1993 1994 1995
---------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Pacificare...................................................... 17% 19% 18%
Health Net...................................................... 13 11 9
</TABLE>

F-21
<PAGE> 141

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30,
1996
---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 56,221
Marketable securities........................................................ --
Accounts receivable, less allowances for bad debts of $39,574,000............ 165,105
Inventories.................................................................. 11,087
Income tax receivable........................................................ 4,139
Prepaid expenses and other current assets.................................... 23,839
---------------
Total current assets................................................. 260,391
Property and equipment, net.................................................... 167,502
Intangible assets, net......................................................... 139,169
Deferred tax asset............................................................. 34,285
Other assets................................................................... 16,837
---------------
Total assets......................................................... $ 618,184
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 29,084
Payable to physician groups.................................................. 28,616
Accrued compensation......................................................... 19,165
Accrued medical claims payable............................................... 44,235
Other accrued expenses and liabilities....................................... 30,605
Current portion of long-term liabilities..................................... 7,648
---------------
Total current liabilities............................................ 159,353
Long-term debt, net of current portion......................................... 35,080
Other long-term liabilities.................................................... 9,140
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 52,311,000
shares issued............................................................. 52
Additional paid-in capital................................................... 435,618
Notes receivable from stockholders........................................... (1,818)
Unrealized loss on marketable equity securities, net of deferred taxes....... --
Unamortized deferred compensation............................................ --
Accumulated deficit.......................................................... (19,241)
---------------
Total stockholders' equity........................................... 414,611
---------------
Total liabilities and stockholders' equity........................... $ 618,184
===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-22
<PAGE> 142

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenue............................................................ $547,450 $703,683
Operating expenses:
Cost of affiliated physician services................................ 240,225 301,280
Clinic salaries, wages and benefits.................................. 105,133 116,600
Outside hospitalization expense...................................... 50,364 83,516
Clinic rent and lease expense........................................ 19,744 23,814
Clinic supplies...................................................... 22,519 30,953
Other clinic costs................................................... 43,776 59,154
General corporate expenses........................................... 32,167 39,540
Depreciation and amortization........................................ 13,962 16,482
Net interest expense................................................. 3,367 2,811
Merger expenses...................................................... 1,051 34,448
-------- --------
Net operating expenses....................................... 532,308 708,598
-------- --------
Income (loss) before income taxes...................................... 15,142 (4,915)
Income tax expense (benefit)........................................... 4,411 360
-------- --------
Net income (loss)...................................................... $ 10,731 $ (5,275)
======== ========
Pro forma net income (loss) per share.................................. $ 0.26 $ (0.11)
======== ========
Number of shares used in pro forma net income (loss) per share......... 41,867 50,034
======== ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-23
<PAGE> 143

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Pro forma net income (loss)............................................ $ 10,731 $ (5,275)
Adjustments to reconcile pro forma net income (loss) to net cash and
cash provided by (used in) operating activities:
Depreciation and amortization....................................... 13,962 16,482
Provision for deferred taxes........................................ (1,425) (5,848)
Merger expenses..................................................... 1,051 34,448
Other............................................................... 129 --
Changes in operating assets and liabilities, net of effects of
acquisitions........................................................ (11,288) (33,762)
-------- --------
Net cash and cash equivalents provided by operating
activities.................................................... 13,160 6,045
INVESTING ACTIVITIES:
Cash paid for merger charges........................................... (541) (25,932)
Net cash used to fund acquisitions..................................... (27,237) (29,671)
Additions of intangible assets, net of effects of acquisitions......... (3,440) (4,478)
Purchase of property and equipment..................................... (15,571) (21,833)
Net proceeds (purchases) of marketable securities...................... (12,132) 27,482
Other.................................................................. (959) 5
-------- --------
Net cash and cash equivalents used in investing activities..... (59,880) (54,427)
FINANCING ACTIVITIES:
Capital contributions.................................................. 62,231 214,656
Capital distributions.................................................. (3,259) --
Net proceeds from debt................................................. 43,262 --
Repayment of debt...................................................... (46,256) (167,453)
Other.................................................................. (3,492) 105
-------- --------
Net cash and cash equivalents provided by financing
activities.................................................... 52,486 47,308
-------- --------
Net increase (decrease) in cash and cash equivalents........... 5,766 (1,074)
Cash and cash equivalents at beginning of period....................... 66,623 56,133
Beginning cash and cash equivalents of immaterial pooling-of-interests
entities............................................................ -- 1,162
-------- --------
Cash and cash equivalents at end of period............................. $ 72,389 $ 56,221
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................... $ 5,975 $ 4,252
======== ========
Income taxes................................................... $ 3,752 $ 476
======== ========
Issuance of 316,000 common shares as consideration for
acquisitions accounted for as purchases....................... $ -- $ 5,920
======== ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-24
<PAGE> 144

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. As a result of the merger with
Pacific Physician Services, Inc. (PPSI) in February 1996, certain
reclassifications have been made to the financial statements.

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
items) necessary for a fair presentation of results for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements and footnote
disclosures should be read in conjunction with the December 31, 1995 audited
consolidated financial statements and the notes thereto.

Restatement of Financial Statements

During the first quarter of 1996 the Company combined with PPSI in a
business combination that was accounted for as a pooling of interests.
Accordingly, the financial statements for all periods prior to February 22,
1996, the effective date of the merger, have been restated to include the
results of PPSI (Note 3).

Pro Forma Net Income (Loss) Per Share

Pro forma net income (loss) per share is computed by dividing net income
(loss) by the number of common and common equivalent shares outstanding during
the periods in accordance with the applicable rules of the Securities and
Exchange Commission. All stock options issued have been considered as
outstanding common stock equivalents for all periods presented, even if
anti-dilutive, under the treasury stock method. Shares of common stock issuable
upon conversion of the Series A and Series B Convertible Preferred Stock of
MedPartners in February 1995 are assumed to be common share equivalents for all
periods presented.

Stock Option Plan

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (ABP 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock option equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.

2. CAPITALIZATION

The Company's Second Amended and Restated Certificate of Incorporation
provides that the Company may issue 9,500,000 shares of Preferred Stock, par
value $0.001 per share, 500,000 shares of Series C Junior Participating
Preferred Stock, par value $0.001 per share, and 200,000,000 shares of Common
Stock, par value $0.001 per share. As of December 31, 1995 and June 30, 1996 no
shares of the preferred stock were outstanding.

On March 13, 1996, the Company completed a secondary public offering of
6,632,800 shares of its Common Stock. The net proceeds of the offering were $194
million. Proceeds of the offering were used to pay all outstanding indebtedness
under the bank credit facility of $70 million. In April 1996, $69 million of the
proceeds were used to pay-off the Company's convertible subordinated debentures.
The remainder of the net proceeds will be used to fund acquisitions of certain
assets of physician practices, expansion of physician services, working capital
and other general corporate purposes.

F-25
<PAGE> 145

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1996 the number of shares covered under the 1995 Stock Option Plan
(the Plan) was increased on two occasions. At a special meeting of the
stockholders on February 22, 1996, the Plan was increased by 1,325,000 shares
and on April 25, 1996 at the Annual Meeting of Stockholders it was increased by
1,200,000 shares. As of April 25, 1996 a maximum of 7,099,150 shares of Common
Stock were covered by the Plan.

3. ACQUISITIONS

During the six months ended June 30, 1996, the Company, through its
wholly-owned subsidiaries, acquired certain operating assets of various medical
practices. Simultaneously with each medical practice acquisition, the Company
entered into practice management agreements which generally have 20 to 44 year
terms. Pursuant to the practice management agreements, the Company manages all
aspects of the affiliated practice other than the provision of medical services,
which is controlled by the physician groups. Generally, the practice management
agreements cannot be terminated by the physician group or Company without cause,
which includes material default or bankruptcy. Upon termination for cause or
expiration of the clinic services agreement, the physician group has the option
to purchase some or all of the assets owned by the Company, generally at current
book values. The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the net
assets based on the estimated fair values at the date of acquisition. The
estimated fair value of assets acquired is $35,593,000. A total of $29,671,000
in cash and 316,000 shares of stock valued at $5,920,000 were given in exchange
for these assets during the six months ended June 30, 1996.

Effective February 22, 1996, the Company merged with PPSI in a transaction
that was accounted for as a pooling of interests. Accordingly, the Company's
historical statements for all periods prior to the effective date of the merger
have been restated to include the results of PPSI. The Company exchanged
10,983,346 shares of its common stock in exchange for all of the outstanding
common stock of PPSI.

Prior to its merger with the Company, PPSI reported on a fiscal year ending
on July 31. The restated financial statements for all periods prior to and
including December 31, 1995 are based on a combination of the Company's results
for its December 31 fiscal year and an October 31 fiscal year for PPSI.
Beginning January 1, 1996, PPSI adopted a December 31 fiscal year end;
accordingly, all consolidated financial statements for periods after December
31, 1995 are based on a consolidation of all of the Company's subsidiaries on a
December 31 year end. PPSI's historical results of operations for the two months
ended December 31, 1995 are not included in the Company's consolidated
statements of operations or cash flows. An adjustment has been made to
stockholders' equity as of January 1, 1996 to adjust for PPSI's results of

F-26
<PAGE> 146

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations for the two months ended December 31, 1995. The following is a
summary of operations and cash flows for the two months ended December 31, 1995:

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Net revenue............................................................ $ 69,850
Operating expenses:
Cost of affiliated physician services................................ 32,600
Clinic salaries, wages and benefits.................................. 13,142
Outside hospitalization expenses..................................... 14,861
Clinic rent and lease expense........................................ 1,963
Clinic supplies...................................................... 3,556
Other clinic costs................................................... 7,373
General corporate expenses........................................... 5,235
Depreciation and amortization........................................ 2,371
Net interest expense................................................. 426
Loss on disposal of assets........................................... 41
--------------
Net operating expenses....................................... 81,568
--------------
Loss before taxes...................................................... (11,718)
Income tax benefit..................................................... (3,661)
--------------
Net loss..................................................... $ (8,057)
===========
STATEMENT OF CASH FLOW DATA:
Net cash and cash equivalents used in operating activities........... $ (3,569)
Net cash and cash equivalents provided by investing activities....... 4,455
Net cash and cash equivalents used in financing activities........... (81)
--------------
Net increase in cash and cash equivalents.................... $ 805
===========
</TABLE>

Included in pre-tax loss for the six months ended June 30, 1996 are merger
costs totaling $34.4 million. The components of this cost are as follows:

<TABLE>
<S> <C>
Investment banking fees................................................. $ 6,624,920
Professional fees....................................................... 2,616,356
Other transaction costs................................................. 1,098,444
Restructuring charges:
Abandonment of facilities............................................. 10,767,562
Severance costs for identified employees.............................. 5,865,295
Restructuring of benefits............................................. 2,392,431
Unamortized bond issue costs.......................................... 1,921,661
Noncompatible technology.............................................. 1,700,000
Impairment of assets.................................................. 1,361,004
Other restructuring charges........................................... 100,000
-----------
Total................................................................... $34,447,673
==========
</TABLE>

4. CONTINGENCIES

F-27
<PAGE> 147

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employed physicians are also covered by a general liability and malpractice
insurance policy. The Company has not accrued a loss for reported or unreported
incidents, as the amount, if any, cannot be reasonably estimated and the
probability of an adverse outcome cannot be determined at this time. It is the
opinion of management that the ultimate resolution of any asserted or unasserted
claims will not have a material adverse effect on the financial position or
operating results of the Company.

5. SUBSEQUENT EVENTS

On March 11, 1996, the Company agreed to acquire CHS Management, Inc., a
health care management service organization that provides management services to
an IPA of 325 primary care and specialist physicians and a medical group of 43
primary care physicians. The consideration for this transaction is expected to
be approximately $47 million of the Company's Common Stock. The transaction is
expected to be accounted for as a pooling of interests and is expected to close
prior to September 30, 1996.

On May 14, 1996, the Company agreed to merge with Caremark International
Inc., a leading provider of healthcare services in the United States and
overseas. Caremark, through its large, multi-specialty group practices, is
affiliated with 1,604 physicians and provides care to more than one million
people, 663,000 of whom are in prepaid health plans. Caremark also provides
pharmaceutical services, disease management, and international services. The
consideration for this transaction is expected to be approximately $2.5 billion
of the Company's Common Stock. The transaction is expected to be accounted for
as a pooling of interests and is expected to close prior to September 30, 1996.

F-28
<PAGE> 148

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
Caremark International Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, cash flows and stockholders'
equity, present fairly, in all material respects, the financial position of
Caremark International Inc. and its subsidiaries at December 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Chicago, Illinois
January 24, 1996, except as to
the third paragraph of Note 14,
which is as of March 19, 1996

F-29
<PAGE> 149

CAREMARK INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and equivalents.............................................. $ 32,100 $ 28,400
Accounts receivable, net.......................................... 311,600 365,400
Inventories....................................................... 92,700 112,500
Short-term deferred income taxes.................................. 33,300 41,100
Prepaid expenses and other current assets......................... 12,400 18,600
---------- ----------
Total current assets...................................... 482,100 566,000
---------- ----------
Property and equipment, net......................................... 168,300 299,200
Goodwill and other intangible assets................................ 105,300 259,300
Investments and other noncurrent assets............................. 38,600 69,700
Long-term deferred income tax asset................................. -- 33,700
Net assets of discontinued operations............................... 399,900 36,300
---------- ----------
Total assets.............................................. $1,194,200 $1,264,200
========= =========
Current liabilities:
Notes payable..................................................... $ 109,300 $ 81,900
Current maturities of long-term debt and lease obligations........ 2,600 3,900
Accounts payable, trade and other................................. 195,400 253,900
Accrued liabilities............................................... 92,600 135,000
---------- ----------
Total current liabilities................................. 399,900 474,700
---------- ----------
Long-term debt and lease obligations................................ 233,500 325,400
Long-term deferred income tax liability............................. 42,700 37,700
Other noncurrent liabilities........................................ 31,400 33,000
Commitments and contingent liabilities (Note 14)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 20,000,000 shares,
none issued.................................................... -- --
Common stock, $1 par value, authorized 200,000,000 shares, issued
71,898,166 shares in 1994 and 81,497,489 shares in 1995........ 71,900 81,500
Additional contributed capital.................................... 18,400 188,200
Shares held in trust, 7,700,000 shares in 1995.................... -- (150,200)
Retained earnings................................................. 400,900 281,700
Common stock in treasury, at cost, 259,300 shares in 1994 and
406,136 shares in 1995......................................... (4,500) (7,800)
---------- ----------
Total stockholders' equity.......................................... 486,700 393,400
---------- ----------
Total liabilities and stockholders' equity.......................... $1,194,200 $1,264,200
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-30
<PAGE> 150

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net revenues............................................... $1,204,000 $1,775,200 $2,374,300
Cost of goods and services sold............................ 1,001,100 1,520,600 2,016,400
Marketing and administrative expenses...................... 107,600 138,000 207,100
Provision for doubtful accounts............................ 13,300 16,900 24,200
---------- ---------- ----------
Operating income from continuing operations................ 82,000 99,700 126,600
Non-operating expense (income):
Losses on investments.................................... -- -- 86,600
Interest expense, net.................................... 3,400 8,700 8,700
Other.................................................... (1,700) (200) (200)
---------- ---------- ----------
Income from continuing operations before income taxes...... 80,300 91,200 31,500
Income tax expense......................................... 33,400 36,700 11,300
---------- ---------- ----------
Income from continuing operations.......................... 46,900 54,500 20,200
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes of $20,700, $18,000 and $(72,100) in 1993, 1994
and 1995, respectively................................ 30,800 25,900 (168,300)
Net gains on sales of discontinued operations, net of
income taxes of $21,200............................... -- -- 31,800
---------- ---------- ----------
Income (loss) from discontinued operations............... 30,800 25,900 (136,500)
---------- ---------- ----------
Net income (loss).......................................... $ 77,700 80,400 $ (116,300)
========= ========= =========
Earnings (loss) per common and common equivalent share:
Primary
Income from continuing operations..................... $ 0.64 $ 0.73 $ 0.27
Operating income (loss) from discontinued
operations.......................................... $ 0.42 0.35 $ (2.24)
Net gains on sales of discontinued operations......... -- -- $ 0.42
Net income (loss)..................................... $ 1.06 $ 1.08 $ (1.55)
Fully Diluted
Income from continuing operations..................... $ 0.63 $ 0.73 $ 0.27
Operating income (loss) from discontinued
operations.......................................... $ 0.41 $ 0.35 $ (2.24)
Net gains on sales of discontinued operations......... -- -- $ 0.42
Net income (loss)..................................... $ 1.04 $ 1.08 $ (1.55)
Weighted average common and common equivalent shares
outstanding:
Primary.................................................. 73,300 74,800 75,100
Fully diluted............................................ 74,900 74,800 75,100
</TABLE>

See accompanying notes to consolidated financial statements.

F-31
<PAGE> 151

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance, beginning of year................................ $ 71,100 $ 71,800 $ 71,900
Stock issued under employee benefit plans................. 700 100 100
Stock issued in connection with acquisitions.............. -- -- 1,800
Contribution to employee benefit trust.................... -- -- 7,700
--------- --------- ---------
Balance, end of year...................................... 71,800 71,900 81,500
--------- --------- ---------
Additional contributed capital:
Balance, beginning of year................................ 12,300 19,000 18,400
Stock issued under employee benefit plans................. 6,700 (600) (3,400)
Stock issued in connection with acquisitions.............. -- -- 30,700
Contribution to employee benefit trust.................... -- -- 142,500
--------- --------- ---------
Balance, end of year...................................... 19,000 18,400 188,200
--------- --------- ---------
Shares held in trust:
Balance, beginning of year................................ -- -- --
Contribution to employee benefit trust.................... -- -- (150,200)
--------- --------- ---------
Balance, end of year...................................... -- -- (150,200)
--------- --------- ---------
Retained earnings:
Balance, beginning of year................................ 248,800 323,500 400,900
Net income (loss)......................................... 77,700 80,400 (116,300)
Common stock dividends.................................... (3,000) (3,000) (2,900)
--------- --------- ---------
Balance, end of year...................................... 323,500 400,900 281,700
--------- --------- ---------
Common stock in treasury:
Balance, beginning of year................................ -- (4,700) (4,500)
Purchases................................................. (7,600) (14,600) (27,200)
Stock issued under employee benefit plans................. 2,900 14,800 20,800
Stock issued in connection with acquisitions.............. -- -- 3,100
--------- --------- ---------
Balance, end of year...................................... (4,700) (4,500) (7,800)
--------- --------- ---------
Total stockholders' equity................................ $ 409,600 $ 486,700 $ 393,400
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-32
<PAGE> 152

CAREMARK INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
--------- --------- --------
(IN THOUSANDS)
(BRACKETS DENOTE CASH OUTFLOWS)
<S> <C> <C> <C>
Cash flows from continuing operations:
Income from continuing operations.......................... $ 46,900 $ 54,500 $ 20,200
Adjustments for non-cash items:
Losses on investments...................................... -- -- 86,600
Provision for doubtful accounts............................ 13,300 16,900 24,200
Depreciation and amortization.............................. 11,400 18,900 28,600
Deferred income taxes...................................... 25,100 9,800 (14,400)
Other...................................................... 1,600 3,700 1,000
Changes in balance sheet items:
Accounts receivable........................................ (61,800) (95,500) (79,300)
Inventories................................................ (8,700) (4,200) (17,600)
Payables and accrued liabilities........................... 21,300 23,300 84,000
Prepaids and other......................................... (9,600) (600) (21,800)
--------- --------- --------
Cash flows from continuing operations........................ 39,500 26,800 111,500
--------- --------- --------
Cash flows from investing activities:
Capital expenditures....................................... (50,300) (70,200) (83,400)
Acquisitions, net of cash received......................... (3,100) (69,100) (143,500)
--------- --------- --------
Cash flows from investing activities......................... (53,400) (139,300) (226,900)
--------- --------- --------
Cash flows from financing activities:
Net change in short-term debt and credit facility
borrowings.............................................. (26,100) 230,900 7,500
Issuances of other long-term debt and lease obligations.... 112,100 400 5,000
Redemptions of other long-term debt and lease
obligations............................................. (19,300) (6,700) (1,500)
Stock issued under employee benefit plans.................. 9,100 11,800 16,300
Purchases of treasury stock................................ (7,600) (14,600) (27,200)
Common stock cash dividends................................ (3,000) (3,000) (2,900)
--------- --------- --------
Cash flows from financing activities......................... 65,200 218,800 (2,800)
--------- --------- --------
Cash flows from discontinued operations, net of divestiture
proceeds................................................... 25,500 (180,000) 114,500
--------- --------- --------
Increase (decrease) in cash and equivalents.................. 76,800 (73,700) (3,700)
Cash and equivalents, beginning of year...................... 29,000 105,800 32,100
--------- --------- --------
Cash and equivalents, end of year............................ $ 105,800 $ 32,100 $ 28,400
========= ========= ========
</TABLE>

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash and equivalents include cash, cash investments and marketable
securities with original maturities of three months or less. Income taxes
paid, net of refunds, were $24.0, $22.4 and $6.7 million in 1993, 1994 and
1995, respectively. Interest payments, net of amounts capitalized,
approximated $1.8, $10.2 and $20.7 million in 1993, 1994 and 1995,
respectively.

Non-cash investing activities include notes and other obligations issued
for acquisitions of $5.8, $1.2 and $30.8 million in 1993, 1994 and 1995,
respectively, and $123.6 million in notes and other securities received from
divestitures in 1995. Non-cash financing activities include the issuance of
$35.6 million of stock for acquisitions in 1995 and capital lease
obligations of $0.7, $0.4 and $3.9 million in 1993, 1994 and 1995,
respectively.

See accompanying notes to consolidated financial statements.

F-33
<PAGE> 153

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995

NOTE 1: NATURE OF OPERATIONS

Caremark International Inc. (the "company" or "Caremark") is a leading
provider of health care services in the United States and overseas, serving
millions of people through its Physician Practice Management, Pharmaceutical
Services, Disease Management and International businesses. The Physician
Practice Management business provides comprehensive management services to
physician groups, primarily multi-specialty physician practices located in major
metropolitan areas. The Pharmaceutical Services business manages outpatient
prescription drug benefit programs for corporations, insurance companies,
unions, government employee groups, and managed care organizations throughout
the United States. The Disease Management business provides therapies and
services to individuals suffering from hemophilia, immune system deficiencies
and other blood disorders characterized by protein deficiencies. In addition,
this business distributes recombinant growth hormone. In its International
business, the company offers selected health care services outside hospitals in
Canada, France, Germany, Japan, the Netherlands, the United Kingdom and Puerto
Rico.

INDUSTRY SEGMENTS

Caremark operates in four industry segments: Physician Practice Management,
Pharmaceutical Services, Disease Management and International.

NET REVENUES FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management.............................. $ 135,600 $ 190,100 $ 454,600
Pharmaceutical Services.................................... 631,200 1,097,300 1,432,300
Disease Management......................................... 389,800 422,300 408,000
International.............................................. 47,400 65,500 79,400
---------- ---------- ----------
Totals from continuing operations.......................... $1,204,000 $1,775,200 $2,374,300
========= ========= =========
</TABLE>

OPERATING INCOME FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management.............................. $ (1,400) $ 4,100 $ 16,100
% of segment revenues.................................... (1.0)% 2.2% 3.5%
Pharmaceutical Services.................................... $ 31,600 $ 46,200 $ 56,000
% of segment revenues.................................... 5.0% 4.2% 3.9%
Disease Management......................................... $ 76,000 $ 76,600 $ 69,500
% of segment revenues.................................... 19.5% 18.1% 17.0%
International.............................................. $ (2,400) $ (1,500) $ 1,300
% of segment revenues.................................... (5.1)% (2.3)% 1.6%
General Corporate.......................................... $(21,800) $(25,700) $(16,300)
-------- -------- --------
Totals from continuing operations.......................... $ 82,000 $ 99,700 $126,600
======== ======== ========
</TABLE>

F-34
<PAGE> 154

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

IDENTIFIABLE ASSETS FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management................................. $ 90,400 $183,900 $ 482,500
Pharmaceutical Services....................................... 212,300 300,300 371,300
Disease Management............................................ 124,900 142,400 144,400
International................................................. 29,600 38,600 49,900
General Corporate............................................. 179,000 129,100 179,800
-------- -------- ----------
Totals from continuing operations............................. $636,200 $794,300 $1,227,900
======== ======== =========
</TABLE>

CAPITAL EXPENDITURES FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management..................................... $ 8,400 $17,100 $42,500
Pharmaceutical Services........................................... 24,700 37,000 30,700
Disease Management................................................ 900 1,200 3,200
International..................................................... 6,100 4,500 4,800
General Corporate................................................. 10,200 10,400 2,200
------- ------- -------
Totals from continuing operations................................. $50,300 $70,200 $83,400
======= ======= =======
</TABLE>

DEPRECIATION AND AMORTIZATION FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management..................................... $ 4,200 $ 6,500 $14,300
Pharmaceutical Services........................................... 5,500 8,400 9,200
Disease Management................................................ 200 400 800
International..................................................... 900 1,700 2,300
General Corporate................................................. 600 1,900 2,000
------- ------- -------
Totals from continuing operations................................. $11,400 $18,900 $28,600
======= ======= =======
</TABLE>

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the company's Consolidated Financial
Statements. These policies are in conformity with generally accepted accounting
principles, and have been consistently applied in all material respects. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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.

BASIS OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Caremark and
its majority-owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.

The company has acquired certain assets of and operates clinics under 33-40
year management service agreements with affiliated physician groups that
maintain separate legal entities within which they practice medicine. These
groups have no other operations or rights to practice except to conduct such
practices exclusively in company clinics. Under these agreements, the physician
groups have responsibility for all medical-related decisions, enter into payor
contracts and provide Caremark input on the management of the

F-35
<PAGE> 155

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

practice. Caremark compensates the physicians for their services under these
affiliations using four general models: (a) approximately 28% of clinic revenues
and 5% of total revenues in 1995 were generated by clinics whose physicians were
compensated on a capitated, per-member, per-month arrangement; (b) approximately
10% of clinic revenues and 2% of total revenues in 1995 were generated by
clinics whose physicians received a salary plus a bonus; (c) approximately 56%
of clinic revenues and 11% of total revenues in 1995 were generated by clinics
whose physicians received a salary plus bonus and receive a profit sharing
payment of 50% of consolidated clinic earnings before taxes ("clinic earnings").
Clinic earnings in these arrangements include all expenses, management fees paid
to the company and physician compensation; (d) approximately 6% of clinic
revenues and 1% of total revenues in 1995 were generated by clinics whose
physicians received 85% of a defined amount (generally, revenues less management
expenses paid to the company) to cover all medical costs including physician
compensation, outside referral expenses, allied healthcare expenses and
professional liability insurance. Any amounts remaining after paying these
expenses represented additional incentive compensation to the physicians.

Caremark is responsible for providing all non-medical personnel, premises,
equipment, and supplies necessary to operate the clinics, providing financial,
accounting and administrative services, negotiating all payor and vendor
contracts on behalf of the clinics, billing and collecting fees, paying clinic
expenses, and performing marketing and public relations services. Caremark also
has the right to utilize the cash in the physician group bank accounts and is
required to fund future capital expenditures as well as working capital needs.
The fee paid to Caremark includes Caremark's direct management expenses of
operating the clinics, plus incentive payments which reflect a portion or all of
the residual equity interest in the clinics after payment of physician
compensation, other medical costs and management expenses. Under the four
general models discussed above, these incentive payments take the following
forms: (a) a variable percentage of the clinic's managed capital; (b) a variable
percentage of the clinic's managed capital plus 100% of clinic earnings; (c) a
variable percentage of the clinic's managed capital or net revenues plus 50% of
clinic earnings; and (d) 15% of the defined amount described above.

Based on the legal structures in place, the physician groups record all
revenues from the payor contracts and related medical expenses including
physician compensation, allied health professional costs, professional liability
insurance costs and Caremark's management fee. However, Caremark believes it has
essentially all of the risks and rewards of ownership and perpetual and
unilateral control over the assets and operations of the various physician
groups. Therefore, notwithstanding the lack of ownership of the stock of the
legal entities in which the physicians practice, consolidation of the revenues
and expenses of the various physician groups is necessary to present fairly the
financial position and results of operations of the company because there exists
a parent-subsidiary relationship by means other than record ownership of a
majority of voting stock. Under consolidation, the company reports all the
revenues and operating expenses of the clinics as its own, eliminating the
management fees paid by the physician groups to the company, recording all
revenue initially reflected as physician revenue as company revenue and
reflecting physician earnings as compensation expense.

The company believes that this control over the assets and operations is
perpetual rather than temporary because of (i) the length of the original terms
of the agreements, (ii) the likelihood of successive extension periods of the
agreements, (iii) the continuing investment of capital by the company, (iv) the
control by the company of the assets necessary to operate the clinics, (v) the
employment of all non-medical personnel, (vi) the nature of the services
provided by the company to and the delegation of authority to the company from
the physician groups to carry out all of the critical revenue generating
responsibilities of the business other than the actual treating of patients, and
(vii) the nominal capital investments of the physician groups.

REVENUES

The company records revenues net of estimated contractual allowances.
Revenue is deferred related to cash payments received for which the company is
obligated to perform future services.

F-36
<PAGE> 156

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories, which are primarily finished goods, consist of pharmaceutical
drugs, medical equipment and supplies and are valued at the lower of cost
(first-in, first-out method) or market.

MARKETABLE SECURITIES

Investments in marketable securities with readily determinable fair values
have been classified as available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders' equity unless a decline in
value is judged other than temporary. When this is the case, unrealized losses
are reflected in income. The company owns no investments that are considered to
be trading or held-to-maturity securities.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation.
Assets purchased in acquisitions are recorded at their respective fair values.
Expenditures that extend the useful life of property and equipment or that
increase productivity are capitalized, whereas maintenance and repairs are
charged to expense in the year incurred.

Interest costs associated with the construction of certain capital assets
are capitalized as part of the cost of those assets. Interest costs
approximating $5.1 million were capitalized in 1995. The company also
capitalizes purchased and internally developed software costs to the extent they
are expected to benefit future operations. Capitalized software costs included
in construction in progress approximated $67.8 million at December 31, 1995.

Depreciation and amortization are provided for financial reporting purposes
principally on the straight-line method over the estimated useful lives of the
assets or, for leasehold improvements, over the terms of related leases if
shorter. Both straight-line and accelerated methods of depreciation are used for
income tax purposes.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, which totaled $86.3 and $227.3 million at December 31, 1994 and
1995, respectively, represents the excess of consideration paid for companies
acquired in purchase transactions over the fair value of net assets acquired. It
is amortized on a straight-line basis over estimated useful lives not exceeding
40 years. Other intangible assets include management service agreements and
other identified rights that are amortized on a straight-line basis over the
lesser of their legal or estimated useful lives. As of December 31, 1994 and
1995, intangible assets, including goodwill, are stated net of accumulated
amortization of $8.9 and $14.2 million, respectively. The company reviews the
carrying value of intangibles and other long-lived assets for impairment when
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. This review is performed by comparing estimated
undiscounted future cash flows from use of the asset to the recorded value of
the asset.

INCOME TAXES

Income tax expense is based on pre-tax income for financial reporting
purposes, adjusted for the effects of permanent differences between such income
and that reported for tax return purposes. Deferred tax assets and liabilities
are recognized for expected future tax consequences of temporary differences
between the carrying amounts and tax bases of the underlying assets and
liabilities.

EARNINGS PER SHARE

Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares represent the potential dilutive impact of
stock options, employee stock purchase plan subscriptions and contingent stock
rights.

F-37
<PAGE> 157

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECLASSIFICATIONS

Certain prior-year balances have been reclassified to conform with the
current year's presentation.

NOTE 3: ACQUISITIONS

In May 1995, Caremark entered into a long-term affiliation agreement with
Friendly Hills HealthCare Network ("Friendly Hills"), an integrated health care
delivery system headquartered in La Habra, California. Friendly Hills operates
18 medical offices and an acute care hospital. Caremark acquired substantially
all of the assets of Friendly Hills for approximately $140 million and agreed to
provide various management and administrative services. The transaction has been
accounted for by the purchase method of accounting. The following summary,
prepared on a pro forma basis, combines the results of operations of Caremark
and Friendly Hills as if the Friendly Hills transaction had been consummated as
of the beginning of the periods presented after including the impact of certain
adjustments such as amortization of intangibles, interest expense on debt
assumed to have been incurred to complete the transaction and the related income
tax effects.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1994 1995
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Net revenues.......................................................... $1,950,200 $2,437,400
Income before income taxes from continuing operations................. $ 90,500 $ 28,900
Income from continuing operations..................................... $ 54,100 $ 18,600
Earnings from continuing operations per common and common equivalent
share:
Primary............................................................. $ .72 $ .25
Fully diluted....................................................... $ .72 $ .25
</TABLE>

These pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire periods
presented and are not intended to project future results.

The company invested approximately $68.2 million in cash, stock and notes
for other acquisitions in 1995 involving the Physician Practice Management
business. Consideration paid in connection with 1993 and 1994 acquisitions
approximated $9.4 and $69.1 million, respectively. Results of operations would
not have been materially different in 1993, 1994 and 1995 had these other
transactions occurred as of the beginning of the respective years.

In September 1995, Caremark entered into a definitive agreement with CIGNA
Healthcare of California, a managed health care subsidiary of CIGNA Corporation,
to acquire substantially all of the assets of CIGNA Medical Group, CIGNA
Healthcare's Los Angeles-area staff model delivery system. In 1994 net revenues
from these operations were in excess of $400 million. The transaction was
completed effective January 1, 1996 and will be accounted for using the purchase
method of accounting.

All of the aforementioned acquisitions have been (or will be) accounted for
by the purchase method of accounting. As such, operating results of acquired
businesses are included in Caremark's Consolidated Financial Statements as of
their respective dates of acquisition.

NOTE 4: DISCONTINUED OPERATIONS

During 1995, Caremark divested of several non-strategic businesses as part
of the company's transformation to four business lines -- Physician Practice
Management, Pharmaceutical Services, Disease Management and International. In
accordance with APB 30, which addresses the reporting for disposition of
business segments, the company's Consolidated Financial Statements present the
operating results and net assets of discontinued operations separately from
continuing operations. Prior periods have been restated to conform with this
presentation.

Effective March 31, 1995, the company sold its Clozaril(R) Patient
Management System to Health Management, Inc. for $23.3 million in cash and
notes. This business involved managing the care of schizophrenia patients
nationwide through the distribution of the Clozaril drug and related testing
services to

F-38
<PAGE> 158

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

monitor patients for potentially serious side effects. Net revenues of this
business for the three months ended March 31, 1995 were $12.3 million and were
$78.5 and $84.0 million for the years 1993 and 1994, respectively. The after-tax
gain on disposition of this business was $11.1 million.

Effective April 1, 1995, the company sold its Home Infusion business to
Coram Healthcare Corporation ("Coram") for $309 million in cash and securities,
subject to post-closing adjustments based on the net assets transferred. The
sale included Caremark's home intravenous infusion therapy, women's health
services and the Home Care Management System. Certain severance and legal
obligations remained with Caremark (see Note 14 -- Commitments and Contingent
Liabilities). Net revenues of this business for the period ended April 1, 1995
were $96.1 million and were $420.5 and $441.9 million for the years 1993 and
1994, respectively. The after-tax loss on disposition of this business was $4.0
million. In 1995 net losses from this business reflected in discontinued
operations include $154.8 million related to the legal settlement discussed in
Note 14.

Effective September 15, 1995, the company sold its Oncology Management
Services business to Preferred Oncology Networks of America, Inc. for securities
valued at $3.6 million. The business provides management services to
single-specialty oncology practices. Net revenues of this business for the 1995
period up to the date of sale were $8.9 million and were $30.6 and $29.4 million
for the years 1993 and 1994, respectively. There was no after-tax gain or loss
on the disposition.

Effective December 1, 1995 the company sold its Caremark Orthopedic
Services, Inc. subsidiary to HealthSouth Corporation for $127.0 million in cash,
subject to post-closing adjustments. This business provides outpatient physical
therapy and rehabilitation services. Net revenues of this business for the 1995
period up to the date of sale were $69.1 million and were $47.0 and $55.8
million for the years 1993 and 1994, respectively. The after-tax gain on
disposition of this business was $24.7 million.

In September 1995, the company adopted a formal plan to dispose of its
Nephrology Services division by sale to a third party. This business provides a
wide range of nephrology support services, including dialysis services and
supplies, transplant and laboratory services. Net revenues of this business were
$2.7, $39.7 and $46.6 million for the years 1993, 1994, and 1995, respectively.
Any gain or loss from this planned disposal is not expected to be material.

NOTE 5: FINANCIAL INSTRUMENTS

The company's financial instruments include cash and equivalents,
investments in marketable and non-marketable securities, and debt obligations.
The carrying value of marketable and non-marketable securities, which
approximated fair value, was $27.4 and $48.5 million at December 31, 1994 and
1995, respectively. The carrying value of debt obligations was $99.5 and $99.6
million at December 31, 1994 and 1995, respectively. The fair value of these
obligations approximated $83.8 and $98.6 million at December 31, 1994 and 1995,
respectively. The fair value of marketable securities is determined using market
quotes and rates. The fair value of nonmarketable securities, which are made up
primarily of investments in and notes from non-public companies, are estimated
based on information provided by these companies. The fair value of long-term
debt has been estimated using market quotes.

During 1995, the company recorded a pre-tax charge to income of $86.6
million ($52.0 million after tax) to reflect unrealized losses on investments
that were judged other than temporary.

Interest expense totaled $4.1, $11.8 and $16.7 million in 1993, 1994 and
1995, respectively. Interest income totaled $0.7, $3.1 and $8.0 million in 1993,
1994 and 1995, respectively.

NOTE 6: TRADE RECEIVABLES

The company provides credit, in the normal course of business, to
third-party payors (such as private insurers, Medicare and Medicaid), patients
and private enterprises. The company performs ongoing credit evaluations of its
customers and maintains an allowance for doubtful accounts based on the
collectibility of trade receivables. Credit losses have historically coincided
with management's expectations.

F-39
<PAGE> 159

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the activity in the allowance for doubtful accounts is
presented below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year............................. $ 14,700 $ 20,100 $ 28,700
Provision for doubtful accounts........................ 13,300 16,900 24,200
Write-offs, net of recoveries.......................... (9,200) (15,600) (24,200)
Other(1)............................................... 1,300 7,300 21,600
-------- -------- --------
Balance, end of year................................... $ 20,100 $ 28,700 $ 50,300
======== ======== ========
</TABLE>

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

(1) Represents valuation accounts of acquired or divested companies, account
transfers and foreign currency translation adjustments.

NOTE 7: OTHER BALANCE SHEET DATA

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, net:
Land................................................................. $ 15,800 $ 25,700
Buildings and leasehold improvements................................. 45,000 97,200
Machinery and other equipment........................................ 88,200 137,700
Software systems..................................................... 14,300 36,500
Construction in progress............................................. 60,000 78,800
-------- --------
Property and equipment, at cost...................................... 223,300 375,900
Accumulated depreciation and amortization............................ (55,000) (76,700)
-------- --------
Property and equipment, net.......................................... $168,300 $299,200
======== ========
</TABLE>

Accrued liabilities include employee compensation and related taxes of
$31.0 and $25.8 million at December 31, 1994 and 1995, respectively.

NOTE 8: CREDIT FACILITIES

During 1995, Caremark entered into revised credit facilities aggregating
$380 million as of December 31, 1995 ($135 million expiring September 1996, $225
million expiring September 1998 and a $20 million letter of credit agreement),
enabling the company to borrow funds on an unsecured basis at variable interest
rates, typically determined by reference to the corporate base rate announced by
First National Bank of Chicago or the Eurodollar interbank rate. The modified
credit facilities contain maximum EBITDA, minimum interest coverage and
debt-to-total-capital ratio requirements, as well as certain restrictions
regarding compliance with the company's integrity program and litigation. The
company was in compliance with the debt covenants at year-end. Borrowings under
these facilities were $200.0 million at December 31, 1995, all of which was
classified as long-term debt. As of December 31, 1994, $210.0 million was
borrowed, of which $125.0 million was classified as long-term.

The company also has a $25 million uncommitted line of credit that offers
more flexible overnight borrowing capabilities to accommodate daily cash flow
needs. $25.0 million was outstanding under this facility at December 31, 1995.
The average annual interest rate for the aforementioned credit facilities
approximated 6.6% in 1995. The company also maintains short-term credit
arrangements approximating $20.4 million in support of international operations.
Borrowings under these arrangements were $6.4 and $14.5 million at December 31,
1994 and 1995, respectively.

F-40
<PAGE> 160

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9: LONG-TERM DEBT AND LEASE OBLIGATIONS

Long-term debt and lease obligations consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term credit facility borrowings........................... $125,000 $200,000
6 7/8% notes, due 2003, less unamortized discount of $0.4
million...................................................... 99,500 99,600
Long-term notes due 1996 through 2011, at various rates........ 9,200 24,400
Capitalized lease obligations due 1996 through 2000............ 2,400 5,300
-------- --------
Total long-term debt and lease obligations..................... 236,100 329,300
Current portion................................................ (2,600) (3,900)
-------- --------
Long-term portion.............................................. $233,500 $325,400
======== ========
</TABLE>

During 1993, the company issued $100 million of 67 7/8% senior notes
maturing in August 2003. The net proceeds, $98.8 million after discount and
underwriting fees, were used to repay credit facility borrowings and to fund
acquisitions, as well as for other general corporate purposes. Debt issuance
costs of $1.3 million were capitalized in connection with this offering and are
being amortized over the term of the debt. Other long-term notes relate
primarily to business acquisitions. The company has guaranteed secured loans
totaling $20.7 million on behalf of unconsolidated affiliates. The underlying
loans mature in 1996 through 1999. The affiliates have complied with related
debt service requirements.

The company leases certain facilities and equipment under operating and
capital leases expiring at various dates. Most of the operating leases contain
renewal options. Total rent expense under operating leases approximated $12.1,
$17.9 and $26.7 million in 1993, 1994 and 1995, respectively.

Future minimum lease payments (including interest) under capital and
noncancelable operating leases and aggregate long-term debt maturities are
summarized as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL DEBT
LEASES LEASES MATURITIES
--------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1996.................................................... $ 26,300 $ 2,500 $ 1,900
1997.................................................... 22,700 1,700 8,400
1998.................................................... 20,200 1,100 203,600
1999.................................................... 15,800 600 3,000
2000.................................................... 11,000 200 2,400
Thereafter.............................................. 55,700 -- 105,100
--------- ------- ----------
Total obligations and commitments....................... $ 151,700 $ 6,100 $ 324,400
========
Amounts representing interest and discounts............. (800) (400)
------- ----------
Carrying value of long-term debt and lease
obligations........................................... $ 5,300 $ 324,000
======= ========
</TABLE>

The net book value of capitalized lease property approximated $2.3 and $3.9
million at December 31, 1994 and 1995, respectively.

NOTE 10: PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS

No shares of preferred stock are currently outstanding. The company's Board
of Directors is authorized to issue up to 20,000,000 shares of preferred stock
without further stockholder approval. The Board of Directors of the company is
also authorized to determine the voting powers, designations, preferences and
relative, participating, optional or other special rights, with respect to any
series of preferred stock.

Should the Board of Directors elect to exercise its authority to issue any
additional series of preferred stock, the rights, preferences and privileges of
holders of the company's common stock would be made subject to the rights,
preferences and privileges of such additional series.

F-41
<PAGE> 161

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the adoption of its Preferred Share Purchase Rights Plan
(the "Rights Plan"), the company has designated and reserved for issuance upon
exercise of such rights 2,000,000 shares of Series A Junior Participating
Preferred Stock.

The Board of Directors has authorized a Rights Plan in which common
stockholders received a dividend of one preferred share purchase right
(collectively, the "Rights") for each share of common stock held of record. Each
Right entitles the registered holder to purchase from the company one
one-hundredth of a share of Series A Junior Participating Preferred Stock for
$85, subject to adjustment. The Rights will become exercisable (and transferable
apart from the common stock) on the earlier of (1) 10 days following a public
announcement that a person or group has acquired 15% or more of the common stock
or (2) 10 business days following the commencement or announcement of an offer
to acquire 15% or more of the common stock.

If, after the Rights become exercisable, any person or group (the
"Acquirer") acquires 15% or more of the common stock (except pursuant to an
offer for all outstanding shares of common stock that the independent directors
determine to be fair and otherwise in the best interests of the company and its
stockholders), each Right may be exercised for common stock having a value of
$170. In specified circumstances, each Right may be exercised for common stock
of an acquiring entity having a value of $170. All Rights held by the Acquirer
will be null and void. The company may generally redeem the Rights at a price of
$.01 per Right at any time until 10 days following a public announcement that a
person or group has acquired 15% or more of the common stock. The Rights will
expire on November 30, 2002.

NOTE 11: COMMON STOCK

The company sponsors employee stock purchase plans that promote the sale of
its common stock to employees. The purchase price to employees is the lower of
85% of the closing market price on the date of subscription or 85% of the
closing market price on the date funds are actually used to purchase stock for
employees. Stock purchase plan transactions for the indicated years are
summarized below:

<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Shares subscribed:
Beginning of year........................................... 744,805 642,028
Subscriptions............................................... 664,035 414,662
Purchases................................................... (614,290) (481,101)
Cancellations............................................... (152,522) (239,207)
------------- -------------
End of year................................................. 642,028 336,382
============= =============
Subscription price per share at end of year................. $10.74-$22.10 $13.80-$22.10
</TABLE>

Expiration dates for outstanding subscriptions extend through 1997. The
weighted average subscription
price was $15.90 at December 31, 1995.

The company offers participation in stock option plans to certain employees
and individuals. All of the outstanding options under these plans were granted
at 100% of market value of the stock on the dates of grant. The following table
summarizes stock option transactions for the indicated years:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Options outstanding:
Beginning of year............................................. 9,754,915 9,561,416
Granted....................................................... 805,500 1,849,800
Exercised..................................................... (344,271) (811,981)
Cancelled/expired............................................. (654,728) (1,949,075)
------------ ------------
End of year................................................... 9,561,416 8,650,160
============ ============
Option price per share:
Exercised..................................................... $7.71-$17.25 $6.45-$18.88
Outstanding at end of year.................................... $6.45-$21.88 $6.45-$21.88
</TABLE>

Awarded options typically vest and become exercisable in incremental
installments over five years and expire no later than 10 years and one day from
the date of grant. There were 3,271,574 options exercisable at

F-42
<PAGE> 162

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1995. Expiration dates for outstanding options range from 1996 to
2005. The weighted average option price was $14.99 at December 31, 1995. The
company expects to adopt, in 1996, the disclosure requirements of Statement of
Financial Accounting Standards No. 123 -- Accounting for Stock-Based
Compensation.

Under various plans, Caremark has made grants of restricted common stock to
provide incentive compensation to key employees and to provide incentives
related to acquisitions. Restricted stock transactions for the indicated years
are summarized below:

<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Restricted stock outstanding:
Beginning of year.................................................. 1,268,319 265,037
Granted............................................................ 14,800 280,784
Cancelled.......................................................... -- (22,167)
Vested (free of restrictions)...................................... (1,018,082) (293,644)
---------- --------
End of year........................................................ 265,037 230,010
========== =========
</TABLE>

The company issued contingent stock rights in connection with a 1992
acquisition that permit holders to receive, upon exercise, a number of shares of
company common stock determined by reference to appreciation in excess of $16.56
in the per share market value of the company common stock. The contingent stock
rights became exercisable on December 31, 1994. As of December 31, 1995, 789,303
rights were outstanding.

In June 1995, Caremark issued 7.7 million common shares (at $19.50 per
share) into a trust established to fund employee benefits over the next 10
years, including pension plan contributions, 401(k) matching contributions, and
stock issued under option and employee purchase plans. The value of the common
stock contributed has been reflected in the Balance Sheet in "common stock"
($7.7 million) and "additional contributed capital" ($142.5 million), with a
corresponding offset of these amounts in the "shares held in trust" component of
stockholders' equity. These shares will be issued from the trust over time as
necessary to meet the company's benefit obligations and will have no impact on
the weighted average common and common equivalent shares outstanding for
earnings per share purposes until they are issued from the trust.

The company's Board of Directors has authorized the purchase of common
stock to fund various stock-based compensation programs and for acquisitions.
The company purchased 1,496,666 shares of common stock for $27.2 million in 1995
and has been authorized to purchase up to an additional 1,400,000 shares through
July 31, 1996.

The company's common stock was reserved for issuance as follows at December
31:

<TABLE>
<CAPTION>
1995
----------
<S> <C>
Reserved common stock:
Acquisitions..................................................................... 4,091,505
Stock option plans............................................................... 11,416,270
Stock purchase plans............................................................. 200,474
----------
Total shares reserved..................................................... 15,708,249
==========
</TABLE>

Stockholders of record totaled 54,849 at December 31, 1994, versus 49,003
at the end of 1995.

On October 31, 1995, the company's Board of Directors declared a third
annual dividend of four cents per share on all outstanding common stock to
stockholders of record on November 30, 1995. The dividend was paid on December
15, 1995.

NOTE 12: RETIREMENT PROGRAMS

The company sponsors retirement plans for all qualifying domestic employees
and certain employees in other countries. Benefits are typically based on years
of service and the employee's compensation during five of the last 10 years of
employment as defined by the plans. The company's funding policy is to make
contributions that meet or exceed the minimum requirements of the Employee
Retirement Income Security Act of 1974, based on the projected unit credit
actuarial cost method, and to limit such contributions to amounts currently
deductible for tax reporting purposes.

F-43
<PAGE> 163

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the components of net pension expense and
related actuarial assumptions used at the January 1 valuation date for the
respective years:

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Assumptions:
Discount rate................................................. 8.0% 7.25% 8.75%
Increase in compensation levels(1)............................ 6.5% 5.0% 5.0%
Expected long-term return on assets........................... 10.5% 10.5% 9.5%
Components (in thousands):
Service cost-benefits earned.................................. $ 3,800 $ 4,600 $ 2,100
Interest cost on projected obligation......................... 1,600 2,300 2,200
Actual return on assets....................................... (,900) (1,300) (1,700)
Net amortizations............................................. 500 700 100
------- ------- -------
Net pension expense........................................... $ 5,000 $ 6,300 $ 2,700
======== ======== ========
</TABLE>

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

(1) The assumed annual rate of increase in compensation levels for 1993 was 4.0%
for the Puerto Rico plans, which were merged into the U.S. plan as of
December 31, 1993.

As a result of the disposal of the Home Infusion business (see Note
4 -- Discontinued Operations), the company realized a curtailment gain of $0.9
million related to its pension plan. This gain has been included in the net
gains on sales of discontinued operations in the Consolidated Statements of
Operations.

The following table presents the funded status of the plans, the net
pension liability recognized in the consolidated balance sheets and related
actuarial assumptions as of December 31:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Assumptions:
Discount rate.................................................... 8.75% 7.25%
Increase in compensation levels.................................. 5.0% 5.0%
Funded status and net pension liability (in thousands):
Actuarial present value of benefit obligations:
Vested benefits............................................... $15,000 $22,200
Accumulated benefits.......................................... 17,000 25,000
Effect of future salary increases............................. 6,600 7,200
------- -------
Projected benefits............................................ 23,600 32,200
Less: plan assets at fair value(1)................................. 15,000 20,900
------- -------
Projected benefit obligations in excess of plan assets............. 8,600 11,300
Less: unrecognized net loss........................................ 1,700 4,800
------- -------
Net pension liability.............................................. $ 6,900 $ 6,500
======= =======
</TABLE>

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

(1) Primarily equity and fixed income securities.

Pension expense under non-U.S. pension plans sponsored by the company for
the benefit of foreign employees has not been significant.

Most U.S. employees are eligible to participate in a qualified 401(k) plan.
Participants may contribute up to 12% of their annual compensation (limited in
1995 to $9,240 per individual) to the plan and the company matches the
participants' contributions up to 3% of compensation. Matching contributions
made by the company were $5.7, $6.0 and $2.8 million in 1993, 1994 and 1995,
respectively.

The company has provided post-retirement health benefits to qualified
employees and accrued for those costs over the service years of the employees in
accordance with Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The cost of this
plan and related liability have not been significant to Caremark. As a result of
the disposal of the Home Infusion business (see Note 4 -- Discontinued
Operations), the company realized a curtailment gain of $1.2 million.

F-44
<PAGE> 164

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

This gain has been included in the net gains on sales of discontinued operations
in the Consolidated Statements of Income. In addition, during 1995, Caremark
terminated this plan, resulting in a reduction of the related liability of $2.2
million.

In 1994, the company adopted Statement of Financial Accounting Standards
No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits," which
requires employers to accrue the cost of postemployment benefits (including
salary continuation, severance and disability benefits, job training and
counseling and continuation of benefits such as health care and life insurance
coverage) to former or inactive employees. The adoption and ongoing impact of
FAS 112 have not been material to the company's financial statements.

NOTE 13: INCOME TAXES

Income tax expense from continuing operations for the indicated years
consists of:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $15,800 $19,100 $ 39,100
State and local........................................ 5,200 5,600 7,500
------- ------- --------
Current income tax expense............................... 21,000 24,700 46,600
------- ------- --------
Deferred:
Federal................................................ 10,600 10,100 (29,800)
State and local........................................ 1,800 1,900 (5,500)
------- ------- --------
Deferred income tax expense (benefit).................... 12,400 12,000 (35,300)
------- ------- --------
Income tax expense from continuing operations............ $33,400 $36,700 $ 11,300
======= ======= ========
</TABLE>

Foreign income was not significant in 1993, 1994 and 1995.

Deferred tax assets (liabilities) under FAS 109 are composed of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bad debt and sales allowances $ 11,800 $ 5,500
Legal settlement costs........................................... -- 26,800
Loss on investments.............................................. -- 33,700
Accrued compensation............................................. 10,100 6,300
Other accrued expenses........................................... 11,400 2,500
Net operating loss carryforwards................................. 2,900 3,300
Valuation allowances............................................. (2,900) (3,300)
-------- --------
Deferred tax assets, net of valuation allowances................. 33,300 74,800
-------- --------
Accelerated depreciation and amortization........................ (23,400) (33,100)
Goodwill......................................................... (16,900) --
Other timing..................................................... (2,400) (4,600)
-------- --------
Deferred tax liabilities......................................... (42,700) (37,700)
-------- --------
Net deferred tax assets (liabilities)............................ $ (9,400) $ 37,100
======== ========
</TABLE>

The company has established valuation allowances for foreign net operating
loss carryforwards. The $0.4 million net change in valuation allowances for 1995
is primarily attributable to the net change in these foreign net operating
losses in the current year.

F-45
<PAGE> 165

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense from continuing operations applicable to pre-tax income
for financial reporting purposes differs from that calculated using the U.S.
federal income tax rate for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at statutory rate...................... $28,100 $31,900 $11,000
State and local taxes, net of federal tax benefit......... 4,200 4,600 $ 1,300
Tax rate changes.......................................... (1,000) -- --
Other..................................................... 2,100 200 (1,000)
------- ------- -------
Income tax expense from continuing operations $33,400 $36,700 $11,300
======= ======= =======
</TABLE>

In connection with its 1992 distribution from Baxter International Inc.
("Baxter"), Caremark entered into a tax-sharing agreement with Baxter under
which the company retained responsibility for its portion of federal income tax
returns filed by Baxter for the years after 1987.

Undistributed earnings of certain foreign subsidiaries that the company
expects to be permanently reinvested totaled $6.1 million as of December 31,
1995.

NOTE 14: COMMITMENTS AND CONTINGENT LIABILITIES

In June 1995, Caremark agreed to settle the investigation of the company
with the U.S. Department of Justice, the Office of the Inspector General of the
U.S. Department of Health and Human Services (the "OIG"), the Veterans
Administration, the Federal Employee Health Benefits Program, the Civilian
Health and Medical Program of the Uniformed Services and related state
investigative agencies in all 50 states and the District of Columbia. Under the
terms of the settlement, which covered allegations dating back to 1986, a
subsidiary of Caremark pled guilty to two counts of mail fraud -- one each in
Minnesota and Ohio. The settlement allows Caremark to continue participating in
Medicare, Medicaid and other government health care programs.

Under the settlement, Caremark agreed to make civil payments of $85.3
million to the federal government in installments, $20.0 million of which
remains payable in June 1996, and $44.6 million to the states. The plea
agreement imposed $29.0 million in federal criminal fines. In addition, Caremark
contributed $2.0 million to a grant program set up under the Ryan White
Comprehensive AIDS Resources Emergency (CARE) Act. The company took an after-tax
charge to discontinued operations of $154.8 million in 1995 for these settlement
payments, costs to defend ongoing derivative, security and related lawsuits, and
other associated costs. There can be no assurance that the ultimate costs
related to this settlement will not exceed these estimates.

In March 1996, the company agreed to settle all disputes with a number of
private payors. The settlements will result in an after-tax cost of
approximately $42.3 million. These disputes relate to businesses that were
covered by Caremark's settlement with federal and state agencies in June 1995.
In addition, Caremark will pay $23.3 million after-tax to cover the private
payors' pre-settlement and settlement-related expenses. An after-tax charge for
the above amounts will be recorded in first quarter 1996 discontinued
operations. Caremark may pay the settlement amounts in 1996 and 1997 or, under
certain circumstances, in semi-annual installments, including interest through
1999. No agreement, contract or other business relationship in existence at the
time of the settlements will be terminated or negatively affected by the
settlement agreements. The parties have also agreed to negotiate in good faith
to maintain or enhance ongoing business relationships. The company's lenders
have waived the impact of these settlements on the financial covenants under its
existing credit facility through September 15, 1996. The company currently
expects to enter into revised credit facilities prior to this date.

The company does not believe that the above-referenced settlements will
materially affect its ability to pursue its long-term business strategy. There
can be no assurances, however, that additional costs, claims and damages will
not occur.

F-46
<PAGE> 166

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the investigation discussed above. The complaints seek unspecified damages,
declaratory and equitable relief, and attorneys' fees and expenses. The parties
continue to engage in discovery proceedings. The company intends to defend this
case vigorously. Management is unable at this time to estimate the impact, if
any, of the ultimate resolution of this matter.

In August 1994 and July 1995, stockholders filed derivative actions on
behalf of Caremark against the company, its directors and certain employees of
Caremark in the Court of Chancery of the State of Delaware, the United States
District Court for the Northern District of Illinois and the Circuit Court of
Cook County in Chicago, Illinois alleging breaches of fiduciary duty, negligence
in connection with Caremark's conduct of the business and lack of corporate
controls, and seeking unspecified damages, and attorneys' fees and expenses. In
June 1995, the parties to the Delaware derivative action entered into a
memorandum of understanding providing for the terms of settlement of all claims
asserted in that case. Although the proposed settlement does not contemplate the
payment of any damages by any defendant, plaintiffs are expected to seek an
award of attorneys' fees and expenses in conjunction with any approval of the
settlement. The proposed settlement of the Delaware derivative action is subject
to a number of conditions and the Delaware court is expected to consider the
proposed settlement in mid-1996. The Illinois and Cook County courts have
entered stays of all proceedings in those actions pending resolution of the
Delaware derivative action. In the event the proposed settlement of the Delaware
derivative action is approved by the Delaware court, Caremark anticipates that
the Illinois and Cook County derivative actions will be dismissed. If the
proposed settlement is not approved, Caremark intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolutions of these matters.

In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of health insurance plan
of one of those patients filed complaints against Caremark, employees of
Caremark and others in the United States District Court for the District of
Minnesota. Each complaint purported to be on behalf of a class and alleged
violations of the federal mail and wire fraud statutes, the federal conspiracy
statute and the state consumer fraud statute, as well as conspiracy to breach a
fiduciary duty, negligence and fraud. Each complaint sought unspecified treble
damages, and attorneys' fees and expenses. In July 1995, another patient of the
same physician filed a separate complaint in the District of South Dakota
against the physician, Caremark and another corporation alleging violations of
the federal laws prohibiting payment of remuneration to induce referral of
Medicare and Medicaid beneficiaries, and the federal mail fraud and conspiracy
statutes. The complaint also alleges the intentional infliction of emotional
distress and seeks trebling of at least $15.9 million in general damages,
attorneys' fees and costs, and an award of punitive damages. In August 1995, the
parties to the case filed in South Dakota agreed to a stay of all proceedings
until final judgment has been entered in a criminal case that is presently
pending against this physician. Caremark intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolution of these matters.

In September 1995, Coram filed a complaint against Caremark International
Inc. and its subsidiary, Caremark Inc., and 50 unnamed individual defendants in
the Superior Court of California in San Francisco. The complaint, which arises
from Caremark's sale to Coram of Caremark's Home Infusion business (see Note
4 -- Discontinued Operations), alleges breach of the Asset Sale and Note
Purchase Agreement and related contracts for the transaction, fraud, negligent
misrepresentation and a right to contractual indemnity. Requested relief
includes specific performance, declaratory and injunctive relief, and damages of
$5.2 billion. In November 1995, Coram also stated that if they prevail in this
litigation, they will cancel any debt it owes the company with respect to the
securities issued for the sale. Although the company cannot predict with
certainty the outcome of these proceedings, based on information currently
available, management believes that the ultimate resolution of this matter is
not likely to have a material adverse effect on Caremark's results of
operations, cash flows or financial position.

F-47
<PAGE> 167

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The company intends to defend vigorously the Coram lawsuit. In October
1995, Caremark filed motions in California Superior Court in San Francisco
seeking dismissal of this lawsuit. The San Francisco court subsequently
dismissed the case against Caremark (but not against Caremark Inc.) on the basis
of lack of jurisdiction. Caremark also filed a lawsuit in the U.S. District
Court in Chicago claiming Coram committed securities fraud in its sale of
Caremark's Home Infusion business to Coram. This case, which has been dismissed,
is on appeal and Caremark has filed counterclaims to the suit pending in San
Francisco against Caremark Inc.

Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pretrial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolution of this matter.

In December 1994, Caremark was notified by the Federal Trade Commission
(the "FTC") that it was conducting a civil investigation of the industry
concerning whether acquisitions, alliances, agreements or activities between
pharmacy benefit managers and pharmaceutical manufacturers, including Caremark's
alliance agreements with certain drug manufacturers, violate Sections 3 or 7 or
the Clayton Act or Section 5 of the Federal Trade Commission Act. The specific
nature, scope, timing and outcome of the investigation are not currently
determinable. Under the statutes, if violations are found, the FTC could seek
remedies in the form of injunctive relief to set aside or modify Caremark's
alliance agreements and an order to cease and desist from certain marketing
practices and from entering into or continuing with certain types of agreements.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of this matter.

Caremark is party to various other commitments, claims and routine
litigation arising in the ordinary course of business. Based on the advice of
counsel, management does not believe that the result of such other commitments,
claims and litigation, individually or in the aggregate, will have a material
effect on the company's business or its results of operations, cash flows or
financial position.

F-48
<PAGE> 168

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15: QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1994 and 1995.

<TABLE>
<CAPTION>
QUARTER
-------------------------------------------
FIRST SECOND(2) THIRD FOURTH(3)
-------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Net revenues........................................ $370,200 $ 457,500 $460,400 $ 487,100
Gross profit........................................ $ 59,300 $ 59,500 $ 62,500 $ 73,300
Operating income from continuing operations......... $ 21,300 $ 20,900 $ 24,400 $ 33,100
Income from continuing operations................... $ 11,300 $ 10,400 $ 13,800 $ 19,000
Net income.......................................... $ 4,300 $ 23,200 $ 25,700 $ 27,100
Earnings per share from continuing operations(1)
Primary........................................... $ 0.15 $ 0.14 $ 0.18 $ 0.25
Fully diluted..................................... $ 0.15 $ 0.14 $ 0.18 $ 0.25
Net earnings per share(1)
Primary........................................... $ 0.06 $ 0.32 $ 0.34 $ 0.36
Fully diluted..................................... $ 0.06 $ 0.32 $ 0.34 $ 0.36
Common stock prices:
High.............................................. $ 22.88 $ 20.25 $ 26.75 $ 25.00
Low............................................... $ 17.50 $ 15.75 $ 16.75 $ 16.63
1995
Net revenues........................................ $534,100 $ 586,000 $606,400 $ 647,800
Gross profit........................................ $ 70,700 $ 87,700 $ 97,600 $ 101,900
Operating income from continuing operations......... $ 25,700 $ 29,600 $ 35,300 $ 36,000
Income (loss) from continuing operations............ $ 13,100 $ 17,400 $19 ,400 $ (29,700)
Net income (loss)................................... $ 21,400 $(130,400) $ 13,600 $ (20,900)
Earnings (loss) per share from continuing
operations(1)
Primary........................................... $ 0.18 $ 0.23 $ 0.26 $ (0.39)
Fully diluted..................................... $ 0.18 $ 0.23 $ 0.26 $ (0.39)
Net earnings (loss) per share(1)
Primary........................................... $ 0.29 $ (1.75) $ 0.18 $ (0.28)
Fully diluted..................................... $ 0.29 $ (1.75) $ 0.18 $ (0.28)
Common stock prices:
High.............................................. $ 19.88 $ 21.88 $ 22.75 $ 21.13
Low............................................... $ 16.25 $ 16.88 $ 19.00 $ 17.88
</TABLE>

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

(1) The sum of quarterly earnings per share amounts may not equal full-year
amounts due to differences in average common and common equivalent shares
outstanding for the respective periods.
(2) Second quarter 1995 net loss reflects a $145.0 million ($1.94 per share)
after-tax charge related to the settlement of the government investigation
described in Note 14.
(3) Fourth quarter 1995 loss from continuing operations includes a special
after-tax charge of $52.0 million ($0.69 per share) to reflect a decline in
value of investments.

F-49
<PAGE> 169

CAREMARK INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Current assets:
Cash and equivalents....................................................... $ 49,000
Restricted cash............................................................ 14,000
Accounts receivable, net................................................... 376,300
Inventories................................................................ 99,600
Short-term deferred income taxes........................................... 64,200
Prepaid expenses and other current assets.................................. 23,800
----------
Total current assets............................................... 626,900
----------
Property and equipment, net.................................................. 366,700
Goodwill and other intangible assets......................................... 320,500
Other noncurrent assets...................................................... 89,500
Long-term deferred income tax asset.......................................... --
----------
Total assets....................................................... $1,403,600
==========
Current liabilities:
Short-term debt............................................................ $ 289,600
Accounts payable, trade and other.......................................... 377,200
Accrued liabilities........................................................ 146,700
----------
Total current liabilities.......................................... 813,500
----------
Long-term debt and lease obligations......................................... 130,200
Long-term deferred income tax liability...................................... 42,200
Other noncurrent liabilities................................................. 29,700
Contingent liabilities (Note 5)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 20,000,000 shares, none
issued.................................................................. --
Common stock, $1 par value, authorized 200,000,000 shares, issued
82,269,462 shares in 1996............................................... 82,200
Additional contributed capital............................................. 199,600
Shares held in trust, 7,700,000 shares..................................... (150,200)
Retained earnings.......................................................... 256,400
----------
Total stockholders' equity................................................... 388,000
----------
Total liabilities and stockholders' equity................................... $1,403,600
==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-50
<PAGE> 170

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------
1995 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues.......................................................... $1,120,100 $1,569,600
Cost of goods and services sold....................................... 961,800 1,349,600
Marketing and administrative expenses................................. 93,000 132,100
Provision for doubtful accounts....................................... 10,000 14,600
---------- ----------
Operating income from continuing operations........................... 55,300 73,300
Non-operating expense (income):
Interest expense, net............................................... 4,900 9,300
Other............................................................... (400) (400)
---------- ----------
Income from continuing operations before income taxes................. 50,800 64,400
Income tax expense.................................................... 20,300 22,900
---------- ----------
Income from continuing operations..................................... 30,500 41,500
Discontinued operations:
Operating loss from discontinued operations, net of income taxes of
$(57,500) and $(39,500) in 1995 and 1996, respectively........... (146,600) (68,900)
Gain on sale of discontinued operations, net of income taxes of
$4,700 and $1,400 in 1995 and 1996, respectively................. 7,100 2,100
---------- ----------
Income (loss) from discontinued operations.......................... (139,500) (66,800)
---------- ----------
Net income (loss)..................................................... $ (109,000) $ (25,300)
========= =========
Earnings (loss) per common and common equivalent share:
Primary
Income from continuing operations................................ $ 0.41 $ 0.54
Operating income (loss) from discontinued operations............. $ (1.98) $ (0.89)
Gain on sale of discontinued operations.......................... $ 0.10 $ 0.03
Net income (loss)................................................ $ (1.47) $ (0.33)
Fully Diluted
Income from continuing operations................................ $ 0.41 $ 0.54
Operating income (loss) from discontinued operations............. $ (1.98) $ (0.89)
Gain on sale of discontinued operations.......................... $ 0.09 $ 0.03
Net income (loss)................................................ $ (1.47) $ (0.33)
Weighted average common and common equivalent shares outstanding:
Primary............................................................. 74,200 77,400
Fully diluted....................................................... 74,800 77,400
</TABLE>

See accompanying notes to consolidated financial statements.

F-51
<PAGE> 171

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
--------- ---------
(IN THOUSANDS)
BRACKETS DENOTES CASH
OUTFLOWS
<S> <C> <C>
Cash flows from continuing operations:
Income from continuing operations.................................... $ 30,500 $ 41,500
Adjustments for non-cash items:
Provision for doubtful accounts...................................... 10,000 14,600
Depreciation and amortization........................................ 14,400 25,000
Deferred income taxes................................................ 6,500 38,000
Changes in balance sheet items:
Accounts receivable.................................................. (54,500) (26,100)
Inventories.......................................................... 500 14,800
Payables and accrued liabilities..................................... 56,500 (16,100)
Prepaids and other................................................... 1,900 (6,500)
--------- ---------
Cash flows from continuing operations.................................. 65,800 85,200
--------- ---------
Cash flows from investing activities:
Capital expenditures................................................. (33,000) (48,400)
Acquisitions, net of cash received................................... (141,000) (71,600)
--------- ---------
Cash flows from investing activities................................... (174,000) (120,000)
--------- ---------
Cash flows from financing activities:
Net issuances of debt and lease obligations.......................... (52,200) 27,500
Stock issued under employee benefit plans............................ 11,700 19,800
Purchases of treasury stock.......................................... (19,900) --
--------- ---------
Cash flows from financing activities................................... (60,400) 47,300
--------- ---------
Cash flows from discontinued operations, net of divestiture proceeds... 158,000 22,100
--------- ---------
Increase (decrease) in cash and equivalents............................ (10,600) 34,600
Cash and equivalents, beginning of period.............................. 32,100 28,400
--------- ---------
Cash and equivalents, end of period.................................... $ 21,500 $ 63,000
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-52
<PAGE> 172

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996

NOTE 1: FINANCIAL INFORMATION

The unaudited interim consolidated financial statements of Caremark
International Inc. and its subsidiaries (the "company" or "Caremark") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the company's 1995
Annual Report to Stockholders.

In the opinion of management, the unaudited interim consolidated financial
statements reflect all normal and recurring adjustments necessary for a fair
presentation of the interim periods. The results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
year.

NOTE 2: INVENTORIES

Inventories of $99.6 million at June 30, 1996 consist primarily of finished
goods.

NOTE 3: DISCONTINUED OPERATIONS

During 1995 Caremark divested its Clozaril Patient Management System, Home
Infusion business, Oncology Management Services business and Caremark Orthopedic
Services, Inc. subsidiary. Effective February 29, 1996, the company sold its
Nephrology Services business to Total Renal Care, Inc. for $49.0 million in
cash, subject to certain post-closing adjustments. The after-tax gain on
disposition of this business, net of disposal costs, was $2.1 million.

In accordance with APB 30, which addresses the reporting for disposition of
business segments, the company's consolidated financial statements present the
operating income and net assets of these discontinued operations separately from
continuing operations. Prior periods have been restated to conform with this
presentation.

First quarter 1996 discontinued operations also reflects a $65.6 million
after-tax charge related to the settlements with private payors discussed in
Note 5 and a $3.3 million charge for a reduction in the amount expected to be
realized for deferred state income tax net operating loss benefits related to
discontinued operations.

NOTE 4: ACQUISITIONS

In January 1996, Caremark completed its agreement with CIGNA Healthcare of
California, a managed health care subsidiary of CIGNA Corporation, to acquire
substantially all of the assets of CIGNA Medical Group, CIGNA Healthcare's Los
Angeles area staff model delivery system ("CIGNA"). The transaction has been
accounted for by the purchase method of accounting. The accounting related to
this transaction remains subject to purchase accounting adjustments pending
completion of valuations and analysis to determine the respective fair values of
assets received and liabilities assumed. These valuations are expected to be
completed no later than the fourth quarter of 1996.

NOTE 5: CONTINGENT LIABILITIES

In May 1996, two stockholders, each purporting to represent a class, filed
(but have not yet served) complaints against Caremark and each of its directors
in the Court of Chancery of the State of Delaware alleging breached of the
directors' fiduciary duty in connection with Caremark's proposed merger with
Medpartners/Mullikin, Inc. The complaints seek unspecified damages, injunctive
relief, and attorneys' fees

F-53
<PAGE> 173

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

and expenses. The Company intends, if served, to defend these cases vigorously.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of these matters.

On September 11, 1995, Coram Healthcare Company ("Coram") filed a complaint
in the San Francisco Superior Court against Caremark International Inc. and its
subsidiary, Caremark Inc., and 50 unnamed individual defendants. The complaint,
which arises from Caremark's sale to Coram of Caremark's Home Infusion business
in April 1995 for approximately $209.0 million in cash and $100.0 million in
securities, alleges breach of the Asset Sale and Note Purchase Agreement dated
January 29, 1995 as amended on April 1, 1995 between Coram and the company,
breach of related contracts, fraud, negligent misrepresentation and a right to
contractual indemnity. Requested relief in Coram's amended complaint includes
specific performance, declaratory relief, injunctive relief, and damages of $5.2
billion. The company filed motions in October 1995 in the Superior Court of
California seeking (i) to strike certain causes of action due to the speculative
nature of the claims and damages asserted and (ii) dismissal of Coram's lawsuit
on grounds of lack of jurisdiction over Illinois-based Caremark. The Superior
Court of California subsequently dismissed the case against the company (but not
against Caremark Inc.) on the basis of lack of jurisdiction. Caremark also filed
a lawsuit in the U.S. District Court in Chicago claiming that Coram committed
securities fraud in its sale to the company of its securities in connection with
the sale of the company's Home Infusion business to Coram. This case, which has
been dismissed, is on appeal and the company has filed counterclaims to the
lawsuit pending in San Francisco. Coram's lawsuit is currently in the discovery
phase.

Although the company cannot predict with certainty the outcome of these
proceedings, based on information currently available, management believes that
the ultimate resolution of this matter is not likely to have a material adverse
effect on Caremark's results of operations, cash flows or financial position.
The company intends to defend these cases vigorously.

In May 1996, three pharmacies, purporting to represent a class consisting
of all of Caremark's competitors in the alternate site infusion therapy
industry, filed a complaint against Caremark, a subsidiary of Caremark, and two
other corporations in the United States District Court for the District of
Hawaii alleging violations of the federal conspiracy statute, the antitrust laws
and of California's unfair business practice statute. The complaint seeks
unspecified treble damages, and attorneys' fees and expenses. Caremark intends
to defend this case vigorously. Management is unable at this time to estimate
the impact, if any, of the ultimate resolution of this matter.

In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the OIG investigation discussed below. The complaints seek unspecified
damages, declaratory and equitable relief, and attorneys' fees and expenses. In
June 1996, the complaint filed by one group of stockholders alleging violations
of the Securities Exchange Act of 1934 only, was certified as a class. The
parties to all of the complaints continue to engage in discovery proceedings.
The company intends to defend these cases vigorously. Management is unable at
this time to estimate the impact, if any, of the ultimate resolution of these
matters.

In August 1994 and July 1995, stockholders filed derivative actions on
behalf of Caremark in the Court of Chancery of the State of Delaware, the United
States District Court for the Northern District of Illinois and the Circuit
Court of Cook County in Chicago, Illinois alleging breaches of fiduciary duty,
negligence in connection with Caremark's conduct of the business and lack of
corporate controls, and seeking unspecified damages, attorneys' fees and
expenses. In June 1996, the parties entered into a Stipulation and Agreement of
Compromise and Settlement which established proposed terms for the settlement of
the case. The Delaware court will conduct a hearing on August 16, 1996 to
consider the proposed settlement. Although the proposed settlement does not
contemplate the payment of any damages by any defendant, plaintiffs are expected
to seek

F-54
<PAGE> 174

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

an award of attorneys' fees and expenses not in excess of $1.025 million in
conjunction with any approval of the settlement. The Illinois and Cook County
Courts have entered stays of all proceedings in those actions pending resolution
of the Delaware derivative action. In the event the proposed settlement of the
Delaware derivative action is approved by the Delaware court, Caremark
anticipates that the Illinois and Cook County derivative actions will be
dismissed. If the proposed settlement is not approved, Caremark intends to
defend these cases vigorously. Management is unable at this time to estimate the
impact, if any, of the ultimate resolution of these matters.

In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of a health insurance
plan of one of those patients filed complaints against Caremark, employees of
Caremark and others in the United States District Court for the District of
Minnesota. Each complaint purported to be on behalf of a class and alleged
violations of the federal mail and wire fraud statutes, the federal conspiracy
statute and the state consumer fraud statute, as well as conspiracy to breach a
fiduciary duty, negligence and fraud. Each complaint sought unspecified treble
damages, and attorneys' fees and expenses. In July 1996, these plaintiffs also
served (but have not yet filed) a separate lawsuit in the Minnesota State Court
in the County of Hennepin against a subsidiary of Caremark purporting to be on
behalf of a class and alleging all of the claims contained in the complaint
filed with the Minnesota federal court other than the federal claims contained
therein. The complaint seeks unspecified damages, attorneys' fees and expenses
and an award of punitive damages. In July 1995, another patient of the same
physician filed a separate complaint in the District of South Dakota against the
physician, Caremark and another corporation alleging violations of the federal
laws prohibiting payment of remuneration to induce referral of Medicare and
Medicaid beneficiaries, and the federal mail fraud and conspiracy statutes. The
complaint also alleges the intentional infliction of emotional distress and
seeks trebling of at least $15.9 million in general damages, attorneys' fees and
costs, and an award of punitive damages. In August 1995, the parties to the case
filed in South Dakota agreed to a stay of all proceedings until final judgment
has been entered in a criminal case that is presently pending against this
physician. Caremark intends to defend these cases vigorously. Management is
unable at this time to estimate the impact, if any, of the ultimate resolution
of these matters.

Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pre-trial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable to estimate at this time the impact, if any, of
the ultimate resolution of this matter.

F-55
<PAGE> 175

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

form of injunctive relief to set aside or modify Caremark's alliance agreements
and an order to cease and desist from certain marketing practices and from
entering into or continuing with certain types of agreements. Management is
unable at this time to estimate the impact, if any, of the ultimate resolution
of this matter.

In March 1996, the company agreed to settle all disputes with a number of
private payors. The settlements resulted in an after-tax charge of $42.3
million. These disputes relate to businesses that were covered by Caremark's
settlement with federal and state agencies in June 1995 discussed below. In
addition, Caremark will pay $23.3 million after-tax to cover the private payors'
pre-settlement and settlement-related expenses. An after-tax charge for the
above amounts has been recorded in first quarter 1996 discontinued operations.
Caremark may pay the settlement amounts in 1996 and 1997 or, under certain
circumstances, in semi-annual installments, including interest, through 1999. No
agreement, contract or other business relationship in existence at the time of
the settlements will be terminated or negatively affected by the settlement
agreements. The parties have also agreed to negotiate in good faith to maintain
or enhance ongoing business relationships. The company's lenders have waived the
impact of these settlements on the financial covenants under its existing credit
facility through September 15, 1996. The company currently expects to enter into
revised credit facilities prior to this date.

In June 1995, Caremark agreed to settle an investigation of the company
with the U.S. Department of Justice, the Office of the Inspector General of the
U.S. Department of Health and Human Services, the Veterans Administration, the
Federal Employees Health Benefits Program, the Civilian Health and Medical
Program of the Uniformed Services and related state investigative agencies in
all 50 states and the District of Columbia (the "OIG investigation"). The
company took an after-tax charge to discontinued operations of $154.8 million in
1995 for these settlement payments, costs to defend ongoing derivative, security
and related lawsuits, and other associated costs.

Caremark is party to various other commitments, claims and routine
litigation arising in the ordinary course of business. Management does not
believe that the result of such commitments, claims and litigation, individually
or in the aggregate, will have a material effect on the company's business or
its income, cash flows or financial condition.

NOTE 6: MERGER

On May 13, 1996, Caremark and MedPartners/Mullikin, Inc. ("MedPartners")
signed a definitive agreement to merge. Under the terms of the agreement, which
has been approved by the Boards of Directors of both companies, each Caremark
share will be converted into MedPartners common stock at a fixed ratio of 1.21
shares of MedPartners per Caremark share. The merger is expected to close in the
third quarter of 1996 and is subject to stockholder and regulatory approval.

F-56
<PAGE> 176

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Cardinal Healthcare, P.A.

We have audited the accompanying balance sheet of Cardinal Healthcare, P.A.
as of December 31, 1995, and the related statements of operations, changes in
stockholders' deficit and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 financial position of Cardinal Healthcare, P.A. at
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Birmingham, Alabama
June 19, 1996

F-57
<PAGE> 177

CARDINAL HEALTHCARE, P.A.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 1,055,873
Accounts receivable, less allowance for bad debts of $641,018................. 1,998,669
Other current assets.......................................................... 170,496
------------
Total current assets.................................................. 3,225,038
Property and equipment:
Equipment and furniture....................................................... 2,932,567
Leasehold improvements........................................................ 1,180,529
------------
4,113,096
Less accumulated depreciation and amortization................................ (1,819,402)
------------
Net property and equipment...................................................... 2,293,694
Other assets.................................................................... 877,310
------------
Total assets.......................................................... $ 6,396,042
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.............................................................. $ 966,067
Salaries payable and other accrued expenses................................... 2,322,924
Lines of credit............................................................... 1,305,000
Current portion of long-term debt and capital lease........................... 1,578,903
------------
Total current liabilities............................................. 6,172,894
Long-term debt and capital lease, net of current portion........................ 1,799,545
Stockholders' deficit:
Common stock, no par value; 50,000 shares authorized, 46 shares issued
and outstanding............................................................ --
Additional paid-in capital.................................................... 361,167
Accumulated deficit........................................................... (1,937,564)
------------
Total stockholders' deficit........................................... (1,576,397)
------------
Total liabilities and stockholders' deficit........................... $ 6,396,042
==========
</TABLE>

See accompanying notes.

F-58
<PAGE> 178

CARDINAL HEALTHCARE, P.A.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net revenue................................................................... $20,880,751
Operating expenses:
Cost of affiliated physician services....................................... 10,366,446
Clinic salaries, wages and benefits......................................... 6,161,276
Clinic rent and lease expense............................................... 994,987
Clinic supplies............................................................. 1,491,098
Other clinic costs.......................................................... 2,723,231
General corporate expenses.................................................. 1,067,745
Depreciation and amortization............................................... 297,030
Net interest expense........................................................ 144,400
------------
Net operating expenses................................................... 23,246,213
------------
Loss before income taxes...................................................... (2,365,462 )
Deferred income tax benefit................................................... (26,721 )
------------
Net loss...................................................................... $(2,338,741 )
============
</TABLE>

See accompanying notes.

F-59
<PAGE> 179

CARDINAL HEALTHCARE, P.A.

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994..................... $ -- $ 54,241 $ 401,177 $ 455,418
Sale of stock................................... -- 306,926 -- 306,926
Net loss........................................ -- -- (2,338,741) (2,338,741)
------ ---------- ----------- -------------
Balances at December 31, 1995..................... $ -- $ 361,167 $(1,937,564) $ (1,576,397)
====== ======== ========== ==========
</TABLE>

See accompanying notes.

F-60
<PAGE> 180

CARDINAL HEALTHCARE, P.A.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
OPERATING ACTIVITIES:
Net loss........................................................................ $ (2,338,741)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................. 297,030
Deferred income taxes......................................................... (26,721)
Changes in operating assets and liabilities:
Accounts receivable, net................................................... (193,504)
Other assets............................................................... (500,400)
Accounts payable........................................................... 174,809
Salaries payable and other accrued expenses................................ 1,068,414
------------
Net cash used in operating activities.................................... (1,519,113)
INVESTING ACTIVITIES:
Purchase of property and equipment.............................................. (1,629,981)
------------
Net cash used in investing activities.................................... (1,629,981)
FINANCING ACTIVITIES:
Proceeds from long-term debt.................................................... 3,712,261
Payments on long-term debt...................................................... (417,829)
Net proceeds from the issuance of common stock.................................. 14,506
------------
Net cash provided by financing activities................................ 3,308,938
------------
Net increase in cash............................................................ 159,844
Cash at beginning of year....................................................... 896,029
------------
Cash at end of year............................................................. $ 1,055,873
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......................................... $ 144,400
==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING ACTIVITIES:
Accounts receivable contributed for common stock................................ $ 292,420
==========
</TABLE>

See accompanying notes.

F-61
<PAGE> 181

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ACCOUNTING POLICIES

Description of Business

Cardinal Healthcare, P.A. (Cardinal) is a seventy-five member
multi-specialty physician group which services the Raleigh-Durham area of North
Carolina.

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Actual results could differ from these estimates.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the life of the
related leases. Routine maintenance and repairs are expensed as incurred, while
costs of betterments and renewals are capitalized.

Income Taxes

Cardinal is a corporation taxable under the provisions of the Internal
Revenue Code. Deferred income taxes are provided for temporary differences
between financial and income tax reporting.

Net Revenue

Net revenue is reported at the estimated realizable amounts from patients,
third-party payors and others for services rendered. Revenue under certain
third-party payor agreements is subject to audit and retroactive adjustments.
Provisions for estimated third-party payor settlements and adjustments are
estimated in the period the related services are rendered and adjusted in future
periods as final settlements are determined. The Medicare and Medicaid programs
pay physician services based on fee schedules which are determined by the
related government agency. Cardinal has negotiated agreements with managed care
organizations to provide physician services through a combination of discounted
fee for service and capitated arrangements. No individual managed care
organization is material to Cardinal.

Cost of Affiliated Physician Services

Cost of affiliated physician services represents salaries, bonuses and
benefits paid to the affiliated physicians. Physician compensation is generally
determined based on the excess of collections over expenses prior to physician
compensation.

Impairment of Long-Lived Assets

F-62
<PAGE> 182

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

expected to be disposed of. Management has determined that long-lived assets are
fairly stated in the accompanying balance sheet, and that no indicators of
impairment are present. In accordance with the new rules, the Company's prior
year financial statements have not been restated to reflect the change in
accounting principle.

2. LINES OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE

Cardinal has lines of credit with First Union National Bank of North
Carolina totaling $1,305,000. Interest is at the prime rate (8% at December 31,
1995) payable monthly with principal balances due on April 30, 1996.

Long-term debt and capital lease consisted of the following as of December
31, 1995:

<TABLE>
<S> <C>
Note payable to First Union National Bank of North Carolina, interest
only payable monthly through December 1995, thereafter monthly
installments of $13,803, interest rate at 8.5% through June 1998...... $ 825,000
Note payable to First Union National Bank of North Carolina, due in
installments of $22,270 with a final payment of $20,000, interest rate
at 8.25% through June 1998............................................ 601,299
Note payable to related party, Raleigh Internal Medicine Associates,
interest only payable monthly through August 1996 at prime rate (8% at
December 31, 1995) plus 2%, thereafter monthly installments of $10,000
with a final payment due December 31, 1996............................ 1,068,000
Various notes payable to Raleigh Community Hospital, monthly
installments ranging from $3,705 to $3,788, interest rates ranging
from 7% to 9% through October 1998.................................... 455,266
Note payable to Wake Medical Center, interest rate at 7.75% through
October 2000.......................................................... 134,326
Capital lease obligations............................................... 257,814
Other................................................................... 36,743
------------
3,378,448
Less amounts due within one year........................................ (1,578,903)
------------
$1,799,545
==========
</TABLE>

The amounts recorded above approximate the fair value of the obligations.

At December 31, 1995, substantially all of the assets of Cardinal,
including accounts receivable and property and equipment, were provided as
collateral under the various notes, lines of credit and capital lease
agreements.

The following is a schedule of principal maturities of long-term debt,
excluding the capital lease, as of December 31, 1995:

Cardinal is the lessee of certain equipment under a capital lease which
expires in 2001. The related equipment is being amortized over five years and
the related amortization expense is included within depreciation and
amortization expense in the statement of operations.

F-63
<PAGE> 183

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule of future minimum lease payments under the
capital lease together with the present value of the net minimum lease payments
as of December 31, 1995:

<TABLE>
<S> <C>
1996...................................................................... $ 43,333
1997...................................................................... 65,000
1998...................................................................... 65,000
1999...................................................................... 65,000
2000...................................................................... 65,000
Thereafter................................................................ 21,667
--------
Total minimum lease payments.............................................. 325,000
Less amount representing interest......................................... (67,186)
--------
Obligation under capital lease............................................ 257,814
Less current portion of capital lease obligation.......................... (14,734)
--------
Long-term obligation under capital lease.................................. $243,080
========
</TABLE>

Capitalized equipment leases included in equipment and accumulated
amortization was $257,813 and $25,781, respectively, at December 31, 1995. The
imputed interest rate on the capital lease was 7.1% at December 31, 1995.

3. OPERATING LEASES

Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred. Total
rental expense in 1995 was $1,215,484. The following is a schedule of future
minimum lease payments under operating leases as of December 31, 1995:

<TABLE>
<S> <C>
1996........................................................ $ 1,566,174
1997........................................................ 1,524,936
1998........................................................ 1,404,808
1999........................................................ 1,317,562
2000........................................................ 1,088,178
Thereafter.................................................. 5,294,176
-----------
$12,195,834
==========
</TABLE>

4. RELATED PARTIES

Cardinal rents various office space and equipment from Raleigh Internal
Medicine Associates (RIMA), a partnership owned by stockholders of Cardinal.
Total rental expense paid in 1995 was $574,812. Lease commitments over the next
five years with related parties are included in Note 3. On December 29, 1995,
Cardinal obtained a note payable from RIMA of $1,068,000, due on December 31,
1996, which is included in Note 2.

As of December 31, 1995, a note receivable of approximately $314,000
existed between Cardinal and Cardinal IPA, an independent physician association
of which several partners of Cardinal are members. This amount is included in
other assets.

5. EMPLOYEE BENEFIT PLAN

Cardinal provides a 401(k) plan and a profit sharing plan to all employees
who have completed one year of service and attained age 21. Contributions are
made at the discretion of management. Total cost of contributions was $225,777
for the year ending December 31, 1995.

F-64
<PAGE> 184

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. CONTINGENCIES

In addition to the general liability and malpractice insurance carried by
the individual physicians, Cardinal maintains general liability and malpractice
insurance providing coverage of $3,000,000 per incident and $5,000,000 in the
aggregate. As of December 31, 1995, there were no asserted malpractice claims
against Cardinal, accordingly, no amounts for potential losses have been accrued
in the accompanying financial statements. In addition, Cardinal has not accrued
a loss for unreported incidents or for losses in excess of insurance coverage as
the amount, if any, cannot be reasonably estimated and the probability of an
adverse outcome cannot be determined at this time. It is the opinion of
management that the ultimate resolution of any unasserted claims will not have a
material adverse effect on the financial position or operating results of
Cardinal.

7. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Cardinal's deferred tax assets and liabilities as of December 31, 1995 were as
follows:

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards....................................... $ 344,737
Cash to accrual adjustments............................................ 1,185,014
----------
Gross deferred tax assets................................................ 1,529,751
Valuation allowance for deferred tax assets.............................. (592,243)
----------
Net deferred tax assets........................................ 937,508
Deferred tax liabilities:
Depreciable and amortizable assets..................................... 138,040
Cash to accrual adjustments............................................ 799,468
----------
Gross deferred tax liabilities........................................... 937,508
----------
Net deferred tax liabilities................................... $ --
=========
</TABLE>

Income tax benefit for the year ended December 31, 1995 was as follows:

<TABLE>
<S> <C>
Current:
Federal...................................................... $ --
State........................................................ --
--------
--
Deferred:
Federal...................................................... (23,381)
State........................................................ (3,340)
--------
(26,721)
--------
$(26,721)
========
</TABLE>

F-65
<PAGE> 185

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the benefit for income taxes and the amount computed
by applying the statutory federal income tax rate to income before taxes was as
follows:

<TABLE>
<S> <C>
Federal taxes at statutory rate.......................................... $(804,256)
Add (deduct):
State income taxes, net of federal tax benefit......................... (2,171)
Valuation allowance.................................................... 904,969
Other.................................................................. (125,263)
---------
$ (26,721)
=========
</TABLE>

At December 31, 1995, Cardinal had cumulative net operating loss
carryforward for income tax purposes of approximately $862,000 available to
reduce future amounts of taxable income. If not utilized to offset future
taxable income, the net operating loss carryforwards will expire at various
dates through 2010. A valuation allowance has been established for the deferred
tax asset until it is more likely than not that some portion, or all of the
deferred tax asset will be realized.

8. PLAN AND AGREEMENT OF MERGER (UNAUDITED)

In July 1996, Cardinal entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc. in exchange for shares of MedPartners/Mullikin, Inc.
common stock.

F-66
<PAGE> 186

CARDINAL HEALTHCARE, P.A.

BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 896,029
Accounts receivable, less allowance for bad debts of $480,561................. 1,651,485
Other current assets.......................................................... 51,689
------------
Total current assets.................................................. 2,599,203
Property and equipment:
Equipment and furniture....................................................... 2,121,263
Leasehold improvements........................................................ 369,196
------------
2,490,459
Less accumulated depreciation................................................. 1,522,372
------------
Net property and equipment...................................................... 968,087
Other assets.................................................................... 349,633
------------
Total assets.......................................................... $3,916,923
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 791,258
Salaries payable and other accrued expenses................................... 928,054
Line of credit................................................................ 250,000
Current portion of long-term debt............................................. 302,130
Deferred income taxes......................................................... 353,177
------------
Total current liabilities............................................. 2,624,619
Long-term debt, net of current portion.......................................... 836,886
Stockholders' equity:
Common stock, no par value; 50,000 shares authorized, 29 shares issued and
outstanding................................................................ --
Additional paid-in capital.................................................... 54,241
Retained earnings............................................................. 401,177
------------
Total stockholders' equity............................................ 455,418
------------
Total liabilities and stockholders' equity............................ $3,916,923
==========
</TABLE>

See accompanying notes.

F-67
<PAGE> 187

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994
----------- -----------
<S> <C> <C>
Net revenue....................................................... $13,529,687 $15,786,906
Operating expenses:
Cost of affiliated physician services........................... 6,424,392 7,152,379
Clinic salaries, wages and benefits............................. 3,722,204 4,232,935
Clinic rent and lease expense................................... 487,789 640,005
Clinic supplies................................................. 731,006 959,119
Other clinic costs.............................................. 1,335,053 1,751,663
General corporate expenses...................................... 523,459 686,805
Depreciation.................................................... 145,618 191,059
Net interest expense............................................ 70,792 92,882
----------- -----------
Net operating expenses....................................... 13,440,313 15,706,847
----------- -----------
Income before income taxes........................................ 89,374 80,059
Deferred income tax (benefit) expense............................. (191,612) 26,148
----------- -----------
Net income........................................................ $ 280,986 $ 53,911
========== ==========
</TABLE>

See accompanying notes.

F-68
<PAGE> 188

CARDINAL HEALTHCARE, P.A.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992.......................... $ -- $ 37,921 $ 66,280 $ 104,201
Sale of stock....................................... -- 5,440 -- 5,440
Net income.......................................... -- -- 280,986 280,986
------ ---------- -------- -------------
Balance at December 31, 1993.......................... $ -- $ 43,361 $347,266 $ 390,627
Sale of stock....................................... -- 10,880 -- 10,880
Net income.......................................... -- -- 53,911 53,911
------ ---------- -------- -------------
Balances at December 31, 1994......................... $ -- $ 54,241 $401,177 $ 455,418
====== ======= ======== ==========
</TABLE>

See accompanying notes.

F-69
<PAGE> 189

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1993 1994
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................ $ 280,986 $ 53,911
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation........................................................ 145,618 191,059
Gain on disposal of assets.......................................... (33,050) --
Deferred income taxes............................................... (191,612) 26,148
Changes in operating assets and liabilities:
Accounts receivable, net......................................... (2,669) (182,108)
Other assets..................................................... 10,987 (230,077)
Accounts payable................................................. 33,695 72,538
Salaries payable and other accrued expenses...................... 462,984 (407,071)
--------- ----------
Net cash provided (used) by operating activities............... 706,939 (475,600)
INVESTING ACTIVITIES:
Purchase of property and equipment.................................... (258,157) (273,318)
Proceeds from disposal of assets...................................... 62,700 --
--------- ----------
Net cash used by investing activities.......................... (195,457) (273,318)
FINANCING ACTIVITIES:
Proceeds from long-term debt.......................................... 383,952 1,070,726
Payments on long-term debt............................................ (518,503) (190,343)
Net proceeds from the issuance of common stock........................ 5,440 10,880
--------- ----------
Net cash (used) provided by financing activities............... (129,111) 891,263
--------- ----------
Increase in cash...................................................... 382,371 142,345
Cash at beginning of year............................................. 371,313 753,684
--------- ----------
Cash at end of year................................................... $ 753,684 $ 896,029
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest................................ $ 70,792 $ 92,882
========= =========
</TABLE>

See accompanying notes.

F-70
<PAGE> 190

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. ACCOUNTING POLICIES

Description of Business

Cardinal Healthcare, P.A. (Cardinal) is a thirty-five member
multi-specialty physician group which services the Raleigh-Durham area of North
Carolina.

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates and
assumptions. Actual results could differ from these estimates.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized.

Income Taxes

Cardinal is a corporation taxable under the provisions of the Internal
Revenue Code. Deferred income taxes are provided for temporary differences
between financial and income tax reporting.

Net Revenue

Cost of Affiliated Physician Services

Cost of affiliated physician services represents salaries, bonuses and
benefits paid to the affiliated physicians. Physician compensation generally is
determined based on the excess of collections over expenses prior to physician
compensation.

F-71
<PAGE> 191

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

2. LINE OF CREDIT AND LONG-TERM DEBT

Cardinal has a line of credit with First Union National Bank of North
Carolina totaling $250,000. Interest is at the prime rate payable monthly with
the principal balance due on April 30, 1995.

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Note payable to First Union National Bank of North Carolina, due in
installments of $22,270 with a final payment of $20,000, interest rate
at 8.25% through June 1998............................................ $ 729,016
Various notes payable to Raleigh Community Hospital, monthly
installments ranging from $3,705 to $3,788, interest rates ranging
from 7% to 9% through December 1998................................... 410,000
------------
1,139,016
Less amounts due within one year........................................ (302,130)
------------
$ 836,886
==========
</TABLE>

The amounts recorded above approximate the fair value of the obligations.

The following is a schedule of principal maturities of long-term debt as of
December 31, 1994:

3. OPERATING LEASES

Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred. Total
rental expense in 1994 and 1993 was approximately $737,505 and $653,184,
respectively. The following is a schedule of future minimum lease payments under
operating leases as of December 31, 1994:

<TABLE>
<S> <C>
1995........................................................ $ 1,215,484
1996........................................................ 1,566,174
1997........................................................ 1,524,936
1998........................................................ 1,404,808
1999........................................................ 1,317,562
Thereafter.................................................. 6,382,354
-----------
$13,411,318
==========
</TABLE>

4. RELATED PARTIES

Cardinal rents various office space and equipment from related parties
owned by stockholders of Cardinal. Total rental expense paid in 1993 and 1994
was approximately $281,942 and $369,923, respectively. Lease commitments over
the next five years with related parties are included in Note 3.

F-72
<PAGE> 192

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

5. EMPLOYEE BENEFIT PLAN

Cardinal had qualified defined contribution plans covering substantially
all employees. Contributions were made at the discretion of management. Total
cost of contributions in 1993 and 1994 was $917,369 and $580,177, respectively.

6. CONTINGENCIES

In addition to the general liability and malpractice insurance carried by
the individual physicians, Cardinal maintains general liability and malpractice
insurance providing Cardinal with coverage of $3,000,000 per incident and
$5,000,000 in the aggregate. As of December 31, 1994, there were no asserted
malpractice claims against Cardinal, accordingly, no amounts for potential
losses have been accrued in the accompanying financial statements. In addition,
Cardinal has not accrued a loss for unreported incidents or for losses in excess
of insurance coverage as the amount, if any, cannot be reasonably estimated and
the probability of an adverse outcome cannot be determined at this time. It is
the opinion of management that the ultimate resolution of any unasserted claims
will not have a material adverse effect on the financial position or operating
results of Cardinal.

7. INCOME TAXES

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 13,730
Cash to accrual adjustments........................................... 354,253
------------
Gross deferred tax assets............................................... 367,983
Valuation allowance..................................................... (13,730)
------------
Net deferred tax assets................................................. 354,253
Deferred tax liabilities:
Depreciable assets.................................................... 41,440
Cash to accrual adjustments........................................... 665,990
------------
Gross deferred tax liabilities.......................................... 707,430
------------
Net deferred tax liabilities............................................ $353,177
==========
</TABLE>

F-73
<PAGE> 193

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax (benefit) expense was as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1993 1994
--------- -------
<S> <C> <C>
Current:
Federal...................................................... $ -- $ --
State........................................................ -- --
--------- -------
-- --
Deferred:
Federal...................................................... (167,660) 22,879
State........................................................ (23,952) 3,269
--------- -------
(191,612) 26,148
--------- -------
$(191,612) $26,148
========= =======
</TABLE>

The differences between the (benefit) provision for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1993 1994
--------- --------
<S> <C> <C>
Federal taxes at statutory rate............................... $ 30,573 $ 27,494
Add (deduct):
State income taxes, net of federal tax benefit.............. 6,969 6,267
Other....................................................... (229,154) (59,909)
--------- --------
$(191,612) $ 26,148
========= ========
</TABLE>

At December 31, 1993 and 1994, Cardinal had net operating loss
carryforwards for income tax purposes of approximately $30,000 and $20,000,
respectively, available to reduce future amounts of taxable income. If not
utilized to offset future taxable income, the net operating loss carryforwards
will expire at various dates through 2009. A valuation allowance has been
established for the net operating loss until it is more likely than not that
some portion, or all of the deferred tax assets will be utilized.

F-74
<PAGE> 194

CARDINAL HEALTHCARE, P.A.

BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 205,820
Accounts receivable, less allowance for bad debts of $749,934................. 3,254,031
Other current assets.......................................................... 21,251
-----------
Total current assets.................................................. 3,481,102
Property and equipment:
Equipment and furniture....................................................... 3,134,338
Leasehold improvements........................................................ 1,334,746
-----------
4,469,084
Less accumulated depreciation and amortization................................ (2,294,085)
-----------
Net property and equipment...................................................... 2,174,999
Other assets.................................................................... 1,067,161
-----------
Total assets.......................................................... $ 6,723,262
==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable.............................................................. $ 732,918
Salaries payable and other accrued expenses................................... 2,247,117
Line of credit................................................................ 1,367,000
Current portion of long-term debt and capital lease........................... 1,694,429
-----------
Total current liabilities............................................. 6,041,464
Long-term debt and capital lease, net of current portion........................ 1,635,885
Stockholders' deficit:
Common stock, no par value; 50,000 shares authorized, 54 shares issued and
outstanding................................................................ --
Additional paid-in capital.................................................... 566,369
Accumulated deficit........................................................... (1,520,456)
-----------
Total stockholders' deficit........................................... (954,087)
-----------
Total liabilities and stockholders' deficit........................... $ 6,723,262
==========
</TABLE>

See accompanying note.

F-75
<PAGE> 195

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net revenue......................................................... $ 9,868,779 $17,085,237
Operating expenses:
Cost of affiliated physician services............................. 4,165,301 6,993,744
Clinic salaries, wages and benefits............................... 2,969,246 4,861,274
Clinic rent and lease expense..................................... 471,393 682,416
Clinic supplies................................................... 706,435 1,022,676
Other clinic costs................................................ 1,290,180 1,867,741
General corporate expenses........................................ 493,530 708,358
Depreciation and amortization..................................... 140,723 216,610
Net interest expense.............................................. 68,412 99,037
----------- -----------
Net operating expenses.................................... 10,305,220 16,451,856
----------- -----------
Income before income taxes.......................................... (436,441) 633,381
Deferred income tax expense......................................... 12,335 11,071
----------- -----------
Net income (loss)................................................... $ (448,776) $ 622,310
========== ==========
</TABLE>

See accompanying note.

F-76
<PAGE> 196

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1995 1996
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income.................................................... $(448,776) $ 622,310
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization...................................... 140,723 216,610
Deferred income taxes.............................................. 12,335 11,071
Changes in operating assets and liabilities:
Accounts receivable, net........................................ (814,366) (1,255,362)
Other assets.................................................... (13,869) (40,606)
Accounts payable................................................ 489,721 (570,676)
Salaries payable and other accrued expenses..................... 382,183 250,649
--------- -----------
Net cash used by operating activities...................... (252,049) (766,004)
INVESTING ACTIVITIES:
Purchase of property and equipment................................... (833,823) (97,915)
--------- -----------
Net cash used by investing activities...................... (833,823) (97,915)
FINANCING ACTIVITIES:
Proceeds from long-term debt......................................... 910,000 62,000
Payments on long-term debt........................................... (392,438) (48,134)
--------- -----------
Net cash provided by financing activities.................. 517,562 13,866
--------- -----------
Decrease in cash..................................................... (568,310) (850,053)
Cash at beginning of period.......................................... 896,029 1,055,873
--------- -----------
Cash at end of period................................................ $ 327,719 $ 205,820
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............................. $ 45,727 $ 97,737
========= ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Accounts receivable contributed for common stock..................... $ -- $ 205,202
========= ==========
</TABLE>

See accompanying note.

F-77
<PAGE> 197

CARDINAL HEALTHCARE, P.A.

NOTE TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1996

1. BASIS OF PRESENTATION

The balance sheet as of June 30, 1996, the statements of income and the
statements of cash flows for the six months ended June 30, 1995 and 1996, have
been prepared by Cardinal Healthcare, P.A. (the Company) without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position as of June 30,
1996, and the results of operations and cash flows for the six months ended June
30, 1995 and 1996 have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 1995 audited financial statements. The results of
operations for the periods ended June 30, 1995 and 1996 are not necessarily
indicative of the operation results for those years.

F-78
<PAGE> 198

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
CHS Management, Inc.

We have audited the accompanying balance sheet of CHS Management, Inc. as
of December 31, 1995 and the related statements of income, stockholders' equity
and cash flows for the period from September 1, 1995 (inception) through
December 31, 1995. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CHS Management, Inc. as of
December 31, 1995 and the results of its operations and its cash flows for the
period from September 1, 1995 (inception) through December 31, 1995 in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Birmingham, Alabama
July 26, 1996

F-79
<PAGE> 199

CHS MANAGEMENT, INC.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 719,303
Accounts receivable........................................................... 134,465
Due from affiliates........................................................... 752,362
Prepaid expenses.............................................................. 57,664
Deferred tax asset............................................................ 87,210
------------
Total current assets.................................................. 1,751,004
Property and equipment, net..................................................... 82,367
Deferred tax asset.............................................................. 204,950
Other assets.................................................................... 67,668
------------
Total assets.......................................................... $2,105,989
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 85,601
Accrued expenses.............................................................. 250,859
Accrued compensation and payroll taxes........................................ 398,403
Income taxes payable.......................................................... 76,700
Due to affiliates............................................................. 49,453
Funds held on behalf of others................................................ 493,600
------------
Total current liabilities............................................. 1,354,616
Excess of fair value of assets acquired over liabilities assumed................ 332,588
Stockholders' equity:
Common stock, $.01 par value; 180,000 shares authorized, 48,844 shares issued
and outstanding............................................................ 488
Additional paid-in capital.................................................... 250,162
Retained earnings............................................................. 168,135
------------
Total stockholders' equity............................................ 418,785
------------
Total liabilities and stockholders' equity............................ $2,105,989
==========
</TABLE>

See accompanying notes.

F-80
<PAGE> 200

CHS MANAGEMENT, INC.

STATEMENT OF INCOME

<TABLE>
<CAPTION>
SEPTEMBER 1, 1995
(INCEPTION)
THROUGH
DECEMBER 31,
1995
-----------------
<S> <C>
Revenue:
Management fees -- affiliates.............................................. $ 2,446,541
Management fees -- nonaffiliates........................................... 211,782
-----------------
Total revenue...................................................... 2,658,323
Operating expenses:
Salaries and employee benefits............................................. 1,349,979
Outside professional services.............................................. 170,507
Building and occupancy..................................................... 334,912
Depreciation............................................................... 9,514
Other administrative expenses.............................................. 522,464
-----------------
Total operating expenses........................................... 2,387,376
-----------------
Operating income............................................................. 270,947
Interest income.............................................................. 3,656
-----------------
Income before income taxes................................................... 274,603
Provision for income taxes................................................... 106,468
-----------------
Net income................................................................... $ 168,135
=============
</TABLE>

See accompanying notes.

F-81
<PAGE> 201

CHS MANAGEMENT, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1995 (inception)........ -- $ -- $ -- $ -- $ --
Common stock exchanged for net assets......... 48,844 488 250,162 -- 250,650
Net income.................................... -- -- -- 168,135 168,135
------ ------ ---------- -------- --------
Balance at December 31, 1995.................... 48,844 $488 $ 250,162 $168,135 $418,785
====== ===== ======== ======== ========
</TABLE>

See accompanying notes.

F-82
<PAGE> 202

CHS MANAGEMENT, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
SEPTEMBER 1, 1995
(INCEPTION) THROUGH
DECEMBER 31, 1995
-------------------
<S> <C>
OPERATING ACTIVITIES:
Net income................................................................ $ 168,135
Adjustment to reconcile net income to net cash used in operating
activities:
Depreciation........................................................... 9,514
Amortization of negative goodwill...................................... (5,686)
Increase in accounts receivable........................................ (28,031)
Increase in due from affiliate......................................... (165,567)
Decrease in prepaid expenses........................................... 2,503
Decrease in deferred tax asset......................................... 29,769
Increase in other assets............................................... (10)
Decrease in accounts payable and other accrued liabilities............. (310,991)
Increase in due to affiliates.......................................... 49,453
-------------------
Net cash used in operating activities............................. (250,911)
-------------------
INVESTING ACTIVITIES:
Purchase of property and equipment........................................ (31,033)
Acquisition costs......................................................... (20,231)
-------------------
Net cash used in investing activities............................. (51,264)
-------------------
FINANCING ACTIVITIES:
Stockholders' contributions............................................... 527,878
Cash received on behalf of affiliate...................................... 800,000
Cash disbursed on behalf of affiliate..................................... (306,400)
-------------------
Net cash provided by financing activities......................... 1,021,478
-------------------
Net increase in cash.............................................. 719,303
Cash at beginning of period................................................. --
-------------------
Cash at end of period....................................................... $ 719,303
==============
NONCASH TRANSACTIONS -- assets and liabilities transferred from affiliates
see Note 4
</TABLE>

See accompanying notes.

F-83
<PAGE> 203

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

CHS Management, Inc. (CHS) was incorporated in August 1995, and commenced
operations in September 1995. The corporation was formed by Community Medical
Group of the West Valley (CMG) through the contribution of the management
services component of CMG to the new company. Thereafter, CHS acquired certain
assets and liabilities and the operations of Health Source Management Group. CHS
provides administrative management services to CMG and Health Source Medical
Group (HSMG). In addition, CHS provides management services to New Management
(NM), an affiliate of CMG, and other health care organizations. CHS also
negotiates contracts on behalf of health care providers with health maintenance
organizations and other prepaid health insurance plans to provide physician and
related health care services to enrolled members who select physicians in CHS
managed physician groups.

Management 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over the shorter of the estimated useful lives of the
assets or the terms of the underlying leases. Estimated useful lives are three
to seven years for furniture, fixtures and equipment and five to ten years for
leasehold improvements. In accordance with the requirements of APB No. 16,
Business Combinations, the property and equipment acquired from Health Source
Management Group has been reduced to zero carrying value (note 5).

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Fair Value of Financial Instruments

The Company values financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," and Statement of Financial Accounting Standards No. 119,
"Disclosures about Derivative Instruments and Fair Value of Financial
Instruments." The carrying amounts of cash, accounts receivable, accounts
payable, accrued expenses (including accrued compensation and payroll), income
taxes and due from affiliate approximate fair value due to their liquidity.

Impairment of Long-Lived Assets

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of, which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Management has determined that-lived assets are fairly stated in the
accompanying balance sheet, and that no indicators of impairment are present. In
accordance with the new rules, the Company's prior year financial statements
have not been restated to reflect the change in accounting principle.

F-84
<PAGE> 204

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. MANAGEMENT SERVICES AGREEMENTS

In 1995, CHS entered into management services agreements with CMG and HSMG
(the Medical Groups) under which CHS provides administrative and operational
services such as contract management, financial reporting, utilization review,
case management, claims processing and payment, and quality assurance.

Pursuant to these agreements, the Medical Groups remit to CHS 12% of
capitation and other Payer revenues except for CMG fee for service revenue which
is based on a lesser percentage.

Pursuant to the NM agreement, NM remits to CHS a management fee based on
12% per dollar per enrolled life under the capitation agreement between CMG, NM
and West Hills Hospital.

CHS' management services agreement with CMG and HSMG expires on September
1, 2015. Thereafter, the agreement renews for two successive ten-year periods
unless notice of intent to terminate the agreement is provided by either party
(note 9).

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1995 consists of the following:

<TABLE>
<S> <C>
Computer equipment......................................................... $19,289
Furniture and fixtures..................................................... 61,005
Office equipment........................................................... 10,829
Leasehold improvements..................................................... 758
-------
91,881
Less accumulated depreciation and amortization............................. 9,514
-------
$82,367
=======
</TABLE>

4. RELATED PARTY TRANSACTIONS

Due from Affiliate

During 1995, CHS entered into management agreements with CMG, HSMG, and NM,
all affiliated companies, under which CHS provides certain management and
administrative services in exchange for management fee based upon a percentage
of CMG and HSMG revenue and based on enrollment for NM. The total amount of
management fee income received by CHS from CMG, HSMG and NM was $1,038,489,
$1,392,475, and $15,577, respectively, for the period from inception through
December 31, 1995. Amounts due from HSMG and NM amounted to $736,785 and
$15,577, respectively, at December 31, 1995. Amounts due CMG from CHS amounted
to $49,453 at December 31, 1995.

Transfers from CMG and Health Source Management Group

As part of the merger agreement between CHS, CMG and Health Source
Management Group (HSMgmtG), CMG and HSMgmtG were each to contribute certain
assets and liabilities to CHS in exchange for 24,422 shares of common stock.
Assets and liabilities transferred to CHS on September 1, 1995 were as follows:

<TABLE>
<CAPTION>
CMG HSMGMTG TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Cash............................................... $ -- 1,327,878 1,327,878
Accounts receivable................................ 38,334 68,100 106,434
Due from affiliate................................. 150,000 436,795 586,795
Prepaid expenses................................... -- 60,167 60,167
Property and equipment............................. 60,848 402,845 463,693
Acquisition costs.................................. 239,524 -- 239,524
Other assets....................................... 9,330 58,328 67,658
Accounts payable................................... (372,711) (749,843) (1,122,554)
Funds held on behalf of others..................... -- (800,000) (800,000)
</TABLE>

F-85
<PAGE> 205

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The assets and liabilities transferred from CMG to CHS were recorded at the
predecessor cost basis since they are related parties.

Lease

During 1995, CHS entered into a long-term lease agreement with CMG to lease
certain CMG computer equipment and software. The agreement provided that the
lease agreement would terminate upon settlement of the lawsuit between HSMG and
a medical center. Due to the settlement of the lawsuit on October 31, 1995, the
lease reverted to a month-to-month lease. Rent expense for the computer
operating lease amounted to $129,444.

Funds Held on Behalf of Others

Upon the acquisition of certain assets and liabilities of HSMgmtG by and in
conjunction with the termination of the existing long-term management agreement
between HSMgmtG and HSMG, HSMgmtG agreed to transfer $650,000 into an
irrevocable trust account (designated funds) to be used to pay outstanding
medical claims of HSMG. As part of CHS' acquisition of assets of HSMgmtG, the
designated funds were transferred to CHS on September 1, 1995. As of December
31, 1995, the designated funds had not been transferred to a trust pending final
documentation of the trusts. During the period from September 1, 1995
(inception) through December 31, 1995, the HSMG Board of Directors approved
payments of $156,400 to pay certain outstanding medical claim liabilities of
HSMG from the designated funds. The remaining balance of $493,600 is included in
cash and funds held on behalf of others in the accompanying balance sheet and
were subsequently delivered to the trustee, net of approved payments.
Additionally, HSMgmtG agreed to transfer $150,000 into a revocable trust account
to be used to pay certain legal fees related to a lawsuit with a medical center.
The amounts were fully disbursed during 1995 with the consent of the parties
thereto.

5. FAIR VALUE OF ASSETS ACQUIRED IN EXCESS OF LIABILITIES ASSUMED

In September 1995, HSMgmtG, as part of a tax-free liquidation, transferred
certain assets and liabilities to CHS in exchange for shares of common stock.
The excess value of assets received, over liabilities assumed by CHS after
reducing all noncurrent nonliquid assets acquired to zero value has been
reflected in the accompanying balance sheet as fair value of assets acquired in
excess of liabilities assumed (negative goodwill). A reconciliation of the
excess value of the assets acquired over liabilities assumed follows:

<TABLE>
<S> <C>
Assets acquired:
Cash................................................................... $1,327,878
Accounts receivable.................................................... 68,100
Due to HSMG............................................................ 436,795
Prepaid expenses....................................................... 60,167
Plant and equipment.................................................... 402,845
Other assets........................................................... 58,328
Liabilities assumed
Accounts payable and accrued liabilities............................... (749,843)
Funds held on behalf of others......................................... (800,000)
CHS stock issued to HSMgmtG, at par value.............................. (244)
Additional paid-in capital............................................. (125,081)
----------
Excess of value of assets received over liabilities assumed and
common stock issued and additional paid-in capital
recognized.................................................... $ 678,945
=========
</TABLE>

F-86
<PAGE> 206

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CHS applied the excess value against nonmonetary intangible assets and
noncurrent assets (negative goodwill) as follows:

<TABLE>
<S> <C>
Excess value of assets received over liabilities assumed.................. $678,945
Applied to deferred acquisition costs incurred by CHS..................... 259,755
Applied to plant and equipment............................................ 402,845
--------
Unallocated excess value of assets received over liabilities assumed at
date of merger....................................................... 16,345
Deferred tax asset recognized on future tax deductions transferred
from HSMgmtG............................................................ 321,929
--------
Negative goodwill recorded at date of merger............................ 338,274
Less amount amortized in 1995............................................. 5,686
--------
Excess fair value of assets received over liabilities assumed as
of December 31, 1995........................................... $332,588
========
</TABLE>

The amortization of the excess value of assets received over liabilities
assumed has been reflected in the statement of operations as other revenue.

6. COMMITMENTS

Leases

CHS leases certain office space under noncancelable operating leases
expiring through April 2000. Future minimum rental commitments at December 31,
1995 are as follows:

Rent expense for operating leases amounted to $200,196 for the period from
September 1, 1995 (inception) through December 31, 1995.

CHS subleases certain office space under a noncancelable sublease which
expires in 1996. The future minimum sublease rental income for 1996 is $19,000.
Sublease rental income received in 1995 was $10,980.

7. INCOME TAXES

Income tax expense for the period from September 1, 1995 (inception)
through December 31, 1995 consisted of the following:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- ------- --------
<S> <C> <C> <C>
Federal............................................................ $58,700 $24,100 $ 82,800
State.............................................................. 18,000 5,668 23,668
------- ------- --------
Total..................................................... $76,700 $29,768 $106,468
======== ======== =========
</TABLE>

F-87
<PAGE> 207

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the corporate Federal tax rate with the financial
statement effective rates for the period from September 1, 1995 (inception)
through December 31, 1995:

<TABLE>
<S> <C>
Statutory corporate Federal tax expense............................................. $ 93,365
Nondeductible expenses.............................................................. 19,590
Amortization of negative goodwill................................................... (1,933)
State taxes......................................................................... 18,000
Benefit recognized on transfer of future deductible amount from CMG to CHS.......... (25,382)
Other, net.......................................................................... 2,828
--------
$106,468
=========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1995 are presented below:

<TABLE>
<S> <C>
Current deferred tax assets:
Accrued vacation.................................................................. $ 47,827
Accrued severance................................................................. 39,383
--------
Total current deferred tax assets.......................................... 87,210
Noncurrent deferred tax asset -- depreciation....................................... 204,950
--------
Net deferred tax assets.................................................... $292,160
=========
</TABLE>

Management is of the opinion that it is more likely than not that such
deferred tax assets will be realized in the future.

8. EMPLOYEE BENEFIT PLAN

CHS has a noncontributory profit-sharing plan and a contributory 401(k)
Plan (the Plan) for substantially all employees who have completed one year of
service and attained age 21. Employer contributions are at the discretion of
management. Plan expenses for the profit sharing portion for the period from
September 1, 1995 (inception) through December 31, 1995 was $22,618.

9. BUSINESS AND CREDIT CONCENTRATION

CHS had funds on deposit with a bank amounting to $609,959. The funds are
insured up to $100,000 by the Federal Deposit Insurance Corporation.

CMG and HSMG represented individually more than 10% of CHS' 1995 revenue.
CMG and HSMG provided 39% and 52% of CHS' total revenue, respectively. HSMG has
had recurring losses from continuing operations and has negative shareholders
equity. If HSMG failed to pay amounts owed to CHS when they become due or failed
to continue operations, such failures could have a substantial negative impact
on the financial results of CHS. The financial statements of CHS do not reflect
any adjustments that might result from the outcome of this uncertainty.

10. SUBSEQUENT EVENTS

Management Agreement

Effective January 1, 1996, CHS entered into amended management agreements
with CMG and HSMG. The revised terms of the agreements include: assignment of
all capitation revenue generated by the Medical Groups to CHS; the term of the
agreement was revised to twenty years with an automatic renewal for two
successive ten-year periods; and revision of the management fee calculation to
be computed as the sum of (1) all operating and nonoperating expenses and other
costs incurred by CHS; and (2) a percentage of the net revenues of the Medical
Groups subject to certain limitations as defined in the management agreement.

Merger

On March 11, 1996, CHS entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc., a publicly held physicians practice management
company, in exchange for shares of MedPartners/Mullikin, Inc. common stock.

F-88
<PAGE> 208

CHS MANAGEMENT, INC.

CONDENSED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30,
1996
----------
<S> <C>
ASSETS
Current assets:
Cash........................................................................... $2,126,821
Accounts receivable............................................................ 211,345
Due from affiliates............................................................ 728,823
Prepaid expenses............................................................... 181,619
Deferred tax asset............................................................. 96,620
----------
Total current assets................................................... 3,345,228
Property and equipment, net.................................................... 132,829
Deferred tax asset............................................................. 227,071
Other assets................................................................... 67,164
----------
Total assets........................................................... $3,772,292
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable............................................................... $ 74,803
Accrued expenses............................................................... 812,607
Income taxes payable........................................................... --
Due to affiliates.............................................................. 259,377
Notes payable -- current portion............................................... 2,550,228
----------
Total current liabilities.............................................. 3,697,015
Notes payable -- long term..................................................... 41,039
Excess of fair value of assets acquired over liabilities assumed............... 309,569
Stockholders' equity:
Common stock, $0.01 par value; 180,000 shares authorized, 48,844 shares issued
and outstanding............................................................. 488
Additional paid-in capital..................................................... 250,162
Accumulated deficit............................................................ (525,981)
----------
Total stockholders' deficit............................................ (275,331)
----------
Total liabilities and stockholders' deficit............................ $3,772,292
=========
</TABLE>

See accompanying notes.

F-89
<PAGE> 209

CHS MANAGEMENT, INC.

CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, 1996
-----------
<S> <C>
Revenues:
Capitation revenue............................................................ $27,778,958
Other revenues................................................................ 1,717,502
-----------
Total operating revenues.............................................. 29,496,460
Operating expenses:
Transfers to affiliated medical groups........................................ 24,575,480
Salaries and employee benefits................................................ 2,646,914
Legal and accounting.......................................................... 186,448
Rent.......................................................................... 959,365
Merger costs.................................................................. 783,792
Depreciation and amortization................................................. 8,500
Other administrative expenses................................................. 1,067,203
-----------
Total operating expenses.............................................. 30,227,702
-----------
Operating loss.................................................................. (731,242)
Gain on sale of assets.......................................................... 5,506
Interest income................................................................. 1,688
-----------
Loss before income taxes........................................................ (724,048)
Deferred income tax benefit..................................................... 29,932
-----------
Net loss........................................................................ (694,116)
Retained earnings -- beginning of period........................................ 168,135
-----------
Accumulated deficit -- end of period............................................ $ (525,981)
==========
</TABLE>

See accompanying notes.

F-90
<PAGE> 210

CHS MANAGEMENT, INC.

CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1996
------------
<S> <C>
OPERATING ACTIVITIES:
Net loss...................................................................... $ (694,116)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................... 16,674
Amortization of negative goodwill.......................................... (8,174)
Gain on sale of property and equipment..................................... (5,506)
Increase in accounts receivable............................................ (76,880)
Increase in prepaid expenses............................................... (123,955)
Decrease in due from affiliates............................................ 23,539
Increase in deferred tax asset............................................. (31,531)
Decrease in other assets................................................... 504
Decrease in accounts payable............................................... (10,799)
Increase in accrued expenses............................................... 148,501
Decrease in taxes payable.................................................. (76,700)
Increase in due to affiliate............................................... 209,924
-----------
Net cash used in operating activities................................. (628,519)
INVESTING ACTIVITIES
Purchases of property and equipment........................................... (13,691)
Proceeds from sale of property and equipment.................................. 5,506
-----------
Net cash used in investing activities......................................... (8,185)
FINANCING ACTIVITIES
Proceeds from notes payable................................................... 2,539,250
Payments on notes payable..................................................... (1,428)
Cash disbursed on behalf of affiliate......................................... (493,600)
-----------
Net cash provided by financing activities....................................... 2,044,222
-----------
Net increase in cash............................................................ 1,407,518
Cash at beginning of period..................................................... 719,303
-----------
Cash at end of period........................................................... $ 2,126,821
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid............................................................. $ 124,800
===========
Accrued vacation donated by affiliates........................................ $ 42,699
===========
Accrued legal fees forgiven................................................... $ 22,381
===========
Purchases of equipment with note payable...................................... $ 53,445
===========
</TABLE>

See accompanying notes.

F-91
<PAGE> 211

CHS MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. CONDENSED FINANCIAL STATEMENTS

The Condensed Balance Sheet as of June 30, 1996, the Condensed Statement of
Operations and Accumulated Deficit and the Condensed Statement of Cash Flows for
the six months ended June 30, 1996 have been prepared by CHS Management, Inc.
(the Company) without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at June 30, 1996
have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's December 31, 1995 audited financial statements. The results of
operations for the period ended June 30, 1996 are not necessarily indicative of
the operation results for the year.

2. SUBSEQUENT EVENT

In June, 1996, the Company entered into a loan agreement with
MedPartners/Mullikin, Inc. Pursuant to that agreement, the Company has borrowed
approximately $2 million. Amounts borrowed under the agreement, which may
increase to $2,539,250, together with interest at prime, are due December 31,
1996. At the option of CHS, the unpaid principal and interest may be offset
against a portion of the fee payable to the Company by MedPartners/Mullikin,
Inc. pursuant to the terms of the Amended and Restated Plan of Agreement of
Merger dated March 11, 1996 as amended by Amendment No. 1 dated June 28, 1996.
The obligations of the Company under the loan have been guaranteed by Community
Medical Group of the West Valley and Health Source Management Group, Inc.

F-92
<PAGE> 212

REPORT OF INDEPENDENT AUDITORS

The Partners
New Management

We have audited the accompanying balance sheets of New Management (a
California general partnership) (the Partnership) as of December 31, 1994 and
1995, and the related statements of income, partners' deficiency and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Management at December
31, 1994 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Birmingham, Alabama
July 26, 1996

F-93
<PAGE> 213

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 55,197 $ 13,445
Administrative capitation fee receivable........................ 267,277 --
Other receivables............................................... 162 162
Due from related parties........................................ 56,827 58,976
----------- -----------
Total assets............................................ $ 379,463 $ 72,583
========== ==========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities:
Current portion of long term debt............................... $ 114,590 $ 123,793
Accounts payable................................................ 4,900 1,113
Due to affiliate................................................ -- 15,577
Deferred income................................................. -- 1,593
Accrued interest payable........................................ 19,023 18,283
----------- -----------
Total current liabilities............................... 138,513 160,359
Long-term debt, net of current portion............................ 2,831,001 2,707,208
Partners' deficiency.............................................. (2,590,051) (2,794,984)
----------- -----------
Total liabilities and partners' deficiency.............. $ 379,463 $ 72,583
========== ==========
</TABLE>

See accompanying notes.

F-94
<PAGE> 214

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Net revenue......................................................... $3,084,648 $2,947,577
---------- ----------
Expenses:
Administrative and executive fees................................. 163,808 189,300
Management fee.................................................... -- 15,577
Accounting and legal.............................................. 55,655 109,042
Interest.......................................................... 232,170 223,590
---------- ----------
Total expenses............................................ 451,633 537,509
---------- ----------
Net income.......................................................... $2,633,015 $2,410,068
========= =========
</TABLE>

See accompanying notes.

F-95
<PAGE> 215

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENTS OF PARTNERS' DEFICIENCY

<TABLE>
<S> <C>
Balance at December 31, 1993.................................................... $(2,902,752)
Net income.................................................................... 2,633,015
Contributions................................................................. 87
Distributions................................................................. (2,320,401)
-----------
Balance at December 31, 1994.................................................... (2,590,051)
Net income.................................................................... 2,410,068
Distributions................................................................. (2,615,001)
-----------
Balance at December 31, 1995.................................................... $(2,794,984)
==========
</TABLE>

See accompanying notes.

F-96
<PAGE> 216

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................ $ 2,633,015 $ 2,410,068
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in assets and liabilities:
(Increase) decrease in capitation fee receivable............. (150,510) 267,277
(Increase) decrease in due from related parties.............. 439,999 (2,149)
Increase in other receivables................................ (77) --
Increase (decrease) in accounts payable...................... 4,900 (3,787)
Increase in due to affiliate................................. -- 15,577
Increase in deferred income.................................. -- 1,593
Decrease in accrued interest payable......................... (686) (740)
----------- -----------
Net cash provided by operating activities................. 2,926,641 2,687,839
----------- -----------
FINANCING ACTIVITIES:
Principal payments on long-term debt.............................. (106,070) (114,590)
Additional partner contributions.................................. 87 --
Distributions to partners......................................... (2,320,401) (2,615,001)
Decrease in distributions payable................................. (500,000) --
----------- -----------
Net cash used in financing activities..................... (2,926,384) (2,729,591)
----------- -----------
Net increase (decrease) in cash........................... 257 (41,752)
Cash at beginning of year........................................... 54,940 55,197
----------- -----------
Cash at end of year................................................. $ 55,197 $ 13,445
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on borrowings....................................... $ 232,855 $ 224,330
========== ==========
</TABLE>

See accompanying notes.

F-97
<PAGE> 217

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

New Management (NM), a California general partnership, was formed and
commenced operations on July 31, 1992. The partnership was formed for the
purpose of providing management services in connection with the delivery of
health care services to patients who are enrollees of certain health maintenance
organizations which have contracted with West Hills Hospital (Hospital) located
in West Hills, California. Approximately 100% of the organization's revenue was
provided under contract with the hospital.

Partnership income and losses are allocated to the respective partners
based on percentage ownership subject to certain provisions as defined in the
partnership agreement.

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting.

Management Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements and notes. Actual results could differ from those estimates.

Administrative Capitation Fee

NM contracts with West Hills Hospital under a Managed Care Agreement. Under
the terms of the agreement, NM provides certain administrative services to
enrollees in various health plans that have contracted with West Hills Hospital
in exchange for an administrative fee based upon various components including a
percentage of capitation revenue and utilization results. The contract which
commenced August 10, 1992 has a term of ten years with an automatic five year
renewal. Premiums are due monthly and are recognized as revenue by NM during the
period in which Community Medical Group (CMG), under a management agreement with
NM, and NM are obligated to provide services to the enrollees.

Income Taxes

As a partnership, the income and expenses of the partnership are allocated
to the respective partners; as such, the partnership does not pay federal or
state income taxes. Accordingly, no provision for income taxes has been included
in the accompanying financial statements.

2. ADMINISTRATIVE CAPITATION FEE RECEIVABLE

The capitation fee receivable represents amounts owed to NM from the
Hospital under the terms of the management agreement. The amount, which relates
to the period January 1, 1994 through August 31, 1994, was received in February
1995.

3. LONG-TERM DEBT

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Note payable to Hospital, monthly payments of principal and
interest (7.75%) of $28,238 due through July 1, 1999,
balloon payment of $2,354,530 due on August 1, 1999....... $2,945,591 $2,831,001
Less current portion...................................... 114,590 123,793
---------- ----------
Long-term debt, net of current portion............ $2,831,001 $2,707,208
========= =========
</TABLE>

The amounts recorded above approximate the fair value of the obligation.

On July 7, 1992, NM entered into a managed care agreement with the Hospital
that included the issuance of a $3,000,000 loan to New Management from the
Hospital. The loan is secured by payments owed to NM by the Hospital for
capitation revenue received directly by the Hospital. The individual partners
have

F-98
<PAGE> 218

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

guaranteed the loan pro rata to the extent of two times each partner's
percentage ownership interest in NM at the date of the loan.

As of December 31, 1995, aggregate principal maturities of long-term debt
are as follows:

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Advances

NM advanced amounts to CMG to cover working capital requirements and tenant
improvements. The balance of these advances is $56,827 as of December 31, 1994
and 1995. The advances are due on demand and do not bear interest.

NM advanced $2,149 to a physician who is also a partner in NM. The advance
is due upon demand and does not bear interest.

General and Administrative Services

NM, in performing its responsibilities under the managed care agreement
with the Hospital, receives certain employee services and facilities usage
without cost from CMG.

CMG's partners are substantially identical to the partners of NM as
required under the terms of both partnership agreements. CMG provides medical
services for enrollees of certain health maintenance organizations.

Management Services

Under an agreement effective September 1, 1995, CHS Management, Inc. (CHS),
an affiliate incorporated in 1995 to perform management services for CMG and
Health Source Medical Group (HSMG), performed certain management services on
behalf of NM. The agreement provides that CHS will receive a monthly management
fee based upon 12% per dollar per enrolled life under the capitation agreement
between NM, CMG and West Hills Hospital. The amount of the management fee
totaled $15,577 for the period from September 1 through December 31, 1995 and
has been accrued on the balance sheet as due to affiliate.

Professional Services

Accounting services are performed for NM by a partnership of which one
partner acts as a financial advisor to the Executive Committee of CMG and also
serves as a board member of CHS Management, Inc. Charges for services rendered
to NM by the partnership amounted to $35,655 and $94,025 for the years ended
December 31, 1994 and 1995, respectively.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

All current assets and current liabilities, are carried at cost, which
approximates fair value due to the short maturity of those instruments.

6. SUBSEQUENT EVENT

On March 11, 1996, NM entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc., a publicly held physicians practice management
company, in exchange for shares of MedPartners/Mullikin, Inc. common stock.

F-99
<PAGE> 219

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Cash............................................................................ $ 54,940
Administrative capitation fee receivable........................................ 116,767
Due from affiliates............................................................. 496,826
Capital contributions receivable from partners.................................. 85
------------
Total assets.......................................................... $ 668,618
==========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities
Distribution payable.......................................................... $ 500,000
Accrued interest payable...................................................... 19,709
Current portion of long-term debt............................................. 106,070
------------
Total current liabilities............................................. 625,779
Long-term debt, net of current portion........................................ 2,945,591
------------
Partners' deficiency............................................................ (2,902,752)
------------
Total liabilities and partners' deficiency............................ $ 668,618
==========
</TABLE>

See accompanying notes.

F-100
<PAGE> 220

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENT OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------
<S> <C>
Net revenue..................................................................... $3,109,869
Expenses
Accounting.................................................................... 18,663
Interest expense.............................................................. 238,711
Administrative fee............................................................ 42,000
Executive committee fees...................................................... 24,000
------------
Total expenses........................................................ 323,374
------------
Net income...................................................................... $2,786,495
==========
</TABLE>

See accompanying notes.

F-101
<PAGE> 221

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENT OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------
<S> <C>
OPERATING ACTIVITIES:
Net Income.................................................................... $ 2,786,495
Adjustments to reconcile net income to net cash provided by operating
activities:
Changes in assets and liabilities:
(Increase) decrease in capitation fee receivable......................... (116,767)
(Increase) decrease in due from related parties.......................... (496,827)
(Increase) decrease in other receivables................................. (85)
(Increase (decrease) in accrued interest payable......................... (74,041)
------------
Net cash provided by operating activities............................. 2,098,775
------------
FINANCING ACTIVITIES:
Increase in long-term debt.................................................... 51,661
Additional partner contributions.............................................. 85
Distributions to partners..................................................... (2,600,037)
Increase in distributions payable............................................. 500,000
------------
Net cash used in financing activities................................. (2,048,291)
------------
Net increase in cash.................................................. 50,484
Cash at beginning of year....................................................... 4,456
------------
Cash at end of year............................................................. $ 54,940
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on borrowing...................................................... $ 238,711
==========
</TABLE>

See accompanying notes.

F-102
<PAGE> 222

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1993

1. ORGANIZATION

New Management, a California general partnership (the Partnership), was
formed and commenced operations on July 31, 1992. The Partnership was formed for
the purpose of providing management services in connection with the delivery of
hospital health care services to patients who are enrollees of certain health
maintenance organizations which have contracted with West Hills Hospital and the
Partnership.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Policy

The financial statements have been prepared using the accrual method of
accounting.

Income Taxes

Income and expenses represent only the operations of the Partnership and do
not include other activity to be reflected on the individual partners' federal
and state income tax returns. As such, no provision has been made for income
taxes.

3. MANAGED CARE AGREEMENT

The Partnership receives an administrative capitation fee under the terms
of a Managed Care Agreement with West Hills Hospital. Under the terms of the
agreement, New Management has capitated West Hills to provide hospital care
under five contracts with health maintenance organizations. The Partnership
receives income based upon the spread between the average per member per month
capitation received from the HMO's and the contracted sub-capitation rate paid
to West Hills Hospital for providing the hospital services. Under the terms of
the Managed Care Agreement the Partnership is obligated to provide certain
administrative and management services to administer the HMO contracts. The
Managed Care Agreement was entered into in July, 1992 and is effective through
July, 2002.

4. ADMINISTRATIVE CAPITATION FEE RECEIVABLE

The Partnership is owed additional revenue under the terms of the Managed
Care Agreement for 1993 based on a calculation adjustment which has been agreed
on with West Hills Hospital.

5. ADVANCES TO COMMUNITY MEDICAL GROUP (CMG)

The Partnership advanced $455,026 to Community Medical Group of the West
Valley (CMG) (a related party) to be used for working capital. The advance does
not bear interest and is due on demand. The Partnership advanced $41,800 for
tenant improvements at CMG's Simi Valley facility. The advance does not bear
interest and is due on demand.

F-103
<PAGE> 223

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

6. LOAN PAYABLE

The Partnership received a $3,000,000 loan from West Hills Hospital on
August 7, 1992. The loan is payable in monthly installments bearing interest at
7.75% as follows:

<TABLE>
<CAPTION>
TIME PERIOD PAYMENTS
---------------------------------------- ----------------------------------------
<S> <C>
September 1, 1992 -- January 31, 1993 Interest Accrued -- No Payments
February 1, 1993 -- July 1, 1993 Interest Only Payments of $19,973
August 1, 1993 -- July 1, 1999 Monthly Payments of $28,238 consisting
of principal and interest, based on a
fifteen year amortization.
</TABLE>

There is a balloon payment of $2,354,529 due on July 1, 1999.

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------------------------------------------------------------- ----------
<S> <C>
1994............................................................ $ 100,071
1995............................................................ 114,590
1996............................................................ 123.792
1997............................................................ 139,735
1998............................................................ 144,475
1999............................................................ 2,428,998
----------
$3,051,661
=========
</TABLE>

7. RELATED PARTY TRANSACTIONS

The Partnership is receiving employee services and facilities in order to
perform their obligations under the Managed Care Agreement (Note 3) without cost
from Community Medical Group of the West Valley, a California general
partnership (CMG). CMG's partners are substantially identical to the partners of
New Management as required under the terms of both partnership agreements. CMG
provides medical services to enrollees of prepaid health plans.

F-104
<PAGE> 224

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

CONDENSED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
<S> <C>
ASSETS
Current assets
Cash.......................................................................... $ 175,331
Other receivables............................................................. --
Due from related parties...................................................... 58,976
-----------
Total current assets.................................................. 234,307
Other assets.......................................................... 543,467
-----------
Total assets.......................................................... $ 777,774
===========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities
Current portion of long-term debt............................................. $ 128,668
Accounts payable.............................................................. 4,849
Deferred income............................................................... 439
Accrued interest payable...................................................... 17,891
-----------
Total current liabilities............................................. 151,847
Long-term debt, net of current portion.......................................... 2,641,633
Partners' deficiency............................................................ (2,015,706)
-----------
Total liabilities and partners' deficiency............................ $ 777,774
===========
</TABLE>

See accompanying note.

F-105
<PAGE> 225

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net revenue......................................................... $1,524,490 $1,313,931
Expenses
Administrative and executive fees................................. 95,000 87,260
Management fee.................................................... -- 22,625
Accounting and legal.............................................. 53,495 96,872
Interest.......................................................... 112,908 108,362
---------- ----------
Total expenses............................................ 261,403 315,119
---------- ----------
Net income.......................................................... $1,263,087 $ 998,812
========== ==========
</TABLE>

See accompanying note.

F-106
<PAGE> 226

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------
1995 1996
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 1,263,087 $ 998,812
Adjustments to reconcile net income to net cash provided by
operating activities:
Decrease in administrative capitation fee receivable............ 267,277 --
Decrease in other receivables................................... -- 162
Increase in other assets........................................ -- (543,467)
Increase in accounts payable.................................... -- 3,736
Decrease in due to affiliate.................................... -- (15,577)
Decrease in deferred income..................................... -- (1,154)
Decrease in accrued interest payable............................ (362) (392)
----------- ---------
Net cash provided by operating activities.................. 1,530,002 442,120
----------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term debt............................... (56,189) (60,700)
Increase in distributions payable.................................. 17,580 --
Distributions to partners.......................................... (1,500,001) (219,534)
----------- ---------
Net cash used in financing activities...................... (1,538,610) (280,234)
----------- ---------
Net increase (decrease) in cash............................ (8,608) 161,886
Cash at beginning of period.......................................... 55,197 13,445
----------- ---------
Cash at end of period................................................ $ 46,589 $ 175,331
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on borrowings.......................................... $ 112,417 $ 109,112
========== =========
</TABLE>

See accompanying note.

F-107
<PAGE> 227

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTE TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. CONDENSED FINANCIAL STATEMENTS

The Condensed Balance Sheet as of June 30, 1996, the Condensed Statements
of Income and the Condensed Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 have been prepared by New Management (the Partnership)
without audits. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at June 30, 1996 and 1995 have
been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's December 31, 1995 audited financial statements. The results of
operations for the period ended June 30, 1996 are not necessarily indicative of
the operation results for the year.

F-108
<PAGE> 228

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Emergency Professional Services, Inc.

We have audited the accompanying balance sheets of Emergency Professional
Services, Inc. as of January 31, 1995 and 1996, and the related statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended January 31, 1996. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Emergency Professional
Services, Inc. at January 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended January 31,
1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Birmingham, Alabama
July 12, 1996

F-109
<PAGE> 229

EMERGENCY PROFESSIONAL SERVICES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $1,481,507 $1,367,330
Accounts receivable, net of allowance for bad debts of $1,370,476
and $1,384,740 in 1995 and 1996, respectively.................... 5,464,122 5,845,157
Prepaid expenses.................................................... 130,098 206,357
---------- ----------
Total current assets........................................ 7,075,727 7,418,844
Property and equipment, net........................................... 76,537 71,625
Deferred income taxes................................................. 1,340,000 1,570,000
Other assets.......................................................... 3,315 6,520
---------- ----------
Total assets................................................ $8,495,579 $9,066,989
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 383,027 $ 408,204
Accrued salaries and other accrued expenses......................... 3,074,620 3,608,245
Deferred income taxes............................................... 1,660,000 1,580,000
Revenue received in advance......................................... 135,000 135,000
---------- ----------
Total current liabilities................................... 5,252,647 5,731,449
Accrued malpractice liability......................................... 650,000 750,000
Deferred compensation payable......................................... 1,855,423 2,260,363
Stockholders' equity:
Common stock, $.01 par value; 500 shares authorized, 248 and 273
shares issued and outstanding in 1995 and 1996, respectively..... 2 3
Additional paid-in capital.......................................... 230,748 260,747
Retained earnings................................................... 506,759 64,427
---------- ----------
Total stockholders' equity.................................. 737,509 325,177
---------- ----------
Total liabilities and stockholders' equity.................. $8,495,579 $9,066,989
========= =========
</TABLE>

See accompanying notes.

F-110
<PAGE> 230

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue............................................. $30,258,523 $33,339,865 $35,031,003
Operating expenses:
Cost of affiliated physician services................. 22,634,623 24,852,396 25,961,763
Clinic salaries, wages and benefits................... 1,234,315 1,357,253 1,480,764
Clinic rent and lease expense......................... 109,883 111,083 118,995
Clinic supplies....................................... 35,562 33,737 39,184
Other clinic costs.................................... 5,980,317 6,781,253 6,986,269
General corporate expenses............................ 912,898 955,884 1,124,495
Depreciation.......................................... 42,749 31,020 25,140
----------- ----------- -----------
Net operating expenses........................ 30,950,347 34,122,626 35,736,610
----------- ----------- -----------
Loss before income taxes................................ (691,824) (782,761) (705,607)
Net income tax benefit.................................. 273,000 305,000 270,000
----------- ----------- -----------
Net loss................................................ $ (418,824) $ (477,761) $ (435,607)
========== ========== ==========
</TABLE>

See accompanying notes.

F-111
<PAGE> 231

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at January 31, 1993.................... $ 1 $ 152,749 $1,414,169 $ 1,566,919
Net loss..................................... -- -- (418,824) (418,824)
Issuance of common stock..................... 1 31,200 -- 31,201
Dividends paid............................... -- -- (5,200) (5,200)
--- ---------- ---------- -------------
Balance at January 31, 1994.................... 2 183,949 990,145 1,174,096
Net loss..................................... -- -- (477,761) (477,761)
Issuance of common stock..................... -- 58,799 -- 58,799
Purchase of capital stock.................... -- (12,000) -- (12,000)
Dividends paid............................... -- -- (5,625) (5,625)
--- ---------- ---------- -------------
Balance at January 31, 1995.................... 2 230,748 506,759 737,509
Net loss..................................... -- -- (435,607) (435,607)
Issuance of common stock..................... 1 35,999 -- 36,000
Purchase of common stock..................... -- (6,000) -- (6,000)
Dividends paid............................... -- -- (6,725) (6,725)
--- ---------- ---------- -------------
Balance at January 31, 1996.................... $ 3 $ 260,747 $ 64,427 $ 325,177
=========== ======== ========= ==========
</TABLE>

See accompanying notes.

F-112
<PAGE> 232

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... $ (418,824) $ (477,761) $ (435,607)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation............................................. 42,749 31,020 25,140
Deferred tax expense..................................... (285,000) (320,000) (310,000)
Changes in operating assets and liabilities:
Accounts receivable, net.............................. 347,580 (90,287) (381,035)
Prepaid expenses and other assets..................... (71,535) 133,107 (79,464)
Accounts payable...................................... (71,618) 219,867 25,177
Accrued salaries and other accrued expenses........... 267,654 (97,440) 533,625
Deferred compensation payable......................... 322,714 422,285 404,940
Accrued malpractice liability......................... 50,000 100,000 100,000
Revenue received in advance........................... -- 135,000 --
---------- ---------- ----------
Net cash provided by (used in) operating
activities..................................... 183,720 55,791 (117,224)
INVESTING ACTIVITIES:
Purchases of property and equipment........................ (22,904) (13,208) (20,228)
---------- ---------- ----------
Net cash used in investing activities............ (22,904) (13,208) (20,228)
FINANCING ACTIVITIES:
Purchase of common stock................................... -- (12,000) (6,000)
Issuance of common stock................................... 31,201 58,799 36,000
Payment of dividends....................................... (5,200) (5,625) (6,725)
---------- ---------- ----------
Net cash provided by financing activities........ 26,001 41,174 23,275
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents....... 186,817 83,757 (114,177)
Cash and cash equivalents at beginning of year............. 1,210,933 1,397,750 1,481,507
---------- ---------- ----------
Cash and cash equivalents at end of year................... $1,397,750 $1,481,507 $1,367,330
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest..................... $ -- $ -- $ --
========= ========= =========
Cash paid during the year for income taxes................. $ 15,000 $ 3,000 $ 25,000
========= ========= =========
</TABLE>

See accompanying notes.

F-113
<PAGE> 233

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Emergency Professional Services, Inc. (the Company) is a professional
corporation formed in 1978 that consists of a group of physicians who contract
to staff emergency rooms, urgent care centers and physician offices. EPS
currently operates in Ohio and Pennsylvania. In addition, EPS staffs a billing
office which processes claims for the hospitals served.

A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements is as
follows:

Basis of Presentation

The Company's financial statements have been prepared on the accrual basis
of accounting.

Management Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements and notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

The carrying amounts of all cash equivalents approximate fair value.

Property and Equipment

Property and equipment is stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets. Routine maintenance and repairs are expensed as incurred,
while costs of betterments and renewals are capitalized.

Income Taxes

The Company is taxable under the provisions of the Internal Revenue Code.
Deferred income taxes are provided for temporary differences between financial
and income tax reporting. The Company files its taxes on the modified cash
basis.

Net Revenue

Net revenue is reported at the established realizable amounts from
patients, third-party payors and others for services rendered. Revenue under
certain third-party payor agreements is subject to audit and retroactive
adjustments. Provisions for estimated third-party payor settlements and
adjustments are established in the periods the related services are rendered and
are adjusted in future periods as final settlements are determined.

Cost of Affiliated Physician Services

Cost of affiliated physician services represents salaries, bonuses and
benefits paid to the affiliated physician. Physician compensation is generally
determined based on the excess of collections over expenses prior to physician
compensation.

2. PROPERTY AND EQUIPMENT

The following is a summary of the Company's property and equipment as of
January 31, 1995 and 1996:

<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Furniture and fixtures......................................... $ 274,364 $ 281,126
Equipment...................................................... 74,142 79,742
Leasehold improvements......................................... 5,177 5,177
--------- ---------
353,683 366,045
Less: accumulated depreciation................................. (277,146) (294,420)
--------- ---------
$ 76,537 $ 71,625
========= =========
</TABLE>

F-114
<PAGE> 234

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROFIT-SHARING AND 401K PLAN

The Company has a noncontributory profit-sharing plan and a contributory
401(k) plan (the Plan) for substantially all employees with more than one year
of service and 1,000 hours worked who have attained the age of twenty-one. The
Company, at the discretion of its Board of Directors, will make contributions to
the profit-sharing plan for its eligible employees employed at the last day of
the Plan year. Plan expenses for the years ended January 31, 1994, 1995 and 1996
were $372,031, $518,049 and $556,623, respectively. The Company does not match
employee contributions to the 401(k) plan.

4. PENSION PLAN

The Company has a defined contribution pension plan covering substantially
all employees with more than one year of service who have attained the age of
twenty-one. The Company contributes 10% of each participant's compensation for
the year, as defined, to the plan and makes payments based on the same formula
directly to the full-time physicians. The total contributions to the pension
plan for the years ended January 31, 1994, 1995 and 1996 were $1,162,425,
$910,462 and $975,221, respectively.

5. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustments................................. $1,340,000 $1,570,000
---------- ----------
Gross deferred tax assets..................................... 1,340,000 1,570,000
Deferred tax liabilities:
Cash to accrual adjustments................................. 1,660,000 1,580,000
---------- ----------
Gross deferred tax liabilities................................ 1,660,000 1,580,000
---------- ----------
Net deferred tax liabilities.................................. $ 320,000 $ 10,000
========= =========
</TABLE>

Income tax benefit was as follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................... $ 10,500 $ 13,125 $ 35,000
State............................................. 1,500 1,875 5,000
--------- --------- ---------
12,000 15,000 40,000
Deferred:
Federal........................................... (249,375) (280,000) (271,250)
State............................................. (35,625) (40,000) (38,750)
--------- --------- ---------
(285,000) (320,000) (310,000)
--------- --------- ---------
$(273,000) $(305,000) $(270,000)
========= ========= =========
</TABLE>

F-115
<PAGE> 235

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the benefit for income taxes and the amount computed
by applying the statutory federal income tax rate to income before taxes was as
follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax benefit statutory rate at
statutory rate................................. $(235,220) $(266,139) $(239,906)
Add:
State income taxes, net of federal tax benefit.... (22,523) (25,163) (22,275)
Other............................................. (15,257) (13,698) (7,819)
--------- --------- ---------
$(273,000) $(305,000) $(270,000)
========= ========= =========
</TABLE>

6. OPERATING LEASES

The Company leases its current office facility under an operating lease
agreement which extends through May 31, 1997. The Company also rents storage
space on a month-to-month renewal basis.

Future minimum lease payments for the next two years and in the aggregate
are as follows:

Total rent expense under all operating leases for the years ended January
31, 1994, 1995 and 1996 was $109,883, $111,083 and $118,995, respectively.

7. DEFERRED COMPENSATION PLAN AND STOCK BONUS PLAN

Under a deferred compensation plan, the Company is obligated to certain key
employees who have completed five years of service. The units of participation
are based 90% on compensation and length of service, with the remaining 10%
determined at the discretion of the Company. The plan provides a vesting
schedule of 10% at six years and 100% after fifteen years of service. The
overall deferred compensation is limited to 80% of the Company's net realizable
accounts receivable. As of January 31, 1995 and 1996, the aggregate deferred
compensation payable was $1,855,423 and $2,260,363, respectively. Payments
charged to earnings amounted to $322,717, $422,285 and $404,940 for the years
ended January 31, 1994, 1995 and 1996, respectively.

The Company also adopted a stock bonus plan for certain key employees. The
total number of shares awarded as of any anniversary date cannot exceed 25% of
the Company's issued and outstanding shares determined as of the date
immediately preceding the anniversary date at which the shares are awarded. Any
shares which have been awarded under this plan shall be considered issued and
outstanding. During the years ended January 31, 1995, 18 shares of common stock
were issued under the stock bonus plan at a value of $1,200 per share. During
the years ended January 31, 1994 and 1996, no shares of common stock were issued
under the stock bonus plan.

8. PROFESSIONAL LIABILITY INSURANCE

The Company maintains professional liability insurance coverage at each
location of $11 million per claim and $11 million in the aggregate. The Company
is insured against malpractice losses under a claims-made insurance policy. The
Company is currently named as the defendant in various malpractice legal
actions. While the outcome of these lawsuits is not presently determinable, it
is the opinion of management that the ultimate resolution of these claims will
not have a material adverse effect on the financial position or results of
operations of the Company.

9. SUBSEQUENT EVENT

In July 1996, the Company entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc. in exchange for shares of MedPartners/Mullikin, Inc.
common stock.

F-116
<PAGE> 236

EMERGENCY PROFESSIONAL SERVICES, INC.

BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
APRIL 30,
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2,410,960
Accounts receivable, net of allowance for doubtful accounts of $1,303,354..... 5,801,218
Prepaid expenses.............................................................. 181,712
-----------
Total current assets.................................................. 8,393,890
Property and equipment, net..................................................... 65,691
Deferred income taxes........................................................... 1,760,000
Other assets.................................................................... 9,931
-----------
Total assets.......................................................... $10,229,512
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 180,080
Accrued salaries and other accrued expenses................................... 4,550,689
Deferred income taxes......................................................... 1,680,000
Revenue received in advance................................................... 135,000
-----------
Total current liabilities............................................. 6,545,769
Accrued malpractice liability................................................... 750,000
Deferred compensation payable................................................... 2,350,363
Stockholders' equity:
Common stock, $.01 par value, 500 shares authorized, 266 shares
issued and outstanding..................................................... 3
Additional paid-in capital.................................................... 263,547
Retained earnings............................................................. 319,830
-----------
Total stockholders' equity............................................ 583,380
-----------
Total liabilities and stockholders' equity............................ $10,229,512
==========
</TABLE>

See accompanying note.

F-117
<PAGE> 237

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Net revenue........................................................... $8,181,737 $7,796,192
Operating expenses:
Cost of affiliated physician services............................... 5,912,707 5,987,394
Clinic salaries, wages and benefits................................. 329,918 316,781
Clinic rent and lease expense....................................... 36,829 22,587
Clinic supplies..................................................... 9,091 8,576
Other clinic costs.................................................. 1,588,302 915,744
General corporate expenses.......................................... 252,622 362,809
Depreciation........................................................ 6,694 6,898
---------- ----------
Net operating expenses........................................... 8,136,163 7,620,789
---------- ----------
Income before income taxes............................................ 45,574 175,403
Income tax benefit.................................................... 20,000 70,000
---------- ----------
Net income............................................................ $ 25,574 $ 105,403
========= =========
</TABLE>

See accompanying note.

F-118
<PAGE> 238

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................ $ 25,574 $ 105,403
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................ 6,694 6,898
Deferred tax expense................................................ 10,000 60,000
Changes in operating assets and liabilities:
Accounts receivable, net......................................... (84,830) 43,939
Prepaid expenses and other current assets........................ (54,124) 21,234
Accounts payable................................................. (276,717) (228,124)
Accrued salaries and other accrued expenses...................... 1,876,630 942,444
Deferred compensation............................................ 75,000 90,000
Malpractice liability............................................ 25,000 --
---------- ----------
Net cash provided by operating activities................... 1,603,227 1,041,794
INVESTING ACTIVITIES:
Purchases of property and equipment................................... (5,580) (964)
---------- ----------
Net cash used in investing activities....................... (5,580) (964)
FINANCING ACTIVITIES:
Purchase of common stock.............................................. -- (10,400)
Issuance of common stock.............................................. 1,200 13,200
---------- ----------
Net cash provided by financing activities................... 1,200 2,800
---------- ----------
Net increase in cash and cash equivalents............................. 1,598,847 1,043,630
Cash and cash equivalents at beginning of period...................... 1,481,507 1,367,330
---------- ----------
Cash and cash equivalents at end of period............................ $3,080,354 $2,410,960
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.............................. $ -- $ --
========= =========
Cash paid during the period for income taxes.......................... $ -- $ --
========= =========
</TABLE>

See accompanying note.

F-119
<PAGE> 239

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTE TO UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 1996

1. BASIS OF PRESENTATION

The balance sheet as of April 30, 1996, the statements of income and
statements of cash flows for the three months ended April 30, 1995 and 1996,
have been prepared by Emergency Professional Services, Inc. (the Company)
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
as of April 30, 1996, and the results of operations and cash flows for the three
months ended April 30, 1995 and 1996 have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's January 31, 1996 audited financial statements. The results of
operations for the periods ended April 30, 1995 and 1996 are not necessarily
indicative of the operation results for those years.

F-120
<PAGE> 240

ANNEX A

AMENDED AND RESTATED
PLAN AND AGREEMENT OF MERGER

AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER ("Plan of Merger"), made
and entered into as of the 11th day of March, 1996, by and among
MEDPARTNERS/MULLIKIN, INC., a Delaware corporation ("MedPartners/Mullikin"), CHS
MERGER CORPORATION, a Delaware corporation (the "Subsidiary"), and CHS
MANAGEMENT, INC., a Delaware corporation ("CHS") (the Subsidiary and CHS being
sometimes collectively referred to herein as the "Constituent Corporations").

WITNESSETH:

WHEREAS, the parties to this Plan of Merger are parties to a Plan and
Agreement of Merger, dated as of March 11, 1996, which they desire to amend and
restate in its entirety as herein set forth;

WHEREAS, the respective Boards of Directors of MedPartners/Mullikin, the
Subsidiary and CHS have approved the merger of the Subsidiary with and into CHS
(the "Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby each share of Common Stock, par value $0.01 per share, of CHS (the "CHS
Common Stock"), not owned directly or indirectly by CHS, will be converted into
the right to receive the Merger Consideration (as herein defined) (the CHS
Common Stock may be sometimes hereinafter referred to as the "CHS Shares");

WHEREAS, each of MedPartners/Mullikin, the Subsidiary and CHS desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to the Merger;

WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and

WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".

NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:

SECTION 1. THE MERGER.

1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), the Subsidiary shall be merged with and into CHS at the
Effective Time (as defined in Section 1.3). Following the Effective Time, the
separate corporate existence of the Subsidiary shall cease and CHS shall
continue as the surviving corporation (the "Surviving Corporation") as a
business corporation incorporated under the laws of the State of Delaware under
the name CHS Management, Inc. and shall succeed to and assume all the rights and
obligations of the Subsidiary and CHS in accordance with the DGCL.

1.2 The Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. Central Time on a date to be specified by the parties (the
"Closing Date"), which (subject to satisfaction or waiver of the conditions set
forth in Sections 9.2 and 9.3) shall be no later than the second business day
after satisfaction of the conditions set forth in Section 9.1 (other than
Section 9.1(a)), but in no event later than June 30, 1996, at the offices of
Stroock & Stroock & Lavan, Los Angeles, California, unless another date or place
is agreed to in writing by the parties hereto.

1.3 Effective Time. Subject to the provisions of this Plan of Merger, CHS
and the Subsidiary shall file a Certificate of Merger (the "Certificate of
Merger") executed by CHS in accordance with the relevant provisions of the
General Corporation Law of the State of Delaware (the "DGCL") and shall make all
other

A-1
<PAGE> 241

filings or recordings required under the DGCL as soon as practicable on or after
the Closing Date. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such other time as the Subsidiary and CHS shall agree should be
specified in the Certificate of Merger (the "Effective Time").

1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.

SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.

2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of CHS Common
Stock or any shares of capital stock of the Subsidiary:

(a) Subsidiary Common Stock. Each share of capital stock of the
Subsidiary issued and outstanding immediately prior to the Effective Time
of the Merger shall be converted into one fully paid and nonassessable
share of common stock of the Surviving Corporation.

(b) Cancellation of Treasury Stock. Each share of CHS Common Stock
that is owned by CHS or by any subsidiary of CHS shall automatically be
cancelled and retired and shall cease to exist, and none of the Common
Stock, par value $.001 per share, of MedPartners/Mullikin
("MedPartners/Mullikin Common Stock"), cash or other consideration shall be
delivered in exchange therefor.

(c) Conversion of CHS Shares. In the Merger, all of the CHS Shares
(other than Dissenting Shares) shall be converted into the right to receive
that number of shares of MedPartners/Mullikin Common Stock equal to the
Merger Consideration (as defined herein). All such shares of MedPartners/
Mullikin Common Stock shall be fully paid and nonassessable and are
hereinafter sometimes referred to as the "MedPartners/Mullikin Shares".
Upon such conversion, all such CHS Shares shall be cancelled and cease to
exist, and each holder thereof shall cease to have any rights with respect
thereto other than the right to receive MedPartners/Mullikin Shares issued
in exchange therefor on the terms provided herein.

"Merger Consideration" means 1,288,245 MedPartners/Mullikin Shares
(that number of MedPartners/Mullikin Shares (rounded to the nearest whole
share) equal to $40,000,000 divided by $31.05 (the "Initial
MedPartners/Mullikin Trading Price"), unless (i) the Final
MedPartners/Mullikin Trading Price is less than $27.95, in which case it
means $40,000,000 divided by the lesser of (x) the Final
MedPartners/Mullikin Trading Price and (y) $27.95 (the number equal to 90%
of the Initial MedPartners/Mullikin Trading Price) or (ii) the Final
MedPartners/Mullikin Trading Price is greater than $34.16 (110% of the
Initial MedPartners/Mullikin Trading Price), in which case it means
$40,000,000 divided by the greater of (A) the Final MedPartners/Mullikin
Trading Price and (B) $34.16. "Initial MedPartners/Mullikin Trading Price"
shall mean the average of the last reported sale prices per share of the
MedPartners/Mullikin Common Stock for the five consecutive trading days on
which such shares are actually traded on The New York Stock Exchange, Inc.
(the "NYSE") immediately preceding the date of the Plan of Merger and
"Final MedPartners/Mullikin Trading Price" shall mean the average of the
last reported sale prices per share of the MedPartners/Mullikin Common
Stock for the 10 consecutive trading days on which such shares are actually
traded ending at the close of trading on the second trading day immediately
preceding the date on which the stockholders of CHS meet to consider the
Merger.

(d) Dissenting Shares. Notwithstanding anything in this Plan of
Merger to the contrary, CHS Shares outstanding immediately prior to the
Effective Time of the Merger held by a holder (if any) who is entitled to
demand, and who properly demands, appraisal for such shares in accordance
with Section 262 of the DGCL ("Dissenting Shares") shall not be converted
into a right to receive the Merger Consideration and any cash in lieu of
fractional shares of MedPartners/Mullikin Common Stock unless such holder
fails to perfect or otherwise loses such holder's right to appraisal, if
any. If, after the Effective Time of the Merger, such holder fails to
perfect or loses any such right to appraisal, such shares shall be treated
as if they had been converted as of the Effective Time of the Merger into
the right to receive the

A-2
<PAGE> 242

Merger Consideration pursuant to Section 2.1(c) and the cash in lieu of
fractional shares of MedPartners/Mullikin Common Stock specified in Section
2.2(e).

(e) Anti-Dilution Provisions. If after the date hereof and prior to
the Effective Time MedPartners/ Mullikin shall have declared a stock split
(including a reverse split) of MedPartners/ Mullikin Common Stock or a
dividend payable in MedPartners/Mullikin Common Stock, or any other
distribution of securities or dividend (in cash or otherwise) to holders of
MedPartners/Mullikin Common Stock with respect to their
MedPartners/Mullikin Common Stock (including without limitation such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar
transaction) then the Merger Consideration shall be appropriately adjusted
to reflect such stock split, dividend or other distribution of securities.

2.2 Exchange of Certificates. (a) Exchange Agent. In the event that the
outstanding CHS Shares are not exchanged at the Closing, prior to the Effective
Time, MedPartners/Mullikin shall enter into an agreement with Chemical Mellon
Shareholder Services, L.L.C., New York, New York (the "Exchange Agent"), which
provides that MedPartners/Mullikin shall deposit with the Exchange Agent as of
the Effective Time, for the benefit of the holders of CHS Shares, for exchange
in accordance with this Section 2, through the Exchange Agent, certificates
representing the shares of MedPartners/Mullikin Common Stock (such shares of
MedPartners/Mullikin Common Stock, together with any dividends or distributions
with respect thereto with a record date after the Effective Time, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section 2.1
in exchange for outstanding CHS Shares.

(b) Exchange Procedures. As soon as reasonably practicable, but no later
than ten business days, after the Effective Time, the Exchange Agent shall mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding CHS Shares (the
"Certificates") whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as
MedPartners/Mullikin may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of MedPartners/ Mullikin Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of MedPartners/Mullikin Common Stock which such holder has the right to
receive pursuant to the provisions of this Section 2, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of CHS Shares which is not registered in the transfer records of CHS,
a certificate representing the proper number of shares of MedPartners/Mullikin
Common Stock may be issued to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
issuance of shares of MedPartners/Mullikin Common Stock to a person other than
the registered holder of such Certificate or establish to the satisfaction of
MedPartners/Mullikin that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of
MedPartners/Mullikin Common Stock and cash in lieu of any fractional shares of
MedPartners/Mullikin Common Stock as contemplated by this Section 2.2. No
interest will be paid or will accrue on any cash payable in lieu of any
fractional shares of MedPartners/Mullikin Common Stock. To the extent permitted
by law, former stockholders of record of CHS shall be entitled to vote after the
Effective Time at any meeting of MedPartners/Mullikin stockholders the number of
whole shares of MedPartners/ Mullikin Common Stock into which their respective
CHS Shares are converted, regardless of whether such holders have exchanged
their Certificates for certificates representing MedPartners/Mullikin Common
Stock in accordance with this Section 2.2.

(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to MedPartners/Mullikin Common Stock with a
record date after the Effective Time shall be paid to

A-3
<PAGE> 243

the holder of any unsurrendered Certificate with respect to the shares of
MedPartners/Mullikin Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
2.2(e) until the surrender of such Certificate in accordance with this Section
2. Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificate representing
whole shares of MedPartners/Mullikin Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of MedPartners/Mullikin Common Stock to
which such holder is entitled pursuant to Section 2.2(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of MedPartners/Mullikin
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of MedPartners/Mullikin Common Stock.

(d) No Further Ownership Rights in CHS Shares. All shares of
MedPartners/Mullikin Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Section 2 (including any cash
paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the CHS Shares
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be cancelled and exchanged as provided in this
Section 2, except as otherwise provided by law.

(e) No Fractional Shares. No certificates or scrip representing fractional
shares of MedPartners/ Mullikin Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
MedPartners/ Mullikin. Notwithstanding any other provision of this Plan of
Merger, each holder of shares of CHS Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of MedPartners/Mullikin Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of
MedPartners/Mullikin Common Stock multiplied by the Final MedPartners Trading
Price or such other divisor as shall be used pursuant to Section 2.1(c).

(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to MedPartners/ Mullikin, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Section 2 shall thereafter look only to MedPartners/Mullikin for payment of
MedPartners/Mullikin Common Stock, any cash in lieu of fractional shares of
MedPartners/Mullikin Common Stock and any dividends or distributions with
respect to MedPartners/Mullikin Common Stock.

(g) No Liability. None of MedPartners/Mullikin, the Subsidiary, CHS or the
Exchange Agent shall be liable to any person in respect of any shares of
MedPartners/Mullikin Common Stock (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to the end of the applicable
period after the Effective Time under escheat laws (or immediately prior to such
earlier date on which any shares of MedPartners/Mullikin Common Stock, any cash
in lieu of fractional shares of MedPartners/Mullikin Common Stock or any
dividends or distributions with respect to MedPartners/Mullikin Common Stock in
respect of such Certificates would otherwise escheat to or become the property
of any governmental entity), any such shares, cash, dividends or distributions
in respect of such Certificates shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.

(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by MedPartners/Mullikin, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to MedPartners/Mullikin.

A-4
<PAGE> 244

2.3 Certificate of Incorporation of Surviving Corporation. The Certificate
of Incorporation of the Subsidiary, effective immediately following the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Time and until thereafter amended as
provided by law.

2.4 By-laws of the Surviving Corporation. The By-laws of the Subsidiary
shall be the By-laws of the Surviving Corporation from and after the Effective
Time and until thereafter altered, amended or repealed in accordance with the
DGCL, the Certificate of Incorporation of the Surviving Corporation and the said
By-laws.

2.5 Directors and Officers of the Surviving Corporation. The Directors and
officers of the Subsidiary immediately prior to the Effective Time shall be the
Directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation.

2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Subsidiary and CHS
shall be taken up on the books of the Surviving Corporation at the amounts at
which they respectively shall be carried on the books of said corporations
immediately prior to the Effective Time, except as otherwise set forth in this
Plan of Merger and subject to such adjustments, or elimination of intercompany
items, as may be appropriate in giving effect to the Merger in accordance with
generally accepted accounting principles.

2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its stockholders, its Board of
Directors, committees elected or appointed by the Board of Directors, and all
officers and agents, valid immediately prior to the Effective Time, shall be
those of the Surviving Corporation and shall be as effective and binding thereon
as they were with respect to CHS to the extent not inconsistent with the terms
of this Plan of Merger.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF CHS.

CHS hereby represents and warrants to MedPartners/Mullikin and the
Subsidiary as follows:

3.1 Organization, Existence and Good Standing. CHS is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. CHS has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
CHS does not, and has not within the two years immediately preceding the
date of this Plan of Merger owned, directly or indirectly, any shares of
MedPartners/Mullikin Common Stock or Common Stock of the Subsidiary.

3.2 CHS Capital Stock. CHS's authorized capital consists of (i)
180,000 shares of Common Stock, par value $0.01 per share, of which 48,844
shares are issued and outstanding as of the date of this Plan of Merger and
no shares are held in treasury and (ii) 20,000 shares of Preferred Stock,
par value $0.01 per share, none of which are issued and outstanding. All of
the issued and outstanding CHS Shares are duly and validly issued, fully
paid and nonassessable. Except as set forth on Exhibit 3.2 to the
Disclosure Schedule delivered to MedPartners/Mullikin by CHS at the time of
the execution and delivery of this Plan of Merger (the "CHS Disclosure
Schedule"), there are no options, warrants, or similar rights granted by
CHS or any other agreements to which CHS is a party providing for the
issuance or sale by it of any additional securities which would remain in
effect after the Effective Time. There is no liability for dividends
declared or accumulated but unpaid with respect to any of the CHS Shares.
CHS has not made any distributions to any holders of CHS Shares or
participated in or effected any issuance, exchange or retirement of CHS
Shares, or otherwise changed the equity interests of holders of CHS Shares
in contemplation of effecting the Merger within the two years immediately
preceding the date of this Plan of Merger. Any CHS Shares that CHS has
re-acquired during the two years immediately preceding the date of this
Plan of Merger have been so re-acquired only for purposes other than
"business combinations", as such term is defined in Accounting Principles
Board Opinion No. 16, as amended ("Business Combinations").

3.3 Subsidiaries. Except as set forth on Exhibit 3.3, CHS does not
own stock in and does not control, directly or indirectly, any other
corporation, association or business organization. Except as set

A-5
<PAGE> 245

forth on Exhibit 3.3 to the CHS Disclosure Schedule, CHS does not own an
equity interest in, and such entity does not control, directly or
indirectly, any other joint venture or partnership.

3.4 Foreign Qualifications. CHS is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to so qualify would not have a material adverse
effect on its business or operations.

3.5 Power and Authority. Subject to the satisfaction of the
conditions precedent set forth herein, CHS has the corporate power to
execute, deliver and perform this Plan of Merger and all agreements and
other documents executed and delivered or to be executed and delivered by
it pursuant to this Plan of Merger, and, subject to the satisfaction of the
conditions precedent set forth herein has taken all action required by its
Certificate of Incorporation, By-laws or otherwise, to authorize the
execution, delivery and performance of this Plan of Merger and such related
documents. Except as set forth on Exhibit 3.5 to the CHS Disclosure
Schedule, the execution and delivery of this Plan of Merger does not and,
subject to the receipt of required stockholder and regulatory approvals and
any other required third-party consents or approvals, the consummation of
the Merger will not, violate any provisions of the Certificate of
Incorporation or By-laws of CHS or any provisions of, or result in the
acceleration of any obligation under, any mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree, to which CHS is a
party, or by which it is bound, or violate any restrictions of any kind to
which it is subject which, if violated or accelerated would have a material
adverse effect on CHS. The execution and delivery of this Plan of Merger
has been approved by the Board of Directors of CHS.

3.6 CHS Financial Information. CHS has heretofore furnished
MedPartners/Mullikin with a true and complete copy of unaudited financial
statements from August 3, 1995 (inception) through December 31, 1995. The
financial statements, together with the notes thereto reflect all known
liabilities of CHS, fixed or contingent, required to be stated therein, and
present fairly the financial condition of CHS at said dates and the results
of operations and cash flows of CHS for the periods then ended. The balance
sheet of CHS at December 31, 1995, is herein sometimes referred to as the
"CHS Balance Sheet".

3.7 Contracts, etc. (a) All material contracts, leases, agreements
and arrangements to which CHS is a party are legally valid and binding in
accordance with their terms and in full force and effect and CHS has
provided MedPartners/Mullikin with copies of all such documents. To the
knowledge of CHS, all parties to such contracts, leases, agreements and
arrangements have complied with the provisions of such contracts, leases,
agreements and arrangements, and, to the knowledge of CHS, no party is in
default thereunder, and no event has occurred which, but for the passage of
time or the giving of notice or both, would constitute a default
thereunder, except, in each case, where the invalidity of the lease,
contract, agreement or arrangement or the default or breach thereunder or
thereof would not, individually or in the aggregate, have a material
adverse effect on CHS.

(b) Except as set forth on Exhibit 3.7 to the CHS Disclosure Schedule,
no contract or agreement to which CHS is a party will, by its terms,
terminate as a result of the transactions contemplated hereby or require
any consent from any obligor thereto in order to remain in full force and
effect immediately after the Effective Time, except for contracts or
agreements which, if terminated, would not have a material adverse effect
on CHS. Set forth on Exhibit 3.7 to the CHS Disclosure Schedule is a list
of all material contracts to which CHS is a party which cannot be
terminated on 90 days notice, without cause.

(c) Except as set forth on Exhibit 3.7 to the CHS Disclosure Schedule,
CHS has not granted any right of first refusal or similar right in favor of
any third party with respect to any material portion of its properties or
assets (excluding liens described in Section 3.8) or entered into any
non-competition agreement or similar agreement restricting its ability to
engage in any business in any location.

(d) Each of Community Medical Group of the West Valley ("CMG") and
Health Source Medical Group, Inc. ("HS Medical") has provided
MedPartners/Mullikin with access to information concerning material
contracts and arrangements between CMG or HS Medical and any managed care
payors.

A-6
<PAGE> 246

3.8 Properties and Assets. CHS owns or leases all of the real and
personal property included in the CHS Balance Sheet (except assets recorded
under capital lease obligations and such property as has been disposed of
during the ordinary course of CHS's business since the date of the CHS
Balance Sheet), free and clear of any liens, claims, charges, exceptions or
encumbrances, except for those (i) if any, which in the aggregate are not
material and which do not materially affect continued use of such property,
or (ii) which are set forth in Exhibit 3.8 to the CHS Disclosure Schedule.

3.9 Legal Proceedings. Except as listed on Exhibit 3.9 to the CHS
Disclosure Schedule, there are no actions, suits or proceedings pending or,
to the knowledge of CHS, threatened against CHS, at law or in equity,
relating to or affecting CHS, including the Merger. CHS does not know or
have any reasonably grounds to know of any justification for any such
action, suit or proceeding.

3.10 Subsequent Events. Except as set forth on Exhibit 3.10 to the
CHS Disclosure Schedule or as contemplated by this Plan of Merger, CHS has
not, since the date of the CHS Balance Sheet:

(a) Incurred any material adverse change.

(b) Discharged or satisfied any material lien or encumbrance, or
paid or satisfied any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (i) liabilities shown or
reflected on the CHS Balance Sheet or (ii) liabilities incurred since
the date of the CHS Balance Sheet in the ordinary course of business,
which discharge or satisfaction would have a material adverse effect on
CHS.

(c) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor which would have a
material adverse effect on CHS, except as may have been required due to
income or operations of CHS since the date of the CHS Balance Sheet.

(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the business or financial condition of CHS.

(e) Sold or transferred any of the assets material to the business
of CHS, cancelled any material debts or claims or waived any material
rights, except in the ordinary course of business.

(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become
payable by CHS to any officer or employee, consultant or agent (other
than normal merit increases), or by means of any bonus or pension plan,
contract or other commitment, increased in a material respect the
compensation of any officer, employee, consultant or agent.

(g) Except for this Plan of Merger and any other agreement executed
and delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted
under other Sections of this Plan of Merger.

(h) Issued any stock, bonds or other securities or any options or
rights to purchase any of its securities.

3.11 Accounts Receivable. Since the date of the CHS Balance Sheet,
CHS has not changed any principle or practice with respect to the
recordation of accounts receivable or the calculation of reserves therefor,
or any material collection, discount or write-off policy or procedure. CHS
is in compliance with the terms and conditions of all third-party payor
arrangements relating to its accounts receivable, except to the extent that
such noncompliance would not have a material adverse effect on CHS.

3.12 Tax Returns. CHS has filed all tax returns required to be filed
by it or requests for extensions to file such returns or reports have been
timely filed and granted and have not expired, except to the extent that
such failures to file, taken together, do not have a material adverse
effect on CHS. CHS has made all payments shown as due on such returns. CHS
has not been notified that any tax returns of CHS are currently under audit
by the Internal Revenue Service or any state or local tax agency. No
agreements have been made by CHS for the extension of time or the waiver of
the statute of limitations for the assessment or payment of any federal,
state or local taxes.

A-7
<PAGE> 247

3.13 Employee Benefit Plans; Employment Matters. (a) Except as set
forth on Exhibit 3.13(a) to the CHS Disclosure Schedule, CHS has neither
established nor maintains nor is obligated to make contributions to or
under or otherwise participate in (i) any bonus or other type of incentive
compensation plan, program or arrangement (whether or not set forth in a
written document), (ii) any pension, profit-sharing, retirement or other
plan, program or arrangement, or (iii) any other employee benefit plan,
fund or program, including, but not limited to, those described in Section
3(3) of ERISA. All such plans listed on Exhibit 3.13(a) (individually, a
"CHS Plan" and collectively, the "CHS Plans") have been operated and
administered in all material respects in accordance with, as applicable,
ERISA, the Age Discrimination in Employment Act of 1967, as amended, and
the related rules and regulations adopted by those federal agencies
responsible for the administration of such laws. No act or failure to act
by CHS has resulted in a "prohibited transaction" (as defined in ERISA)
with respect to the CHS Plans that is not subject to a statutory or
regulatory exception and that could have a material adverse effect on CHS.
No "reportable event" (as defined in ERISA, but excluding any event for
which notice is waived under the ERISA regulations) has occurred with
respect to any of the CHS Plans which is subject to Title IV of ERISA. CHS
has not previously made, is not currently making, and is not obligated in
any way to make, any contributions to any multi-employer plan within the
meaning of the Multi-Employer Pension Plan Amendments Act of 1980.

(b) Except as disclosed in the CHS Documents or as set forth on
Exhibit 3.13(b) to the CHS Disclosure Schedule, CHS is not a party to any
oral or written (i) union, guild or collective bargaining agreement which
agreement covers employees in the United States (nor is it aware of any
union organizing activity currently being conducted in respect to any of
its employees), (ii) agreement with any executive officer or other key
employee the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction of the nature
contemplated by this Plan of Merger and which provides for the payment of
in excess of $25,000, or (iii) agreement or plan, including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the
vesting of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Plan of Merger or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Plan of Merger.

3.14 Compliance with Laws in General. Except as set forth on Exhibit
3.14 to the CHS Disclosure Schedule, CHS has not received any notices of
material violations of any federal, state and local laws, regulations and
ordinances relating to its business and operations, including, without
limitation, the Occupational Safety and Health Act, the Americans with
Disabilities Act, the Medicare or applicable Medicaid statutes and
regulations and any Environmental Laws, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by CHS which, if it were determined that a violation had occurred,
would have a material adverse effect on CHS.

3.15 Regulatory Approvals. Except as set forth on Exhibit 3.15 to the
CHS Disclosure Schedule, CHS holds all licenses, certificates of need and
other regulatory approvals required or necessary to be applied for or
obtained in connection with its business as presently conducted or as
presently proposed to be conducted, except where the failure to obtain such
license, certificate of need or regulatory approval would not have a
material adverse effect on CHS. All such licenses, certificates of need and
other regulatory approvals relating to the business, operations and
facilities of CHS are in full force and effect, except where any failure of
such license, certificate of need or regulatory approval to be in full
force and effect would not have a material adverse effect on CHS. Any and
all past litigation concerning such licenses, certificates of need and
regulatory approvals, and all claims and causes of action raised therein,
has been finally adjudicated. No such license, certificate of need or
regulatory approval has been revoked, conditioned (except as may be
customary) or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending, or to the best
knowledge of CHS, threatened, which in any way challenges the validity of,
or seeks to revoke, condition or restrict any such license, certificate of
need, or regulatory approval. Subject to compliance with applicable
securities laws, the consummation of the Merger will not violate any law or
restriction to which CHS is subject which, if violated, would have a
material adverse effect on CHS.

A-8
<PAGE> 248

3.16 Commissions and Fees. Except for fees payable to Sutro & Co.
pursuant to the engagement letter, dated August 15, 1995, there are no
valid claims for brokerage commissions or finder's or similar fees in
connection with the transactions contemplated by this Plan of Merger which
may be now or hereafter asserted against MedPartners/Mullikin resulting
from any action taken by CHS or its officers, Directors or agents, or any
of them.

3.17 Retirement or Re-Acquisition of MedPartners/Mullikin Common
Stock. CHS is not a party to any agreement the effect of which would be to
require MedPartners/Mullikin directly or indirectly to retire or re-acquire
all or part of the shares of MedPartners/Mullikin Common Stock issued
pursuant to Section 2.1 hereof.

3.18 Disposition of Assets of Surviving Corporation. CHS is not a
party to any plan to dispose of a significant part of the assets of the
Surviving Corporation within two years after the Closing Date, other than
dispositions in the ordinary course of business of the Surviving
Corporation and dispositions intended to eliminate duplicate facilities or
excess capacity.

3.19 Vote Required. The affirmative vote of the holders of a majority
of the outstanding CHS Shares entitled to vote thereon is the only vote of
the holders of any class or series of CHS capital stock necessary to
approve this Plan of Merger, the Merger and the transactions contemplated
hereby.

3.20 No Untrue Representations. No representation or warranty by CHS
in this Plan of Merger, and no Exhibit or certificate issued by CHS and
furnished or to be furnished to MedPartners/Mullikin pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact in response to the
disclosure requested, or omits or will omit to state a material fact
necessary to make the statements or facts contained therein in response to
the disclosure requested not misleading in light of all of the
circumstances then prevailing.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY.

The Subsidiary and MedPartners/Mullikin, jointly and severally, hereby
represent and warrant to CHS as follows:

4.1 Organization, Existence and Capital Stock. The Subsidiary is a
corporation duly organized and validly existing and is in good standing
under the laws of the State of Delaware. The Subsidiary's authorized
capital consists of 1,000 shares of Common Stock, par value $1.00 per
share, all of which shares are issued and registered in the name of
MedPartners/Mullikin. The Subsidiary has not, within the two years
immediately preceding the date of this Plan of Merger, owned, directly or
indirectly, any CHS Shares.

4.2 Power and Authority. The Subsidiary has the corporate power to
execute, deliver and perform this Plan of Merger and all agreements and
other documents executed and delivered, or to be executed and delivered, by
it pursuant to this Plan of Merger, and, subject to the satisfaction of the
conditions precedent set forth herein, has taken all actions required by
law, its Certificate of Incorporation, its By-laws or otherwise, to
authorize the execution and delivery of this Plan of Merger and such
related documents. The execution and delivery of this Plan of Merger does
not and, subject to the receipt of required regulatory approvals and any
other required third-party consents or approvals, the consummation of the
Merger contemplated hereby will not, violate any provisions of the
Certificate of Incorporation or By-laws of the Subsidiary, or any
agreement, instrument, order, judgment or decree to which the Subsidiary is
a party or by which it is bound, violate any restrictions of any kind to
which the Subsidiary is subject, or result in the creation of any lien,
charge or encumbrance upon any of the property or assets of the Subsidiary.

4.3 Commissions and Fees. There are no claims for brokerage
commissions, investment bankers' fees or finder's fees in connection with
the transaction contemplated by this Plan of Merger resulting from any
action taken by the Subsidiary or any of its officers, Directors or agents.

A-9
<PAGE> 249

4.4 No Subsidiaries. The Subsidiary does not own stock in, and does
not control directly or indirectly, any other corporation, association or
business organization. The Subsidiary is not a party to any joint venture
or partnership.

4.5 Legal Proceedings. There are no actions, suits or proceedings
pending or threatened against the Subsidiary, at law or in equity, relating
to or affecting the Subsidiary, including the Merger. The Subsidiary does
not know or have any reasonable grounds to know of any justification for
any such action, suit or proceeding.

4.6 No Contracts or Liabilities. Other than the obligations created
under this Plan of Merger, the Subsidiary has no obligations or liabilities
(contingent or otherwise) under any contracts, claims, leases, loans or
otherwise.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS/MULLIKIN.

MedPartners/Mullikin hereby represents and warrants to CHS as follows:

5.1 Organization, Existence and Good Standing. MedPartners/Mullikin
is a corporation duly organized and validly existing and is in good
standing under the laws of the State of Delaware. MedPartners/Mullikin has
all necessary corporate power to own its properties and assets and to carry
on its business as presently conducted. MedPartners/Mullikin is not, and
has not been within the two years immediately preceding the date of this
Plan of Merger, a subsidiary or division of another corporation, nor has
MedPartners/Mullikin within such time owned, directly or indirectly, any
CHS Shares.

5.2 MedPartners/Mullikin Capitalization. MedPartners/Mullikin has an
authorized capitalization of 9,500,000 shares of Preferred Stock, par value
$.001 per share, of which no shares are issued and outstanding, and no
shares are held in treasury, 500,000 shares of Series C Junior
Participating Preferred Stock, par value $.001 per share, of which no
shares are issued and outstanding and no shares are held in treasury and
75,000,000 shares of Common Stock, par value $.001 per share, of which
50,133,936 shares were issued and outstanding at March 6, 1996, and no
shares are held in treasury. All of the issued and outstanding shares of
MedPartners/Mullikin Common Stock have been duly and validly issued and are
fully paid and nonassessable. Except as disclosed in the
MedPartners/Mullikin Disclosure Schedule (as herein defined), and except as
described on Exhibit 5.2 to the MedPartners/Mullikin Disclosure Schedule
delivered to CHS at the time of the execution and delivery of this Plan of
Merger (the "MedPartners/Mullikin Disclosure Schedule"), there are no
options, warrants or similar rights granted by MedPartners/Mullikin or any
other agreements to which MedPartners/Mullikin is a party providing for the
issuance or sale by it of any additional securities. There is no liability
for dividends declared or accumulated but unpaid with respect to any shares
of MedPartners/Mullikin Common Stock. MedPartners/Mullikin has not made any
distributions to any holder of MedPartners/Mullikin Common Stock or
participated in or effected any issuance, exchange or retirement of
MedPartners/Mullikin Common Stock, or otherwise changed the equity
interests of holders of MedPartners/Mullikin Common Stock, in contemplation
of effecting the Merger within the two years immediately preceding the date
of this Plan of Merger. Any shares of MedPartners/Mullikin Common Stock
that MedPartners/Mullikin has re-acquired during the two years immediately
preceding the date of this Plan of Merger have been so re-acquired only for
purposes other than Business Combinations.

5.3 MedPartners/Mullikin Common Stock. On the Closing Date,
MedPartners/Mullikin will have a sufficient number of authorized but
unissued and/or treasury shares of its Common Stock available for issuance
to the holders of CHS Shares in accordance with the provisions of this Plan
of Merger. The MedPartners/Mullikin Common Stock to be issued pursuant to
this Plan of Merger will, when so delivered, be (i) duly and validly
issued, fully paid and nonassessable, (ii) issued pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), and (iii) listed on the NYSE, upon official notice of
issuance.

5.4 Subsidiaries. (a) Attached as Exhibit 5.4 to the
MedPartners/Mullikin Disclosure Schedule is a list of all subsidiaries of
MedPartners/Mullikin (individually, a "MedPartners/Mullikin Subsidiary",

A-10
<PAGE> 250

and collectively, the "MedPartners/Mullikin Subsidiaries") and their states
of incorporation. Except as set forth on Exhibit 5.4, MedPartners/Mullikin
does not own stock in and does not control, directly or indirectly, any
other corporation, association or business organization.

(b) Except as set forth on Exhibit 5.4, neither MedPartners/Mullikin
nor any MedPartners/ Mullikin Subsidiary owns an equity interest in, nor
does such entity control, directly or indirectly, any other joint venture
or partnership.

5.5 Organization, Existence and Good Standing of MedPartners/Mullikin
Subsidiaries. Each MedPartners/Mullikin Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation. Each MedPartners/Mullikin Subsidiary has
all necessary corporate power to own its properties and assets and to carry
on its business as presently conducted.

5.6 Foreign Qualifications. MedPartners/Mullikin and each
MedPartners/Mullikin Subsidiary is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the nature
or character of the property owned, leased or operated by it or the nature
of the business transacted by it makes such qualification necessary, except
where the failure to so qualify would not have a material adverse effect on
MedPartners/Mullikin.

5.7 Subsidiary Common Stock. MedPartners/Mullikin owns, beneficially
and of record, all of the issued and outstanding shares of Common Stock,
par value $1.00 per share, of the Subsidiary (the "Subsidiary Common
Stock"), which are validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens and encumbrances.
MedPartners/Mullikin has the corporate power to endorse and surrender such
shares of Subsidiary Common Stock for conversion pursuant to this Plan of
Merger. MedPartners/Mullikin has, or will by the Effective Time have, taken
all such actions as may be required in its capacity as the sole stockholder
of the Subsidiary to approve the Merger.

5.8 Power and Authority. MedPartners/Mullikin has corporate power to
execute, deliver and perform this Plan of Merger and all agreements and
other documents executed and delivered, or to be executed and delivered, by
it pursuant to this Plan of Merger, and, subject to the satisfaction of the
conditions precedent set forth herein has taken all actions required by
law, its Certificate of Incorporation, its By-laws or otherwise, to
authorize the execution and delivery of this Plan of Merger and such
related documents. The execution and delivery of this Plan of Merger does
not and, subject to the receipt of required regulatory approvals and any
other required third-party consents or approvals, the consummation of the
Merger contemplated hereby will not, violate any provisions of the
Certificate of Incorporation or By-laws of MedPartners/Mullikin, or any
provision of, or result in the acceleration of any obligation under, any
mortgage, lien, lease, agreement, instrument, order, arbitration award,
judgment or decree to which MedPartners/Mullikin is a party or by which it
is bound, or violate any restrictions of any kind to which
MedPartners/Mullikin is subject. The execution and delivery of this Plan of
Merger has been approved by the Board of Directors of MedPartners/Mullikin.

5.9 MedPartners/Mullikin Public Information. MedPartners/Mullikin has
heretofore furnished Seller with its Registration Statement on Form S-1
(Registration No. 333-1130) relating to the offer and sale of 8,250,000
shares of MedPartners/Mullikin Common Stock (the "MedPartners/Mullikin S-1
Registration Statement"). As of the filing date of the MedPartners/Mullikin
S-1 Registration Statement, the MedPartners/Mullikin S-1 Registration
Statement did not contain any untrue statements of material facts or omit
to state material facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As of the filing date of the MedPartners/Mullikin S-1
Registration Statement, the descriptions of the business, operations and
financial condition of MedPartners/Mullikin complied in all material
respects with the applicable requirements of the Securities Act. Since such
filing date, MedPartners/Mullikin has not experienced any material adverse
change in its business operations or financial condition. The financial
statements contained in the MedPartners/Mullikin S-1 Registration
Statement, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently
followed throughout the periods indicated, reflect all known liabilities of
MedPartners/Mullikin, including all

A-11
<PAGE> 251

known contingent liabilities as of the end of each period reflected
therein, and present fairly the financial condition of MedPartners/Mullikin
at such date and the consolidated results of operations and cash flows of
MedPartners/Mullikin for the periods then ended. The consolidated balance
sheet of MedPartners/ Mullikin at December 31, 1995, included in the
MedPartners/Mullikin S-1 Registration Statement is herein sometimes
referred to as the "MedPartners/Mullikin Balance Sheet".

5.10 Legal Proceedings. There is no pending or threatened litigation,
governmental investigation, condemnation or other proceeding against or
relating to or affecting MedPartners/Mullikin or the transactions
contemplated by this Plan of Merger for which MedPartners/Mullikin is
uninsured or which, if resolved adversely to MedPartners/Mullikin, would
have a material adverse effect on MedPartners/ Mullikin and, to the
knowledge of MedPartners/Mullikin, no basis for any such action exists.

5.11 Subsequent Events. Except as set forth on Exhibit 5.11 to the
MedPartners/Mullikin Disclosure Schedule, MedPartners/Mullikin has not,
since the date of the MedPartners/Mullikin Balance Sheet:

(a) Incurred any material adverse change.

(b) Discharged or satisfied any material lien or encumbrance, or
paid or satisfied any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (i) liabilities shown or
reflected on the MedPartners/Mullikin Balance Sheet or (ii) liabilities
incurred since the date of the MedPartners/Mullikin Balance Sheet in the
ordinary course of business, which discharge or satisfaction would have
a material adverse effect on MedPartners/Mullikin.

(c) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor which would have a
material adverse effect on MedPartners/Mullikin, except as may have been
required due to income or operations of MedPartners/Mullikin since the
date of the MedPartners/Mullikin Balance Sheet.

(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of
MedPartners/Mullikin.

(e) Sold or transferred any of the assets material to the
consolidated business of MedPartners/ Mullikin, cancelled any material
debts or claims or waived any material rights, except in the ordinary
course of business.

(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become
payable by MedPartners/Mullikin to any officer or employee, consultant
or agent (other than normal merit increases), or by means of any bonus
or pension plan, contract or other commitment, increased in a material
respect the compensation of any officer, employee, consultant or agent.

(h) Issued any stock, bonds or other securities or any options or
rights to purchase any of its securities (other than stock issued upon
the exercise of outstanding options under MedPartners/ Mullikin's stock
option plans or stock options under such plans and the merger
transaction with Pacific Physician Services, Inc. described in the
MedPartners/Mullikin S-1 Registration Statement).

5.12 Compliance with Laws in General. MedPartners/Mullikin has not
received any notices of material violations of any federal, state and local
laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Federal Environmental Protection Act,
the Occupational Safety and Health Act, the Americans with Disabilities
Act, the Medicare or applicable Medicaid statutes and regulations and any
Environmental Laws, and no notice of any pending inspection or

A-12
<PAGE> 252

violation of any such law, regulation or ordinance has been received by
MedPartners/Mullikin which, if it were determined that a violation had
occurred, would have a material adverse effect on MedPartners/ Mullikin.

5.13 Regulatory Approvals. Except as disclosed in the
MedPartners/Mullikin S-1 Registration Statement or in Exhibit 5.18 to the
MedPartners/Mullikin Disclosure Schedule, MedPartners/Mullikin and each
MedPartners/Mullikin Subsidiary, as applicable, holds all licenses,
certificates of need and other regulatory approvals required or necessary
to be applied for or obtained in connection with its business as presently
conducted or as proposed to be conducted, except where the failure to
obtain such license, certificate of need or regulatory approval would not
have a material adverse effect on MedPartners/Mullikin. All such licenses,
certificates of need and other regulatory approvals relating to the
business, operations and facilities of MedPartners/Mullikin and each
MedPartners/Mullikin Subsidiary are in full force and effect, except where
any failure of such license, certificate of need or regulatory approval to
be in full force and effect would not have a material adverse effect on
MedPartners/Mullikin. Any and all past litigation concerning such licenses,
certificates of need and regulatory approvals, and all claims and causes of
action raised therein, has been finally adjudicated. No such license,
certificate of need or regulatory approval has been revoked, conditioned
(except as may be customary) or restricted, and no action (equitable, legal
or administrative), arbitration or other process is pending, or to the best
knowledge of MedPartners/Mullikin, threatened, which in any way challenges
the validity of, or seeks to revoke, condition or restrict any such
license, certificate of need, or regulatory approval. Subject to compliance
with applicable securities laws, the consummation of the Merger will not
violate any law or restriction to which MedPartners/Mullikin is subject
which, if violated, would have a material adverse effect on
MedPartners/Mullikin.

5.14 Investment Intent. MedPartners/Mullikin is acquiring the CHS
Shares hereunder for its own account and not with a view to the
distribution or sale thereof, and MedPartners/Mullikin has no
understanding, agreement or arrangement to sell, distribute, partition or
otherwise transfer or assign all or any part of the CHS Shares to any other
person, firm or corporation.

5.15 Commissions and Fees. There are no claims for brokerage
commissions, investment bankers' fees or finder's fees in connection with
the transactions contemplated by this Plan of Merger resulting from any
action taken by MedPartners/Mullikin or any of its officers, Directors or
agents.

5.16 Retirement or Re-Acquisition of MedPartners/Mullikin Common
Stock. MedPartners/Mullikin has not agreed directly or indirectly to
retire or re-acquire all or part of the shares of MedPartners/ Mullikin
Common Stock issued pursuant to Section 2.1 hereof.

5.17 Disposition of Assets of Surviving
Corporation. MedPartners/Mullikin does not intend or plan to dispose of,
or to cause the Surviving Corporation to dispose of, or to cause the
Surviving Corporation to dispose of, a significant part of the assets of
the Surviving Corporation within two years after the Effective Date, other
than dispositions in the ordinary course of business of the Surviving
Corporation and dispositions intended to eliminate duplicate facilities or
excess capacity.

5.18 Managed Care Arrangements. MedPartners/Mullikin has provided CHS
with access to information concerning material contracts, agreements and
arrangements between MedPartners/Mullikin and any managed care payors, each
of which is legally valid and binding in accordance with their terms and in
full force and effect. To the knowledge of MedPartners/Mullikin, all
parties to such contracts, agreements and arrangements have complied with
the provisions of such contracts, agreements and arrangements, and to the
knowledge of MedPartners/Mullikin, no party is in default thereunder, and
no event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder, except, in each
case, where the invalidity of the contract, agreement or arrangement or the
default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on MedPartners/Mullikin.

5.19 No Untrue Representations. No representation or warranty by
MedPartners/Mullikin in this Plan of Merger, and no Exhibit or certificate
issued by MedPartners/Mullikin and furnished or to be

A-13
<PAGE> 253

furnished to CHS pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact in response to the disclosure requested, or omits or will
omit to state a material fact necessary to make the statements or facts
contained therein in response to the disclosure requested not misleading in
light of all of the circumstances then prevailing.

SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS.

6.1 Access to Information. (a) Between the date hereof and the Closing
Date, CHS will give to MedPartners/Mullikin and its counsel, accountants and
other representatives full access to all the properties, documents, contracts,
personnel files and other records of such party and shall furnish
MedPartners/Mullikin with copies of such documents and with such information
with respect to the affairs of such party as the other party may from time to
time reasonably request. CHS will disclose and make available to MedPartners/
Mullikin and its representatives all books, contracts, accounts, personnel
records, letters of intent, papers, records, communications with regulatory
authorities and other documents relating to the business and operations of CHS.
In addition, CHS shall make available to MedPartners/Mullikin all such banking,
investment and financial information as shall be necessary to allow for the
efficient integration of CHS's banking, investment and financial arrangements
with those of MedPartners/Mullikin at the Effective Time.

(b) In connection with the foregoing, CHS acknowledges that it is a
condition to the consummation of the Merger that the consent of
MedPartners/Mullikin's Required Lenders hereunder be obtained as contemplated by
Section 9.2(h) of this Plan of Merger, and that in connection with the obtaining
of such consent, MedPartners/Mullikin will be required to provide certain
information and make certain representations and warranties about CHS and its
business and CMG and HS Medical. CHS hereby agrees that it shall provide, and
use its reasonable best efforts to cause CMG and HS Medical to provide
MedPartners/Mullikin with such information and documentation as
MedPartners/Mullikin shall reasonably request in order to obtain such consent.

6.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Evaluation Material" under the terms of the
Confidentiality Agreement, dated November 8, 1995, between CHS and MedPartners/
Mullikin (the "Confidentiality Agreement").

6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be
deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party.

(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties, except to the extent that such investigations result in
actual knowledge of the inaccuracy or falsehood of particular representations
and warranties.

SECTION 7. COVENANTS.

7.1 Preservation of Business. CHS will use its reasonable best efforts to
preserve the business organization of CHS intact, to keep available to
MedPartners/Mullikin and the Surviving Corporation the services of the present
employees of CHS, and to preserve for MedPartners/Mullikin and the Surviving
Corporation the goodwill of the suppliers, customers and others having business
relations with CHS.

7.2 Material Transactions. Prior to the Effective Time, CHS will not
(other than as contemplated by the terms of the Plan of Merger and the related
documents, and other than with respect to transactions for which binding
commitments have been entered into prior to the date hereof and transactions
described on

A-14
<PAGE> 254

Exhibit 7.2 to the CHS Disclosure Schedule which do not vary materially from the
terms set forth on such Exhibit 7.2), without first obtaining the written
consent of MedPartners/Mullikin:

(a) Encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of
CHS, other than in the ordinary course of business or as otherwise
disclosed herein.

(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to CHS except as
provided herein.

(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$100,000.

(d) Issue or sell, or agree to issue or sell, any shares of capital
stock or other securities of CHS.

(e) Make any payment or distribution to the trustee under any bonus,
pension, profit-sharing or retirement plan or incur any obligation to make
any such payment or contribution which is not in accordance with CHS's
usual past practice, or make any payment or contributions or incur any
obligation pursuant to or in respect of any other plan or contract or
arrangement providing for bonuses, executive incentive compensation,
pensions, deferred compensation, retirement payments, profit-sharing or the
like, establish or enter into any such plan, contract or arrangement, or
terminate any plan.

(f) Extend credit to anyone other than HS Medical or CMG except in the
ordinary course of business consistent with prior practices.

(g) Guarantee the obligation of any person, firm or corporation other
than HS Medical or CMG, except in the ordinary course of business
consistent with prior practices.

(h) Amend its Certificate of Incorporation or By-laws.

(i) Take any action of a character described in Section 3.10(a) to
3.10(h), inclusive.

7.3 Meeting of CHS Stockholders. CHS will take all steps necessary in
accordance with its Certificate of Incorporation and By-laws to call, give
notice of, convene and hold a meeting of its stockholders (the "Stockholders
Meeting") as soon as practicable after the effectiveness of the Registration
Statement (as defined in Section 7.4 hereof), for the purpose of approving this
Plan of Merger and for such other purposes as may be necessary. Unless this Plan
of Merger shall have been validly terminated as provided herein, the Board of
Directors of CHS (subject to the provisions of Section 8.1(d) hereof) will (i)
recommend to its stockholders the approval of this Plan of Merger, the
transactions contemplated hereby and any other matters to be submitted to the
stockholders in connection therewith, to the extent that such approval is
required by applicable law in order to consummate the Merger, and (ii) use its
reasonable, good faith efforts to obtain the approval by its stockholders of
this Plan of Merger and the transactions contemplated hereby.

7.4 Registration Statement. (a) MedPartners/Mullikin shall prepare and
file with the SEC and any other applicable regulatory bodies, as soon as
reasonably practicable, but in any event within 30 days, a Registration
Statement on Form S-4 with respect to the shares of MedPartners/Mullikin Common
Stock to be issued in the Merger (the "Registration Statement"), and will
otherwise proceed promptly to satisfy the requirements of the Securities Act,
including Rule 145 thereunder. Such Registration Statement shall contain a proxy
statement of CHS (the "Proxy Statement") containing the information required by
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
MedPartners/Mullikin shall take all reasonable steps to cause the Registration
Statement to be declared effective and to maintain such effectiveness until all
of the shares covered thereby have been distributed. MedPartners/Mullikin shall
promptly amend or supplement the Registration Statement to the extent necessary
in order to make the statements therein not misleading or to correct any
misstatements which have become false or misleading. MedPartners/Mullikin shall
use its reasonable, good faith efforts to have the Proxy Statement approved by
the SEC under the provisions of the Exchange Act. MedPartners/Mullikin shall
provide CHS with copies of all filings made pursuant to this Section 7.4 and
shall consult with CHS on responses to any comments made by the Staff of the SEC
with respect thereto.

A-15
<PAGE> 255

(b) The information specifically designated as being supplied by CHS for
inclusion in the Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time the Proxy Statement is first mailed
to holders of CHS Common Stock, at the time of the Stockholders Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, not misleading. The information specifically
designated as being supplied by CHS for inclusion in the Proxy Statement shall
not, at the date the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to holders of CHS Common Stock, at the time of the
Stockholders Meeting and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event or circumstance relating to CHS, or its officers or
Directors, should be discovered by CHS which should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, CHS shall
promptly inform MedPartners/Mullikin. All documents, if any, that CHS is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.

(c) The information specifically designated as being supplied by
MedPartners/Mullikin for inclusion in the Registration Statement shall not, at
the time the Registration Statement is declared effective, at the time the Proxy
Statement is first mailed to holders of CHS Common Stock, at the time of the
Stockholders Meeting and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, not misleading. The
information specifically designated as being supplied by MedPartners/Mullikin
for inclusion in the Proxy Statement to be sent to the holders of CHS Common
Stock in connection with the Stockholders Meeting shall not, at the date the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to holders of CHS Common Stock, at the time of the Stockholders Meeting or at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, not misleading. If at any time prior to the
Effective Time any event or circumstance relating to MedPartners/Mullikin or its
officers or Directors, should be discovered by MedPartners/Mullikin which should
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, MedPartners/Mullikin shall promptly inform CHS and shall
promptly file such amendment to the Registration Statement. All documents that
MedPartners/Mullikin is responsible for filing with the SEC in connection with
the transactions contemplated herein will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.

(d) Prior to the Closing Date, MedPartners/Mullikin shall use its
reasonable, good faith efforts to cause the shares of MedPartners/Mullikin
Common Stock to be issued pursuant to the Merger to be registered or qualified
under all applicable securities or Blue Sky laws of each of the states and
territories of the United States, and to take any other actions which may be
necessary to enable the MedPartners/Mullikin Common Stock to be issued pursuant
to the Merger to be distributed in each such jurisdiction.

(e) Prior to the Closing Date, MedPartners/Mullikin shall file a Subsequent
Listing Application with the NYSE relating to the shares of MedPartners/Mullikin
Common Stock to be issued in connection with the Merger, and shall cause such
shares of MedPartners/Mullikin Common Stock to be listed on the NYSE, upon
official notice of issuance, prior to the Closing Date.

(f) CHS shall furnish all information to MedPartners/Mullikin with respect
to CHS as MedPartners/ Mullikin may reasonably request for inclusion in the
Registration Statement, the Proxy Statement and shall otherwise cooperate with
MedPartners/Mullikin in the preparation and filing of such documents.

7.5 Exemption from State Takeover Laws. CHS shall take all reasonable
steps necessary and within its power to exempt the Merger from the requirements
of any state takeover statute or other similar state law

A-16
<PAGE> 256

which would prevent or impede the consummation of the transactions contemplated
hereby, by action of CHS's Board of Directors.

7.6 HSR Act Compliance. MedPartners/Mullikin and CHS shall promptly make
their respective filings, and shall thereafter use their reasonable, good faith
efforts to promptly make any required submissions, under the HSR Act with
respect to the Merger and the transactions contemplated hereby. MedPartners/
Mullikin and CHS will use their respective reasonable, good faith efforts to
obtain all other permits, authorizations, consents and approvals from third
parties and governmental authorities necessary to consummate the Merger and the
transactions contemplated hereby.

7.7 Public Disclosures. MedPartners/Mullikin and CHS will consult with
each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by this Plan of Merger,
and shall not issue any such press release or make any such public statement
prior to such consultation except as may be required by applicable law or
requirements of the NYSE. The parties shall issue a joint press release,
mutually acceptable to MedPartners/Mullikin and CHS, promptly upon execution and
delivery of this Plan of Merger.

7.8 Resignation of CHS Directors. On or prior to the Closing Date, CHS
shall deliver to MedPartners/ Mullikin evidence satisfactory to
MedPartners/Mullikin of the resignation of the Directors of CHS, such
resignations to be effective on the Closing Date.

7.9 Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events of which they have knowledge which
would cause any material change in or material addition to any Exhibit to its
Disclosure Schedule delivered by the notifying party under this Plan of Merger,
promptly after the occurrence of the same. If the effect of such change or
addition would, individually or in the aggregate with the effect of changes or
additions previously disclosed pursuant to this Section 7.9, constitute a
material adverse effect on the notifying party, the non-notifying party may,
within ten days after receipt of such notice, elect to terminate this Plan of
Merger. If the non-notifying party does not give written notice of such
termination within such 10-day period, the non-notifying party shall be deemed
to have consented to such change or addition and shall not be entitled to
terminate this Plan of Merger by reason thereof.

7.10 No Solicitations. Either MedPartners/Mullikin or CHS may, directly or
indirectly, furnish information and access, in response to unsolicited requests
therefor, to the same extent permitted by Section 6.1, to any corporation,
partnership, person or other entity or group, pursuant to appropriate
confidentiality agreements, and may participate in discussions and negotiate
with such corporation, partnership, person or other entity or group concerning
any proposal to acquire such party upon a merger, purchase of assets, purchase
of or tender offer for shares of its Common Stock or similar transaction (an
"Acquisition Transaction"), if the Board of Directors of MedPartners/Mullikin or
CHS, as the case may be, determines in its good faith judgment in the exercise
of its fiduciary duties or the exercise of its duties under Rule 14e-2 under the
Exchange Act, after consultation with legal counsel and its financial advisors,
that such action is appropriate in furtherance of the best interest of its
stockholders. Except as set forth above, MedPartners/ Mullikin or CHS shall not,
and will direct each officer, Director, employee, representative and agent of
such party not to, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with or provide any information to any
corporation, partnership, person or other entity or group (other than
MedPartners/Mullikin or an affiliate or associate or agent of
MedPartners/Mullikin) concerning any merger, sale of assets, sale of or tender
offer for its shares or similar transactions involving such party. Such party
shall promptly notify the other party if it shall, on or after the date hereof,
have entered into a confidentiality agreement with any third party in response
to any unsolicited request for information and access in connection with a
possible Acquisition Transaction involving such party, such notification to
include the identity of such third party and the proposed terms of such possible
Acquisition Transaction.

7.11 Other Actions. Subject to the provisions of Section 7.10 hereof, none
of CHS, MedPartners/ Mullikin and the Subsidiary shall knowingly or
intentionally take any action, or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of its
representations and warranties set forth herein being or becoming untrue in any
material respect, or in any of the conditions to the Merger set forth in this
Plan of Merger not being satisfied, or (unless such action is required by
applicable

A-17
<PAGE> 257

law) which would materially adversely affect the ability of CHS or
MedPartners/Mullikin to obtain any consents or approvals required for the
consummation of the Merger without imposition of a condition or restriction
which would have a material adverse effect on the Surviving Corporation or which
would otherwise materially impair the ability of CHS or MedPartners/Mullikin to
consummate the Merger in accordance with the terms of this Plan of Merger or
materially delay such consummation.

7.12 Accounting Methods. Neither MedPartners/Mullikin nor CHS shall
change, in any material respect, its methods of accounting in effect at its most
recent fiscal year end, except as required by changes in generally accepted
accounting principles as concurred by such parties' independent accountants.

7.13 Pooling and Tax-Free Reorganization Treatment. Neither
MedPartners/Mullikin nor CHS shall intentionally take or cause to be taken any
action, whether on or before the Effective Time, which would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.

7.14 Affiliate and Pooling Agreements. MedPartners/Mullikin and CHS will
each use their respective reasonable, good faith efforts to cause each of their
respective Directors and executive officers and each of their respective
"affiliates" (within the meaning of Rule 145 under the Securities Act) to
execute and deliver to MedPartners/Mullikin as soon as practicable an agreement
in the form attached hereto as Exhibit 7.14 relating to the disposition of
shares of CHS Common Stock and shares of MedPartners/Mullikin Common Stock held
by such person and the shares of MedPartners/Mullikin Common Stock issuable
pursuant to this Plan of Merger.

7.15 Cooperation. (a) MedPartners/Mullikin and CHS shall together, or
pursuant to an allocation of responsibility agreed to between them, (i)
cooperate with one another in determining whether any filings required to be
made or consents required to be obtained in any jurisdiction prior to the
Effective Time in connection with the consummation of the transactions
contemplated hereby and cooperate in making any such filings promptly and in
seeking to obtain timely any such consents, (ii) use their respective best
efforts to cause to be lifted any injunction prohibiting the Merger, or any part
thereof, or the other transactions contemplated hereby, and (iii) furnish to one
another and to one another's counsel all such information as may be required to
effect the foregoing actions.

(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each of
MedPartners/Mullikin and CHS shall use all reasonable efforts (i) to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party (or any subsidiaries or
affiliates of such party) with respect to the Plan of Merger and to consummate
the transactions contemplated hereby, subject to the vote of its stockholders
described above, and (ii) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any governmental entity and/or any other public or private third party which is
required to be obtained or made by such party or any of its subsidiaries or
affiliates in connection with this Plan of Merger and the transactions
contemplated hereby Each of MedPartners/ Mullikin and CHS will promptly
cooperate with and furnish information to the other in connection with any such
burden suffered by, or requirement imposed upon, either of them or any of their
subsidiaries or affiliates in connection with the foregoing.

7.16 Publication of Combined Results. MedPartners/Mullikin agrees that
within 30 days after the end of the first full calendar month following the
Effective Time, MedPartners/Mullikin shall cause publication of the combined
results of operations of MedPartners/Mullikin and CHS, provided however that
such period shall be tolled for such period as the financial statements required
for the preparation of such financial statements for such publication are not
reasonably available to MedPartners/Mullikin. For purposes of this Section 7.16,
the term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.

7.17 Tax Opinions. Counsel for each of MedPartners/Mullikin and CHS shall
render opinions as to the federal income tax consequences of the Merger, which
opinions shall be filed as Exhibits to the

A-18
<PAGE> 258

Registration Statement. Each of MedPartners/Mullikin and CHS agrees that it
shall provide certificates containing reasonable representations to such counsel
in connection with the rendering of such opinions.

SECTION 8. TERMINATION, AMENDMENT AND WAIVER.

8.1 Termination. This Plan of Merger may be terminated at any time prior
to the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of CHS Common Stock:

(a) by mutual written consent of MedPartners/Mullikin, the Subsidiary
and CHS;

(b) by either MedPartners/Mullikin or CHS;

(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of CHS Common
Stock shall not have been obtained;

(ii) if the Merger shall not have been consummated on or before
June 30, 1996, unless the failure to consummate the Merger is the result
of a willful and material breach of this Plan of Merger by the party
seeking to terminate this Plan of Merger; provided, however, that the
passage of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of a meeting of stockholders;

(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;

(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition
set forth in Section 9.2(a) or (b) or Section 9.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach (a
"Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other
agreement contained in this Plan of Merger); or

(v) if either MedPartners/Mullikin or CHS gives notice of
termination pursuant to Section 7.9;

(c) by either MedPartners/Mullikin or CHS in the event that (i) all of
the conditions to the obligation of such party to effect the Merger set
forth in Section 9.1 shall have been satisfied and (ii) any condition to
the obligation of such party to effect the Merger set forth in Section 9.2
(in the case of MedPartners/Mullikin) or Section 9.3 (in the case of CHS)
is not capable of being satisfied prior to the end of the period referred
to in Section 8.1(b)(ii);

(d) By CHS, if CHS's Board of Directors shall have (i) determined, in
the exercise of its fiduciary duties under applicable law, not to recommend
the Merger to the holders of CHS Shares or shall have withdrawn such
recommendation or (ii) approved, recommended or endorsed any Acquisition
Transaction (as defined in Section 7.10) other than this Plan of Merger or
(iii) resolved to do any of the foregoing;

(e) By either MedPartners/Mullikin or CHS, if the condition set forth
in Section 9.1(f)(i) is not satisfied by June 30, 1996; or

(f) By CHS if either (i) the average of the closing price for shares
of MedPartners/Mullikin Common Stock for any 10 consecutive trading days on
which such shares are actually traded on the NYSE or (ii) the Final
MedPartners Trading Price, is less than 80% of the Initial MedPartners
Trading Price.

A-19
<PAGE> 259

(g) By MedPartners/Mullikin, if the holders of more than 10% of the
CHS Shares shall have given proper written demand for appraisal of the
value of such CHS Shares as provided in Section 262 of the DGCL before the
taking of a vote on the Merger at the Stockholders Meeting.

8.2 Effect of Termination. In the event of termination of this Plan of
Merger as provided in Section 8.1, this Plan of Merger shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Plan of Merger.

8.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of CHS Shares; provided, however, that after any
such approval, there shall be made no amendment that pursuant to Section 251(d)
of the DGCL requires further approval by such stockholders. This Plan of Merger
may not be amended except by an instrument in writing signed on behalf of each
of the parties.

8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights, except as otherwise provided in Section
7.9.

8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of
MedPartners/Mullikin, the Subsidiary or CHS, action by its Board of Directors or
the duly authorized designee of the Board of Directors.

8.6 Expenses. All costs and expenses incurred in connection with the Plan
of Merger and the transactions contemplated hereby shall be paid by the party
incurring such expense, it being understood that if the Merger is consummated,
by reason thereof, MedPartners/Mullikin will indirectly bear the expenses
incurred by CHS, which expenses may be paid by CHS at Closing with the prior
approval thereof by MedPartners/Mullikin.

SECTION 9. CONDITIONS TO CLOSING.

9.1 Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction, at or prior to the Closing
Date, of the following conditions (any of which may be waived in writing by
MedPartners/Mullikin, the Subsidiary and CHS):

(a) None of MedPartners/Mullikin, the Subsidiary or CHS nor any of
their respective subsidiaries shall be subject to any order, decree or
injunction by a court of competent jurisdiction which (i) prevents or
materially delays the consummation of the Merger or (ii) would impose any
material limitation on the ability of MedPartners/Mullikin effectively to
exercise full rights of ownership of the Common Stock of the Surviving
Corporation or any material portion of the assets or business of CHS, taken
as a whole.

(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state,
municipality or other political subdivision thereof that makes the
consummation of the Merger and any other transaction contemplated hereby
illegal.

(c) The holders of shares of CHS Common Stock shall have approved the
adoption of this Plan of Merger and any other matters submitted to them in
accordance with the provisions of Section 7.3 hereof.

(d) The shares of MedPartners/Mullikin Common Stock to be issued in
connection with the Merger shall have been listed on the NYSE, upon
official notice of issuance, and shall have been issued

A-20
<PAGE> 260

in transactions qualified or exempt from registration under applicable
securities or Blue Sky laws of such states and territories of the United
States as may be required.

(e) MedPartners/Mullikin and CHS shall each have received a letter
from Ernst & Young, LLP dated not later than (i) June 30, 1996, (ii) the
date of the mailing of the Proxy Statement and (iii) the Closing Date to
the effect that the Merger shall qualify for "pooling of interests"
accounting treatment if consummated in accordance with the Plan of Merger.

(f) The Registration Statement shall have been declared effective and
no stop order with respect to the Registration Statement shall be in
effect.

(g) MedPartners/Mullikin, the Subsidiary and CHS shall have received
all consents, approvals and authorizations of third parties with respect to
all material leases and management agreements to which such parties are
parties, which consents, approvals and authorizations are required of such
third parties by such documents, in form and substance acceptable to
MedPartners/Mullikin or CHS, as the case may be, except where the failure
to obtain such consent, approval or authorization would not have a material
effect on the business of the Surviving Corporation.

9.2 Conditions to Obligations of MedPartners/Mullikin and the
Subsidiary. The obligations of MedPartners/ Mullikin and the Subsidiary to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions (any of which may be waived by MedPartners/Mullikin and the
Subsidiary):

(a) Each of the agreements of CHS to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and CHS shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof.

(b) The representations and warranties of CHS set forth in Section
3.10(a) shall be true and correct as of the date of this Plan of Merger and
as of the Closing Date. The representations and warranties of CHS set forth
in this Plan of Merger that are qualified as to materiality shall be true
and correct, and those that are not so qualified shall be true and correct
in all material respects, as of the date of this Plan of Merger and as of
the Closing as though made at and as of such time, except to the extent
such representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date); provided, however, that CHS shall not be deemed to be in breach of
any such representations or warranties by taking any action permitted (or
approved by MedPartners/Mullikin) under Section 7.2 or otherwise permitted
herein. MedPartners/Mullikin and the Subsidiary shall have been furnished
with a certificate, executed by a duly authorized officer of CHS, dated the
Closing Date, certifying in such detail as MedPartners/Mullikin and the
Subsidiary may reasonably request as to the fulfillment of the foregoing
conditions.

(c) MedPartners/Mullikin and the Subsidiary shall have obtained, or
obtained the transfer of, any licenses and other regulatory approvals
necessary to allow the Surviving Corporation to operate CHS's business,
unless the failure to obtain such transfer or approval would not have a
material adverse effect on CHS.

(d) MedPartners/Mullikin shall have received an opinion from Haskell
Slaughter Young & Johnston, Professional Association, to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code of which opinion may be based upon reasonable
representations of fact provided by officers of MedPartners/Mullikin, CHS
and the Subsidiary.

(e) MedPartners/Mullikin shall have received an opinion from Stroock &
Stroock & Lavan substantially to the effect set forth in Exhibit 9.2(e)
hereto.

(f) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution,

A-21
<PAGE> 261

delivery and performance of this Plan of Merger shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time.

(g) MedPartners/Mullikin shall have received "Affiliate Letters" as
provided in Section 7.14 herein from each of the affiliates of CHS.

(h) The Required Lenders (as defined in the Revolving Credit and
Reimbursement Agreement, dated as of November 21, 1995, among
MedPartners/Mullikin and NationsBank of Georgia, N.A., as agent for the
parties thereto shall, in their sole discretion, have approved the Merger
and the transactions contemplated by the Merger.

(i) MedPartners/Mullikin shall have acquired substantially all of the
assets of New Management pursuant to the Agreement to Purchase Assets of
even date herewith.

(j) The employment agreements between CHS and its officers shall have
been amended on a basis satisfactory to MedPartners/Mullikin to reflect
their new positions and titles and such other provisions as may be agreed
upon.

9.3 Conditions to Obligations of CHS. The obligations of CHS to consummate
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions
(any of which may be waived by CHS):

(a) Each of the agreements of MedPartners/Mullikin and the Subsidiary
to be performed at or prior to the Closing Date pursuant to the terms
hereof shall have been duly performed, in all material respects, and
MedPartners/Mullikin and the Subsidiary shall have performed, in all
material respects, all of the acts required to be performed by them at or
prior to the Closing Date by the terms hereof.

(b) The representations and warranties of MedPartners/Mullikin set
forth in Section 5.13(a) shall be true and correct as of the date of the
Plan of Merger and as of the Closing Date. The representations and
warranties of MedPartners/Mullikin set forth in this Plan of Merger that
are qualified as to materiality shall be true and correct, and those that
are not so qualified shall be true and correct in all material respects, as
of the date of this Plan of Merger and as of the Closing as though made at
and as of such time, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties that are qualified as to materiality shall
be true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of such earlier date). CHS shall have
been furnished with a certificate, executed by duly authorized officers of
MedPartners/Mullikin and the Subsidiary, dated the Closing Date, certifying
in such detail as CHS may reasonably request as to the fulfillment of the
foregoing conditions.

(c) CHS shall have received an opinion from Stroock & Stroock & Lavan
to the effect that the Merger will constitute a reorganization with the
meaning of Section 368(a) of the Code which opinion may be based upon
reasonable representations of fact provided by officers of
MedPartners/Mullikin, CHS and the Subsidiary.

(d) CHS shall have received an opinion from Haskell Slaughter Young &
Johnston, Professional Association, substantially to the effect set forth
in Exhibit 9.3(d) hereto.

(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Plan of Merger shall have been obtained or made, except
for filings in connection with the Merger and any other documents required
to be filed after the Effective Time.

(f) MedPartners/Mullikin shall have acquired substantially all of the
assets of New Management pursuant to the Agreement to Purchase Assets of
even date herewith.

A-22
<PAGE> 262

SECTION 10. MISCELLANEOUS.

10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.

10.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:

If to MedPartners/Mullikin:

MedPartners/Mullikin, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Facsimile: (205) 733-1568
J. Brooke Johnston, Jr., Esq.
Senior Vice President and General Counsel

with a copy to:

F. Hampton McFadden, Jr., Esq.
Haskell Slaughter Young & Johnston,
Professional Association
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
Facsimile: (205) 324-1133

If to CHS:

CHS Management, Inc.
4505 Las Virgenes Road, Suite 105
Calabasas, California 90302
Facsimile: (818) 880-4394

with a copy to:

David L. Gersh, Esq.
Stroock & Stroock & Lavan
2029 Century Park East, Suite 1800
Los Angeles, California 90067
Facsimile: (310) 556-5959

All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.

10.3 Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Plan of Merger.

10.4 Indemnification. MedPartners/Mullikin and Subsidiary agree that all
rights to indemnification for acts or omissions occurring prior to the Effective
Time now existing in favor of the current or former directors or officers of CHS
as provided in their respective certificates or articles of incorporation or
bylaws shall survive the Merger and shall continue in full force and effect in
accordance with their terms. The provisions of this Section 10.4 are intended to
be for the benefit of, and shall be enforceable by, each such indemnified party
and each such indemnified party's heirs and representatives.

10.5 Governing Law. This Plan of Merger shall be interpreted, construed
and enforced in accordance with the laws of the State of Delaware, applied
without giving effect to any conflicts-of-law principles.

A-23
<PAGE> 263

10.6 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.

10.7 "Knowledge". "To the knowledge", "to the best knowledge, information
and belief", or any similar phrase shall be deemed to refer to the knowledge of
the Chairman of the Board, Chief Executive Officer or Chief Financial Officer of
a party and to include the assurance that such knowledge is based upon a
reasonable investigation, unless otherwise expressly provided.

10.8 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
CHS or MedPartners/Mullikin, any change, effect, event or occurrence that has,
or is reasonably likely to have, individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries taken as a whole; provided, however, that "material adverse change"
and "material adverse effect" shall be deemed to exclude the impact of (i)
changes in generally accepted accounting principles, (ii) changes in applicable
law, and (iii) any changes resulting from any restructuring or other similar
charges or write-offs taken by CHS with the consent of MedPartners/Mullikin;
provided, however, that no such charges or write-offs will be taken if such
would adversely affect pooling-of-interests accounting treatment for the Merger.
Moreover, it shall not be deemed a "material adverse change" or "material
adverse effect" so long as future financial performance shall be consistent with
discussions between the parties in connection with the Merger.

10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
ground, in any surface or underground water, airborne in ambient air or in the
air inside any structure built or located upon or below the surface of the
ground or in building materials or in improvements of any structures, or in any
personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 10.10) regardless of the quantity
of any such material.

10.10 Environmental Laws. The term "Environmental Laws" means any federal,
state or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.

10.11 Captions. The captions or headings in this Plan of Merger are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this Plan of
Merger.

10.12 Integration of Exhibits. All Exhibits attached to this Plan of
Merger are integral parts of this Plan of Merger as if fully set forth herein,
and all statements appearing therein shall be deemed disclosed for all purposes
and not only in connection with the specific representation in which they are
explicitly referenced.

10.13 Entire Agreement. This instrument, including all Exhibits attached
hereto and the Confidentiality Agreement contain the entire agreement of the
parties and supersede any and all prior or contemporaneous agreements between
the parties, written or oral, with respect to the transactions contemplated
hereby. Such agreement may not be changed or terminated orally, but may only be
changed by an agreement in writing signed by the party or parties against whom
enforcement of any waiver, change, modification, extension, discharge or
termination is sought.

A-24
<PAGE> 264

10.14 Counterparts. This Plan of Merger may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.

10.15 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Plan of Merger. No party may assign any right or obligation hereunder
without the prior written consent of the other parties.

10.16 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by MedPartners/Mullikin, and that all parties have
read and negotiated the language used in this Plan of Merger. The parties agree
that, because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.

IN WITNESS WHEREOF, MedPartners/Mullikin, the Subsidiary and CHS have
caused this Amended and Restated Plan and Agreement of Merger to be executed by
their respective duly authorized officers, all as of the day and year first
above written.

MEDPARTNERS/MULLIKIN, INC.

By /s/ MARK L. WAGAR
------------------------------------
Mark L. Wagar
Executive Vice President and
Chief Operating Officer -- West

CHS MERGER CORPORATION

By /s/ MARK L. WAGAR
------------------------------------
Mark L. Wagar
Vice President

CHS MANAGEMENT, INC.

By /s/ MARTIN J. COYNE, M.D.
------------------------------------
Martin J. Coyne, M.D.
Chairman

By /s/ MARVIN V.H. KANTER, M.D.
------------------------------------
Marvin V.H. Kanter, M.D.
Chief Executive Officer

By /s/ STEWART GLEISCHMAN, M.D.
------------------------------------
Stewart Gleischman, M.D.
Vice Chairman

By /s/ BERNARD SIEGEL, M.D.
------------------------------------
Bernard Siegel, M.D.
Vice Chairman

A-25
<PAGE> 265

AMENDMENT NO. 1 TO
AMENDED AND RESTATED
PLAN AND AGREEMENT OF MERGER

AMENDMENT NO. 1 TO AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER, dated
as of June , 1996, by and among MEDPARTNERS/MULLIKIN, INC., a Delaware
corporation ("MedPartners/Mullikin"), CHS MERGER CORPORATION, a Delaware
corporation (the "Subsidiary"), and CHS MANAGEMENT, INC., a Delaware corporation
("CHS").

WITNESSETH:

WHEREAS, the parties to this Amendment No. 1 to Amended and Restated Plan
and Agreement of Merger (this "Amendment") are parties to the Amended and
Restated Plan and Agreement of Merger, dated as of March 11, 1996 (the "Plan of
Merger"), which they desire to amend as herein set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:

1. The Plan of Merger is hereby amended as herein set forth and except
as expressly amended hereby all of the terms and provisions of the Plan of
Merger shall remain in full force and effect. All capitalized terms
utilized in this Amendment shall have the same meanings as in the Plan of
Merger unless the context otherwise requires.

2. The second paragraph of Section 2.1(c) of the Plan of Merger is
hereby amended by deleting such paragraph in its entirety and substituting
in its place the following new second paragraph of Section 2.1(c):

" "Merger Consideration" means MedPartners/Mullikin Shares (rounded to
the nearest whole share) equal to $40,000,000 divided by the Base Period
Trading Price. "Base Period Trading Price" shall mean the average of the
last reported sale prices per share of the MedPartners/Mullikin Common
Stock for the 10 consecutive trading days on which such shares are
actually traded on The New York Stock Exchange, Inc. (the "NYSE"),
ending at the close of trading on the second trading day immediately
preceding the date of the Merger."

3. It is hereby agreed that MedPartners/Mullikin shall provide a
bridge loan to CHS in the principal amount of $2,539,250, such loan to bear
interest at the prime rate of NationsBank of Georgia, National Association,
in effect from time-to-time and to be secured by the pledge of 25% of the
issued and outstanding capital stock of CHS. Interest shall accrue for the
initial 180 days under the Note. Such loan shall be due and payable on
December 31, 1996, subject to the provisions of Section 8.6 of the Plan of
Merger, as amended hereby.

4. All rights of termination provided for in Section 8 of the Plan of
Merger are hereby deleted from the Plan of Merger, except for those
contained in Section 8.1(a), Section 8.1(b)(i), Section 8.1(b)(ii), as
amended hereby, and Section 8.1(g).

5. All conditions to Closing contained in Section 9 of the Plan of Merger
are hereby deleted except for those contained in Section 9.1(c), Section 9.1(f),
Section 9.2(f) and Section 9.3(f).

6. The June 30, 1996 date contained in Section 8.1(b)(ii) is hereby changed
to August 31, 1996.

7. Section 8.6 of the Plan of Merger is hereby amended by deleting the
entire Section 8.6 and substituting in its place the following new Section 8.6:

"8.6 Expenses: Breakup Fees. (a) All costs and expenses incurred in
connection with this Plan of Merger and the transactions contemplated
hereby shall be paid by the party incurring such expense, it being
understood that if the Merger is consummated, by reason thereof,
MedPartners/Mullikin

A-26
<PAGE> 266

will indirectly bear the expenses incurred by CHS, which expenses may be
paid by CHS at closing with the prior approval thereof by
MedPartners/Mullikin.

(b) If the Merger is not consummated on or prior to August 31,
1996, unless extended by mutual agreement as provided in Section 8.6(c)
hereof, or unless the shareholders of CHS shall have been voted against
the Merger, MedPartners/Mullikin shall pay CHS a breakup fee in the
amount of $2,050,000 plus all expenses incurred by CHS in connection
with the Plan of Merger. Such breakup fee allocation may be satisfied in
part by the cancellation of the indebtedness described in Section 3 of
Amendment No. 1 to the Plan of Merger. If the above breakup fee shall be
paid as set forth above, the Plan of Merger shall terminate.

(c) In the event that the Merger shall not have been consummated by
August 31, 1996, the parties hereto may, by mutual agreement, extend the
Plan of Merger until September 30, 1996, in which event the above
breakup fee shall be increased to $3,065,000 plus all expenses incurred
by CHS in connection with the Plan of Merger are payable on the same
terms and conditions, and the "Merger Consideration", as defined in
Section 2.1(c) shall be increased by $6,500 for each day that the
Effective Time is delayed after August 31, 1996.

(d) Each of MedPartners/Mullikin and CHS acknowledges that the
provisions for the payment of a breakup fee and allocation of expenses
contained in this Section 8.6 are an integral part of the transactions
contemplated by this Plan of Merger and that, without these provisions,
MedPartners/Mullikin and CHS and the other constituent entities would
not have entered into Amendment No. 1 to the Plan of Merger. The
obligations of MedPartners/Mullikin and CHS under this Section 8.6 shall
survive any termination of this Plan of Merger. In the event that the
payment of the breakup fee shall be required pursuant to this Section
8.6 of this Plan of Merger, the payment of any such breakup fee upon
payment within ten days after the termination of the Plan of Merger,
shall be the sole and exclusive remedy of CHS and neither party shall
have any further liability to the other.

A-27
<PAGE> 267

IN WITNESS WHEREOF, MedPartners/Mullikin, the Subsidiary and CHS have
caused this Amendment No. 1 to Plan and Agreement of Merger to be executed by
their respective duly authorized officers, all as of the day and year first
above written.

MEDPARTNERS/MULLIKIN, INC.

By /s/ MARK L. WAGAR
------------------------------------
Mark L. Wagar
Executive Vice President and
Chief Operating Officer -- West

CHS MERGER CORPORATION

By /s/ MARK L. WAGAR
------------------------------------
Mark L. Wagar
Vice President

CHS MANAGEMENT, INC.

By /s/ MARTIN J. COYNE, M.D.
------------------------------------
Martin J. Coyne, M.D.
Chairman

By /s/ MARVIN V.H. KANTER, M.D.
------------------------------------
Marvin V.H. Kanter, M.D.
Chief Executive Officer

By /s/ STEWART GLEISCHMAN, M.D.
------------------------------------
Stewart Gleischman, M.D.
Vice Chairman

By /s/ BERNARD SIEGEL, M.D.
------------------------------------
Bernard Siegel, M.D.
Vice Chairman

A-28
<PAGE> 268

ANNEX B

SUTRO & CO.
-----------
Investment Professionals Since 1858

<TABLE>
<S> <C>
11150 Santa Monica Boulevard, Suite 1500 Los Angeles, California 90025
310-914-7799
</TABLE>

March 10, 1996

Board of Directors
CHS Management, Inc.
4505 Las Virgenes Road, Suite 105
Calabasas, California 91302

Gentlemen and Madam:

You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of CHS Management, Inc. ("CHS") of the consideration
to be received by the stockholders of CHS pursuant to the terms and conditions
set forth in the Plan and Agreement of Merger, dated March 11, 1996 (the
"Agreement"), by and among MedPartners/Mullikin, Inc. ("MedPartners"), CHS, and
CHS Merger Corporation, a wholly owned subsidiary of MedPartners (the
"Subsidiary"). As more fully described in the Agreement, the Subsidiary will
be merged with and into CHS (the "Merger") and all of the CHS Common Stock will
be converted into the right to receive the number of MedPartners Common Stock
("MedPartners Shares") equal to the Merger Consideration. For the purpose of
this opinion, Merger Consideration is defined as that number of MedPartners
Shares (rounded to the nearest whole share) equal to $40,000,000 divided by
$31.05 (the "Initial MedPartners Trading Price"), unless (i) the Final
MedPartners Trading Price is less than $27.95, in which case it means
$40,000,000 divided by the lesser of (x) the Final MedPartners Trading price
and (y) $27.95 (the number equal to 90% of the Initial MedPartners Trading
Price) or (ii) the Final MedPartners Trading Price is greater than $34.16 (110%
of the Initial MedPartners Trading Price), in which case it means $40,000,000
divided by the greater of (A) the Final MedPartners Trading Price and (B)
$34.16. "Initial MedPartners Trading Price" shall mean the average of the last
reported sale prices per share of the MedPartners Common Stock for the five
consecutive trading days on which such sale shares are actually traded on The
New York Stock Exchange, Inc. (the "NYSE") immediately preceding the date of
the Plan of Merger and "Final MedPartners Trading Price" shall mean the average
of the last reported sale prices per share of the MedPartners Common Stock for
the 10 consecutive trading days on which such shares are actually traded ending
at the close of trading on the second trading day immediately preceding the
date on which the stockholders of CHS meet to consider the Merger.

In arriving at our opinion as expressed herein, we have reviewed and analyzed,
among other things, the following:

(i) the Plan and Agreement of Merger;

(ii) certain publicly available information concerning MedPartners (including
the recent preliminary Prospectus of MedPartners dated February 22,
1996);

(iii) certain financial and operating information with respect to the
businesses, operations and prospects of CHS and MedPartners furnished to
Sutro by CHS and MedPartners;

(iv) a comparison of the financial positions and operating results of CHS
and MedPartners with those of publicly traded companies Sutro deemed
relevant;

(v) a comparison of selected other business combinations Sutro deemed
relevant;

(vi) the historical price and trading history of MedPartners Common Stock;

<PAGE> 269
(vii) considered the illiquidity associated with the CHS Common Stock; and

(viii) performed such other investigations and took into account such other
matters as we deemed neccessary.

We have also met with members of senior management of CHS and
MedPartners concerning their respective businesses, operations, assets, present
condition and future prospects.

In arriving at our opinion, we have not conducted a physical inspection
of any MedPartners properties or facilities. Further, we did not assume any
obligation to independently verify the accuracy and completeness of the
financial and other information used by us in arriving at our opinion. We have
not assumed any responsibility for independent verification of such
information, nor have we assumed any responsibilty for, or made or obtained,
any independent evaluation or appraisal of any of the properties or facilities
or other assets of MedPartners and CHS.

We were provided with financial projections prepared by the management
of CHS which were represented to us as the best current judgment of CHS
management as to the future financial condition and results of operations of
CHS. We assume no responsibility for and express no view as to such forecasts
and projections or the assumptions on which they are based. We further have
assumed the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, as amended, and that for
accounting purposes, the Merger is intended to be accounted for as a
pooling-of-interests.

Our opinion necessarily is based upon regulatory, economic, market and
other conditions as they exist on, and the information made available to us as
of the date hereof.

We do not express any opinion as to what the value of MedPartners
Common Stock actually will be when issued to CHS stockholders pursuant to the
Merger, or the price at which MedPartners Common Stock will trade prior or
subsequent to the closing of the Merger. This letter does not constitute a
recommendation of the Merger over any other alternative transactions which may
be available to CHS and does not address the underlying business decision of the
Board of Directors of CHS to proceed with or effect the Merger. Furthermore,
this letter does not constitute a recommendation by our firm or any stockholder
of CHS to vote in favor of the Merger.

Sutro has been engaged to render financial advisory services to CHS in
connection with the Merger. We have in the past provided financial advisory
services to CHS.

This opinion shall not be deemed to be a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger.
In furnishing this opinion, we do not admit that we are experts within the
meaning of the term "experts" as used in the Securities Act of 1933 and the
rules and regulations promulgated thereunder nor do we admit that this opinion
constitutes a report of valuation within the meaning of Section 11 of the
Securities Act of 1933.

Based upon and subject to the foregoing, and such other factors as we
deemed relevant, it is our opinion as investment bankers, that as of the date
hereof, the Merger Consideration to be received by the stockholders of CHS in
the Merger is fair, from a financial point of view, to the stockholders of CHS.

Sincerely,

/s/ Sutro & Co. Incorporated
------------------------------
Sutro & Co. Incorporated

<PAGE> 270

ANNEX C

262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of Section 251),252, 254, 257, 258, 263 or 264 of this title:

(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a corporation if the merger
did not require for its approval the vote of the holders of the surviving
corporation as provided in (1) subsection (f) of sec. 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:

a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing sub-paragraphs a. and b. of this paragraph, or;

d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.

(3) In the event of all the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

C-1
<PAGE> 271

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or

(2) If the merger or consolidation was approved pursuant to sec.228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The note shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive form the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and

C-2
<PAGE> 272

by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days the effective date of the merger or consolidation as provided in subsection
(c) of this section or thereafter with the written approval of the corporation,
then the right or such stockholder to an appraisal shall cease. Notwithstanding
the foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
299, L. '95, eff. 2-1-96.)

C-3
<PAGE> 273

ANNEX D

CHAPTER 13

DISSENTERS' RIGHTS

RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING SHAREHOLDER"
DEFINED. SEC.1300.

DEMAND FOR PURCHASE. SEC.1301.

ENDORSEMENT OF SHARES. SEC.1302.

AGREED PRICE -- TIME FOR PAYMENT. SEC.1304.

DISSENTER'S ACTION TO ENFORCE PAYMENT. SEC.1304.

APPRAISERS' REPORT -- PAYMENT -- COSTS. SEC.1305.

DISSENTING SHAREHOLDER'S STATUS AS CREDITOR. SEC.1306.

DIVIDENDS PAID AS CREDIT AGAINST PAYMENT. SEC.1307.

CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS. SEC.1308.

TERMINATION OF DISSENTING SHAREHOLDER STATUS. SEC.1309.

SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION. SEC.1310.

EXEMPT SHARES. SEC.1311.

ATTACKING VALIDITY OF REORGANIZATION OR MERGER. SEC.1312.

SEC.1300. RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.

(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivision (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.

(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger;

D-1
<PAGE> 274

provided however, that subparagraph (A) rather than subparagraph (B) of
this paragraph applies in any case where the approval required by Section
1201 is sought by written consent rather than at a meeting.

(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.

(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. LEG.H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1982 ch. 36, effective
February 17, 1982, 1990 ch. 1018, 1993 ch. 543.

1993 NOTE: Nothing in this act shall be construed to modify or alter the
prohibition contained in Sections 15503 and 15616 of the Corporations Code or
Section 1648 of the Insurance Code, or modify or alter any similar prohibition
relating to the operation of a business in limited partnership form. Stats. 1993
ch. 543 sec.24.

Nothing in this act shall be construed to modify or impair any rights of
limited partners under the Thompson-Killea Limited Partners Protection Act of
1992 (Chapter 1183 of the Statutes of 1992). Stats. 1993 ch. 543 sec.25.

SEC.1301. DEMAND FOR PURCHASE.

(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price. LEG.H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs. 501, 1155.

SEC.1302. ENDORSEMENT OF SHARES.

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the

D-2
<PAGE> 275

corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares. LEG.H. 1975 ch. 682, effective January 1, 1977, 1986 ch. 766.

SEC.1303. AGREED PRICE -- TIME FOR PAYMENT.

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement. LEG.H. 1975 ch. 682, effective January
1, 1977, 1980 ch. 501, 1986 ch. 766.

SEC.1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.

(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.

(c) On the trial of action, the court shall determine the issues, If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. LEG.H. 1975 ch.
682, effective January 1, 1977.

SEC.1305. APPRAISERS' REPORT -- PAYMENTS -- COSTS.

(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.

(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require

D-3
<PAGE> 276

the corporation to purchase, with interest thereon at the legal rate from the
date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.

(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301). LEG.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1977 ch.
235, 1986 ch. 766.

SEC.1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.

To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. LEG.H. 1975 ch. 682, effective
January 1, 1977.

SEC.1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor. LEG.H. 1975 ch. 682, effective January 1, 1977.

SEC.1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.

Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto. LEG.H. 1975 ch. 682, effective January 1, 1977.

SEC.1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:

(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.

(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.

(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and, neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.

(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares. LEG.H.
1975 ch. 682, effective January 1, 1977.

D-4
<PAGE> 277

SEC.1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation. LEG.H. 1975 ch. 682, effective January 1, 1977.

SEC.1311. EXEMPT SHARES.

This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger. LEG.H. 1975
ch. 682, effective January 1, 1997, 1988 ch. 919.

SEC.1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.

(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled. LEG.H. 1975 ch. 682. 1976 ch.
641, effective January 1, 1997, 1988 ch. 919.

D-5
<PAGE> 278

NEW MANAGEMENT

4505 LAS VIRGENES ROAD
CALABASAS, CALIFORNIA 91302

To Our Partners:

You are cordially invited to attend the Special Meeting of Partners of New
Management, a California general partnership ("New Management") to be held on
August 22, 1996 at 6:00 p.m. local time, at 7320 Woodlake Ave., Suite 190, West
Hills, California 91307 (the "Special Meeting of Partners"). You will be asked
to consider and vote upon a proposal to approve an Amended and Restated
Agreement to Purchase Assets, dated as of March 11, 1996, as amended by
Amendment No. 1 to Amended and Restated Agreement to Purchase Assets dated as of
June 28, 1996 (the "Acquisition Agreement"), among MedPartners/Mullikin, Inc., a
Delaware corporation ("MedPartners/Mullikin"), MedPartners, Inc.
("MedPartners"), a wholly owned subsidiary of MedPartners/Mullikin, and New
Management and the transactions contemplated thereby (the "Acquisition"). The
Acquisition Agreement is included in the accompanying Prospectus-Proxy Statement
as Annex A. The result of the acquisition is that the Partners of New Management
will receive approximately 344,658 shares of MedPartners/Mullikin common stock,
par value $.001 per share (assuming a Base Period Trading Price of $20.31).
Consummation of the Acquisition is subject to certain conditions, including the
approval and adoption by holders of at least 85 of the outstanding partnership
units ("Units") and the consummation of the acquisition of CHS Management, Inc.,
by MedPartners/Mullikin. The Acquisition is described in greater detail in the
accompanying Prospectus-Proxy Statement.

THE EXECUTIVE COMMITTEE UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
OF THE ACQUISITION AGREEMENT, WHICH APPROVAL WILL CONSTITUTE APPROVAL OF THE
TRANSACTIONS CONTEMPLATED THEREBY.

Approval of the matters related to the Acquisition to be voted on at the
Special Meeting of Partners requires a favorable vote of at least 85 of the
outstanding Units. Accordingly, failure to vote or abstentions will have the
effect of a vote against the transaction for the purposes of determining whether
approval by at least 85 of the outstanding Units is obtained.

EXECUTIVE COMMITTEE

By: /s/ BERNARD SIEGEL, M.D.
------------------------------------
Bernard Siegel, M.D.
<PAGE> 279

NEW MANAGEMENT

NOTICE OF SPECIAL MEETING OF PARTNERS TO BE HELD AUGUST 22, 1996

NOTICE IS HEREBY GIVEN that a Special Meeting of Partners (the "Special
Meeting of Partners") of New Management, a California general partnership ("New
Management"), will be convened at 6:00 p.m. local time, on August 22, 1996, at
7320 Woodlake Ave., Suite 190, West Hills, California 91307, for the following
purposes:

1. To consider and vote upon a proposal to approve an Amended and
Restated Agreement to Purchase Assets, dated as of March 11, 1996, as
amended by Amendment No. 1 to Amended and Restated Agreement to Purchase
Assets, dated as of June 28, 1996 (the "Acquisition Agreement"), between
MedPartners/Mullikin, Inc., a Delaware corporation
("MedPartners/Mullikin"), MedPartners, Inc. ("MedPartners") a wholly owned
subsidiary of MedPartners/Mullikin (the "Subsidiary"), and New Management
and the transactions contemplated thereby (the "Acquisition"). The
Acquisition Agreement is included in the accompanying Prospectus-Proxy
Statement as Annex A.

2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.

As more fully described in the Prospectus-Proxy Statement of which this
notice forms a part, pursuant to Acquisition Agreement, the Subsidiary will
acquire all of the assets of New Management and assume all of its disclosed
liabilities. The result of the Acquisition is that New Management will receive
approximately 344,658 shares of MedPartners/Mullikin common stock, par value
$.001 per share (assuming a Base Period Trading Price of $20.31). Consummation
of the Acquisition is subject to certain conditions, including the approval by
holders of at least 85 of the outstanding partnership units ("Units") of New
Management and the acquisition by MedPartners/Mullikin of CHS Management, Inc.

THIS WILL BE A TAXABLE TRANSACTION AND WILL SUBSTANTIALLY EFFECT EACH
PARTNER'S LEGAL RIGHTS. YOU ARE URGED TO REVIEW THE ATTACHED PROSPECTUS-PROXY
STATEMENT CAREFULLY.

The Executive Committee has fixed June 30, 1996 as the record date for
determining Partners entitled to notice of and to vote at the Special Meeting of
Partners. Accordingly, only Partners of record at the close of business on such
date will be entitled to notice of and to vote at the Special Meeting of
Partners or any adjournments or postponements thereof.

EXECUTIVE COMMITTEE

By: /s/ BERNARD SIEGEL, M.D.
----------------------------------
Bernard Siegel, M.D.

August 20, 1996

THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST 85 OF THE OUTSTANDING
PARTNERSHIP UNITS OF NEW MANAGEMENT IS REQUIRED TO APPROVE THE ACQUISITION
AGREEMENT. IT IS IMPORTANT THAT YOU BE REPRESENTED AT THE SPECIAL MEETING
REGARDLESS OF THE NUMBER OF UNITS YOU OWN. EVEN IF YOU PLAN TO ATTEND THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY
GIVEN MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO THE EXERCISE THEREOF IN THE
MANNER DESCRIBED IN THE PROSPECTUS-PROXY STATEMENT.
<PAGE> 280

PROXY STATEMENT
OF
NEW MANAGEMENT
FOR THE SPECIAL MEETING OF PARTNERS
TO BE HELD ON
AUGUST 22, 1996

PROSPECTUS
OF
MEDPARTNERS/MULLIKIN, INC.

THIS PROSPECTUS RELATES TO UP TO 350,000 SHARES OF THE COMMON STOCK, PAR
VALUE $.001 PER SHARE (THE "MEDPARTNERS/MULLIKIN COMMON STOCK"), OF
MEDPARTNERS/MULLIKIN, INC. (TOGETHER WITH ITS SUBSIDIARIES,
"MEDPARTNERS/MULLIKIN"), ISSUABLE TO THE PARTNERS (THE "PARTNERS") OF NEW
MANAGEMENT, A CALIFORNIA GENERAL PARTNERSHIP ("NEW MANAGEMENT"), UPON
CONSUMMATION OF THE ACQUISITION (AS DEFINED HEREIN). SUCH NUMBER OF SHARES
REPRESENTS THE NUMBER OF SHARES THAT MAY BE ISSUED, ASSUMING THAT THE BASE
PERIOD TRADING PRICE (AS DEFINED HEREIN) IS $20.31. THIS PROSPECTUS ALSO SERVES
AS THE PROXY STATEMENT OF NEW MANAGEMENT FOR ITS SPECIAL MEETING OF PARTNERS TO
BE HELD ON AUGUST 22, 1996, AND ANY ADJOURNMENTS AND POSTPONEMENTS THEREOF (THE
"SPECIAL MEETING OF PARTNERS"). SEE "THE SPECIAL MEETING OF PARTNERS".
---------------------

This Prospectus-Proxy Statement describes the terms of a proposed
acquisition of New Management by MedPartners/Mullikin, whereby MedPartners,
Inc., a Delaware corporation and a wholly-owned subsidiary of
MedPartners/Mullikin (the "Subsidiary"), will acquire substantially all of the
assets of New Management (the "Acquisition"). If the proposed Acquisition is
approved at the Meeting of Partners, as a condition to its consummation, upon
the satisfaction of certain conditions, MedPartners/Mullikin will concurrently
acquire CHS Management, Inc. ("CHS") by means of the merger (the "Merger") of
CHS Merger Corporation, a Delaware corporation and wholly-owned subsidiary of
MedPartners/Mullikin, with and into CHS, with CHS being the surviving
corporation. At the Special Meeting of Partners, the Partners of New Management
will be asked to approve and adopt the Acquisition Agreement (as defined below),
which approval and adoption will also constitute approval of the transactions
contemplated thereby, including the Acquisition. The consummation of the
proposed Acquisition is conditioned upon the satisfaction of certain conditions,
including the acquisition of CHS by MedPartners/Mullikin as described above. The
Acquisition will be effected pursuant to the terms and subject to the conditions
of the Amended and Restated Agreement to Purchase Assets, dated as of March 11,
1996, among MedPartners/Mullikin, the Subsidiary and New Management as amended
by Amendment No. 1 to the Amended and Restated Agreement to Purchase Assets,
dated as of June 28, 1996 (the "Acquisition Agreement"). The Acquisition
Agreement is attached to this Prospectus-Proxy Statement as Annex A and is
incorporated herein by reference.

The Subsidiary will purchase substantially all of the assets of New
Management and assume all of its disclosed liabilities and MedPartners/Mullikin
will issue to New Management shares of MedPartners/Mullikin Common Stock with a
total value equal to $7 million (the "Acquisition Price"). The number of shares
of MedPartners/ Mullikin Common Stock which shall constitute the Acquisition
Price shall be determined by dividing $7 million by the Base Period Trading
Price. New Management Partners will receive cash (without interest) in lieu of
fractional shares of MedPartners/Mullikin Common Stock. For a more complete
description of the terms of the Acquisition, see "The Acquisition".

As used herein, the "Based Period Trading Price" shall mean the average
last sale price for the shares of MedPartners/Mullikin Common Stock on each of
the 10 consecutive trading days on which such shares are actually traded on The
New York Stock Exchange, Inc. (the "NYSE") ending at the close of trading on the
second trading day immediately preceding the date of the consummation of the
Merger. For the ten consecutive trading days ended August 15, 1996, the average
of the last reported sale prices of the MedPartners/Mullikin Common Stock was
$20.31. At such price, New Management would receive 344,658 shares of
MedPartners/Mullikin Common Stock. THE BASE PERIOD TRADING PRICE MAY DIFFER FROM
THE ACTUAL MARKET PRICE OF THE MEDPARTNERS/MULLIKIN COMMON STOCK REPORTED ON THE
NYSE FOR THE DATE OF THE SPECIAL MEETING OF PARTNERS, THE DATE OF CONSUMMATION
OF THE ACQUISITION, OR THE DATE THAT THE PARTNERS ACTUALLY RECEIVE THEIR SHARES
OF MEDPARTNERS/MULLIKIN COMMON STOCK AFTER THE ACQUISITION IS COMPLETED. SINCE
THE ACTUAL NUMBER OF SHARES OF MEDPARTNERS/MULLIKIN COMMON STOCK ISSUABLE TO NEW
MANAGEMENT PARTNERS IN THE ACQUISITION DEPENDS ON THE BASE PERIOD TRADING PRICE,
THERE IS NO GUARANTEE AS TO THE NUMBER OF SHARES OF THE MEDPARTNERS/MULLIKIN
COMMON STOCK THAT NEW MANAGEMENT PARTNERS WILL RECEIVE.

This Prospectus-Proxy Statement and the form of Proxy are first being
mailed to the Partners of New Management on or about August 20, 1996.

SEE "RISK FACTORS" AT PAGE 11 FOR A DISCUSSION OF CERTAIN RISK FACTORS
RELATED TO THE ACQUISITION AND TO MEDPARTNERS/MULLIKIN.

THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS AUGUST 20, 1996.
<PAGE> 281

AVAILABLE INFORMATION

MedPartners/Mullikin has filed a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act") with the Securities and Exchange Commission (the "SEC")
covering the shares of MedPartners/Mullikin Common Stock to be issued in
connection with the Acquisition. This Prospectus-Proxy Statement does not
contain all of the information set forth in the Registration Statement covering
the securities offered hereby which MedPartners/Mullikin has filed with the SEC,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC, and to which portions reference is hereby made for
further information with respect to MedPartners/ Mullikin, New Management and
the securities offered hereby. Statements contained herein concerning certain
documents are not necessarily complete, and in each instance, reference is made
to the copies of such documents filed as exhibits to the Registration Statement.
Each such statement is qualified in its entirety by such reference.

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. When used
in this Prospectus-Proxy Statement, the words "estimate," "project," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. For a discussion of such risks, see "Risk Factors".
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Neither MedPartners/Mullikin
nor New Management undertakes any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
---------------------

i
<PAGE> 282

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. i
SUMMARY OF PROSPECTUS-PROXY STATEMENT................................................. 1
The Companies....................................................................... 1
The Caremark Acquisition............................................................ 2
Recent Developments................................................................. 3
Risk Factors........................................................................ 4
The Special Meeting of Partners..................................................... 5
Vote Required....................................................................... 5
The Acquisition..................................................................... 5
Market and Market Prices............................................................ 8
Comparative Share Information....................................................... 9
RISK FACTORS.......................................................................... 11
Risks Relating to the Merger and the Acquisition; Acquisitions...................... 11
Risks Relating to MedPartners/Mullikin's Growth Strategy............................ 11
Risks Relating to Capital Requirements.............................................. 12
Risks Related to Capitated Nature of Revenues; Control of Health Care Costs......... 12
Potential Reductions in Third-Party Reimbursement................................... 13
Risks Relating to Dependence on Affiliated Physicians............................... 13
Risks Relating to Exposure to Professional Liability; Liability Insurance........... 14
Risks Relating to Concentration of Customers........................................ 14
Competition......................................................................... 14
Government Regulation............................................................... 15
Risks Relating to Regulatory Requirements of Knox-Keene Act......................... 16
Risks Relating to Health Care Reform................................................ 16
Anti-Takeover Considerations........................................................ 16
Control by Certain Stockholders..................................................... 17
Possible Volatility of Stock Price.................................................. 17
Risks Relating to Federal Income Taxes.............................................. 17
Caremark Risk Factors............................................................... 17
SELECTED FINANCIAL INFORMATION -- MEDPARTNERS/MULLIKIN................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- MEDPARTNERS/MULLIKIN.................................................. 21
THE SPECIAL MEETING OF PARTNERS....................................................... 28
General............................................................................. 28
Date, Place and Time................................................................ 28
Quorum.............................................................................. 28
Vote Required....................................................................... 28
Voting and Revocation of Proxies.................................................... 28
Solicitation of Proxies............................................................. 29
THE ACQUISITION....................................................................... 30
Terms of the Acquisition............................................................ 30
CHS Merger.......................................................................... 30
Background of the Acquisition....................................................... 30
Recommendation of New Management Executive Committee................................ 32
Effective Date of the Acquisition................................................... 32
Delivery of MedPartners/Mullikin Common Stock....................................... 32
Conditions to the Acquisition....................................................... 32
Representations and Covenants....................................................... 32
</TABLE>

ii
<PAGE> 283

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Regulatory Approvals................................................................ 33
Business Pending the Acquisition.................................................... 33
Waiver and Amendment................................................................ 33
No Appraisal Rights................................................................. 33
New York Stock Exchange Listing..................................................... 33
Resale of MedPartners/Mullikin Common Stock by Affiliates........................... 34
Additional Interests of Certain Persons in the Acquisition.......................... 34
Accounting Treatment................................................................ 35
Federal Income Tax Consequences..................................................... 35
Expenses............................................................................ 36
Indemnification..................................................................... 36
OPERATIONS AND MANAGEMENT OF MEDPARTNERS/MULLIKIN AFTER THE ACQUISITION............... 37
Operations.......................................................................... 37
Management.......................................................................... 37
BUSINESS OF MEDPARTNERS/MULLIKIN...................................................... 38
General............................................................................. 38
The Caremark Acquisition............................................................ 38
Recent Developments................................................................. 39
Industry............................................................................ 41
Strategy............................................................................ 42
Recent Major Acquisitions........................................................... 43
Development and Operations.......................................................... 43
Information Systems................................................................. 46
Competition......................................................................... 47
Government Regulation............................................................... 47
Legal Proceedings................................................................... 48
Employees........................................................................... 49
Corporate Liability and Insurance................................................... 49
Properties.......................................................................... 49
MANAGEMENT OF MEDPARTNERS/MULLIKIN.................................................... 50
Directors and Executive Officers.................................................... 50
Classified Board of Directors....................................................... 53
Committees of the Board of Directors................................................ 53
Executive Officer Compensation...................................................... 53
Director Compensation............................................................... 55
Compensation Committee Interlocks and Insider Participation......................... 56
Non-Competition and Severance Agreements............................................ 57
Stock Option Plans.................................................................. 57
401(k) Plans........................................................................ 58
CERTAIN TRANSACTIONS -- MEDPARTNERS/MULLIKIN.......................................... 59
MME Acquisition Agreements.......................................................... 59
Financings.......................................................................... 59
PRINCIPAL STOCKHOLDERS OF MEDPARTNERS/MULLIKIN........................................ 61
SELECTED FINANCIAL DATA -- NEW MANAGEMENT............................................. 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- NEW MANAGEMENT........................................................ 64
BUSINESS OF NEW MANAGEMENT............................................................ 66
</TABLE>

iii
<PAGE> 284

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- NEW MANAGEMENT........................................................ 66
PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)................................. 67
DESCRIPTION OF CAPITAL STOCK OF MEDPARTNERS/MULLIKIN.................................. 77
Authorized Capital Stock............................................................ 77
MedPartners/Mullikin Common Stock................................................... 77
MedPartners/Mullikin Preferred Stock................................................ 77
Certain Provisions of the MedPartners/Mullikin Certificate and the DGCL............. 77
MedPartners/Mullikin Stockholders' Rights Plan...................................... 79
Limitations on Liability of Officers and Directors.................................. 81
Registration Rights................................................................. 81
Transfer Agent and Registrar........................................................ 82
COMPARISON OF RIGHTS OF NEW MANAGEMENT PARTNERS AND MEDPARTNERS/MULLIKIN
STOCKHOLDERS........................................................................ 83
Classes and Series of Capital Stock................................................. 83
Size and Election of the Board of Directors......................................... 83
Removal of Directors................................................................ 84
Other Voting Rights................................................................. 84
Dividends........................................................................... 85
Conversion and Dissolution.......................................................... 85
Amendment or Repeal of the Certificate of Incorporation and By-laws................. 85
Special Meetings of Stockholders.................................................... 85
Liability of Directors.............................................................. 86
Stockholder Rights Plan............................................................. 86
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of
Directors........................................................................ 86
Action By Written Consent........................................................... 87
Indemnification of Directors and Officers........................................... 88
EXPERTS............................................................................... 88
LEGAL MATTERS......................................................................... 88
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEX:
A. Amended and Restated Agreement to Purchase Assets, dated as of March 11, 1996 as
amended June 28, 1996............................................................ A-1
</TABLE>

iv
<PAGE> 285

SUMMARY OF PROSPECTUS-PROXY STATEMENT

THE COMPANIES

MedPartners/Mullikin. MedPartners/Mullikin, Inc. is a leading physician
practice management ("PPM") company that develops, consolidates and manages
integrated health care delivery systems. Through its network of affiliated group
and independent practice association ("IPA") physicians, MedPartners/ Mullikin
provides primary and specialty health care services to prepaid managed care
enrollees and fee-for-service patients. MedPartners/Mullikin enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
At June 30, 1996, MedPartners/Mullikin operated in 23 states and was affiliated
with more than 5,777 physicians, including 1,461 in group practices, 3,206
through IPA relationships and 736 hospital-based physicians. At June 30, 1996
MedPartners/Mullikin physicians provided prepaid health care to over 798,000
enrollees through 45 HMO (as defined herein) relationships.

MedPartners/Mullikin's revenue is derived from the provision, through its
affiliated physicians, of fee-for-service medical services and from contracts
with health maintenance organizations and other third-party payors which
compensate MedPartners/Mullikin and its affiliated physicians on a prepaid basis
(collectively, "HMOs"). In the prepaid arrangements, MedPartners/Mullikin,
through its affiliated physicians, typically is paid by the HMO a fixed amount
per member ("enrollee") per month ("professional capitation") or a percentage of
the premium per member per month ("percent of premium") paid by employer groups
and other purchasers of health coverage to the HMOs. In return,
MedPartners/Mullikin through its affiliated physicians, is responsible for
substantially all of the medical services required by enrollees. In many
instances, MedPartners/Mullikin and its affiliated physicians accept financial
responsibility for hospital and ancillary health care services in return for
payment from HMOs on a capitated or percent of premium basis ("institutional
capitation"). In exchange for these payments (collectively, "global
capitation"), MedPartners/ Mullikin, through its affiliated physicians, provides
the majority of covered health care services to enrollees and contracts with
hospitals and other health care providers for the balance of the covered
services.

At June 30, 1996, MedPartners/Mullikin had consolidated assets of
approximately $618 million and consolidated stockholders' equity of
approximately $415 million, and employed 9,433 persons.

1
<PAGE> 286

New Management. New Management is a California general partnership. New
Management holds as its principal asset a contract with West Hills Hospital and
CMG relating to certain hospital managed care contracting services. As of June
30, 1996, New Management had 30 general partners. The holders of the partnership
interests of New Management are also the holders of the partnership interests of
CMG (which is the record holder of 50% of the CHS Common Stock). The principal
executive offices of New Management are located at 4505 Las Virgenes Road, Suite
105, Calabasas, California, 91302, and its telephone number is (818) 706-2211.

CHS. CHS primarily engages in the organization and management of physician
practices which contract with HMOs to provide physician and related health care
services to enrollees. CHS' services are designed to relieve certain
administrative burdens placed on physicians, allowing them to focus on the
practice of medicine. CHS currently provides management services to a primary
care medical group and an IPA. CHS has expertise in claims processing and
utilization review and management using an approach based upon physician control
of the process. CHS also provides consulting services to hospitals and others in
connection with managed care contracting.

MedPartners, Inc. The Subsidiary is a direct, wholly-owned subsidiary of
MedPartners/Mullikin. The principal executive offices of the Subsidiary are
located at 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244 and its
telephone number is (205) 733-8996.

THE CAREMARK ACQUISITION

On May 13, 1996, MedPartners/Mullikin agreed to acquire Caremark
International Inc. ("Caremark") pursuant to a Plan and Agreement of Merger by
and among MedPartners/Mullikin, PPM Merger Corporation, a wholly-owned
subsidiary of MedPartners/Mullikin and Caremark. Under the Plan of Merger, PPM
Merger Corporation will be merged with and into Caremark, with Caremark to
continue as the surviving corporation as a wholly owned subsidiary of
MedPartners/Mullikin (the "Caremark Acquisition"). After the consummation of the
Caremark Acquisition, each Caremark stockholder will receive 1.21 shares of
MedPartners/Mullikin Common Stock in exchange for each share of Caremark Common
Stock owned by such stockholder.

Consummation of this acquisition is subject to a number of conditions,
usual in a transaction of this type, including: that the stockholders of
MedPartners/Mullikin and Caremark approve the transaction; that the transaction
qualify for pooling of interests accounting treatment; and that the transaction
qualify as a tax free reorganization. There is no guarantee that such conditions
will be met. If such conditions are not met, the Caremark Acquisition may not be
consummated. After consummation of the Caremark Acquisition,
MedPartners/Mullikin will operate under the name "MedPartners, Inc." See
"Businesses of MedPartners/Mullikin -- Caremark Acquisition"; "Selected Pro
Forma Financial Information"; and the "Consolidated Financial Statements"
beginning at Page F-1.

2
<PAGE> 287

Initiated in 1992, Caremark's PPM business provides comprehensive
management services to large multi-specialty physician practices in major
metropolitan areas. Caremark is a leader in providing capitated health care
arrangements to payors. As of June 30, 1996, Caremark provided management
services to approximately 1,000 affiliated physicians and 210 other licensed
health care professionals who deliver comprehensive health care services to over
one million people. As of June 30, 1996, Caremark had affiliated with large,
established multi-specialty physician practices in six major metropolitan
markets, including Friendly Hills HealthCare Network (that includes CIGNA
Medical Group) in Southern California, Kelsey-Seybold Clinic in Houston, North
Suburban and Glen Ellyn Clinics in Chicago, Diagnostic Clinic in Tampa/St.
Petersburg, Oklahoma City Clinic and Atlanta Medical Clinic.

Caremark's pharmaceutical services business manages outpatient
prescriptions drug benefit programs for more than 1,200 clients, including
corporations, insurance companies, unions, government employee groups and
managed care organizations throughout the United States. Caremark's prescription
benefit management business is one of the largest independent PBMs, dispensing
42,000 prescriptions daily from four mail services pharmacies. Caremark also
manages patients' immediate prescription needs through a network of
approximately 53,000 pharmacies.

Caremark's international business is developing and implementing new
approaches to health care delivery to provide services in different regulatory
environments and payor systems in six countries.

At June 30, 1996, Caremark had consolidated assets of approximately $1.40
billion, has stockholders' equity of approximately $388.0 million, and employed
approximately 11,600 persons.

RECENT DEVELOPMENTS

On March 19, 1996, MedPartners/Mullikin completed a public offering of a
total of 8,250,000 shares of MedPartners/Mullikin Common Stock, 6,632,800 of
which were sold for the account of MedPartners/ Mullikin and 1,617,200 of which
were sold for the account of certain selling stockholders of MedPartners/
Mullikin. The public offering resulted in net proceeds to MedPartners/Mullikin
of approximately $194 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- MedPartners/Mullikin --
Liquidity and Capital Resources" and "Business of MedPartners/Mullikin --
Recent Developments".

3
<PAGE> 288

this acquisition is subject to a number of conditions, including that the
shareholders of Summit and the partners of MRA approve the transaction, that the
transaction qualify as a tax free reorganization and other conditions usual in
transactions of this type. In addition, the closing of the transaction is
conditioned upon the receipt by the parties of a letter from Ernst & Young LLP,
MedPartners/Mullikin's independent auditors, that the transaction will qualify
for pooling of interests accounting treatment. See "Notes to Pro Forma Condensed
Financial Information". There is no guarantee that such conditions will be met.
If such conditions are not met, the acquisition of Summit and MRA may not be
consummated. See "Business of MedPartners/Mullikin -- Recent Developments".

RISK FACTORS

Certain factors to be considered in connection with an investment in
MedPartners/Mullikin Common Stock and approval of the Merger are set forth under
"Risk Factors". These risk factors include risks associated with the Acquisition
and MedPartners/Mullikin's growth strategy in general, and risks associated with
the businesses of MedPartners/Mullikin and New Management, including: capital
requirements; the capitated nature of revenues; control of health care costs,
reduction in third party reimbursement; dependence on affiliated physicians;
federal income taxes; certain Caremark legal matters; professional liability
concerns; concentration of customers; competition; government regulation;
pharmacy licensing and operations; health

4
<PAGE> 289

care reform; and possible volatility of MedPartners/Mullikin's stock price. For
a complete discussion of the risk factors see "Risk Factors".

THE SPECIAL MEETING OF PARTNERS

The Special Meeting of Partners of New Management to consider and vote on
the Acquisition Agreement will be held on August 22, 1996, at 6:00 p.m., local
time, at 7320 Woodlake Ave., Suite 190 West Hills, California 91307. Only
Partners of New Management at the close of business on June 30, 1996 (the
"Record Date"), will be entitled to notice of and to vote at the Special Meeting
of Partners. At such date, there were 30 Partners of New Management. No meeting
of MedPartners/Mullikin's stockholders to consider and vote on the Acquisition
Agreement is required or will be held.

For additional information relating to the Meeting of Partners, see "The
Special Meeting of Partners".

VOTE REQUIRED

Approval and adoption of the Acquisition Agreement by the Partners of New
Management requires the affirmative vote of the Partners representing at least
85 of the Partnership Units (collectively "Units" or individually, "Unit") of
New Management entitled to vote thereon.

See "The Special Meeting of Partners -- Vote Required", "The
Acquisition -- Conditions to the Acquisition" and "-- Additional Interests of
Certain Persons in the Acquisition".

THE ACQUISITION

Terms of the Acquisition. Pursuant to the Acquisition Agreement,
MedPartners/Mullikin, through the Subsidiary, will purchase substantially all of
the assets of New Management used in connection with its management business.
Such assets consist principally of the Management Contract, dated August 10,
1992 as amended January 1, 1995, by and among New Management, Community Medical
Group of the West Valley and West Hills Hospital (the "Management Contract"),
but also includes all personal property, management contracts, accounts
receivable, books and records, all transferable licenses and all other property
rights and assets (collectively the "Assets"), but excludes the consideration to
be received by New Management from MedPartners/Mullikin for the Acquisition, and
the Partnership Agreement and related documents of New Management. The
Acquisition Price will be paid by MedPartners/Mullikin in shares of MedPartners/
Mullikin Common Stock in an amount equal to $7 million. The Subsidiary will
assume all disclosed liabilities of New Management. The number of shares of
MedPartners/Mullikin Common Stock which shall constitute the Acquisition Price
shall be determined by dividing $7 million by the Base Period Trading Price. For
the ten consecutive trading days ended August 15, 1996, the average of the last
reported sale prices per share of MedPartners/Mullikin Common Stock was $20.31.
At such price, New Management would receive 344,658 shares of
MedPartners/Mullikin Common Stock. THE BASE PERIOD TRADING PRICE MAY DIFFER FROM
THE ACTUAL MARKET PRICE OF THE MEDPARTNERS/MULLIKIN COMMON STOCK REPORTED ON THE
NYSE FOR THE DATE OF THE SPECIAL MEETING OF PARTNERS, THE DATE OF CONSUMMATION
OF THE ACQUISITION OR THE DATE THAT THE PARTNERS ACTUALLY RECEIVE THEIR SHARES
OF MEDPARTNERS/MULLIKIN COMMON STOCK AFTER THE ACQUISITION IS COMPLETED. SINCE
THE ACTUAL NUMBER OF SHARES OF MEDPARTNERS/MULLIKIN COMMON STOCK ISSUABLE TO NEW
MANAGEMENT PARTNERS IN THE ACQUISITION DEPENDS ON THE BASE PERIOD TRADING PRICE,
THERE IS NO GUARANTEE AS TO THE NUMBER OF SHARES OF THE MEDPARTNERS/MULLIKIN
COMMON STOCK THAT NEW MANAGEMENT PARTNERS WILL RECEIVE.

As used herein, the "Base Period Trading Price" shall mean the average of
the last sale price for the shares of MedPartners/Mullikin Common Stock for the
10 consecutive trading days on which such shares are actually traded on the NYSE
ending at the close of trading on the second trading day immediately preceding
the date of the Merger. MedPartners/Mullikin guarantees all of the Subsidiary's
obligations under the Acquisition Agreement.

Assuming a Base Period Trading Price of $20.31, the Partners of New
Management will receive less than one percent of the outstanding shares of
MedPartners/Mullikin Common Stock anticipated to be outstanding immediately
after the Closing. See "The Acquisition -- Interests of Certain Persons in the
Acquisition".

5
<PAGE> 290

During the period between the date of this Prospectus-Proxy Statement and
the date of the Special Meeting of Partners, New Management Partners may obtain
updated information regarding the market prices for the MedPartners/Mullikin
Common Stock and the Base Period Trading Price by calling toll free at
1-800-563-7126.

After consummation of the Acquisition, the operations of New Management
will be combined with the operations of CHS. No material disposition or
restructuring of MedPartners/Mullikin or any material part thereof is
contemplated as a result of the Acquisition. See "Operations and Management of
MedPartners/ Mullikin after the Acquisition".

Recommendation of the Executive Committee of New Management. The Executive
Committee of New Management has approved the Acquisition Agreement, and
recommends a vote FOR the Acquisition Agreement. New Management's Executive
Committee believes the Acquisition Agreement is fair to and in the best
interests of the Partners of New Management.

The Executive Committee of New Management believes that the Acquisition is
desirable for the following reasons, among others:

(i) the terms and conditions of the Acquisition Agreement and the form
of consideration to be received by the Partners of New Management;

(ii) a comparison of the financial terms of certain other transactions
that have recently been effected in New Management's industry;

(iii) a review of possible alternatives to the sale of New Management,
including continuing to operate New Management as a stand alone
privately-owned entity which would require additional capital;

(iv) the health care industry is rapidly evolving and currently
characterized by intensified competition and increasing consolidation. In
the prepaid segment of the health care industry, particularly in
California, entities, such as the Medical Groups, that contract with HMOs
to provide medical care on a capitated basis face increasing pressures to
maintain or decrease rates which in turn places pressures on companies like
New Management;

On February 22, 1996, the MedPartners/Mullikin Board of Directors approved the
Acquisition. The Acquisition will become effective on the Closing Date, provided
that all the conditions to the closing have been fulfilled or waived. See "The
Acquisition -- Recommendation of the New Management Executive Committee" and
"Effective Time of the Acquisition".

Effective Time of the Acquisition. The Acquisition will become effective
upon the Closing Date.

Delivery of the MedPartners/Mullikin Common Stock. Upon the Closing of the
Acquisition, ChaseMellon Shareholder Services, L.L.C., as the transfer agent for
MedPartners/Mullikin will deliver certificates representing the number of shares
of MedPartners/Mullikin Common Stock constituting the Acquisition Price to New
Management. See "The Acquisition -- Delivery of the MedPartners/Mullikin Common
Stock".

Acquisition of CHS. CHS primarily engages in the organization and
management of physician practices which contract with HMOs to provide physician
or related health care services to enrollees. MedPartners/ Mullikin proposes to
acquire CHS pursuant to an Amended and Restated Plan and Agreement of Merger,
dated as of March 11, 1996, as amended June 28, 1996 (the "Plan of Merger"). The
partners of New Management also beneficially own 50% of the shares of CHS Common
Stock. MedPartners/Mullikin has agreed that if it acquires CHS it will acquire
New Management. The transactions are discussed in detail in the Prospectus-Proxy
Statement of CHS and the Annexes thereto (the "CHS Proxy Statement"), which also
constitutes a part of the Registration Statement of which this Prospectus-Proxy
Statement is a part. A copy of the CHS Proxy Statement will be available upon
request to each Partner of New Management, without charge and each New
Management Partner is encouraged to obtain a copy and read it carefully.

Conditions to the Acquisition. The obligation of each of
MedPartners/Mullikin, the Subsidiary and New Management to consummate the
Acquisition is subject only to approval by the Partners of New Management.

6
<PAGE> 291

Representations and Covenants. Under the Acquisition Agreement,
MedPartners/Mullikin and New Management have each made a number of
representations regarding the organization and capital structures of the
respective companies and their affiliates, their operations, financial condition
and other matters, including their authority to enter into the Acquisition
Agreement and to consummate the Acquisition. See "The
Acquisition -- Representations and Covenants".

Regulatory Approvals. No federal or state regulatory requirements must be
complied with or approval must be obtained in connection with the Acquisition.
The operations of each of MedPartners/Mullikin and New Management are subject to
a substantial body of federal, state, local and accrediting body laws, rules and
regulations relating to the conduct, licensing and development of health care
businesses and facilities. In addition, certain of the arrangements between New
Management and third party payors may be deemed to have been transferred,
requiring the approval and consent of such payors. See "The
Acquisition -- Conditions to the Acquisition".

Business Pending the Acquisition. The Acquisition Agreement provides that,
until the Closing, except as otherwise provided in the Acquisition Agreement,
New Management will conduct its business in the ordinary course and will use all
reasonable best efforts to preserve intact its present business organization,
maintain its rights and franchises and preserve its relationships with
customers, suppliers and others having business dealings with New Management.
New Management has also agreed to abide by certain restrictions and limitations
with respect to its business (as set forth in the Acquisition Agreement) prior
to the Closing and to cooperate on certain matters relating to the Acquisition.
See "The Acquisition -- Business Pending the Acquisition".

Waiver and Amendment. The Acquisition Agreement provides that, at any time
prior to the Closing, MedPartners/Mullikin and the Subsidiary, on the one hand,
and New Management, on the other hand, may, under certain circumstances, waive
compliance with covenants or conditions for the benefit of that company or amend
or otherwise change the Acquisition Agreement.

Additional Interests of Certain Persons in the Acquisition; Employment
Agreement. In considering the recommendation of the Executive Committee of New
Management with respect to the Acquisition Agreement and the transactions
contemplated thereby, Partners of New Management should be aware that certain
members of the Executive Committee of New Management have certain interests in
the Acquisition that are in addition to the interests of Partners of New
Management generally.

Pursuant to the Plan of Merger, MedPartners/Mullikin will amend the
existing employment agreement (the "Employment Agreement") with Marvin V.H.
Kanter, M.D. who is currently the Management Director of New Management. The
amended Employment Agreement will only change the title and certain limited
executive duties which Dr. Kanter currently has with CHS.

As of the Record Date, members of the Executive Committee of New Management
beneficially owned an aggregate of 18.25 Units of New Management. Such persons
have indicated their intentions to vote all such Units FOR the Acquisition
Agreement. Assuming a Base Period Trading Price of $20.31, such persons would
receive a total of approximately 62,900 shares of MedPartners/Mullikin Common
Stock out of the total of 344,658 shares of MedPartners/Mullikin Common Stock to
be issued to Partners of New Management in the Acquisition.

See "The Acquisition -- Additional Interests of Certain Persons in the
Acquisition".

Accounting Treatment. It is intended that the Acquisition will be
accounted for as a pooling of interests under GAAP. See "The
Acquisition -- Accounting Treatment" and "Pro Forma Condensed Financial
Information".

Federal Income Tax Consequences. The Acquisition will be taxable. New
Management will recognize a gain on the sale of assets to the Subsidiary
pursuant to the Acquisition Agreement. The gain will be equal to

7
<PAGE> 292

the excess of the fair market value of the Medpartners/Mullikin Common Stock
paid for the assets, determined as of the date of the consummation of the
transaction contemplated by the Acquisition Agreement, plus the amount of the
liabilities assumed by Medpartners/Mullikin, over the adjusted tax basis of such
assets as of such date. As a cash basis taxpayer, New Management's adjusted tax
basis of its accounts receivable is zero. Consequently, New Management will
recognize ordinary income to the extent of the consideration received for such
accounts receivable and any other assets considered to be "unrealized
receivables" as defined in Section 751 of the Internal Revenue Code of 1986, as
amended ("Code"). Net gain on certain other assets sold by New Management may
qualify for capital gain treatment under the Code. Each Partner is required to
report his distributive share of income, gains, losses and credits realized by
New Management, including any income, gains or losses realized by New Management
in the Acquisition. EACH PARTNER OF NEW MANAGEMENT IS URGED TO CONSULT HIS OR
HER OWN PERSONAL TAX AND FINANCIAL ADVISORS CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES OF THE ACQUISITION, AS WELL AS ANY APPLICABLE STATE, LOCAL, FOREIGN
OR OTHER TAX CONSEQUENCES, BASED UPON SUCH HOLDER'S OWN PARTICULAR FACTS AND
CIRCUMSTANCES. See "The Acquisition -- Federal Income Tax Consequences".

Resale Restrictions. All shares of MedPartners/Mullikin Common Stock
received by New Management Partners in the Acquisition will be freely
transferable, except that shares of MedPartners/Mullikin Common Stock received
by persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of New Management or MedPartners/Mullikin at the time of the
Meeting of Partners may be resold by them only in certain permitted
circumstances under the Securities Act, other applicable securities laws and
rules related to pooling of interests accounting treatment. See "The
Acquisition -- Resale of MedPartners/Mullikin Common Stock by Affiliates".

No Appraisal Rights. Under California law, Partners of New Management will
not be entitled to dissenters' rights of appraisal in connection with the
Acquisition. See "The Acquisition -- No Appraisal Rights".

New York Stock Exchange Listing. Prior to the Closing Date, a Subsequent
Listing Application will be timely filed by MedPartners/Mullikin with the NYSE
relating to the shares of MedPartners/Mullikin Common Stock to be issued to the
Partners of New Management in the Acquisition. It is a condition to the
obligation of MedPartners/Mullikin, the Subsidiary and New Management to
consummate the Acquisition that such a Subsequent Listing Application of such
shares of MedPartners/Mullikin Common Stock shall have been timely filed with
the NYSE and such shares shall be listed on the NYSE, upon official notice of
issuance, prior to the Closing Date. See "The Acquisition -- New York Stock
Exchange Listing".

MARKET AND MARKET PRICES

Prior to February 21, 1995, the effective date of the initial public
offering of MedPartners, there was no public market for MedPartners' common
stock. MedPartners and then MedPartners/Mullikin's Common Stock was traded on
the Nasdaq National Market under the symbol "MPTR" from February 21, 1995 until
February 21, 1996. On February 22, 1996, the MedPartners/Mullikin Common Stock
was listed on the NYSE under the symbol "MDM".

8
<PAGE> 293

Market. After February 21, 1996, the table sets forth the high and low last sale
price as reported on the NYSE Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter (from February 21)............................................. $24.00 $14.75
Second Quarter............................................................... 24.50 17.75
Third Quarter................................................................ 30.00 18.00
Fourth Quarter............................................................... 33.00 26.00
1996
First Quarter................................................................ $34.75 $28.50
Second Quarter............................................................... 30.25 20.13
Third Quarter (through August 15)............................................ 21.50 16.63
</TABLE>

There were approximately 743 holders of record of the Common Stock as of
July 22, 1996.

PARTNERS OF NEW MANAGEMENT ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE MEDPARTNERS/ MULLIKIN COMMON STOCK. No assurance can be given as to the
market price of MedPartners/Mullikin Common Stock at the Effective Time or at
any other time.

COMPARATIVE SHARE INFORMATION

The following summary presents selected comparative per share information
for (i) MedPartners/ Mullikin on a historical basis in comparison with pro forma
information giving effect to the Merger on a pooling of interest basis, (ii) CHS
on a historical basis in comparison with pro forma equivalent information after
giving effect to the Merger, assuming that 40.32 shares of MedPartners/Mullikin
Common Stock are issued in exchange for each share of CHS Common Stock in the
Merger, and (iii) New Management on a historical basis in comparison with their
pro forma equivalent information after giving effect to the Acquisition,
including the receipt of shares of MedPartners/Mullikin Common Stock by the
Partners of New Management in accordance with the Acquisition Agreement. The
historical and pro forma financial information should be read in conjunction
with the historical consolidated financial statements of MedPartners/Mullikin,
CHS and New Management and the related notes thereto and with the unaudited pro
forma financial information and the related notes thereto, appearing elsewhere
in this Prospectus -- Proxy Statement. See "Consolidated Financial Statements Of
MedPartners/Mullikin," "Pro Forma Condensed Financial Information", "Financial
Statements Of CHS", and "Financial Statements Of New Management".

The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger and the Acquisition had been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of the combined results of
operations in future periods or future combined financial position.

<TABLE>
<CAPTION>
PER COMMON AND COMMON EQUIVALENT SHARE
---------------------------------------------------------------------
NET INCOME STOCKHOLDERS' EQUITY
------------------------ SIX MONTHS ENDED (BOOK VALUE)
YEAR ENDED DECEMBER 31, JUNE 30, -----------------------
------------------------ ---------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1995 1996 1995 1996
------ ------ ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss):
MedPartners/Mullikin
Historical(1)............................ $(0.06) $(0.08) $ 0.01 $ 0.26 $ (0.11) $ 4.77 $ 8.29
Pro forma combined....................... 0.64 (0.61) (0.83) (0.72) (0.20) 4.19 4.78
</TABLE>

9
<PAGE> 294

<TABLE>
<CAPTION>
PER COMMON AND COMMON EQUIVALENT SHARE
----------------------------------------------------------------------
STOCKHOLDERS' EQUITY
NET INCOME SIX MONTHS ENDED (BOOK VALUE)
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
------------------------ ---------------- -----------------------
1993 1994 1995 1995 1996 1995 1996
------ ------ ------ ------ ------- -------------- ---------
------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
CHS(6)
Historical............................... -- -- $ 3.43 -- (14.16) $ 8.57 $(5.61)
Pro forma equivalent(2).................. -- -- 33.47 -- (8.06) 168.94 192.73
New Management
Historical pro forma(3).................. $ 8.08 $ 7.63 $ 6.99 $ 3.66 $ 2.90 $ 8.10 (5.84)
Pro forma equivalent(4).................. 0.0 0.0 0.0 0.0 0.0 0.01 0.01
Income (loss) from continuing
operations(5):
MedPartners/Mullikin
Historical............................... (0.06) (0.08) 0.01 0.26 (0.11)
Pro forma combined....................... 0.39 0.41 0.13 0.32 0.24
CHS(6)
Historical............................... -- -- 3.43 -- (14.16)
Pro forma equivalent(2).................. -- -- 5.24 -- 9.68
New Management
Historical(3)............................ 8.08 7.63 6.99 3.66 2.90
Pro forma equivalent(4).................. 0.0 0.0 0.0 0.0 0.0
</TABLE>

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

(1) MedPartners/Mullikin's historical pro forma net (loss) income per common
share is computed, after adjusting historical net income for the estimated
tax provision applicable to the pooled companies, by dividing net income
(loss) by the number of common equivalent shares outstanding during the
period in accordance with the applicable rules of the SEC. All stock
options and warrants issued have been considered as outstanding common
share equivalents, even if anti-dilutive, under the treasury stock method.
Shares of MedPartners. Common Stock issued in February 1995 upon conversion
of the then outstanding Convertible Preferred Stock are assumed to be
common share equivalents.
(2) CHS pro forma equivalent per common share data is calculated by multiplying
the pro forma MedPartners/Mullikin amounts by an assumed Exchange Ratio of
40.32, which is based on an assumed Base Period Trading Price of $20.31 per
share.
(3) New Management historical pro forma per common share data has been computed
by dividing their historical amounts by the number of shares of
MedPartners/Mullikin Common Stock to be exchanged for the Assets
($7,000,000/$20.31 = 344,658). The assumed Base Period Trading Price is
$20.31 per share.
(4) New Management pro forma equivalent per common share data has been computed
by multiplying MedPartners/Mullikin pro forma combined amounts by the ratio
of the number of shares to be exchanged for the Assets to the total pro
forma shares (0.01).
(5) Income (loss) from continuing operations per share data is computed, after
adjusting historical net income (loss) to eliminate the effects of
discontinued operations, by dividing adjusted net income (loss) by the
number of common equivalent shares outstanding during the period in
accordance with the applicable rules of the SEC. All stock options and
warrants issued have been considered as outstanding common share
equivalents, even if anti-dilutive, under the treasury stock method. Shares
of MedPartners Common Stock issued in February 1995, upon conversion of the
then outstanding Convertible Preferred Stock, are assumed to be common
share equivalents. The pro forma combined per share data for income (loss)
from continuing operations relates to Caremark excluding results from its
Clozaril(R) Patient Management System, Home Infusion business, Oncology
Management Service business, Caremark Orthopedic Services Inc. subsidiary
and Nephrology Services division, all of which have been reflected as
discontinued operations in accordance with APB Opinion No. 30.
(6) CHS was incorporated in August 1995 and commenced operations in September
1995.

10
<PAGE> 295

RISK FACTORS

In addition to the other information contained in this Prospectus-Proxy
Statement, New Management Partners should consider carefully the factors listed
below in evaluating the Acquisition.

RISKS RELATING TO THE MERGER AND THE ACQUISITION; ACQUISITIONS

MedPartners/Mullikin believes that the Merger and the related Acquisition
represents another step in MedPartners/Mullikin's consolidation initiative in
the PPM business to develop integrated health care delivery systems through
affiliation with individual physicians, physician practices, hospitals and
third-party payors. In addition, MedPartners/Mullikin has recently completed
major acquisitions and is still in the process of integrating those acquired
businesses. While the business plans of these acquired companies are similar,
their histories, geographical location, business models and cultures are
different in many respects. The MedPartners/Mullikin Board of Directors and
senior management of MedPartners/Mullikin face a significant challenge in their
efforts to integrate the acquired businesses so that the different cultures and
the varying emphasis on managed care and fee-for-service can be effectively
managed to continue to grow these businesses. The dedication of management
resources to such integration may detract attention from the day-to-day business
of MedPartners/Mullikin. There can be no assurance that there will not be
substantial costs associated with such activities or that there will not be
other material adverse effects of these integration efforts. While management of
MedPartners/Mullikin and New Management believe that the diverse experience of
each of the combined companies will serve to strengthen MedPartners/Mullikin,
there can be no assurance that management's efforts to integrate the operations
of MedPartners/Mullikin will be successful or that the anticipated benefits of
the Merger and the related Acquisition will be fully realized.

RISKS RELATING TO MEDPARTNERS/MULLIKIN'S GROWTH STRATEGY

11
<PAGE> 296

RISKS RELATING TO CAPITAL REQUIREMENTS

MedPartners/Mullikin's growth strategy requires substantial capital for the
acquisition of assets of physician practices and for the effective integration,
operation and expansion of the affiliated practices. Affiliated physician
practices may also require capital for renovation, expansion and additional
medical equipment and technology. MedPartners/Mullikin believes that, without
taking into consideration the Caremark Acquisition, its existing cash resources,
the use of MedPartners/Mullikin's Common Stock for selected practice and other
acquisitions, and available borrowings under the Bank Credit Facility dated as
of November 21, 1995 between MedPartners/Mullikin and NationsBank of Georgia,
N.A. (the "Bank Credit Facility") or any successor credit facility, will be
sufficient to meet MedPartners/Mullikin's anticipated acquisition, expansion and
working capital needs for the foreseeable future. It is expected that an
increased bank credit facility will be put into effect in connection with the
consummation of the Caremark Acquisition in order to refinance the indebtedness
under the Bank Credit Facility and the current indebtedness under the Caremark
bank facility, so that the combined company will not have a working capital
deficit. MedPartners/ Mullikin may raise additional capital through the issuance
of long-term or short-term indebtedness or the issuance of additional equity
securities in private or public transactions, at such times as management deems
appropriate and the market allows. Any of such financings could result in
dilution of existing equity positions, increased interest and amortization
expense, or decreased income to fund future expansion. There can be no assurance
that acceptable financing for future acquisitions or for the integration and
expansion of existing networks can be obtained.

RISKS RELATING TO CAPITATED NATURE OF REVENUES; CONTROL OF HEALTH CARE COSTS

12
<PAGE> 297

rates may be insufficient to cover the costs associated with the treatment of
enrollees. If such revenue is insufficient, MedPartners/Mullikin's operating
results could be adversely affected.

POTENTIAL REDUCTIONS IN THIRD-PARTY REIMBURSEMENT

RISKS RELATING TO DEPENDENCE ON AFFILIATED PHYSICIANS

13
<PAGE> 298

RISKS RELATING TO EXPOSURE TO PROFESSIONAL LIABILITY; LIABILITY INSURANCE

In recent years, physicians, hospitals and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
medical malpractice and related legal theories. Many of these lawsuits involve
large claims and substantial defense costs. Although MedPartners/Mullikin does
not engage in the practice of medicine or provide medical services, and does not
control the practice of medicine by its affiliated physicians or the compliance
with regulatory requirements directly applicable to the affiliated physicians
and physician groups, there can be no assurance that MedPartners/Mullikin will
not become involved in such litigation in the future. Through the ownership and
operation of Pioneer Hospital ("Pioneer Hospital") and U.S. Family Care Medical
Center ("USFMC"), acute care hospitals located in Artesia and Montclair,
California, respectively, MedPartners/Mullikin could be subject to allegations
of negligence and wrongful acts arising out of providing nursing care, emergency
room services, credentialing of medical staff members and other activities
incident to the operation of an acute care hospital. In addition, through its
management of clinic locations and provision of nonphysician health care
personnel, MedPartners/Mullikin could be named in actions involving care
rendered to patients by physicians employed by or contracting with affiliated
medical organizations and physician groups.

RISKS RELATING TO CONCENTRATION OF CUSTOMERS

COMPETITION

The physician practice management industry is highly competitive. The
industry is also subject to continuing changes in the provision of services and
the selection and compensation of providers. In addition, certain companies,
including hospitals and insurers, are expanding their presence in the physician
management market. The provision of physician contract management services for
hospitals and other health care providers is also highly competitive, and
MedPartners/Mullikin's hospital-based operations compete with national, regional
and local companies in providing its services. Certain of MedPartners/Mullikin's
competitors are larger and better capitalized, provide a wider variety of
services, may have greater experience in providing health care management
services and may have longer established relationships with buyers of such
services.

The demand for physician and health care professional personnel presently
exceeds the supply of qualified personnel. As a result, MedPartners/Mullikin
experiences competitive pressures for the recruitment and retention of qualified
physicians and other health care professionals to deliver their services.
MedPartners/ Mullikin's future success depends on its ability to continue to
recruit and retain qualified physicians and other health care professionals to
serve as employees or independent contractors of MedPartners/Mullikin and its
affiliates. There can be no assurance that MedPartners/Mullikin will be able to
recruit or retain a sufficient number of competent physicians and other health
care professionals to continue to expand its operations.

14
<PAGE> 299

GOVERNMENT REGULATION

Moreover, the laws of many states, including California, from which a
significant portion of MedPartners/Mullikin's revenues are derived, prohibit
physicians from splitting fees with non-physicians and prohibit non-physician
entities from practicing medicine. These laws and their interpretations vary
from state to state and are enforced by the courts and by regulatory authorities
with broad discretion. As stated in the Notes to its Consolidated financial
Statements, MedPartners/Mullikin believes that it has perpetual and unilateral
control over the assets and operations of the various affiliated professional
corporations. There can be no assurance that regulatory authorities will not
take the position that such control conflicts with state laws regarding the
practice of medicine or other federal restrictions. Although
MedPartners/Mullikin believes its operations as currently conducted are in
material compliance with existing applicable laws, there can be no assurance
that the existing organization of MedPartners/Mullikin and its contractual
arrangements with affiliated physicians will not be successfully challenged as
constituting the unlicensed practice of medicine or that the enforceability of
the provisions of such arrangements, including non-competition agreements, will
not be limited. There can be no assurance that review of the business of
MedPartners/Mullikin and its affiliates by courts or regulatory authorities will
not result in a determination that could adversely affect their operations or
that the health care regulatory environment will not change so as to restrict
existing operations or expansion of MedPartners/Mullikin and its affiliates. In
the event of action by any regulatory authority limiting or prohibiting
MedPartners/Mullikin or its affiliates from carrying on its business or from
expanding the operations of MedPartners/Mullikin to certain jurisdictions,
structural and organizational modifications of such organization or arrangements
of MedPartners/Mullikin may be required, which could have an adverse effect on
MedPartners/Mullikin.

Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute", prohibit the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare or state health
program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. The Anti-Kickback Statute contains
provisions prescribing civil and criminal penalties to which individuals or
providers who violate such statute may be subjected. The criminal penalties
include fines up to $25,000 per violation and imprisonment for five years or
more. Additionally, the Department of Health and Human Services ("DHHS") has the
authority to exclude anyone, including individuals or entities, who has
committed any of the prohibited acts from participation in the Medicare and
Medicaid programs. If applied to MedPartners/Mullikin or any of its subsidiaries
or

15
<PAGE> 300

affiliated physicians, such exclusion could result in a significant loss of
reimbursement for MedPartners/Mullikin, up to a maximum of the approximately 10%
of revenues derived from such programs. Although MedPartners/Mullikin believes
that it is not in violation of the Anti-kickback Statute or similar state
statutes, its operations do not fit within any of the existing or proposed
federal safe harbors.

RISKS RELATING TO REGULATORY REQUIREMENTS OF KNOX-KEENE ACT

On March 5, 1996 the California Department of Corporations ("DOC") issued
to Pioneer Provider Network, Inc. ("PPN"), a wholly owned subsidiary of
MedPartners/Mullikin, a license (the "Restricted License") in accordance with
the requirements of the Knox-Keene Health Care Service Plan Act of 1975 (the
"Knox-Keene Act"). The Restricted License authorizes PPN to operate as a health
care service plan in the State of California. MedPartners/Mullikin, through PPN,
intends to utilize the Restricted License for purposes of contracting with HMOs
for a broad range of health care services, including both institutional and
professional medical services, through a consolidated contract with the HMO.

RISKS RELATING TO HEALTH CARE REFORM

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the MedPartners/Mullikin Second Amended and Restated
Certificate of Incorporation (the "MedPartners/Mullikin Certificate"), the
MedPartners/Mullikin Amended and Restated By-laws (the "MedPartners/Mullikin
By-laws") and the DGCL could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of
MedPartners/Mullikin and limit the price that certain investors might be willing
to pay in the future for shares of MedPartners/Mullikin's Common Stock. These
provisions include a classified Board of Directors and the issuance, without
further stockholder approval, of preferred stock with rights and privileges
which could be senior to MedPartners/Mullikin's

16
<PAGE> 301

Common Stock. MedPartners/Mullikin also is subject to Section 203 of the DGCL
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder. In addition,
MedPartners/Mullikin's Stockholders' Rights Plan, which provides for discount
purchase rights to certain stockholders of MedPartners/Mullikin upon certain
acquisitions of 10% or more of the outstanding shares of MedPartners/Mullikin's
Common Stock, may also inhibit a change in control of MedPartners/Mullikin. See
"Management of MedPartners/Mullikin -- Classified Board of Directors,"
"Description of MedPartners/Mullikin Capital Stock -- Certain Provisions of
MedPartners/Mullikin's Certificate and the DGCL" and "Description of Capital
Stock of MedPartners/Mullikin -- Stockholders' Rights Plan".

CONTROL BY CERTAIN STOCKHOLDERS

POSSIBLE VOLATILITY OF STOCK PRICE

There may be significant volatility in the market price for
MedPartners/Mullikin's Common Stock. Quarterly operating results of
MedPartners/Mullikin, changes in general conditions in the economy, the
financial markets or the health care industry, or other developments affecting
MedPartners/Mullikin or its competitors, could cause the market price of
MedPartners/Mullikin's Common Stock to fluctuate substantially. In addition, in
recent years, the stock market and, in particular, the health care industry
segment, has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance.

RISKS RELATING TO FEDERAL INCOME TAXES

The Acquisition is a taxable transaction and each Partner of New Management
will recognize gain or loss equal to the difference between the fair market
value of the MedPartners/Mullikin Common Stock received and cash received in
lieu of fractional shares and such holder's basis in New Management. See "The
Acquisition -- Federal Income Tax Consequences".

CAREMARK RISK FACTORS

In addition to the information contained in this Prospectus-Proxy Statement
and the risk factors described above, there are additional risk factors relating
solely to Caremark and the Caremark Acquisition. In anticipation of the
consummation of the Caremark Acquisition, the Partners of New Management should
also consider the following Caremark Risk Factors.

Certain Caremark Legal Matters

17
<PAGE> 302

criminal fines. The basis of these guilty pleas was Caremark's failure to
provide certain information to Civilian Health and Medical Payments for the
Uniformed Services ("CHAMPUS") and Federal Employees Health Benefit Plan
("FEHBP"), federally funded health care benefit programs, concerning financial
relationships between Caremark and a physician in each of Minnesota and Ohio.

As of June 30, 1996, the pre-tax reserve for the costs of settlement of the
OIG Settlement and the settlement with the private payors referred to above and
related matters was approximately $110 million. This reserve represented
Caremark's management's estimate of the ultimate costs relating to the
disposition of these matters. Caremark's management cannot determine at this
time whether there will be additional costs relating to any future disposition
of non-governmental claims or litigation. Therefore, there can be no assurance
that the ultimate costs of these matters will not exceed the reserve or that
additional costs, claims and damages will not occur. Such additional costs, if
incurred, could have a material negative impact on Caremark's future results.
See Note 14 to Caremark's Consolidated Financial Statements.

18
<PAGE> 303

adversely determined, would not have a material adverse effect on Caremark's
results of operations, cash flows or financial position.

Pharmaceutical Sales

Pharmacy Licensing and Operation

19
<PAGE> 304

SELECTED FINANCIAL INFORMATION
MEDPARTNERS/MULLIKIN, INC.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................. $266,447 $394,878 $549,695 $815,041 $1,153,557 $547,450 $703,683
Operating Expenses:
Cost of Affiliated Physician Services...... 97,364 167,488 224,770 349,036 506,811 240,225 301,280
Clinic salaries, wages & benefits.......... 66,596 89,439 112,489 159,010 216,119 105,133 116,600
Outside hospitalization expense............ 17,411 27,842 59,861 86,974 109,934 50,364 83,516
Clinic rent & lease expense................ 9,467 11,970 18,832 27,515 41,825 19,744 23,814
Clinic supplies............................ 15,552 17,996 24,529 34,453 47,744 22,519 30,953
Other clinic costs......................... 19,227 22,648 41,248 67,645 88,991 43,776 59,154
General corporate expenses................. 18,060 38,099 42,196 56,653 64,713 32,167 39,540
Depreciation & amortization................ 6,404 9,575 14,057 21,892 29,088 13,962 16,482
Interest, net.............................. 2,098 2,396 3,338 5,958 8,443 3,367 2,811
Merger expenses............................ -- -- -- -- 66,564 1,051 34,448
Loss (gain) from disposal of assets........ (3) -- 122 1,627 -- -- --
-------- -------- -------- -------- ---------- -------- --------
Income (loss) from continuing operations
before pro forma income taxes &
cumulative effect of change in method of
accounting............................... 14,271 7,425 8,253 4,278 (26,675) 15,142 (4,915)
Pro forma income tax expense............... 2,190 7,703 9,723 7,350 (27,233) 4,411 360
-------- -------- -------- -------- ---------- -------- --------
Pro forma income (loss) from continuing
operations before cumulative effect of
change in method of accounting........... 12,081 (278) (1,470) (3,072) 558 10,731 (5,275)
Cumulative effect of change in method of
accounting for income taxes.............. (120) -- 298 -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Pro forma income (loss) from continuing
operations............................... 12,201 (278) (1,768) (3,072) 558 $ 10,731 (5,275)
Loss from discontinued operation of
clinics.................................. 279 702 -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Pro forma net income (loss)(1)............. $ 11,922 $ (980) $ (1,768) $ (3,072) $ 558 $ 10,731 $ (5,275)
========= ========= ========= ========= ========== ========= =========
Pro forma net income (loss) per share(2)..... $ 0.97 $ (0.06) $ (0.06) $ (0.08) $ 0.01 $ 0.26 $ (0.11)
Number of shares used in pro forma net income
(loss) per share........................... 12,249 15,308 28,403 36,553 42,720 41,867 50,034
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------------------------------- --------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 23,677 $ 22,312 $ 43,367 $ 66,623 $ 55,328 $ 55,328 $ 56,221
Working capital (deficit)..................... 11,425 (3,358) 13,023 75,605 92,881 91,892 101,038
Total assets.................................. 111,478 181,032 243,758 417,974 575,271 576,733 618,184
Long-term debt, less current portion.......... 29,369 46,678 48,340 146,498 200,814 200,814 35,080
Total stockholders' equity.................... 30,708 49,281 71,577 109,232 203,023 202,717 414,611
</TABLE>

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

(1) Includes pro forma income tax provision giving effect to pooling with
non-taxable entities. See Note 1 to Consolidated Financial Statements of
MedPartners/Mullikin, Inc.
(2) Pro forma net income (loss) per share is computed, after giving effect to
the pro forma tax provision described above, by dividing net income (loss)
by the number of common equivalent shares outstanding during the periods
presented in accordance with the applicable rules of the Commission. All
stock options issued have been considered as outstanding common equivalent
shares for all periods presented, even if anti-dilutive, under the treasury
stock method. Shares of the common stock of MedPartners issued in February
1995 upon conversion of the then outstanding convertible preferred stock
are assumed to be common equivalent shares for all periods presented.

20
<PAGE> 305

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- MEDPARTNERS/MULLIKIN

GENERAL

21
<PAGE> 306

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of net revenue represented by the following items:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue(1)............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of affiliated physician
services(2)........................... 40.9 42.8 43.9 43.9 42.8
Clinic salaries, wages and benefits...... 20.5 19.5 18.7 19.2 16.6
Outside hospitalization expense.......... 10.9 10.7 9.5 9.2 11.9
Clinic rent and lease expense............ 3.4 3.4 3.6 3.6 3.4
Clinic supplies.......................... 4.5 4.2 4.1 4.1 4.4
Other clinic costs....................... 7.5 8.3 7.7 8.0 8.4
General corporate expenses............... 7.7 7.0 5.6 5.9 5.6
Depreciation and amortization............ 2.6 2.7 2.6 2.6 2.3
Net interest expense..................... 0.5 0.7 0.7 0.6 0.4
Merger expenses.......................... 0.0 0.0 5.9 0.2 4.9
Loss on disposal of assets............... 0.0 0.2 0.0 0.0 0.0
Pro forma income tax expense (benefit)... 1.8 0.9 (2.3) 0.8 0.1
----- ----- ----- ----- -----
Pro forma net (loss) income...... (0.3)% (0.4)% 0.0% 1.9% (0.8)%
===== ===== ===== ===== =====
</TABLE>

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

The following table sets forth the breakdown of net revenue for the periods
indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Prepaid health care........................ 66.7% 62.5% 53.8% 53.4% 48.5%
Fee-for-service............................ 31.4 36.1 44.7 45.3 50.5
Other...................................... 1.9 1.4 1.5 1.3 1.0
----- ----- ----- ----- -----
Net revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>

Enrollment

22
<PAGE> 307

enrollment for professional and institutional capitation. Most of the enrollment
growth is related to acquisitions and increased enrollment in the northern
California operations.

Six Months Ended June 30, 1996 and 1995

Years Ended December 31, 1995 and 1994

23
<PAGE> 308

Excluding nonrecurring items related to the 1995 Mergers, operating
expenses at the clinic level were $1,011 million, or 87.7% of net revenue for
the year ended December 31, 1995, compared to $725 million, or 88.9% of net
revenue for 1994. Clinic salaries, wages and benefits decreased as a percentage
of net revenue during 1995 as certain operational efficiencies were implemented
and the IPA business, which requires a low support staff ratio, continued to
grow. Outside hospitalization expense increased from $87 million for the year
ended December 31, 1994 to $110 million for the year ended December 31, 1995,
but decreased as a percentage of net revenue from 10.7% for the year ended
December 31, 1994 to 9.5% for the year ended December 31, 1995. This percentage
decrease related to the decline in the relationship of prepaid health care to
total net revenue. General corporate expenses increased from $57 million during
the year ended December 31, 1994 to $65 million during the year ended December
31, 1995. As a percentage of net revenue, however, general corporate expenses
decreased from 7.0% in 1994 to 5.6% in 1995. Net income (excluding merger
expenses) for the year ended December 31, 1995 was $25.3 million compared to a
loss of $3.1 million for 1994.

Including merger expenses, net income for the year ended December 31, 1995
was $.6 million compared to a net loss of $3.1 million for 1994. Included in
operating expenses for 1995 are merger expenses totaling $66.6 million related
to business combinations accounted for as poolings of interests. Approximately
$55.6 million related to the business combination with MME and its real estate
partnerships. The components of the total $66.6 million charge included: $8.8
million in investment banking fees, $7.3 million in professional fees, $5
million in other transaction costs and $45.5 million in restructuring charges.
The major components of the restructuring charge included: $19.6 million in
severance for identified employees, $8.1 million impairment of assets, $6.4
million abandonment of facilities, $2.6 in noncompatible technology, $2.3
million in unamortized loan costs, $2.2 million related to conforming of
accounting policies and $1.9 million in restructuring of benefit packages.

Years Ended December 31, 1994 and 1993

Clinic rent and lease expense was 3.4% of net revenue for the years ended
December 31, 1994 and December 31, 1993. Other clinic costs were 7.5% of net
revenue for 1993 and 8.3% for 1994.

24
<PAGE> 309

available for investment. The increase in net interest expense in 1994 was the
result of increased borrowings to fund acquisitions.

Due to MedPartners/Mullikin's limited operating history and cumulative
operating losses, a valuation allowance was established to eliminate deferred
tax benefits generated through December 31, 1994.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1996, MedPartners/Mullikin had working capital of $101
million, including cash and cash equivalents of $56 million. For the first six
months of 1996, cash flow from operations, excluding $25.9 million cash paid
during the six months for merger expenses, was $6 million. For the year ended
December 31, 1995, cash flow used in operations was ($13.5) million. This
included $28 million in cash paid for merger expenses. Net of these expenses,
MedPartners/Mullikin experienced cash flow from operations of $14.5 million. For
the years ending December 31, 1993 and 1994, cash flow provided by operations
was $30.6 million and $13.7 million, respectively. MedPartners/Mullikin has
reduced the medical claims outstanding to levels below that required in its
agreements with HMOs, and it does not expect this to have a negative impact on
future cash flows from operations. On a monthly basis, MedPartners/Mullikin's
most significant expenditure is for affiliated physician services. Payment is
made on the fifteenth day of the month following the month in which the services
were provided.

For the six months ended June 30, 1996, MedPartners/Mullikin invested $29.7
million in acquisitions of the assets of physician practices, $21.8 million in
equipment for the physician practices and the corporate office and $4.5 million
in intangible assets related to corporate name/trademarks and other intangible
assets. For the year ended December 31, 1995, MedPartners/Mullikin invested
$61.5 million in acquisitions of the assets of physician practices, $39.4
million in equipment for the physician practices and the corporate office and
$7.2 million in intangible assets related to debt issue costs, corporate
name/trademarks and other intangible assets. For the year ended December 31,
1994, MedPartners/Mullikin's investing activities totaled $108.5 million, which
primarily was composed of $57.6 million related to practice acquisitions and
$32.1 million related to the purchase of property and equipment. These
expenditures were funded from approximately $116.3 million in equity proceeds
and $7.8 million in net incremental borrowings. For the year ended December 31,
1993, MedPartners/Mullikin's investing activities totaled $37.6 million of which
$14.3 million related to practice acquisitions and $15.6 million related to the
purchase of property and equipment. These expenditures were funded by $42.7
million derived from equity proceeds.

On March 13, 1996, MedPartners/Mullikin sold 6.6 million shares of Common
Stock at $30.25 per share. MedPartners/Mullikin raised net proceeds of $194
million, $70 million of which was applied to reduce the indebtedness under the
Company's Revolving Credit and Reimbursement Agreement (the Bank Credit
Facility). In April 1996, $69 million of the proceeds were used to pay-off
MedPartners/Mullikin's convertible subordinated debentures.

25
<PAGE> 310

Mullikin is required to obtain bank consent for acquisitions with an aggregate
purchase price of $15.0 million or more.

MedPartners/Mullikin intends to acquire the assets of additional physician
practices and to fund this growth with existing cash and cash equivalents and
borrowings under the Bank Credit Facility. MedPartners/ Mullikin believes that
its existing cash resources, the use of MedPartners/Mullikin's Common Stock for
selected practice and other acquisitions, and available borrowings under the
Bank Credit Facility and the increased bank credit facility anticipated to be
entered into in connection with the consummation of the Caremark Acquisition,
will be sufficient to meet MedPartners/Mullikin's anticipated acquisition,
expansion and working capital needs for the next twelve months.
MedPartners/Mullikin will raise additional capital through the issuance of
long-term or short-term indebtedness or the issuance of additional equity
securities in private or public transactions, at such times and terms as
management deems appropriate and the market allows, in order to meet the capital
needs of MedPartners/Mullikin on a long term basis (i.e., for a period in excess
of 12 months).

QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- ------------- ------------ --------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $191,176 $ 210,189 $234,422 $259,750 $287,700 $ 299,272 $306,835 $343,285 $360,398
Operating expenses:
Cost of affiliated
physician
services........ 83,846 91,791 97,001 114,272 125,953 132,631 133,955 148,662 152,618
Clinic salaries,
wages and
benefits........ 38,776 38,862 43,889 50,570 54,563 53,760 57,226 56,762 59,838
Outside
hospitalization
expense......... 21,008 20,436 26,435 22,193 28,171 30,796 28,774 35,668 47,849
Clinic rent and
lease
expense......... 6,223 7,094 8,370 9,717 10,027 10,518 11,563 11,693 12,121
Clinic supplies... 7,939 8,002 10,568 10,983 11,536 11,704 13,521 15,014 15,938
Other clinic
costs........... 15,594 15,953 21,005 20,711 23,065 23,661 21,554 31,285 27,868
General corporate
expenses........ 13,086 15,808 13,809 15,703 16,464 15,697 16,849 19,414 20,126
Depreciation and
amortization.... 5,097 5,631 6,448 6,605 7,357 7,384 7,742 8,174 8,308
Net interest
expense......... 1,130 1,654 1,903 1,885 1,482 2,042 3,034 3,232 (421)
Merger expenses... -- -- -- -- 1,051 3,473 62,040 34,448 --
Loss on disposal
of assets....... 401 412 413 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes............. (1,924) 4,546 4,581 7,111 8,031 7,606 (49,423) (21,067 ) 16,153
Pro forma income tax
expense
(benefit)......... 1,017 2,363 2,764 2,176 2,235 2,427 (34,071) (5,769 ) 6,129
-------- -------- -------- -------- -------- -------- -------- -------- --------
Pro forma net income
(loss)............ $ (2,941) $ 2,183 $ 1,817 $ 4,935 $ 5,796 $ 5,179 $(15,352) $(15,298 ) $ 10,024
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

26
<PAGE> 311

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 MARCH 31, 1996
------------------- ------------------- ------------------- -------------------
AS AS AS AS
FORM 10-Q RESTATED FORM 10-Q RESTATED FORM 10-Q RESTATED FORM 10-Q RESTATED
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........... $45,667 $259,750 $57,272 $287,700 $76,019 $299,272 $332,549 $343,285
Income before income
taxes............... 765 7,111 820 8,031 2,265 7,606 (21,435 ) (21,067)
Income tax expense.... 291 2,176 260 2,235 770 2,427 (5,935 ) (5,769)
Net income............ 474 4,935 560 5,796 1,495 5,179 (15,500 ) (15,298)
</TABLE>

27
<PAGE> 312

THE SPECIAL MEETING OF PARTNERS

GENERAL

This Prospectus-Proxy Statement is being furnished to Partners of New
Management in connection with the solicitation of proxies by the Executive
Committee of New Management for use at the Special Meeting of Partners to
consider and vote upon the approval of the Acquisition Agreement and to transact
such other business as may properly come before the Special Meeting of Partners
or any adjournments or postponements thereof. Each copy of this Prospectus-Proxy
Statement mailed or delivered to Partners of New Management is accompanied by a
form of Proxy for use at the Special Meeting of Partners.

This Prospectus-Proxy Statement is also furnished to Partners of New
Management as a Prospectus in connection with the issuance to them of the shares
of MedPartners/Mullikin Common Stock upon consummation of the Acquisition.

DATE, PLACE AND TIME

The Special Meeting of Partners will be held at 7320 Woodlake Avenue, Suite
190, West Hills, California 91307, on August 22, 1996, at 6:00 p.m. local time.

QUORUM

The presence, in person or by proxy, of the Partners of New Management
entitled to cast a majority of the votes entitled to be cast at the Special
Meeting of Partners will constitute a quorum at the Special Meeting of Partners.

VOTE REQUIRED

As of the Record Date, there were 100 Partnership Units outstanding. Each
Unit is entitled to one vote on each matter that comes before the Special
Meeting of Partners. The affirmative vote of the Partners representing 85 of the
Units entitled to vote at the Special Meeting of Partners is required to approve
and adopt the Acquisition Agreement and the transactions contemplated thereby.
If, after all of the Partners have received and had an opportunity to review
this Prospectus-Proxy Statement, New Management determines that all of the New
Management Partners approve of the Acquisition and intend to vote FOR the
Acquisition, it is possible that the vote required to approve the Acquisition
will be accomplished without a meeting by unanimous written action of the New
Management Partners.

VOTING AND REVOCATION OF PROXIES

Partners represented by a Proxy properly signed and received at or prior to
the Meeting of Partners, unless subsequently revoked, will be voted in
accordance with the instructions thereon. IF A PROXY IS PROPERLY EXECUTED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE PARTNERSHIP UNITS
REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
ACQUISITION AGREEMENT. Any Proxy given pursuant to the solicitation may be
revoked by the person giving it at any time before the Proxy is voted by the
filing of an instrument revoking it or of a duly executed Proxy bearing a later
date with the Secretary of New Management prior to or at the Special Meeting of
Partners, or by voting in person at the Special Meeting of Partners. Attendance
at the Special Meeting of Partners will not in and of itself constitute a
revocation of a Proxy. The persons named as proxies with respect to the Special
Meetings, may propose and vote for one or more adjournments or postponements of
the respective Special Meetings to permit further solicitation of proxies in
favor of the respective proposals to approve and adopt the Plan of Merger;
provided however, that no proxy which is voted against the respective proposals
to approve and adopt the Plan of Merger will be voted in favor of any such
adjournment or postponement. Only votes cast FOR approval of the Acquisition
Agreement or other matters constitute affirmative votes. Abstentions and votes
that are withheld will, therefore, have the same effect as negative votes
AGAINST approval of the Acquisition Agreement.

28
<PAGE> 313

The Executive Committee of New Management is not aware of any business to
be acted upon at the Special Meeting of Partners other than as described herein.
If, however, other matters are properly brought before the Special Meeting of
Partners, or any adjournments or postponements thereof, the persons appointed as
proxies will have discretion to vote or act thereon according to their best
judgment and subject to applicable rules of the SEC.

SOLICITATION OF PROXIES

In addition to solicitation by mail, Executive Committee members of New
Management, who will not be specifically compensated for such services, may
solicit proxies from the Partners of New Management personally or by telephone
or telegram or other forms of communication. Except as otherwise provided in the
Acquisition Agreement, New Management will bear its own expenses in connection
with the solicitation of proxies for the Special Meeting of Partners. See "The
Acquisition -- Expenses".

29
<PAGE> 314

THE ACQUISITION

The description of the Acquisition contained in this Prospectus-Proxy
Statement summarizes the material provisions of the Acquisition Agreement; it
does not purport to be a complete description thereof and is qualified in its
entirety by reference to the Acquisition Agreement, the full text of which is
attached hereto as Annex A. All New Management Partners are urged to read Annex
A carefully.

TERMS OF THE ACQUISITION

Pursuant to the Acquisition Agreement, MedPartners/Mullikin, through the
Subsidiary, will purchase substantially all of the assets of New Management used
in connection with its management business. Such assets consist principally of
the Management Contract but also include all the Assets. The Assets exclude the
consideration to be received by New Management from MedPartners/Mullikin for the
Acquisition, and the Partnership Agreement and related documents of New
Management. The Acquisition Price will be paid by MedPartners/Mullikin in shares
of MedPartners/Mullikin Common Stock in an amount equal to $7 million. The
Subsidiary will assume all disclosed liabilities of New Management.
MedPartners/Mullikin guarantees all of the Subsidiary's obligations under the
Acquisition Agreement. The number of shares of MedPartners/ Mullikin Common
Stock which shall constitute the Acquisition Price shall be determined by
dividing $7 million by the Base Period Trading Price. For the ten consecutive
trading days ended August 15, 1996, the average of the last reported sale prices
per share of MedPartners/Mullikin Common Stock was $20.31. At such price, New
Management would receive 344,658 shares of MedPartners/Mullikin Common Stock.
THE BASE PERIOD TRADING PRICE MAY DIFFER FROM THE ACTUAL MARKET PRICE OF THE
MEDPARTNERS/MULLIKIN COMMON STOCK REPORTED ON THE NYSE FOR THE DATE OF THE
SPECIAL MEETING OF PARTNERS, THE DATE CONSUMMATION OF THE ACQUISITION, OR THE
DATE THAT THE PARTNERS ACTUALLY RECEIVE THEIR SHARES OF MEDPARTNERS/MULLIKIN
COMMON STOCK AFTER THE ACQUISITION IS COMPLETED. SINCE THE ACTUAL NUMBER OF
SHARES OF MEDPARTNERS/MULLIKIN COMMON STOCK ISSUABLE TO NEW MANAGEMENT PARTNERS
IN THE ACQUISITION DEPENDS ON THE BASE PERIOD TRADING PRICE, THERE IS NO
GUARANTEE AS TO THE NUMBER OF SHARES OF THE MEDPARTNERS/MULLIKIN COMMON STOCK
THAT NEW MANAGEMENT PARTNERS WILL RECEIVE.

New Management Partners will receive cash (without interest) in lieu of
fractional shares of MedPartners/Mullikin Common Stock.

Based upon the number of shares of MedPartners/Mullikin Common Stock
outstanding and reserved for issuance upon exercise of options as of the Record
Date and assuming a Final MedPartners/Mullikin Base Period Trading Price of
$20.31, the Partners of New Management will receive less than 1% of the
outstanding shares of MedPartners/Mullikin Common Stock anticipated to be
outstanding immediately after the Closing. See "The Acquisition -- Additional
Interests of Certain Persons in the Acquisition".

CHS MERGER

All of the partners of CMG, and therefore beneficial owners of 50% of CHS,
are also the Partners of New Management. Under the terms of the Plan of Merger,
MedPartners/Mullikin will issue MedPartners/ Mullikin Common Stock to the
stockholders of CHS with a value calculated under the Plan of Merger of $40
million, subject to adjustment in circumstances set forth in the Plan of Merger.
The Merger is discussed in detail in the CHS Proxy Statement, which also
constitutes a part of the Registration Statement of which this Prospectus-Proxy
Statement is a part. A copy of the CHS Proxy Statement will be available upon
request to each Partner of New Management without charge and each New Management
Partner is encouraged to obtain a copy and read it carefully.

BACKGROUND OF THE ACQUISITION

The terms of the Acquisition Agreement resulted from arm's length
negotiations between representatives of New Management and representatives of
MedPartners/Mullikin.

New Management was organized in July 1992 to meet the demand for consulting
and management services by CMG and West Hills Hospital with respect to certain
managed care contracts. Substantially all of

30
<PAGE> 315

New Management's revenue is from the Management Contract. As a result of this
dependence and the increasing economic pressures and competition prevalent in
the industry, the Executive Committee of New Management became concerned about
the possibility of a renegotiation of the Management Contract and the effect on
the business of New Management.

A number of opportunities arose to minimize these risks and capitalize on
the general trend toward consolidation. In connection with CHS' pursuit of its
expansion strategy, several parties expressed interest in acquiring New
Management in connection with an acquisition of CHS. A number of prospective
acquirors conditioned their acquisition of CHS on an acquisition of New
Management. After reviewing all proposals received by New Management, the
Executive Committee determined to pursue discussions with certain interested
parties. Sutro & Co., Incorporated ("Sutro"), financial advisor to CHS, and
members of the Executive Committee conducted discussions and due diligence
sessions with each of the interested parties. Proposals which were received by
CHS in January 1996 and indicated interest in acquiring both CHS and New
Management were submitted to and considered by the Executive Committee. In
January, the Executive Committee also discussed concerns raised by CHS relating
to a potential conflict of interest between CHS and New Management, in the event
of a business combination involving CHS or both CHS and New Management, since
certain directors and officers of CHS were partners of New Management. On
February 9, 1996, New Management retained Sutro as its financial advisor (which
engagement did not include the rendering of a fairness opinion) to pursue those
parties (including MedPartners/Mullikin) who, in connection with an acquisition
of CHS, also expressed an interest in acquiring New Management. The Executive
Committee also considered whether Sutro should act as New Management's financial
advisor in any such business combination. After careful consideration, the
Executive Committee determined it to be in the best interests of New Management
that management of CHS and Sutro continue to work with New Management.
Additionally, it was agreed that New Management would be represented in any
negotiations by separate legal counsel and New Management executives who were
not also officers of CHS.

After careful consideration, the Executive Committee, on February 9, 1996,
authorized Sutro to proceed discussing a possible acquisition by
MedPartners/Mullikin. On February 14, 1996, New Management received a draft
proposal from MedPartners/Mullikin.

On March 3, 1996, after several discussions between representatives of
MedPartners/Mullikin and New Management, the Executive Committee met and
reviewed the transaction proposed by MedPartners/ Mullikin, at which New
Management's legal and financial advisors were present. The Executive Committee
reviewed and discussed the terms of the proposed agreement and the form of
consideration to be received, the strategic alternatives available to New
Management and the results of the due diligence. The Executive Committee
determined to continue negotiations with MedPartners/Mullikin.

On March 10, 1996, a meeting of the Executive Committee was held to discuss
the proposed definitive agreement which had been delivered by
MedPartners/Mullikin; New Management's legal and financial advisors were
present. At this meeting, the Executive Committee discussed the results of due
diligence review of MedPartners/Mullikin; the form and terms of the Acquisition
Agreement, including the amount and form of consideration to be received by New
Management's Partners. The Executive Committee also discussed the draft of the
Acquisition Agreement with legal counsel's. Based on the foregoing discussions,
the Executive Committee approved the Acquisition Agreement in the form
presented. On June 28, 1996, the Executive Committee of New Management approved
Amendment No. 1 to the Amended and Restated Agreement to Purchase Assets.

31
<PAGE> 316

RECOMMENDATION OF THE NEW MANAGEMENT EXECUTIVE COMMITTEE

By the unanimous vote of the members of the Executive Committee of New
Management at a meeting held on March 10, 1996, the Executive Committee
determined that the proposed sale under the terms and conditions of the
Acquisition Agreement was fair to and in the best interest of New Management and
its Partners and resolved to recommend that the Partners of New Management vote
FOR approval of the Acquisition Agreement. See "-- Background of the
Acquisition". In reaching its conclusion to enter into the Acquisition Agreement
and to recommend that the Partners vote FOR the approval Acquisition Agreement,
the Executive Committee considered a number of factors, including, without
limitation and without assigning relative weights thereto, the following:

(i) the terms and conditions of the Acquisition Agreement and the form
of consideration to be received by the Partners of New Management;

(ii) a comparison of the financial terms of certain other transactions
that have recently been effected in New Management's industry;

(iii) a review of possible alternatives to the sale of New Management,
including continuing to operate New Management as a stand alone
privately-owned entity which would require additional capital;

(iv) the health care industry is rapidly evolving and currently
characterized by intensified competition and increasing consolidation. In
the prepaid segment of the health care industry, particularly in
California, entities, such as the Medical Groups, that contract with HMOs
to provide medical care on a capitated basis face increasing pressures to
maintain or decrease rates which in turn places pressures on companies like
New Management;

On February 22, 1996, the MedPartners/Mullikin Board of Directors approved
the Acquisition. The MedPartners/Mullikin Board of Directors believes that the
Acquisition is desirable because the Acquisition will allow MedPartners/Mullikin
to expand and strengthen its presence in the Southern California market.

EFFECTIVE DATE OF THE ACQUISITION

The Acquisition will become effective on the Closing Date if all conditions
precedent to closing have been fulfilled.

DELIVERY OF MEDPARTNERS/MULLIKIN COMMON STOCK

Upon the closing of the Acquisition, MedPartners/Mullikin will deliver to
New Management one or more certificates, registered in the name of New
Management or such other names as New Management may reasonably request
representing the aggregate number of shares of MedPartners/Mullikin Common Stock
constituting the Acquisition Price under the Acquisition Agreement.

CONDITIONS TO THE ACQUISITION

The obligations of each party to the Acquisition Agreement are subject to
the satisfaction of the following condition that the Partners of New Management
shall have approved the Acquisition by a vote of at least 85 Units.

REPRESENTATIONS AND COVENANTS

Under the Acquisition Agreement, MedPartners/Mullikin and New Management
have each made a number of representations regarding the organization and
capital structures of MedPartners/Mullikin and New Management and their
affiliates, their operations, financial condition and other matters, including
their authority to enter into the Acquisition Agreement and to consummate the
Acquisition.

32
<PAGE> 317

REGULATORY APPROVALS

No federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the Acquisition.

The operations of each of MedPartners/Mullikin and New Management are
subject to a substantial body of federal, state, local and accrediting body
laws, rules and regulations relating to the conduct, licensing and development
of health care businesses and facilities.

BUSINESS PENDING THE ACQUISITION

The Acquisition Agreement provides that, during the period from the date of
the Acquisition Agreement to the Closing Date, except as provided in the
Acquisition Agreement, New Management will conduct its business in the usual,
regular and ordinary course in substantially the same manner as previously
conducted, and New Management will use all reasonable efforts to preserve intact
its present business organizations, maintain its rights and franchises and
preserve its relationships with customers, suppliers and others having business
dealings with it. New Management has also agreed not to: (i) incur any material
uninsured obligation or liability, or any material adverse change other than in
the ordinary course of business; (ii) discharge or satisfy any material lien or
encumbrance, or pay or satisfy any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (a) liabilities shown or reflected
on New Management's Balance Sheet or (b) liabilities incurred since the date of
New Management's Balance Sheet in the ordinary course of business; (iii)
increase or establish any reserve for taxes or any other liability on its books
or otherwise provide therefor, except as may be required due to income or
operations of New Management; (iv) mortgage, pledge or subject to any lien,
charge or other encumbrance any of the Assets, tangible or intangible; (v) sell
or transfer any of the Assets, cancel any debts or claims or waive any rights,
except in the ordinary course of business; (vi) grant any general or uniform
increase in the rates of pay of employees or any substantial increase in salary
payable or to become payable by New Management to any officer or employee,
consultant or agent (other than normal merit increases), or by means of any
bonus or pension plan, contract or other commitment, increased the compensation
of any officer, employee, consultant or agent; (vii) authorize any single
capital expenditure in excess of $5,000, or more than $10,000 in the aggregate;
(viii) enter into any material transaction other than in the ordinary course of
business or permitted under other Sections hereof; (ix) issue any stock, bonds
or other securities; (x) experience damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting any of its properties,
assets or business, or experience any other material adverse change in its
financial condition, assets, liabilities or business.

WAIVER AND AMENDMENT

The Acquisition Agreement provides that, at any time prior to the Closing
Date, MedPartners/Mullikin and the Subsidiary, on the one hand, and New
Management, on the other hand, may waive compliance with the agreements or
conditions under the Acquisition Agreement.

NO APPRAISAL RIGHTS

Under California law, Partners of New Management will not be entitled to
dissenters' appraisal rights in connection with the Acquisition.

NEW YORK STOCK EXCHANGE LISTING

Prior to the Closing Date, a Subsequent Listing Application will be timely
filed by MedPartners/Mullikin with the NYSE relating to the shares of
MedPartners/Mullikin Common Stock to be issued to the Partners of New Management
in the Acquisition. Although no assurance can be given that the shares of
MedPartners/ Mullikin Common Stock so issued will be accepted for listing,
MedPartners/Mullikin anticipates that these shares will qualify for listing on
the NYSE, upon official notice of issuance thereof. See "The Acquisition -- New
York Stock Exchange Listing".

33
<PAGE> 318

RESALE OF MEDPARTNERS/MULLIKIN COMMON STOCK BY AFFILIATES

MedPartners/Mullikin Common Stock to be issued to New Management in
connection with the Acquisition has been registered under the Securities Act.
MedPartners/Mullikin Common Stock received by New Management upon consummation
of the Acquisition will be freely transferable under the Securities Act, except
for shares issued to any person who may be deemed an "Affiliate" (as defined
below) of New Management or MedPartners/ Mullikin within the meaning of Rule 145
under the Securities Act. "Affiliates" are generally defined as persons who
control, are controlled by, or are under common control with New Management or
MedPartners/Mullikin at the time of the Special Meeting of Partners (generally,
members of the Executive Committee of New Management or directors and certain
executive officers of MedPartners/ Mullikin and major stockholders of
MedPartners/Mullikin or Partners owning 5% or more of the Units of New
Management). Generally, all shares of MedPartners/Mullikin Common Stock received
by such Affiliates may not be sold until MedPartners/Mullikin publishes at least
one full month of the combined results of operations of MedPartners/Mullikin and
New Management. MedPartners/Mullikin has agreed to publish (as defined in SEC
Authority Series Release No. 135) such results within 30 days after the end of
the first calendar month following the Closing Date. In addition, Affiliates of
New Management or MedPartners/ Mullikin may not sell their shares of
MedPartners/Mullikin Common Stock acquired in connection with the Acquisition
except pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for two years following the Closing Date, an Affiliate (together
with certain related persons) would be entitled to sell shares of
MedPartners/Mullikin Common Stock acquired in connection with the Acquisition
only through unsolicited "broker transactions" or in transactions directly with
a "market maker", as such terms are defined in Rule 144 under the Securities
Act. Additionally, the number of shares to be sold by an Affiliate (together
with certain related persons and certain persons acting in concert) during such
two-year period within any three-month period for purposes of Rule 145 may not
exceed the greater of 1% of the outstanding shares of MedPartners/Mullikin
Common Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if MedPartners/Mullikin remained current with its information
filings with the SEC under the Exchange Act. Two years after the Closing Date,
an Affiliate would be able to sell such MedPartners/Mullikin Common Stock
without such manner of sale or volume limitations, provided that
MedPartners/Mullikin was current with its Exchange Act information filings and
such Affiliate was not then an Affiliate of MedPartners/Mullikin. Three years
after the Effective Time, an Affiliate would be able to sell such shares of
MedPartners/Mullikin Common Stock without any restrictions so long as such
Affiliate was not, and had not been for at least three months prior thereto, an
Affiliate of MedPartners/Mullikin.

ADDITIONAL INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION

In considering the recommendation of the Executive Committee of New
Management with respect to the Acquisition Agreement and the transactions
contemplated thereby, New Management Partners should be aware that certain
members of the Executive Committee of New Management have certain interests in
the Acquisition that are in addition to the interests of New Management Partners
generally.

As of the Record Date, members of Executive Committee of New Management
beneficially owned an aggregate of 18.25 of the Units of New Management. If the
Acquisition were consummated, such persons would receive a total of 18.25% of
the MedPartners/Mullikin Common Stock issued to New Management in the
Acquisition. These individuals have unanimously indicated their intentions to
vote the Units beneficially owned by them FOR the Acquisition Agreement.

It is anticipated that CMG will seek to provide for bonus arrangements for
key individuals related to the success of CMG, some of whom are expected to be
members of the Executive Committee of New Management.

Pursuant to the Plan of Merger, MedPartners/Mullikin will amend the
existing employment agreement (the "Employment Agreement") with Marvin V.H.
Kanter, M.D. who is currently the Management Director

34
<PAGE> 319

of New Management. The amended Employment Agreement will only change the title
and certain limited executive duties which Dr. Kanter currently has with CHS.

ACCOUNTING TREATMENT

The Acquisition is expected to qualify for pooling of interests accounting
treatment if consummated in accordance with the Acquisition Agreement. If the
Acquisition does not qualify for pooling of interests accounting treatment for
accounting purposes, the Acquisition would be treated as a purchase for
accounting purposes. MedPartners/Mullikin, the Subsidiary and New Management
have agreed not to intentionally take any action that would disqualify treatment
of the Acquisition as a pooling of interests for accounting purposes.

Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of MedPartners/Mullikin and New Management will be
combined at the Effective Time and carried forward at their previously recorded
amounts, the stockholders' equity accounts of MedPartners/Mullikin and New
Management will be combined on the consolidated balance sheet of
MedPartners/Mullikin and no goodwill or other intangible assets will be created.
Consolidated financial statements of MedPartners/Mullikin issued after the
Acquisition will be restated retroactively to reflect the consolidated
operations of MedPartners/ Mullikin and New Management as if the Acquisition had
taken place prior to the periods covered by such consolidated financial
statements.

The unaudited pro forma financial information contained in this
Prospectus-Proxy Statement has been prepared using the pooling of interests
accounting method to account for the Acquisition. Consistent with
pooling-of-interests accounting treatment, the direct costs related to the
Acquisition will be taken as a non-recurring charge to earnings in the quarter
in which the Acquisition is consummated. See "Pro Forma Condensed Financial
Information".

FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of material federal income tax consequences
of the Acquisition. This summary is not a complete description of all the
consequences of the Acquisition. Each Partner's individual circumstances may
affect the tax consequences of the Acquisition to him or her. In addition, no
information is provided herein with respect to the tax consequences of the
Acquisition under applicable foreign, state or local laws. Accordingly, each New
Management Partner is urged to consult his or her own tax advisor as to the
specific tax consequences of the Acquisition to him or her.

New Management will recognize a gain on the sale of assets to the
Subsidiary pursuant to the Acquisition Agreement. The gain will be equal to the
excess of the fair market value of the MedPartners/Mullikin Common Stock paid
for the assets, determined as of the date of the consummation of the transaction
contemplated by the Acquisition Agreement, plus the amount of the liabilities
assumed by MedPartners/ Mullikin, over the adjusted tax basis of such assets as
of such date. As a cash basis taxpayer, New Management's adjusted tax basis of
its accounts receivable is zero. Consequently, New Management will recognize
ordinary income to the extent of the consideration received for such accounts
receivable and any other assets considered to be "unrealized receivables" as
defined in Section 751 of the Internal Revenue Code of 1986, as amended
("Code"). Net gain on certain other assets sold by New Management may qualify
for capital gain treatment under the Code. Each Partner is required to report
his distributive share of income, gains, losses and credits realized by New
Management, including any income, gains or losses realized by New Management in
the Acquisition. In the event the sale of the MedPartners/Mullikin Common Stock
received by New Management is subject to limitations on its sale, the partners
of New Management may be required to pay federal income taxes arising from the
Acquisition using cash from other sources.

New Management is receiving MedPartners/Mullikin Common Stock and the
assumption of certain liabilities as the sole consideration for the assets sold.
The sale of such common stock by New Management and its Partners who are
affiliates may be limited by the agreement of the parties not to violate the
pooling of interests accounting rules, and further be subject to other
limitations under applicable securities laws. See "The Acquisition -- Resale of
MedPartners/Mullikin Common Stock by Affiliates". Thus New Management

35
<PAGE> 320

and its Partners who are affiliates may be required to pay any tax attributable
to New Management's asset sale utilizing cash from other sources.

New Management's basis in the MedPartners/Mullikin Common Stock received as
a consideration for the Acquisition will equal the fair market value of such
shares on the date of the consummation of the transaction contemplated by the
Acquisition Agreement.

A distribution of the MedPartners/Mullikin Common Stock to the New
Management Partners will result in a Code Section 731 distribution to such
Partners equal to the fair market value of such MedPartners/ Mullikin Common
Stock at the time of the distribution.

NEITHER MEDPARTNERS/MULLIKIN NOR NEW MANAGEMENT HAS REQUESTED OR WILL
RECEIVE AN OPINION OF COUNSEL OR RULING FROM THE INTERNAL REVENUE SERVICE AS TO
THE FEDERAL TAX CONSEQUENCES OF THE ACQUISITION. SINCE THE MATERIAL TAX
CONSEQUENCES OF THE ACQUISITION ARE DEPENDENT ON THE PERSONAL CIRCUMSTANCES OF
EACH INDIVIDUAL, EACH NEW MANAGEMENT PARTNER IS URGED TO CONSULT HIS PERSONAL
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE TRANSACTION.

The foregoing discussion is intended only as a summary of the material
federal income tax consequences of the Acquisition and does not purport to be a
complete analysis or listing of all potential tax effects relevant to a decision
whether to vote in favor of approval and adoption of the Acquisition. The
discussion does not address the tax consequences arising under the laws of any
state, locality or foreign jurisdiction. New Management Partners are urged to
consult their own tax advisors concerning the federal, state, local and foreign
tax consequences of the Acquisition to them.

EXPENSES

The Acquisition Agreement provides that all costs and expenses incurred in
connection with the Acquisition Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expense.

INDEMNIFICATION

The MedPartners/Mullikin Certificate and the MedPartners/Mullikin By-laws
provide for the elimination of Directors' liability for monetary damages arising
from a breach of certain fiduciary obligations and for the indemnification of
Directors, officers and agents to the full extent permitted by the DGCL. These
provisions generally provide for indemnification in the absence of gross
negligence or willful misconduct and cannot be amended without the affirmative
vote of a majority of the outstanding shares of MedPartners/ Mullikin Common
Stock entitled to vote thereon.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers or persons controlling
MedPartners/Mullikin pursuant to the foregoing provisions, MedPartners/ Mullikin
has been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.

36
<PAGE> 321

OPERATIONS AND MANAGEMENT OF
MEDPARTNERS/MULLIKIN AFTER THE ACQUISITION

OPERATIONS

After the Acquisition, MedPartners/Mullikin will utilize the Assets in the
business to be operated by CHS. After consummation of the Merger, CHS will
operate under the name CHS Management, Inc. and will continue to engage in the
business of an MSO engaging in the organization and management of and
affiliations with primary care and multi-specialty physician groups and IPAs and
assist the medical groups in the negotiation of contracts with HMOs to provide
physician and related healthcare services to enrollees who select physicians in
CHS-managed physician groups. It is expected that the operations of CHS and New
Management will be integrated where appropriate with the operations of
MedPartners/Mullikin in the greater Los Angeles area. No material disposition or
restructuring of MedPartners/Mullikin is contemplated as a result of the
Acquisition.

MANAGEMENT

After the consummation of the Acquisition, MedPartners/Mullikin will be
managed by the same Board of Directors and executive officers as existed prior
to the Acquisition.

37
<PAGE> 322

BUSINESS OF MEDPARTNERS/MULLIKIN

GENERAL

MedPartners/Mullikin is a leading PPM company that develops, consolidates
and manages integrated health care delivery systems. Through its network of
affiliated group and IPA physicians, MedPartners/ Mullikin provides primary and
specialty health care services to prepaid managed care enrollees and fee-for-
service patients. MedPartners/Mullikin enhances clinic operations by
centralizing administrative functions and introducing management tools, such as
clinical guidelines, utilization review and outcomes measurement. At June 30,
1996, MedPartners/Mullikin operated in 23 states and was affiliated with more
than 5,777 physicians, including 1,461 in group practices, 3,580 through IPA
relationships and 736 hospital-based physicians. MedPartners/Mullikin physicians
provided prepaid health care to over 687,000 enrollees through 45 HMO
relationships.

THE CAREMARK ACQUISITION

38
<PAGE> 323

acquisition of Caremark may not be consummated. After consummation of the
Caremark Acquisition, MedPartners/Mullikin will operate under the name
"MedPartners, Inc." See " Selected Pro Forma Financial Information" and the
Financial Statements beginning at Page F-1.

Initiated in 1992, Caremark's PPM business provides comprehensive
management services to large multi-specialty physician practices in major
metropolitan areas. Caremark is a leader in providing capitated health care
arrangements to payors. As of March 31, 1996, Caremark provided management
services to approximately 1,000 affiliated physicians and 210 other licensed
health care professionals who deliver comprehensive health care services to over
one million people. As of March 31, 1996, Caremark had affiliated with large,
established multi-specialty physician practices in six major metropolitan
markets, including Friendly Hills HealthCare Network (that includes CIGNA
Medical Group) in Southern California, Kelsey-Seybold Clinic in Houston, North
Suburban and Glen Ellyn Clinics in Chicago, Diagnostic Clinic in Tampa/ St.
Petersburg, Oklahoma City Clinic and Atlanta Medical Clinic.

Caremark's disease management business designs and directs comprehensive
programs, including drug therapies, to meet the health car needs of individuals
with chronic diseases or conditions. Caremark currently provides therapies and
services for individuals suffering from hemophilia, growth disorders, immune
deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.
Caremark continually develops additional programs to address other chronic
diseases and conditions.

Caremark's international business is developing and implementing new
approaches to health care delivery to provide services in different regulatory
environments and payor systems in six countries.

At June 30, 1996, Caremark had consolidated assets of approximately $1.40
billion and stockholders' equity of approximately $388 million, and employed
approximately 11,600 persons.

RECENT DEVELOPMENTS

On March 19, 1996, MedPartners/Mullikin completed a public offering of a
total of 8,250,000 shares of MedPartners/Mullikin Common Stock, 6,632,800 of
which were sold for the account of MedPartners/ Mullikin and 1,617,200 of which
were sold for the account of certain selling stockholders of MedPartners/
Mullikin. The public offering resulted in net proceeds to MedPartners/Mullikin
of approximately $193 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- MedPartners/Mullikin --
Liquidity and Capital Resources".

39
<PAGE> 324

On July 3, 1996, MedPartners/Mullikin entered into a Plan and Agreement of
Merger to acquire Cardinal in exchange for shares of MedPartners/Mullikin Common
Stock. The transaction is to be a tax-free reorganization accounted for as a
pooling of interests. Cardinal is a multi-specialty group of 75 physicians which
serves the Triangle area in Raleigh-Durham and includes Research Triangle Park.
In addition to the main campus, Cardinal provides services at 16 clinical
facilities and 15 satellite locations. Cardinal is also affiliated with almost
500 physicians through three IPAs, including Cardinal IPA, Piedmont Physicians
Alliance, Inc. and Eastern Carolina Primary Care Alliance, Inc. The three IPAs,
which are in the early stages of development, already have contracts with five
managed care companies providing service to almost 6,000 enrollees.
MedPartners/Mullikin intends to file a Registration Statement with the SEC with
respect to the shares of MedPartners/Mullikin Common Stock to be issued to the
shareholders of Cardinal in connection with such merger. Consummation of this
merger is subject to a number of conditions; including that the shareholders of
Cardinal approve the transaction, that the transaction qualify as a tax-free
reorganization and other conditions usual in transactions of this type. In
addition, the closing of the transaction is conditioned upon the receipt by the
parties of a letter from Ernst & Young LLP, MedPartners/Mullikin's independent
auditors, that the transaction will qualify for pooling of interests accounting
treatment. See "Notes to Pro Forma Condensed Financial Information". There is no
guarantee that such conditions will be met. If such conditions are not met, the
acquisition of Cardinal may not be consummated.

40
<PAGE> 325

INDUSTRY

41
<PAGE> 326

STRATEGY

42
<PAGE> 327

ate in conjunction with the implementation of MedPartners/Mullikin's
management information systems to maximize the benefits of the systems.

RECENT MAJOR ACQUISITIONS

On February 22, 1996, MedPartners/Mullikin acquired PPSI, a publicly traded
physician management company based in Redlands, California, in exchange for
approximately 10,968,458 shares of MedPartners/ Mullikin Common Stock having a
total value of approximately $343.0 million (the "PPSI Merger"). The PPSI Merger
was a tax-free exchange accounted for as a pooling of interests. See the
Consolidated Financial Statements of MedPartners/Mullikin, Inc. included
elsewhere in this Prospectus-Proxy Statement.

Prior to the 1995 Mergers, MedPartners had affiliated with 190 physicians
through December 31, 1994. At June 30, 1996, after giving effect to the PPSI
Merger, MedPartners/Mullikin had affiliated with over 5,777 physicians.

DEVELOPMENT AND OPERATIONS

43
<PAGE> 328

determine the network configuration for a particular market. Typically,
MedPartners/Mullikin aims to achieve an equal number of primary care physicians
and specialists in each network. Primary care includes family practice, internal
medicine, pediatrics and obstetrics/gynecology. Key specialties include
orthopedics, cardiology, neurosciences, urology, surgery, ear, nose and throat
and ophthalmology. At certain locations, affiliated physicians and support
personnel operate centers for diagnostic imaging, urgent care, cancer
management, mental health treatment and health education. Network physicians
also treat fee-for-service patients on a per-occurrence basis. After-hours care
is available in several of MedPartners/Mullikin's clinics. Each network is
configured to contain, when complete, the physician services necessary to
capture at least 20% of market share and to provide at least 90% of the
physician services required by payors. MedPartners/Mullikin markets its networks
to managed care and third-party payors, referring physicians and hospitals.

44
<PAGE> 329

139,000 HMO enrollees in its network. The PPSI IPAs, operating in the Inland
Empire region of California, have approximately 75 physicians and approximately
35,000 HMO enrollees. An IPA allows individual practitioners to access patients
in their area through contracts with HMOs without having to join a group
practice or sign exclusive contracts, and also coordinates utilization review
and quality assurance programs for its affiliated physicians. In addition to
providing access to HMO contracts, an IPA offers other benefits to physicians
seeking to remain independent, including economies of scale in the marketplace,
enhanced risk-sharing arrangements and access to other strategic alliances
within MedPartners/Mullikin's network. MedPartners/Mullikin believes that the
expansion of its IPA operations is important to the future growth of
MedPartners/Mullikin, because many of the physicians who contract with
MedPartners/Mullikin's IPAs have a significant number of patients who do not
currently participate in a prepaid health plan and because such physicians may
facilitate the formation of physician group practices which may become
affiliated with, or acquired by, MedPartners/Mullikin. MedPartners/Mullikin
identifies IPAs that need access to capitated HMO contracts, and such IPA
organizations typically agree to assign their existing HMO contracts to
MedPartners/Mullikin. Individual physicians then enter into contracts directly
with the IPA. MedPartners/ Mullikin believes that the expansion of its IPAs will
enable it to increase its market share with relatively low risk because of the
low incremental investment required to recruit additional physicians.

45
<PAGE> 330

Hospital-Based Physician Operations. MedPartners/Mullikin's Hospital-Based
Physician ("HBP") operations acquired in the PPSI Merger organizes and manages
physicians and other health care professionals engaged in the delivery of
emergency, radiology and teleradiology services, hospital-based primary care and
temporary staffing and support services to hospitals, clinics, managed care
organizations and physician groups. NorthWest Emergency Physicians ("NEP"), an
affiliate of PPSI, is the largest provider of emergency physician contract
management services to hospital-based emergency departments in the Pacific
Northwest (Washington, Oregon and Alaska). NEP's emergency department contracts
provide physician coverage for 15 hospital emergency departments, 24 hours a day
throughout the year. Team Health, Inc. ("Team Health"), also an affiliate of
PPSI, principally operates in the Southeastern United States and currently
serves 57 hospital emergency departments in Tennessee, Kentucky, Alabama,
Arkansas and Virginia, and 15 hospital radiology departments. Under contracts
with hospitals and other clients, MedPartners/Mullikin's HBP operations identify
and recruit physicians and other health care professionals for admission to a
client's medical staff, monitor the quality of care and proper utilization of
services and coordinate the ongoing scheduling of staff physicians who provide
clinical coverage in designated areas of care. Hospitals have found it
increasingly difficult to recruit, schedule, retain and appropriately compensate
hospital-based physician specialists required to operate hospital emergency,
radiology and other departments. As a consequence, a large number of hospitals
have turned to contract management firms as a more cost-effective and reliable
alternative to the development of in-house physician staffing.

INFORMATION SYSTEMS

46
<PAGE> 331

COMPETITION

GOVERNMENT REGULATION

47
<PAGE> 332

LEGAL PROCEEDINGS

48
<PAGE> 333

does not view any of these actions as likely to result in an uninsured award
which would have a material adverse effect on MedPartners/Mullikin's financial
condition, results of operations or liquidity.

EMPLOYEES

As of June 30, 1996, MedPartners/Mullikin, including its affiliated
professional entities, employed 9,433 people on a full-time equivalent basis.

CORPORATE LIABILITY AND INSURANCE

MedPartners/Mullikin's business entails an inherent risk of claims of
physician professional liability. To protect its overall operations from such
potential liabilities, MedPartners/Mullikin has a multi-tiered corporate
structure and preserves the operational integrity of each of its operating
subsidiaries. In addition, MedPartners/Mullikin maintains professional liability
insurance, general liability and other customary insurance on a claims-made and
modified occurrence basis, in amounts deemed appropriate by management based
upon historical claims and the nature and risks of the business, for all of the
affiliated physicians, practices and operations. This insurance includes "tail"
coverage for claims against MedPartners/Mullikin's affiliated medical
organizations, to cover incidents which were or are incurred but not reported
during the periods for which the related risk was covered by "claims made"
insurance. There can be no assurance that a future claim will not exceed the
limits of available insurance coverage or that such coverage will continue to be
available.

PROPERTIES

MedPartners/Mullikin leases approximately 48,000 square feet at 3000
Galleria Tower in Birmingham, Alabama, for its corporate headquarters.

49
<PAGE> 334

MANAGEMENT OF MEDPARTNERS/MULLIKIN

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information about the executive
officers and directors of MedPartners/Mullikin as of the date of this
Prospectus -- Proxy Statement:

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

(1) Member of the Compensation Committee
(2) Member of the Audit Committee

50
<PAGE> 335

Larry D. Striplin, Jr. has been a member of the MedPartners/Mullikin Board
of Directors since January 1993. Since December 1995, Mr. Striplin has been the
Chairman and Chief Executive Officer of

51
<PAGE> 336

52
<PAGE> 337

CLASSIFIED BOARD OF DIRECTORS

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors of MedPartners/Mullikin currently has two
committees: the Audit Committee and the Compensation Committee.

EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ------------------------------------------- ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Larry R. House(2).......................... 1995 $ 349,908 $ 600,000 828,000 $ 28,335(3)
Chairman of the Board, President and 1994 335,000 -- 457,000 25,474(4)
Chief Executive Officer
Harold O. Knight, Jr....................... 1995 132,920 102,230 200,000 12,227(5)
Executive Vice President and Chief 1994 90,000 -- 30,000 3,541(6)
Financial Officer
</TABLE>

53
<PAGE> 338

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ------------------------------------------- ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William R. Dexheimer....................... 1995 172,996 2,196 55,000 12,254(7)
Executive Vice President and Chief 1994 162,940 -- 15,000 6,596(8)
Operating Officer -- East
Mark L. Wagar(9)........................... 1995 346,601 -- 250,000 30,485(10)
President -- Western Operations
Tracy P. Thrasher.......................... 1995 115,250 42,240 185,000 12,145(11)
Executive Vice President of 1994 83,000 -- 50,000 3,510(12)
Administration and Secretary
</TABLE>

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

54
<PAGE> 339

OPTION GRANTS IN LAST FISCAL YEAR

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

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

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

(1) Based on the closing sale price of MedPartners/Mullikin Common Stock on
December 29, 1995, of $33.00 per share.

DIRECTOR COMPENSATION

55
<PAGE> 340

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

56
<PAGE> 341

entered into a five-year Consulting Agreement whereby Mr. McDonald will receive
in consideration for his services a consulting fee of $2,230,000, to be paid
over five years with an initial payment of $669,000 on November 29, 1995 and
equal payments of $390,250 on each anniversary of such date, access to an office
and support staff and certain other benefits. See "Certain Transactions --
MedPartners/Mullikin -- MME Acquisition Agreements".

See also "Certain Transactions -- MedPartners/Mullikin".

NON-COMPETITION AND SEVERANCE AGREEMENTS

In September 1993, MedPartners/Mullikin entered into non-competition and
severance agreements with Mr. House and Mr. Dexheimer, each of which contains
the terms described above under "-- Compensation Committee Interlocks and
Insider Participation" related to the agreement with Mr. House. MedPartners/
Mullikin also entered into non-competition, nondisclosure and development
agreements with each of Messrs. Knight, Seay and Dexheimer and Ms. Thrasher
pursuant to which each has agreed not to disclose any MedPartners/Mullikin
confidential information or assist or work for any MedPartners/Mullikin
competitor for a period of one year after termination of employment. In
addition, each of such executive officers agreed to assign any rights in any
design, invention, software, process, trade secret or intellectual property that
relates to or resulted from work performed at MedPartners/Mullikin.

STOCK OPTION PLANS

MedPartners/Mullikin has a 1993 Stock Option Plan (the "1993 Option Plan")
and a 1995 Stock Option Plan (the "1995 Option Plan", together with the 1993
Option Plan, the "MedPartners/Mullikin Option Plans"). The objectives of the
MedPartners/Mullikin Option Plans are to attract and retain qualified personnel,
to provide incentives to employees, officers, and directors of
MedPartners/Mullikin and to promote the success of MedPartners/Mullikin. A total
of 1,555,000 shares of Common Stock, including 1,055,000 shares of Common Stock
for issuance upon the exercise of options granted to officers, directors,
consultants and employees of MedPartners/Mullikin and 500,000 shares of Common
Stock for issuance upon the exercise of options issued in connection with the
acquisition of the assets of physician practices, are covered by the 1993 Option
Plan. A total of 7,099,150 shares of Common Stock are covered by the 1995 Option
Plan. Additionally, the 1995 Option Plan contains a provision whereby the number
of shares of MedPartners/ Mullikin Common Stock for which options may be granted
under the 1995 Option Plan shall automatically increase on the first trading day
of each calendar year during the term of the 1995 Option Plan by an amount equal
to 1% of the shares of the MedPartners/Mullikin Common Stock outstanding on
December 31 of the immediately preceding year. However, such additional shares
shall be available only for the grant of non-qualified stock options and not for
the grant of incentive options. The MedPartners/Mullikin Option Plans authorize
the grant of options to purchase Common Stock intended to qualify as incentive
stock options ("Incentive Options") under Section 422 of the Code and the grant
of options that do not qualify as Incentive Options ("Non-Qualified Options")
under Section 422 of the Code.

57
<PAGE> 342

401(K) PLANS

58
<PAGE> 343

CERTAIN TRANSACTIONS -- MEDPARTNERS/MULLIKIN

MME ACQUISITION AGREEMENTS

FINANCINGS

59
<PAGE> 344

60
<PAGE> 345

PRINCIPAL STOCKHOLDERS OF MEDPARTNERS/MULLIKIN

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

61
<PAGE> 346

62
<PAGE> 347

SELECTED FINANCIAL DATA -- NEW MANAGEMENT

SELECTED FINANCIAL DATA

The following selected financial data as of and for the years ended
December 31, 1994 and 1995 have been derived from the financial statements of
New Management included elsewhere herein. The selected financial data as of and
for the six months ended June 30, 1996 and the year ended December 31, 1993
included elsewhere herein which have been derived from the unaudited financial
statements of New Management, includes all adjustments which New Management
feels necessary for a fair presentation of the results of operations. The
selected financial data for the period ended December 31, 1992 has been derived
from the unaudited financial statements of New Management not included in this
Prospectus-Proxy Statement, but include all adjustments which New Management
feels necessary for a fair presentation of the results of operations. The
selected financial data should be read in conjunction with the financial
statements, including the notes thereto, of New Management included elsewhere
herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- -------------------------
1992 1993 1994 1995 1995 1996
-------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenue......... $ 477 $ 3,109,869 $ 3,084,648 $ 2,947,577 $ 1,524,490 $ 1,313,931
Operating expenses:
Administrative
and management
fee............ 20 66,000 163,808 204,877 95,000 109,885
Interest......... 93,750 238,711 232,170 223,590 112,908 108,362
Accounting and
Legal.......... 0 18,663 55,655 109,042 53,495 96,872
-------- ----------- ----------- ----------- ----------- -----------
Net income (Loss)... $(93,293) $ 2,786,495 $ 2,633,015 $ 2,410,068 $ 1,263,087 $ 998,812
======== =========== =========== =========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 4,457 $ 54,940 $ 55,197 $ 13,445 $ 175,331
Working capital............... (89,293) 42,839 240,950 (87,776) 82,460
----------- ----------- ----------- ----------- -----------
Total assets.................. 4,457 668,618 379,463 72,583 777,774
Long term debt................ 3,000,000 2,945,591 2,831,001 2,707,208 2,641,633
Partners capital
(deficiency)............... (3,089,293) (2,902,752) (2,590,051) (2,794,984) (2,015,706)
</TABLE>

63
<PAGE> 348

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

The following discussion of the results of operations and financial
condition of New Management should be read in conjunction with New Management's
financial statements and notes thereto included elsewhere in this
Prospectus-Proxy Statement.

GENERAL

New Management is a general partnership formed under the California Uniform
Partnership Act on July 31, 1992. Its sole business is the rendering of
management consulting services to West Hills Hospital and CMG, pursuant to a
Management Contract dated August 10, 1992, as amended January 1, 1995. It has no
employees and contracts for certain services from CHS, pursuant to a Services
Agreement dated August 31, 1995.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------- JUNE 30,
RESULTS OF OPERATIONS 1993 1994 1995 1996
- ----------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Total revenues........................... $3,109,869 $3,084,648 $2,947,577 $1,313,931
Total expenses........................... 323,374 451,633 537,509 315,119
Net income............................... 2,786,495 2,633,015 2,410,068 998,812
</TABLE>

YEARS ENDED DECEMBER 31, 1994, AND 1993

Total revenues were $3,084,648 for the year ended December 31, 1994
compared to $3,109,869 for the year ended December 31, 1993, a slight decrease
of $25,221, or 0.01%. Operating expenses increased due to an increase in the
amount paid to members of the Executive Committee for their services, and an
increase in the amounts paid for administration and professional services.
Administrative expenses increased $97,808, or 148.2%, to $163,808 for the year
ended December 31, 1994 from $66,000 in the prior year. Accounting and legal
expenses increased $36,992, or 198.9%, to $55,655 in 1994 from $18,663 in 1993,
due to the expanded operations of New Management and complexities related to
calculating management fees under the Management Contract. These increases were
offset to a slight degree by marginally lower interest costs.

YEARS ENDED DECEMBER 31, 1995, AND 1994

Total revenues for the year ended December 31, 1995, were $2,947,577 and
for the year ended December 31, 1994, were $3,084,648. The decrease of $137,071,
or 4.4%, was due in part to the effects of the Amendment to the Management
Contract. Administrative and management fee expenses increased $41,069, or
25.1%, to $204,877 for the year ended December 31, 1995 from $163,808 in the
prior year. Accounting and legal expenses increased $53,387, or 95.9%, to
$109,042 for the year ended 1995 from $55,655 in the prior period. Accounting
and legal expenses increased primarily due to increased accounting costs related
to changes in methodology of computing management fees under the Management
Contract as a result of the amendment and the management fees payable to CHS
pursuant to the Services Agreement with CHS. The increased expenses were
partially offset by marginally lower interest costs which decreased interest
expenses by $8,580 to $223,590 for the year ended December 31, 1995 from
$232,170 for 1994.

SIX MONTHS ENDED JUNE 30, 1995 AND 1996

Total revenue for the six months ended June 30, 1996 was $1,313,831 and for
the six months ended June 30, 1995 was $1,524,490. The decrease of $210,559 or
13% was due to reductions in capitation payments under the management contract
resulting from fewer patients and lower payments by managed care payors.
Administrative and management fees increased $14,885 from $95,000 to $109,885.
Accounting and legal expenses increased as a result of the pending transaction.

64
<PAGE> 349

LIQUIDITY AND CAPITAL RESOURCES

All cash in excess of current operating expenses is distributed to the
Partners. New Management had capital deficiency as of June 30, 1996 of
($2,015,706). Capital deficiency is primarily the result of the distribution of
the proceeds to the Partners of a $3,000,000 loan to New Management from West
Hills Hospital. New Management expects that cash flow will be sufficient to fund
operations for at least the next 12 months.

65
<PAGE> 350

BUSINESS OF NEW MANAGEMENT

New Management is a general partnership formed under the California Uniform
Partnership Act on July 31, 1992. Its sole business is the rendering of
management consulting services to West Hills Hospital and CMG pursuant to the
Management Contract. The Management Contract expires ten years from the date
West Hills Hospital first obtains the global capitation contract with an HMO,
with automatic five year renewals unless 30 days prior written notice of intent
to cancel has been delivered by one of the parties. Pursuant to the Management
Contract, New Management is required to use commercially reasonable efforts to
provide management information systems, track managed care claims for services
covered under hospital capitation agreements, track admission, provide
utilization review and similar functions. New Management also provides member
relations and provider relations services and is responsible for credentialing
all regular network physicians. In exchange for these services, New Management
receives a percent of capitation payments; New Management also received an
assignment of certain of CMG's rights to revenues under the Management Contract.
New Management contracts with CHS for many of these services pursuant to a
Services Agreement dated August 21, 1995 and with certain other individuals for
services required by New Management. The balance are performed by Partners of
New Management. New Management has no employees, although the Executive
Committee does receive compensation for managing the affairs of New Management.
From time to time partners who render services for the benefit of the
partnership are compensated for such services. See "Management Discussion and
Analysis of Financial Conditions and Results of Operations -- New Management."

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT -- NEW MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of Units as of April 30, 1996, by Executive Committee members,
Partners owning 5% or more of the Units and by all members of the Executive
Committee of New Management as a group.

<TABLE>
<CAPTION>
NAME NUMBER OF UNITS PERCENTAGE
- --------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Marvin V.H. Kanter, M.D.................................. 5.25 5.25
Bernard Siegel, M.D...................................... 5.25 5.25
Bruce Littman, M.D....................................... 5.25 5.25
Martin Fineberg, M.D..................................... 5.25 5.25
Philip C. Dragul, M.D.................................... 4.725 4.725
David Moskowitz, M.D..................................... 3.0228 3.0228
Executive Committee members as a group (4 people)........ 18.26 18.26
</TABLE>

66
<PAGE> 351

PRO FORMA CONDENSED FINANCIAL INFORMATION

MEDPARTNERS, INC.

SELECTED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following selected pro forma financial information for the combined
companies gives effect to the Merger as a pooling of interests. All of the
following selected pro forma financial information should be read in conjunction
with the pro forma financial information, including the notes thereto, appearing
elsewhere in this Prospectus-Joint Proxy Statement. The pro forma financial
information set forth in this Prospectus-Joint Proxy Statement is not
necessarily indicative of the results that actually would have occurred had the
Merger been consummated on the date indicated or that may be obtained in the
future.

YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $1,787,021 $2,626,669 $3,637,914 $1,677,282 $2,352,731
Operating expenses:
Affiliated physician services............................ 296,318 436,927 689,740 298,418 469,011
Outside referral expenses................................ 70,427 102,496 149,185 64,556 156,506
Other clinic expenses.................................... 277,839 397,840 696,485 293,733 495,584
Cost of goods and services sold.......................... 884,009 1,365,203 1,688,075 829,681 985,231
Other nonclinic operating expenses....................... 72,576 88,064 92,527 46,378 42,062
General corporate expenses............................... 62,643 81,472 87,859 40,931 53,931
Depreciation and amortization............................ 25,453 40,847 61,549 26,878 43,090
Net interest expense..................................... 7,021 14,885 18,061 8,451 12,414
Merger expenses.......................................... -- -- 66,564 1,051 35,232
Loss on disposal of assets............................... 122 1,627 86,600 -- --
---------- ---------- ---------- ---------- ----------
Net operating expenses............................. 1,696,408 2,529,361 3,636,645 1,610,077 2,293,061
---------- ---------- ---------- ---------- ----------
Income (loss) before pro forma income taxes and
discontinued operations.................................. 90,613 97,308 1,269 67,205 59,670
Pro forma income tax expense (benefit)..................... 42,853 43,717 (16,638) 24,733 23,519
Cumulative effect of change in method of accounting for
income taxes............................................. 298 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income from continuing operations.......................... 47,462 53,591 17,907 42,472 36,151
Loss (income) from discontinued operations................. (30,808) (25,902) 136,528 139,531 66,799
---------- ---------- ---------- ---------- ----------
Pro forma net income (loss)................................ $ 78,270 $ 79,493 $ (118,621) $ (97,059) $ (30,648)
========== ========== ========== ========== ==========
Pro forma net income (loss) per share(1)................... $ 0.64 $ 0.61 $ (0.83) $ (0.72) $ (0.20)
========== ========== ========== ========== ==========
Number of shares used in pro forma net income (loss) per
share calculations(1)(2)................................. 121,396 129,425 142,851 134,740 152,870
========== ========== ========== ========== ==========
</TABLE>

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

(1) Pro forma net income (loss) per share is computed by dividing net income
(loss) by the number of common equivalent shares outstanding during the
periods in accordance with the applicable rules of the SEC. All stock
options and warrants issued have been considered as outstanding common
share equivalents for all periods presented, even if anti-dilutive, under
the treasury stock method. Shares of MedPartners Common Stock issued in
February 1995 upon conversion of the then outstanding MedPartners
Convertible Preferred Stock are assumed to be common share equivalents for
all periods presented.
(2) Number of shares used in pro forma net income (loss) per share gives effect
to the Mergers by using the fixed exchange ratio of 1.21 to the Caremark
shares outstanding, an exchange ratio of 40.32 to the CHS shares
outstanding, 345,000 shares for the New Management Acquisition and gives
effect to the mergers of insignificant entities.

67
<PAGE> 352

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------
MEDPARTNERS/
MULLIKIN CAREMARK CARDINAL SUMMIT MRA CHS
------------ ---------- -------- ------- ------- ------
(A) (B)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 56,221 $ 63,000 $ 206 $ 1,275 $ 372 $2,127
Accounts receivable less allowance for bad debts......... 165,105 376,300 3,254 8,677 -- 211
Inventory................................................ 11,087 99,600 -- 188 -- --
Prepaid expenses and other current assets................ 23,839 23,800 21 44 -- 910
Deferred tax assets...................................... 4,139 64,200 -- -- -- 97
-------
--
-------- ---------- ------ ------- -------
Total current assets............................... 260,391 626,900 3,481 10,184 372 3,345
Property and equipment..................................... 167,502 366,700 2,175 -- 9,626 133
Intangible assets, net..................................... 139,169 320,500 -- -- -- --
Deferred tax assets........................................ 34,285 -- -- -- -- 227
Other assets............................................... 16,837 89,500 1,067 961 92 67
-------
--
-------- ---------- ------ ------- -------
Total assets....................................... $618,184 $1,403,600 $ 6,723 $11,145 $10,090 $3,772
======== ========== ====== ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 29,084 $ 357,000 $ 733 $ 1,764 $ 79 $ 75
Payable to physician groups.............................. 28,616 -- -- -- -- --
Accrued medical claims payable........................... 44,235 29,700 -- -- -- --
Other accrued expenses and liabilities................... 49,770 137,200 2,247 4,634 -- 1,071
Short-term debt and current portion of long-term debt.... 7,648 289,600 3,061 53 3,388 2,550
-------
--
-------- ---------- ------ ------- -------
Total current liabilities.......................... 159,353 813,500 6,041 6,451 3,467 3,696
Long-term debt, net of current portion..................... 35,080 130,200 1,636 -- 2,403 41
Other long-term liabilities................................ 9,140 71,900 -- 600 344 310
Stockholders' equity:
Common stock............................................. 52 82,200 -- -- -- 1
Additional paid-in capital............................... 435,618 199,600 566 -- -- 250
Shares held in trust..................................... -- (150,200) -- -- -- --
Notes receivable from shareholders....................... (1,818) -- -- -- -- --
Unrealized loss on marketable equity securities.......... -- -- -- -- -- --
Accumulated earnings (deficit)........................... (19,241) 256,400 (1,520) 4,094 3,876 (526)
Treasury stock, at cost.................................. -- -- -- -- -- --
-------
--
-------- ---------- ------ ------- -------
Total stockholders' equity......................... 414,611 388,000 (954) 4,094 3,876 (275)
-------
--
-------- ---------- ------ ------- -------
Total liabilities and stockholders' equity......... $618,184 $1,403,600 $ 6,723 $11,145 $10,090 $3,772
======== ========== ====== ======= ======= =========

<CAPTION>
EMERGENCY
NEW PROFESSIONAL PRO FORMA PRO FORMA
MANAGEMENT SERVICES ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
(C)

<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 175 $ 2,411 $ -- $ 125,787
Accounts receivable less allowance for bad debts......... -- 5,801 -- 559,348
Inventory................................................ -- -- -- 110,875
Prepaid expenses and other current assets................ 59 182 -- 48,855
Deferred tax assets...................................... -- -- 96,500(D) 164,936

----------
Total current assets............................... 234 8,394 96,500 1,009,801
Property and equipment..................................... -- 66 (130,350)(D) 415,852
Intangible assets, net..................................... -- -- 88,763(I) 548,432
Deferred tax assets........................................ -- 1,760 -- 36,272
Other assets............................................... 544 10 -- 109,078

----------
Total assets....................................... $ 778 $ 10,230 $ 54,913 $2,119,435
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 5 $ 180 $ 100,550(D) $ 489,470
Payable to physician groups.............................. -- -- -- 28,616
Accrued medical claims payable........................... -- -- -- 73,935
Other accrued expenses and liabilities................... 18 6,366 -- 201,306
Short-term debt and current portion of long-term debt.... 129 -- -- 306,429

----------
Total current liabilities.......................... 152 6,546 100,550 1,099,756
Long-term debt, net of current portion..................... 2,642 -- 29,100(D) 201,102
Other long-term liabilities................................ -- 3,100 -- 85,394
Stockholders' equity:
Common stock............................................. -- -- (82,098)(E) 155
Additional paid-in capital............................... -- 264 82,098(E) 656,959
(150,200)(F)
88,763(I)
Shares held in trust..................................... -- -- 150,200(F) --
Notes receivable from shareholders....................... -- -- (1,818)
Unrealized loss on marketable equity securities.......... -- -- --
Accumulated earnings (deficit)........................... (2,016) 320 (163,500)(D) 77,887
Treasury stock, at cost.................................. -- --

----------
Total stockholders' equity......................... (2,016) 584 (74,737) 733,183

---------- -------- --------- ----------
Total liabilities and stockholders' equity......... $ 778 $ 10,230 $ 54,913 $2,119,435
========== ======== ========= ==========
</TABLE>

68
<PAGE> 353

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
MEDPARTNERS/
MULLIKIN CAREMARK CARDINAL SUMMIT MRA CHS
------------ ---------- -------- ------- ------ -------
(A) (B)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................................. $703,683 $1,569,587 $ 17,085 $23,770 $1,082 $29,496
Operating expenses:
Affiliated physician services......................... 301,280 121,663 6,994 8,512 -- 24,575
Outside referral expenses............................. 83,516 72,990 -- -- -- --
Other clinic expenses................................. 230,521 243,525 8,434 12,922 -- --
Cost of goods and services sold....................... -- 985,231 -- -- -- --
Other nonclinic operating expenses.................... -- 42,062 -- -- -- --
General corporate expenses............................ 39,540 5,687 708 2,185 449 4,792
Depreciation and amortization......................... 16,482 24,700 217 -- 565 9
Net interest expense.................................. 2,811 9,289 99 -- 107 --
Merger expenses....................................... 34,448 -- -- -- -- 784
Loss on disposal of assets............................ -- -- -- -- -- --
-------- -------- -------- -------- ------- -------
Net operating expenses.......................... 708,598 1,505,147 16,452 23,619 1,121 30,160
-------- -------- -------- -------- ------- -------
Income (loss) before pro forma income taxes and
discontinued operations............................... (4,915) 64,440 633 151 (39) (664)
Pro forma income tax expense (benefit).................. 360 22,988 11 60 -- 30
-------- -------- -------- -------- ------- -------
Income (loss) from continuing operations................ (5,275) 41,452 622 91 (39) (694)
Loss from discontinued operations....................... -- 66,799 -- -- -- --
-------- -------- -------- -------- ------- -------
Pro forma net income (loss)............................. $ (5,275) $ (25,347) $ 622 $ 91 $ (39) $ (694)
======== ======== ======== ======== ======= =======
Pro forma net income (loss) per share................... $ (0.11) $ (0.33) $ -- $ -- $(0.12) $(14.16)
======== ======== ======== ======== ======= =======
Number of shares used in pro forma net income (loss) per
share
calculations.......................................... 50,034 77,400 -- -- 330(G) 49
======== ======== ======== ======== ======= =======

69
<PAGE> 354

MEDPARTNERS, INC.

70
<PAGE> 355

MEDPARTNERS, INC.

<S> <C> <C> <C> <C> <C> <C>
Net revenue.................................... $1,153,557 $2,374,263 $ 20,881 $ 48,576 $ 2,540 $2,658
Operating expenses:
Affiliated physician services................ 506,811 124,596 10,366 22,005 -- --
Outside referral expenses.................... 109,934 39,251 -- -- -- --
Other clinic expenses........................ 394,679 260,410 11,371 23,939 -- --
Cost of goods and services sold.............. -- 1,688,075 -- -- -- --
Other nonclinic operating expenses........... -- 92,527 -- -- -- --
General corporate expenses................... 64,713 14,044 1,068 3,289 933 2,374
Depreciation and amortization................ 29,088 28,555 297 -- 1,356 9
Net interest expense......................... 8,443 8,780 144 -- 470 --
Merger expenses.............................. 66,564 -- -- -- -- --
Loss on investment........................... -- 86,600 -- -- -- --
------------ ---------- -------- -------- -------- ------
Net operating expenses................. 1,180,232 2,342,838 23,246 49,233 2,759 2,383
------------ ---------- -------- -------- -------- ------
Income (loss) before pro forma income taxes and
discontinued operations...................... (26,675) 31,425 (2,365) (657) (219) 275
Pro forma income tax expense (benefit)......... (27,233) 11,267 (26) (483) -- 107
------------ ---------- -------- -------- -------- ------
Income (loss) from continuing operations....... 558 20,158 (2,339) (174) (219) 168
Loss from discontinued operations.............. -- 136,528 -- -- -- --
------------ ---------- -------- -------- -------- ------
Pro forma net income (loss).................... $ 558 $ (116,370) $ (2,339) $ (174) $ (219) $ 168
=========== ========= ======== ======== ======== ======
Pro forma net income (loss) per share.......... $ 0.01 $ (1.55) $ -- $ -- $ (0.66) $ 3.43
=========== ========= ======== ======== ======== ======
Number of shares used in pro forma net income
(loss) per share calculations................ 42,720 75,100 -- -- 330(G) 49
=========== ========= ======== ======== ======== ======

<CAPTION>
HISTORICAL
-----------------------------
EMERGENCY
NEW PROFESSIONAL PRO FORMA PRO FORMA
MANAGEMENT SERVICES ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
(C)
<S> <C> <C> <C> <C>
Net revenue.................................... $2,948 $ 35,031 $(2,540)(K) $3,637,914
Operating expenses:
Affiliated physician services................ -- 25,962 -- 689,740
Outside referral expenses.................... -- -- -- 149,185
Other clinic expenses........................ -- 8,626 (2,540)(K) 696,485
Cost of goods and services sold.............. -- -- -- 1,688,075
Other nonclinic operating expenses........... -- -- -- 92,527
General corporate expenses................... 314 1,124 -- 87,859
Depreciation and amortization................ -- 25 2,219(J) 61,549
Net interest expense......................... 224 -- -- 18,061
Merger expenses.............................. -- -- -- 66,564
Loss on investment........................... -- -- -- 86,600
---------- ------------ ----------- ----------
Net operating expenses................. 538 35,737 (321) 3,636,645
---------- ------------ ----------- ----------
Income (loss) before pro forma income taxes and
discontinued operations...................... 2,410 (706) (2,219) 1,269
Pro forma income tax expense (benefit)......... -- (270) -- (16,638)
---------- ------------ ----------- ----------
Income (loss) from continuing operations....... 2,410 (436) (2,219) 17,907
Loss from discontinued operations.............. -- -- -- 136,528
---------- ------------ ----------- ----------
Pro forma net income (loss).................... $2,410 $ (436) $(2,219) $ (118,621)
========== ========= ========== =========
Pro forma net income (loss) per share.......... $ 6.99 $ -- $ (0.83)
========== ========= =========
Number of shares used in pro forma net income
(loss) per share calculations................ 345(G) -- 24,307(H)(I) 142,851
========== ========= ========== =========
</TABLE>

71
<PAGE> 356

MEDPARTNERS, INC.

HISTORICAL
------------
EMERGENCY PRO PRO
PROFESSIONAL FORMA FORMA
SERVICES ADJUSTMENTS COMBINED
------------ ----------- ----------
(C)
<S> <C> <C> <C>
Net revenue......................................................... $ 33,340 $ -- $2,626,669
Operating expenses:
Affiliated physician services..................................... 24,852 -- 436,927
Outside referral expenses......................................... -- -- 102,496
Other clinic expenses............................................. 8,284 -- 397,840
Cost of goods and services sold................................... -- -- 1,365,203
Other nonclinic operating expenses................................ -- -- 88,064
General corporate expenses........................................ 956 -- 81,472
Depreciation and amortization..................................... 31 -- 40,847
Net interest expense.............................................. -- -- 14,885
Merger expenses................................................... -- -- --
Loss on disposal of assets........................................ -- -- 1,627
------- ------- ----------
Net operating expenses...................................... 34,123 -- 2,529,361
------- ------- ----------
Income (loss) before pro forma income taxes and discontinued
operations........................................................ (783) -- 97,308
Pro forma income tax expense (benefit).............................. (305) -- 43,717
------- ------- ----------
Income (loss) from continuing operations............................ (478) -- 53,591
Income from discontinued operations................................. -- -- (25,902)
------- ------- ----------
Pro forma net income (loss)......................................... $ (478) $ -- $ 79,493
======= ======= ==========
Pro forma net income (loss) per share............................... $ -- $ 0.61
======= ==========
Number of shares issued in pro forma net income (loss) per share.... -- 17,727(H) 129,425
======= ======= ==========
</TABLE>

72
<PAGE> 357

MEDPARTNERS, INC.

PRO PRO
FORMA FORMA
ADJUSTMENTS COMBINED
----------- ----------

73
<PAGE> 358

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION

The pro forma financial information contains no adjustments to conform the
accounting policies of these companies because any such adjustments have been
determined to be immaterial.

The following adjustments are necessary to reflect the mergers:

B. CHS was incorporated in August 1995 and commenced operations in
September 1995.

D. The pro forma combined statements of operations do not reflect
nonrecurring costs and charges resulting directly from the proposed mergers.
These costs and charges are estimated as follows:

The following is a detail of the estimated merger expense related to the
Caremark Acquisition:

74
<PAGE> 359

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION -- (CONTINUED)

E. To reflect the approximate number of MedPartners/Mullikin Common Stock
exchanged for the stock or assets of the proposed acquirees as follows:

F. To reflect the termination of the trust holding the shares held in
trust.

G. Represents the approximate shares of MedPartners/Mullikin Common Stock
to be distributed in exchange for partnership interest based on an assumed
trading price of $20.31 per share.

<TABLE>
<S> <C> <C>
New Management........................... $(7,000,000/$20.31) 345,000
MRA...................................... $(6,700,000/$19.50) 330,000
</TABLE>

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

(1) The exchange ratio is fixed.
(2) The exchange ratio was based on an assumed trading price of $20.31 per
share.

The proposed mergers with Cardinal and Summit and the proposed acquisition
of MRA are accounted for under the purchase method of accounting in the pro
forma condensed financial information, although consummation of the transactions
are conditioned upon the mergers being accounted for as poolings of interests.
The Company and its independent auditors are in the process of determining
compliance of the transactions with pooling accounting requirements; however,
that determination is not complete. If the mergers were accounted for as
poolings of interests, amortization expense and net loss in the pro forma
condensed statement of operations for the year ended December 31, 1995 and six
months ended June 30, 1996 would be reduced by the following amounts:

The following adjustments are necessary to reflect the Cardinal, Summit and
MRA mergers:

75
<PAGE> 360

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION -- (CONTINUED)

The final amount of the excess purchase price and the allocation among the
net assets may differ from the amounts estimated. The approximate goodwill is as
follows:

J. To record the amortization related to the recorded goodwill.

K. To eliminate rent income and expense between affiliated entities (Summit
and MRA).

76
<PAGE> 361

DESCRIPTION OF CAPITAL STOCK OF MEDPARTNERS/MULLIKIN

AUTHORIZED CAPITAL STOCK

The MedPartners/Mullikin Certificate currently provides that
MedPartners/Mullikin may issue 9,500,000 shares of Preferred Stock, par value
$.001 per share, 500,000 shares of MedPartners/Mullikin Series C Preferred
Stock, par value $.001 per share, and 200,000,000 shares of MedPartners/Mullikin
Common Stock.

MEDPARTNERS/MULLIKIN COMMON STOCK

Holders of MedPartners/Mullikin Common Stock are entitled to one vote for
each share held of record on all matters to be submitted to a vote of the
stockholders and do not have preemptive rights. Subject to preferences that may
be applicable to any outstanding shares of MedPartners/Mullikin Preferred Stock,
holders of MedPartners/Mullikin Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors of MedPartners/Mullikin out of funds legally available therefor. See
"Summary of Prospectus-Proxy Statement -- Market and Market Prices". All
outstanding shares of MedPartners/Mullikin Common Stock are, and the shares to
be issued in the Merger will be, when issued pursuant to the Plan of Merger,
fully paid and nonassessable. In the event of any liquidation, dissolution or
winding-up of the affairs of MedPartners/Mullikin, holders of MedPartners/
Mullikin Common Stock will be entitled to share ratably in the assets of
MedPartners/Mullikin remaining after payment or provision for payment of all of
MedPartners/Mullikin's debts and obligations and liquidation payments to holders
of any outstanding shares of MedPartners/Mullikin Preferred Stock.

MEDPARTNERS/MULLIKIN PREFERRED STOCK

The Board of Directors of MedPartners/Mullikin, without further stockholder
authorization, is authorized to issue shares of MedPartners/Mullikin Preferred
Stock in one or more series and to determine and fix the rights, preferences and
privileges of each series, including dividend rights and preferences over
dividends on the MedPartners/Mullikin Common Stock and one or more series of
MedPartners/Mullikin Preferred Stock, conversion rights, voting rights (in
addition to those provided by law), redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, dissolution or winding up,
including preferences over the MedPartners/Mullikin Common Stock and one or more
series of MedPartners/Mullikin Preferred Stock. Although MedPartners/Mullikin
has no present plans to issue any shares of MedPartners/Mullikin Preferred
Stock, the issuance of shares of MedPartners/Mullikin Preferred Stock, or the
issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of MedPartners/ Mullikin or an
unsolicited acquisition proposal.

CERTAIN PROVISIONS OF THE MEDPARTNERS/MULLIKIN CERTIFICATE AND THE DGCL

Classified Board of Directors. The MedPartners/Mullikin Certificate and
MedPartners/Mullikin By-laws provide for the Board of Directors of
MedPartners/Mullikin to be divided into three classes of directors, as nearly
equal in number as is reasonably possible, serving staggered terms so that
directors' terms expire either at the 1997, 1998 or 1999 annual meeting of
stockholders of MedPartners/Mullikin. One class, consisting of three directors
(Richard M. Scrushy, Ted H. McCourtney, Jr. and Rosalio J. Lopez, M.D.), has
been elected to a term which expires in 1997. One class, consisting of four
directors (Larry R. House, Charles W. Newhall III, John S. McDonald, J.D. and
Richard J. Kramer), has been elected to a term which expires in 1998. One class,
consisting of three directors (Scott F. Meadow, Larry D. Striplin, Jr. and
Walter T. Mullikin, M.D.), has been elected to a term which expires in 1999. See
"MedPartners/Mullikin's Management -- Classified Board of Directors".

MedPartners/Mullikin believes that a classified Board of Directors will
help to assure the continuity and stability of MedPartners/Mullikin the Board of
Directors and MedPartners/Mullikin's business strategies and policies as
determined by the MedPartners/Mullikin Board of Directors, since a majority of
the directors at any given time will have had prior experience as directors of
MedPartners/Mullikin. MedPartners/Mullikin

77
<PAGE> 362

believes that this, in turn, will permit the Board of Directors to more
effectively represent the interests of stockholders.

With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
the majority of the MedPartners/Mullikin Board of Directors. As a result, a
provision relating to a classified MedPartners/Mullikin Board of Directors of
MedPartners/Mullikin may discourage proxy contests for the election of directors
or purchases of a substantial block of the MedPartners/Mullikin Common Stock
because its provisions could operate to prevent obtaining control of the
MedPartners/Mullikin Board of Directors in a relatively short period of time.
The classification provision could also have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
MedPartners/Mullikin. Under the DGCL, unless the certificate of incorporation
otherwise provides, a director on a classified board may be removed by the
stockholders of the corporation only for cause. The MedPartners/Mullikin
Certificate does not provide otherwise.

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The MedPartners/Mullikin By-laws establish an advance
notice procedure with regard to the nomination, other than by or at the
direction of the Board of Directors or a committee thereof, of candidates for
election as directors (the "Nomination Procedure") and with regard to other
matters to be brought by stockholders before an annual meeting of stockholders
of MedPartners/Mullikin (the "Business Procedure").

The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of MedPartners/Mullikin. The requirements as to the form and
timing of that notice are specified in the MedPartners/Mullikin By-laws. If the
Chairman of the MedPartners/Mullikin Board of Directors determines that a person
was not nominated in accordance with the Nomination Procedure, such person will
not be eligible for election as a director.

Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of MedPartners/Mullikin. The requirements as to the form and
timing of that notice are specified in the MedPartners/Mullikin By-laws. If the
Chairman of the Board of Directors determines that the other business was not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting.

Although the MedPartners/Mullikin By-laws do not give the Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors or of any other business desired by stockholders to be
conducted at an annual or any other meeting, the MedPartners/Mullikin By-laws
(i) may have the effect of precluding a nomination for the election of directors
or precluding the conduct of business at a particular annual meeting if the
proper procedures are not followed or (ii) may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of MedPartners/Mullikin, even if the
conduct of such solicitation or such attempt might be beneficial to
MedPartners/Mullikin and its stockholders.

78
<PAGE> 363

defined as any person that is (a) the owner of 15% or more of the outstanding
voting stock of the corporation or (b) an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

MEDPARTNERS/MULLIKIN STOCKHOLDER RIGHTS PLAN

The following is a description of the MedPartners/Mullikin Stockholder
Rights Plan (the "Rights Plan"). The description thereof set forth below is
qualified in its entirety by reference to the MedPartners/ Mullikin Rights Plan,
a copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus-Proxy Statement is a part. See "Available Information".

The Rights Plan provides that one right (a "Right") will be issued with
each share of MedPartners/ Mullikin Common Stock (whether originally issued or
from MedPartners/Mullikin's treasury) prior to the Rights Distribution Date (as
defined below). The Rights are not exercisable until the Rights Distribution
Date and will expire at the close of business on the date which is 10 years from
the date of the distribution unless previously redeemed by MedPartners/Mullikin
as described below. When exercisable, each Right will entitle the owner to
purchase from MedPartners/Mullikin one one-hundredth of a share of MedPartners/
Mullikin Series C Preferred Stock at a purchase price of $52.00 per share. The
MedPartners/Mullikin Series C Preferred Stock may be issued in fractional
shares.

Except as described below, the Rights will be evidenced by all the
MedPartners/Mullikin Common Stock certificates and will be transferred with the
MedPartners/Mullikin Common Stock certificates, and no separate Rights
certificates will be distributed. The Rights will separate from the
MedPartners/Mullikin Common Stock and a "Rights Distribution Date" will occur
upon the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 10 percent or more of
the outstanding MedPartners/ Mullikin Common Stock (the "Stock Acquisition
Date") and (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group becoming an Acquiring
Person.

79
<PAGE> 364

Series C Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of MedPartners/Mullikin Common Stock.

In the event that (i) a person becomes an Acquiring Person (except pursuant
to a tender offer or an exchange offer for all outstanding shares of
MedPartners/Mullikin Common Stock at a price and on terms determined by at least
a majority of the members of the Board of Directors who are not officers of
MedPartners/Mullikin and who are not representatives, nominees, affiliates or
associates of an Acquiring Person, to be (a) at a price which is fair to
MedPartners/Mullikin stockholders and (b) otherwise in the best interests of
MedPartners/Mullikin and its stockholders (a "Qualifying Offer")), (ii) an
Acquiring Person engages in certain self-dealing transactions involving
MedPartners/Mullikin, such as, (a) merging or consolidating into or with
MedPartners/Mullikin where MedPartners/Mullikin survives and the
MedPartners/Mullikin Common Stock remains outstanding, (b) transferring assets
to MedPartners/Mullikin in exchange for MedPartners/Mullikin securities, or
acquiring securities from MedPartners/Mullikin other than on the same basis as
from all other stockholders, (c) transferring assets to or from
MedPartners/Mullikin on terms less favorable than arm's length, (d) transferring
to or from MedPartners/Mullikin's assets having a fair market value in excess of
$5,000,000, (e) receiving unusual compensation or (f) receiving any other
financial benefit not provided to all other stockholders, or (iii) during such
time as there is an Acquiring Person, there is any reclassification of
securities, recapitalization, merger or consolidation which increases by more
than 1 percent the amount of MedPartners/Mullikin Common Stock beneficially
owned by the Acquiring Person, each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price,
shares of MedPartners/Mullikin Common Stock (or, in certain circumstances, cash,
property or other securities of MedPartners/Mullikin) having a value equal to
two times the exercise price of the Right. Notwithstanding any of the foregoing,
following the occurrence of any such events, all Rights that are, or (under
certain circumstances specified in the Rights Plan) were, beneficially owned by
any Acquiring Person (or certain related parties), will be null and void.
However, Rights are not exercisable following the occurrence of the events set
forth above until such time as the Rights are no longer redeemable by
MedPartners/Mullikin as set forth below.

In the event that, at any time following the Stock Acquisition Date, (i)
MedPartners/Mullikin is acquired in a merger or other business combination
transaction in which MedPartners/Mullikin is not the surviving corporation or
the MedPartners/Mullikin Common Stock is changed or exchanged (other than a
merger which follows an Qualifying Offer and satisfied certain other
requirements), or (ii) 50% or more of MedPartners/Mullikins' assets or earning
power is sold or transferred, each holder of a Right (except Rights which
previously have been voided as set forth above) shall thereafter have the right
to receive upon the exercise thereof at the then current exercise price, common
stock of the acquiring company having a value equal to two times the exercise
price of the Right.

At any time until 10 days following the Stock Acquisition Date,
MedPartners/Mullikin may redeem the Rights in whole, but not in part, at a price
of $.001 per Right. Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate, and the only right
of the holders of the Rights will be to receive the $.001 redemption price.

80
<PAGE> 365

The Rights have certain anti-takeover effects as they will cause
substantial dilution to a person or group that acquires a substantial interest
in MedPartners/Mullikin without the prior approval of the MedPartners/Mullikin
Board of Directors. The effect of the Rights may be to inhibit a change in
control of MedPartners/Mullikin (including through a third party tender offer at
a price which reflects a premium to then prevailing trading prices) that may be
beneficial to MedPartners/Mullikin stockholders.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

MedPartners/Mullikin's Certificate contains a provision eliminating or
limiting director liability to MedPartners/Mullikin and its stockholders for
monetary damages arising from acts or omissions in the director's capacity as a
director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
MedPartners/Mullikin or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under the Delaware statutory provision making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of MedPartners/Mullikin protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above). As a result of this provision, the ability of MedPartners/ Mullikin or a
stockholder thereof to successfully prosecute an action against a director for a
breach of his duty of care is limited. However, the provision does not affect
the availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.

In addition, MedPartners/Mullikin's Certificate and MedPartners/Mullikin's
By-laws provide for mandatory indemnification rights, subject to limited
exceptions, to any director, officer, employee, or agent of MedPartners/Mullikin
who by reason of the fact that he or she is a director, officer, employee, or
agent of MedPartners/Mullikin, is involved in a legal proceeding of any nature.
Such indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.

REGISTRATION RIGHTS

Pursuant to a Registration Agreement entered into in August 1993 and
amended in March 1994 (the "Registration Agreement"), the prior holders of the
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock of
MedPartners, which Preferred Stock has now been converted into
MedPartners/Mullikin Common Stock, were entitled to certain rights with respect
to the registration under the Securities Act of the 7,000,562 shares of Common
Stock into which the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock were converted. The shares of MedPartners/Mullikin
Common Stock covered by the foregoing registration rights are eligible for
resale either under Rule 144 of the Securities Act or without restriction.
Accordingly, at the request of MedPartners/Mullikin, most of the holders of the
Common Stock have agreed to terminate their rights with respect to the
Registration Statement, leaving approximately 1,200,000 shares that are
presently covered by the Registration Agreement.

81
<PAGE> 366

Drs. Mullikin and Lopez and Mr. McDonald at $30.25 per share pursuant to the
rights granted under the Agreement. See "Principal Stockholders of
MedPartners/Mullikin".

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for MedPartners/Mullikin Common Stock is
ChaseMellon Shareholder Services, L.L.C., New York, New York.

The MedPartners/Mullikin By-laws provide that each person who is involved
in any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of MedPartners/Mullikin, or is or was
serving at the request of MedPartners/Mullikin as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan,
will be indemnified by MedPartners/Mullikin to the full extent permitted by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits
MedPartners/Mullikin to provide broader indemnification rights than said law
permitted prior to such amendment) or by other applicable laws then in effect.

82
<PAGE> 367

COMPARISON OF RIGHTS OF NEW MANAGEMENT PARTNERS
AND MEDPARTNERS/MULLIKIN STOCKHOLDERS

MedPartners/Mullikin is incorporated in Delaware. New Management Partners
will have their rights and obligations as stockholders of MedPartners/Mullikin
after the Acquisition governed by Delaware law. Set forth below is a summary
comparison of the material rights of a MedPartners/Mullikin stockholder under
the MedPartners/Mullikin Certificate and the MedPartners/Mullikin By-laws, on
the one hand, and the rights of a New Management Partners under the New
Management Partnership Agreement, as amended (the "New Management Partnership
Agreement"), on the other hand. The information set forth below is qualified in
its entirety by reference to the MedPartners/Mullikin Certificate, the
MedPartners/Mullikin By-laws and the New Management Partnership Agreement.

After the Acquisition, the rights and obligations of the New Management
Partners with respect to the classes and series of capital stock of
MedPartners/Mullikin and the other matters described below will be governed by
the MedPartners/Mullikin Certificate and the MedPartners/Mullikin By-laws.

CLASSES AND SERIES OF CAPITAL STOCK

New Management. New Management Partnership is authorized to issue 100
partnership interests (each, a "Unit"), each Unit is equal to a 1% interest in
New Management. As of January 1, 1996, the New Management Record Date, there
were 100 Units outstanding. Partners are members of one of five medical practice
groups. No group may hold in the aggregate more than 22.5 Units, provided
however that Group E may not hold in the aggregate more than 10 Units.

MedPartners/Mullikin. MedPartners/Mullikin is authorized by the
MedPartners/Mullikin Restated Certificate to issue up to 210,000,000 shares of
capital stock, of which 200,000,000 shares are designated MedPartners/Mullikin
Common Stock, par value $.001 per share, 9,500,000 shares are designated
Preferred Stock, par value $.001 per share and 500,000 shares are designated
Series C Junior Participating Preferred Stock, par value $.001 per share. As of
April 30, 1996, there were 50,786,775 shares of MedPartners/Mullikin Common
Stock outstanding. In addition, there were outstanding options under
MedPartners/Mullikin stock option plans to purchase an additional 5,872,530
shares of MedPartners/Mullikin Common Stock. An additional 1,920,900 shares of
MedPartners/Mullikin Common Stock have been reserved for future option grants
under such plans. The Board of Directors of MedPartners/Mullikin has the
authority to issue the MedPartners/Mullikin Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions for each
such series, without any further vote or action by the stockholders. As of April
30, 1996, there were no shares of MedPartners/Mullikin Preferred Stock issued
and outstanding, and the Board of Directors of MedPartners/Mullikin has no
present intention of issuing shares of MedPartners/Mullikin Preferred Stock. The
MedPartners/Mullikin Board of Directors has approved and submitted to the
stockholders for approval at the Annual Meeting on April 25, 1996, a proposal to
increase the authorized capital stock of MedPartners/Mullikin to 210,000,000
shares of which 200,000 shares are designated Common Stock, par value $.001 per
share, 9,500,000 shares are designated Preferred Stock, par value $.001 per
share, and 500,000 shares are Series C Junior Participating Preferred Stock with
a par value of $.001 per share.

As a consequence of and following the Acquisition, the New Management
Partners will hold shares of MedPartners/Mullikin Common Stock with associated
rights to acquire MedPartners/Mullikin Series C Preferred Stock.

SIZE AND ELECTION OF THE BOARD OF DIRECTORS

New Management. The New Management Agreement provides for the election of
an Executive Committee (the "Executive Committee") to run the affairs of the
Partnership. There may be up to five (5) but not less than four (4) members of
the Executive Committee. There are currently four (4) members of the Executive
Committee. One member is the management director; the remaining 3 members are
elected as follows: one member is elected by the Group A Partners; one member by
the Group B Partners and one member by the Group C Partners. Any group which
owns 22.5 Units may elect a member of the Executive Committee.

83
<PAGE> 368

Group D Partners and Group E Partners do not elect members of the Executive
Committee but may appoint an observer to attend meetings. Observers have no
rights to vote on matters before the Executive Committee. The Group D Partners
recently acquired, in the aggregate, 22.5 Units and may now elect a member of
the Executive Committee. No member has been elected by the Group D Partners and
no one is anticipated to be elected prior to the Closing. The current members of
the Executive Committee's terms expire on December 31, 1997.

As a consequence of and following the Acquisition, the rights and
obligations of the New Management Partners that receive MedPartners/Mullikin
Common Stock in the Acquisition with respect to the size and composition of the
MedPartners/Mullikin Board of Directors will be as discussed under "Operations
and Management of MedPartners/Mullikin After the Acquisition -- Management" and
as otherwise governed by the MedPartners/Mullikin By-laws as described in the
immediately preceding paragraph. At the Effective Time of the Caremark
Acquisition, the MedPartners/Mullikin By-laws shall be amended to provide that
the MedPartners/Mullikin Board of Directors shall consist of thirteen directors.

REMOVAL OF DIRECTORS

New Management. There are no procedures to remove a member of the
Executive Committee who remains a Partner.

MedPartners/Mullikin. The MedPartners/Mullikin By-laws provide that a
director may be removed only with cause and only by the vote of the holders of a
majority of the shares of capital stock entitled to vote thereon. As a
consequence of and following the Acquisition, the New Management Partners that
receive MedPartners/Mullikin Common Stock in the Acquisition will be able to
remove a director from the MedPartners/Mullikin Board of Directors only with
cause and only by the vote of the holders of a majority of the shares of capital
stock entitled to vote thereon.

OTHER VOTING RIGHTS

New Management. Units are allocated among the five groups of Partners.
Each Unit is entitled to vote on all matters, except the election of Partners to
the Executive Committee. The members of the Executive Committee are elected by
votes cast by those Units held in each group eligible to vote for its designated
member. Matters requiring the vote of the Partners require a vote of at least 85
Units to be approved.

MedPartners/Mullikin. The MedPartners/Mullikin Common Stock is not divided
into classes, and MedPartners/Mullikin has no classes or series of capital stock
issued or outstanding other than the MedPartners/Mullikin Common Stock. Each
MedPartners/Mullikin stockholder holding shares of MedPartners/Mullikin Common
Stock entitled to be voted on any matter, including the election of directors,
has one vote on each such matter submitted to vote at a meeting of stockholders
for each such share of MedPartners/Mullikin Common Stock held by such
stockholder as of the record date for such meeting. Except as specifically
provided otherwise by law or by the MedPartners/Mullikin Certificate or the
MedPartners/Mullikin By-laws, the vote of the holders of a majority of the
shares of capital stock present or represented and entitled to vote is required
for the approval of any matter at a meeting of MedPartners/ Mullikin
stockholders.

As a consequence of and following the Acquisition, the New Management
Partners that receive MedPartners/Mullikin Common Stock in the Acquisition will
be governed by the MedPartners/Mullikin Certificate and the MedPartners/Mullikin
By-laws with respect to voting rights as described in the preceding paragraph.

84
<PAGE> 369

DIVIDENDS

New Management. New Management is a Partnership which has in the past
distributed all cash available for distribution to its Partners. The Executive
Committee determines the amount of cash available for distribution.

MedPartners/Mullikin. The MedPartners/Mullikin Certificate authorizes the
Board of Directors to declare a dividend to distribute to the stockholders,
without a vote of the stockholders, a portion of the assets of
MedPartners/Mullikin which are available under the DGCL for distribution.

As a consequence of and following the Acquisition, the rights and
obligations of holders of Units that receive MedPartners/Mullikin Common Stock
in the Acquisition with respect to any dividends declared by
MedPartners/Mullikin will be governed by the MedPartners/Mullikin Certificate as
described in the preceding paragraph.

CONVERSION AND DISSOLUTION

New Management. The New Management Unit has no conversion features. No
other form of ownership other than the Units is provided for in the Partnership
Agreement.

MedPartners/Mullikin. The MedPartners/Mullikin Common Stock has no
conversion features. The MedPartners/Mullikin Certificate authorizes for
issuance 9,500,000 shares of Preferred Stock, par value $.001 per share, and
provides that such shares of MedPartners/Mullikin Preferred Stock may have such
voting powers, preferences and other special rights (including, without
limitation, the right to convert the shares of such MedPartners/Mullikin
Preferred Stock into shares of MedPartners/Mullikin Common Stock) as shall be
stated in the MedPartners/Mullikin Certificate or resolutions providing for the
issuance of MedPartners/Mullikin Preferred Stock. If the Board of Directors were
to designate such a series of MedPartners/Mullikin Preferred Stock in addition
to the Series C Preferred Stock, such MedPartners/ Mullikin Preferred Stock
could be entitled to preferential payments in the event of dissolution of
MedPartners/Mullikin.

AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS

New Management. Partnership Agreement provides that the Partnership
Agreement may be amended by a vote of not less than 75 Units.

MedPartners/Mullikin. The MedPartners/Mullikin Certificate provides that
the powers and rights of the Series C Preferred Stock cannot be materially
altered adversely without the affirmative vote of the holders of a majority of
the outstanding shares of Series C Preferred Stock, voting separately as a
class. The MedPartners/Mullikin Certificate and the MedPartners/Mullikin By-laws
provide that the MedPartners/ Mullikin By-laws may be altered, amended or
repealed by a vote of a majority of the entire MedPartners/Mullikin Board of
Directors.

As a consequence of and following the Acquisition, the holders of Units
that receive MedPartners/ Mullikin Common Stock in the Acquisition Amendment
will not be able to materially alter adversely the powers and rights of the
Series C Preferred Stock without the affirmative vote of the holders of a
majority of the outstanding MedPartners/Mullikin Series C Preferred Stock,
voting separately as a class.

SPECIAL MEETINGS OF STOCKHOLDERS

New Management. There is no provision in the Partnership Agreement for
calling meetings of the Partners.

85
<PAGE> 370

LIABILITY OF DIRECTORS

New Management. The Partnership Agreement does not provide for
indemnification of members of the Executive Committee.

The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. The
MedPartners/Mullikin Certificate includes such a provision which, as set forth
below, limits such liability to the fullest extent permitted under applicable
law.

The MedPartners/Mullikin Certificate provides that a director will not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which concerns unlawful payments of dividends or expenditures of funds for
unlawful stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit.

STOCKHOLDER RIGHTS PLAN

New Management. New Management does not have a stockholder rights or
similar plan.

As a consequence of and following the Acquisition, the MedPartners/Mullikin
Common Stock received in the Acquisition by the New Management Partners will be
subject to the Stockholder Rights Plan which may inhibit a change in control of
MedPartners/Mullikin that might be beneficial to MedPartners/Mullikin
stockholders.

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS

New Management. New Management does not require advance notice of
stockholder proposals or nominations of Executive Committee members.

86
<PAGE> 371

the notice procedures set forth below. Such nominations, other than those made
by or at the direction of the MedPartners/Mullikin Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of
MedPartners/Mullikin. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of
MedPartners/Mullikin not less than sixty days nor more than ninety days prior to
the meeting. Such notice shall set forth (i) the name, age, business address and
residence address of the nominee, (ii) the principal occupation or employment of
the nominee, (iii) the class and number of shares of capital stock of
MedPartners/Mullikin which are beneficially owned by the nominee and (iv) any
other information relating to the nominee that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Section 14 of
the Exchange Act, and as to the stockholder giving the notice, (i) the name and
address of the stockholder, (ii) the class or series and number of shares of
capital stock of MedPartners/Mullikin which are owned by the stockholder, (iii)
a description of all arrangements or understandings between the stockholder and
each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by the stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in such notice and (v) any other
information relating to the stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for the election of directors pursuant to Section 14 of
the Exchange Act. Such notice must be accompanied by a written consent of each
nominee to serve as a director if elected. MedPartners/Mullikin may require any
proposed nominee to furnish such other information as may reasonably be required
by MedPartners/Mullikin to determine the eligibility of such proposed nominee to
serve as a director of MedPartners/Mullikin.

The MedPartners/Mullikin By-laws provide that at an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the MedPartners/Mullikin Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
MedPartners/Mullikin Board of Directors or otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to
MedPartners/Mullikin. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of
MedPartners/Mullikin, not less than sixty days nor more than ninety days prior
to the meeting. The notice must set forth (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the stockholder proposing such business, (iii) the class or series and number
of shares of capital stock of MedPartners/Mullikin which are owned beneficially
or of record by the stockholder, (iv) a description of all arrangements or
understandings between the stockholder and any other person or persons
(including their names) in connection with the proposal of such business by the
stockholder and any material interest of the stockholder in such business, and
(v) a representation that the stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.

As a consequence of and following the Acquisition, New Management Partners
wishing to nominate candidates to the MedPartners/Mullikin Board of Directors or
bring business before a meeting of stockholders will have to comply with notice
procedures of MedPartners/Mullikin, including with respect to the time such
notice must be given.

ACTION BY WRITTEN CONSENT

New Management. The Partners of New Management can take any action by the
written consent of the same number of holders of Units that would be required to
approve such action at a meeting of the Partners.

MedPartners/Mullikin. The MedPartners/Mullikin Certificate provides that,
since MedPartners/ Mullikin Common Stock is listed on a national securities
exchange, any action required or permitted to be taken by the stockholders of
MedPartners/Mullikin must be effected at a duly called meeting and may not be
effected by any consent in writing by such stockholders.

87
<PAGE> 372

As a consequence of and following the Acquisition, the New Management
Partners will not, as stockholders of MedPartners/Mullikin, be able to effect
action by written consent.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

New Management. The Partnership Agreement does not provide for
indemnification of members of the Executive Committee.

MedPartners/Mullikin. The MedPartners/Mullikin Certificate and the
MedPartners/Mullikin By-laws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of MedPartners/Mullikin, or is or was
serving at the request of MedPartners/Mullikin as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan,
will be indemnified by MedPartners/ Mullikin to the full extent permitted by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits
MedPartners/Mullikin to provide broader indemnification rights that said law
permitted prior to such amendment) or by other applicable laws then in effect.

EXPERTS

LEGAL MATTERS

The validity of the shares of MedPartners/Mullikin Common Stock to be
issued to New Management pursuant to the Acquisition will be passed upon by
Haskell Slaughter & Young LLC, Birmingham, Alabama.

88
<PAGE> 373

INDEX TO FINANCIAL STATEMENTS

F-1
<PAGE> 374

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
CHS MANAGEMENT, INC.(1)
Report of Independent Auditors...................................................... F-79
Balance Sheet as of December 31, 1995............................................... F-80
Statement of Income for the period from September 1, 1995 (inception) through
December 31, 1995................................................................. F-81
Statement of Stockholders' Equity for the period from September 1, 1995 (inception)
through December 31, 1995......................................................... F-82
Statement of Cash Flows for the period from September 1, 1995 (inception) through
December 31, 1995................................................................. F-83
Notes to Financial Statements....................................................... F-84
CHS MANAGEMENT, INC. (UNAUDITED)(1)
Condensed Balance Sheet as of June 30, 1996 (unaudited)............................. F-89
Condensed Statement of Operations and Accumulated Deficit for the six months ended
June 30, 1996 (unaudited)......................................................... F-90
Condensed Statement of Cash Flows for the six months ended June 30, 1996
(unaudited)....................................................................... F-91
Notes to Unaudited Condensed Financial Statements................................... F-92
NEW MANAGEMENT(1)
Report of Independent Auditors...................................................... F-93
Balance Sheets as of December 31, 1994 and 1995..................................... F-94
Statements of Income for the years ended December 31, 1994 and 1995................. F-95
Statements of Partners' Deficiency for the years ended December 31, 1994 and 1995... F-96
Statements of Cash Flows for the years ended December 31, 1994 and 1995............. F-97
Notes to Financial Statements....................................................... F-98
NEW MANAGEMENT (UNAUDITED)(1)
Balance Sheet as of December 31, 1993 (unaudited)................................... F-100
Statement of Income for the year ended December 31, 1993 (unaudited)................ F-101
Statement of Cash Flows for the year ended December 31, 1993 (unaudited)............ F-102
Notes to Unaudited Financial Statements............................................. F-103
Condensed Balance Sheet as of June 30, 1996 (Unaudited)............................. F-105
Condensed Statements of Income for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-106
Condensed Statements of Cash Flows for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-107
Note to Unaudited Condensed Financial Statements.................................... F-108
EMERGENCY PROFESSIONAL SERVICES, INC.(1)
Report of Independent Auditors...................................................... F-109
Balance Sheets as of January 31, 1995 and 1996...................................... F-110
Statements of Operations for the years ended January 31, 1994, 1995 and 1996........ F-111
Statements of Changes in Stockholders' Equity for the years ended January 31, 1994,
1995 and 1996..................................................................... F-112
Statements of Cash Flows for the years ended January 31, 1994, 1995 and 1996........ F-113
Notes to Financial Statements....................................................... F-114
EMERGENCY PROFESSIONAL SERVICES, INC. (UNAUDITED)(1)
Balance Sheet as of April 30, 1996 (unaudited)...................................... F-117
Statements of Income for the three months ended April 30, 1995 and 1996
(unaudited)....................................................................... F-118
Statements of Cash Flows for the three months ended April 30, 1995 and 1996
(unaudited)....................................................................... F-119
Note to Unaudited Financial Statements.............................................. F-120
</TABLE>

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

(1) These entities are probable combinations with or acquisitions of
MedPartners/Mullikin.

F-2
<PAGE> 375

REPORT OF INDEPENDENT AUDITORS

Board of Directors
MedPartners/Mullikin, Inc.

ERNST & YOUNG LLP

Birmingham, Alabama
February 22, 1996

F-3
<PAGE> 376

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 377

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 378

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 379

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 380

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ACCOUNTING POLICIES

Description of Business

Basis of Presentation

Nature of Physician Compensation Arrangements

F-8
<PAGE> 381

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

F-9
<PAGE> 382

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash Equivalents

Marketable Securities

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

Property and Equipment

Intangible Assets

F-10
<PAGE> 383

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Payable to Physician Groups

Net Revenue

Income Taxes

Unamortized Deferred Compensation

Reinsurance

F-11
<PAGE> 384

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Restatement of Financial Statements

Fiscal Year

Pro Forma Net Income (Loss) Per Share

Stock Option Plans

Impairment of Long-Lived Assets

F-12
<PAGE> 385

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following:

The amounts above approximate the fair value of the respective cash
equivalents.

The repurchase agreements represent overnight funds purchased through a
bank and are secured by Treasury Bills held in the bank's name.

Interest income, including interest income from marketable debt securities,
was $2,150,000, $3,489,000 and $5,353,000 for the years ended December 31, 1993,
1994 and 1995, respectively.

3. MARKETABLE SECURITIES

The following is a summary of available-for-sale securities at December 31,
1995:

The amortized cost and estimated fair value of marketable securities
classified as available-for-sale at December 31, 1995, by contractual maturity,
are as follows:

F-13
<PAGE> 386

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of available-for-sale securities at December 31,
1994:

4. INTANGIBLE ASSETS

Intangible assets consisted of the following:

Amortization expense was $3,642,000, $6,820,000 and $9,040,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

Depreciation and amortization expense was $10,415,000, $15,072,000 and
$20,048,000 for the years ended December 31, 1993, 1994 and 1995, respectively.

F-14
<PAGE> 387

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT

Long-term debt consisted of the following:

The amounts recorded above approximate the fair value of the obligations.

F-15
<PAGE> 388

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market price, was approximately $57,788,000. Subsequent to the acquisition of
PPSI in February of 1996, the Company paid off these debentures.

The following is a schedule of principal maturities of long-term debt as of
December 31, 1995.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1995.

Interest expense was $5,488,000, $9,447,000 and $13,796,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.

7. INCOME TAX EXPENSE

F-16
<PAGE> 389

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) for the years ended December 31, 1993, 1994
and 1995 is as follows:

The differences between the provision (benefit) for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes were as follows:

F-17
<PAGE> 390

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. CAPITALIZATION

9. STOCK OPTIONS

10. ACQUISITIONS

F-18
<PAGE> 391

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. RETIREMENT SAVINGS PLAN

F-19
<PAGE> 392

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. MERGERS

<TABLE>
<CAPTION>
MME AND
RELATED PPSI
REAL OTHER AND
ESTATE IMMATERIAL TEAM
MEDPARTNERS PARTNERSHIPS MEDCTR TBI VANGUARD POOLINGS HEALTH COMBINED
----------- ------------ ------- ------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Net revenue.......... $ 1,277 $298,415 $11,410 $25,881 $17,128 $7,972 $187,612 $ 549,695
Net (loss) income.... (1,206) (1,495) (369 ) (177) (873 ) 276 7,114 3,270
Year ended December 31,
1994
Net revenue.......... 77,432 370,798 10,963 20,816 18,493 8,313 308,226 815,041
Net (loss) income.... (1,601) (4,647) 76 (1,346) (847 ) (26) 7,598 (793)
Year ended December 31,
1995
Net revenue.......... 238,887 431,875 11,343 23,679 28,684 7,957 411,132 1,153,557
Net (loss) income.... 3,022 (9,412) (11 ) (453) (2,905 ) 112 10,205 558
</TABLE>

13. CONTINGENCIES

F-20
<PAGE> 393

MEDPARTNERS/MULLIKIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

opinion of management that the ultimate resolution of any asserted or unasserted
claims will not have a material adverse effect on the financial position or
operating results of the Company.

14. MAJOR PAYORS

Two payors represented individually more than 10% of the Company's net
revenue as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF
NET REVENUE
----------------------
YEAR ENDED
DECEMBER 31,
----------------------
CUSTOMER 1993 1994 1995
---------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Pacificare...................................................... 17% 19% 18%
Health Net...................................................... 13 11 9
</TABLE>

F-21
<PAGE> 394

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED BALANCE SHEET

See accompanying notes to unaudited consolidated financial statements.

F-22
<PAGE> 395

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenue............................................................ $547,450 $703,683
Operating expenses:
Cost of affiliated physician services................................ 240,225 301,280
Clinic salaries, wages and benefits.................................. 105,133 116,600
Outside hospitalization expense...................................... 50,364 83,516
Clinic rent and lease expense........................................ 19,744 23,814
Clinic supplies...................................................... 22,519 30,953
Other clinic costs................................................... 43,776 59,154
General corporate expenses........................................... 32,167 39,540
Depreciation and amortization........................................ 13,962 16,482
Net interest expense................................................. 3,367 2,811
Merger expenses...................................................... 1,051 34,448
-------- --------
Net operating expenses....................................... 532,308 708,598
-------- --------
Income (loss) before income taxes...................................... 15,142 (4,915)
Income tax expense (benefit)........................................... 4,411 360
-------- --------
Net income (loss)...................................................... $ 10,731 $ (5,275)
======== ========
Pro forma net income (loss) per share.................................. $ 0.26 $ (0.11)
======== ========
Number of shares used in pro forma net income (loss) per share......... 41,867 50,034
======== ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-23
<PAGE> 396

MEDPARTNERS/MULLIKIN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to unaudited consolidated financial statements.

F-24
<PAGE> 397

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996

1. BASIS OF PRESENTATION

Restatement of Financial Statements

Pro Forma Net Income (Loss) Per Share

Stock Option Plan

2. CAPITALIZATION

F-25
<PAGE> 398

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITIONS

F-26
<PAGE> 399

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations for the two months ended December 31, 1995. The following is a
summary of operations and cash flows for the two months ended December 31, 1995:

STATEMENT OF OPERATIONS DATA:

Included in pre-tax loss for the six months ended June 30, 1996 are merger
costs totaling $34.4 million. The components of this cost are as follows:

4. CONTINGENCIES

F-27
<PAGE> 400

MEDPARTNERS/MULLIKIN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. SUBSEQUENT EVENTS

F-28
<PAGE> 401

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
Caremark International Inc.

Price Waterhouse LLP
Chicago, Illinois
January 24, 1996, except as to
the third paragraph of Note 14,
which is as of March 19, 1996

F-29
<PAGE> 402

CAREMARK INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

F-30
<PAGE> 403

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues............................................... $1,204,000 $1,775,200 $2,374,300
Cost of goods and services sold............................ 1,001,100 1,520,600 2,016,400
Marketing and administrative expenses...................... 107,600 138,000 207,100
Provision for doubtful accounts............................ 13,300 16,900 24,200
---------- ---------- ----------
Operating income from continuing operations................ 82,000 99,700 126,600
Non-operating expense (income):
Losses on investments.................................... -- -- 86,600
Interest expense, net.................................... 3,400 8,700 8,700
Other.................................................... (1,700) (200) (200)
---------- ---------- ----------
Income from continuing operations before income taxes...... 80,300 91,200 31,500
Income tax expense......................................... 33,400 36,700 11,300
---------- ---------- ----------
Income from continuing operations.......................... 46,900 54,500 20,200
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes of $20,700, $18,000 and $(72,100) in 1993, 1994
and 1995, respectively................................ 30,800 25,900 (168,300)
Net gains on sales of discontinued operations, net of
income taxes of $21,200............................... -- -- 31,800
---------- ---------- ----------
Income (loss) from discontinued operations............... 30,800 25,900 (136,500)
---------- ---------- ----------
Net income (loss).......................................... $ 77,700 80,400 $ (116,300)
========= ========= =========
Earnings (loss) per common and common equivalent share:
Primary
Income from continuing operations..................... $ 0.64 $ 0.73 $ 0.27
Operating income (loss) from discontinued
operations.......................................... $ 0.42 0.35 $ (2.24)
Net gains on sales of discontinued operations......... -- -- $ 0.42
Net income (loss)..................................... $ 1.06 $ 1.08 $ (1.55)
Fully Diluted
Income from continuing operations..................... $ 0.63 $ 0.73 $ 0.27
Operating income (loss) from discontinued
operations.......................................... $ 0.41 $ 0.35 $ (2.24)
Net gains on sales of discontinued operations......... -- -- $ 0.42
Net income (loss)..................................... $ 1.04 $ 1.08 $ (1.55)
Weighted average common and common equivalent shares
outstanding:
Primary.................................................. 73,300 74,800 75,100
Fully diluted............................................ 74,900 74,800 75,100
</TABLE>

See accompanying notes to consolidated financial statements.

F-31
<PAGE> 404

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.

F-32
<PAGE> 405

CAREMARK INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash investing activities include notes and other obligations
issued for acquisitions of $5.8, $1.2 and $30.8 million in 1993, 1994 and
1995, respectively, and $123.6 million in notes and other securities
received from divestitures in 1995. Non-cash financing activities include
the issuance of $35.6 million of stock for acquisitions in 1995 and capital
lease obligations of $0.7, $0.4 and $3.9 million in 1993, 1994 and 1995,
respectively.

See accompanying notes to consolidated financial statements.

F-33
<PAGE> 406

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995

NOTE 1: NATURE OF OPERATIONS

INDUSTRY SEGMENTS

Caremark operates in four industry segments: Physician Practice Management,
Pharmaceutical Services, Disease Management and International.

NET REVENUES FROM CONTINUING OPERATIONS

OPERATING INCOME FROM CONTINUING OPERATIONS

F-34
<PAGE> 407

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

IDENTIFIABLE ASSETS FROM CONTINUING OPERATIONS

CAPITAL EXPENDITURES FROM CONTINUING OPERATIONS

DEPRECIATION AND AMORTIZATION FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management..................................... $ 4,200 $ 6,500 $14,300
Pharmaceutical Services........................................... 5,500 8,400 9,200
Disease Management................................................ 200 400 800
International..................................................... 900 1,700 2,300
General Corporate................................................. 600 1,900 2,000
------- ------- -------
Totals from continuing operations................................. $11,400 $18,900 $28,600
======= ======= =======
</TABLE>

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Caremark and
its majority-owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.

F-35
<PAGE> 408

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUES

The company records revenues net of estimated contractual allowances.
Revenue is deferred related to cash payments received for which the company is
obligated to perform future services.

F-36
<PAGE> 409

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories, which are primarily finished goods, consist of pharmaceutical
drugs, medical equipment and supplies and are valued at the lower of cost
(first-in, first-out method) or market.

MARKETABLE SECURITIES

PROPERTY AND EQUIPMENT

GOODWILL AND OTHER INTANGIBLE ASSETS

INCOME TAXES

EARNINGS PER SHARE

F-37
<PAGE> 410

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECLASSIFICATIONS

Certain prior-year balances have been reclassified to conform with the
current year's presentation.

NOTE 3: ACQUISITIONS

NOTE 4: DISCONTINUED OPERATIONS

F-38
<PAGE> 411

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5: FINANCIAL INSTRUMENTS

During 1995, the company recorded a pre-tax charge to income of $86.6
million ($52.0 million after tax) to reflect unrealized losses on investments
that were judged other than temporary.

Interest expense totaled $4.1, $11.8 and $16.7 million in 1993, 1994 and
1995, respectively. Interest income totaled $0.7, $3.1 and $8.0 million in 1993,
1994 and 1995, respectively.

NOTE 6: TRADE RECEIVABLES

F-39
<PAGE> 412

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the activity in the allowance for doubtful accounts is
presented below:

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

(1) Represents valuation accounts of acquired or divested companies, account
transfers and foreign currency translation adjustments.

NOTE 7: OTHER BALANCE SHEET DATA

Accrued liabilities include employee compensation and related taxes of
$31.0 and $25.8 million at December 31, 1994 and 1995, respectively.

NOTE 8: CREDIT FACILITIES

F-40
<PAGE> 413

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9: LONG-TERM DEBT AND LEASE OBLIGATIONS

Long-term debt and lease obligations consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term credit facility borrowings........................... $125,000 $200,000
6 7/8% notes, due 2003, less unamortized discount of $0.4
million...................................................... 99,500 99,600
Long-term notes due 1996 through 2011, at various rates........ 9,200 24,400
Capitalized lease obligations due 1996 through 2000............ 2,400 5,300
-------- --------
Total long-term debt and lease obligations..................... 236,100 329,300
Current portion................................................ (2,600) (3,900)
-------- --------
Long-term portion.............................................. $233,500 $325,400
======== ========
</TABLE>

Future minimum lease payments (including interest) under capital and
noncancelable operating leases and aggregate long-term debt maturities are
summarized as follows:

The net book value of capitalized lease property approximated $2.3 and $3.9
million at December 31, 1994 and 1995, respectively.

NOTE 10: PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS

F-41
<PAGE> 414

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11: COMMON STOCK

Expiration dates for outstanding subscriptions extend through 1997. The
weighted average subscription price was $15.90 at December 31, 1995.

F-42
<PAGE> 415

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The company's common stock was reserved for issuance as follows at December
31:

Stockholders of record totaled 54,849 at December 31, 1994, versus 49,003
at the end of 1995.

NOTE 12: RETIREMENT PROGRAMS

F-43
<PAGE> 416

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the components of net pension expense and
related actuarial assumptions used at the January 1 valuation date for the
respective years:

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

(1) The assumed annual rate of increase in compensation levels for 1993 was 4.0%
for the Puerto Rico plans, which were merged into the U.S. plan as of
December 31, 1993.

The following table presents the funded status of the plans, the net
pension liability recognized in the consolidated balance sheets and related
actuarial assumptions as of December 31:

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

(1) Primarily equity and fixed income securities.

Pension expense under non-U.S. pension plans sponsored by the company for
the benefit of foreign employees has not been significant.

F-44
<PAGE> 417

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13: INCOME TAXES

Income tax expense from continuing operations for the indicated years
consists of:

Foreign income was not significant in 1993, 1994 and 1995.

Deferred tax assets (liabilities) under FAS 109 are composed of the
following:

F-45
<PAGE> 418

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Undistributed earnings of certain foreign subsidiaries that the company
expects to be permanently reinvested totaled $6.1 million as of December 31,
1995.

NOTE 14: COMMITMENTS AND CONTINGENT LIABILITIES

F-46
<PAGE> 419

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-47
<PAGE> 420

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-48
<PAGE> 421

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15: QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1994 and 1995.

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

F-49
<PAGE> 422

CAREMARK INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

See accompanying notes to consolidated financial statements.

F-50
<PAGE> 423

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to consolidated financial statements.

F-51
<PAGE> 424

CAREMARK INTERNATIONAL INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

See accompanying notes to consolidated financial statements.

F-52
<PAGE> 425

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996

NOTE 1: FINANCIAL INFORMATION

NOTE 2: INVENTORIES

Inventories of $99.6 million at June 30, 1996 consist primarily of finished
goods.

NOTE 3: DISCONTINUED OPERATIONS

NOTE 4: ACQUISITIONS

NOTE 5: CONTINGENT LIABILITIES

F-53
<PAGE> 426

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

and expenses. The Company intends, if served, to defend these cases vigorously.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of these matters.

In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the OIG investigation discussed below. The complaints seek unspecified
damages, declaratory and equitable relief, and attorneys' fees and expenses. In
June 1996, the complaint filed by one group of stockholders alleging violations
of the Securities Exchange Act of 1934 only, was certified as a class. The
parties to all of the complaints continue to engage in discovery proceedings.
The company intends to defend these cases vigorously. Management is unable at
this time to estimate the impact, if any, of the ultimate resolution of these
matters.

F-54
<PAGE> 427

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pre-trial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable to estimate at this time the impact, if any, of
the ultimate resolution of this matter.

F-55
<PAGE> 428

CAREMARK INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 6: MERGER

F-56
<PAGE> 429

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Cardinal Healthcare, P.A.

ERNST & YOUNG LLP

Birmingham, Alabama
June 19, 1996

F-57
<PAGE> 430

CARDINAL HEALTHCARE, P.A.

BALANCE SHEET

See accompanying notes.

F-58
<PAGE> 431

CARDINAL HEALTHCARE, P.A.

STATEMENT OF OPERATIONS

See accompanying notes.

F-59
<PAGE> 432

CARDINAL HEALTHCARE, P.A.

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

See accompanying notes.

F-60
<PAGE> 433

CARDINAL HEALTHCARE, P.A.

STATEMENT OF CASH FLOWS

See accompanying notes.

F-61
<PAGE> 434

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ACCOUNTING POLICIES

Description of Business

Cardinal Healthcare, P.A. (Cardinal) is a seventy-five member
multi-specialty physician group which services the Raleigh-Durham area of North
Carolina.

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting.

Management Estimates

Property and Equipment

Income Taxes

Cardinal is a corporation taxable under the provisions of the Internal
Revenue Code. Deferred income taxes are provided for temporary differences
between financial and income tax reporting.

Net Revenue

Cost of Affiliated Physician Services

Impairment of Long-Lived Assets

F-62
<PAGE> 435

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. LINES OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE

Long-term debt and capital lease consisted of the following as of December
31, 1995:

The amounts recorded above approximate the fair value of the obligations.

The following is a schedule of principal maturities of long-term debt,
excluding the capital lease, as of December 31, 1995:

F-63
<PAGE> 436

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule of future minimum lease payments under the
capital lease together with the present value of the net minimum lease payments
as of December 31, 1995:

3. OPERATING LEASES

4. RELATED PARTIES

5. EMPLOYEE BENEFIT PLAN

F-64
<PAGE> 437

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. CONTINGENCIES

7. INCOME TAXES

Income tax benefit for the year ended December 31, 1995 was as follows:

F-65
<PAGE> 438

CARDINAL HEALTHCARE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the benefit for income taxes and the amount computed
by applying the statutory federal income tax rate to income before taxes was as
follows:

8. PLAN AND AGREEMENT OF MERGER (UNAUDITED)

In July 1996, Cardinal entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc. in exchange for shares of MedPartners/Mullikin, Inc.
common stock.

F-66
<PAGE> 439

CARDINAL HEALTHCARE, P.A.

BALANCE SHEET
(UNAUDITED)

See accompanying notes.

F-67
<PAGE> 440

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF INCOME
(UNAUDITED)

See accompanying notes.

F-68
<PAGE> 441

CARDINAL HEALTHCARE, P.A.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)

See accompanying notes.

F-69
<PAGE> 442

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1993 1994
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................ $ 280,986 $ 53,911
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation........................................................ 145,618 191,059
Gain on disposal of assets.......................................... (33,050) --
Deferred income taxes............................................... (191,612) 26,148
Changes in operating assets and liabilities:
Accounts receivable, net......................................... (2,669) (182,108)
Other assets..................................................... 10,987 (230,077)
Accounts payable................................................. 33,695 72,538
Salaries payable and other accrued expenses...................... 462,984 (407,071)
--------- ----------
Net cash provided (used) by operating activities............... 706,939 (475,600)
INVESTING ACTIVITIES:
Purchase of property and equipment.................................... (258,157) (273,318)
Proceeds from disposal of assets...................................... 62,700 --
--------- ----------
Net cash used by investing activities.......................... (195,457) (273,318)
FINANCING ACTIVITIES:
Proceeds from long-term debt.......................................... 383,952 1,070,726
Payments on long-term debt............................................ (518,503) (190,343)
Net proceeds from the issuance of common stock........................ 5,440 10,880
--------- ----------
Net cash (used) provided by financing activities............... (129,111) 891,263
--------- ----------
Increase in cash...................................................... 382,371 142,345
Cash at beginning of year............................................. 371,313 753,684
--------- ----------
Cash at end of year................................................... $ 753,684 $ 896,029
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest................................ $ 70,792 $ 92,882
========= =========
</TABLE>

See accompanying notes.

F-70
<PAGE> 443

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. ACCOUNTING POLICIES

Description of Business

Cardinal Healthcare, P.A. (Cardinal) is a thirty-five member
multi-specialty physician group which services the Raleigh-Durham area of North
Carolina.

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting.

Management Estimates

Property and Equipment

Income Taxes

Cardinal is a corporation taxable under the provisions of the Internal
Revenue Code. Deferred income taxes are provided for temporary differences
between financial and income tax reporting.

Net Revenue

Cost of Affiliated Physician Services

F-71
<PAGE> 444

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

2. LINE OF CREDIT AND LONG-TERM DEBT

Cardinal has a line of credit with First Union National Bank of North
Carolina totaling $250,000. Interest is at the prime rate payable monthly with
the principal balance due on April 30, 1995.

Long-term debt consisted of the following:

The amounts recorded above approximate the fair value of the obligations.

The following is a schedule of principal maturities of long-term debt as of
December 31, 1994:

3. OPERATING LEASES

4. RELATED PARTIES

F-72
<PAGE> 445

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

5. EMPLOYEE BENEFIT PLAN

6. CONTINGENCIES

In addition to the general liability and malpractice insurance carried by
the individual physicians, Cardinal maintains general liability and malpractice
insurance providing Cardinal with coverage of $3,000,000 per incident and
$5,000,000 in the aggregate. As of December 31, 1994, there were no asserted
malpractice claims against Cardinal, accordingly, no amounts for potential
losses have been accrued in the accompanying financial statements. In addition,
Cardinal has not accrued a loss for unreported incidents or for losses in excess
of insurance coverage as the amount, if any, cannot be reasonably estimated and
the probability of an adverse outcome cannot be determined at this time. It is
the opinion of management that the ultimate resolution of any unasserted claims
will not have a material adverse effect on the financial position or operating
results of Cardinal.

7. INCOME TAXES

F-73
<PAGE> 446

CARDINAL HEALTHCARE, P.A.

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax (benefit) expense was as follows:

The differences between the (benefit) provision for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes were as follows:

F-74
<PAGE> 447

CARDINAL HEALTHCARE, P.A.

BALANCE SHEET
(UNAUDITED)

See accompanying note.

F-75
<PAGE> 448

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF INCOME
(UNAUDITED)

See accompanying note.

F-76
<PAGE> 449

CARDINAL HEALTHCARE, P.A.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying note.

F-77
<PAGE> 450

CARDINAL HEALTHCARE, P.A.

NOTE TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1996

1. BASIS OF PRESENTATION

F-78
<PAGE> 451

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
CHS Management, Inc.

ERNST & YOUNG LLP

Birmingham, Alabama
July 26, 1996

F-79
<PAGE> 452

CHS MANAGEMENT, INC.

BALANCE SHEET

See accompanying notes.

F-80
<PAGE> 453

CHS MANAGEMENT, INC.

STATEMENT OF INCOME

See accompanying notes.

F-81
<PAGE> 454

CHS MANAGEMENT, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

See accompanying notes.

F-82
<PAGE> 455

CHS MANAGEMENT, INC.

STATEMENT OF CASH FLOWS

See accompanying notes.

F-83
<PAGE> 456

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Management Estimates

Property and Equipment

Income Taxes

Fair Value of Financial Instruments

Impairment of Long-Lived Assets

F-84
<PAGE> 457

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. MANAGEMENT SERVICES AGREEMENTS

Pursuant to these agreements, the Medical Groups remit to CHS 12% of
capitation and other Payer revenues except for CMG fee for service revenue which
is based on a lesser percentage.

Pursuant to the NM agreement, NM remits to CHS a management fee based on
12% per dollar per enrolled life under the capitation agreement between CMG, NM
and West Hills Hospital.

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1995 consists of the following:

4. RELATED PARTY TRANSACTIONS

Due from Affiliate

Transfers from CMG and Health Source Management Group

F-85
<PAGE> 458

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The assets and liabilities transferred from CMG to CHS were recorded at the
predecessor cost basis since they are related parties.

Lease

Funds Held on Behalf of Others

5. FAIR VALUE OF ASSETS ACQUIRED IN EXCESS OF LIABILITIES ASSUMED

F-86
<PAGE> 459

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CHS applied the excess value against nonmonetary intangible assets and
noncurrent assets (negative goodwill) as follows:

The amortization of the excess value of assets received over liabilities
assumed has been reflected in the statement of operations as other revenue.

6. COMMITMENTS

Leases

CHS leases certain office space under noncancelable operating leases
expiring through April 2000. Future minimum rental commitments at December 31,
1995 are as follows:

Rent expense for operating leases amounted to $200,196 for the period from
September 1, 1995 (inception) through December 31, 1995.

7. INCOME TAXES

Income tax expense for the period from September 1, 1995 (inception)
through December 31, 1995 consisted of the following:

F-87
<PAGE> 460

CHS MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the corporate Federal tax rate with the financial
statement effective rates for the period from September 1, 1995 (inception)
through December 31, 1995:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1995 are presented below:

Management is of the opinion that it is more likely than not that such
deferred tax assets will be realized in the future.

8. EMPLOYEE BENEFIT PLAN

9. BUSINESS AND CREDIT CONCENTRATION

CHS had funds on deposit with a bank amounting to $609,959. The funds are
insured up to $100,000 by the Federal Deposit Insurance Corporation.

10. SUBSEQUENT EVENTS

Management Agreement

Merger

F-88
<PAGE> 461

CHS MANAGEMENT, INC.

CONDENSED BALANCE SHEET
(UNAUDITED)

See accompanying notes.

F-89
<PAGE> 462

CHS MANAGEMENT, INC.

CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)

See accompanying notes.

F-90
<PAGE> 463

CHS MANAGEMENT, INC.

CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)

See accompanying notes.

F-91
<PAGE> 464

CHS MANAGEMENT, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. CONDENSED FINANCIAL STATEMENTS

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's December 31, 1995 audited financial statements. The results of
operations for the period ended June 30, 1996 are not necessarily indicative of
the operation results for the year.

2. SUBSEQUENT EVENT

In June, 1996, the Company entered into a loan agreement with
MedPartners/Mullikin, Inc. Pursuant to that agreement, the Company has borrowed
approximately $2 million. Amounts borrowed under the agreement, which may
increase to $2,539,250, together with interest at prime, are due December 31,
1996. At the option of CHS, the unpaid principal and interest may be offset
against a portion of the fee payable to the Company by MedPartners/Mullikin,
Inc. pursuant to the terms of the Amended and Restated Plan of Agreement of
Merger dated March 11, 1996, as amended by Amendment No. 1 dated June 28, 1996.
The obligations of the Company under the loan have been guaranteed by Community
Medical Group of the West Valley and Health Source Management Group, Inc.

F-92
<PAGE> 465

REPORT OF INDEPENDENT AUDITORS

The Partners
New Management

ERNST & YOUNG LLP

Birmingham, Alabama
July 26, 1996

F-93
<PAGE> 466

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

BALANCE SHEETS

See accompanying notes.

F-94
<PAGE> 467

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENTS OF INCOME

See accompanying notes.

F-95
<PAGE> 468

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENTS OF PARTNERS' DEFICIENCY

See accompanying notes.

F-96
<PAGE> 469

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENTS OF CASH FLOWS

See accompanying notes.

F-97
<PAGE> 470

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Partnership income and losses are allocated to the respective partners
based on percentage ownership subject to certain provisions as defined in the
partnership agreement.

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting.

Management Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements and notes. Actual results could differ from those estimates.

Administrative Capitation Fee

Income Taxes

2. ADMINISTRATIVE CAPITATION FEE RECEIVABLE

3. LONG-TERM DEBT

Long-term debt is summarized as follows:

The amounts recorded above approximate the fair value of the obligation.

F-98
<PAGE> 471

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

guaranteed the loan pro rata to the extent of two times each partner's
percentage ownership interest in NM at the date of the loan.

As of December 31, 1995, aggregate principal maturities of long-term debt
are as follows:

4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Advances

NM advanced $2,149 to a physician who is also a partner in NM. The advance
is due upon demand and does not bear interest.

General and Administrative Services

NM, in performing its responsibilities under the managed care agreement
with the Hospital, receives certain employee services and facilities usage
without cost from CMG.

Management Services

Professional Services

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

All current assets and current liabilities, are carried at cost, which
approximates fair value due to the short maturity of those instruments.

6. SUBSEQUENT EVENT

F-99
<PAGE> 472

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

BALANCE SHEET
(UNAUDITED)

See accompanying notes.

F-100
<PAGE> 473

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENT OF INCOME
(UNAUDITED)

See accompanying notes.

F-101
<PAGE> 474

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

STATEMENT OF CASH FLOWS
(UNAUDITED)

See accompanying notes.

F-102
<PAGE> 475

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1993

1. ORGANIZATION

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Policy

The financial statements have been prepared using the accrual method of
accounting.

Income Taxes

3. MANAGED CARE AGREEMENT

4. ADMINISTRATIVE CAPITATION FEE RECEIVABLE

The Partnership is owed additional revenue under the terms of the Managed
Care Agreement for 1993 based on a calculation adjustment which has been agreed
on with West Hills Hospital.

5. ADVANCES TO COMMUNITY MEDICAL GROUP (CMG)

F-103
<PAGE> 476

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

6. LOAN PAYABLE

The Partnership received a $3,000,000 loan from West Hills Hospital on
August 7, 1992. The loan is payable in monthly installments bearing interest at
7.75% as follows:

There is a balloon payment of $2,354,529 due on July 1, 1999.

7. RELATED PARTY TRANSACTIONS

F-104
<PAGE> 477

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

CONDENSED BALANCE SHEET
(UNAUDITED)

See accompanying note.

F-105
<PAGE> 478

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying note.

F-106
<PAGE> 479

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying note.

F-107
<PAGE> 480

NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)

NOTE TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. CONDENSED FINANCIAL STATEMENTS

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's December 31, 1995 audited financial statements. The results of
operations for the period ended June 30, 1996 are not necessarily indicative of
the operation results for the year.

F-108
<PAGE> 481

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Emergency Professional Services, Inc.

ERNST & YOUNG LLP

Birmingham, Alabama
July 12, 1996

F-109
<PAGE> 482

EMERGENCY PROFESSIONAL SERVICES, INC.

BALANCE SHEETS

See accompanying notes.

F-110
<PAGE> 483

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF OPERATIONS

See accompanying notes.

F-111
<PAGE> 484

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes.

F-112
<PAGE> 485

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF CASH FLOWS

See accompanying notes.

F-113
<PAGE> 486

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements is as
follows:

Basis of Presentation

The Company's financial statements have been prepared on the accrual basis
of accounting.

Management Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements and notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

The carrying amounts of all cash equivalents approximate fair value.

Property and Equipment

Income Taxes

Net Revenue

Cost of Affiliated Physician Services

2. PROPERTY AND EQUIPMENT

The following is a summary of the Company's property and equipment as of
January 31, 1995 and 1996:

F-114
<PAGE> 487

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROFIT-SHARING AND 401K PLAN

4. PENSION PLAN

5. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities were as follows:

Income tax benefit was as follows:

F-115
<PAGE> 488

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the benefit for income taxes and the amount computed
by applying the statutory federal income tax rate to income before taxes was as
follows:

6. OPERATING LEASES

The Company leases its current office facility under an operating lease
agreement which extends through May 31, 1997. The Company also rents storage
space on a month-to-month renewal basis.

Future minimum lease payments for the next two years and in the aggregate
are as follows:

Total rent expense under all operating leases for the years ended January
31, 1994, 1995 and 1996 was $109,883, $111,083 and $118,995, respectively.

7. DEFERRED COMPENSATION PLAN AND STOCK BONUS PLAN

8. PROFESSIONAL LIABILITY INSURANCE

9. SUBSEQUENT EVENT

In July 1996, the Company entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc. in exchange for shares of MedPartners/Mullikin, Inc.
common stock.

F-116
<PAGE> 489

EMERGENCY PROFESSIONAL SERVICES, INC.

BALANCE SHEET
(UNAUDITED)

See accompanying note.

F-117
<PAGE> 490

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF INCOME
(UNAUDITED)

See accompanying note.

F-118
<PAGE> 491

EMERGENCY PROFESSIONAL SERVICES, INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying note.

F-119
<PAGE> 492

EMERGENCY PROFESSIONAL SERVICES, INC.

NOTE TO UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 1996

1. BASIS OF PRESENTATION

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's January 31, 1996 audited financial statements. The results of
operations for the periods ended April 30, 1995 and 1996 are not necessarily
indicative of the operation results for those years.

F-120
<PAGE> 493

ANNEX A

AMENDED AND RESTATED AGREEMENT TO PURCHASE ASSETS

AMENDED AND RESTATED AGREEMENT TO PURCHASE ASSETS ("Agreement"), made and
entered into as of the 11th day of March, 1996, by and among
MEDPARTNERS/MULLIKIN, INC., a Delaware corporation ("MedPartners/Mullikin"),
MEDPARTNERS, INC., a Delaware corporation ("MedPartners"), and NEW MANAGEMENT, a
partnership organized under the laws of the State of California (the "Seller").

WITNESSETH:

WHEREAS, the parties to this Agreement are parties to an Agreement to
Purchase Assets dated as of March 11, 1996, which they desire to amend and
restate in its entirety as herein set forth;

WHEREAS, the Seller desires to sell to MedPartners, and MedPartners desires
to purchase and acquire, substantially all of the business and assets of the
Seller's Management Business as defined below, all upon the terms and subject to
the conditions hereinafter set forth;

WHEREAS, MedPartners/Mullikin, through its wholly-owned subsidiaries, is
engaged in the medical practice management business;

WHEREAS, MedPartners is a wholly-owned subsidiary of MedPartners/Mullikin;
and

WHEREAS, Seller wishes to convey to MedPartners, and MedPartners wishes to
acquire from Seller, substantially all of the properties and assets constituting
the Seller's Management Business, and MedPartners wishes to transfer such
properties and assets to MedPartners Acquisition Corporation ("MAC"), a wholly-
owned subsidiary of MedPartners, all upon the terms and subject to the
conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the contemplated payment by MedPartners/Mullikin to the Seller
of shares of the Common Stock of MedPartners/Mullikin, herein provided for, and
other good and valuable consideration, the receipt and sufficiency of all of
which are hereby acknowledged, the Seller, MedPartners/Mullikin and MedPartners
hereby agree as follows:

SECTION 1. TERMS OF THE SALE AND PURCHASE OF ASSETS.

The sale of the properties, assets and business of the Seller's Management
Business (as defined below) to be sold hereunder and the acquisition thereof by
MedPartners shall be made on the Closing Date (as defined below), and shall be
based on the respective representations, warranties and agreements of the
Seller, on the one hand, and MedPartners/Mullikin and MedPartners, on the other
hand. The closing of the sale (the "Closing") will take place at 10:00 a.m.
Central Time on a date to be specified by the parties (the "Closing Date"),
which (subject to satisfaction or waiver of the conditions set forth in Sections
8.1 and 8.2) shall be no later than the second business day after satisfaction
of the conditions set forth in Section 8.1 and 8.2, but in no event later than
June 30, 1996, at the offices of Stroock & Stroock & Lavan, located at Suite
1800, 2029 Century Park East, Los Angeles, California, unless another date or
place is agreed to in writing by the parties hereto. As used in this Agreement,
the term the "Seller's Management Business" shall mean the management business
operated by the Seller at 4505 Las Virgenes Road, Suite 105, Calabasas,
California 91302.

1.1. On the Closing Date, subject to the provisions of Section 1.2 hereof,
Seller will convey, transfer and assign to MedPartners all of Seller's right,
title and interest in and to the assets of Seller as a going concern, including,
without limitation, all items of personal property, all management contracts and
all other assets used in connection with the Business (except as otherwise
provided herein), whether or not any of such assets have any value for
accounting purposes (individually "Asset," and collectively "Assets"), free and
clear of all obligations, security interests, liens and encumbrances whatsoever,
except as specifically assumed by

A-1
<PAGE> 494

MedPartners pursuant to Section 1.3(b). Without limiting the generality of the
foregoing, the Assets specifically include:

(a) the Management Contract dated August 10, 1992, as amended January
1, 1995, by and among Seller, Community Medical Group of the West Valley
and West Hills Hospital (the "Management Contract").

(b) All contracts identified on Exhibit 1.1(b) attached hereto
(excluding this Agreement and the agreements, instruments and documents
executed and delivered by MedPartners pursuant to this Agreement).

(d) The books and records of Seller relating to the Assets, all of
which shall be delivered to MedPartners, or such person as MedPartners may
designate, on the Closing Date.

(e) Subject to applicable laws and regulations, all transferable
licenses and other regulatory approvals necessary for or incident to the
operation of the Seller's Management Business.

(f) All goodwill, customer lists, clinical and administrative policy
and procedure manuals, trade secrets, marketing and promotional materials
(including audiotapes, videotapes and printed materials) and all other
property rights required for or incident to the marketing of the products
and services of the Seller's Management Business, and all books and records
relating thereto.

1.2. There shall be excluded from the Assets to be transferred and conveyed
hereunder, and Seller shall retain all of its right, title and interest in and
to, the assets set forth on Exhibit 1.2 attached hereto and the following
assets:

(a) The Partnership Agreement and related records of Seller.

(b) All consideration to be delivered by MedPartners/Mullikin on the
Closing Date.

1.3. As consideration for the sale of the Assets by Seller,
MedPartners/Mullikin shall, on the Closing Date, provide Seller with the
following consideration:

(a) MedPartners/Mullikin Shares. On the Closing Date,
MedPartners/Mullikin shall transfer to Seller shares of the Common Stock,
par value $.001 per share of MedPartners/Mullikin (the
"MedPartners/Mullikin Common Stock") with a total value equal to $7,000,000
(the "Acquisition Price"). The "Acquisition Price" means shares of
MedPartners/Mullikin Common Stock (that number of shares of
MedPartners/Mullikin Common Stock (rounded to the nearest whole share)
equal to $7,000,000 divided by $31.05 (the "Initial MedPartners/Mullikin
Trading Price"), unless (i) the Final Medpartners/Mullikin Trading Price is
less than $27.95, in which case it means $7,000,000 divided by the lesser
of (x) the Final Medpartners/Mullikin Trading Price and (y) $27.95 (the
number equal to 90% of the Initial Medpartners/Mullikin Trading Price) or
(ii) the Final Medpartners/Mullikin Trading Price is greater than $34.16
(110% of the Initial Medpartners/Mullikin Trading Price), in which case it
means $7,000,000 divided by the greater of (A) the Final
Medpartners/Mullikin Trading Price and (B) $34.16. "Initial
Medpartners/Mullikin Trading Price" shall mean the average of the last
reported sale prices per share of Medpartners/Mullikin Common Stock for the
five consecutive trading days on which such shares are actually traded on
The New York Stock Exchange, Inc. (the "NYSE") immediately preceding the
date of this Agreement and the "Final Medpartners/Mullikin Trading Price"
shall mean the average of the closing prices per share of
MedPartners/Mullikin Common Stock for the 10 consecutive trading days on
which such shares are actually traded ending at the close of trading on the
second trading day immediately preceding the date on which the stockholders
of CHS meet to consider the merger contemplated by the Plan and Agreement
of Merger referred to in Section 8.1(i). The Acquisition Price shall be
allocated to the acquisition of the Assets as set forth on Exhibit
1.3(a)(1) attached hereto. The parties shall use such allocation in
completing Form 8594 and satisfying any and all other reporting
requirements of the Internal Revenue Service or any other state or local
taxing authority.

A-2
<PAGE> 495

(b) Assumption of Liabilities. MedPartners shall assume perform or
discharge, on or after the Closing Date, only the contracts, leases,
commitments, obligations and liabilities of Seller set forth on Exhibit
1.3(b). The outstanding obligation owed by New Management to West Hills
Regional Medical Center pursuant to the above-referenced agreement will be
discharged at Closing by MedPartners/ Mullikin or, in the alternative,
MedPartners/Mullikin will deliver at closing, the release from any
liability associated with said obligation of New Management executed by
authorized officers of West Hills Regional Medical Center

(c) Liabilities Not Assumed. Notwithstanding any contrary provision
contained herein, MedPartners shall not be deemed to have assumed, nor
shall MedPartners assume (except as set forth on Exhibit 1.3(b)): (i) any
liability which may be incurred by reason of any breach of or default under
such contracts, leases, commitments or obligations which occurred prior to
the Closing Date; (ii) any liability for any employee benefits payable to
employees of Seller, including, but not limited to, liabilities arising
under any Seller Plan (as defined in Section 6.4 hereof); (iii) any
liability based upon or arising out of a violation of any antitrust or
similar restraint-of-trade laws by Seller, including, without limiting the
generality of the foregoing, any such antitrust liability which may arise
in connection with agreements, contracts, commitments or orders for the
sale of goods or provision of services by Seller reflected on the books of
Seller at or prior to the Closing Date; nor (iv) any liability based upon
or arising out of any tortious or wrongful actions of Seller or any
Partner, or any liability for the payment of any taxes imposed by law on
Seller arising from or by reason of the transactions contemplated by this
Agreement.

(d) Anti-Dilution Provisions. If after the date hereof and prior to
the Closing Date MedPartners/ Mullikin shall have declared a stock split
(including a reverse split) of MedPartners/ Mullikin Common Stock or a
dividend payable in MedPartners/Mullikin Common Stock, or any other
distribution of securities or dividend (in cash or otherwise) to holders of
MedPartners/Mullikin Common Stock with respect to their
MedPartners/Mullikin Common Stock (including without limitation such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar
transaction) then the Acquisition Price shall be appropriately adjusted to
reflect such stock split or dividend or other distribution of securities.

1.4. Each of the parties to this Agreement shall pay all of the costs and
expenses incurred by it in connection with the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, whether or not they
may be deemed to have been incurred in the ordinary course of business, no party
shall be liable for or required to pay any of the following liabilities or
expenses incurred by any other party:

(a) Fees and expenses of any person for financial services or services
as a finder rendered to such other party in connection with the sale
contemplated by this Agreement.

(b) Fees and expenses of legal counsel retained by such other party
for services rendered to such other party in connection with the sale
contemplated by this Agreement.

(c) Fees and expenses of auditors and accountants retained by such
other party for services rendered to such other party in connection with
the sale contemplated by this Agreement.

(d) Fees and expenses incurred by such other party in connection with
the making of this Agreement or any fees or expenses for the assignment of
any contract, lease or agreement to MedPartners.

(e) Taxes or other similar charges incurred by such other party in
connection with the making of this Agreement or the transfer of property to
MedPartners.

A-3
<PAGE> 496

1.5. MedPartners/Mullikin agrees that within 30 days after the end of the
first calendar month following at least 30 days after the Effective Date,
MedPartners/Mullikin shall cause publication of the combined results of
operations of MedPartners/Mullikin and Seller, provided, however, that such
period shall be tolled for such period as the financial statements required for
the preparation of such financial statements for such publication are not
reasonably available to MedPartners/Mullikin. For purposes of this Section 1.5,
the term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.

SECTION 2. REPRESENTATIONS AND WARRANTIES BY THE SELLER.

The Seller hereby represents and warrants to MedPartners/Mullikin and
MedPartners as follows, subject to Sections 1.3(b) and 6.1:

2.1. The Seller is a general partnership duly organized and validly
existing under the laws of the State of California. The Seller has all necessary
power to own all of its properties and assets and to carry on its business as
now being conducted. The Seller has all necessary power and is duly authorized
to convey, assign and transfer the properties, assets and business specified in
this Agreement.

2.2. The Seller has the power to execute, deliver and perform this
Agreement and all agreements executed and delivered by it pursuant to this
Agreement, and has taken all action required by law, its Partnership Agreement
and related governing documents, or otherwise, to authorize the execution,
delivery and performance of this Agreement and such related documents. The
execution and delivery of this Agreement does not and, subject to the receipt of
consents to assignments of leases and other contracts and subleases where
required, the consummation of the sale contemplated hereby will not, violate any
provisions of the Partnership Agreement and related governing documents of the
Seller or any provisions of, or result in the acceleration of any obligation
under, any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which the Seller is a party, or to which it is
subject.

2.3. The execution and delivery of this Agreement by the Seller and the
consummation of the transactions herein contemplated will not conflict with or
result in the breach of, or accelerate the performance required by any of the
terms of any agreement to which the Seller is now a party, or constitute a
default thereunder, or result in the creation of any lien, charge or encumbrance
upon any of the property or assets of the Seller.

2.4. The Seller has heretofore furnished MedPartners with complete copies
of financial information relating to the Seller's Management Business and Assets
(the "Seller's Financial Information"), including, but not limited to, the Draft
Unaudited Balance Sheet of the Seller as of December 31, 1995 (the "Seller's
Balance Sheet"). All such financial statements have been prepared in all
material respects in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated, reflect all material
liabilities of Seller, including all material contingent liabilities of Seller,
as of their respective dates, and present fairly the financial position of
Seller as of such dates and the consolidated results of operations and cash
flows for the period or periods reflected therein subject to normal year-end
audit adjustments.

2.5. The Seller does not own or control any other business or entity
providing management services similar to the Seller's Management Business.

2.6. Except for the Management Contract, Seller owns no assets, including,
but not limited to, management contracts, inventories, accounts receivables,
personal property, plant, furniture, fixtures and equipment which are utilized
in or related to the Business. The Management Contract is valid and effective in
accordance with its terms, which are in full force and effect and there is not
any existing default or breach under it, or any condition or event which with
notice or lapse of time, or both, would constitute a default or breach, and as
to which the Seller has not taken adequate steps to cure such default or breach
or to prevent a default or breach from occurring, other than the provision
related to confidentiality. There is a disagreement between the Seller and West
Hills Hospital as to calculation of fees due under the Management Contract as
set forth in Schedule 2.4 hereof.

2.7. Seller does not own or lease any real property.

A-4
<PAGE> 497

2.8. The Seller owns all of the assets, properties and business being
transferred to MedPartners pursuant to Section 1.1 of this Agreement, and upon
the Effective Date, MedPartners will own all such assets, properties and
business free and clear of any liens, claims, charges, exceptions or
encumbrances.

2.9. Seller does not own, carry or use any inventory in Seller's Management
Business.

2.10. The Accounts Receivable are valid debts incurred by the obligors
thereunder to the Seller, to the best knowledge of the Seller are not subject to
counterclaims or set-offs, and the Seller has taken all acts reasonably
necessary to bring about their ultimate collectability, including timely
compliance with all regulatory requirements of Medicare and other third party
payors and insurance companies. Nothing prevents the Seller from transferring
good and valid title to such accounts receivable to MedPartners, and the Seller
knows of no hindrance that would prevent MedPartners from collecting such
accounts receivable. The representations and warranties stated above are made to
induce MedPartners to enter into this Agreement and to accept the Accounts
Receivable of the Seller, and if such representations and warranties are true,
are not to be deemed to be a guaranty by the Seller of the collectability of any
such accounts receivable.

2.11. There is no litigation, governmental investigation or other
proceeding pending or, so far as is known to the Seller, threatened against or
relating to the Seller, its properties, assets or business, or the transaction
contemplated by this Agreement and, so far as is known to the Seller, no basis
for any such action exists.

2.12. There are no material oral, outstanding contracts, obligations and
commitments of Seller entered into in connection with and related to the Assets,
or the Management Contract, except as described in Exhibit 1.3(b). To Seller's
knowledge no default or alleged default by Seller exists or will at the Closing
Date exist thereunder, and there are and will be at the Closing Date no material
agreements of the parties relating to such contracts, obligations and
commitments. Seller is not a party to any material written or oral agreement,
contract, lease or plan of a type described as follows:

(a) Contract related to the Assets, not made in the ordinary course of
business, other than this Agreement.

(b) Employment contract which is not terminable without material cost
or other liability to Seller, or any successors or assigns thereof, upon
notice of 30 days or less.

(d) Bonus, pension, profit-sharing, retirement, stock acquisition,
hospitalization, insurance or similar plan providing for employee benefits.

(e) Lease with respect to any property, real or personal, whether as
lessor or lessee.

(f) Contract for the future acquisition of materials, supplies or
equipment (i) which is in excess of the requirements of the Business now
booked or for normal operating inventories, or (ii) which is not terminable
without material cost or liability to Seller, or any successors or assigns
thereof, upon notice of 30 days or less.

(g) Insurance contract.

(h) Contract continuing for a period of more than six months from the
Effective Date.

(i) Loan agreement or other contract for money borrowed.

2.13. Seller has not, since the date of the Seller's Balance Sheet:

(a) Incurred any material uninsured obligation or liability (absolute,
accrued, contingent or otherwise), or any material adverse change except in
connection with the performance of this Agreement, other than in the
ordinary course of business.

(b) Discharged or satisfied any material lien or encumbrance, or paid
or satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the Seller's Balance Sheet or (ii) liabilities incurred since the date of
the Seller's Balance Sheet in the ordinary course of business.

A-5
<PAGE> 498

(c) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor, except as may have
been required due to income or operations of Seller.

(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the Assets, tangible or intangible.

(e) Sold or transferred any of the Assets, canceled any debts or
claims or waived any rights, except in the ordinary course of business.

(f) Granted any general or uniform increase in the rates of pay of
employees or any substantial increase in salary payable or to become
payable by Seller to any officer or employee, consultant or agent (other
than normal merit increases), or by means of any bonus or pension plan,
contract or other commitment, increased the compensation of any officer,
employee, consultant or agent.

(g) Authorized any single capital expenditure in excess of $5,000, or
more than $10,000 in the aggregate.

(h) Except for this Agreement and any other agreement executed and
delivered pursuant to this Agreement, entered into any material transaction
other than in the ordinary course of business or permitted under other
Sections hereof.

(i) Issued any stock, bonds or other securities.

(j) Experienced damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting any of its properties, assets
or business, or experienced any other material adverse change in its
financial condition, assets, liabilities or business.

2.14. The Seller has filed all tax returns required to be filed by it under
the laws of the United States and the state of its organization and each state
or other jurisdiction in which it conducts business which may have a material
adverse effect on Seller's Management Business. The Seller has paid or set up an
adequate reserve in respect of all such taxes for the periods covered by such
returns. The Seller has no tax liability for which no tax reserve has been made
in respect of any jurisdiction in which the failure to do so will have a
material adverse effect on the Seller's Management Business. The amounts set up
as provisions for taxes by the Seller for the Seller's Management Business are
sufficient for all accrued and unpaid federal, state, county and local taxes,
including any interest and penalties in connection therewith, of the Seller,
whether or not disputed, for all fiscal periods to the date of the Seller's
Financial Information. Seller has not been notified that any income tax returns
of the Seller are currently under audit by the Internal Revenue Service or any
state tax agency. No agreements have been made by the Seller for the extension
of time or the waiver of the statute of limitation for the assessment of any
tax.

2.15. Seller and Partners and all persons and entities providing
professional services for the Business have not, to the actual knowledge of
Seller and Partners, engaged in any activities which are prohibited under
sec. 1320a-7b of Title 42 of the United States Code or the regulations
promulgated thereunder, or related state or local statutes or regulations, or
which are prohibited by rules of professional conduct which would have a
Material Adverse Effect, including, but not limited to, the following: (a)
knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(b) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (c) any failure by a claimant to disclose knowledge of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or payment; and (d) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe or
rebate) directly or indirectly, overtly or covertly, in cash or in kind, or
offering to pay or receive such remuneration (i) in return for referring an
individual to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (ii) in return for purchasing, leasing or ordering or arranging
for, or recommending, purchasing, lease or ordering any good, facility, service
or item for which payment may be made in whole or in part by Medicare or
Medicaid.

2.16. The Seller has no policies of insurance on the Assets to be sold
hereunder.

A-6
<PAGE> 499

2.17. Since December 31, 1995, there has not been any material adverse
change in the assets or business of the Seller's Management Business. The Seller
is unaware of any event which may materially change the Seller's Management
Business after the consummation of the transactions contemplated by this
Agreement.

2.18. Except for fees payable to Sutro & Co. pursuant to the engagement
letter, dated August 15, 1995, which shall be paid at Closing by Seller in
accordance with the terms of such engagement letter, there are no valid claims
for brokerage commissions or finder's or similar fees in connection with the
transactions contemplated by this Agreement which may be now or hereafter
asserted against MedPartners/Mullikin resulting from any action taken by New
Management or its officers, Directors or agents, or any of them.

2.19. The Seller has complied with all Federal, state and local laws,
regulations and ordinances relating to the Seller's Management Business,
including, without limitation, the Federal Environmental Protection Act, the
Occupational Safety and Health Act, Medicare and Medicaid rules and regulations,
all federal, state and local licensing and health laws and requirements and
other similar statutes and no notice of any pending inspection or violation of
any such act or statute has been received by the Seller in connection with the
Seller's Management Business.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS AND
MEDPARTNERS/MULLIKIN.

MedPartners and MedPartners/Mullikin hereby represent and warrant to Seller
as follows:

3.1. MedPartners is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.

3.2. Each of MedPartners and MedPartners/Mullikin has corporate power to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered by it pursuant to this Agreement, and has taken
all actions required by law, its Certificate of Incorporation, its By-laws or
otherwise, to authorize the execution, delivery and performance of this
Agreement and such related documents. The execution and delivery of this
Agreement, and the agreements related hereto executed and delivered pursuant to
this Agreement do not and, subject to the receipt of consents to assignments of
leases and other contracts where required and the receipt of regulatory
approvals where required, the consummation of the transactions contemplated
hereby will not, violate any provision of the Certificate of Incorporation or
By-laws of either MedPartners or MedPartners/Mullikin or any provisions of, or
result in the acceleration of, any obligation under any mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree to which
MedPartners or MedPartners/Mullikin is a party or by which either of them is
bound, or violate any restrictions of any kind to which MedPartners or
MedPartners/Mullikin is subject. The execution and delivery of this Agreement
have been approved by the respective Boards of Directors of MedPartners and
MedPartners/Mullikin.

3.3. There are no valid claims for brokerage commissions or finder's or
similar fees in connection with the transactions contemplated by this Agreement
which may be now or hereafter asserted against Seller or Partners resulting from
any action taken by MedPartners or MedPartners/Mullikin or their respective
officers, Directors or agents, or any of them.

3.4. Neither MedPartners/Mullikin nor MedPartners has received any notices
of material violations of any federal, state and local laws, regulations and
ordinances relating to its business and operations, including, without
limitation, the Federal Environmental Protection Act, the Occupational Safety
and Health Act, the Americans with Disabilities Act, the Medicare or applicable
Medicaid statutes and regulations and any Environmental Laws, and no notice of
any pending inspection or violation of any such law, regulation or ordinance has
been received by MedPartners/Mullikin or MedPartners which, if it were
determined that a violation had occurred, would have a Material Adverse Effect
on MedPartners/Mullikin and its subsidiaries, taken as a whole.

3.5. No representation or warranty by MedPartners or MedPartners/Mullikin
in this Agreement, and no Exhibit or certificate issued by officers or Directors
of MedPartners or MedPartners/Mullikin and furnished or to be furnished to
Seller or Partners pursuant hereto, or in connection with the transactions
contemplated

A-7
<PAGE> 500

hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts contained therein not misleading.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS/MULLIKIN.

MedPartners/Mullikin hereby represents and warrants to Seller as follows:

4.1. MedPartners/Mullikin is a corporation duly organized and validly
existing and is in good standing under the laws of the State of Delaware.
MedPartners/Mullikin has all necessary corporate power to own its properties and
assets and to carry on its business as presently conducted. MedPartners/Mullikin
is duly qualified to do business and is in good standing in all jurisdictions in
which the character of the property owned, leased or operated or the nature of
the business transacted by it makes qualification necessary.

4.2. MedPartners/Mullikin has a sufficient number of authorized but
unissued and/or treasury shares of its MedPartners/Mullikin Common Stock
available for issuance to Seller in accordance with the provisions of this
Agreement. The MedPartners/Mullikin Common Stock to be issued pursuant to this
Agreement will, when so delivered, be (i) duly and validly issued, fully paid
and nonassessable, and (ii) listed on the NYSE, upon official notice of
issuance.

4.3. MedPartners/Mullikin has an authorized capitalization of 9,500,000
shares of Preferred Stock, par value $.001 per share, of which no shares are
issued and outstanding, and no shares are held in treasury, 500,000 shares of
Series C Junior Participating Preferred Stock, par value $.001 per share, of
which no shares are issued and outstanding as of March 6, 1996, and no shares
are held in treasury, and 75,000,000 shares of MedPartners/Mullikin Common
Stock, par value $.001 per share, of which 50,133,936 shares are issued and
outstanding, and no shares are held in treasury. All of the issued and
outstanding shares of MedPartners/ Mullikin Common Stock have been duly and
validly issued and are fully paid and nonassessable. Except as disclosed in the
MedPartners/Mullikin Disclosure Schedule (as hereinafter defined), and except as
described on Exhibit 4.3, there are no options, warrants or similar rights
granted by MedPartners/Mullikin or any other agreements to which
MedPartners/Mullikin is a party providing for the issuance or sale by it of any
additional securities. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of MedPartners/Mullikin Common
Stock. MedPartners/Mullikin has not made any distributions to any holder of
MedPartners/Mullikin Common Stock or participated in or effected any issuance,
exchange or retirement of MedPartners/Mullikin Common Stock, or otherwise
changed the equity interests of holders of MedPartners/Mullikin Common Stock, in
contemplation of effecting the transaction contemplated by this Agreement within
the two years immediately preceding the Closing Date.

4.4. MedPartners/Mullikin owns, beneficially and of record, all of the
issued and outstanding shares of Common Stock of MedPartners, which are validly
issued and outstanding, fully paid and nonassessable, free and clear of all
liens and encumbrances except for pledges in favor of NationsBank of Georgia,
National Association. MedPartners/Mullikin has taken all such actions as may be
required in its capacity as the sole stockholder of MedPartners to approve this
transaction.

4.5. MedPartners/Mullikin has heretofore furnished Seller with its
Registration Statement on Form S-1 (Registration No. 333-1130), relating to the
offer and sale of 8,250,000 shares of MedPartners/Mullikin Common Stock (the
"MedPartners/Mullikin S-1 Registration Statement"). As of the effective date of
the MedPartners/Mullikin S-1 Registration Statement, it did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of the effective
date of the MedPartners/Mullikin S-1 Registration Statement, the descriptions of
the business, operations and financial condition of MedPartners/Mullikin
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended. Since such effective date,
MedPartners/Mullikin has not experienced any material adverse change in its
business operations or financial condition. The financial statements contained
in the MedPartners/Mullikin S-1 Registration Statement, together with the notes
thereto, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods indicated, reflect all
known liabilities of MedPartners/Mullikin, including all known contingent
liabilities as of the end of each period reflected therein, and present fairly
the financial condition of MedPartners/Mullikin, at

A-8
<PAGE> 501

such date and the consolidated results of operations and cash flows of
MedPartners/Mullikin for the periods then ended.

4.6. To the actual knowledge of MedPartners/Mullikin, neither
MedPartners/Mullikin nor MedPartners has engaged in any activities which are
prohibited under sec. 1320a-7b of Title 42 of the United States Code or the
regulations promulgated thereunder, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including, but not limited to, the following: (i) knowingly and willingly making
or causing to be made a false statement or representation of a material fact in
any application for any benefit or payment; (ii) knowingly and willfully making
or causing to be made any false statement or representation of a material fact
for use in determining rights to any benefit or payment; (iii) any failure by a
claimant to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with the intent to fraudulently secure such benefit or
payment; and (iv) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive such
remuneration (A) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (B) in
return for purchasing, leasing or ordering or arranging for, or recommending,
purchasing, lease or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid.

4.7. MedPartners/Mullikin has not agreed directly or indirectly to retire
or re-acquire all or part of the shares of MedPartners/Mullikin Common Stock
issued pursuant to this Agreement.

SECTION 5. ACCESS TO INFORMATION AND DOCUMENTS.

5.1. Seller will give to MedPartners/Mullikin and MedPartners and the
counsel, accountants, engineers and other representatives full access to all the
properties, documents, contracts, personnel files and other records of Seller
and the Business hereunder and shall furnish MedPartners/Mullikin and
MedPartners with copies of such documents and with such information with respect
to the affairs of Seller as MedPartners may from time to time reasonably
request. Seller and Partners shall disclose and make available to MedPartners/
Mullikin and MedPartners and its representatives all books, contracts, accounts,
personnel records, letters of intent, papers, records, communications with
regulatory authorities and other documents relating to the Assets and to the
Business.

5.2. Without cost to Seller, MedPartners shall retain all books and records
of Seller ("Records") transferred to it hereunder for the greater of four years
from the Closing Date or such longer periods of time as required by applicable
statutes, rules and regulations. For a period of four years after the Closing
Date, and for such longer period as the Records are maintained, each party will,
during normal business hours and so as not to unreasonably disrupt normal
business, afford any other party, its counsel, its accountants or other parties
who have a reasonable need for such access full access (and copying at the
expense of the requesting party, if desired) to the books and records relating
to the Assets in the possession of such party as such other party may reasonably
request.

5.3. (a) Nothing contained in this Section 5 shall be deemed to create any
duty or responsibility on the part of either party to investigate or evaluate
the value, validity or enforceability of any contract, lease or other asset
included in the assets of the other party.

SECTION 6. COVENANTS OF THE SELLER, MEDPARTNERS/MULLIKIN AND MEDPARTNERS.

6.1. MedPartners/Mullikin and/or MedPartners will assume and discharge all
of Sellers obligations under the Management Contract including, but not limited
to, the payment of the loan from West Hills as set

A-9
<PAGE> 502

forth in Exhibit 1.3(b) regardless of whether or not the consent of West Hills
is obtained. The Management Contract will be taken subject to any required third
party consent, which consent may or may not be forthcoming, anything else in
this Agreement notwithstanding. Any other provision in this Agreement that is
inconsistent with this Section 6.1 shall be construed so as to be consistent
with this Section 6.1.

6.2. The Seller will use its best efforts to preserve the business
organization of the Seller's Management Business intact, to keep available to
MedPartners, at the request of MedPartners, the services of the present
employees of the Seller's Management Business, and to preserve for MedPartners
the goodwill of the patients, suppliers, customers and others associated with
the Seller's Management Business. The Seller agrees to indemnify and hold
harmless MedPartners and its partners from and against any and all liabilities
and damages resulting from the sale of the Seller's Management Business and
assets sold and transferred hereunder, from the transaction of the Seller's
Management Business prior to the Effective Date and from all liabilities
associated with the Seller's Management Business or the Partners' medical
practices both before and after the date of this Agreement.

6.3. On the Closing Date, Seller will, by appropriate instrument,
constitute and appoint MedPartners, and its successors and assigns, the true and
lawful attorneys for Seller, with full power of substitution, in the name of
Seller, but on behalf of and for the benefit of and at the expense of
MedPartners, to institute and prosecute, in the name of Seller or otherwise, all
proceedings which MedPartners may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the Assets, to defend and
compromise any and all actions, suits or proceedings in respect of any such
Assets, and to do all such acts and things in relation thereto as MedPartners
shall deem advisable. Seller agrees that the foregoing powers shall be coupled
with an interest and shall be irrevocable by Seller or by its dissolution or in
any manner or for any reason. MedPartners shall retain for its own account any
amounts collected pursuant to the foregoing powers, including any sums payable
in respect thereof, and Seller shall pay to MedPartners, when received, any
amounts which shall be received by Seller in respect of any Assets.

6.4. Seller hereby covenants and agrees that it will take whatever steps
are necessary to pay or fund completely or reserve completely for any accrued
benefits, where applicable, or vested accrued benefits for which Seller or any
entity might have any liability whatsoever arising from any salary, wage,
benefit, bonus, vacation pay, sick leave, insurance, employment tax or similar
liability of Seller to any employee or other person or entity (including,
without limitation, any Seller Plan and any liability under employment contracts
with Seller) allocable to services performed prior to the Closing Date. Seller
acknowledges that the purpose and intent of this covenant is to assure that
MedPartners shall have no liability whatsoever at any time in the future with
respect to any of Seller's employees or similar persons or entities, including,
without limitation, any Seller Plan.

6.5. At the Closing, in order to effect the conveyance, transfer and
assignment of the Assets and the Business, Seller will execute and deliver to
MedPartners all such bills of sale, assignment and assumption agreements and
other documents or instruments of conveyance, transfer or assignment as shall be
necessary or appropriate to vest in or confirm to MedPartners Seller's right,
title and interest in and to the Assets, free and clear of all obligations,
security interests, liens and encumbrances whatsoever, except as specifically
assumed by MedPartners pursuant to Section 1.3(b). Seller will execute and
deliver from time to time thereafter, at the request of MedPartners, all such
further instruments of conveyance, assignment and further assurance as may
reasonably be required in order to vest in and confirm to MedPartners all of
Seller's right, title and interest in and to the Assets.

6.6. Seller will use its reasonable, good faith efforts to cause its
Directors and executive officers and "affiliates" (within the meaning of Rule
145 under the Securities Act of 1933, as amended) to execute and deliver to
MedPartners/Mullikin as soon as practicable an agreement in the form attached
hereto as Exhibit 6.6 relating to the disposition of the shares of the Seller
and shares of MedPartners/Mullikin Common Stock held by such person and the
shares of MedPartners/Mullikin Common Stock issuable pursuant to this Agreement.

6.7. The Seller and MedPartners hereby waive any compliance with the
California Bulk Transfers Act. The Seller and the Partners covenant and agree
that all of the creditors with respect to the Seller's

A-10
<PAGE> 503

Management Business will be paid in full by the Seller prior to the Closing
Date, or within such other period as is normally permitted by such creditors in
the ordinary course of business. If requested in writing by MedPartners, the
Seller and the Partners shall furnish MedPartners with proof of payment of all
creditors with respect to the Seller's Management Business. The Seller and the
Partners agree to indemnify and hold MedPartners harmless from any loss or
expense, including reasonable attorneys' fees, arising out of their failure to
pay, when due, the creditors with respect to the Seller's Management Business.
The Seller may, if in good faith and upon reasonable grounds, dispute the amount
or validity of any such debts, and contest and defend same, and in good faith
diligently conduct any necessary proceedings to prevent and avoid same.

6.8. The Seller will use its best efforts to obtain all such necessary
consents of the parties to any such contracts. In order, however, that the full
value of every such contract included within the assets to be transferred to
MedPartners and all claims and demands in such contracts may be realized, the
Seller hereby covenants with MedPartners that the Seller, by itself or by its
agents, will, at the request and under the direction of MedPartners, in the name
of the Seller or otherwise, as MedPartners shall specify and as shall be
permitted by law, take all such action and do or cause to be done all such
things as shall in the opinion of MedPartners be necessary or proper (a) in
order that the rights and obligations of the Seller under such contracts shall
be preserved, and (b) for, and to facilitate, the collection of the monies due
and payable, and to become due and payable, to the Seller in and under every
such contract and in respect of every such claim and demand, and the Seller
shall hold the same for the benefit of and shall pay the same over to
MedPartners. MedPartners will indemnify and hold harmless Seller from any and
all costs, expenses, liabilities and obligations incurred by Seller subsequent
to Closing for actions taken by MedPartners or Seller at the request of
MedPartners pursuant to this Section 6.8.

6.9. The Seller agrees to cooperate with MedPartners and to use their best
efforts in the transition and change of ownership of the assets and business
being transferred hereunder.

6.10. Neither MedPartners/Mullikin, MedPartners or Seller shall
intentionally take or cause to be taken any action, whether on or before the
Effective Date, which would disqualify the transactions contemplated by this
Agreement as a "pooling of interests" under GAAP and applicable SEC requirements
or as a "reorganization" within the meaning of Sections 351 and 368 of the Code.

6.11. New Management will take all steps necessary in accordance with its
Partnership Agreement to call, convene and hold a meeting of its Partners (the
"Partners Meeting") as soon as practicable after the effectiveness of the
Registration Statement (as defined in Section 7.4 hereof) for the purpose of
approving this Agreement and for such other purposes as may be necessary. The
Executive Committee of New Management will (i) recommend to the Partners the
approval of this Agreement, the transactions contemplated hereby and any other
matter to be submitted to the Partners in connection therewith, to the extent
that such approval is required by the Partnership Agreement, and (ii) use its
reasonable, good faith efforts to obtain the approval by the Partners of this
Agreement and the transactions contemplated thereby.

6.12. (a) MedPartners/Mullikin shall prepare and file with the SEC and any
other applicable regulatory bodies, as soon as reasonably practicable, but in
any event within 30 days, a Registration Statement on Form S-4 with respect to
the shares of MedPartners/Mullikin Common Stock to be issued pursuant to the
terms of this Agreement (the "Registration Statement"), and will otherwise
proceed promptly to satisfy the requirements of the Securities Act, including
Rule 145 thereunder. Such Registration Statement shall contain a proxy statement
of Seller (the "Proxy Statement") containing the information required by the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
MedPartners/Mullikin shall take all reasonable steps to cause the Registration
Statement to be declared effective and to maintain such effectiveness until all
of the shares covered thereby have been distributed. MedPartners/Mullikin shall
promptly amend or supplement the Registration Statement to the extent necessary
in order to make the statements therein not misleading or to correct any
misstatements which have become false or misleading. MedPartners/Mullikin shall
use its reasonable, good faith efforts to have the Proxy Statement approved by
the SEC under the provisions of the Exchange Act. MedPartners/Mullikin shall
provide Seller with copies of all filings made pursuant to this Section 6.12 and
shall consult with Seller on responses to any comments made by the Staff of the
SEC with respect thereto.

A-11
<PAGE> 504

(b) The information specifically designated as being supplied by Seller for
inclusion in the Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time the Proxy Statement is first mailed
to the Partners, at the time of the Partners Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, not misleading. The information specifically designated as being
supplied by Seller for inclusion in the Proxy Statement shall not, at the date
the Proxy Statement (or any amendment thereof or supplement thereto) is first
mailed to the Partners, at the time of the Partners Meeting and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to Seller, or its Partners, should be discovered by Seller
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Seller shall promptly inform
MedPartners/Mullikin. All documents, if any, that Seller is responsible for
filing with the SEC in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder.

(c) The information specifically designated as being supplied by
MedPartners/Mullikin for inclusion in the Registration Statement shall not, at
the time the Registration Statement is declared effective, at the time the Proxy
Statement is first mailed to the Partners, at the time of the Partners Meeting
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, not misleading. The information
specifically designated as being supplied by MedPartners/Mullikin for inclusion
in the Proxy Statement to be sent to the Partners in connection with the
Partners Meeting shall not, at the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the Partners, at the time of
the Partners Meeting or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, not misleading. If at any
time prior to the Effective Time any event or circumstance relating to
MedPartners/Mullikin or its officers or Directors, should be discovered by
MedPartners/Mullikin which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement,
MedPartners/Mullikin shall promptly inform the Partners and shall promptly file
such amendment to the Registration Statement. All documents that
MedPartners/Mullikin is responsible for filing with the SEC in connection with
the transactions contemplated herein will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.

(d) Prior to the Closing Date, MedPartners/Mullikin shall use its
reasonable, good faith efforts to cause the shares of MedPartners/Mullikin
Common Stock to be issued pursuant to this Agreement to be registered or
qualified under all applicable securities or Blue Sky laws of each of the states
and territories of the United States, and to take any other actions which may be
necessary to enable the MedPartners/Mullikin Common Stock to be issued pursuant
to this Agreement to be distributed in each such jurisdiction.

(e) Prior to the Closing Date, MedPartners/Mullikin shall file a Subsequent
Listing Application with the NYSE relating to the shares of MedPartners/Mullikin
Common Stock to be issued pursuant to this Agreement, and shall cause such
shares of MedPartners/Mullikin Common Stock to be listed on the NYSE, upon
official notice of issuance, prior to the Closing Date.

(f) The Seller shall furnish all information to MedPartners/Mullikin with
respect to Seller as MedPartners/Mullikin may reasonably request for inclusion
in the Registration Statement, the Proxy Statement and shall otherwise cooperate
with MedPartners/Mullikin in the preparation and filing of such documents.

6.13. MedPartners/Mullikin and Seller will consult with each other before
issuing any press release or otherwise making any public statement with respect
to the transactions contemplated by this Agreement, and shall not issue any such
press release or make any such public statement prior to such consultation
except as

A-12
<PAGE> 505

may be required by applicable law or requirements of the NYSE. The parties shall
issue a joint press release, mutually acceptable to MedPartners/Mullikin and
Seller, promptly upon execution and delivery of this Agreement.

6.14. Each party hereto shall notify the other parties of any changes,
additions or events of which they have knowledge which would cause any material
change in or material addition to any Exhibit to its Disclosure Schedule
delivered by the notifying party under this Agreement, promptly after the
occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 6.14, constitute a material
adverse effect on the notifying party, the non-notifying party may, within ten
days after receipt of such notice, elect to terminate this Agreement. If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Agreement by
reason thereof.

6.15. (a) MedPartners/Mullikin and Seller shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings required to be made or consents
required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective best efforts to cause to be lifted
any injunction prohibiting this Agreement, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.

(b) Subject to the terms and conditions herein provided, and unless this
Agreement shall have been validly terminated as provided herein, each of
MedPartners/Mullikin and Seller shall use all reasonable efforts (i) to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party (or any subsidiaries or
affiliates of such party) with respect to this Agreement and to consummate the
transactions contemplated hereby, subject to the votes of its Partners described
above, and (ii) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
governmental entity and/or any other public or private third party which is
required to be obtained or made by such party or any of its subsidiaries or
affiliates in connection with this Agreement and the transactions contemplated
hereby Each of MedPartners/Mullikin and Seller will promptly cooperate with and
furnish information to the other in connection with any such burden suffered by,
or requirement imposed upon, either of them or any of their subsidiaries or
affiliates in connection with the foregoing.

SECTION 7. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.

7.1. All statements contained in this Agreement or in any Exhibit attached
hereto, any agreement executed pursuant hereto, and any certificate executed and
delivered by any party pursuant to the terms of this Agreement, shall constitute
representations and warranties of Seller or of MedPartners and MedPartners/
Mullikin as the case may be. All such representations and warranties, all
representations and warranties expressly labeled as such in this Agreement and
the obligations of the parties to indemnify any other party pursuant to Section
7.2 or 7.3, shall survive the date of this Agreement and the Closing Date for a
period of 18 months following the Closing Date, and each party covenants with
the other parties not to make any claim with respect to such representations,
warranties or obligations, against any party after the date on which such
survival period shall terminate. No party shall be entitled to bring suit
against any other party pursuant to Section 7.2 or 7.3 hereof, unless such party
has timely given the notice required in Section 7 hereof, as the case may be.
Each party hereby releases, acquits and discharges the other party from any and
all claims and demands, actions and causes of action, damages, costs, expenses
and rights of setoff with respect to which the notices required by Section 7, as
applicable, are not timely provided.

7.2. MEDPARTNERS AND MEDPARTNERS/MULLIKIN JOINTLY AND SEVERALLY (FOR
PURPOSES OF THIS SECTION 7.2 AND, TO THE EXTENT APPLICABLE, SECTION 7.4,
"INDEMNITOR"), SHALL INDEMNIFY AND HOLD SELLER AND ITS AGENTS AND EMPLOYEES

A-13
<PAGE> 506

(EACH OF THE FOREGOING, INCLUDING SELLER, FOR PURPOSES OF THIS SECTION 7.2 AND,
TO THE EXTENT APPLICABLE, SECTION 7.4, AN "INDEMNIFIED PERSON"), HARMLESS FROM
AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS,
COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES
AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR
RESULTING FROM ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY,
AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS
HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE
FURNISHED BY INDEMNITOR HEREUNDER, AND, FROM AND AFTER THE CLOSING DATE, ARISING
FROM OR BY REASON OF OR RESULTING FROM INDEMNITOR'S MANAGEMENT AND CONDUCT OF
THE OWNERSHIP OR OPERATION OF THE BUSINESS OR THE ASSETS AND FROM ANY ALLEGED
ACT OF NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES, AGENTS OR INDEPENDENT
CONTRACTORS IN OR ABOUT THE BUSINESS OR THE ASSETS; PROVIDED, HOWEVER, THAT AN
INDEMNITOR SHALL HAVE NO OBLIGATION TO INDEMNIFY THE SELLER AGAINST ANY SUCH
LIABILITY FOR MALPRACTICE TO THE EXTENT THAT THE INDEMNITOR HAS LIABILITY
INSURANCE COVERAGE AVAILABLE FOR SUCH LIABILITY WHICH DOES NOT INCLUDE
CONTRACTUAL INDEMNITY COVERAGE. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO
INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR
ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT
SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES
IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH
INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER.

7.3. SELLER (FOR PURPOSES OF THIS SECTION 7.3 AND, TO THE EXTENT
APPLICABLE, SECTION 7.4, "INDEMNITOR"), JOINTLY AND SEVERALLY, SHALL INDEMNIFY
AND HOLD MEDPARTNERS AND MEDPARTNERS/MULLIKIN AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, PARTNERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING
MEDPARTNERS AND MEDPARTNERS/MULLIKIN, FOR PURPOSES OF THIS SECTION 7.3 AND, TO
THE EXTENT APPLICABLE, SECTION 7.4, AN "INDEMNIFIED PERSON") HARMLESS FROM AND
AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS,
DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL THROUGH APPEAL), ARISING FROM OR BY REASON OF OR
RESULTING FROM ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY,
AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS
HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE
FURNISHED BY INDEMNITOR HEREUNDER, AND, WITH RESPECT TO ALL TIMES PRIOR TO THE
CLOSING DATE, ARISING FROM OR BY REASON OF OR RESULTING FROM THE INDEMNITOR'S
MANAGEMENT AND CONDUCT OF THE OWNERSHIP OR OPERATION OF THE BUSINESS OR THE
ASSETS AND FROM ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES,
AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT THE BUSINESS OR THE ASSETS;
PROVIDED, HOWEVER, THAT NEITHER THE SELLER NOR ANY PARTNER SHALL HAVE ANY
OBLIGATION TO INDEMNIFY MEDPARTNERS OR MEDPARTNERS/MULLIKIN AGAINST ANY SUCH
LIABILITY FOR MALPRACTICE TO THE EXTENT THAT THE INDEMNITOR HAS LIABILITY
INSURANCE AVAILABLE FOR SUCH LIABILITY WHICH DOES NOT INCLUDE CONTRACTUAL
INDEMNITY COVERAGE; PROVIDED FURTHER, HOWEVER, THAT EACH PARTNER'S OBLIGATION TO
INDEMNIFY PURSUANT TO THIS SECTION 7.3 SHALL BE LIMITED TO SUCH PARTNER'S
PRORATA PERCENTAGE SHARE OF THE OWNERSHIP OF THE SELLER AT THE CLOSING DATE. IN
CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR
SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE
INCURRED BY SUCH INDEMNIFIED PERSON, PRO-

A-14
<PAGE> 507

VIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH
REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY
DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION
HEREUNDER.

7.4. Within 60 days after Indemnified Person receives written notice of the
commencement of any action or other proceeding in respect of which
indemnification or reimbursement may be sought hereunder, or within such lesser
time as may be provided by law for the defense of such action or proceeding,
such Indemnified Person shall notify Indemnitor thereof. If any such action or
other proceeding shall be brought against any Indemnified Person, Indemnitor
shall, upon written notice given within a reasonable time following receipt by
Indemnitor of such notice from Indemnified Person, be entitled to assume the
defense of such action or proceeding with counsel chosen by Indemnitor and
reasonably satisfactory to Indemnified Person; provided, however, that any
Indemnified Person may at its own expense retain separate counsel to participate
in such defense. Notwithstanding the foregoing, Indemnified Person shall have
the right to employ separate counsel at Indemnitor's expense and to control its
own defense of such action or proceeding if, in the reasonable opinion of
counsel to such Indemnified Person, (a) there are or may be legal defenses
available to such Indemnified Person or to other Indemnified Persons that are
different from or additional to those available to Indemnitor and which could
not be adequately advanced by counsel chosen by Indemnitor, or (b) a conflict or
potential conflict exists between Indemnitor and such Indemnified Person that
would make such separate representation advisable; provided, however, that in no
event shall Indemnitor be required to pay fees and expenses hereunder for more
than one firm of attorneys in any jurisdiction in any one action or proceeding
or group of related actions or proceedings. Indemnitor shall not, without the
prior written consent of any Indemnified Person, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action or
proceeding to which such Indemnified Person is a party unless such settlement,
compromise or consent includes an unconditional release of such Indemnified
Person from all liability arising or potentially arising from or by reason of
such claim, action or proceeding.

In the event that Indemnitor shall object to the requested indemnification
by written notice received by Indemnified Person within 20 days after notice of
the commencement of an action or proceeding is received by Indemnitor, the
entitlement of Indemnified Person to the requested indemnification shall be
determined by non-binding arbitration in the following manner: one arbitrator
shall be named by Indemnified Person and one by Indemnitor within 15 days of
receipt by Indemnified Person of the written notice of contest referred to
above. If the two arbitrators cannot agree upon the allowance of the requested
indemnification within 15 days after their appointment, the arbitrators shall
appoint a third arbitrator and the decision of the majority shall be made within
20 days thereafter. All expenses of arbitration shall be paid by the losing
party, or if there shall be no clear determination as to the prevailing or
losing party, as the case may be, such expenses shall be shared equally by
Indemnified Person and Indemnitor.

SECTION 8. CONDITIONS TO CLOSING.

8.1. CONDITIONS TO CLOSING -- MEDPARTNERS/MULLIKIN AND MEDPARTNERS. The
obligation of MedPartners/Mullikin and MedPartners to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions (any
of which may be waived by MedPartners/Mullikin and MedPartners:

(a) Each of the agreements of the Seller to be performed at or prior
to the Closing Date pursuant to the terms of this Agreement shall have been
duly performed.

(b) The representations and warranties of the Seller contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered to MedPartners/Mullikin and MedPartners pursuant to this
Agreement, shall be deemed to have been made again at the Closing Date and
shall then be true in all material respects. The Seller shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by the Seller prior to or at the
Closing Date and MedPartners/Mullikin and MedPartners shall have been
furnished with certificates of

A-15
<PAGE> 508

the Seller, dated the Closing Date, certifying in such detail as
MedPartners/Mullikin and MedPartners may reasonably request to the
fulfillment of the foregoing conditions.

(c) There shall not have been any material adverse change in the
financial condition of the Seller, at the Closing Date, from that disclosed
in the Seller's Financial Information, and MedPartners/Mullikin and
MedPartners shall have been furnished with the certificate of Seller, dated
the Closing Date, to that effect.

(d) The Seller shall have executed and delivered at Closing all such
bills of sale, powers of attorney and other documents or instruments of
conveyance, transfer or assignment as shall be necessary or appropriate to
vest in or confirm to MedPartners full and complete title to all of the
properties, assets and business which, under this Agreement, are to be
conveyed, transferred and assigned to MedPartners. The Seller will execute
and deliver, from time to time hereafter at the request of MedPartners, all
such further instruments of conveyance, assignment and further assurance as
may reasonably be required in order to vest in and confirm to MedPartners
full and complete title to, and the right to use and enjoy, the properties,
assets, contracts and business hereby agreed to be, and intended to be,
conveyed and transferred to MedPartners.

(e) Seller shall have furnished MedPartners/Mullikin and MedPartners
with copies of the following documents:

(i) A copy of the Partnership Agreement and other related internal
organizational documents of the Seller, duly certified by the Managing
Partner of the Seller.

(ii) A written consent, duly adopted by all the Partners,
authorizing and adopting this Agreement and the sale and transfer
provided for herein, duly certified by the Managing Partner of the
Seller.

(iii) Consents, executed and delivered by all persons and entities
necessary to authorize the transactions contemplated herein, or to
release liens or encumbrances on assets to be transferred to
MedPartners.

(iv) Lien search by the proper officials of the State of California
and its political subdivisions, showing all liens and encumbrances, if
any, on the property and assets of the Seller, including fixtures and
similar items, which liens and encumbrances shall be paid in full,
released and removed by the Seller upon transfer of such property and
assets to MedPartners, except as set forth on Exhibit 1.3(b) to this
Agreement.

(v) Certificates, executed by the proper official of each
jurisdiction, as to the good standing and qualification to do business
of the Seller.

(f) The Seller shall have furnished to MedPartners/Mullikin and
MedPartners a favorable opinion, dated as of the date of the execution of
this Agreement, of Philip Flame, Esq., counsel for the Seller and the
Partners, in form and substance satisfactory to MedPartners/Mullikin and
MedPartners and its counsel, to the effect set forth in Exhibit 8.1(f).

(g) MedPartners/Mullikin and MedPartners shall have received
"Affiliate Letters" as provided in Section 6.5 herein from each of the
affiliates of Seller.

(h) The Transaction shall qualify for "pooling of interests"
accounting treatment and MedPartners/ Mullikin shall have received a letter
to that effect from Ernst & Young, LLP dated as of the date of the Partners
Meeting.

(i) The transactions contemplated by that certain Plan and Agreement
of Merger, dated as of March 11, 1996, by and among MedPartners/Mullikin,
CHS Merger Corporation and CHS Management, Inc. shall have occurred prior
to, or shall occur simultaneously with, the Closing.

(j) The Partners of New Management shall have approved the adoption of
this Agreement and any other matters submitted to them in accordance with
the provisions of Section 6.10 hereof.

A-16
<PAGE> 509

SECTION 8.2. CONDITIONS TO CLOSING -- SELLER.

The obligation of the Seller to consummate the transaction contemplated by
this Agreement shall be subject to the satisfaction, at or prior to the Closing
Date, of the following conditions (any of which may be waived by the Seller):

(a) Each of the agreements of MedPartners/Mullikin and MedPartners to
be performed at or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed.

(b) MedPartners/Mullikin shall have delivered to the Seller the
MedPartners/Mullikin Common Stock as required by Section 1.3(c) of this
Agreement.

(c) The representations and warranties of MedPartners/Mullikin and
MedPartners contained in this Agreement or in any certificate or document
delivered to the Seller pursuant to this Agreement, shall be deemed to have
been made again at the Closing Date and shall then be true in all material
respects. MedPartners/Mullikin and MedPartners shall have performed and
complied with all agreements and conditions required by this Agreement to
be performed or complied with by MedPartners/Mullikin and MedPartners prior
to or at the Closing Date and the Seller shall have been furnished with the
certificate of MedPartners/Mullikin and MedPartners, dated the Closing
Date, certifying in such detail as the Seller may reasonably request to the
fulfillment of the foregoing conditions.

(d) MedPartners/Mullikin and MedPartners shall have furnished to the
Seller a favorable opinion, dated as of the date of the execution of this
Agreement, of Haskell Slaughter Young & Johnston, Professional Association,
counsel for MedPartners/Mullikin and MedPartners, in form and substance
satisfactory to the Seller and its counsel, to the effect set forth in
Exhibit 8.2(d).

(e) The Partners of New Management shall have approved the adoption of
this Agreement and any other matters submitted to them in accordance with
the provisions of Section 6.10 hereof.

SECTION 9. MISCELLANEOUS.

9.1. Any communications required or desired to be given hereunder shall be
deemed to have been properly given if sent by hand delivery, or by facsimile and
overnight courier, to the parties hereto at the following addresses, or at such
other address as either party may advise the other in writing from time to time:

If to MedPartners:

MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Attention: J. Brooke Johnston, Jr.
Senior Vice President and General Counsel
Facsimile: (205) 733-9780

If to MedPartners/Mullikin:

MedPartners/Mullikin, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Attention: J. Brooke Johnston, Jr.
Senior Vice President and General Counsel
Facsimile: (205) 733-9780

A-17
<PAGE> 510

with a copy of each notice directed to MedPartners or
MedPartners/Mullikin to:

F. Hampton McFadden, Jr.
Haskell Slaughter Young & Johnston
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
Facsimile: (205) 324-1133

If to Seller:

Bernard Siegel, M.D.
4505 Las Virgenes Road, Suite 105
Calabasas, California 91302

with a copy to:

Philip Flame, Esq.
15821 Ventura Boulevard, Suite 600
Encino, California 91436

All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.

9.2. Each party hereby agrees to perform any further acts and to execute
and deliver any documents which may be reasonably necessary to carry out the
provisions of this Agreement.

9.3. Except as otherwise required by law, no party to this Agreement shall
make any public or other disclosure of this Agreement or the transactions
contemplated hereby without the prior consent of the other parties. The parties
to this Agreement shall cooperate with respect to the form and content of any
such disclosures.

9.4. This Agreement shall be interpreted, construed and enforced in
accordance with the laws of the State of California, applied without giving
effect to any conflict-of-laws principles.

9.5. The word "including," when following any general statement, term or
matter, shall not be construed to limit such statement, term or matter to the
specific terms or matters as provided immediately following the word "including"
or to similar items or matters, whether or not non-limiting language (such as
"without limitation," "but not limited to" or words of similar import) is used
with reference to the word "including" or the similar items or matters, but
rather shall be deemed to refer to all other items or matters that could
reasonably fall within the broadest possible scope of the general statement,
term or matter.

9.6. With respect to "to the knowledge," "to the best knowledge,
information and belief" or any similar phrase, Seller shall be deemed to have
knowledge of any facts known to any Partner, unless expressly provided herein.

9.7. An individual claim, obligation or liability shall be deemed to be
"material" if the amount thereof exceeds $25,000.00 or involves the violation of
any federal, state or local statute, rule or regulation. A contract or lease
shall be deemed to be material if it requires a single payment in excess of
$25,000.00 or payment for any future 12-month period in excess of $25,000.00,
except that no contract for the acquisition of inventory items or consumable
supplies shall be deemed material unless such contract cannot be terminated
without cause by Seller on not more than 30 days notice, or has, as of the
Closing Date, an amount payable with respect thereto of more than $25,000.00.

9.8. "Material Adverse Change" or "Material Adverse Effect" means, when
used in connection with the parties to this Agreement, any change, effect, event
or occurrence that has, or is reasonably likely to have individually or in the
aggregate, a material adverse impact on the business or financial position of
such party and its subsidiaries taken as a whole; provided, however, that
"Material Adverse Change" and "Material Adverse Effect" shall be deemed to
exclude the impact of (i) changes in generally accepted accounting

A-18
<PAGE> 511

principles, (ii) changes in applicable law, and (iii) any changes resulting from
any restructuring or other similar charges or write-offs taken by Seller with
the consent of MedPartners.

9.9. The term "Hazardous Materials" means any material which is or may
potentially be harmful to the health or safety of human or animal life or
vegetation, regardless of whether such material is found on or below the surface
of the ground, in any surface or underground water, airborne in ambient air or
in the air inside any structure built or located upon or below the surface of
the ground or in building materials or in improvements of any structures, or in
any personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 9.10) regardless of the quantity
of any such material.

9.10. The term "Environmental Laws" means any federal, state or local
statute, regulation, rule or ordinance, and any judicial or administrative
interpretation thereof, regulating the use, generation, handling, storage,
transportation, discharge, emission, spillage or other release of Hazardous
Materials or relating to the protection of the environment.

9.11. The captions or headings in this Agreement are made for convenience
and general reference only and shall not be construed to describe, define or
limit the scope or intent of the provisions of this Agreement.

9.12. All Exhibits attached to this Agreement are integral parts of this
Agreement as if fully set forth herein, and all statements appearing therein
shall be deemed disclosed for all purposes and not only in connection with the
specific representation in which they are explicitly referenced.

9.13. This instrument, including all Exhibits attached hereto, contains the
entire agreement of the parties and supersedes any and all prior or
contemporaneous agreements between the parties, written or oral, with respect to
the transactions contemplated hereby. It may not be changed or terminated
orally, but may only be changed by an agreement in writing signed by the party
or parties against whom enforcement of any waiver, change, modification,
extension, discharge or termination is sought.

9.14. This Agreement may be executed in several counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute and be one and the same instrument.

9.15. This Agreement shall be binding on, and shall inure to the benefit
of, the parties hereto, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No party may assign any right or obligation hereunder without the
prior written consent of the other parties.

9.16. The parties acknowledge that this Agreement was initially prepared by
MedPartners, and that all parties have read and negotiated the language used in
this Agreement. The parties agree that, because all parties participated in
negotiating and drafting this Agreement, no rule of construction shall apply to
this Agreement which construes ambiguous language in favor of or against any
party by reason of that party's role in drafting this Agreement.

9.17. In the event that MedPartners or MedPartners/Mullikin on the one
hand, or Seller or Partners, on the other hand, file suit in any court against
any other party to enforce the terms of this Agreement against the other party
or to obtain performance by it hereunder, the prevailing party will be entitled
to recover all reasonable out of pocket costs, including reasonable attorneys'
fees, from the other party as part of any judgment in such suit. The term
"prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.

9.18. The parties acknowledge and agree that all or substantially all of
the assets acquired by MedPartners herein will be transferred to MAC immediately
following their acquisition by MedPartners from Seller. The parties also hereby
agree that this Agreement shall not be assigned or transferred by either party
without the prior written consent of the other; provided, however, that this
Agreement may be assigned, in whole or in part, by MedPartners, in its sole
discretion, to any parent, subsidiary or affiliate of MedPartners.

A-19
<PAGE> 512

Any such assignment shall not affect the guaranty by MedPartners/Mullikin of the
obligations of MedPartners hereunder.

IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Agreement to Purchase Assets as of the day and year first above written.

MEDPARTNERS/MULLIKIN, INC.

By /s/ MARK L. WAGAR
------------------------------------
Its Executive Vice President and
Chief Operating Officer -- West

MEDPARTNERS, INC.

By /s/ TRACY P. THRASHER
------------------------------------
Its Secretary

NEW MANAGEMENT

By /s/ BERNARD SIEGEL, M.D.
------------------------------------
A Member of the Executive Committee

A-20
<PAGE> 513

AMENDMENT NO. 1 TO
AMENDED AND RESTATED
AGREEMENT TO PURCHASE ASSETS

AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT TO PURCHASE ASSETS, dated
as of June , 1996, by and among MEDPARTNERS/MULLIKIN, INC., a Delaware
corporation ("MedPartners/Mullikin"), MEDPARTNERS, INC., a Delaware corporation
(the "Subsidiary"), and NEW MANAGEMENT, a partnership organized under the laws
of the State of California ("Seller")

WITNESSETH:

WHEREAS, the parties to this Amendment No. 1 to Purchase Assets (this
"Amendment") are parties to the Amended and Restated Agreement to Purchase
Assets, dated as of March 11, 1996 (the "Acquisition Agreement"), which they
desire to amend as herein set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:

1. (a) The parties acknowledge that the Amended and Restated Plan and
Agreement of Merger, dated as of March 11, 1996, among
MedPartners/Mullikin, CHS Merger Corporation and CHS Management, Inc. (the
"Plan of Merger") has also been amended at the same time this Amendment is
executed to provide for certain extensions and other considerations, some
of which also constitute considerations related to this Amendment No. 1 to
the Acquisition Agreement.

(b) The Acquisition Agreement is hereby amended as herein set forth,
and except as expressly amended hereby all of the terms and provisions of
the Acquisition Agreement shall remain in full force and effect. All
capitalized terms utilized in this Amendment shall have the same meanings
as in the Acquisition Agreement unless the context otherwise requires.

2. Section 3.1(a) of the Acquisition Agreement is hereby amended by
deleting such Section 3.1(a) in its entirety and substituting in its place
the following new Section 3.1(a):

"(a) MedPartners/Mullikin Shares. On the Closing Date,
MedPartners/Mullikin shall transfer to Seller shares of the Common
Stock, par value $.001 per share of MedPartners/Mullikin (the
"MedPartners/Mullikin Common Stock") with a total value equal to
$7,000,000 (the "Acquisition Price"). The "Acquisition Price" means
shares of MedPartners/Mullikin Common Stock (that number of shares of
MedPartners/Mullikin Common Stock (rounded to the nearest whole share)
equal to $7,000,000 divided by the Base Period Trading Price). "Base
Period Trading Price" shall mean the average of the last reported sale
prices per share of the MedPartners/Mullikin Common Stock for the 10
consecutive trading days on which such shares are actually traded on The
New York Stock Exchange, Inc. (the "NYSE"), ending at the close of
trading on the second trading day immediately preceding the date of the
Merger contemplated by the Plan of Merger. The Acquisition Price shall
be allocated to the acquisition of the Assets as set forth on Exhibit
1.3(a)(1) attached hereto. The parties shall use such allocation in
completing Form 8594 and satisfying any and all other reporting
requirements of the Internal Revenue Service or any other state or local
taxing authority.

3. All conditions to Closing contained in Section 8 of the Acquisition
Agreement are hereby deleted, except for those contained in Section 8.1(j)
and Section 8.2(e).

4. MedPartners/Mullikin shall consummate the transaction contemplated
by the Acquisition Agreement if the Merger contemplated by the Plan of
Merger is consummated.

5. New Management hereby agrees that MedPartners/Mullikin shall take
such acts with respect to the Management Contract as MedPartners/Mullikin
and the other party thereto shall agree, pending the consummation of the
transaction contemplated by the Acquisition Agreement, and in connection

A-21
<PAGE> 514

therewith, MedPartners/Mullikin will indemnify and hold harmless Seller
from any and all costs, expenses, liabilities and obligations incurred by
Seller for actions taken by MedPartners/Mullikin with respect to the
Management Contract pursuant to this Section 5.

IN WITNESS WHEREOF, MedPartners/Mullikin, the Subsidiary and New Management
have caused this Amendment No. 1 to Amended and Restated Agreement to Purchase
Assets to be executed by their respective duly authorized officers, all as of
the day and year first above written.

MEDPARTNERS/MULLIKIN, INC.

By /s/ MARK L. WAGAR
------------------------------------
Mark L. Wagar
Executive Vice President and
Chief Operating Officer -- West

MEDPARTNERS, INC.

By /s/ HAROLD O. KNIGHT, JR.
------------------------------------
Harold O. Knight, Jr.
Vice President and Treasurer

NEW MANAGEMENT

By /s/ BERNARD SIEGEL, M.D.
------------------------------------
A Member of the Executive Committee

A-22
<PAGE> 515

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

MEDPARTNERS/MULLIKIN, INC.

Section 102(b)(7) of the DGCL grants corporations the right to limit or
eliminate the personal liability of their directors in certain circumstances in
accordance with provisions therein set forth. MedPartners/ Mullikin's Restated
Certificate of Incorporation contains a provision eliminating or limiting
director liability to MedPartners/Mullikin and its stockholders for monetary
damages arising from acts or omissions in the director's capacity as a director.
The provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to
MedPartners/Mullikin or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under the Delaware statutory provision making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of MedPartners/Mullikin protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above). As a result of this provision, the ability of MedPartners/ Mullikin or a
stockholder thereof to successfully prosecute an action against a director for a
breach of his duty of care is limited. However, the provision does not affect
the availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.

Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. MedPartners/Mullikin's Amended and Restated By-laws provide
for mandatory indemnification rights, subject to limited exceptions, to any
director, officer, employee, or agent of MedPartners/Mullikin who, by reason of
the fact that he or she is a director, officer, employee, or agent of
MedPartners/Mullikin, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.

MedPartners/Mullikin has entered into agreements with all of its directors
and its executive officers pursuant to which MedPartners/Mullikin has agreed to
indemnify such directors and executive officers against liability incurred by
them by reason of their services of a director to the fullest extent allowable
under applicable law. In addition, MedPartners/Mullikin has purchased insurance
containing customary terms and conditions as permitted by Delaware law on behalf
of its directors and officers, which may cover liabilities under the Securities
Act of 1933.

See Item 22 of this Registration Statement on Form S-4.

CHS

Section 102(b)(7) of the DGCL grants corporations the right to limit or
eliminate the personal liability of their directors certain circumstances in
accordance with provisions therein set forth. CHS' Certificate of Incorporation
contains a provision eliminating or limiting director liability to CHS and its
stockholders for monetary damages arising from acts or omissions in the
director's capacity as a director. The provision does not, however, eliminate or
limit the personal liability of a director(i) for any breach of such director's
duty of loyalty to CHS or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under the Delaware statutory provision making directors personally
liable, under a negligence standard, for unlawful dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve on
the Board of Directors of CHS protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this

II-1
<PAGE> 516

provision, the ability of CHS or a stockholder thereof to successfully prosecute
an action against a director for a breach of the director's duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a breach of a director's
duty of care. The SEC has taken the position that the provision will have no
effect on claims arising under the federal securities laws.

Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. CHS' By-laws provide for mandatory indemnification rights,
subject to limited exceptions, to any director, officer, employee, or agent of
CHS who, by reason of the fact that he or she is a director, officer, employee,
or agent of CHS, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.

See Item 22 of this Registration Statement on Form S-4.

CHS is also subject to certain California statutory provisions, including
Section 317 of the California General Corporation Law ("CGCL"). Section 317 of
the CGCL grants corporations the right to indemnify any person who was or is an
agent of CHS in accordance with the provisions thereof and is not exclusive of
any other rights to indemnification, including any provision in the Certificate
of Incorporation or the By-laws. CHS has obtained an insurance policy in the
amount of $5,000,000 in respect of potential liabilities of its officers and
directors, including potential liabilities under the Securities Act.

NEW MANAGEMENT

New Management's Partnership Agreement contains an indemnification
provision which provides that New Management and each Partner to the extent not
paid by any policy of insurance shall indemnify, defend, and hold harmless each
non-breaching Partner and each Partner who has terminated his interest in the
partnership from and against any liability, loss, damage or expense arising out
of any contract, lien, liability, act of omission occurring after the
termination of such Partner's interest in the partnership. Partnership Agreement
further provides that this is the limit of indemnification and each Partner
agrees not to seek any other indemnification. New Management's Partnership
Agreement contains no other rights of indemnification. The members of the
Executive Committee do not have rights of indemnification greater than those
generally provided to all members of the Partnership.

ITEM 21. EXHIBITS.

Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
(2)-1 -- Amended and Restated Plan and Agreement of Merger, dated as of March 11, 1996, as
amended by Amendment No. 1, dated June 28, 1996, among MedPartners/Mullikin, Inc.,
CHS Merger Corporation and CHS Management, Inc., attached to this Registration
Statement as Annex A to the Prospectus-Proxy Statement for CHS, is hereby
incorporated herein by reference.
List of Exhibits to Plan and Agreement of Merger.*
(2)-2 -- Amended and Restated Agreement to Purchase Assets, dated as of March 11, 1996, as
amended by Amendment No. 1, dated June 28, 1996, among MedPartners/Mullikin, Inc.,
MedPartners, Inc. and New Management, attached to this Registration Statement as
Annex A to the Prospectus-Proxy Statement for New Management, is hereby
incorporated by reference.
List of Exhibits to Agreement to Purchase Assets.*
(3)-1 -- MedPartners/Mullikin, Inc. Second Amended and Restated Certificate of
Incorporation, filed as Exhibit (3)-1 to MedPartners/Mullikin's Registration
Statement on Form S-4 (Registration No. 333-09767) is hereby incorporated herein by
reference.
</TABLE>

II-2
<PAGE> 517

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
(3)-2 -- MedPartners/Mullikin, Inc. Amended and Restated By-laws, filed as Exhibit (3)-2 to
MedPartners/Mullikin's Registration Statement on Form S-4 (Registration No.
333-00774) is hereby incorporated herein by reference.
(4)-1 -- MedPartners/Mullikin, Inc. Stockholders' Rights Plan, filed as Exhibit (4)-1 to
MedPartners/ Mullikin's Registration Statement on Form S-4 (Registration No.
333-00774) is hereby incorporated herein by reference.
(5) -- Opinion of Haskell Slaughter & Young LLC, as to the legality of the shares of
MedPartners/ Mullikin Common Stock being registered.
(8)-1 -- Opinion of Stroock & Stroock & Lavan as to certain federal income tax consequences
of the Merger.
(11) -- Statement re: Computation of Per Share Earnings.*
(21) -- Subsidiaries of MedPartners/Mullikin.*
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately following signature pages to
the Registration Statement.
(23)-2 -- Consent of Price Waterhouse LLP. See pages immediately following signature pages to
the Registration Statement.
(23)-3 -- Consent of Haskell Slaughter & Young Professional Association (included in the
opinion filed as Exhibit (5).
(23)-4 -- Consent of Stroock & Stroock & Lavan (included in the opinion filed as Exhibit
(8)-1).
(24) -- Powers of Attorney*.
(99)-1 -- CHS Proxy.
(99)-2 -- New Management Proxy.
(99)-3 -- Consent of Sutro & Co.
</TABLE>

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

* Filed with the original filing of the Registration Statement.

ITEM 22. UNDERTAKINGS.

(1) 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 Act and will be governed by the final adjudication of
such issue.

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;

(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.

II-3
<PAGE> 518

(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public re-offering of the securities registered hereunder through use of a
prospectus which is part of the registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such re-offering prospectus will contain the information called
for by the applicable registration form with respect to re-offerings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.

(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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
the initial bona fide offering thereof.

(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and included in
the Registration Statement when it became effective.

(5) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.

II-4
<PAGE> 519

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Post-effective Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Birmingham, State of Alabama, on August 20, 1996.

MEDPARTNERS/MULLIKIN, INC.

By /s/ LARRY R. HOUSE
-----------------------------------
Larry R. House
Chairman of the Board, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
/s/ LARRY R. HOUSE Chairman of the Board, August 20, 1996
- --------------------------------------------- President and Chief Executive
Larry R. House Officer and Director

* Executive Vice President and August 20, 1996
- --------------------------------------------- Chief Financial Officer
Harold O. Knight, Jr. (Principal Financial and
Accounting Officer)

* Director August 20, 1996
- ---------------------------------------------
Richard M. Scrushy

* Director August 20, 1996
- ---------------------------------------------
Larry D. Striplin, Jr.

* Director August 20, 1996
- ---------------------------------------------
Charles W. Newhall III

* Director August 20, 1996
- ---------------------------------------------
Scott F. Meadow

* Director August 20, 1996
- ---------------------------------------------
Ted H. McCourtney, Jr.

* Director August 20, 1996
- ---------------------------------------------
Walter T. Mullikin, M.D.

* Director August 20, 1996
- ---------------------------------------------
John S. McDonald, J.D.

* Director August 20, 1996
- ---------------------------------------------
Richard J. Kramer

* Director August 20, 1996
- ---------------------------------------------
Rosalio J. Lopez, M.D.

*By: /s/ LARRY R. HOUSE
- ---------------------------------------------
Larry R. House
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 520

EXHIBIT (23)-1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and to
the use of our reports on the entities and dated as listed below in the
Registration Statement (Form S-4, No. 333-4348) and the related
Prospectus -- Proxy Statement of MedPartners/Mullikin, Inc. for the registration
of its Common Stock:

MedPartners/Mullikin, Inc. February 22, 1996
CHS Management, Inc. July 26, 1996
Cardinal Healthcare, P.A. June 19, 1996
New Management July 26, 1996
Emergency Professional Services, Inc. July 12, 1996

ERNST & YOUNG LLP

Birmingham, Alabama
August 19, 1996
<PAGE> 521

EXHIBIT (23)-2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus relating to the Merger with
CHS Management Inc. and the Prospectus relating to the Acquisition of New
Management constituting part of this Registration Statement on Form S-4 of
MedPartners/Mullikin, Inc. of our report dated January 24, 1996, except as to
the third paragraph of Note 14, which is dated as of March 19, 1996, relating to
the financial statements of Caremark International Inc., which appears in such
Prospectuses. We also consent to the references to us under the headings
"Experts" in such Prospectuses.

PRICE WATERHOUSE LLP

Chicago, IL
August 16, 1996
<PAGE> 522

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
(2)-1 -- Amended and Restated Plan and Agreement of Merger, dated as of March 11,
1996, as amended by Amendment No. 1, dated June 28, 1996, among
MedPartners/Mullikin, Inc., CHS Merger Corporation and CHS Management,
Inc., attached to this Registration Statement as Annex A to the
Prospectus-Proxy Statement for CHS, is hereby incorporated herein by
reference.
List of Exhibits to Plan and Agreement of Merger.*
(2)-2 -- Amended and Restated Agreement to Purchase Assets, dated as of March 11,
1996, as amended by Amendment No. 1, dated June 28, 1996, among
MedPartners/Mullikin, Inc., MedPartners, Inc. and New Management,
attached to this Registration Statement as Annex A to the
Prospectus-Proxy Statement for New Management, is hereby incorporated by
reference.
List of Exhibits to Agreement to Purchase Assets.*
(3)-1 -- MedPartners/Mullikin, Inc. Second Amended and Restated Certificate of
Incorporation, filed as Exhibit (3)-1 to MedPartners/Mullikin's
Registration Statement on Form S-4 (Registration No. 333-09767) is
hereby incorporated herein by reference.
(3)-2 -- MedPartners/Mullikin, Inc. Amended and Restated By-laws, filed as
Exhibit (3)-2 to MedPartners/Mullikin's Registration Statement on Form
S-4 (Registration No. 333-00774) is hereby incorporated herein by
reference.
(4)-1 -- MedPartners/Mullikin, Inc. Stockholders' Rights Plan, filed as Exhibit
(4)-1 to MedPartners/Mullikin's Registration Statement on Form S-4
(Registration No. 333-00774) is hereby incorporated herein by reference.
(5) -- Opinion of Haskell Slaughter & Young LLC, as to the legality of the
shares of MedPartners/Mullikin Common Stock being registered.
(8)-1 -- Opinion of Stroock & Stroock & Lavan as to certain federal income tax
consequences of the Merger.
(11) -- Statement re: Computation of Per Share Earnings.*
(21) -- Subsidiaries of MedPartners/Mullikin.*
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately following signature
pages to the Registration Statement.
(23)-2 -- Consent of Price Waterhouse LLP. See pages immediately following
signature pages to the Registration Statement.
(23)-3 -- Consent of Haskell Slaughter & Young Professional Association (included
in the opinion filed as Exhibit (5)).
(23)-4 -- Consent of Stroock & Stroock & Lavan (included in the opinion filed as
Exhibit (8)-1).
(24) -- Powers of Attorney*.
(99)-1 -- CHS Proxy.
(99)-2 -- New Management Proxy.
(99)-3 -- Consent of Sutro & Co.*.
</TABLE>

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

* Filed with the original filing of the Registration Statement.

<PAGE> 1

(LETTERHEAD)

August 16, 1996

MedPartners/Mullikin, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244

Re: MedPartners/Mullikin, Inc.-
Registration Statement on form S-4
Commission File No. 333-4348

Ladies and Gentlemen:

We have served as counsel for MedPartners/Mullikin, Inc., a corporation
organized and existing under the laws of the State of Delaware (the "Company"),
in connection with the registration under the Securities Act of 1933, as
amended, pursuant to the Company's Registration Statement on Form S-4
(Commission File No. 333-4348) (the "Registration Statement"), of up to
2,350,000 shares of Common Stock, par value $.001 per share, of the Company (the
"Shares") to be issued pursuant to that certain Amended and Restated Plan and
Agreement of Merger, dated as of March 11, 1996, as amended by Amendment No. 1
dated June 28, 1996, by and among the Company, CHS Merger Corporation (the
"Subsidiary") and CHS Management, Inc. This opinion is furnished to you pursuant
to the requirements of Form S-4.

In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of the Company and to the authorization and issuance of the Shares
as we deemed necessary and appropriate.

Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, it is our opinion that:

(i) the Shares have been duly authorized; and

(ii) upon issuance and delivery of the Shares as contemplated in the
Registration Statement and the Plan of Merger, the Shares will be legally
issued, fully paid and nonassessable shares of Common Stock of the Company.

We do hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Registration Statement, and to the filing of this opinion as an
Exhibit thereto.

Very truly yours,

HASKELL SLAUGHTER & YOUNG, LLC

By: /s/ ROBERT E. LEE GARNER
------------------------------------
Robert E. Lee Garner

<PAGE> 1
EXHIBIT 8.1

August 20, 1996

CHS Management, Inc.
4505 Las Virgenes Road
Calabasas, California 91302

Ladies and Gentlemen:

We have acted as special counsel to CHS Management, Inc, a Delaware corporation
("CHS"), in connection with the Amended and Restated Plan and Agreement of
Merger, dated as of March 11, 1996 (as amended by Amendment No. 1 to Amended and
Restated Plan and Agreement of Merger, dated as of June 28, 1996, the "Merger
Agreement"), by and among MedPartners/Mullikin, Inc., a Delaware corporation
("MedPartners/Mullikin"), CHS Merger Corporation, a Delaware corporation and a
wholly owned subsidiary of MedPartners/Mullikin (the "Subsidiary"), and CHS, and
the transactions contemplated thereby (the "Merger"). Terms defined in the
Merger Agreement and not otherwise defined herein shall have the same meaning
when used herein.

In rendering the opinions set forth herein, we have examined copies of (i) the
Merger Agreement, and (ii) the Registration Statement on Form S-4 (Registration
No. 333-4348) containing the Prospectus-Proxy Statement of CHS as filed with the
Securities and Exchange Commission (the "Commission") on May 2, 1996, as amended
by Amendment No. 1 filed with the Commission on August 20, 1996 (the
"Registration Statement"). In addition to these documents, we have relied with
your permission upon the written representations of MedPartners/Mullikin and CHS
as to certain factual matters.

In rendering the opinions set forth herein, we have assumed (i) the genuineness
of all signatures on documents we have examined, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity to the original
documents of all documents submitted to us as copies, (iv) the authority and
capacity of the individual or individuals who executed any such documents on
behalf of any person, (v) the accuracy and
<PAGE> 2
CHS Management, Inc.
August 20, 1996
Page 2

completeness of all documents made available to us and (vi) the accuracy as to
facts of all representations, warranties and written statements. We have also
assumed, without investigation, that all of the representations, warranties and
covenants contained in the Merger Agreement and all documents on which we have
relied in rendering the opinions set forth herein and that were given or dated
earlier than the date of this letter continue to remain accurate, insofar as
relevant to the opinions set forth herein, from such earlier date through and
including the date of this letter.

With regard to the Merger, we are of the opinion that:

1) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and MedPartners/Mullikin, the Subsidiary and CHS will each be
a party to the reorganization within the meaning of Section 368(b) of
the Code;

2) No gain or loss will be recognized by MedPartners/Mullikin, CHS or the
Subsidiary as a result of the Merger;

3) No gain or loss will be recognized by a CHS stockholder who receives
solely shares of MedPartners/Mullikin Common Stock in exchange for CHS
Shares;

4) The receipt of cash in lieu of fractional shares of
MedPartners/Mullikin Common Stock will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed
by MedPartners/Mullikin. These payments will be treated as having been
received as distributions in full payment in exchange for the stock
redeemed as provided in Section 302(a) of the Code;

5 The tax basis of the shares of MedPartners/Mullikin Common Stock
received by a CHS stockholder will be equal to the tax basis of the
CHS Shares exchanged therefor, excluding any basis allocable to a
fractional shares of MedPartners/Mullikin Common Stock for which cash
is received;

6) The holding period of the shares of MedPartners/Mullikin Common Stock
received by a CHS stockholder will include the holding period or
periods of the CHS Shares exchanged therefor, that the CHS Shares
are held as a capital

<PAGE> 3
CHS Management, Inc.
August 20, 1996
Page 3

asset within the meaning of Section 1221 of the Code at the
Effective Time; and

7) Based upon representations made to us by both CHS and
MedPartners/Mullikin, we understand that MedPartners/Mullikin
has provided a bridge loan (the "Bridge Loan") to CHS, which
Bridge Loan is described in Amendment No. 1 to Amended and
Restated Plan and Agreement of Merger, and which Bridge Loan has
the following terms and conditions: (a) the principal amount
is $2,539,250, (b) interest shall accrue at the prime rate of
NationsBank of Georgia, National Association, (c) the Bridge Loan
is secured by a pledge of 25% of the issued and outstanding
capital stock of CHS, (d) the Bridge Loan is due and payable
on December 31, 1996, and (e) while the Bridge Loan is
independent of the "break-up fee" payable by MedPartners/Mullikin
to CHS, MedPartners/Mullikin may offset its obligation to pay
the break-up fee against any amount CHS owes to MedPartners/
Mullikin under the Bridge Loan. Based on CHS's representation
that CHS will comply with the terms of and fully repay the
indebtedness evidenced by the Bridge Loan, we believe that
the Bridge Loan is a bona fide indebtedness and consequently,
the cash received by CHS in connection with the Bridge Loan
should not be deemed to be cash proceeds received by CHS in
the Merger. Cf. Revenue Ruling 72-343.

We note that our opinions expressed herein are based on our examination of such
law, our review of the documents described above, the statements and
representations referred to above, the provisions of the Code, the regulations,
published rulings and announcements thereunder, and the judicial
interpretations thereof currently in effect. Furthermore, this opinion will
not be binding on the Internal Revenue Service (the "Service"), and there can
be no assurance that the Service will not challenge the conclusions stated
herein or that, if the issue were decided in court, such a challenge would not
ultimately succeed. Any change in applicable law or any of the facts and
circumstances described in the Registration Statement, or inaccuracy of any
statements or continuing validity of our opinions.

<PAGE> 4

CHS Management, Inc.
August 20, 1996
Page 4

We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us in the Registration Statement with respect
thereto.

This opinion is solely for the benefit of the addressee hereof and its
shareholders and may not be relied upon in any manner by any other person or
entity.

Very truly yours,

/s/ STROOCK & STROOCK & LAVAN
- -----------------------------
STROOCK & STROOCK & LAVAN

<PAGE> 1

EXHIBIT 99.1
FORM OF PROXY

CHS MANAGEMENT, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
AUGUST 30, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CHS MANAGEMENT, INC.

The undersigned stockholder of CHS MANAGEMENT, INC., a Delaware corporation,
revoking any previous proxies for its shares, hereby appoints Marvin V.H.
Kanter, M.D., and Martin J. Coyne, M.D., and each of them, the true and lawful
attorneys-in-fact and proxies of the undersigned, each having full power of
substitution, to vote all shares of common stock which the undersigned is
entitled to vote at the Special Meeting of Stockholders of CHS MANAGEMENT, INC.
("CHS") to be held on August 30, 1996, and at any adjournments thereof, on all
matters set forth in the Notice of Special Meeting of Stockholders and the
related Prospectus Proxy Statement dated August 20, 1996 as follows:

(1) Approval of the Amended and Restated Plan and Agreement of Merger, dated
as of March 11, 1996, as amended by amendment No. 1 to the Amended and Restated
Plan of Merger (the "Plan of Merger"), between CHS, MedPartners/Mullikin, Inc.,
a Delaware corporation ("MedPartners/Mullikin"), CHS Merger Corporation, a
Delaware corporation and wholly owned subsidiary of MedPartners/Mullikin (the
"Subsidiary"), and the transactions contemplated thereby, including the merger
of the Subsidiary with and into CHS.

<TABLE>
<S> <C> <C> <C> <C> <C>
/ / FOR the Plan of Merger / / AGAINST the Plan of Merger / / ABSTAIN
</TABLE>

(Continued on reverse side)

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ON THE
REVERSE SIDE. IN THE ABSENCE OF SUCH INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR
APPROVAL OF THE PLAN OF MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY.

The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and the related Proxy Statement each dated August 20, 1996.

Dated , 1996
---------------

------------------------------
Signature

------------------------------
Signature if held jointly

Please date and sign above
exactly as your name or names
appear hereon. Joint owners
shall each sign personally.
Corporate proxies should be
signed in full corporate name
by an authorized officer and
attested. Persons signing in a
fiduciary capacity should
indicate their full name, in
such capacity.

<PAGE> 1

EXHIBIT 99.2
FORM OF PROXY

NEW MANAGEMENT
PROXY FOR SPECIAL MEETING OF PARTNERS
AUGUST 22, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE EXECUTIVE COMMITTEE OF
NEW MANAGEMENT

The undersigned partner of New Management, a California general partnership,
revoking any previous proxies for its Units, hereby appoints Bernard Siegel,
M.D., David Moskowitz, M.D., and Philip C. Dragul, M.D., and each of them, the
true and lawful attorneys-in-fact and proxies of the undersigned, each having
full power of substitution, to vote all Units which the undersigned is entitled
to vote at the Special Meeting of Partners of New Management to be held on
August 22, 1996, and at any adjournments thereof, on all matters set forth in
the Notice of Special Meeting of Partners and the related Prospectus-Proxy
Statement dated August 20, 1996 as follows:

(1) Approval of the Amended and Restated Agreement to Purchase Assets, dated
as of March 11, 1996, as amended by Amendment No. 1 to the Amended and Restated
Agreement to Purchase Assets (the "Acquisition Agreement"), between New
Management, MedPartners/Mullikin, Inc., a Delaware corporation
("MedPartners/Mullikin"), and MedPartners, Inc., a Delaware corporation and
wholly owned subsidiary of MedPartners/Mullikin (the "Subsidiary"), and the
transactions contemplated thereby.

<TABLE>
<S> <C> <C> <C> <C> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>

(Continued on reverse side)

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ON THE
REVERSE SIDE. IN THE ABSENCE OF SUCH INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR
APPROVAL OF THE ACQUISITION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.

The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Partners and the related Proxy Statement each dated August 20, 1996.

Dated , 1996
--------------

------------------------------
Signature

------------------------------
Signature if held jointly

<PAGE> 1

EXHIBIT 99.3

CONSENT OF FINANCIAL ADVISOR TO CHS MANAGEMENT, INC.

We understand that our opinion will be filed with the Securities and
Exchange Commission and distributed to CHS Management, Inc.'s ("CHS")
shareholders as part of the Proxy Statement relating to the proposed merger of
CHS Merger Corporation, Inc., a wholly owned subsidiary of MedPartners/Mullikin,
Inc., into CHS (the "Merger"). We further understand that our opinion may be
referred to in any filings with the Securities and Exchange Commission
describing the Merger. We hereby consent to the foregoing uses of the opinion
and to the reference to, and the use of, our name in connection therewith.

/s/ Sutro & Co., Incorporated

Sutro & Co., Incorporated

Los Angeles, California
August 20, 1996