MEDPARTNERS INC, S-4/A, 1997-06-04

MEDPARTNERS INC
S-4/A, 1997-06-04
SPECIALTY OUTPATIENT FACILITIES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997

REGISTRATION NO. 333-24639
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 3

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

MEDPARTNERS, 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>

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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, 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>
<C> <C> <C>
WILLIAM N. DYE, ESQ. J. BROOKE JOHNSTON, JR., ESQ. ROBERT E. LEE GARNER, ESQ.
WILLKIE FARR & GALLAGHER SENIOR VICE PRESIDENT AND F. HAMPTON MCFADDEN, JR., ESQ.
ONE CITICORP CENTER GENERAL COUNSEL HASKELL SLAUGHTER & YOUNG,
153 EAST 53RD STREET MEDPARTNERS, INC. L.L.C.
NEW YORK, NEW YORK 10022 3000 GALLERIA TOWER, SUITE 1000 1200 AMSOUTH/HARBERT PLAZA
(212) 821-8000 BIRMINGHAM, ALABAMA 35244-2331 1901 SIXTH AVENUE NORTH
(205) 733-8996 BIRMINGHAM, ALABAMA 35203
(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,
Seabird Merger Corporation (the "Subsidiary"), with InPhyNet Medical Management
Inc. ("InPhyNet").

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. [ ]

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

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

INPHYNET MEDICAL MANAGEMENT INC.
1200 SOUTH PINE ISLAND ROAD, SUITE 600
FORT LAUDERDALE, FLORIDA 33324

JUNE 5, 1997

Dear Stockholder:

You are cordially invited to attend the special meeting of the stockholders
(the "Special Meeting") of InPhyNet Medical Management Inc., a Delaware
corporation ("InPhyNet"), to be held on June 26, 1997 at 10:00 a.m., local time,
at the Sheraton Suites Plantation, 311 N. University Drive, Plantation, Florida.

The Special Meeting has been called for you to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
January 20, 1997, as amended by Amendment No. 1 dated as of May 21, 1997 (the
"Plan of Merger"), among MedPartners, Inc., a Delaware corporation
("MedPartners"), Seabird Merger Corporation, a Delaware corporation and newly
formed, wholly owned subsidiary of MedPartners (the "Subsidiary"), and InPhyNet.
The Plan of Merger provides for, among other things, (i) the merger of InPhyNet
with and into the Subsidiary (the "Merger") and (ii) the conversion of each
outstanding share of common stock, par value $.01 per share (the "InPhyNet
Common Stock"), of InPhyNet into the right to receive 1.18 (the "Exchange
Ratio") shares of MedPartners common stock, par value $.001 per share, as
described in the accompanying Prospectus-Proxy Statement. Approval of the Plan
of Merger and the Merger requires the affirmative vote of a majority of the
outstanding shares of InPhyNet Common Stock.

ADDITIONAL INFORMATION REGARDING THE MERGER AND THE PLAN OF MERGER IS SET
FORTH IN THE ACCOMPANYING PROSPECTUS-PROXY STATEMENT AND THE ANNEXES THERETO,
WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY.

The Board of Directors of InPhyNet has carefully considered the terms and
conditions of the proposed Merger and has received the written opinion of its
financial advisor, Morgan Stanley & Co. Incorporated ("Morgan Stanley"), to the
effect that the Exchange Ratio is fair, from a financial point of view, to the
stockholders of InPhyNet. A copy of Morgan Stanley's written opinion, which sets
forth a description of the assumptions made, matters considered and limits of
its review, is attached to the accompanying Prospectus-Proxy Statement as Annex
B. Stockholders of InPhyNet are urged to read carefully such opinion in its
entirety.

THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE PLAN OF MERGER
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS
OF, INPHYNET AND THE STOCKHOLDERS OF INPHYNET. ACCORDINGLY, THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF INPHYNET VOTE "FOR" THE APPROVAL
AND ADOPTION OF THE PLAN OF MERGER.

In view of the importance of the action to be taken at the Special Meeting,
we urge you to review carefully the accompanying Notice of Special Meeting of
Stockholders and the Prospectus-Proxy Statement, including the annexes thereto,
which include information with respect to MedPartners and InPhyNet. To assure
your representation at the Special Meeting, please complete, sign and date the
enclosed proxy in the enclosed postage-prepaid envelope and return it as
promptly as possible.

Sincerely,

Clifford Findeiss, M.D.
Chairman, President and
Chief Executive Officer
<PAGE> 3

INPHYNET MEDICAL MANAGEMENT INC.
1200 SOUTH PINE ISLAND ROAD, SUITE 600
FORT LAUDERDALE, FLORIDA 33324
---------------------

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 26, 1997

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

To the Stockholders of InPhyNet Medical Management Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the
"Special Meeting") of InPhyNet Medical Management Inc., a Delaware corporation
("InPhyNet"), will be held on June 26, 1997 at 10:00 a.m., local time, at the
Sheraton Suites Plantation, 311 N. University Drive, Plantation, Florida, for
the following purposes:

(1) to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January 20, 1997, as amended by
Amendment No. 1 dated as of May 21, 1997 (the "Plan of Merger"), among
MedPartners, Inc., a Delaware corporation ("MedPartners"), Seabird Merger
Corporation, a Delaware corporation and newly formed, wholly owned
subsidiary of MedPartners (the "Subsidiary"), and InPhyNet. Pursuant to the
Plan of Merger, at the Effective Time (as defined herein): (i) InPhyNet
will merge with and into the Subsidiary and (ii) each outstanding share of
InPhyNet common stock, par value $.01 per share, will be converted into the
right to receive 1.18 shares of MedPartners common stock, par value $.001
per share, as more fully set forth in the Plan of Merger and described in
the attached Prospectus-Proxy Statement;

(2) to authorize the Board of Directors of InPhyNet to adjourn or
postpone the Special Meeting to permit the further solicitation of proxies,
if necessary; and

(3) to transact any other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.

The Board of Directors has fixed the close of business on May 12, 1997 (the
"Record Date") as the record date for the Special Meeting. Accordingly, only
those 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 or any adjournment or
postponement thereof.

THE BOARD OF DIRECTORS OF INPHYNET RECOMMENDS THAT ITS STOCKHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE PLAN OF MERGER.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE
PRESENT AT THE SPECIAL MEETING. PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR
INPHYNET COMMON STOCK AT THIS TIME. FOLLOWING CONSUMMATION OF THE MERGER, YOU
WILL RECEIVE INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES AND
RECEIPT OF PAYMENT FOR YOUR SHARES.

By Order of the Board of Directors

George W. McCleary, Jr.
Secretary

Fort Lauderdale, Florida

June 5, 1997

<PAGE> 4

PROSPECTUS-PROXY STATEMENT

PROXY STATEMENT

INPHYNET MEDICAL MANAGEMENT INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 26, 1997

PROSPECTUS
OF
MEDPARTNERS, INC.

THIS PROSPECTUS-PROXY STATEMENT RELATES TO UP TO 22,287,000 SHARES OF THE
COMMON STOCK, PAR VALUE $.001 PER SHARE (THE "MEDPARTNERS COMMON STOCK"),
TOGETHER WITH THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS, OF MEDPARTNERS,
INC., A DELAWARE CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, "MEDPARTNERS"),
ISSUABLE TO THE STOCKHOLDERS OF INPHYNET MEDICAL MANAGEMENT INC., A DELAWARE
CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, "INPHYNET"), UPON CONSUMMATION OF
THE MERGER (AS DEFINED BELOW) AS CONSIDERATION FOR THE MERGER (THE "MERGER
CONSIDERATION"). SUCH NUMBER OF SHARES REPRESENTS THE MAXIMUM ANTICIPATED NUMBER
OF SHARES THAT WILL BE ISSUED IN THE MERGER. THIS PROSPECTUS-PROXY STATEMENT
ALSO SERVES AS THE PROXY STATEMENT OF INPHYNET FOR ITS SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 26, 1997, AND ANY ADJOURNMENTS AND POSTPONEMENTS
THEREOF (THE "SPECIAL MEETING"). SEE "THE SPECIAL MEETING".

This Prospectus-Proxy Statement describes the terms of the proposed
acquisition by MedPartners of InPhyNet by means of the merger (the "Merger") of
InPhyNet with and into Seabird Merger Corporation, a Delaware corporation and
newly formed, wholly owned subsidiary of MedPartners (the "Subsidiary"), with
the Subsidiary being the surviving corporation. At the Special Meeting, the
stockholders of InPhyNet 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 Agreement
and Plan of Merger, dated as of January 20, 1997, as amended by Amendment No. 1
dated as of May 21, 1997 (the "Plan of Merger"), among MedPartners, the
Subsidiary and InPhyNet. 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, each issued and outstanding share of
common stock, par value $.01 per share, of InPhyNet (the "InPhyNet Common Stock"
and, together with the associated preferred stock purchase rights, sometimes,
collectively, referred to herein as the "InPhyNet Shares") will automatically be
converted into the right to receive 1.18 (the "Exchange Ratio") shares of
MedPartners Common Stock. Cash will be paid (without interest) in lieu of
fractional shares of MedPartners Common Stock. For a more complete description
of the terms of the Merger, see "The Merger".

On June 3, 1997, the closing price of MedPartners Common Stock on The New
York Stock Exchange was $20.25. At such price, the equivalent value of a share
of InPhyNet Common Stock would be $23.90, calculated on the basis of the
Exchange Ratio (the "Equivalent Value"), and the aggregate value of the Merger
Consideration would be approximately $391.2 million. The actual market price of
the MedPartners Common Stock is subject to fluctuation and could be more or less
than the market price of the MedPartners Common Stock on the date of this
Prospectus-Proxy Statement or the date of the Special Meeting. Any such change
will cause a corresponding change in the Equivalent Value and the aggregate
value of the Merger Consideration. Each InPhyNet stockholder is urged to obtain
updated market information.

All information contained herein with respect to MedPartners and the
Subsidiary has been furnished by MedPartners, and all information contained
herein with respect to InPhyNet has been furnished by InPhyNet. See "Available
Information".

This Prospectus-Proxy Statement and the form of Proxy are first being
mailed to stockholders of InPhyNet on or about June 5, 1997.

SEE "RISK FACTORS" AT PAGE 11 FOR A DISCUSSION OF CERTAIN RISK FACTORS
RELATED TO THE MERGER AND TO MEDPARTNERS.

THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION 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 June 5, 1997.

<PAGE> 5

AVAILABLE INFORMATION

MedPartners 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 Common Stock to be issued in connection with
the Merger. This Prospectus-Proxy Statement does not contain all the information
set forth in the Registration Statement which MedPartners has filed with the
SEC. Certain portions have been omitted pursuant to the rules and regulations of
the SEC, and reference is hereby made to such portions for further information
with respect to MedPartners, InPhyNet and the MedPartners Common Stock to be
issued in the Merger. 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 or
incorporated by reference. Each such statement is qualified in its entirety by
such reference.

MedPartners and InPhyNet are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (SEC File Nos.
0-27276 and 0-24336, respectively), and in accordance therewith, file periodic
reports, proxy statements and other information with the SEC relating to their
respective businesses, 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. 20549 and 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, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates by writing to the SEC, Public
Reference Section, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The SEC also maintains a Web site that contains reports, proxy statements
and other information regarding registrants that file electronically with the
SEC. The address of such site is http://www.sec.gov. The MedPartners Common
Stock is listed on The New York Stock Exchange (the "NYSE"). The Registration
Statement, reports, proxy statements and certain other information with respect
to MedPartners can be inspected at the office of the NYSE, 20 Broad Street, New
York, New York 10005. The InPhyNet Common Stock is listed on the Nasdaq National
Market, and the Registration Statement, reports, proxy statements and certain
other information with respect to InPhyNet may be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006 or obtained by
calling the Nasdaq Public Reference Room Disclosure Group at (800) 638-8241.

FORWARD-LOOKING STATEMENTS

This Prospectus-Proxy Statement contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations and business of
MedPartners and InPhyNet. Statements in this document that are not historical
facts are hereby identified as "forward-looking statements" for the purpose of
the safe harbor provided by Section 21E of the Exchange Act and Section 27A of
the Securities Act. MedPartners cautions readers that such "forward-looking
statements", including without limitation, those relating to MedPartners' and
InPhyNet's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs and income, wherever they occur in this document
or in other statements attributable to MedPartners and InPhyNet, are necessarily
estimates reflecting the best judgment of MedPartners' and InPhyNet's senior
management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the "forward-looking
statements". Such "forward-looking statements" should, therefore, be considered
in light of various important factors, including those set forth in this
Prospectus-Proxy Statement. Other factors set forth from time to time in
MedPartners' and InPhyNet's reports and registration statements filed with the
SEC should also be considered.

The words "estimate", "project", "intend", "expect" and similar expressions
are intended to identify forward-looking statements. These "forward-looking
statements" are found at various places throughout this document. Additionally,
the discussions herein under the captions "Business of
MedPartners -- Acquisition Program", "Business of MedPartners -- Industry",
"Business of MedPartners -- Strategy", "Business of MedPartners -- Operations",
"Business of MedPartners -- Government Regulation", "Business of
MedPartners -- Corporate Liability and Insurance", "Business of
MedPartners -- Legal Proceedings",

i
<PAGE> 6

"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- MedPartners", "Business of InPhyNet -- Industry", "Business of
InPhyNet -- Operations", "Business of InPhyNet -- Operations", "Business of
InPhyNet -- Marketing", and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- InPhyNet" are susceptible to the risks
and uncertainties discussed herein 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 nor InPhyNet 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. Moreover, MedPartners and InPhyNet, through senior
management, may from time to time make "forward-looking statements" about the
matters described herein or other matters concerning MedPartners and InPhyNet.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS-PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENT RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONCERNING MEDPARTNERS OR INPHYNET CONTAINED IN THIS
PROSPECTUS-PROXY STATEMENT SINCE THE DATE OF SUCH INFORMATION. THE INFORMATION
CONTAINED HEREIN WITH RESPECT TO MEDPARTNERS AND ITS SUBSIDIARIES HAS BEEN
SUPPLIED BY MEDPARTNERS; THE INFORMATION CONTAINED HEREIN WITH RESPECT TO
INPHYNET AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY INPHYNET. THIS
PROSPECTUS-PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR 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.

ii
<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... i
FORWARD-LOOKING STATEMENTS.................................. i
SUMMARY OF PROSPECTUS-PROXY STATEMENT....................... 1
The Companies............................................. 1
MedPartners' Acquisition Program.......................... 2
Recent Developments....................................... 3
Risk Factors.............................................. 3
The Special Meeting....................................... 3
Vote Required............................................. 3
The Merger................................................ 4
Market and Market Prices.................................. 8
Comparative Per Share Information......................... 9
RISK FACTORS................................................ 11
Risks Relating to Integration in connection with
Acquisitions and the Merger............................ 11
Risks Relating to MedPartners' Growth Strategy;
Identification and Integration of Growth
Opportunities.......................................... 12
Risks Relating to Capitated Nature of Revenues; Control of
Healthcare Costs....................................... 13
Risks Relating to Certain Caremark Legal Matters.......... 14
Risks Relating to Exposure to Professional Liability;
Liability Insurance.................................... 16
Government Regulation..................................... 16
Risks Relating to Pharmacy Licensing and Operation........ 18
Risks Relating to Healthcare Reform; Proposed
Legislation............................................ 18
Anti-Takeover Considerations.............................. 19
Possible Volatility of Stock Price; Risks Relating to
Fixed Exchange Ratio................................... 19
Risks Relating to Federal Income Taxes.................... 19
THE SPECIAL MEETING......................................... 20
General................................................... 20
Date, Place and Time...................................... 20
Record Date, Quorum and Voting............................ 20
Voting Required........................................... 20
Voting and Revocation of Proxies.......................... 20
Solicitation of Proxies................................... 21
THE MERGER.................................................. 21
Terms of the Merger....................................... 22
Background of the Merger.................................. 23
Recommendation of the InPhyNet Board of Directors......... 27
Opinion of InPhyNet's Financial Advisor................... 30
Interests of Certain Persons in the Merger................ 34
Effective Time of the Merger.............................. 36
Exchange of Certificates.................................. 36
Conditions to the Merger.................................. 37
Representations and Covenants............................. 37
Regulatory Approvals...................................... 38
Business Pending the Merger............................... 38
Waiver and Amendment...................................... 38
Termination............................................... 39
The New York Stock Exchange Listing....................... 39
Resale of MedPartners Common Stock by Affiliates.......... 39
Accounting Treatment...................................... 40
</TABLE>

iii
<PAGE> 8

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Federal Income Tax Consequences........................... 41
No Solicitation of Transactions........................... 41
Expenses; Backup Fees..................................... 42
Indemnification........................................... 42
SELECTED FINANCIAL INFORMATION -- MEDPARTNERS............... 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- MEDPARTNERS.................. 44
General................................................... 44
Results of Operations..................................... 45
Factors That May Affect Future Results.................... 50
Liquidity and Capital Resources........................... 50
Quarterly Results (Unaudited)............................. 52
BUSINESS OF MEDPARTNERS..................................... 53
General................................................... 53
Acquisition Program....................................... 54
Recent Developments....................................... 55
Industry.................................................. 55
Strategy.................................................. 56
Operations................................................ 57
Information Systems....................................... 60
International............................................. 61
Competition............................................... 61
Government Regulation..................................... 61
Employees................................................. 66
Corporate Liability and Insurance......................... 66
Properties................................................ 66
Legal Proceedings......................................... 66
MEDPARTNERS' MANAGEMENT..................................... 70
Directors and Executive Officers of MedPartners........... 70
Classified Board of Directors............................. 73
Committees of the Board of Directors...................... 74
Executive Compensation.................................... 74
Director Compensation..................................... 76
Compensation Committee Interlocks and Insider
Participation.......................................... 77
Employment Agreements..................................... 77
PRINCIPAL STOCKHOLDERS OF MEDPARTNERS....................... 78
Certain Relationships and Related Transactions............ 79
SELECTED FINANCIAL INFORMATION -- INPHYNET.................. 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- INPHYNET..................... 83
General................................................... 83
Results of Operations..................................... 84
Liquidity and Capital Resources........................... 87
BUSINESS OF INPHYNET........................................ 89
General................................................... 89
Industry.................................................. 89
Strategy.................................................. 90
Operations................................................ 90
Recent Developments....................................... 93
Corporate Operations...................................... 94
Marketing................................................. 94
</TABLE>

iv
<PAGE> 9

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Government Regulation..................................... 95
Federal Government Contracting Requirements............... 96
Classification of Physicians as Independent Contractors... 96
Corporate Exposure to Professional Liabilities............ 96
Competition............................................... 97
Employees................................................. 97
Properties................................................ 97
Legal Proceedings......................................... 97
INPHYNET'S MANAGEMENT....................................... 98
Classified Board of Directors............................. 99
Compensation Committee Interlocks and Insider
Participation.......................................... 101
Employment Agreements..................................... 101
PRINCIPAL STOCKHOLDERS OF INPHYNET.......................... 102
Certain Relationships and Related Transactions............ 103
PRO FORMA CONDENSED FINANCIAL INFORMATION SELECTED PRO FORMA
FINANCIAL INFORMATION (UNAUDITED)......................... 104
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION.......... 111
DESCRIPTION OF CAPITAL STOCK OF MEDPARTNERS................. 112
Authorized Capital Stock.................................. 112
Common Stock.............................................. 112
Preferred Stock........................................... 112
Certain Provisions of the Certificate of Incorporation and
the DGCL............................................... 112
Stockholder Rights Plan................................... 113
Limitations on Liability of Officers and Directors........ 115
Registration Rights....................................... 116
Transfer Agent and Registrar.............................. 116
COMPARISON OF RIGHTS OF INPHYNET STOCKHOLDERS AND
MEDPARTNERS STOCKHOLDERS.................................. 117
Classes and Series of Capital Stock....................... 117
Size and Election of the Board of Directors............... 117
Removal of Directors...................................... 118
Conversion and Dissolution................................ 118
Amendment or Repeal of the Certificate of Incorporation
and Bylaws............................................. 119
Special Meetings of Stockholders.......................... 119
Liability of Directors.................................... 120
Stockholder Rights Plan................................... 120
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors................... 120
Action by Written Consent................................. 121
Indemnification of Directors and Officers................. 121
EXPERTS..................................................... 122
INPHYNET STOCKHOLDER PROPOSALS.............................. 122
LEGAL MATTERS............................................... 123
OTHER BUSINESS.............................................. 123
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEXES:
A. Agreement and Plan of Merger, dated as of January 20,
1997, as amended by Amendment No. 1, dated as of May 21,
1997...................................................... A-1
B. Opinion of Morgan Stanley & Co. Incorporated............. B-1
C. Proxy for Special Meeting of Stockholders of InPhyNet.... C-1
</TABLE>

v
<PAGE> 10

SUMMARY OF PROSPECTUS-PROXY STATEMENT

The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement. As used in this Prospectus-Proxy Statement, the
term "Plan of Merger" shall mean (i) on or before May 20, 1997, the Agreement
and Plan of Merger, dated as of January 20, 1997, as originally executed by the
parties thereto, and (ii) on or after May 21, 1997, the Agreement and Plan of
Merger, dated as of January 20, 1997, as amended by Amendment No. 1 thereto,
dated as of May 21, 1997. 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. MedPartners is the largest physician practice management
("PPM") company in the United States based on annualized revenues of
approximately $5.3 billion as of March 31, 1997. MedPartners develops,
consolidates and manages integrated healthcare delivery systems. Through its
network of affiliated group and independent practice association ("IPA")
physicians, MedPartners provides primary and specialty healthcare services to
prepaid managed care enrollees and fee-for-service patients. MedPartners also
operates one of the largest independent prescription benefit management ("PBM")
programs in the United States, with annualized revenues of approximately $2.0
billion as of March 31, 1997, and provides disease management services and
therapies for patients with certain chronic conditions. As of March 31, 1997,
MedPartners operated its PBM program in all 50 states and its PPM business in 23
states and was affiliated with approximately 9,500 physicians, including
approximately 2,700 in group practices, 5,700 through IPA relationships and
1,100 who were hospital-based, providing healthcare to approximately 1.7 million
prepaid enrollees.

MedPartners affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to managed care payor systems. MedPartners enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
MedPartners provides affiliated physicians with access to capital and advanced
management information systems. In addition, MedPartners contracts with health
maintenance organizations and other third-party payors that compensate
MedPartners and its affiliated physicians on a prepaid basis (collectively,
"HMOs"), as well as hospitals and outside providers on behalf of its affiliated
physicians. These relationships provide physicians with the opportunity to
operate under a variety of payor arrangements and increase their patient flow.

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

MedPartners also manages outpatient prescription drug benefit programs for
clients throughout the United States, including corporations, insurance
companies, unions, government employee groups and managed care organizations.
MedPartners dispenses over 44,000 prescriptions daily through four mail service
pharmacies and manages patients' immediate prescription needs through a network
of retail pharmacies. MedPartners is in the process of integrating its PBM
program with the PPM business by providing pharmaceutical services to affiliated
physicians, clinics and HMOs. MedPartners' disease management services are
intended to meet the healthcare needs of individuals with chronic diseases or
conditions. These services include the design, development and management of
comprehensive programs that comprise drug therapies, physician support and
patient education. MedPartners currently provides therapies and services for
individuals with such conditions as hemophilia, growth disorders, immune
deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis. See
"Business of MedPartners".
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The principal executive office of MedPartners is located at 3000 Galleria
Tower, Suite 1000, Birmingham, Alabama 35244, and its telephone number is (205)
733-8996.

InPhyNet. InPhyNet commenced operations in 1974 and is one of the largest
physician management organizations in the United States. InPhyNet has over 22
years of experience in managing physicians for a variety of clients, including
hospitals, HMOs and governmental entities. As of March 31, 1997, InPhyNet
managed approximately 2,000 physicians and 3,100 other clinical and
administrative personnel and had 208 contracts with hospitals and governmental
entities in 27 states pursuant to which InPhyNet was responsible for the
comprehensive health care needs of approximately 122,000 individuals. During
1996, InPhyNet delivered services for approximately 2.7 million patient visits.
InPhyNet's total revenues have grown from approximately $110 million in 1990 to
$408.5 million in 1996 and from approximately $87.9 million for the quarter
ending March 31, 1996 to approximately $122.5 million for the quarter ending
March 31, 1997.

InPhyNet's business consists primarily of managing physicians and other
medical personnel for its two divisions: (i) Hospital Physician Services,
through which InPhyNet delivers emergency medicine, radiology, primary care and
other hospital-based physician services under contracts primarily with hospitals
and the U.S. Department of Defense and (ii) Capitated Medical Services, through
which InPhyNet manages the delivery of comprehensive medical services under
contracts primarily with HMOs and various state and local correctional
institutions and the delivery of fee-for-service medical services through
primary care practices and home health agencies. Hospital Physician Services and
Capitated Medical Services accounted for approximately 45% and 55%,
respectively, of InPhyNet's total revenues for the quarter ending March 31,
1997. See "Business of InPhyNet".

InPhyNet's principal executive office is located at 1200 South Pine Island
Road, Suite 600, Fort Lauderdale, Florida 33324, and its telephone is (954)
475-1300.

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

MEDPARTNERS' ACQUISITION PROGRAM

MedPartners believes it is the leading consolidator in the PPM industry.
MedPartners' acquisition strategy is to develop locally prominent, integrated
healthcare delivery networks that provide high quality, cost-effective
healthcare in selected geographic markets. MedPartners implements this strategy
through growth in its existing markets, expansion into new markets through
acquisitions and affiliations and through the implementation of comprehensive
healthcare solutions for patients, physicians and payors. In pursuing its
acquisition strategy, MedPartners creates strategic alliances with hospital
partners and HMOs. As an integral element of these alliances, MedPartners
utilizes sophisticated information systems to improve the operational efficiency
of, and to reduce the operating costs associated with, MedPartners' networks and
the practices of affiliated physicians. MedPartners' principal methods of
expansion are the acquisition of PPM businesses and affiliations with physician
and medical groups.

In September 1996, MedPartners acquired Caremark International Inc.
("Caremark"), a publicly traded PPM and PBM company based in Northbrook,
Illinois, in exchange for approximately 90.5 million shares of MedPartners
Common Stock having a total value of approximately $1.8 billion (the "Caremark
Acquisition"), creating the largest PPM business in the United States. Caremark
provided PPM services to approximately 1,000 affiliated physicians.

In November 1995, MedPartners acquired Mullikin Medical Enterprises, L.P.
("MME"), a privately held PPM entity based in Long Beach, California, in
exchange for approximately 13.5 million shares of MedPartners Common Stock
having a total value of approximately $384.1 million. MME provided PPM services
to approximately 400 group and 2,600 IPA physicians. In February 1996,
MedPartners acquired Pacific Physician Services, Inc. ("PPSI"), a publicly
traded PPM company based in Redlands, California, in exchange for approximately
11.0 million shares of MedPartners Common Stock having a total value of

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approximately $341.8 million. PPSI provided PPM services to approximately 710
group and 100 IPA physicians. PPSI had acquired Team Health, Inc. ("Team
Health"), based in Knoxville, Tennessee in June 1995. Team Health primarily
manages physicians and other healthcare professionals engaged in the delivery of
emergency medicine and hospital-based primary care.

MedPartners had affiliated with 190 physicians through December 31, 1994
(without giving effect to physicians who became affiliated with MedPartners
through acquisitions that were accounted for as poolings of interests). As of
March 31, 1997, MedPartners had affiliated with approximately 9,500 physicians.

RECENT DEVELOPMENTS

On May 1, 1997, MedPartners acquired the business assets and assumed the
liabilities of most of the operations of Aetna Professional Management
Corporation ("APMC"), a PPM company and affiliate of Aetna Inc. based in
Glastonbury, Connecticut (the "APMC Acquisition"). For accounting purposes, the
APMC Acquisition will be treated as if it were an asset purchase pursuant to
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"). As a part of the APMC Acquisition, MedPartners entered into a 10-year
Master Network Agreement with Aetna U.S. Healthcare, pursuant to which the
members of MedPartners' networks of affiliated physicians will be authorized
providers for many of the 14 million members of Aetna U.S. Healthcare's health
plan.

RISK FACTORS

Certain factors to be considered in connection with an investment in
MedPartners Common Stock and approval of the Merger are set forth under "Risk
Factors". These risk factors include risks associated with the Merger and
MedPartners' growth strategy in general, and risks associated with the
businesses of MedPartners and InPhyNet, including: capital requirements; the
capitated nature of revenues; control of healthcare costs; reduction in third
party reimbursement; dependence on affiliated physicians; federal income taxes;
certain Caremark legal matters; professional liability concerns; competition;
government regulation; pharmacy licensing and operations; healthcare reform; the
risks associated with a fixed Exchange Ratio; and possible volatility of
MedPartners' 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 InPhyNet 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 on June 26, 1997, at 10:00 a.m., local time,
at the Sheraton Suites Plantation, 311 N. University Drive, Plantation, Florida.
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. 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 InPhyNet on
or about June 5, 1997. For additional information relating to the Special
Meeting, see "The Special Meeting".

VOTE REQUIRED

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16,370,910 shares of InPhyNet Common Stock issued and outstanding. Accordingly,
the affirmative vote of the holders of 8,185,456 shares of InPhyNet Common Stock
is required to approve the Plan of Merger. As of the Record Date, directors and
executive officers of InPhyNet owned in the aggregate 3,191,518 shares of
InPhyNet Common Stock (or approximately 19.5% of the outstanding shares of
InPhyNet Common Stock). All the directors and executive officers of InPhyNet
have indicated their present intent to vote all of the shares of InPhyNet Common
Stock beneficially owned by them in favor of the Plan of Merger and the proposal
to authorize the Board of Directors to adjourn or postpone, if necessary, the
Special Meeting to permit the further solicitation of proxies. See "The Special
Meeting -- Vote Required" and "The Merger -- Conditions to the Merger".

THE MERGER

Terms of the Merger. Upon consummation of the Merger, each InPhyNet Share
will be converted into the right to receive 1.18 shares of MedPartners Common
Stock and cash paid in lieu of fractional shares. For example, if an InPhyNet
stockholder owned 100 shares of InPhyNet Common Stock at the time the Merger is
consummated (the "Effective Time"), that stockholder would receive 118 shares of
MedPartners Common Stock. In addition, all outstanding and unexercised options
to acquire InPhyNet Common Stock will be adjusted at the Effective Time to
permit them to remain outstanding and become exercisable for MedPartners Common
Stock as more fully described in the Plan of Merger. Each outstanding share of
MedPartners Common Stock will remain outstanding and unchanged following the
Merger. See "The Merger -- Terms of the Merger".

On June 3, 1997, the closing price of MedPartners Common Stock on the NYSE
was $20.25. At such price, the Equivalent Value of a share of InPhyNet Common
Stock would be $23.90 and the aggregate value of the Merger Consideration would
be approximately $391.2 million. The actual market price of the MedPartners
Common Stock is subject to fluctuations and could be more or less than its
market price on the date of this Prospectus-Proxy Statement or on the date of
the Special Meeting. Any such change will cause a corresponding change in the
Equivalent Value and the aggregate value of the Merger Consideration. See "Risk
Factors -- Possible Volatility of Stock Price; Risks Relating to Fixed Exchange
Ratio". InPhyNet stockholders are urged to obtain updated market information
concerning the shares of MedPartners Common Stock and to review the historical
trading prices of the MedPartners Common Stock. See "-- Market and Market
Prices". InPhyNet stockholders may obtain updated information regarding the
market prices for the MedPartners Common Stock by calling toll-free at
1-800-563-7126.

Recommendation of the InPhyNet Board of Directors. The Board of Directors
of InPhyNet has unanimously approved the terms and conditions of the Plan of
Merger, and recommends a vote FOR the Plan of Merger. InPhyNet's Board of
Directors believes the Plan of Merger is fair to and in the best interests of
InPhyNet and its stockholders. In reaching its conclusions, the InPhyNet Board
of Directors considered the following material factors in approving the original
Plan of Merger: information concerning InPhyNet's and MedPartners' respective
businesses, prospects, historical and projected financial performance, financial
condition and operations; the Board's review of the trading range of the
InPhyNet Common Stock as compared to the Merger Consideration implied by the
Exchange Ratio; the fact that the Merger Consideration represents a significant
premium over the trading range of the InPhyNet Common Stock during the six
months preceding the public announcement of the Merger and represented a
valuation for InPhyNet that could not be achieved as quickly, if at all, if
InPhyNet were to remain an independent entity; the risks to InPhyNet's
stockholders in implementing, and failing to achieve on a consistently
successful basis, InPhyNet's acquisition strategy; the opportunity for InPhyNet
stockholders to continue as stockholders of a larger, more diversified combined
organization having greater market and financial strength, and a greater ability
to execute an acquisition strategy than InPhyNet on a stand-alone basis; the
opportunity for greater liquidity associated with MedPartners Common Stock; the
terms of the Plan of Merger, including the fixed Exchange Ratio and the right of
InPhyNet to terminate the Plan of Merger if the average last sale price per
share of MedPartners Common Stock for a specified period preceding the date for
the Special Meeting is equal to or less than $17.125 per share; the analyses and
opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley") as to the
fairness, from a financial point of view, of the original exchange ratio of
1.311; the Board of Director's belief that the financial terms of the Merger
were superior to the terms of the other

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merger proposals that had been received by InPhyNet; and the InPhyNet Board's
review of the risks relating to MedPartners described under "Risk Factors",
including, particularly, the risks under "Risks Relating to Integration in
connection with Acquisitions and the Merger", "Risks Relating to MedPartners'
Growth Strategy; Integration and Identification of Growth Opportunities", "Risks
Relating to Certain Caremark Legal Matters" and "Risks Relating to Exposure to
Professional Liability; Liability Insurance", the fact that the MedPartners
Common Stock has had a relatively short trading history, the risk that InPhyNet
clients may elect not to continue to contract with MedPartners, the risk that
the market price of the InPhyNet Common Stock and the MedPartners Common Stock
might be adversely affected by the announcement of the Merger, the costs of
integrating the two companies and the risk that expected benefits from the
Merger might not be obtained. The InPhyNet Board of Directors also considered
the expectation that the Merger will generally be a tax-free transaction to
InPhyNet and its stockholders and treated as a pooling of interests for
accounting purposes. The Board of Directors also considered the size of the
termination fee and the circumstances under which the termination provisions and
the termination fee would be payable, as well as restrictions on InPhyNet's
ability to solicit other potential acquirors, and the effect these provisions
might have in reducing the likelihood of engaging in a business combination
other than the Merger. In approving the amended Plan of Merger, the InPhyNet
Board of Directors considered the following material factors: the risks faced by
InPhyNet and the attendant risks to the InPhyNet stockholders if the Plan of
Merger were terminated, including the risk that the market price of InPhyNet
Common Stock would decrease substantially; the determination by the Board of
Directors that it was unlikely that InPhyNet would receive a higher offer from
any other potential merger partner; the analyses and opinion of Morgan Stanley
as to the fairness, from a financial point of view, of the revised Exchange
Ratio of 1.18; and the InPhyNet Board of Directors' review of the terms of the
proposed amendment to the Plan of Merger which eliminated certain conditions to
completing the Merger, but which retained termination rights favorable to
InPhyNet. See "The Merger -- Recommendation of the InPhyNet Board of Directors"
and "Risk Factors".

Opinion of InPhyNet's Financial Advisor. Morgan Stanley has delivered to
the Board of Directors of InPhyNet its written opinion, dated as of May 21,
1997, to the effect that, as of the date of such written opinion, the Exchange
Ratio provided in the Plan of Merger is fair, from a financial point of view, to
the holders of InPhyNet Common Stock. A copy of the full text of such written
opinion of Morgan Stanley, which sets forth among other things, the opinion
expressed, assumptions made, procedures followed, matters considered and
limitations of their review undertaken in connection with such opinion, is
attached hereto as Annex B and should be read in its entirety. See "The
Merger -- Opinion of InPhyNet's Financial Advisor".

InPhyNet has agreed to pay Morgan Stanley fees for its financial advisory
services in connection with the Merger consisting of (i) an opinion fee of
$250,000, which was paid at the time of the delivery of the first written Morgan
Stanley fairness opinion on January 20, 1997, and (ii) an additional transaction
advisory fee (estimated to be between $3.0 million and $3.5 million), payable
only upon consummation of the Merger based on the value of the transaction as
determined at the time of the Merger.

Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of InPhyNet with respect to the Plan of
Merger, InPhyNet stockholders should be aware that certain members of the Board
of Directors of InPhyNet and its management may have certain interests in the
Merger that are in addition to, or different from, the interests of the
stockholders of InPhyNet generally (including the receipt of compensation for
consulting services and covenants not to compete to be provided to MedPartners
following the Merger, the accelerated vesting of stock options and the potential
receipt of severance benefits). See "The Merger -- Interests of Certain Persons
in the Merger".

Effective Time of the Merger. The Merger will become effective upon the
filing of the Certificate of Merger by the Subsidiary and InPhyNet under the
General Corporation Law of the State of Delaware (the "DGCL"), or at such later
time as may be specified in such Certificate of Merger. The Plan of Merger
requires that this filing be made as soon as practicable after satisfaction of
the conditions of each party to consummate the Merger, or at such other time as
may be agreed by MedPartners and InPhyNet. If the Plan of Merger is approved by
the stockholders of InPhyNet, it is presently anticipated that such filing will
be made as soon as practicable after the Special Meeting on June 26, 1997, 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

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<PAGE> 15

Merger -- Effective Time of the Merger" and "Risk Factors -- Possible Volatility
of Stock Price; Risks Relating to Fixed Exchange Ratio".

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 InPhyNet Shares for use in exchanging such holder's stock certificates
for certificates evidencing shares of MedPartners 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. CERTIFICATES OF
INPHYNET COMMON STOCK SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL
AND INSTRUCTIONS ARE OBTAINED AND THEN SHOULD BE SURRENDERED ONLY IN ACCORDANCE
WITH SUCH INSTRUCTIONS. See "The Merger -- Exchange of Certificates".

Conditions to the Merger. The obligation of each of MedPartners, the
Subsidiary and InPhyNet to consummate the Merger is subject to certain
conditions. See "The Merger -- Conditions to the Merger".

Representations and Covenants. At the time the Plan of Merger was
originally executed, MedPartners and InPhyNet 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. These representations and warranties will not be
reconfirmed at the consummation of the Merger. Under the Plan of Merger,
InPhyNet has 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 involving all or any significant portion of the equity
securities of InPhyNet or the assets of InPhyNet and its subsidiaries, except
that InPhyNet may furnish information to, and negotiate with, an unsolicited
third party consistent with the good faith exercise by the Board of Directors of
InPhyNet of its fiduciary obligations. See "The Merger -- Representations and
Covenants" and "The Merger -- No Solicitation of Transactions".

Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the United States Department of Justice (the "DOJ") and the United
States Federal Trade Commission (the "FTC"), and certain waiting period
requirements (including any extensions thereof) have been satisfied. MedPartners
and InPhyNet each made their respective filings with the DOJ and the FTC on
February 11, 1997. Under the HSR Act, these filings commenced a 30-day waiting
period during which the Merger may not be consummated. Notwithstanding the
termination of the waiting period on March 13, 1997, the FTC, the DOJ or others
could take action under the antitrust laws, including seeking to enjoin the
consummation of the Merger or, after the Effective Time, seeking the divestiture
by MedPartners of all or any part of the assets of InPhyNet acquired in the
Merger. There can be no assurance that a challenge to the Merger on antitrust
grounds will not be made or, if such a challenge was made, that it would not be
successful. 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, InPhyNet
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 InPhyNet. InPhyNet 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 and the Subsidiary, on the one hand, and
InPhyNet, 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. Under the Plan of Merger and the DGCL, if
the Plan of Merger is approved at the Special Meeting, the Board of Directors of
InPhyNet may not amend or waive any covenant or condition in a manner that would
adversely affect the stockholders of InPhyNet without the requisite approval of
InPhyNet's stockholders. Any determination to amend the Plan of Merger or waive
a covenant or condition and to obtain stockholder approval, if required, would
depend on the facts and circumstances

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existing at the time of such amendment or waiver and would be made by InPhyNet's
Board of Directors, exercising its fiduciary duties and in compliance with
Delaware law. As of the date of this Prospectus-Proxy Statement, the parties to
the Plan of Merger have no reason to believe that any of the material conditions
to the Merger will not be satisfied. See "The Merger -- Waiver and Amendment".

Termination. The Plan of Merger may be terminated prior to the Effective
Time, and whether or not the Plan of Merger has been approved by the
stockholders of InPhyNet, if, among other things, (i) a U.S. federal or state
court has issued an order permanently enjoining, restraining or otherwise
prohibiting the Merger, (ii) the Merger shall not have occurred on or before
August 31, 1997 other than due to the willful breach of the Plan of Merger by a
party thereto, (iii) at the option of InPhyNet if the average last sale price
per share of the MedPartners Common Stock for the ten consecutive trading days
ending on the fifth trading day immediately preceding the date of the Special
Meeting as reported on the NYSE Composite Tape is equal to or less than $17.125,
or (iv) InPhyNet's Board of Directors, in the exercise of its fiduciary
obligations, withdraws its recommendation of the Merger or recommends approval
of another Acquisition Transaction (as defined herein). See "The
Merger -- Termination", and for a discussion of breakup fees that may be payable
under certain circumstances, see "The Merger -- Expenses; Breakup Fees".

Accounting Treatment. It is expected that the Merger will be accounted for
as a pooling of interests under generally accepted accounting principles. The
consummation of the Merger is conditioned upon InPhyNet and MedPartners
receiving letters at the closing from Ernst & Young LLP, as independent auditors
of InPhyNet and MedPartners, regarding such firm's concurrence with the
conclusions of management of both InPhyNet and MedPartners as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board ("APB") Opinion No. 16 if the Merger is closed and
consummated in accordance with the Plan of Merger. See "The Merger -- Accounting
Treatment" and "Pro Forma Condensed Financial Information". If it is determined
that the Merger will not be accounted for as a pooling of interests and InPhyNet
and MedPartners decide to waive compliance with such condition, InPhyNet would
resolicit the consent of its stockholders to consummate the Merger in light of
such changed circumstances.

Federal Income Tax Consequences. The Merger is expected to qualify as a
tax-free reorganization under Section 368(a) of the Code; however, neither
MedPartners nor InPhyNet has requested or will receive an advance ruling from
the Internal Revenue Service. Instead, Haskell Slaughter & Young, L.L.C. and
Willkie Farr & Gallagher, counsel to MedPartners and InPhyNet, respectively,
have delivered opinions to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. These opinions
are based on federal income tax laws in existence at the time such opinions were
delivered, facts and assumptions of fact described therein and upon certain
customary representations provided by MedPartners, InPhyNet and certain InPhyNet
stockholders. Collectively, the opinions of counsel state, among other matters,
that: (i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and MedPartners, the Subsidiary and InPhyNet 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, InPhyNet or
the Subsidiary as a result of the Merger; (iii) no gain or loss will be
recognized by an InPhyNet stockholder who receives solely shares of MedPartners
Common Stock in exchange for InPhyNet Shares; (iv) the receipt of cash in lieu
of fractional shares of MedPartners Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then were
redeemed by MedPartners; (v) the tax basis of the shares of MedPartners Common
Stock received by an InPhyNet stockholder will be equal to the tax basis of the
InPhyNet Shares exchanged therefor, excluding any basis allocable to a
fractional share of MedPartners Common Stock for which cash is received; and
(vi) the holding period of the shares of MedPartners Common Stock received by an
InPhyNet stockholder will include the holding period or periods of the InPhyNet
Shares exchanged therefor, provided that the InPhyNet Shares are held as a
capital asset within the meaning of Section 1221 of the Code at the Effective
Time. EACH HOLDER OF INPHYNET SHARES 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

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PARTICULAR FACTS AND CIRCUMSTANCES. See "The Merger -- Federal Income Tax
Consequences".

Resale Restrictions. All shares of MedPartners Common Stock received by
InPhyNet stockholders in the Merger will be freely transferable, except that
shares of MedPartners Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of InPhyNet 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 Common Stock by Affiliates".

NYSE Listing. A subsequent listing application will be filed with the NYSE
to list the shares of MedPartners Common Stock to be issued to the InPhyNet
stockholders upon consummation of the Merger. Although no assurance can be given
that the NYSE will accept such shares of MedPartners Common Stock for listing,
MedPartners anticipates that these shares will qualify for listing. See "The
Merger -- The 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 the MedPartners Common
Stock. The MedPartners Common Stock traded on the Nasdaq National Market under
the symbol "MPTR" from February 21, 1995 until February 21, 1996. On February
22, 1996, the MedPartners 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 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............................................... 23.13 16.63
Fourth Quarter.............................................. 24.50 19.88
1997
First Quarter............................................... $24.63 $18.63
Second Quarter (through June 3, 1997)....................... 22.88 18.00
</TABLE>

There were approximately 43,210 holders of record of the MedPartners Common
Stock as of May 1, 1997.

Restrictions contained in the credit agreement between MedPartners and
NationsBank, National Association (South), as administrative agent for itself
and the other lenders party thereto, limit the payment of non-stock dividends on
the MedPartners Common Stock.

8
<PAGE> 18

The InPhyNet Common Stock is listed on the Nasdaq National Market under the
symbol "IMMI". The following table sets forth for the quarterly periods
indicated the high and low bid prices for the InPhyNet Common Stock as reported
on the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter............................................... $18.00 $11.50
Second Quarter.............................................. 19.25 14.75
Third Quarter............................................... 22.25 18.50
Fourth Quarter.............................................. 23.75 17.38
1996
First Quarter............................................... $27.00 $16.38
Second Quarter.............................................. 24.00 16.50
Third Quarter............................................... 19.25 11.00
Fourth Quarter.............................................. 19.00 15.00
1997
First Quarter............................................... $31.38 $17.25
Second Quarter (through June 3, 1997)....................... 28.75 21.00
</TABLE>

There were 120 holders of record and approximately 1,400 beneficial holders
of the InPhyNet Common Stock as of the Record Date.

InPhyNet has not declared cash dividends on its Common Stock since prior to
its initial public offering effective August 19, 1994 and does not currently
anticipate paying any dividends in the foreseeable future. InPhyNet currently
anticipates that it will retain any future earnings for use in its business.
Restrictions contained in the Amended and Restated Revolving Credit and
Reimbursement Agreement, between InPhyNet and a bank, limit the payment of cash
dividends on the InPhyNet Common Stock.

On January 20, 1997, the trading day immediately preceding the public
announcement of the proposed Merger, the high and low sale prices of the
MedPartners Common Stock as reported on the NYSE Composite Tape were $22.00 and
$21.63, respectively, and the high and low sales prices for the InPhyNet Common
Stock as reported on the Nasdaq National Market were $23.25 and $22.00,
respectively.

STOCKHOLDERS OF INPHYNET ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE MEDPARTNERS COMMON STOCK. No assurance can be given as to the market
price of MedPartners 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 on a historical basis in comparison with pro forma
information giving effect to the Merger on a pooling of interests basis, and
(ii) InPhyNet on a historical basis in comparison with pro forma equivalent
information after giving effect to the Merger, assuming that 1.18 shares of
MedPartners Common Stock are issued in exchange for each InPhyNet Share in the
Merger. The historical and pro forma financial information should be read in
conjunction with the historical consolidated financial statements of
MedPartners, the historical consolidated financial statements of InPhyNet 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 "Pro Forma Condensed Financial Information", and "Incorporation
of Certain Information by Reference".

MedPartners has not paid cash dividends since inception. It is anticipated
that MedPartners will retain all earnings for use in the expansion of its
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 and will depend, among other things, upon
MedPartners' earnings, capital requirements, financial condition and debt
covenants.
9
<PAGE> 19

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

<TABLE>
<CAPTION>
PER COMMON AND COMMON EQUIVALENT SHARES
----------------------------------------------------------------------
INCOME (LOSS)
------------------------------------------- STOCKHOLDERS' EQUITY
THREE MONTHS (BOOK VALUE)
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------
------------------------ ---------------- DECEMBER 31, MARCH 31,
1994 1995 1996 1996 1997 1996 1997
----- ------ ------ ------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss):
MedPartners
Historical(1)................... $0.61 $(0.82) $(1.02) $(0.44) $0.25 $4.76 $4.91
Pro forma combined.............. 0.61 (0.66) (0.83) (0.37) 0.24 4.52 4.68
InPhyNet
Historical...................... 0.74(4) 0.75 0.81 0.23 0.20 6.11 6.29
Pro forma equivalent(2)......... 0.72 (0.78) (0.98) (0.44) 0.28 5.33 5.52
Income (loss) from continuing
operations(3):
MedPartners
Historical(3)................... 0.41 0.15 (0.58) 0.02 0.25
Pro forma combined.............. 0.43 0.20 (0.44) 0.04 0.24
InPhyNet
Historical...................... 0.74(4) 0.75 0.81 0.23 0.20
Pro forma equivalent(2)......... 0.51 0.24 (0.52) 0.05 0.28
</TABLE>

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

(1) MedPartners' historical pro forma net income (loss) 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) InPhyNet pro forma equivalent per common share data is calculated by
multiplying the pro forma MedPartners amounts by the Exchange Ratio of 1.18.
(3) 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 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 Reporting the
Results of Operations -- Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events & Transactions.
(4) Amounts presented were calculated from pro forma net income and pro forma
weighted average number of shares outstanding which were derived by giving
effect to the 1994 purchases of minority interests' share of net income of
InPhyNet with InPhyNet Common Stock as if such purchases had occurred on
January 1, 1993. Prior to August 19, 1994, InPhyNet elected to be taxed as a
Subchapter S corporation with respect to federal income taxes, and for those
states that recognize such tax election, state income taxes. Under this
election, in lieu of corporate income taxes, the stockholders were taxed
(rather than the corporation), on InPhyNet's income in accordance with their
respective ownership interests. The pro forma net income and net income per
share have been computed as if InPhyNet was subject to federal and state
income taxes (in those states recognizing such election) based on the
corporate income tax rates in effect during the respective periods.

10
<PAGE> 20

RISK FACTORS

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

RISKS RELATING TO INTEGRATION IN CONNECTION WITH ACQUISITIONS AND THE MERGER

MedPartners believes that the Merger represents another step in
MedPartners' consolidation initiative in the PPM business to develop integrated
healthcare delivery systems through affiliation with individual physicians,
physician practices, hospitals and third-party payors. In addition, MedPartners
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 Board of
Directors and senior management of MedPartners face a significant challenge in
their efforts to integrate the businesses of MedPartners 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. 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 as a result
of these integration efforts. Such effects could have a material adverse effect
on the financial results of MedPartners.

Different Business Operations. The PPM business of MedPartners includes
the provision of PBM and disease management services which are provided by
subsidiaries of MedPartners. The PBM services provided by MedPartners accounted
for approximately 38% of MedPartners' net revenue and operating expenses at
March 31, 1997. MedPartners Specialty Services, which include disease management
services, comprised 9% of MedPartners' net revenue and 8% of MedPartners'
operating expenses at March 31, 1997. InPhyNet's business does not independently
provide PBM or disease management services, and its PPM services will be
integrated with MedPartners' PPM service area at the Effective Time.

Physician Compensation. Approximately 64% of MedPartners' PPM revenue at
March 31, 1997 was derived from or through contracts between MedPartners and
hospitals or HMOs. Approximately 94.5% of InPhyNet's revenue at March 31, 1997
was derived from such relationships. The balance of MedPartners' PPM revenue is
generated through professional corporations ("PCs") that have entered into
contracts directly with HMOs or have the right to receive payment directly from
HMOs for the provision of medical services. MedPartners has a controlling
financial interest in these PCs by virtue of a long-term management agreement
that also provides for physician compensation.

The most significant clinic expense, physician compensation, accounted for
43% of total expenses in MedPartners' PPM service area in the first quarter of
1997. Physicians that generated 9% of PPM revenue in 1996 received a
fixed-dollar amount plus a discretionary bonus based on performance criteria
goals. Physician compensation expense was 54% of this first category of PCs'
total net revenue in the first quarter of 1997. Physicians that were compensated
on a fee-for-service basis produced approximately 17% of MedPartners' PPM
revenue in the first quarter of 1997. Physician compensation expense pursuant to
such agreements represented 50% of this second category of PCs' total net
revenue in the first quarter of 1997. The remaining 10% of PPM revenues were
generated by physicians who were provided a salary, bonus and profit-sharing
payment based on the PC's net income. Physician compensation expense pursuant to
such agreements represented 45% of this third category of PCs' total net revenue
in the first quarter of 1997. Under each of these arrangements, revenue is
assigned to MedPartners by the PC, and MedPartners is responsible and at risk
for all clinic expenses. See "Business of MedPartners -- Operations", "Business
of InPhyNet" and Note 1 of the consolidated financial statements of MedPartners.

While management of MedPartners and InPhyNet believe that the diverse
experience of each of the combined companies will serve to strengthen
MedPartners, there can be no assurance that management's efforts to integrate
the operations of MedPartners will be successful or that the anticipated
benefits of the Merger will be fully realized. The profitability of MedPartners
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

11
<PAGE> 21

economies of scale. MedPartners' 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' GROWTH STRATEGY; INTEGRATION AND IDENTIFICATION
OF GROWTH OPPORTUNITIES

MedPartners intends to continue to pursue an aggressive growth strategy
through acquisitions and internal development for the foreseeable future.
MedPartners' ability to pursue new growth opportunities successfully will depend
on many factors, including, among others, MedPartners' ability to identify
suitable growth opportunities and successfully integrate acquired businesses and
practices. There can be no assurance that MedPartners will anticipate all of the
changing demands that expanding operations will impose on its management,
management information systems and physician network. Any failure by MedPartners
to adapt its systems and procedures to those changing demands could have a
material adverse effect on the operating results and financial condition of
MedPartners.

Competition for Expansion Opportunities. MedPartners is subject to the
risk that it will be unable to identify and recruit suitable acquisition
candidates in the future. MedPartners competes for acquisition, affiliation and
other expansion opportunities with national, regional and local PPM companies
and other physician management entities. In addition, certain companies,
including hospital management companies, hospitals and insurers, are expanding
their presence in the PPM market. MedPartners' failure to compete successfully
for expansion opportunities or to attract and recruit suitable acquisition
candidates could have a material adverse effect on the operating results and
financial condition of MedPartners. MedPartners is also subject to the risk that
it will be unable to recruit and retain qualified physicians and other
healthcare professionals to serve as employees or independent contractors of
MedPartners and its affiliates. See "Business of MedPartners -- Competition".

Integration Risks. Acquisitions of PPM companies and physician practices
entail the risk that such acquisitions will fail to perform in accordance with
expectations and that MedPartners will be unable to successfully integrate such
acquired businesses and physician practices into its operations. The
profitability of MedPartners is largely dependent on its ability to develop and
integrate networks of physicians, to manage and control costs and to realize
economies of scale from acquisitions of PPM companies and physician practices.
The histories, geographic location, business models, including emphasis on
managed care and fee-for-service, and cultures of acquired PPM businesses and
physician practices may differ from MedPartners' past experiences. Dedicating
management resources to the integration process may detract attention from the
day-to-day business of MedPartners. Moreover, the integration of the acquired
businesses and physician practices may require substantial capital and financial
investments. These, together with other risks described herein, could result in
the incurrence of substantial costs in connection with acquisitions that may
never achieve revenue and profitability levels comparable to MedPartners'
existing physician networks, which could have a material adverse effect on the
operating results and financial condition of MedPartners.

The major acquisitions carried out by MedPartners since January 1995 have
been structured as poolings of interests. As a result, the operating income of
MedPartners has been reduced by the merger expenses incurred in connection with
those acquisitions, resulting in a net loss for the year ended December 31,
1996. There can be no assurance that future merger expenses will not result in
further net losses. Nor can there be any assurance that there will not be
substantial future costs associated with integrating acquired companies; that
MedPartners will be successful in integrating such companies; or that the
anticipated benefits of such acquisitions will be realized fully. The
unsuccessful integration of such companies or the failure of MedPartners to
realize such anticipated benefits fully could have a material adverse effect on
the operating results and financial condition of MedPartners. See "-- Risks
Relating to Capital Requirements".

Dependence on HMO Enrollee Growth. MedPartners is also largely dependent
on the continued increase in the number of HMO enrollees who use its physician
networks. This growth may come from development or acquisition of other PPM
entities, affiliation with additional physicians, increased enrollment in HMOs
currently contracting with MedPartners through its affiliated physicians and
additional agreements with HMOs. There can be no assurance that MedPartners will
be successful in identifying, acquiring and integrating additional medical
groups or other PPM companies or in increasing the number of enrollees. A

12
<PAGE> 22

decline in enrollees in HMOs could have a material adverse effect on the
operating results and financial condition of MedPartners. MedPartners is
statutorily and contractually prohibited from controlling any medical decisions
made by a healthcare provider. Accordingly, affiliated physicians may decline to
enter into HMO agreements that are negotiated for them by MedPartners or may
enter into contracts for the provision of medical services or make other
financial commitments that are not intended to benefit MedPartners and which,
accordingly, could have a material adverse effect on the operating results and
financial condition of MedPartners. See "Business of MedPartners -- Operations".

Risks Relating to Capital Requirements. MedPartners' growth strategy
requires substantial capital for the acquisition of PPM businesses and assets of
physician practices, and for their effective integration, operation and
expansion. Affiliated physician practices may also require capital for
renovation, expansion and additional medical equipment and technology.
MedPartners believes that its existing cash resources, the use of MedPartners
Common Stock for selected practice and other acquisitions, and available
borrowings under the $1.0 billion credit facility (the "Credit Facility") with
NationsBank, National Association (South), as administrative bank to a group of
lenders, or any successor credit facility, will be sufficient to meet
MedPartners' anticipated acquisition, expansion and working capital needs for
the next twelve months. MedPartners expects from time to time to 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 in order to meet the capital needs of MedPartners. There can be no
assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing networks can be obtained. Any of such
financings could result in increased interest and amortization expense,
decreased income to fund future expansion and dilution of existing equity
positions.

Dependence on Affiliated Physicians. MedPartners' revenue depends on
revenues generated by the physicians with whom MedPartners has practice
management agreements. These agreements define the responsibilities of the
physicians and MedPartners and govern all terms and conditions of their
relationship. The practice management agreements have terms generally of 20 to
40 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 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 operates, affiliated physicians may
decline to enter into HMO agreements that are negotiated for them by MedPartners
or may enter into contracts for the provision of medical services or make other
financial commitments which are not intended to benefit MedPartners and which
could have a material adverse effect on the operating results and financial
condition of MedPartners. See "Business of
MedPartners -- Operations -- Affiliated Physicians".

RISKS RELATING TO CAPITATED NATURE OF REVENUES; CONTROL OF HEALTHCARE COSTS

A substantial portion of MedPartners' revenue is derived from agreements
with HMOs that provide for the receipt of capitated fees. Under these
agreements, MedPartners, 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 is statutorily and
contractually prohibited from controlling any medical decisions made by any
healthcare provider. To the extent that enrollees require more care than is
anticipated or require supplemental medical care that 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, the operating results and financial condition of MedPartners
could be materially adversely affected. As a result, MedPartners' success will
depend in large part on the effective management of healthcare costs through
various methods, including utilization management, competitive pricing for
purchased services and favorable agreements with payors. Recently, many
providers, including MedPartners, 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 healthcare services. At the same time, employer groups are demanding higher

13
<PAGE> 23

accountability from payors and providers of healthcare 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 could decrease. There can be no
assurance that these pricing pressures will not have a material adverse effect
on the operating results and financial condition of MedPartners. In addition,
changes in healthcare practices, inflation, new technologies, major epidemics,
natural disasters and numerous other factors affecting the delivery and cost of
healthcare could have a material adverse effect on the operating results and
financial condition of MedPartners.

MedPartners' 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, such additional costs could have a material adverse effect on the
operating results and financial condition of MedPartners.

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' 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. This may cause fluctuations from amounts previously
accrued. To the extent that HMO enrollees require more care than is anticipated
or require supplemental care that is not otherwise reimbursed by the HMOs,
aggregate capitation rates may be insufficient to cover the costs associated
with the treatment of enrollees. Any such insufficiency could have a material
adverse effect on the operating results and financial condition of MedPartners.

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 healthcare services provided to their patients. A
significant portion of the revenue of MedPartners is derived from payments made
by these third-party payors. 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 or was experimental or for other reasons. Any
material decrease in payments received from such third-party payors could have a
material adverse effect on the operating results and financial condition of
MedPartners.

RISKS RELATING TO CERTAIN CAREMARK LEGAL MATTERS

OIG Settlement and Related Claims. Caremark agreed in June 1995 to settle
with the Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services (the "DHHS"), the DOJ, the Veteran's
Administration, the Federal Employee Health Benefits Program ("FEHBP"), the
Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") and
related state investigative agencies in all 50 states and the District of
Columbia a four-year-long investigation of Caremark (the "OIG Settlement").
Under the terms of the OIG Settlement, which covered allegations dating back to
1986, a subsidiary of Caremark pled guilty to two counts of mail fraud -- one
each 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 CHAMPUS, FEHBP and federally funded healthcare
benefit programs concerning financial relationships between Caremark and a
physician in each of Minnesota and Ohio. See "Business of MedPartners -- Legal
Proceedings".

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

14
<PAGE> 24

Medicaid services, which would have a material adverse effect on the operating
results and financial condition of MedPartners.

In connection with the matters described above relating to the OIG
Settlement, Caremark is a party to various non-governmental claims and may in
the future become subject to additional OIG-related claims. Caremark is a party
to, or the subject of, and may be subjected to in the future, 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 healthcare services
from Caremark and such patients' insurers. MedPartners cannot determine at this
time what costs may be incurred in connection with future disposition of
non-governmental claims or litigation. Such additional costs, if incurred, could
have a material adverse effect on the operating results and financial condition
of MedPartners. See "Business of MedPartners -- Legal Proceedings" and Note 13
to the consolidated financial statements of MedPartners.

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 above. 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.
MedPartners 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 May 1996, three home infusion companies, 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 laws, the antitrust laws
and of California's unfair business practices statute. The complaint seeks
unspecified treble damages, and attorneys' fees and expenses. MedPartners
intends to defend this case vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of MedPartners, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of MedPartners.

Private Payor Settlements. In March 1996, Caremark agreed to settle all
disputes with a number of private payors. These disputes relate to businesses
that were covered by the OIG Settlement. The settlements resulted in an
after-tax charge of approximately $43.8 million. In addition, Caremark paid
$24.1 million after tax to cover the private payors' pre-settlement and
settlement-related expenses. An after-tax charge for the above amounts was
recorded in first quarter 1996 discontinued operations.

Coram Litigation. On September 11, 1995, Coram Healthcare Corporation
("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 $209.0 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 April 1, 1995, between
Coram and Caremark, breach of related contracts, fraud, negligent
misrepresentation and a right to contractual indemnity. Coram's amended
complaint included claims for specific performance, declaratory relief,
injunctive relief and requested damages of $5.2 billion. However, at a pretrial
hearing in May 1997 and in motions subsequently filed with the court, counsel
for Coram stated to the court that, with respect to compensatory damages, Coram
was realistically seeking approximately $300 million. Caremark filed
counterclaims against Coram in this lawsuit and also filed a lawsuit in the
United States 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. The lawsuit filed in federal court
in Chicago was dismissed, but on appeal by Caremark the dismissal was reversed
and the lawsuit

15
<PAGE> 25

was remanded. Coram's lawsuit is currently in the pre-trial stage and the trial
is expected to commence in late June 1997. The net recorded value of amounts
owed by Coram to MedPartners was approximately $55 million at December 31, 1996.
This amount represents management's best estimate of the net realizable value of
the amounts owed by Coram to MedPartners, based upon information available to
MedPartners and is supported by the independent valuation by Integrated Health
Services, Inc. MedPartners intends to defend this case vigorously. Although
MedPartners cannot predict with certainty the outcome of these proceedings,
based on information currently available as to the viability of the claims
interposed by Coram, the evidence which MedPartners understands will be advanced
by Coram to support such claims and the defenses available to MedPartners,
management believes that the ultimate resolution of this matter is not likely to
have a material adverse effect on the operating results or financial condition
of MedPartners. However, an adverse determination could have a material adverse
effect on the operating results or financial condition of MedPartners.

Caremark Acquisition Litigation. In May 1996, two stockholders, each
purporting to represent a class, filed 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 then
proposed merger with MedPartners. The complaints seek unspecified damages,
injunctive relief, and attorneys' fees and expenses. MedPartners believes these
complaints will not have a material adverse effect on the operating results and
financial condition of MedPartners. See "Business of MedPartners -- Legal
Proceedings" and Note 13 to the consolidated financial statements of
MedPartners.

RISKS RELATING TO EXPOSURE TO PROFESSIONAL LIABILITY; LIABILITY INSURANCE

In recent years, physicians, hospitals and other participants in the
healthcare 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 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 will not become
involved in such litigation in the future. Through the ownership and operation
of Pioneer Hospital ("Pioneer Hospital"), U.S. Family Care Medical Center
("USFMC") and Friendly Hills Hospital ("Friendly Hills"), acute care hospitals
located in Artesia, Montclair and La Habra, California, respectively,
MedPartners could be subject to allegations of negligence and wrongful acts by
its hospital-based physicians or 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 could be named in actions involving care rendered to
patients by physicians employed by or contracting with affiliated medical
organizations and physician groups.

MedPartners maintains professional and general liability insurance and
other coverage deemed necessary by MedPartners. 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' practice management agreements require the affiliated
physicians to maintain professional liability and workers' compensation
insurance coverage on the practice and on each employee and agent of the
practice, and MedPartners 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 -- Corporate Liability and Insurance".

GOVERNMENT REGULATION

Federal and state laws regulate the relationships among providers of
healthcare 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

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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 monetary penalties and exclusion from
participation in the Medicare and Medicaid programs. Such exclusion and
penalties, if applied to MedPartners' affiliated physicians, could result in
significant loss of reimbursement.

Moreover, the laws of many states, including California (from which a
significant portion of MedPartners' 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 Note 1 to the consolidated financial statements of
MedPartners, MedPartners 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
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 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 and its
affiliates by courts or regulatory authorities will not result in a
determination that could adversely affect their operations or that the
healthcare regulatory environment will not change so as to restrict existing
operations or expansion thereof. In the event of action by any regulatory
authority limiting or prohibiting MedPartners or any affiliate from carrying on
its business or from expanding the operations of MedPartners and its affiliates
to certain jurisdictions, structural and organizational modifications of
MedPartners may be required, which could have a material adverse effect on the
operating results and financial condition of MedPartners.

In addition to the regulations referred to above, significant aspects of
MedPartners' operations are subject to state and federal statutes and
regulations governing workplace health and safety, the operation of pharmacies,
repackaging of drug products, dispensing of controlled substances and the
disposal of medical waste. MedPartners' operations 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 a material adverse effect on the
operating results and financial condition of MedPartners. See "-- Risks Relating
to Pharmacy Licensing and Operation".

As of March 31, 1997, approximately 11% of the revenues of MedPartners'
affiliated physician groups are derived from payments made by
government-sponsored healthcare 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. There are also state and federal civil and criminal
statutes imposing substantial penalties (including civil penalties and criminal
fines and imprisonment) on healthcare providers that fraudulently or wrongfully
bill governmental or other third-party payors for healthcare services.
MedPartners believes it is in material compliance with such laws, but there can
be no assurance that MedPartners' activities will not be challenged or
scrutinized by governmental authorities or that any such challenge or scrutiny
would not have a material adverse effect on the operating results and financial
condition of MedPartners.

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Additionally, the 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
or any of its subsidiaries or affiliated physicians, such exclusion could result
in a significant loss of reimbursement for MedPartners, up to a maximum of 11%
of the revenues of MedPartners' affiliated physician groups, which could have a
material adverse effect on the operating results and financial condition of
MedPartners. Although MedPartners 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 the
federal 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 believes it is in compliance with such legislation, future
regulations could require MedPartners to modify the form of its relationships
with physician groups. Some states have also enacted similar self-referral laws,
and MedPartners believes it is likely that more states will follow. MedPartners
believes that its practices fit within exemptions contained in such statutes.
Nevertheless, expansion of the operations of MedPartners into certain
jurisdictions may require structural and organizational modifications of
MedPartners' relationships with physician groups to comply with new or revised
state statutes. Such structural and organizational modifications could have a
material adverse effect on the operating results and financial condition of
MedPartners.

The Knox-Keene Health Care Service Plan Act of 1975 (the "Knox-Keene Act")
and the regulations promulgated thereunder subject entities which are licensed
as healthcare service plans in California to substantial regulation by the
California Department of Corporations (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 that fail to comply with such
requirements. On March 5, 1996, the DOC issued to Pioneer Provider Network, Inc.
("PPN"), a wholly-owned subsidiary of MedPartners, a healthcare service plan
license (the "Restricted License"). PPN is a recently created organization
without an operating history, and there is no assurance that the DOC will view
PPN's operations to be fully in compliance with applicable laws, including the
Knox-Keene Act, and regulations. Any material non-compliance could have a
material adverse effect on the operating results and financial condition of
MedPartners.

RISKS RELATING TO PHARMACY LICENSING AND OPERATION

MedPartners is subject to federal and state laws and regulations governing
pharmacies. Federal controlled substance laws require MedPartners 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. Any failure to satisfy such pharmacy licensing statutes
and regulations could have a material adverse effect on the operating results
and financial condition of MedPartners.

RISKS RELATING TO HEALTHCARE REFORM; PROPOSED LEGISLATION

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

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ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of MedPartners' Third Restated Certificate of
Incorporation, as amended (the "MedPartners Certificate of Incorporation"),
MedPartners' Second Amended and Restated Bylaws (the "MedPartners Bylaws") and
the DGCL could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of MedPartners. 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' Common Stock. MedPartners 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
rights plan, which provides for discount purchase rights to certain stockholders
of MedPartners upon certain acquisitions of 10% or more of the outstanding
shares of MedPartners Common Stock, may also inhibit a change in control of
MedPartners.

POSSIBLE VOLATILITY OF STOCK PRICE; RISKS RELATING TO FIXED EXCHANGE RATIO

There may be significant volatility in the market price for the MedPartners
Common Stock. Quarterly operating results of MedPartners, changes in general
conditions in the economy, the financial markets or the healthcare industry, or
other developments affecting MedPartners or its competitors, could cause the
market price of the MedPartners Common Stock to fluctuate substantially. In
addition, in recent years, the stock market and, in particular, the healthcare
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.

The Plan of Merger provides for a fixed Exchange Ratio, with each InPhyNet
Share being converted into the right to receive 1.18 shares of MedPartners
Common Stock. The Plan of Merger does not contain any provisions for adjustment
of the Exchange Ratio based on fluctuations in the price of MedPartners Common
Stock. As a result of the fixed Exchange Ratio, the aggregate value of the
Merger Consideration to be received by stockholders of InPhyNet upon the Merger
will depend on the market price of the MedPartners Common Stock at the Effective
Time. Because of the fixed Exchange Ratio, InPhyNet stockholders share in the
risks and rewards of ownership of MedPartners Common Stock pending the closing
of the Merger.

On January 20, 1997, the date the Merger Agreement was signed, the closing
price of the MedPartners Common Stock on the NYSE was $21.875, and on June 3,
1997, the closing price of the MedPartners Common Stock on the NYSE was $20.25.
There can be no assurance that the market price of the MedPartners Common Stock
on and after the Effective Time will not be lower than either of such prices or
the market price of the MedPartners Common Stock on the date of the Special
Meeting. Pursuant to the Plan of Merger, the Plan of Merger may be terminated by
InPhyNet if the average last sale price per share of the MedPartners Common
Stock, as reported on the NYSE Composite Tape for the ten consecutive trading
days ending on the fifth trading day immediately preceding the date of the
Special Meeting, is equal to or less than $17.125.

Consummation of the Merger could be delayed following approval of the
Merger at the Special Meeting as a result of, among other things, the failure to
obtain certain regulatory approvals or to satisfy other conditions to the
consummation of the Merger. See "The Merger -- Regulatory Approvals" and
"-- Conditions to the Merger". It is presently anticipated, however, that the
Merger will be consummated as soon as practicable after the Special Meeting. If,
however, the consummation of the Merger is delayed beyond the date of the
Special Meeting, holders of InPhyNet Common Stock have the risk that the market
price of the MedPartners Common Stock at the consummation of the Merger may be
less than the market price of the MedPartners Common Stock on the date of the
Special Meeting.

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 InPhyNet Shares would recognize gain
or loss equal to the difference between the fair market value of the MedPartners
Common Stock received and cash received in lieu of fractional shares and such
holder's basis in the InPhyNet Shares exchanged therefor. See "The
Merger -- Federal Income Tax Consequences".

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THE SPECIAL MEETING

GENERAL

This Prospectus-Proxy Statement is being furnished to holders of InPhyNet
Shares in connection with the solicitation of proxies by the Board of Directors
of InPhyNet for use at the Special Meeting to consider and vote upon the
approval of the Plan of Merger at the Special Meeting or any adjournments or
postponements thereof. Each copy of this Prospectus-Proxy Statement mailed or
delivered to holders of InPhyNet Shares is accompanied by a form of Proxy for
use at the Special Meeting.

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

DATE, PLACE AND TIME

The Special Meeting is to be held at the Sheraton Suites Plantation, 311 N.
University Drive, Plantation, Florida, on June 26, 1997 at 10:00 a.m., local
time.

RECORD DATE, QUORUM AND VOTING

The Board of Directors of InPhyNet has fixed the close of business on May
12, 1997 as the Record Date for the determination of the holders of InPhyNet
Shares entitled to receive notice of, and to vote at, the Special Meeting. The
presence, in person or by Proxy, of the holders of InPhyNet Shares 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, there were
16,370,910 shares of InPhyNet Common Stock issued and outstanding, which were
held by approximately 1,400 beneficial owners. Each stockholder of record as of
that date is entitled to one vote for each share then held.

The Board of Directors of InPhyNet has unanimously approved the Plan of
Merger and recommends a vote in favor of the Plan of Merger at the Special
Meeting.

VOTE REQUIRED

Approval and adoption of the Plan of Merger by the stockholders of InPhyNet
require the affirmative vote of a majority of the issued and outstanding shares
of InPhyNet Common Stock as of the Record Date. The proposal to authorize the
Board of Directors to adjourn or postpone the Special Meeting, if necessary, to
permit the further solicitation of proxies must be approved by the affirmative
vote of a majority of the shares of InPhyNet Common Stock present or represented
by proxy and entitled to vote at the Special Meeting. Because the required vote
of InPhyNet stockholders to approve the Plan of Merger is based upon the total
number of outstanding shares, the failure to submit a proxy card (or to vote in
person at the Special Meeting) or the abstention from voting by an InPhyNet
stockholder (including broker non-votes) will have the same effect as a vote
"against" the approval and adoption of the Plan of Merger. As of the Record
Date, there were 16,370,910 shares of InPhyNet Common Stock issued and
outstanding. Accordingly, the affirmative vote of the holders of 8,185,456
shares of InPhyNet Common Stock is required to approve the Plan of Merger. As of
the Record Date, directors and executive officers of InPhyNet owned in the
aggregate 3,191,518 shares of InPhyNet Common Stock (or approximately 19.5% of
the outstanding shares of InPhyNet Common Stock). All the directors and
executive officers of InPhyNet have indicated their present intent to vote all
of the shares of InPhyNet Common Stock beneficially owned by them in favor of
the Plan of Merger and the proposal to authorize the Board of Directors to
adjourn or postpone, if necessary, the Special Meeting to permit the further
solicitation of proxies.

VOTING AND REVOCATION OF PROXIES

InPhyNet Shares 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

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PROPERLY EXECUTED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS,
INPHYNET SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION
OF THE PLAN OF MERGER and the proposal to permit the adjournment or postponement
of the Special Meeting. Any Proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the Proxy is voted by the
filing with the Secretary of InPhyNet of an instrument revoking it or of a duly
executed Proxy bearing a later date 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, if authorized, propose and vote
for one or more adjournments or postponements of the Special Meeting to permit
further solicitation of proxies in favor of the proposals to be considered at
the Special Meeting; provided, however, that no Proxy which is voted against the
Merger will be voted in favor of such proposal at 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 InPhyNet is not aware of any business to be acted
upon at the Special Meeting other than as described in the Notice of the Special
Meeting or 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.

Representatives of InPhyNet's independent public accountants, Ernst & Young
LLP, will be present at the Special Meeting to respond to appropriate questions
and will have the opportunity to make a statement if they desire to do so.

SOLICITATION OF PROXIES

In addition to solicitation by mail, directors, officers and employees of
InPhyNet, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of InPhyNet personally or by telephone or
telegram or other form of communication. InPhyNet has retained ChaseMellon
Shareholder Services L.L.C. ("ChaseMellon") to solicit proxies on its behalf and
will pay ChaseMellon a fee of approximately $5,000 for these services. InPhyNet
will also reimburse ChaseMellon for its out-of-pocket expenses incurred in
connection with such solicitation. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of InPhyNet Common Stock beneficially owned by others to
forward to such beneficial owners. InPhyNet may reimburse persons representing
such beneficial owners for the costs of forwarding solicitation materials to
such beneficial owners. Except as otherwise provided in the Plan of Merger,
InPhyNet will bear its own expenses in connection with the solicitation of
proxies for the Special Meeting. See "The Merger -- Expenses; Breakup Fees".

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

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 InPhyNet stockholders are urged
to read Annex A carefully in its entirety.

TERMS OF THE MERGER

The acquisition of InPhyNet by MedPartners will be effected by means of the
merger of InPhyNet with and into the Subsidiary, with the Subsidiary being the
surviving corporation (the "Surviving Corporation").

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The Certificate of Incorporation and the Bylaws of the Subsidiary in effect at
the Effective Time will become the Certificate of Incorporation and Bylaws of
the Surviving Corporation at the Effective Time until amended or repealed in
accordance with applicable law. After the Effective Time, the Subsidiary shall
continue as the surviving corporation of the Merger under the name "InPhyNet
Medical Management Inc.".

The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of the State of the State of Delaware, or such other
time as MedPartners, the Subsidiary and InPhyNet specify in the Certificate of
Merger. It is expected that the Merger will be consummated as soon as
practicable after the Special Meeting. See "Risk Factors -- Possible Volatility
of Stock Price; Risks Relating to Fixed Exchange Ratio".

Upon consummation of the Merger, each share of InPhyNet Common Stock, other
than shares held by InPhyNet or MedPartners, if any (which will be canceled),
will be converted into the right to receive 1.18 shares of MedPartners Common
Stock. For example, if an InPhyNet stockholder owned 100 shares of InPhyNet
Common Stock as of the Effective Time, that stockholder would receive 118 shares
of MedPartners Common Stock in the Merger. Each holder of InPhyNet Shares
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of MedPartners Common Stock will receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of MedPartners Common Stock multiplied by the per share closing price on
the NYSE Composite Tape of MedPartners Common Stock on the date of the Effective
Time.

Because the Exchange Ratio of MedPartners Common Stock for the InPhyNet
Common Stock is fixed at 1.18 and will not increase or decrease due to
fluctuations in the market price of either stock, the aggregate value of the
Merger Consideration will change in the event the market price of MedPartners
Common Stock increases or decreases before the Effective Time. As a result, in
the event the market price of MedPartners Common Stock decreases as of the
Effective Time, the value of the MedPartners Common Stock to be received in the
Merger in exchange for the InPhyNet Common Stock would decrease. In the event
the market price of MedPartners Common Stock instead increases as of the
Effective Time, the value of the MedPartners Common Stock to be received in the
Merger in exchange for the InPhyNet Common Stock would increase. See "Risk
Factors -- Possible Volatility of Stock Price; Risks Relating to Fixed Exchange
Ratio".

On June 3, 1997, the closing price of MedPartners Common Stock was $20.25.
At such price, the Equivalent Value of a share of InPhyNet Common Stock would be
$23.90 and the aggregate value of the Merger Consideration would be
approximately $391.2 million. The actual market price of the MedPartners Common
Stock may vary, which will cause a corresponding change in the Equivalent Value
and the aggregate value of the Merger Consideration. Each InPhyNet stockholder
is urged to obtain updated market information as to the MedPartners Common
Stock.

All options to acquire InPhyNet Common Stock which are outstanding at the
Effective Time will vest at such time and will be converted into and become
rights to purchase that number of shares of MedPartners Common Stock equal to
the number of InPhyNet Shares subject thereto multiplied by the Exchange Ratio
and will be exercisable at an exercise price per share equal to the InPhyNet
exercise price divided by the Exchange Ratio.

INPHYNET STOCKHOLDERS WILL NOT RECEIVE THEIR SHARES OF MEDPARTNERS COMMON
STOCK UNTIL FOLLOWING CONSUMMATION OF THE MERGER. SEE "-- EXCHANGE OF
CERTIFICATES".

BACKGROUND OF THE MERGER

Management of InPhyNet has recognized that the physician practice
management sector of the healthcare industry has become increasingly competitive
as a result of rapid consolidation, the entrance of new market participants and
continued pricing pressure. In order to address these competitive pressures and
achieve the benefits of economies of scale, diversification and greater market
presence, InPhyNet has pursued a business strategy of growth through
acquisitions. Since becoming a public company, InPhyNet has regularly considered
a variety of possible acquisitions and strategic alliances, including
acquisitions of smaller companies and mergers with comparably-sized or larger
companies.

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During the third quarter of 1996, the price of InPhyNet Common Stock
continued to trade at a price/ earnings multiple which was relatively lower than
other comparable physician practice management companies. InPhyNet management
believed that InPhyNet's low stock price adversely affected its ability to
implement its growth strategy. This strategy required InPhyNet to complete
accretive acquisitions. InPhyNet's low relative price/earnings multiple made it
difficult for the company to be competitive in significant stock-for-stock
transactions and to consummate accretive acquisitions. In addition, a
significant amount of restricted InPhyNet Common Stock became available for
resale in August 1996 under Rule 144 under the Securities Act, creating a market
perception of an overhang risk that could depress the market price of the
InPhyNet Common Stock. In light of the increasing competitive pressures faced by
InPhyNet and the risks these pressures placed on the company and its
stockholders, as well as the possibility that the stockholders of InPhyNet could
receive a significant premium in a business combination, Clifford Findeiss,
M.D., Chairman of the Board, President and Chief Executive Officer of InPhyNet,
began to explore the possibility of merging with another company, as a possible
alternative to remaining independent.

In early September 1996, Dr. Findeiss telephoned Larry R. House, President
and Chief Executive Officer of MedPartners, to discuss matters relating to
InPhyNet's ownership structure and the two companies' plans for the future.
Following this telephone call, representatives of InPhyNet and MedPartners met
in Birmingham, Alabama on September 18, 1996. Participants at the meeting were
Dr. Findeiss and George W. McCleary, Jr., Executive Vice President, Chief
Financial Officer and a Director of InPhyNet, and, on behalf of MedPartners, Mr.
House, Harold O. Knight, Jr., Executive Vice President and Chief Financial
Officer, and H. Lynn Massingale, M.D., President of MedPartners' hospital
physician services subsidiary, TeamHealth, Inc. The participants engaged in a
discussion of the broad outlines of a possible business combination between the
two companies. No specific transaction terms were discussed. At that meeting,
InPhyNet and MedPartners signed confidentiality agreements.

Dr. Findeiss and Mr. McCleary were concerned that InPhyNet's ongoing
business and acquisition strategy might be adversely affected by general
knowledge that InPhyNet would consider entering into a business combination with
a larger company. As a result of this concern, Dr. Findeiss sought advice from
InPhyNet's financial advisors, Morgan Stanley and McFarland Dewey & Co.
("McFarland Dewey"), on the recommended approach to follow to determine if a
business combination could be arranged that would provide (i) for the continued
growth of InPhyNet's business and (ii) a value and liquidity that the company's
stockholders would find attractive. In October 1996, Dr. Findeiss and Mr.
McCleary met with representatives of Morgan Stanley and McFarland Dewey to
discuss the strategic and financial issues facing InPhyNet. The financial
advisors advised Dr. Findeiss and Mr. McCleary that InPhyNet should contact a
selected group of potential merger partners to determine if a transaction could
be structured which would be in the best interests of InPhyNet and its
stockholders. Dr. Findeiss, Mr. McCleary and the financial advisors discussed
and agreed upon the potential parties to approach. The companies that were
selected to be approached were, in the opinion of the financial advisors, Dr.
Findeiss and Mr. McCleary, those which (i) shared a common strategic vision with
InPhyNet, (ii) would provide the best combination of value and liquidity, and
(iii) had the ability to close a transaction on a timely basis while maintaining
the confidentiality of the process. The list included MedPartners, among others.
In October and November 1996, the financial advisors began contacting these
companies.

During November 1996, InPhyNet's financial advisors provided several
companies with financial information regarding InPhyNet, after the execution of
confidentiality agreements, and engaged in preliminary discussions with
representatives of several companies, including MedPartners. These companies
were encouraged to consider the possibility of a business combination with
InPhyNet and to consider ranges of valuations. Three companies, MedPartners and
two other strategic buyers -- a physician practice management company smaller
than MedPartners ("Company One") and a diversified company ("Company Two") --
elected to participate in the process. During this same period, InPhyNet
continued its strategy of continuing to try to acquire other companies of equal
or lesser size.

On November 19, 1996, Dr. Findeiss and Mr. McCleary and representatives of
their financial advisors met at the offices of Morgan Stanley in New York, New
York with representatives of Company Two. At this meeting, the chief executive
officers of InPhyNet and Company Two discussed the strategic visions for their

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respective companies, the principal issues facing their companies and why they
were interested in pursuing a possible transaction together. There were no
discussions regarding price, structure or any other terms of a possible
transaction at such meeting. The parties agreed to continue discussions. On
December 11, 1996, Dr. Findeiss and Mr. McCleary and representatives of Company
Two and their respective financial advisors met in Fort Lauderdale, Florida to
further discuss the operations and strategy of InPhyNet. At this meeting,
Company Two informed InPhyNet that it was interested in either making a minority
investment in InPhyNet or acquiring all of InPhyNet. Company Two did not present
a firm proposal at or following these meetings. In early January 1997, Company
Two announced a large acquisition and informed Morgan Stanley that, as a result,
it would not be able to consider pursuing the acquisition of InPhyNet until the
middle of February, at the earliest. Dr. Findeiss and Mr. McCleary, in
consultation with InPhyNet's financial advisors, determined that it would not be
in the best interests of InPhyNet and its stockholders to delay the process in
order to wait for Company Two to decide whether or not to submit a firm
proposal.

MedPartners, through its financial advisor, Smith Barney Inc. ("Smith
Barney"), requested another meeting of the chief executive officers of
MedPartners and InPhyNet. On December 1, 1996, Mr. House and Dr. Findeiss met in
Fort Lauderdale, Florida to discuss the direction of, and opportunities
available in, the healthcare industry and their strategic visions for their
respective companies. At this meeting, Mr. House advised Dr. Findeiss of his
interest in seriously exploring the possibility of combining the two companies
and how the combined entity would be organized and operated.

On December 13, 1996, Mr. Knight, the Executive Vice President and Chief
Financial Officer of MedPartners, sent a letter to Dr. Findeiss expressing
MedPartners' interest in merging with InPhyNet in a tax-free, stock-for-stock,
pooling of interests transaction. MedPartners proposed to value the InPhyNet
Common Stock, based on the information available to it, in a range of $23 to $24
per share. Dr. Findeiss, after consultation with Mr. McCleary, Morgan Stanley
and McFarland Dewey, determined not to recommend the transaction to InPhyNet's
Board of Directors because the proposed valuation was too low. InPhyNet, through
Morgan Stanley, advised Mr. Knight of Dr. Findeiss's decision.

On December 17, 1996, Dr. Findeiss and representatives of InPhyNet's
financial advisors met with members of senior management and representatives of
the financial advisor of Company One to discuss the strategic vision of each
company and the possible benefits to both companies of a business combination.
At this meeting, the representatives of Company One and its financial advisor
provided the InPhyNet representatives a business, financial and stock market
overview of Company One, and their views on the benefits of a strategic merger
of the two companies. The Company One representatives confirmed that Company One
was contemplating a stock-for-stock, pooling of interests merger with InPhyNet.
The Company One representatives provided a preliminary valuation of InPhyNet
that was lower than what Dr. Findeiss was prepared to recommend to InPhyNet's
Board of Directors. InPhyNet's financial advisors told Company One that the
proposed value was too low. The parties agreed to continue discussions.
Thereafter, Morgan Stanley engaged in telephonic discussions with
representatives of Company One to encourage a revised proposal.

Smith Barney, MedPartners' financial advisor, advised Morgan Stanley that
MedPartners would consider increasing its valuation of InPhyNet if it could
review InPhyNet's financial information in depth with InPhyNet's Chief Financial
Officer. Subsequently, MedPartners contacted Morgan Stanley to schedule a
meeting in early January to review financial information. On January 3, 1997,
members of senior management of TeamHealth, consisting of Lynn Massingale, David
Jones, Chief Financial Officer, Mike Hatcher, Chief Operating Officer, Ed
Novinski, Executive Vice President for Managed Care of MedPartners (who
participated by conference call), and representatives of MedPartners' financial
advisors met with Mr. McCleary and representatives of InPhyNet's financial
advisors to review the requested financial information. During the following
week, InPhyNet provided MedPartners additional information for use in reviewing
a possible business combination with InPhyNet and the companies, through their
financial advisors, discussed issues relating to the possible combination and a
range of possible terms.

From late December to early January, Morgan Stanley continued telephonic
discussions with MedPartners and Company One regarding their interest in
pursuing a business combination with InPhyNet. Morgan Stanley used these
telephone conversations to encourage MedPartners and Company One to submit

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<PAGE> 34

their best proposals including valuations higher than previously proposed.
Morgan Stanley sought to guide MedPartners and Company One to propose a range of
values that would meet or exceed InPhyNet's expectations. These expectations
were developed by Dr. Findeiss in consultation with Mr. McCleary, Morgan Stanley
and McFarland Dewey and reflected primarily their knowledge of InPhyNet's
business, the valuations of other comparable companies and the valuations
achieved in other transactions.

In late December, Company One's financial advisor informed Morgan Stanley
that Company One was prepared to increase its valuation of InPhyNet above the
level that it had proposed at its December 17, 1996 meeting with InPhyNet.
Company One, however, did not ultimately present a revised proposal.

On January 11, 1997, Mr. House telephoned Dr. Findeiss to request that
InPhyNet deal exclusively with MedPartners for a two-week period. Mr. House
advised Dr. Findeiss that MedPartners would be prepared to commence intensive
due diligence and concurrently enter into merger negotiations including the
negotiation of a definitive agreement. Mr. House told Dr. Findeiss that
MedPartners was willing to proceed on the basis of a $28 per share valuation of
the InPhyNet Common Stock in exchange for such exclusivity.

Although InPhyNet did not bind itself to deal exclusively with MedPartners,
it determined to proceed with MedPartners on this basis absent receipt of a
superior proposal from another party. Subsequent to the January 11, 1997 offer
by MedPartners, Morgan Stanley contacted Company One's financial advisor and
gave Company One an opportunity to present a superior proposal, but it declined
to do so. The decision to proceed with MedPartners was made by Dr. Findeiss, in
consultation with Mr. McCleary, Morgan Stanley and McFarland Dewey, based upon
the determination, from the perspective of both InPhyNet and its stockholders,
that MedPartners' proposal best addressed the criteria referred to above and
represented the most attractive proposal that had been received.

On January 15, 1997, Dr. Findeiss began advising other members of senior
management and members of the InPhyNet Board of Directors about the proposed
transaction with MedPartners. From January 15 to January 17, 1997, officers and
employees of MedPartners and InPhyNet, together with their respective legal and
financial advisors, conducted due diligence reviews and exchanged confidential
information in a series of meetings in Fort Lauderdale, Florida and Chicago,
Illinois. On January 16 and 17, 1997, representatives of MedPartners, including
Mr. Knight and other officers of MedPartners, and InPhyNet, including Dr.
Findeiss and Mr. McCleary, together with their legal and financial advisors,
discussed the terms of the proposed combination, including the structure of the
transaction, the consideration payable to the holders of InPhyNet Common Stock,
the treatment of the InPhyNet stock options, the tax and accounting treatment of
the transaction, management of the resulting entity, the conditions to
consummation of the transaction, the operations of each of the companies,
including the impact upon InPhyNet's ongoing mergers and acquisition activities,
during the period between the signing of a definitive agreement and the
consummation of the transactions contemplated thereby, regulatory matters and
possible termination fees. From January 17 to January 20, 1997, senior
management of MedPartners and InPhyNet and their respective legal counsel and
financial advisors negotiated the Plan of Merger. The principal areas of
negotiation included the Exchange Ratio, including how and when it would be
fixed, and whether it would be subject to adjustment based on changes in market
prices of the two companies' stock; representations and warranties; the interim
operations covenants; and the conditions required for a termination of the Plan
of Merger, the triggering events for the payment of a termination fee and the
amount of the fee. Morgan Stanley and McFarland Dewey, as co-financial advisors,
jointly advised the senior management of InPhyNet and participated in
negotiations with MedPartners and Smith Barney regarding all of the financial
aspects of the Plan of Merger. InPhyNet's financial advisors advised InPhyNet as
to the greater valuation that could be achieved from an all stock transaction
accounted for as a pooling of interests and from the synergies that could be
obtained in a merger of the two companies, as well as the risks and liquidity
associated with the MedPartners' Common Stock. Based on the analyses performed
by Morgan Stanley described under "Opinion of InPhyNet's Financial Advisor"
below, Morgan Stanley confirmed to senior management of InPhyNet that it would
be able to render an opinion as to the fairness of the terms of the Merger.

On January 18, 1997, the Board of Directors of InPhyNet held a special
meeting at which representatives of InPhyNet's management and legal and
financial advisors were present. The Board of Directors reviewed

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<PAGE> 35

and discussed the form and terms of the proposed Plan of Merger and reviewed
alternative opportunities for strategic alliances that had been explored by
InPhyNet's management and its financial advisors. At this meeting, InPhyNet's
legal counsel outlined the Board's fiduciary responsibilities in connection with
the proposed transaction. Management reviewed the history of its discussions
with potential merger partners. Management also discussed the current market
conditions in the healthcare industry and InPhyNet's competitive situation.
Counsel reviewed the terms of the proposed transaction with the Board. Ernst &
Young described the requirements for pooling of interests accounting treatment
for the proposed transaction. Morgan Stanley made a financial presentation to
the Board of Directors and rendered an oral opinion to the effect that, as of
such date and based upon and subject to certain matters, the proposed Exchange
Ratio was fair from a financial point of view to the holders of InPhyNet Common
Stock. See "-- Opinion of InPhyNet's Financial Advisor". The Board of Directors
elected to rely on the advice of Morgan Stanley as to the fairness of the
Exchange Ratio and did not request a supplemental fairness opinion from
McFarland Dewey. Counsel reviewed the form and terms of the proposed Plan of
Merger with the Board. Counsel, management and the financial advisors of
InPhyNet reviewed the results of the due diligence review of MedPartners. Based
on the foregoing discussions, the Board of Directors of InPhyNet, acting
unanimously, directed management to continue discussions with MedPartners and to
finalize the terms of the Plan of Merger.

On January 20, 1997, at a special telephonic meeting of the InPhyNet Board
of Directors in which InPhyNet's legal and financial advisors were present,
counsel reviewed with the Board of Directors the changes that had been made to
the terms and conditions of the proposed Plan of Merger. Management informed the
Board of Directors of InPhyNet that the proposed transaction had been
unanimously approved earlier that day by the Board of Directors of MedPartners.
Morgan Stanley confirmed their earlier oral opinion by delivering a written
opinion dated January 20, 1997, to the effect that as of January 20, 1997, and
based upon and subject to certain matters stated in such opinion, the Exchange
Ratio was fair, from a financial point of view, to the holders of InPhyNet
Common Stock. Following these discussions and taking into account the
discussions held during the InPhyNet Board of Directors meeting on January 18,
1997, the InPhyNet Board of Directors, 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 InPhyNet Board of Directors,
together with such changes as the President or Chief Financial Officer of
InPhyNet might authorize in their sole discretion. All of the directors voted in
favor of the proposed Plan of Merger.

On January 20, 1997, InPhyNet and MedPartners executed the Plan of Merger,
and issued a joint press release regarding the Merger on January 21, 1997.

During May 1997, InPhyNet and the SEC engaged in discussions regarding the
appropriate accounting for InPhyNet's five-year globally-capitated agreement
(the "PCA Agreement") with PCA Health Plans of Florida Inc. and PCA Family
Health Plans Inc. (together, "PCA"). As reflected in its audited December 31,
1996 financial statements (see F-31), InPhyNet established a $7.9 million
reserve in the third quarter of 1996 and an additional $1.4 million reserve in
the fourth quarter of 1996 for costs associated with provider contracts InPhyNet
was required to assume according to the terms of the PCA Agreement. These same
costs, representing InPhyNet management's estimate of certain expected losses,
had been capitalized as deferred acquisition costs which were being amortized
over the five-year term of the PCA Agreement. The SEC's position was that
InPhyNet should instead expense as incurred the costs relating to the PCA
Agreement, but the SEC was willing to consider analysis supporting InPhyNet's
position. Ultimately, however, InPhyNet agreed to change its accounting for the
costs associated with the PCA Agreement and to restate its audited financial
statements for the year ended December 31, 1996, and unaudited financial
statements for the quarters ended September 30, 1996 and March 31, 1997 to
reflect such accounting. On May 23, 1997, InPhyNet filed its amended Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1996, and its
amended Quarterly Reports on Form 10-Q/A for the fiscal quarters ended September
30, 1996 and March 31, 1997 reflecting such accounting.

On May 19, 1997, Mr. McCleary, InPhyNet's Chief Financial Officer, met with
Mr. Knight and Mark Weeks, MedPartners' Chief Financial Officer and Controller,
respectively, in Birmingham, Alabama to review the impact of the proposed
accounting change, InPhyNet's financial performance year to date and financial
projections. At this meeting, Mr. Knight informed Mr. McCleary that, in light of
the proposed restatement of

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InPhyNet's financial statements, an adjustment in the Exchange Ratio would be
required by MedPartners. Mr. Weeks suggested that an Exchange Ratio of 1.15
might be appropriate. Mr. McCleary advised them that he did not believe that
InPhyNet would accept a revision to the Exchange Ratio.

On May 20, 1997, InPhyNet met with its financial and legal advisors to
determine its response to MedPartners' request for a lower exchange ratio.
During the day, representatives of InPhyNet and MedPartners discussed the
financial projections of InPhyNet, the synergies that could be expected in the
Merger and InPhyNet's projected financial performance under the PCA Agreement.
In a telephone conversation with Dr. Findeiss, Mr. House, Chairman of the Board,
President and Chief Executive Officer of MedPartners, informed Dr. Findeiss that
MedPartners was not willing to proceed with the Merger at an exchange ratio of
1.311. During the course of the day, Dr. Findeiss began informing InPhyNet's
directors of the substance of his discussions with MedPartners. Following the
close of trading on the New York Stock Exchange on May 20, 1997, MedPartners
issued a press release in which it stated that it was reevaluating the terms of
the Merger and, in particular, that it believed that a downward adjustment in
the Exchange Ratio was required.

In a telephone call among the parties and InPhyNet's financial advisors,
MedPartners stated that it was not willing to proceed with the Merger at an
exchange ratio greater than 1.15. After consulting with its financial and legal
advisors, InPhyNet informed MedPartners that an exchange ratio of 1.15 was not
acceptable but that it would be prepared to consider a smaller reduction in the
exchange ratio to 1.25, if certain material conditions to the consummation of
the Merger were eliminated from the Plan of Merger. MedPartners indicated that
it would be willing to increase the proposed exchange ratio from 1.15 to 1.18
and to eliminate certain of the material conditions to the closing of the Merger
set forth in the Plan of Merger.

InPhyNet held a special meeting of its Board of Directors on May 21, 1997
at which InPhyNet's legal and financial advisors were present and at which all
directors participated. At the special meeting, InPhyNet's legal counsel
reviewed with the InPhyNet Board the proposed change to the Exchange Ratio and
the other changes to the Plan of Merger. Mr. McCleary reviewed the events and
discussions which led to MedPartners' public announcement that it was
reevaluating the terms of the Plan of Merger. InPhyNet's management and
financial advisors then reviewed the course of the negotiations with
MedPartners. Morgan Stanley made a financial presentation to the InPhyNet Board
in which it reported that it had analyzed the Merger in light of the new
Exchange Ratio and rendered an oral opinion to the effect that the revised
Exchange Ratio was fair, from a financial point of view, to the stockholders of
InPhyNet. See "-- Opinion of InPhyNet's Financial Advisor". InPhyNet's counsel
also reviewed the terms of the proposed consulting agreements between
MedPartners and Dr. Findeiss and Mr. McCleary. Dr. Findeiss and Mr. McCleary
absented themselves from the meeting during the discussion of their proposed
consulting arrangements.

In unanimously approving the amendment to the Plan of Merger, including the
revised Exchange Ratio and the elimination of certain conditions to the Merger,
the InPhyNet Board considered a number of factors, including, primarily, (i) the
risks faced by InPhyNet and the attendant risks to InPhyNet stockholders if the
Merger were terminated, including the risk that there would be a substantial
decrease in the price of InPhyNet Common Stock, (ii) the likelihood that
InPhyNet might not receive a higher offer from another merger partner,
particularly in light of the general decline in valuations of physician practice
management company stocks since December 1996, (iii) the opinion and related
analyses of Morgan Stanley as to the fairness, from a financial point of view,
of the revised Exchange Ratio to the stockholders of InPhyNet, and (iv) the
terms of the proposed amendment to the Plan of Merger which eliminated certain
conditions to the consummation of the Merger, but which retained certain
termination rights favorable to InPhyNet.

RECOMMENDATION OF THE INPHYNET BOARD OF DIRECTORS

By unanimous vote of the members of the Board of Directors of InPhyNet at
special meetings held on January 20, 1997 and May 21, 1997, the Board of
Directors determined that the proposed Merger, and the terms and conditions of
the Plan of Merger, were fair to and in the best interests of InPhyNet and its
stockholders and resolved to recommend that the stockholders of InPhyNet 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

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Merger and to recommend that the stockholders of InPhyNet vote FOR the approval
and adoption of the Plan of Merger, the Board of Directors of InPhyNet
considered a number of factors.

The material factors considered by the InPhyNet Board of Directors in
reaching its conclusion to approve and recommend the Plan of Merger at the
January 20, 1997 meeting were as follows:

(i) the InPhyNet Board of Directors' review and analysis of InPhyNet's
and MedPartners' respective businesses, prospects, historical and projected
financial performance, financial condition and operations. Based on these
factors, as well as those discussed below, InPhyNet's Board of Directors
determined that the Exchange Ratio reflected an appropriate valuation of
the InPhyNet Common Stock;

(ii) the InPhyNet Board of Directors' review of the trading range for
the InPhyNet Common Stock as compared to the Merger Consideration implied
by the Exchange Ratio. The Board of Directors determined that the Merger
Consideration represented a significant premium over the trading range for
the InPhyNet Common Stock during the preceding six months and represented a
valuation for InPhyNet that could not be achieved as quickly, if at all, if
InPhyNet were to remain an independent entity;

(iii) the InPhyNet Board of Directors' review of the risks faced by
InPhyNet in implementing its acquisition strategy and the attendant risks
to InPhyNet's stockholders of the failure to implement the strategy on a
consistently successful basis. The Board of Directors observed that as a
result of (a) the increased competition for acquisitions in the physician
practice management sector, (b) the requirement that acquisitions be
accretive to earnings to meet quarterly earnings growth expectations, (c)
the relatively lower price/earnings multiple of the InPhyNet Common Stock,
compared to other comparable physician practice management companies, which
made it more difficult for InPhyNet to be competitive in significant
stock-for-stock transactions and (d) the inability to control the timing of
the closing of acquisitions, InPhyNet faced significant risks in
successfully carrying out its growth strategy. The Board of Directors also
observed that the failure by InPhyNet to implement an acquisition strategy
on a consistently successful basis and to meet quarterly earnings
expectations would likely have an adverse impact on the price of the
InPhyNet Common Stock. The Board believed that the Merger would mitigate
this risk. The Board noted that as a result of the Merger, the InPhyNet
stockholders would continue as stockholders of a larger, more diversified
combined organization having greater market and financial strength, and a
greater ability to execute an acquisition strategy than InPhyNet on a
stand-alone basis;

(iv) the InPhyNet Board of Directors' view of the greater liquidity
associated with MedPartners Common Stock. The Board of Directors determined
that MedPartners Common Stock presented the opportunity for greater
liquidity than was currently available to InPhyNet stockholders, because of
MedPartners' greater market capitalization and the fact that MedPartners
Common Stock is more widely traded than InPhyNet Common Stock, though the
Board noted the limited trading history of MedPartners Common Stock;

(v) the InPhyNet Board of Directors' review of the terms of the Plan
of Merger, including without limitation, the fixed Exchange Ratio which
allows the value of the consideration to be received by InPhyNet
stockholders to vary with fluctuations in the value of MedPartners Common
Stock, certain covenants in the Plan of Merger which restrict the manner in
which InPhyNet may conduct its business pending the Merger, and the
provision which permits InPhyNet to terminate the Plan of Merger if the
average last sale price per share of MedPartners Common Stock for a
specified period preceding the date for the Special Meeting is equal to or
less than $17.125 per share. The InPhyNet Board of Directors considered the
potential detrimental effect on InPhyNet's business if the Merger failed to
be completed. The InPhyNet Board of Directors noted that the company's
representatives had negotiated a merger agreement with limited closing
conditions in order to increase the likelihood that the Merger would be
consummated;

(vi) the opinion and related analyses of Morgan Stanley that, as of
the date of the opinion, the Exchange Ratio was fair, from a financial
point of view, to the stockholders of InPhyNet. In concluding that the
Merger was fair to and in the best interests of InPhyNet's stockholders,
the InPhyNet Board of Directors relied, among other things, on Morgan
Stanley's fairness opinion;

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(vii) the review by the InPhyNet Board of Directors of the process by
which InPhyNet's financial advisors solicited indications of interest in
acquiring InPhyNet and the results of that process. The Board of Directors
noted that the financial terms of the proposed Merger were superior to the
terms of the other merger proposals that had been received by InPhyNet;

(viii) the review by the InPhyNet Board of Directors of the risks
relating to MedPartners described under "Risk Factors", including,
particularly, the risks under "Risks Relating to Integration in connection
with Acquisitions and the Merger", "Risks Relating to MedPartners' Growth
Strategy; Integration and Identification of Growth Opportunities", "Risks
Relating to Certain Caremark Legal Matters" and "Risks Relating to Exposure
to Professional Liability; Liability Insurance". The Board also reviewed
other risks associated with MedPartners and the proposed Merger, including
the fact that the MedPartners Common Stock has had a relatively short
trading history, the risk that, despite the efforts of InPhyNet and
MedPartners, InPhyNet clients may elect not to continue to contract with
MedPartners, the risk that the market price of the InPhyNet Common Stock
and the MedPartners Common Stock might be adversely affected by the
announcement of the Merger, the cost of integrating the operations of
InPhyNet and MedPartners and its impact on MedPartners after the Merger and
the risk that expected benefits sought to be obtained by the Merger might
not be obtained. The Board of Directors determined that these risks, if
realized, could have a materially adverse impact on the market value of
MedPartners Common Stock, but that the benefits of the Merger to InPhyNet
and its stockholders outweighed such risks;

(ix) the expectation that the Merger will generally be a tax-free
transaction to InPhyNet and its stockholders. The InPhyNet Board of
Directors recognized that the consideration to be received by the InPhyNet
stockholders in the Merger would be more valuable if the receipt of such
consideration was not treated as a taxable event; the InPhyNet Board of
Directors received advice from counsel that, based upon available
information and certain assumptions, the Merger should qualify as a
tax-free reorganization under the Code. The Board of Directors did not
attempt to decide at the time upon a course of conduct or recommendation in
the event the Merger could not be treated as a tax-free transaction; and

(x) the expectation that the Merger will be treated as a pooling of
interests under generally accepted accounting principles. The InPhyNet
Board of Directors discussed with its firm of independent public
accountants, Ernst & Young L.L.P., the requirements for pooling of
interests accounting. The Board of Directors did not attempt to decide at
that time upon a course of conduct or recommendation in the event the
Merger could not be accounted for as a pooling of interests.

The InPhyNet Board of Directors also reviewed the size of the $12 million
termination fee payable in certain circumstances if the Plan of Merger is
terminated, in relation to the size of InPhyNet and the potential benefits of
the Merger. The Board of Directors reviewed the circumstances under which such
fee would be payable by InPhyNet and the restrictions on InPhyNet's ability to
solicit potential acquirors other than MedPartners prior to the Closing. The
Board of Directors recognized that the termination fee and the restrictions on
solicitation of other acquirors may have the effect of decreasing the chances of
InPhyNet engaging in a business combination other than the Merger.

The material factors considered by the InPhyNet Board of Directors in
reaching its conclusion to approve and recommend the amended Plan of Merger at
the May 21, 1997 meeting were as follows:

(i) the InPhyNet Board of Directors' review of the risks faced by
InPhyNet and the attendant risks to InPhyNet stockholders if the Plan of
Merger were terminated. MedPartners had informed InPhyNet that it believed
that, because of the restatement of InPhyNet's financial statements,
InPhyNet could not satisfy all the conditions to the consummation of the
Merger and that a reduction in the Exchange Ratio would be required. The
Board of Directors observed that if the Plan of Merger were terminated
there would be a substantial decrease in the price of InPhyNet Common Stock
due to (a) the elimination of the merger premium currently being reflected
in the stock price; and (b) the likelihood that InPhyNet, on its own, would
not be able to meet analysts' earnings estimates for 1997. Morgan Stanley
advised the Board of Directors that in the current market environment,
InPhyNet Common Stock might trade in the

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$10 to $15 range if the Merger were terminated, versus a $22.57 price based
on the revised Exchange Ratio and MedPartners' stock price as of May 20,
1997. The Board also took note of the fact that, since the announcement of
the proposed Merger with MedPartners, InPhyNet had not completed any
acquisitions and no acquisitions were pending. The Board observed that it
would likely take an extended period of time to reestablish contacts and
negotiate terms with potential acquisition candidates, which would
materially adversely affect InPhyNet's ability to meet its 1997 and,
possibly, 1998 earnings estimates. In addition, the Board recognized that
as a result of the announcement of the Merger, InPhyNet had limited its
marketing of its services to new and existing clients and in many instances
done such marketing in conjunction with MedPartners. The Board believed
that InPhyNet's ability to generate incremental revenues from its marketing
programs would be compromised if the Merger were terminated. The Board also
observed that InPhyNet would face difficulties in retaining customers and
obtaining new customers if InPhyNet's customers believed that InPhyNet
would not remain an independent company and the identity of its future
owner was unknown. The Board noted that the same concern about InPhyNet's
future also would likely adversely affect InPhyNet's acquisition strategy;

(ii) the InPhyNet Board of Directors considered the likelihood that it
would receive or could negotiate a higher offer than the price which would
be realized under the revised Exchange Ratio. The Board was informed by
management and its financial advisors, Morgan Stanley and McFarland Dewey,
that there had been no contact by any third party expressing interest in
acquiring InPhyNet since the announcement of the Merger. Morgan Stanley
told the Board of Directors that in light of the restatement of InPhyNet's
earnings and the general decline in valuations of physician practice
management company stocks since December 1996, it was unlikely that
InPhyNet would receive a higher offer from another merger partner;

(iii) the opinion and related analyses of Morgan Stanley that, as of
the date of the opinion, the revised Exchange Ratio was fair, from a
financial point of view, to the stockholders of InPhyNet; and

(iv) the InPhyNet Board of Directors' review of the terms of the
proposed amendment to the Plan of Merger which would remove certain of the
conditions to completing the Merger. The Board observed that, as a result
of the proposed amendments, there would be greater certainty that the
Merger would be consummated and a reduced risk of another renegotiation of
the Exchange Ratio or other terms of the Plan of Merger by MedPartners. The
Board of Directors took note of the fact that the amended Plan of Merger
retained the provisions allowing InPhyNet to terminate the Plan of Merger
(a) if the average last sale price per share of MedPartners Common Stock
for a specified period preceding the date of the Special Meeting is equal
to or less than $17.125 per share and (b) if the InPhyNet Board of
Directors, in the exercise of its fiduciary duties, approved, recommended
or endorsed another proposed Acquisition Transaction before the
consummation of the Merger.

The foregoing discussion of the information and factors considered, while
not exhaustive, includes all material factors considered by the InPhyNet Board
of Directors. In view of the wide variety of factors considered, the Board of
Directors did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors considered, and individual
directors may have given differing weights to different factors. After taking
into consideration all the factors set forth above, the Board of Directors of
InPhyNet determined that the Merger was in the best interests of InPhyNet and
its stockholders and that InPhyNet should proceed with the Merger at that time.

OPINION OF INPHYNET'S FINANCIAL ADVISOR

InPhyNet retained Morgan Stanley to act as a financial advisor in
connection with the Merger. At the May 21, 1997 meeting of the InPhyNet Board of
Directors, Morgan Stanley rendered its oral opinion that, as of such date and
based upon and subject to the various considerations set forth in its opinion,
the Exchange Ratio pursuant to the Plan of Merger is fair, from a financial
point of view, to the holders of InPhyNet Common Stock. Morgan Stanley
subsequently delivered to the InPhyNet Board of Directors a written opinion
dated May 21, 1997 which was substantively identical to its oral opinion.
Previously, Morgan Stanley had rendered an oral opinion to the InPhyNet Board of
Directors on January 18, 1997 and a written opinion on

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January 20, 1997 that, as of such dates, and based upon and subject to the
various considerations set forth in such written opinion, the exchange ratio of
1.311 set forth in the Plan of Merger prior to its amendment on May 21, 1997 was
fair, from a financial point of view, to the stockholders on InPhyNet. The
opinions of Morgan Stanley that were delivered to the InPhyNet Board of
Directors on January 18, 1997 and January 20, 1997 were substantially similar to
the opinions of May 21, 1997, except that the former opinions were based on an
exchange ratio of 1.311 and the May 21, 1997 opinions were based on an exchange
ratio of 1.18.

THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED MAY 21, 1997,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON AND THE REVIEW UNDERTAKEN IS ATTACHED AS ANNEX B TO THIS
PROSPECTUS-PROXY STATEMENT. HOLDERS OF INPHYNET COMMON STOCK ARE URGED TO READ
MORGAN STANLEY'S OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION
IS DIRECTED TO INPHYNET'S BOARD OF DIRECTORS AND TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO THE HOLDERS OF INPHYNET COMMON
STOCK. SUCH OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF INPHYNET COMMON STOCK AS TO HOW TO
VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET
FORTH IN THIS PROSPECTUS-PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.

In rendering its opinions, Morgan Stanley, among other things: (i) reviewed
certain publicly available financial statements and other information of
InPhyNet and MedPartners, respectively; (ii) reviewed certain internal financial
statements and other financial and operating data concerning InPhyNet and
MedPartners prepared by the managements of InPhyNet and MedPartners,
respectively; (iii) analyzed certain financial projections prepared by the
managements of InPhyNet and MedPartners, respectively; (iv) discussed the past
and current operations and financial condition and the prospects of InPhyNet and
MedPartners with senior executives of InPhyNet and MedPartners, respectively;
(v) reviewed the reported prices and trading activity for the InPhyNet Common
Stock and the MedPartners Common Stock; (vi) compared the financial performance
of InPhyNet and MedPartners and the prices and trading activity of the InPhyNet
Common Stock and the MedPartners Common Stock with that of certain other
comparable companies and their securities; (vii) reviewed and discussed with the
senior managements of InPhyNet and MedPartners the strategic objectives of the
Merger and certain other benefits of the Merger; (viii) analyzed certain pro
forma financial projections for the combined company prepared by InPhyNet and
MedPartners; (ix) reviewed and discussed with the senior managements of InPhyNet
and MedPartners their estimates of the synergies and cost savings expected to
result from the Merger; (x) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions; (xi) participated in
discussions and negotiations among representatives of InPhyNet and MedPartners
and their financial and legal advisors; (xii) reviewed the Plan of Merger and
certain related documents; and (xiii) performed such other analyses and
considered such other factors as Morgan Stanley deemed appropriate.

In rendering its opinions, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinions. With respect to the
financial projections, including the estimates of synergies and other benefits
expected from the Merger, Morgan Stanley assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of InPhyNet and MedPartners,
respectively. Morgan Stanley did not make any independent appraisal or valuation
of the assets or liabilities of InPhyNet and MedPartners, respectively, nor was
Morgan Stanley furnished with any such appraisals. Morgan Stanley also assumed
that the Merger will be accounted for as a pooling of interests business
combination in accordance with GAAP, will qualify as a reorganization under the
provisions of Section 368(a) of the Code and will be consummated in accordance
with the terms set forth in the Plan of Merger. The Morgan Stanley opinions are
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date of such
opinions.

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The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with the preparation of Morgan Stanley's opinions
and oral presentation to InPhyNet's Board of Directors on May 21, 1997. All of
the analyses performed by Morgan Stanley in connection with the delivery of its
opinions on May 21, 1997 were substantially similar to the analyses Morgan
Stanley performed in connection with the delivery of its opinions in January
1997, except that in connection with the delivery of its May 21, 1997 opinions,
Morgan Stanley performed various procedures to update certain of its prior
analyses based on the revised exchange ratio of 1.18 and on market and other
financial information available to it after the date of its prior opinions.

InPhyNet Common Stock Performance. Morgan Stanley's analysis of the
InPhyNet Common Stock performance consisted of an historical analysis of
closing prices and trading volumes from August 18, 1994 to May 20, 1997 and
a comparison of such performance to that of the S&P 400 Index and a group
consisting of the following physician practice management companies from
August 18, 1994 to May 20, 1997: AHI Healthcare Inc., Phycor Inc., MedCath
Inc., Physicians Reliance Network Inc., EmCare Inc., Coastal Physician
Group, Inc., MedPartners, FPA Medical Management, Inc. and Sheridan
Healthcare Inc. (the "PPM Comparables Index"). During this period, based on
closing prices on the NASDAQ, the InPhyNet Common Stock achieved a high of
$32.25 and a low of $11.00 per share. InPhyNet Common Stock closed at a
price of $22.75 on May 20, 1997. Morgan Stanley noted that the InPhyNet
Common Stock outperformed the PPM Comparables Index.

Public Market Trading Analysis. Morgan Stanley reviewed and analyzed
certain available financial and market information for a group of six
publicly traded companies (MedPartners, Phycor Inc., Phymatrix, FPA Medical
Management, Inc., EmCare Inc. and Sheridan Healthcare Inc. (the "Comparable
Companies")) that, in Morgan Stanley's judgment, were in a comparable
business to InPhyNet for the purposes of this analysis. Such financial and
market information included, among other things, earnings per share, market
price as a multiple of earnings per share and aggregate value as a multiple
of revenue and of earnings before interest and taxes ("EBIT"). Morgan
Stanley noted that as of May 20, 1997, based on a compilation of earnings
projections by securities research analysts, InPhyNet traded at 16.4x
forecasted earnings for the next twelve months, compared to a range of
multiples of 13.4x to 28.6x forecasted earnings for the next twelve months
for the Comparable Companies. Morgan Stanley noted that, as of May 20,
1997, the companies used in the Comparable Companies analysis traded at an
average multiple of next twelve months' forecasted earnings of 18.1x, 10.1%
greater than InPhyNet's multiple of 16.4x. Morgan Stanley noted that, as of
May 20, 1997, EmCare Inc. and Sheridan Healthcare Inc., which are
hospital-based physician practice management companies comparable to
InPhyNet, traded at 13.4x and 17.5x next twelve months' forecasted
earnings, respectively, implying a value range of $15.54 to $20.30 per
share of InPhyNet Common Stock.

No company utilized in the Comparable Companies analysis is identical
to InPhyNet. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value of the companies
to which they are being compared. In evaluating the Comparable Companies,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions
and other matters, many of which are beyond the control of InPhyNet, such
as the impact of competition on InPhyNet and the industry generally,
industry growth and the absence of any adverse material change in the
financial conditions and prospects of InPhyNet or the industry or in the
financial markets in general. Mathematical analysis (such as determining
the mean or median) is not, in itself, a meaningful method of using
comparable company data.

Analysis of Selected Precedent Transactions. Morgan Stanley reviewed
the financial terms, to the extent publicly available, of various completed
merger and acquisition transactions in the physician practice management
industry announced since the beginning of 1995. Morgan Stanley considered
the acquisitions made by MedPartners and FPA Medical Management, Inc. as
the most relevant given their size and date. These transactions
(acquiree/acquiror) were: Cardinal Healthcare P.A./MedPartners; Summit
Medical Group/MedPartners; Caremark International/MedPartners; Atlanta
Allergy &

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Asthma/MedPartners; Pacific Physician Services/MedPartners; Mullikin
Medical Enterprises/ MedPartners; AHI Healthcare Systems/FPA Medical
Management; Foundation Health Medical Services/FPA Medical Management;
Sterling Healthcare Group/FPA Medical Management; Physicians First,
Inc./FPA Medical Management; three independent California IPAs/FPA Medical
Management; Gonzabo MSO/FPA Medical Management (collectively, the
"Precedent Transactions"). For those Precedent Transactions in which such
information was available, Morgan Stanley reviewed the prices paid in such
transactions in terms of the equity value as a multiple of estimated net
income for the next twelve months following the announcement of the
applicable merger, and in terms of the aggregate value (defined as equity
value plus long-term debt and short-term debt plus deferred tax liability
and credits plus minority interest less cash and cash equivalents (the
"Aggregate Value")) as a multiple of revenue and EBIT for the last twelve
months prior to the announcement of the applicable merger, and the premium
to the market trading price one month prior to the announcement paid.
Morgan Stanley noted MedPartners' acquisition of Pacific Physician Services
Inc. as the most comparable to the proposed Merger. The equity value of
this transaction was 21.0x next twelve months' earnings following
announcement of the merger, indicating a value of $26.81 per share of
InPhyNet Common Stock (based on InPhyNet's next twelve months' earnings
forecasted as of May 20, 1997). Morgan Stanley advised the Board of
Directors of InPhyNet that, in analyzing the results of the Precedent
Transaction analysis, the Board of Directors of InPhyNet should consider
the size and demographic and economic characteristics of each physician
practice management company acquired and the market environment in which
the transaction occurred.

No transaction utilized as a comparison in the comparable transaction
analysis is identical to the Merger in both timing and size, and that,
accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of InPhyNet and other factors that
would affect the acquisition value of the companies to which it is being
compared. In evaluating the Precedent Transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many
of which are beyond the control of InPhyNet, such as the impact of
competition on InPhyNet and the industry generally, industry growth and the
absence of any adverse material change in the financial conditions and
prospects of InPhyNet or the industry or in the financial markets in
general.

Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted
cash flow analysis to estimate the range of present values per share of
InPhyNet Common Stock. To arrive at a valuation of InPhyNet, Morgan Stanley
discounted the unleveraged (before interest expense) after-tax cash flows
that resulted from the aforementioned assumptions using a range of discount
rates of 13% to 15%, which Morgan Stanley viewed as the appropriate
discount rate range for a company with InPhyNet's risk characteristics.
This range was based on the weighted average cost of capital for InPhyNet.
Unleveraged after-tax cash flows were calculated as the after-tax operating
earnings of InPhyNet plus projected depreciation and amortization, plus (or
minus) net changes in non-cash working capital, minus projected capital
expenditures. Morgan Stanley added to the present value of the cash flows
the terminal value of InPhyNet in the year 2001, discounted back at the
same discount rates. The terminal value was computed by multiplying
InPhyNet net income in the calendar year 2001 by a range of terminal
multiples of 15x to 17x. The discounted cash flow valuation indicated a
reference range of InPhyNet of between $22.60 and $19.00 per fully diluted
share.

Pro Forma Analysis. Morgan Stanley analyzed the pro forma impact of
the Merger on MedPartners' earnings per share for the fiscal years ended
1997 and 1998. Such analysis was based on earnings estimates provided by
First Call for InPhyNet and MedPartners for the fiscal year 1997 which were
assumed to grow at the expected five-year EPS growth rate provided by
I/B/E/S for the year 1998. Morgan Stanley observed that, if the Merger was
treated as a pooling of interests for accounting purposes, and if no
synergies were assumed, the issuance of MedPartners Common Stock in the
Merger would have a dilutive effect on pro forma earnings per share of
MedPartners of approximately 1.8% in fiscal year 1997 and (1.5%) in fiscal
year 1998 assuming each share of InPhyNet were exchanged for a
consideration of $22.75 in MedPartners Common Stock.

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In connection with the review of the Merger by the InPhyNet Board of
Directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinions given in connection therewith. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to a partial analysis or summary description. In arriving at its
opinions, Morgan Stanley considered the results of its analyses as a whole and
did not attribute any particular weight to any analysis or factor considered by
it. The opinions are based upon the information available to Morgan Stanley and
the facts and circumstances as they existed on the dates of the opinions. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses and
factors, would create an incomplete view of the process underlying its opinions.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of InPhyNet.

In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of InPhyNet or MedPartners.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness of the consideration from a financial point
of view to holders of InPhyNet Common Stock and were provided to InPhyNet's
Board in connection with the delivery of Morgan Stanley's written opinions on
January 20, 1997 and May 21, 1997. In addition, as described above, Morgan
Stanley's opinions and presentations to InPhyNet's Board were one of the many
factors taken into consideration by InPhyNet's Board in making its determination
to approve the Merger. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of the Board of Directors
of InPhyNet with respect to the value of InPhyNet or of whether the Board of
InPhyNet would have been willing to agree to a different consideration.

The Board of Directors of InPhyNet retained Morgan Stanley based upon its
experience and expertise. Morgan Stanley is an internationally recognized
investment banking and advisory firm. Morgan Stanley, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full service securities firm, engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of Morgan
Stanley's trading and brokerage activities, Morgan Stanley or its affiliates may
at any time hold long or short positions, may trade or otherwise effect
transactions, for its own account or for the account of customers, in debt or
equity securities of InPhyNet or MedPartners. Over the past two years Morgan
Stanley has not provided any material financial advisory or financing services
to InPhyNet, except that in 1996, InPhyNet retained Morgan Stanley to provide
financial advisory services with respect to a possible acquisition. The
acquisition was not completed and no fees were paid to Morgan Stanley.

Pursuant to a letter agreement dated as of January 15, 1997, between
InPhyNet and Morgan Stanley, InPhyNet retained Morgan Stanley to render advisory
services in connection with the Merger. InPhyNet has agreed to pay Morgan
Stanley fees for its financial advisory services in connection with the Merger
consisting of (i) an opinion fee of $250,000, which was paid at the time of the
delivery of the Morgan Stanley fairness opinion dated January 20, 1997, and (ii)
an additional transaction advisory fee (estimated to be between $3.0 and $3.5
million), payable only upon consummation of the Merger based on the value of the
transaction as determined at the time of the Merger. The opinion fee will be
credited against the transaction fee. InPhyNet has also agreed to reimburse
Morgan Stanley for its out-of-pocket expenses, including the fees of its legal
counsel, and to indemnify Morgan Stanley for liabilities and expenses arising
out of its engagement and the transactions in connection therewith, including
liabilities under the federal securities laws, incurred in connection with its
services.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendations of the Board of Directors of InPhyNet
with respect to the Plan of Merger and the transactions contemplated thereby,
stockholders of InPhyNet should be aware that certain

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directors and officers of InPhyNet have certain interests in the Merger that are
in addition to the interests of the stockholders generally. In accordance with
the requirements of Delaware law, all such interests, which are described below,
were identified and fully disclosed to the Board of Directors of InPhyNet at the
special meeting of the Board of Directors held on January 18, 1997 and May 21,
1997.

The Merger will constitute a "change of control" for purposes of InPhyNet's
executive employment agreements. All of the directors who are officers of
InPhyNet (other than Erie D. Chapman, III) have change of control provisions in
their respective employment agreements that provide for severance payments in an
amount equal to (i) 1.5 times such officer's annual salary if, within 12 months
following a change of control, the officer terminates his employment for any
reason or the Surviving Corporation terminates such officer's employment other
than for disability or cause, and (ii) 0.5 times such officer's annual salary
if, at least 12 but not more than 25 months following a change of control, the
Surviving Corporation terminates such officer's employment other than for
disability or cause or if the officer terminates his employment for good reason.
For InPhyNet's fiscal year ended December 31, 1996, the annual salaries of
InPhyNet's executive officers (other than Mr. Chapman) were as follows: Dr.
Findeiss ($362,500); Mr. McCleary ($350,000); Ms. Prado ($290,000); Dr. Creed
($253,750); Dr. Principe ($203,000); and Dr. Weinstein ($208,075).

Because the Merger constitutes a "change of control" for purposes of
InPhyNet's stock option plans, it will result in the vesting of all options
outstanding under such plans which are currently unvested. Five directors of
InPhyNet have current option grants which will vest as a result of the Merger:
Erie D. Chapman, III (126,667 options at exercise prices ranging from $16.00 to
$17.375 per share); Thomas E. Dewey, Jr. (7,501 options at exercise prices
ranging from $12.00 to $23.625); George W. McCleary, Jr. (64,335 options at
exercise prices ranging from $12.00 to $19.76 per share); Marta Prado (60,668
options at exercise prices ranging from $12.00 to $19.76 per share); and Donald
C. Wegmiller (7,501 options at exercise prices ranging from $12.00 to $23.625).
Assuming the market price of MedPartners Common Stock is $19.50 per share (which
is equivalent to $23.01 per share of InPhyNet Common Stock based on the Exchange
Ratio), the in-the-money values of these options are as follows: Mr. Chapman
($723,0000); Mr. Dewey ($47,000); Mr. McCleary ($402,000); Ms. Prado ($377,000);
and Mr. Wegmiller ($47,000).

Upon consummation of the Merger, the employment agreements of each of
Clifford Findeiss, Chairman of the Board, Chief Executive Officer and President,
and George W. McCleary, Jr., Executive Vice President and Chief Financial
Officer, will be terminated entitling each of them to the "Change of Control"
benefits described above and the continuation of their medical and health
benefits for a period of one year. Each of Dr. Findeiss and Mr. McCleary will
enter into consulting agreements with MedPartners. Dr. Findeiss' agreement (the
"Findeiss Agreement") provides for the payment of $500,000 in exchange for the
provision of consulting services for a period of one year following the
consummation of the Merger. The Findeiss Agreement also includes a
non-competition provision for which Dr. Findeiss will receive a payment of $1
million. Mr. McCleary's agreement provides for the payment of a total of
$600,000 in exchange for the provision of consulting services during the two
years following the consummation of the Merger and includes a non-competition
provision for which Mr. McCleary will receive a payment of $400,000. Each of Dr.
Findeiss and Mr. McCleary will report directly to the MedPartners Chairman of
the Board and will provide such consulting services as requested by MedPartners'
Board of Directors.

McFarland Dewey has been financial advisor to InPhyNet since November 1992,
and has advised the company on financings and merger and acquisition strategy
and implementation since that date. Working in conjunction with Morgan Stanley,
McFarland Dewey advised InPhyNet's management and participated in the meetings
and negotiations described under "-- Background of the Merger". On January 17,
1997, a letter agreement was executed between InPhyNet and McFarland Dewey
formalizing McFarland Dewey's role in connection with the Merger. Pursuant to
the letter agreement, InPhyNet agreed to pay McFarland Dewey an advisory fee
(estimated to be between $1.5 and $1.75 million) based upon the aggregate value
of the transaction, of which $125,000 became payable upon the mailing of this
Prospectus-Proxy Statement and the balance will become payable upon consummation
of the Merger. InPhyNet has also agreed to reimburse McFarland Dewey for its
out-of-pocket expenses, including the fees of its legal counsel, and to
indemnify McFarland Dewey for liabilities and expenses arising out of its
engagement and the transactions in connection therewith, including liabilities
under federal securities laws, incurred in connection with its services. Thomas

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E. Dewey, Jr., a director of InPhyNet, is a general partner in McFarland Dewey.
In addition, a brother of InPhyNet's Chief Financial Officer is a general
partner in McFarland Dewey.

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, the Subsidiary and InPhyNet agree should be specified in the
Certificate of Merger. The Plan of Merger requires that all filings required
under the DGCL be made as soon as practicable on or after the date of the
Special Meeting and following satisfaction or waiver of all conditions of each
party to consummate the Merger, or at such other time as may be agreed upon by
MedPartners and InPhyNet. As of the date of this Prospectus-Proxy Statement, the
parties to the Plan of Merger expect that the Certificate of Merger will be
filed, and the Merger consummated, as soon as practicable after the Special
Meeting.

EXCHANGE OF CERTIFICATES

Exchange Agent. Prior to the Effective Time, MedPartners will enter into
an agreement with First Chicago Trust Company of New York, New York, New York
(the "Exchange Agent"), which will provide that MedPartners shall deposit with
the Exchange Agent as of the Effective Time, for the benefit of the holders of
the InPhyNet Shares, (i) certificates representing the shares of MedPartners
Common Stock issuable pursuant to the Plan of Merger and (ii) cash in an amount
equal to the aggregate amount required to be paid in lieu of fractional shares,
together with any dividends or distributions paid with respect to the
MedPartners Common Stock with a record date after the Effective Time.

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 InPhyNet Shares (the "InPhyNet Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the InPhyNet Certificates shall pass, only upon delivery of
the InPhyNet Certificates to the Exchange Agent and shall be in such form and
have such other provisions as MedPartners may reasonably specify), and (ii)
instructions for use in effecting the surrender of the InPhyNet Certificates in
exchange for certificates representing shares of MedPartners Common Stock. Upon
surrender of an InPhyNet Certificate 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 InPhyNet Certificate shall
be entitled to receive in exchange therefor a certificate representing that
number of whole shares of MedPartners 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 InPhyNet Shares which is not registered in the
transfer records of InPhyNet, a certificate representing the proper number of
shares of MedPartners Common Stock may be issued to a person other than the
person in whose name the InPhyNet Certificate so surrendered is registered, if
such InPhyNet 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
Common Stock to a person other than the registered holder of such InPhyNet
Certificate or establish to the satisfaction of MedPartners that such tax has
been paid or is not applicable. Until surrendered as contemplated by the Plan of
Merger, each InPhyNet 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 Common Stock and cash in lieu of
any fractional shares of MedPartners 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 Common Stock. To the extent permitted by
law, former holders of record of InPhyNet Shares shall be entitled to vote after
the Effective Time at any meeting of MedPartners stockholders the number of
whole shares of MedPartners Common Stock into which their respective InPhyNet
Shares are converted, regardless of whether such holders have received their
certificates representing MedPartners Common Stock in accordance with the Plan
of Merger.

No certificates or scrip representing fractional shares of MedPartners
Common Stock shall be issued upon conversion of InPhyNet Shares, and such
fractional share interests will not entitle the owner thereof to

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<PAGE> 46

vote or to any rights as a stockholder of MedPartners. Notwithstanding any other
provision of the Plan of Merger, each holder of InPhyNet Shares exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of MedPartners Common Stock shall receive, in lieu thereof,
cash (without interest) in an amount equal to such fractional part of a share of
MedPartners Common Stock multiplied by the per share closing price of the
MedPartners Common Stock on the NYSE Composite Tape on the date of the Effective
Time.

At the Effective Time, holders of InPhyNet Shares immediately prior to the
Effective Time will cease to be, and shall have no rights as, holders of
InPhyNet Shares, other than the right to receive shares of MedPartners Common
Stock into which such shares have been converted and any fractional share
payment and any dividends or other distributions with respect to MedPartners
Common Stock that are payable to holders of record after the Effective Time.

Neither MedPartners nor InPhyNet will be liable to any holder of InPhyNet
Shares for any shares of MedPartners 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 obligations of MedPartners and the Subsidiary to consummate the Merger
are subject to, among others, their receipt of an opinion of Haskell Slaughter &
Young, L.L.C. that the Merger constitutes a tax-free reorganization under the
Code and the opinion of Willkie Farr & Gallagher with respect to customary
corporate matters, including corporate authority, capitalization, no conflicts
and compliance with federal securities laws (which may be waived by MedPartners
and the Subsidiary (see "-- Waiver and Amendment" below)).

The obligation of InPhyNet to consummate the Merger is subject to, among
others, its receipt of an opinion of Willkie Farr & Gallagher that the Merger
constitutes a tax-free reorganization under the Code and the opinion of Haskell
Slaughter & Young, L.L.C. with respect to customary corporate matters, including
corporate authority, capitalization, no conflicts and compliance with federal
securities laws (which may be waived by InPhyNet, subject to the limitations
discussed under "-- Waiver and Amendment" below).

The obligation of each of MedPartners, the Subsidiary and InPhyNet to
consummate the Merger is subject to certain additional conditions, including the
following (any of which may be waived by MedPartners, the Subsidiary and
InPhyNet, subject to the limitations discussed under "-- Waiver and Amendment"
below): (i) the Merger shall have been approved by the requisite votes of the
holders of the outstanding InPhyNet Shares; (ii) the shares of MedPartners
Common Stock to be issued in connection with the Merger shall have been listed
on the NYSE, upon official notice of issuance; (iii) MedPartners and InPhyNet
shall each have received at closing a letter from Ernst & Young LLP to the
effect that they concur with the conclusion of management of MedPartners and
InPhyNet as to the appropriateness of pooling of interests accounting treatment
under APB Opinion No. 16 if the Merger is closed and consummated in accordance
with the Plan of Merger; and (iv) 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.

REPRESENTATIONS AND COVENANTS

At the time the Plan of Merger was originally executed, MedPartners, the
Subsidiary and InPhyNet each made a number of representations regarding the
organization and capitalization of their 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.
These representations and warranties will not be reconfirmed at the consummation
of the Merger. Under the Plan of Merger, InPhyNet has 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

37
<PAGE> 47

involving all or any significant portion of the equity securities of InPhyNet or
the assets of InPhyNet and its subsidiaries, except that InPhyNet may furnish
information to and negotiate with an unsolicited third party consistent with the
good faith exercise by its Board of Directors of its fiduciary obligations.

REGULATORY APPROVALS

The HSR Act provides that certain business mergers (including the Merger)
may not be consummated until certain information has been furnished to the DOJ
and the FTC and certain waiting period requirements have been satisfied. On
February 11, 1997, MedPartners and InPhyNet made their respective filings with
the DOJ and the FTC with respect to the Plan of Merger. Under the HSR Act, the
date of MedPartners' and InPhyNet's filings commenced a 30-day waiting period
during which the Merger may not be consummated, unless such waiting period is
terminated earlier. The waiting period has terminated. MedPartners and InPhyNet
believe that the Merger does not violate the antitrust laws and intend to resist
vigorously any assertion to the contrary by the FTC, the DOJ or others. Any such
resistance would delay consummation of the Merger, perhaps for a considerable
period.

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 nor InPhyNet 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 FTC or
other objections, unless required to do so by applicable law.

The operations of each of MedPartners and InPhyNet 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 healthcare
businesses and facilities. As a result of the Merger, a number of the
arrangements between InPhyNet and third-party payors may be deemed to have been
transferred, requiring the approval and consent of such payors. Although no
assurances to this effect can be given, it is not anticipated that the parties
will be unable to obtain any required consent or approval.

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,
InPhyNet will use its reasonable best efforts to preserve intact its present
business organization, to keep available to MedPartners and the Surviving
Corporation the services of the present employees of InPhyNet, and to maintain
the goodwill of customers, suppliers and others having business dealings with
InPhyNet.

Under the Plan of Merger, InPhyNet 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), without first obtaining
the written consent of MedPartners, enter into certain types of transactions
that are material to the business of InPhyNet.

WAIVER AND AMENDMENT

The Plan of Merger provides that, at any time prior to the Effective Time,
MedPartners and the Subsidiary, on the one hand, and InPhyNet, 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 for the benefit of such party contained in the Plan of Merger or the
conditions to the obligations of such party under the Plan of Merger to
consummate the Merger. See "-- Conditions to the Merger" above. Under the Plan
of Merger and the DGCL, if the Plan of Merger is approved at the Special
Meeting, the Board of Directors of InPhyNet may not amend or waive any covenant
or condition in a manner

38
<PAGE> 48

that would adversely affect the stockholders of InPhyNet without the requisite
approval of InPhyNet's stockholders. Any determination to amend the Plan of
Merger or waive a covenant or condition and to obtain stockholder approval, if
required, would depend on the facts and circumstances existing at the time of
such amendment or waiver and would be made by InPhyNet's Board of Directors,
exercising its fiduciary duties and in compliance with Delaware law. As of the
date of this Prospectus-Proxy Statement, the parties to the Plan of Merger have
no reason to believe that any of the material conditions to the Merger will not
be satisfied.

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 InPhyNet: (i) by mutual written consent of MedPartners, the
Subsidiary and InPhyNet; (ii) by either MedPartners or InPhyNet, if the Merger
has not been consummated on or before August 31, 1997, 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 or InPhyNet, if any
required approval of the Plan of Merger by holders of InPhyNet Shares is not
obtained at the Special Meeting; (iv) by either MedPartners or InPhyNet if any
U.S. federal or state 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;
(v) by either MedPartners or InPhyNet in the event that (A) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 of the Plan of Merger shall have been satisfied and (B) any
condition to the obligation of such party to effect the Merger set forth in
Section 9.2 (in the case of MedPartners) or Section 9.3 (in the case of
InPhyNet) is not capable of being satisfied prior to August 31, 1997; (vi) by
InPhyNet if the Board of Directors of InPhyNet shall have (A) determined, in the
exercise of its fiduciary duties under applicable law, to withdraw its
recommendation to the stockholders of InPhyNet that they approve the Merger or
(B) approved, recommended or endorsed any Acquisition Transaction (as defined
herein) other than the Merger or (C) resolved to do any of the foregoing; or
(vii) by InPhyNet if the average last per share sale price of the MedPartners
Common Stock for the ten consecutive trading days ending on the fifth trading
day immediately preceding the date of the Special Meeting as reported on the
NYSE Composite Tape is equal to or less than $17.125. In the event the Plan of
Merger is terminated by InPhyNet as a result of the Board of Directors of
InPhyNet approving, recommending or endorsing an Acquisition Transaction and
within one year after the effective date of such termination, InPhyNet is the
subject of an Acquisition Transaction with any person, InPhyNet has agreed to
pay MedPartners a breakup fee of $12 million in cash at the time of consummation
of such Acquisition Transaction. See "-- Expenses; Breakup Fees".

THE NEW YORK STOCK EXCHANGE LISTING

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

RESALE OF MEDPARTNERS COMMON STOCK BY AFFILIATES

MedPartners Common Stock to be issued to InPhyNet stockholders in
connection with the Merger has been registered under the Securities Act and,
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 InPhyNet or MedPartners 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 InPhyNet or
MedPartners at the time of the Special Meeting (generally, directors and certain
executive officers of

39
<PAGE> 49

InPhyNet or MedPartners and major stockholders of MedPartners or InPhyNet).
Generally, all shares of MedPartners Common Stock received by such Affiliates
may not be sold by them until MedPartners publishes at least one full calendar
month of the combined results of operations of MedPartners and InPhyNet.
MedPartners has agreed to publish (as defined in SEC Accounting Series Release
No. 135) such results in its next succeeding Quarterly Report on Form 10-Q after
the end of the first calendar month following the Effective Time.

In addition, Affiliates of InPhyNet or MedPartners may not sell their
shares of MedPartners 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 one year following the Effective Time (the "Restricted
Period"), an Affiliate (together with certain related persons) is entitled to
sell shares of MedPartners 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 that may be sold by an Affiliate
(together with certain related persons and certain persons acting in concert)
within any three-month period during the Restricted Period for purposes of Rule
145 may not exceed the greater of (i) 1% of the outstanding shares of
MedPartners Common Stock or (ii) the average weekly trading volume of such stock
during the four calendar weeks preceding such sale. Rule 145 is available to
Affiliates only if MedPartners remains current with its information filings with
the SEC under the Exchange Act. Following the Restricted Period, an Affiliate
may sell such MedPartners Common Stock free of such manner of sale or volume
limitations, provided that MedPartners was current with its Exchange Act
information filings and such Affiliate was not then an Affiliate of MedPartners.
Two years after the Effective Time, an Affiliate may sell such shares of
MedPartners 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.

ACCOUNTING TREATMENT

InPhyNet and MedPartners expect to receive letters at the closing from
Ernst & Young LLP, as independent auditors of InPhyNet and MedPartners,
regarding such firm's concurrence with the conclusions of managements of
InPhyNet and MedPartners as to the appropriateness of pooling of interests
accounting for the Merger under APB Opinion No. 16 if the Merger is closed and
consummated in accordance with the Plan of Merger. MedPartners, the Subsidiary
and InPhyNet have agreed not to intentionally take any action that would
disqualify treatment of the Merger as a pooling of interests for accounting
purposes. If it is determined that the Merger will not be accounted for as a
pooling of interests and InPhyNet and MedPartners decide to waive compliance
with such condition, InPhyNet would resolicit the consent of its stockholders to
consummate the Merger in light of such changed circumstances.

Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of MedPartners and InPhyNet will be combined at
the Effective Time and carried forward at their previously recorded amounts, the
stockholders' equity accounts of MedPartners and InPhyNet will be combined on
the consolidated balance sheet of MedPartners and no goodwill or other
intangible assets will be created. Consolidated financial statements of
MedPartners issued after the Merger will be restated retroactively to reflect
the consolidated operations of MedPartners and InPhyNet 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".

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<PAGE> 50

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 InPhyNet Shares of
such shares for shares of MedPartners Common Stock. This discussion does not
address all aspects of taxation that may be relevant to particular stockholders
in light of their personal investment or tax circumstances, or to certain types
of stockholders (including insurance companies, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws, nor does it discuss any state, local or foreign tax
considerations. Accordingly, each InPhyNet stockholder is urged to consult his
or her own tax advisor as to the specific tax consequences of the Merger
including the applicable federal, state, local and foreign tax consequences of
the Merger.

Neither MedPartners nor InPhyNet 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. Instead, Haskell Slaughter & Young, L.L.C
and Willkie Farr & Gallagher, counsel to MedPartners and InPhyNet, respectively,
have delivered opinions relating to the federal income tax consequences of the
Merger. Such opinions are based upon facts and assumptions of fact described
therein, and upon certain customary representations provided by MedPartners, the
Subsidiary, InPhyNet and certain InPhyNet stockholders. Such opinions are also
based upon the Code, regulations thereunder, administrative rulings and practice
by the Service, and judicial authority, in each case existing at the time such
opinions were delivered. Any change in applicable law or pertinent facts could
affect the continuing validity of such opinions 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 opinions of
counsel, or that such opinions will be upheld by the courts if challenged by the
Service. However, MedPartners and InPhyNet 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 stockholders of InPhyNet pursuant to Section 368(a) of the
Code. Based on the foregoing, the opinions of such counsel collectively state,
among other matters, that: (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, and MedPartners, the
Subsidiary and InPhyNet 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, InPhyNet or the Subsidiary as a result of the Merger; (iii) no
gain or loss will be recognized by an InPhyNet stockholder who receives solely
shares of MedPartners Common Stock in exchange for InPhyNet Shares; (iv) the
receipt of cash in lieu of fractional shares of MedPartners Common Stock will be
treated as if the fractional shares were distributed as part of the exchange and
then were redeemed by MedPartners; (v) the tax basis of the shares of
MedPartners Common Stock received by an InPhyNet stockholder will be equal to
the tax basis of the InPhyNet Shares exchanged therefor, excluding any basis
allocable to a fractional share of MedPartners Common Stock for which cash is
received; and (vi) the holding period of the shares of MedPartners Common Stock
received by an InPhyNet stockholder will include the holding period or periods
of the InPhyNet Shares exchanged therefor, provided that the InPhyNet Shares are
held as a capital asset within the meaning of Section 1221 of the Code at the
Effective Time. EACH HOLDER OF INPHYNET 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.

NO SOLICITATION OF TRANSACTIONS

Under the Plan of Merger, InPhyNet may furnish information and access, in
response to unsolicited requests therefor, concerning InPhyNet 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 all or any significant portion of the equity securities of
InPhyNet or of the assets of InPhyNet and its subsidiaries upon a merger,
purchase of assets, purchase of or tender offer for shares of InPhyNet Common
Stock or similar transaction (an "Acquisition Transaction"), in response to
unsolicited requests therefor, if the Board of

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<PAGE> 51

Directors of InPhyNet 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 that such action is appropriate in furtherance of the best interest
of InPhyNet's stockholders. Except as described in the preceding sentence,
InPhyNet has agreed that it will not, and will direct each officer, director,
employee, representative and agent of InPhyNet 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 or an affiliate or associate or agent of
MedPartners) concerning any merger, sale of assets, sale of or tender offer for
its shares or similar transactions involving all or any significant portion of
the equity securities of InPhyNet or the assets of InPhyNet and its
subsidiaries. InPhyNet has further agreed that it will notify MedPartners 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 with the identity of
the third party and the proposed terms of such Acquisition Transaction.

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. In the event the Plan of
Merger is terminated by InPhyNet as a result of the Board of Directors of
InPhyNet approving, recommending or endorsing an Acquisition Transaction and
within one year after the effective date of such termination, InPhyNet is the
subject of an Acquisition Transaction with any person, InPhyNet has agreed to
pay MedPartners a breakup fee of $12 million in cash at the time of the
consummation of such Acquisition Transaction. If a breakup fee shall become due
and payable by InPhyNet, and InPhyNet shall fail to pay such amount when due,
and, in order to obtain such payment, suit is commenced by MedPartners which
results in a judgment against InPhyNet, then, InPhyNet has agreed to pay
MedPartners' reasonable costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest computed on any
amounts determined to be due (computed from the date upon which such amount was
due and payable) and such costs (computed from the dates incurred) at the prime
rate of interest announced from time to time by NationsBank, National
Association (South).

In the event a breakup fee is payable, the payment of any such breakup fee
shall be the sole and exclusive remedy of MedPartners.

INDEMNIFICATION

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 InPhyNet as provided in its
Certificate of Incorporation and Bylaws shall survive the Merger and shall
continue in effect in accordance with their terms. In addition, MedPartners has
agreed to cause the Surviving Corporation either (i) to maintain InPhyNet's
current policy of directors' and officers' liability insurance for current or
former officers and directors of InPhyNet with respect to matters occurring
prior to the Effective Time for a period of at least three years after the
Effective Time or (ii) to substitute for such policy, policies of at least the
same coverage containing terms and conditions which are no less advantageous to
such officers and directors, subject to certain exceptions. After the Effective
Time, MedPartners has agreed to indemnify the officers, directors and employees
of InPhyNet and its subsidiaries who were such at any time prior to the
Effective Time from all liabilities, losses and expenses arising out of the
transactions contemplated by the Plan of Merger to the fullest extent permitted
or required by applicable law.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling MedPartners or
InPhyNet pursuant to the foregoing provisions, MedPartners and InPhyNet have
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.

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<PAGE> 52

SELECTED FINANCIAL INFORMATION -- MEDPARTNERS

The following tables set forth selected financial data for MedPartners
derived from MedPartners' consolidated financial statements. The selected
financial data should be read in conjunction with the consolidated financial
statements and the related notes thereto.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenue.............. $1,287,526 $1,756,762 $2,638,654 $3,583,377 $4,813,499 $1,149,812 $1,332,271
Income (loss) from
continuing
operations............. $ 20,417 $ 47,881 $ 54,144 $ 20,901 $ (89,831) $ 2,752 $ 40,486
Income (loss) from
discontinued
operations............. $ 5,858 $ 30,808 $ 25,902 $ (136,528) $ (68,698) $ (68,698) $ --
Net income (loss)........ $ 26,275 $ 78,689 $ 80,046 $ (115,627) $ (158,529) $ (65,946) $ 40,486
Income (loss) per share
from continuing
operations(1).......... $ 0.21 $ 0.40 $ 0.41 $ 0.15 $ (0.58) $ 0.02 $ 0.25
Income (loss) per share
from discontinued
operations(1).......... $ 0.06 $ 0.26 $ 0.20 $ (0.97) $ (0.44) $ (0.46) $ --
Net income (loss) per
share(1)............... $ 0.27 $ 0.66 $ 0.61 $ (0.82) $ (1.02) $ (0.44) $ 0.25
Number of shares used in
net (loss) per share... 98,798 119,380 131,783 140,364 155,364 150,422 164,841
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 22,312 $ 43,367 $ 99,679 $ 86,276 $ 123,779 $ 141,578
Working capital..................... 139,642 240,023 150,977 234,630 170,313 236,331
Total assets........................ 777,632 1,049,258 1,585,643 1,840,914 2,265,969 2,366,605
Long-term debt, less current
portion........................... 80,378 164,040 385,258 531,774 715,657 763,893
Total stockholders' equity.......... 381,481 481,177 612,781 592,074 739,497 809,074
</TABLE>

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

(1) Income (loss) per share amounts are computed by dividing 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 MedPartners Common Stock issued in February 1995
upon conversion of the then outstanding convertible preferred stock are
assumed to be common equivalent shares for all periods presented.

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<PAGE> 53

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

The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of MedPartners, including changes arising
from recent acquisitions by MedPartners, the timing and nature of which have
significantly affected MedPartners' results of operations. This discussion
should be read in conjunction with the consolidated financial statements of
MedPartners and the notes thereto.

GENERAL

In February and September of 1996, MedPartners combined with PPSI and
Caremark, respectively. These business combinations were accounted for as
poolings of interests. The financial information referred to in this discussion
reflects the combined operations of these entities and several additional
immaterial entities accounted for as poolings of interests.

MedPartners is the largest PPM company in the United States. MedPartners
develops, consolidates and manages integrated healthcare delivery systems.
Through its network of affiliated group and IPA physicians, MedPartners provides
primary and specialty healthcare services to prepaid enrollees and
fee-for-service patients in the United States. MedPartners also operates
independent PBM programs and furnishes disease management services and therapies
for patients with certain chronic conditions.

MedPartners affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to prepaid payor systems. MedPartners enhances clinic operations
by centralizing administrative functions and introducing management tools such
as clinical guidelines, utilization review and outcomes measurement. MedPartners
provides affiliated physicians with access to capital and advanced management
information systems. MedPartners' PPM revenue is derived primarily from the
contracts with HMOs that compensate MedPartners and its affiliated physicians on
a prepaid basis. In the prepaid arrangements, MedPartners 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 healthcare coverage to
the HMOs. In return, MedPartners is responsible for substantially all of the
medical services required by enrollees. In many instances, MedPartners and its
affiliated physicians accept financial responsibility for hospital and ancillary
healthcare 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, through its affiliated
physicians, provides the majority of covered healthcare services to enrollees
and contracts with hospitals and other healthcare providers for the balance of
the covered services. These relationships provide physicians with the
opportunity to operate under a variety of payor arrangements and increase their
patient flow.

MedPartners offers medical group practices and independent physicians a
range of affiliation models which are described in Note 1 of the accompanying
consolidated financial statements of MedPartners. These affiliations are carried
out by the acquisition of PPM entities or practice assets, either for cash or
through equity exchange, or by affiliation on a contractual basis. In all
instances, MedPartners enters into long-term practice management agreements with
the affiliated physicians that provide for both the management of their
practices by MedPartners and the clinical independence of the physicians.

MedPartners also organizes and manages physicians and other healthcare
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.
Under contracts with hospitals and other clients, MedPartners identifies and
recruits physicians and other healthcare professionals for admission to a
client's medical staff, monitors the quality of care and proper utilization of
services and coordinates the ongoing scheduling of staff physicians who provide
clinical coverage in designated areas of care.

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<PAGE> 54

mail service pharmacies and manages patients' immediate prescription needs
through a network of national retail pharmacies. MedPartners is integrating its
PBM program with the PPM business by providing PBM services to the affiliated
physicians, clinics and HMOs. MedPartners' disease management services are
intended to meet the healthcare needs of individuals with chronic diseases or
conditions. These services include the design, development and management of
comprehensive programs that comprise drug therapies, physician support and
patient education. MedPartners currently provides therapies and services for
individuals with such conditions as hemophilia, growth disorders, immune
deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.

RESULTS OF OPERATIONS

Through MedPartners' network of affiliated group and IPA physicians,
MedPartners provides primary and specialty healthcare services to prepaid
enrollees and fee-for-service patients. MedPartners also fills in excess of 50
million prescriptions on an annual basis and provides services and therapies to
patients with certain chronic conditions, primarily hemophilia and growth
disorders. The following table sets forth the earnings summary by service area
for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Physician Services
Net revenue........... $1,053,519 $1,663,728 $2,555,642 $614,054 $715,100
Operating income...... 27,121 73,586 125,015 26,329 46,790
Margin................ 2.6% 4.4% 4.9% 4.3% 6.5%
Pharmaceutical Services
Net revenue........... $1,097,315 $1,432,250 $1,784,319 $422,691 $500,839
Operating income...... 46,236 56,022 75,788 16,465 19,297
Margin................ 4.2% 3.9% 4.2% 3.9% 3.9%
Specialty Services
Net revenue........... $ 487,820 $ 487,399 $ 473,538 $113,067 $116,332
Operating income...... 75,139 70,762 56,006 13,937 13,235
Margin................ 15.4% 14.5% 11.8% 12.3% 11.4%
Corporate Services
Operating loss........ $ (35,212) $ (24,668) $ (20,881) $ (6,438) $ (4,225)
Percentage of total
net revenue........ (1.3)% (0.7)% (0.4)% (0.6)% (0.3)%
</TABLE>

Physician Practice Management Services

MedPartners' PPM revenues have increased substantially over the past three
years primarily due to growth in prepaid enrollment, existing practice growth
and new practice affiliations. Of the total 1996 PPM revenue, $1.7 billion can
be attributed to acquisitions (accounted for as either poolings of interests or
purchase transactions) made during the year. MedPartners' PPM operations in the
western region of the country function in a predominantly prepaid environment.
Medpartners' PPM operations in the other regions of the country are in
predominantly fee-for-service environments with limited but increasing managed
care

45
<PAGE> 55

penetration. The following table sets forth the breakdown of net revenue for the
PPM services area for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Prepaid......................... $ 620,701 $ 982,128 $1,401,837 $333,096 $373,370
Fee-for-Service................. 408,832 661,974 1,139,265 276,049 337,939
Other........................... 23,986 19,626 14,540 4,909 3,791
---------- ---------- ---------- -------- --------
Total net revenue from
PPM service area.... $1,053,519 $1,663,728 $2,555,642 $614,054 $715,100
========== ========== ========== ======== ========
</TABLE>

MedPartners' prepaid revenue reflects the number of HMO enrollees for whom
it receives monthly capitation payments. MedPartners receives professional
capitation to provide physician services and institutional capitation to provide
hospital care and other non-professional services. The table below reflects the
growth in enrollment for professional and global capitation:

<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
------------------------------- ---------------------
1994 1995 1996 1996 1997
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Professional enrollees............. 548,821 603,391 1,025,763 915,272 1,027,230
Global enrollees (professional and
institutional)................... 255,188 477,208 603,892 605,042 659,752
------- --------- --------- --------- ---------
Total enrollees.......... 804,009 1,080,599 1,629,655 1,520,314 1,686,982
======= ========= ========= ========= =========
</TABLE>

During 1996, prepaid revenues increased 42.7% while prepaid enrollees
increased 50.8%. The reason for this difference relates to the mix of
professional capitation enrollment to total enrollment (which includes
institutional capitation). Therefore, the higher percentage of professional
capitation enrollment accounts for the lower percentage increase in prepaid
revenue as compared to the percentage increase in total enrollment. The
percentage of professional capitation enrollment to total enrollment was 63% at
December 31, 1996 compared to 56% at December 31, 1995. Revenue per enrollee for
professional capitation is substantially lower than global capitation as
discussed below.

MedPartners has consolidated the majority of its acquisitions into its
management infrastructure, eliminating substantial overhead expenses and
improving integration of medical, administrative and operational management. The
integration of various acquisitions into existing networks has allowed the
conversion of thousands of prepaid enrollees from professional capitation to
global capitation. This integration has been a significant factor in increasing
operating margins in the PPM service area from 2.6% in 1994 to 6.5% in the first
quarter of 1997.

MedPartners has developed strong relationships with many of the national
and regional managed care organizations and has demonstrated its ability to
deliver high-quality, cost-effective care. MedPartners is strategically
positioned to capitalize on the industry's continued evolution toward a prepaid
environment, specifically by increasing the number of prepaid enrollees and
converting existing enrollees from professional to global capitation. These
changes have resulted in significant internal growth. During the first quarter
of 1997, MedPartners converted approximately 56,000 lives from professional
capitation to global capitation. An additional 180,000 lives are expected to be
converted in the second quarter of 1997, exclusive of lives which will be added
as a result of MedPartners' alliance with Aetna U.S. Healthcare in May, 1997.

MedPartners has continued to acquire high-quality groups of emergency
physicians and radiologists who believe in the value of providing increasingly
cost-effective care. The reputation and strong local presence of new and
existing hospital-based groups provide a substantial advantage in the
competition for contracts with emergency room and radiology departments. The
excellent reputation and leadership of these groups continue to provide
opportunities for new contracts.

46
<PAGE> 56

In addition to the increased revenues and operational efficiencies realized
through acquisition and consolidation, MedPartners is profiting from synergies
produced by the exchange of ideas among physicians and managers across
geographical boundaries and varied areas of specialization. The PPM service
area, for example, has established medical management committees that meet
monthly to discuss implementation of the best medical management techniques to
assist MedPartners' affiliated physicians in delivering the highest quality of
care at lower costs in a consistent fashion. MedPartners is capitalizing on the
knowledge of its Western groups, which have significant experience operating in
a prepaid environment, to transfer the best practices to other groups in markets
with increasing managed care penetration. Through interaction between physicians
and managers from various medical groups, significant cost savings continue to
be identified at several of MedPartners' larger affiliated groups.

The PPM service area has also created a medical advisory committee, which
is developing procedures for the identification, packaging and dissemination of
the best clinical practices within MedPartners' medical groups. The committee
also provides MedPartners' affiliated physicians a forum to discuss innovative
ways to improve the delivery of healthcare.

MedPartners has also initiated integration efforts between the PPM, PBM and
disease management areas. A project is in process to integrate patient care data
from several of MedPartners' affiliated clinics with the PBM's healthcare
information system. Through this database, which combines medical and claims
data with the prescription information tracked by the PBM area, MedPartners will
have access to the industry's most complete and detailed collection of
information on successful treatment patterns. Another synergy arising from
integration is the opportunity which the existing PBM infrastructure affords to
affiliated physician groups to further expand services by providing pharmacy
services ranging from fee-for-service retail claims processing to full drug
capitation programs. MedPartners is also beginning to integrate the disease
management area's expertise in an effort to formulate and implement disease
management programs for MedPartners.

Pharmacy Benefit Management Services

Pharmaceutical Services revenues continue to exhibit sustained growth
reflecting increases in both mail and retail related services. Net revenue for
the quarter ended March 31, 1997 increased 18.5% over the same period in 1996 as
a result of increased pharmacy transaction volume (8.0%), drug cost inflation,
product mix and pricing (9.9%) and growth of clinical and other programs (0.6%).
Key factors contributing to this growth include high customer retention,
additional penetration of retained customers and new customer contracts. These
growth factors were partially offset in 1995 and 1996 by selective non-renewal
of certain accounts not meeting threshold profitability levels. Pharmaceutical
Services' largest single client contract, the National Association of Letter
Carriers, went into effect on January 1, 1997. The majority of Pharmaceutical
Services revenue is earned on a fee-for-service basis through contracts covering
one to three-year periods. Revenues for selected types of services are earned
based on a percentage of savings achieved or on a per-enrollee or per-member
basis; however, these revenues are not material to total revenues.

Operating income increased 17.2% in the first quarter of 1997 compared to
the first quarter of 1996. Operating margins in the first quarter of 1997 were
consistent with the first quarter of 1996. Retail service revenue continues to
grow at a faster rate than mail related revenue, and reductions in operating
expenses offset any impact on operating margins and have contributed to the
overall growth in operating income.

Operating income experienced accelerated growth in 1995 and 1996 while
margins fell slightly from 4.2% in 1994 to 3.9% in 1995 to but returned to a
4.2% level in 1996. Operating income and margins in 1996 were enhanced by
reduced information systems costs achieved through renegotiation of a contract
with an outsource service vendor, continued improvements in the acquisition
costs of drugs, increased penetration of higher margin value-oriented services
and an overall 13% reduction in selling and administrative expenses. Partially
offsetting these cost reductions were continued declines in prices to customers.

Margins in Pharmaceutical Services are also affected by the mix between
mail and retail service revenues. Margins on mail-related service revenues
currently are higher than those on retail service revenues. Revenues in both
mail and retail services continue to grow; although, the growth rate of retail
services in 1995

47
<PAGE> 57

and 1996 was greater than the growth rate of mail services. In 1996, retail
service revenues grew to represent nearly 49% of PBM revenues. MedPartners has
little or no influence over certain other factors, including demographics of the
population served and plan design, which, can affect the mix between mail and
retail services. Consequently, margin percentage trends alone are not a
sufficient indication of progress. MedPartners' pricing and underwriting
strategies are closely linked to its working capital and asset management
strategies and focus on return on investment and overall improvements in return
on capital deployed in the business.

MedPartners has recently reorganized its sales and corporate accounts
management activities into eight geographic and two additional specialty areas.
This will enable MedPartners to improve its account retention, client service
and growth initiatives even further as a result of increased accountability and
focus. As mentioned under Physician Practice Management Services, MedPartners is
pursuing a number of PPM and PBM integration opportunities.

Specialty Services

Specialty Services concentrates on providing high quality products and
services in the home. Domestically, these services focus on low incidence
chronic diseases. Internationally, MedPartners has established home care
businesses in Canada, Germany, the Netherlands, the United Kingdom and Japan,
where it is expanding into new services in response to transforming healthcare
delivery systems in these countries. Margins for specialty services have
declined slightly as a result of managed care pricing pressures, restructuring
of benefit plans by payors and reduced reimbursement from Medicaid and other
state agency payors. For the hemophilia business, federal government programs
providing special pricing to qualified organizations who may be competitors have
impacted margins negatively. In addition to pricing pressures, particularly in
growth deficiency therapy, operating expenses and cost of service expenses rose
due to programs targeted at launching MedPartners' new multiple sclerosis ("MS")
therapy service, an expanded payor marketing initiative and an initiative
targeted at attaining accreditation by the Joint Committee on Accreditation of
Healthcare Organizations for the nationwide system of pharmacies. To offset
these declines, MedPartners launched new products and services including the
opening of a PBM in the Netherlands and an MS therapy service in the U.S.

Discontinued Operations

During 1995, Caremark divested its Caremark Orthopedic Services, Inc.
subsidiary as well as its clozaril patient management system, home infusion
business, and oncology management services business. MedPartners' 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. Discontinued operations
for 1995 reflect the net after-tax gain on the disposal of the clozaril patient
management system, the home infusion business and a $154.8 million after-tax
charge for the settlement discussed in Note 13 of the accompanying audited
consolidated financial statements related to the OIG investigation. Discontinued
operations for 1996 reflects a $67.9 million after-tax charge related to
settlements with private payors discussed in Note 13 of the accompanying audited
consolidated financial statements and an after-tax gain on disposition of the
nephrology services business, net of disposal costs, of $2.5 million.

Results of Operations -- Three Months Ended March 31, 1997 and 1996

For the three months ended March 31, 1997, net revenue was $1,332.3
million, compared to $1,149.8 million for the same period in 1996, an increase
of 15.9%. The increase in net revenue primarily resulted from affiliations with
new physician practices and the increase in pharmaceutical services net revenue,
which accounted for $26.9 million and $78.1 million of the increase in net
revenue, respectively. The increase in pharmaceutical services net revenue is
attributable to pharmaceutical price increases, the addition of new customers,
further penetration of existing customers and the sale of new products.

48
<PAGE> 58

Operating income grew 77.7% and 17.2% in the first quarter of 1997, as
compared to the same period of 1996, for the physician services and
pharmaceutical services areas, respectively. The increase in the physician
services area is the result of higher net revenue and increases in operating
margins resulting from the spreading of fixed overhead expenses over a larger
revenue base and continued integration of operations. The pharmaceutical
services area's increase in operating income was primarily due to reductions in
operating expenses and higher net revenue. Operating income and margins declined
in the corresponding periods for the specialty services area as a result of
lower volumes in the hemophilia business and continued pricing pressures for its
growth hormone products.

Net income for the first quarter of 1997 was $40.5 million, as compared to
a loss of $65.9 million for the same period of 1996. Net loss for the first
quarter of 1996 included merger charges totaling $34.4 million relating to the
business combination with PPSI and the loss from discontinued operations of
$68.7 million discussed previously.

Results of Operations for the Years Ended December 31, 1996 and 1995

For the year ended December 31, 1996, net revenue was $4,813.5 million,
compared to $3,583.4 million for 1995, an increase of 34.3%. The increase in net
revenue resulted primarily from affiliations with new physician practices and
the increase in PBM net revenue, which accounted for $339.9 million and $352.1
million of the increase in net revenue, respectively. The most significant
physician practice acquisition during this period was the CIGNA Medical Group
which was acquired in January 1996. This acquisition accounted for 92% of the
new practice revenue. The increase in PBM net revenue is attributable to
pharmaceutical price increases, the addition of new customers, further
penetration of existing customers and the sale of new products.

Operating income for the PPM and PBM services areas increased 69.9% and
35.3%, respectively, for 1996 compared to 1995. This growth was the result of
higher net revenues in both areas and increases in operating margins resulting
from the spreading of fixed overhead expenses over a larger revenue base and
continued integration of operations in the PPM services area. Operating income
and margins declined in the corresponding periods for the specialty services
area as a result of lower volumes in the hemophilia business and continued
pricing pressures for growth hormone products.

Included in the pre-tax loss for 1996 were merger expenses totaling $308.7
million related to the business combinations with Caremark, PPSI and several
other entities, the major components of which are listed in Note 11 of the
accompanying audited consolidated financial statements.

Results of Operations for the Years Ended December 31, 1995 and 1994

Net revenue for the year ended December 31, 1995 was $3,583.4 million, an
increase of $944.7 million, or 35.8%, over the year ended December 31, 1994. The
increase in net revenue resulted primarily from affiliation with new physician
practices, the increase in prepaid enrollees at existing affiliated physician
practices and the increase in PBM net revenue, which accounted for $240.1
million, $295.8 million, and $334.9 million of the increase in net revenue,
respectively. The most significant physician practice acquisition affecting this
period was the Friendly Hills Healthcare Network which was acquired in May 1995.
This acquisition accounted for 53% of the new practice revenue. The increase in
PBM net revenue resulted from increases in covered lives due to new customer
contracts and greater penetration of existing customers.

Operating income grew 171.3% and 21.2% for 1995, compared to 1994, for the
PPM and PBM service areas, respectively. This growth is the result of higher net
revenues in both areas. The PPM service area also had a significant increase in
operating margin, 2.6% in 1994 to 4.4% in 1995, which resulted from the
leveraging of fixed overhead expenses over a substantially larger revenue base,
integration of operations and the impact of the varying margins of new physician
practice affiliations. Operating income and margins declined in the
corresponding periods for the specialty services areas as a result of pricing
pressures for growth hormone products.

49
<PAGE> 59

FACTORS THAT MAY AFFECT FUTURE RESULTS

The future operating results and financial condition of MedPartners are
dependent on MedPartners' ability to market its services profitably,
successfully increase market share and manage expense growth relative to revenue
growth. The future operating results and financial condition of MedPartners may
be affected by a number of additional factors, including: MedPartners' growth
strategy, which involves the ability to raise the capital required to support
growth, competition for expansion opportunities, integration risks and
dependence on HMO enrollee growth; efforts to control healthcare costs; exposure
to professional liability; and pharmacy licensing, healthcare reform and
government regulation. Changes in one or more of these factors could have a
material adverse effect on the future operating results and financial condition
of MedPartners.

MedPartners completed the Caremark Acquisition in September 1996. There are
various Caremark legal matters which, if materially adversely determined, could
have a material adverse effect on MedPartners' operating results and financial
condition. See Note 13 to the accompanying consolidated financial statements of
MedPartners.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1997 and December 31, 1996, MedPartners had working capital
of $236.3 and $170.3 million, respectively, including cash and cash equivalents
of $141.6 and $123.8 million, respectively. For the periods ending March 31,
1997 and 1996, and December 31, 1996, 1995 and 1994, cash flow from continuing
operations was $45.3 million, $34.7 million, $159.8 million, $152.8 million and
$43.6 million, respectively.

For the periods ended March 31, 1997 and December 31, 1996, respectively,
MedPartners invested $43.1 and $157.4 million, respectively, in acquisitions of
the assets of physician practices and $16.8 and $122.1 million, respectively, in
property and equipment. These expenditures were funded by approximately $24.5
and $270.2 million, respectively, derived from equity proceeds and $41.4 and
$133.6 million, respectively, in net incremental borrowings. For the three
months ended March 31, 1996 MedPartners invested $76.0 million in acquisitions
of the assets of physician practices and $30.8 million in property and
equipment. These expenditures were funded by a portion of the $224.1 million
derived from a secondary stock offering in March 1996. For the year ended
December 31, 1995, MedPartners invested $205.1 million in acquisitions of the
assets of physician practices and $124.5 million in property and equipment.
These expenditures were funded by approximately $83.4 million derived from
equity proceeds and $71.2 million in net incremental borrowings. For the year
ended December 31, 1994, MedPartners' investing activities totaled $248.3
million, which was composed primarily of $126.7 million related to practice
acquisitions and $102.7 million related to the purchase of property and
equipment. These expenditures were funded by $128.1 million derived from equity
proceeds and $232.4 million in net incremental borrowings. Investments in
acquisitions and property and equipment are anticipated to continue to be
substantial uses of funds in future periods.

MedPartners entered into the $1 billion Credit Facility, which became
effective simultaneously with the closing of the Caremark acquisition, on
September 5, 1996, replacing its then existing credit facility. At MedPartners'
option, pricing on the Credit Facility is based on either a debt to cash flow
test or MedPartners' senior debt ratings. No principal is due on the facility
until its maturity date of September 2001. As of March 31, 1997, there was $266
million outstanding under the facility. The Credit Facility contains affirmative
and negative covenants which include requirements that MedPartners maintain
certain financial ratios (including minimum net worth, minimum fixed charge
coverage ratio and maximum indebtedness to cash flow), and establishes certain
restrictions on investments, mergers and sales of assets. Additionally,
MedPartners is required to obtain bank consent for acquisitions with an
aggregate purchase price in excess of $75 million and for which more than half
of the consideration is to be paid in cash. The Credit Facility is unsecured but
provides a negative pledge on substantially all assets of MedPartners. As of
March 31, 1997, MedPartners was in compliance with the covenants in the Credit
Facility.

Effective October 8, 1996, MedPartners completed a $450 million senior note
offering. These ten-year notes carry a coupon rate of 7 3/8%. The notes are not
redeemable by MedPartners prior to maturity and are not entitled to the benefit
of any mandatory sinking fund. The notes are general unsecured obligations of
MedPartners ranking senior in right of payment to all existing and future
subordinated indebtedness of

50
<PAGE> 60

MedPartners and pari passu in right of payment with all existing and future
unsubordinated and unsecured obligations of MedPartners. The notes are
effectively subordinated to all existing and future indebtedness and other
liabilities of MedPartners' subsidiaries. The notes are rated BBB/Baa3 by
Standard & Poors and Moody's Investor Services, respectively. MedPartners is the
only physician practice management company to earn an investment grade debt
rating. Net proceeds from the offering were used to reduce amounts under the
Credit Facility.

On October 30, 1996, MedPartners completed its tender offer for Caremark's
$100 million 6 7/8% notes due August 15, 2003. Of the $100 million principal
amount of such notes outstanding, $99.9 million principal amount were tendered
and purchased. The total consideration for each $1,000 principal amount of
outstanding notes tendered was $1,017.72.

MedPartners' growth strategy requires substantial capital for the
acquisition of PPM businesses and assets of physician practices, and for their
effective integration, operation and expansion. Affiliated physician practices
may also require capital for renovation, expansion and additional medical
equipment and technology. MedPartners believes that its existing cash resources,
the use of MedPartners' Common Stock for selected practice and other
acquisitions and available borrowings under the $1.0 billion Credit Facility or
any successor credit facility, will be sufficient to meet MedPartners'
anticipated acquisition, expansion and working capital needs for the next twelve
months. MedPartners expects from time to time to 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 in order to meet the capital
needs of MedPartners. There can be no assurance that acceptable financing for
future acquisitions or for the integration and expansion of existing networks
can be obtained. Any of such financings could result in increased interest and
amortization expense, decreased income to fund future expansion and dilution of
existing equity positions.

51
<PAGE> 61

QUARTERLY RESULTS (UNAUDITED)

The following tables set forth certain unaudited quarterly financial data
for 1995 and 1996. In the opinion of MedPartners' 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
----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- --------- ------------- ------------ ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.......... $806,396 $ 887,121 $919,750 $ 970,110 $1,149,812 $1,196,226 $1,199,679
Operating expenses... 770,599 846,889 871,279 918,908 1,099,519 1,143,107 1,139,178
Net interest
expense.......... 6,254 2,213 5,350 3,804 6,741 4,021 5,257
Merger expenses.... -- 1,051 3,473 62,040 34,448 -- 263,000
Losses on
investments...... -- -- -- 86,600 -- -- --
Other, net......... (406) 5 (27) 236 (144) (229) (37)
-------- --------- -------- --------- ---------- ---------- ----------
Income (loss) from
continuing
operations before
income taxes....... 29,949 36,963 39,675 (101,478) 9,248 49,327 (207,719)
Income tax expense
(benefit)........ 10,903 13,904 15,156 (55,755) 6,496 16,926 (55,465)
-------- --------- -------- --------- ---------- ---------- ----------
Income (loss) from
continuing
operations......... 19,046 23,059 24,519 (45,723) 2,752 32,401 (152,254)
Discontinued
operations:
Income (loss) from
discontinued
operations....... (2,605) (144,011) (5,791) (15,935) (71,221) -- --
Net gains on sales
of discontinued
operations....... 10,895 (3,810) -- 24,729 2,523 -- --
-------- --------- -------- --------- ---------- ---------- ----------
Income (loss) from
discontinued
operations......... 8,290 (147,821) (5,791) 8,794 (68,698) -- --
-------- --------- -------- --------- ---------- ---------- ----------
Net income
(loss)....... $ 27,336 $(124,762) $ 18,728 $ (36,929) $ (65,946) $ 32,401 $ (152,254)
======== ========= ======== ========= ========== ========== ==========

<CAPTION>
QUARTER ENDED
-------------------------
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Net revenue.......... $1,267,782 $1,332,271
Operating expenses... 1,195,767 1,257,174
Net interest
expense.......... 7,911 9,686
Merger expenses.... 11,247 --
Losses on
investments...... -- --
Other, net......... (1,159) --
---------- ----------
Income (loss) from
continuing
operations before
income taxes....... 54,016 65,411
Income tax expense
(benefit)........ 26,746 24,925
---------- ----------
Income (loss) from
continuing
operations......... 27,270 40,486
Discontinued
operations:
Income (loss) from
discontinued
operations....... -- --
Net gains on sales
of discontinued
operations....... -- --
---------- ----------
Income (loss) from
discontinued
operations......... -- --
---------- ----------
Net income
(loss)....... $ 27,270 $ 40,486
========== ==========
</TABLE>

MedPartners' historical unaudited quarterly financial data have been
restated to include the results of all businesses acquired prior to December 31,
1996 that were accounted for as poolings of interests (collectively, the
"Mergers"). MedPartners' Quarterly Reports on Form 10-Q were filed prior to the
Mergers 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, 1996 JUNE 30, 1996 SEPTEMBER 30, 1996
----------------------- ----------------------- ------------------------
FORM 10-Q AS RESTATED FORM 10-Q AS RESTATED FORM 10-Q AS RESTATED
--------- ----------- --------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue................. $332,549 $1,149,812 $360,398 $1,196,226 $1,182,015 $1,199,679
Income (loss) from
continuing operations
before income taxes....... (21,435) 9,248 16,153 49,327 (207,168) (207,719)
Income tax expense
(benefit)................. (5,935) 6,496 6,129 16,926 (55,634) (55,465)
Loss from discontinued
operations................ -- (68,698) -- -- -- --
Net income (loss)........... (15,500) (65,946) 10,024 32,401 (151,534) (152,254)
</TABLE>

52
<PAGE> 62

BUSINESS OF MEDPARTNERS

GENERAL

MedPartners is the largest PPM company in the United States based on
annualized revenues of approximately $5.3 billion as of March 31, 1997.
MedPartners develops, consolidates and manages integrated healthcare delivery
systems. Through its network of affiliated group and independent practice
association ("IPA") physicians, MedPartners provides primary and specialty
healthcare services to prepaid managed care enrollees and fee-for-service
patients. MedPartners also operates one of the largest independent prescription
benefit management ("PBM") programs in the United States, with annualized
revenues of approximately $2.0 billion as of March 31, 1997 and provides disease
management services and therapies for patients with certain chronic conditions.
As of March 31, 1997, MedPartners operated its PBM program in all 50 states and
its PPM business in 23 states and was affiliated with approximately 9,500
physicians, including approximately 2,700 in group practices, 5,700 through IPA
relationships and 1,100 who were hospital-based, providing healthcare to
approximately 1.7 million prepaid enrollees.

MedPartners affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to managed care payor systems. MedPartners enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
MedPartners provides affiliated physicians with access to capital and to
advanced management information systems. In addition, MedPartners contracts with
health maintenance organizations and other third-party payors that compensate
MedPartners and its affiliated physicians on a prepaid basis (collectively
"HMOs"), hospitals and outside providers on behalf of its affiliated physicians.
These relationships provide physicians with the opportunity to operate under a
variety of payor arrangements and to increase their patient flow.

MedPartners' PPM revenue is derived from contracts with HMOs that
compensate MedPartners and its affiliated physicians on a prepaid basis and from
the provision of fee-for-service medical services. In the prepaid arrangements,
MedPartners, 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 healthcare coverage to the HMOs. In
return, MedPartners, through its affiliated physicians, is responsible for
substantially all of the medical services required by enrollees. In many
instances, MedPartners and its affiliated physicians accept financial
responsibility for hospital and ancillary healthcare 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, through its affiliated physicians, provides the
majority of covered healthcare services to enrollees and contracts with
hospitals and other healthcare providers for the balance of the covered
services. In March 1996, the California Department of Corporations (the "DOC")
issued a healthcare service plan license (the "Restricted License") to Pioneer
Provider Network, Inc. ("Pioneer Network") in accordance with the requirements
of the Knox-Keene Health Care Service Plan Act of 1975 (the "Knox-Keene Act")
which authorizes Pioneer Network to operate as a healthcare service plan in the
state of California. MedPartners intends to utilize the Restricted License for a
broad range of healthcare services. See "-- Government Regulation".

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

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providing pharmaceutical services to affiliated physicians, clinics and HMOs.
MedPartners' disease management services are intended to meet the healthcare
needs of individuals with chronic diseases or conditions. These services include
the design, development and management of comprehensive programs comprising drug
therapy, physician support and patient education. MedPartners currently provides
therapies and services for individuals with such conditions as hemophilia,
growth disorders, immune deficiencies, genetic emphysema, cystic fibrosis and
multiple sclerosis.

ACQUISITION PROGRAM

MedPartners believes it is the leading consolidator in the PPM industry.
MedPartners' strategy is to develop locally prominent, integrated healthcare
delivery networks that provide high quality, cost-effective healthcare in
selected geographic markets. MedPartners implements this strategy through growth
in its existing markets, expansion into new markets through acquisitions and
affiliations and through the implementation of comprehensive healthcare
solutions for patients, physicians and payors. In connection with pursuing its
strategy, MedPartners creates strategic alliances with hospital partners and
HMOs. As an integral element of these alliances, MedPartners utilizes
sophisticated information systems to improve the operational efficiency of, and
reduce the costs associated with, operating MedPartners' network and the
practices of the affiliated physicians. MedPartners' principal methods of
expansion are acquisitions of PPM businesses and affiliations with physician and
medical groups.

In September 1996, MedPartners acquired Caremark International Inc., a
publicly traded PPM and PBM company based in Northbrook, Illinois, in exchange
for approximately 90.5 million shares of MedPartners Common Stock having a total
value of $1.8 billion (the "Caremark Acquisition"), creating the largest PPM
company in the United States.

In November 1995, MedPartners acquired Mullikin Medical Enterprises, L.P.
("MME"), a privately held PPM entity based in Long Beach, California, in
exchange for approximately 13.5 million shares of MedPartners Common Stock
having a total value of approximately $384.1 million (the "MME Acquisition"). In
February 1996, MedPartners acquired Pacific Physician Services, Inc. ("PPSI"), a
publicly traded PPM company based in Redlands, California, in exchange for
approximately 11.0 million shares of MedPartners Common Stock having a total
value of approximately $341.8 million. In June 1995, PPSI acquired Team Health,
Inc. ("Team Health"), based in Knoxville, Tennessee. Team Health primarily
manages physicians and other healthcare professionals engaged in the delivery of
emergency medicine and hospital based primary care.

Through December 31, 1994, MedPartners had affiliated with 190 physicians
(without giving effect to physicians who became affiliated with MedPartners
pursuant to acquisitions that were accounted for as poolings of interests). As
of March 31, 1997, MedPartners had affiliated with approximately 9,500
physicians.

MedPartners' success in continuing its aggressive growth strategy will be
dependent on many factors including, among others, its ability to identify
suitable growth opportunities and to integrate its acquired practices.
MedPartners' efforts in this regard could be adversely affected by competition
from other PPM businesses and companies as well as hospital management
companies, hospitals and insurers who are also expanding into the PPM market.
MedPartners' rapid consolidation makes integration a significant challenge. The
dedication of management resources to integration may detract attention from the
day-to-day operations of MedPartners. There can be no assurance that MedPartners
will be able to continue its growth or successfully integrate its acquisitions.
Such failures could have a material adverse effect on the operating results and
financial condition of MedPartners.

MedPartners' major acquisitions since January 1995 have been structured as
poolings of interests. As a result, MedPartners' operating income has been
reduced by the related merger expenses resulting in a net loss for the year
ended December 31, 1996. Such merger expenses as well as integration costs may
result in future losses. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- MedPartners".

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RECENT DEVELOPMENTS

On May 1, 1997 MedPartners acquired the business assets and assumed the
liabilities of most of the operations of APMC. For accounting purposes, the APMC
Acquisition will be treated as if it were an asset purchase pursuant to Section
338(h)(10) of the Code. As a part of the APMC Acquisition, MedPartners entered
into a 10-year Master Network Agreement with Aetna U.S. Healthcare, pursuant to
which the members of MedPartners' networks of affiliated physicians will be
authorized providers for many of the 14 million members of Aetna U.S.
Healthcare's health plan.

INDUSTRY

The Health Care Financing Administration ("HCFA") estimates that national
healthcare spending in 1995 was in excess of $1 trillion, with physicians
controlling more than 80 percent of the overall expenditures. The American
Medical Association reports that approximately 613,000 physicians are actively
involved in patient care in the United States, with a growing number
participating in multi-specialty or single-specialty groups. Expenditures
directly attributable to physicians are estimated at $246 billion.

Concerns over the cost of healthcare have resulted in the rapid growth of
managed care in the past several years. As markets evolve from traditional
fee-for-service medicine to managed care, HMOs and healthcare providers confront
market pressures to provide high quality healthcare in a cost-effective manner.
Employer groups have begun to bargain collectively in an effort to reduce
premiums and to bring about greater accountability of HMOs and providers with
respect to accessibility, choice of provider, quality of care and other matters
that are fundamental to consumer satisfaction. The increasing focus on
cost-containment has placed small to mid-sized physician groups and solo
practices at a disadvantage. 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 for entry into
sophisticated risk-sharing contracts with payors.

Industry experts expect that the healthcare delivery system may evolve to
the point where the primary care physician manages and directs healthcare
expenditures. Consequently, 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
such as MedPartners 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 HMO enrollment and physician membership in group medical practices have
continued to increase, healthcare providers have sought to reorganize themselves
into healthcare delivery systems that are better suited to the managed care
environment. Physician groups and IPAs are joining with hospitals, pharmacies
and other institutional providers in various arrangements to create vertically
integrated delivery systems that provide medical and hospital services ranging
from community-based primary medical care to specialized inpatient services.
These healthcare delivery systems contract with HMOs to provide hospital and
medical services to enrollees pursuant to full risk contracts. Under these
contracts, providers assume the obligation to provide both the professional and
institutional components of covered healthcare services to the HMO enrollees.

In order to compete effectively in this evolving environment, MedPartners
believes many physicians are concluding that they must obtain control over the
delivery and financial impact of a broader range of healthcare services through
global capitation. To this end, groups of independent physicians and medium to
large medical groups are taking steps to assume the responsibility and the risk
associated with healthcare services that they do not provide, such as
hospitalization and pharmacy services. Physicians are increasingly abandoning
traditional private practice in favor of affiliations with larger organizations
such as MedPartners that offer skilled and innovative management, sophisticated
information systems and significant capital resources. Many payors and their
intermediaries, including governmental entities and HMOs, are also looking to
outside providers of physician and pharmacy services to develop and maintain
quality outcomes, management programs and patient care data. In addition, such
payors and their intermediaries look to share

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the risk of providing healthcare services through capitation arrangements that
fix payments for patient care at a specified amount over a specified period of
time. Medical groups and independent physicians seem to be concluding that while
the acceptance of greater responsibility and risk affords the opportunity to
retain and enhance market share and to operate at a higher level of
profitability, the acceptance of global capitation carries with it significant
requirements for enhanced infrastructure, information systems, capital, network
resources and financial and medical management. As a result, physicians are
turning to organizations such as MedPartners to provide the resources necessary
to function effectively in a managed care environment.

STRATEGY

MedPartners' strategy is to develop locally prominent, integrated
healthcare delivery networks that provide high quality, cost-effective
healthcare in selected geographic markets. The key elements of this strategy are
as follows:

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

Expansion into New Markets. MedPartners expands into new markets
through the acquisition of or affiliation with other PPM entities and
medical groups. MedPartners believes it is the leading consolidator in the
PPM industry and that the MME Acquisition was the first major consolidation
in the industry. That acquisition was followed by the merger with PPSI, the
Caremark Acquisition and the announcement in January 1997 of the proposed
merger with InPhynet. As a result of the consolidation of physician
practices and the entry of other PPM companies into the market,
MedPartners' management has determined that it is important for MedPartners
to continue its rate of expansion through acquisitions and mergers.
MedPartners believes that by concentrating on larger acquisitions and by
continuing to expand its core of physician groups and IPAs, as well as its
affiliations with hospitals, it will create vertically integrated
healthcare delivery systems that enhance its competitive position.
MedPartners continually reviews potential acquisitions and physician
affiliations and is currently in preliminary negotiations with various
candidates.

Integration of PPM and PBM Services. MedPartners believes that there
is significant opportunity for growth through the integration of the PBM
program and the PPM business. MedPartners expects PBM activity to increase
as payors seek to shift the responsibility for pharmacy services to PPM
entities and physician groups, and those entities look to prescription
benefit managers to control pharmaceutical costs. MedPartners expects its
PBM program to grow as enrollees and fee-for-service patients use
MedPartners' mail-order and retail pharmacy networks. In addition,
MedPartners expects to expand its PBM contracts with managed care
organizations to provide capitated pharmaceutical services for its prepaid
enrollees.

Strategic Alliances. MedPartners believes that strategic alliances
with hospitals and health plans improve the delivery of managed healthcare.
MedPartners 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 MedPartners clinics
and IPA physicians is deposited into "subcapitated risk pools" managed by
MedPartners. MedPartners believes that such arrangements can be enhanced
through the implementation of the Restricted License held by Pioneer
Network. Under these arrangements, the hospital is at risk in the event
that the costs of institutional care exceed the available

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funds, and MedPartners shares in cost savings and revenue enhancements.
MedPartners believes that through these and other similar alliances,
providers will devote greater resources to ensuring the wellness of HMO
enrollees, to enhancing high-quality and cost-effective care and to
retaining and expanding their respective market shares. As a result, it is
anticipated that the overall cost of delivering healthcare services will be
contained, rendering both MedPartners and the participating providers more
appealing to both HMOs and medical care consumers. MedPartners and its
affiliated physicians have also established relationships with HMOs
pursuant to which MedPartners and the HMOs share proportionately in the
risks and rewards of market trends.

Sophisticated Information Systems. MedPartners believes that
information technology is critical to the growth of integrated healthcare
delivery systems and that the availability of detailed clinical data is
fundamental to quality control and cost containment. MedPartners develops
and maintains sophisticated management information systems that collect and
analyze clinical and administrative data. These systems allow MedPartners
to control overhead expenses, maximize reimbursement and provide
utilization management more effectively. MedPartners evaluates the
administrative and clinical functions of affiliated practices and
re-engineers these functions as appropriate in conjunction with the
implementation of MedPartners' management information systems to maximize
the benefits of those systems.

MedPartners also utilizes a sophisticated database to provide
pharmaceutical-related information to participating physicians, payors,
affiliated physician practices and other specialty service entities. The
database is designed to provide an effective method for distributing and
administering drugs and drug therapies.

Increased Operational Efficiencies and Cost Reductions. MedPartners
is seeking to increase its operating efficiency through expansion of its
market area and number of HMO enrollees, increased specialization,
development of additional in-house services and increased emphasis on
outpatient care. MedPartners is also refining its utilization management
programs that deliver information used by participating physicians to
monitor and improve their practice patterns. MedPartners' physician
networks attempt to achieve economies of scale through centralizing
billing, scheduling, information management and other functions.

OPERATIONS

Prior to the MME Acquisition in November 1995, MedPartners concentrated its
PPM development efforts in the southeastern United States, affiliating primarily
with physician groups that practiced on a fee-for-service basis. MedPartners
acquired additional business models specifically designed to operate efficiently
in the capitated environment with the acquisition of the MME, PPSI and Caremark
organizations. These business models, which are replicable and flexible, allow
MedPartners to take advantage of the full range of market opportunities in the
PPM industry and enable MedPartners to build integrated physician networks
attractive to payors of all types. MedPartners currently has networks under
development in 26 states.

To meet payor demand for price competitive, quality services, MedPartners
utilizes a market-based approach that incorporates primary care and specialty
physicians into a network of providers serving a targeted geographic area.
MedPartners engages in research and market analysis to determine the best
network configuration for a particular market. Primary care includes family
practice, internal medicine, pediatrics and obstetrics/gynecology. Key
specialties include orthopedics, cardiology, oncology, radiology, neurosciences,
urology, surgery, ophthalmology and ear, nose and throat. 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'
clinics. Each network is configured to contain, when complete, the physician
services necessary to capture at least a ten percent market share and to provide
at least 90 percent of the physician services required by payors. MedPartners
markets its networks to managed care and third-party payors, referring
physicians and hospitals.

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Affiliated Physicians. The relationship between MedPartners and its
affiliated physicians is set forth in asset purchase and practice management
agreements. Through the asset purchase agreements, MedPartners acquires the
assets utilized in the practices and may also assume certain leases and other
contracts of the physician practices. Under the practice management agreements,
MedPartners provides administrative, management and support functions to
physician practices as necessary in connection with their respective medical
practices. MedPartners also provides its physician practices with the equipment
and facilities necessary for the medical practices, manages practice operations
and employs substantially all of the practices' non-physician personnel, except
certain allied health professionals, such as nurses and physical therapists.

MedPartners consolidates physician practices that have directly entered
into contracts with HMOs or that have the right to receive payment directly from
HMOs for the provision of medical services in MedPartners' clinics, because it
obtains a controlling financial interest solely by virtue of a long-term
practice management agreement with physician practices. The revenue earned by
these physician practices represented 36% of PPM revenue (20% of consolidated
revenue) during the first quarter of 1997. The balance of MedPartners' PPM
revenue (64%) is derived from contracts directly between MedPartners, or a
wholly owned subsidiary, and HMOs. Practice management agreements with physician
practices that hold HMO contracts or the right to receive payment directly from
HMOs provide three general types of financial arrangements regarding the
compensation of the physician-stockholders of those physician practices: (i)
Physician practices that contributed 9% of PPM revenues (5% of consolidated
revenue) during the first quarter of 1997 have practice management agreements
that provide the physician-stockholders a negotiated fixed dollar amount.
MedPartners' sole discretion, the physicians are eligible to receive a bonus
based on performance criteria and goals. The amount of any discretionary bonus
is determined solely by MedPartners' management and is not directly correlated
to clinic revenue or gross profit. To the extent the clinics net revenue
increases or decreases under these practice management agreements, physician
compensation will also increase or decrease, pro rata, based on the practices'
compensation as a percentage of the clinic's net revenue; (ii) Physician
practices that contributed 17% of PPM revenue (9% of consolidated revenue)
during the first quarter of 1997 have practice management agreements that
compensate the physician-stockholder on a fee-for-service basis. The respective
clinics generally earn revenue on a fee-for-service basis, and physician
compensation typically represents between 40 and 70 percent of the clinic's net
revenue; or (iii) Physician practices that contributed 10% of PPM revenue (6% of
consolidated revenue) during the first quarter of 1997 provided
physician-stockholders with a salary, plus bonus, and a profit-sharing payment
of a percentage of the clinic's net income (i.e., contractual revenue less base
physician compensation, bonus and clinic expenses).

Under these various types of agreements, revenue is assigned to MedPartners
by the physician practice. MedPartners is responsible for the billing and
collection of all revenue for services provided at its clinics, as well as for
paying all expenses, including physician compensation. MedPartners is not
reimbursed for the clinic expenses, rather it is responsible and at risk for all
such expenses. In effect MedPartners retains any residual from operations of its
physician practices (and funds any deficit). No earnings accumulate in its
physician practices or are available for the payment of dividends to the
physician-stockholders. In addition, the legal owners of its physician practices
do not have a substantive capital investment that is at risk and MedPartners has
substantially all of the capital at risk. Based on the terms of the practice
management agreement, in almost cases, there is no economic value attributable
to the capital stock of those physician practices.

MedPartners' practice management agreements with its physician practices
are long-term and provide MedPartners with unilateral control over its physician
practices. The practice management agreements include the following provisions:
(i) the initial term is 20 to 40 years; (ii) renewal provisions call for
automatic and successive extension periods; (iii) the physician practices cannot
unilaterally terminate their agreements with MedPartners unless MedPartners
fails to cure a breach of its contractual responsibilities thereunder within 30
days after notification of such breach; (iv) MedPartners is obligated to
maintain a continuing investment of capital; (v) MedPartners employes the
non-physician personnel of its physician practices, and; (vi) MedPartners
assumes full responsibility for the operating expenses of the physician practice
in return for an assignment of the physician practice's revenue. See Note 1 to
the consolidated financial statements of MedPartners.

MedPartners works closely with affiliated physicians in targeting and
recruiting additional physicians and in merging sole practices or single
specialty practices into the already-affiliated physician practices.

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MedPartners seeks to recognize and develop opportunities to provide services
throughout a market by positioning its practices so that the entire market is
covered geographically. This approach provides patients with convenient medical
facilities and services and responds to coverage criteria that are essential to
payors. See Note 1 to the consolidated financial statements.

IPAs. MedPartners' networks include approximately 5,700 primary care and
specialist IPA physicians serving approximately 357,000 HMO enrollees. An IPA
allows individual practitioners to access patients in their respective areas
through contracts with HMOs without having to join a group practice or sign
exclusive contracts. An IPA also coordinates utilization review and quality
assurance programs for its affiliated physicians. Additionally, 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. MedPartners identifies IPAs that need access to
capitated HMO contracts, and such IPA organizations typically agree to assign
their existing HMO contracts to MedPartners. MedPartners believes that the
expansion of its IPAs will enable it to increase its market share with
relatively low risk due to the low incremental investment required to recruit
additional physicians.

HMOs. MedPartners, through its affiliated physicians, began contracting
with HMOs to provide healthcare on a capitated reimbursement basis in 1975
(through predecessors). Under these contracts, which typically are automatically
renewed on an annual basis, MedPartners 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
adjustable based on the age and/or sex of the HMO enrollee. Contracts for
prepaid healthcare with HMOs accounted for approximately 28 percent of
MedPartners' net revenue for the quarter ended March 31, 1997.

To the extent that enrollees require more care than is anticipated or
require supplemental medical care that is not otherwise reimbursed by 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
healthcare services. As of March 31, 1997 approximately 1.7 million prepaid HMO
enrollees were covered beneficiaries for services in MedPartners' networks.
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. Consequently, the cost of their covered care is higher. As of
March 31, 1997, MedPartners' HMO enrollees comprised approximately 1.4 million
commercial enrollees and approximately 0.1 million senior (over age 65)
enrollees and approximately 0.2 million Medicaid and other enrollees. As of
March 31, 1997, MedPartners was receiving institutional capitation payments for
approximately 0.7 million enrollees. MedPartners is largely dependent on
continued growth in the number of HMO enrollees. This growth may come from the
acquisition of other PPM entities, affiliation with additional physicians or
increased enrollment in HMO's currently contracting with MedPartners. There can
be no assurance that MedPartners will be successful in continuing the growth of
HMO enrollees.

Hospitals. MedPartners operates Pioneer Hospital ("Pioneer Hospital"), a
99-bed acute care hospital located in Artesia, California, U.S. Family Care
Medical Center ("USFMC"), a 102-bed acute care hospital in Montclair,
California, and Friendly Hills Hospital ("Friendly Hills"), a 274-bed acute care
hospital in La Habra, California. Many of the physicians on the professional
staff rosters of these hospitals are either employed by an affiliated
professional corporation or are under contract with MedPartners' IPAs. Other
physicians that are traditionally hospital-based, such as emergency room
physicians, anesthesiologists, pathologists, radiologists and cardiologists
provide services through contractual arrangements with MedPartners. Several of
MedPartners' medical clinics are located sufficiently close to hospitals where
these physicians are based to allow enrollees who use the clinics to also use
those hospitals. Under the HMO contracts, MedPartners, through its affiliated
medical practices or Knox-Keene licensee, is obligated to pay for inpatient
hospitalization and related services. Over 50 percent of Pioneer Hospital's,
approximately 85 percent of USFMC's and approximately 87 percent of Friendly
Hills' daily censuses are made up of MedPartners' affiliated medical group
enrollees. MedPartners, through its Knox-Keene licensee or affiliated medical
groups, has entered into agreements with other hospitals in California for the
delivery of hospital services to the

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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 and its affiliated physicians, to the extent such services
have not reached a stop-loss threshold. MedPartners and these providers split
any savings realized if hospital utilization declines due to the success of
MedPartners' programs for early intervention, wellness and outpatient treatment.

Pharmaceutical Services. MedPartners manages outpatient PBM programs
throughout the United States for corporations, insurance companies, unions,
government employee groups and managed care organizations. Prescription drug
benefit management involves the design and administration of programs for
reducing the costs and improving the safety, effectiveness and convenience of
prescription drugs. MedPartners has one of the largest independent PBM programs,
dispensing 44,000 prescriptions daily from four mail service pharmacies.
MedPartners also manages patients' immediate prescription needs through a
national network of retail pharmacies. Under MedPartners' PBM quality assurance
program, MedPartners maintains rigorous quality assurance and regulatory
policies and procedures. A computerized order processing system reviews each
prescription order for a variety of potential concerns, including reactions with
other drugs known to be prescribed to that patient, reactions with a patient's
known allergies, duplication of therapies, appropriateness of dosage and early
refill requests that may indicate overutilization or fraud. Each prescription is
verified by a licensed pharmacist before shipment. MedPartners has retained the
services of an independent national advisory panel of physician specialists that
advises it on the clinical analyses of its intervention strategies and on
cost-effective clinical procedures. MedPartners offers a full range of drug cost
and clinical management services, including clinical case management, drug
utilization review, formulary management and customized prescription programs
for senior citizens. The pharmacy business is subject to heavy government
regulation. Any failure to satisfy pharmacy licensing requirements could have a
material adverse effect on the operating results and financial condition of
MedPartners.

Disease Management. MedPartners delivers comprehensive long-term support
for high-cost, chronic illnesses in an effort to improve outcomes for patients
and to lower costs. MedPartners believes that these programs efficiently provide
for a patient's entire healthcare needs. The programs utilize advanced protocols
and eliminate unnecessary procedural steps. MedPartners provides therapies and
services to individuals with such conditions as hemophilia, growth disorders,
immune deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.
MedPartners estimates that there are over 200,000 patients in the United States
suffering from these diseases. MedPartners' disease management services utilize
MedPartners' integrated health data to develop therapies to manage the high cost
of treating these patients.

Hospital-Based Physician Operations. MedPartners' Hospital-Based Physician
("HBP") operations organize and manage physicians and other healthcare
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.
Team Health currently serves 145 hospital emergency departments and 22 hospital
radiology departments in 18 states. Under contracts with hospitals and other
clients, MedPartners' HBP operations identify and recruit physicians and other
healthcare 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, such as Team Health, as a more cost-effective and reliable alternative to
the development of in-house physician staffing.

INFORMATION SYSTEMS

MedPartners develops and maintains integrated information systems to
support its growth and acquisition plans. MedPartners' overall information
systems design is open, modular and flexible. MedPartners is implementing a
flexible individual patient electronic medical record ("EMR") that is
continually updated to complement primary practice management and billing
functions. MedPartners has configured its systems to give affiliated physicians
and their staff efficient and rapid access to complex clinical data.
MedPartners' use of

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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. This allows physicians to have treatments
checked against pre-defined protocols at the time of service. MedPartners also
utilizes a sophisticated database to provide pharmaceutical-related information
to participating physicians, payors, affiliated physician practices and other
specialty service entities. The database is designed to provide a safe and
effective method for distributing and administering drugs and drug therapies.

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

INTERNATIONAL

MedPartners has minimal operations in several European countries, Canada
and Japan. MedPartners believes increasing healthcare costs, an expanding
population base over age 65, advances in medical technology and the ability to
provide improved quality of life while managing the cost of care will foster the
growth of managed healthcare services internationally as well as domestically.
Accordingly, MedPartners is considering whether to expand its efforts in
offering new approaches to healthcare delivery and management around the world.

COMPETITION

The PPM industry is highly competitive and is subject to continuing changes
in the provision of services and the selection and compensation of providers.
MedPartners competes for acquisition, affiliation and other expansion
opportunities with national, regional and local PPM companies and other PPM
entities. In addition, certain companies, including hospitals and insurers, are
expanding their presence in the PPM market. MedPartners also competes with
prescription drug benefit programs, prescription drug claims processors,
regional claims processors, providers of disease management services and
insurance companies.

GOVERNMENT REGULATION

General. As a participant in the healthcare industry, MedPartners'
operations and relationships are subject to extensive and increasing regulation
by a number of governmental entities at the federal, state and local levels.
MedPartners believes its operations are in material compliance with applicable
laws. Nevertheless, because the structure of the relationship with the physician
groups is unique, many aspects of MedPartners' business operations have not been
the subject of state or federal regulatory interpretation. Thus, there can be no
assurance that a review of MedPartners' or the affiliated physicians' businesses
by courts or regulatory authorities will not result in a determination that
could adversely affect the operations of MedPartners or of its affiliated
physicians. Nor can there be any assurance that the healthcare regulatory
environment will not change so as to restrict MedPartners' or the affiliated
physicians' existing operations or their expansion. Any significant restriction
could have a material adverse effect on the operating results and financial
condition of MedPartners.

Federal Reimbursement, Fraud and Abuse and Referral Laws. Approximately 11
percent of the revenues of MedPartners' affiliated physician practices are
derived from payments made by government-sponsored healthcare programs
(principally, medicare and state reimbursed programs). As a result, MedPartners
is subject to the laws and regulations that govern reimbursement under Medicare
and Medicaid. Any change in reimbursement regulations, policies, practices,
interpretations or statutes could adversely affect the operations of
MedPartners. There are also state and federal civil and criminal statutes
imposing substantial penalties (including civil penalties and criminal fines and
imprisonment) on healthcare providers that fraudulently or wrongfully bill
governmental or other third-party payors for healthcare services. MedPartners
believes it is in material compliance with such laws, but there can be no
assurance that MedPartners' activities

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will not be challenged or scrutinized by governmental authorities or that any
such challenge or scrutiny would not have a material adverse effect on the
operating results and financial condition of MedPartners.

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 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
or any of its subsidiaries or affiliated physicians, such exclusion could result
in a significant loss of reimbursement for MedPartners, up to a maximum of the
approximately 11 percent of the revenues of MedPartners affiliated physician
groups, which could have a material adverse effect on the operating results and
financial condition of MedPartners. Although MedPartners 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.

Federal law prohibits, with some exceptions, an entity from filing a claim
for reimbursement under the Medicare or Medicaid programs for certain designated
services if the entity has a financial relationship with the referring
physician. Federal law (the "Medicare Referral Payments Law") also prohibits the
solicitation or receipt of remuneration in exchange for, or the offer or payment
of remuneration to induce, the referral of Medicare or Medicaid beneficiaries.
Significant prohibitions against physician referrals were enacted by the United
States Congress in the Omnibus Budget Reconciliation Act of 1993. Subject to
certain exemptions, a physician 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. The provisions of the
Anti-Kickback Statute and the Medicare Referral Payments Law are complex, and
the future interpretations of these provisions and their applicability to
MedPartners' operations cannot be predicted or analyzed in such a way as to
predict with certainty the effect of such rules and regulations on MedPartners.
Although MedPartners seeks to arrange its business relationships to comply with
these healthcare rules and regulations, its operations do not fit within any of
the existing or published proposed federal safe harbors. As a result, there can
be no assurance that MedPartners' present or future operations will not be
challenged under such provisions. MedPartners does not believe it is in
violation of the Anti-Kickback Statute of the Medicare Referral Payment law and
associated regulations because the revenues which are assigned to MedPartners
pursuant to the management agreements between MedPartners and its affiliated
physician practices represent payments made by the HMO to satisfy claims
submitted through MedPartners on behalf of the affiliated physician for the
furnishing of healthcare services by the physician to an individual. The monies
retained by MedPartners do not exceed the aggregate amount due MedPartners for
the reasonable and necessary physician practice management services provided by
MedPartners pursuant to the management agreement between MedPartners and the
affiliated physician or physician practice, i.e., transfer agreement or
management services agreement. MedPartners believes that such payments do not
fall within the scope or the intent of such rules and regulations. Further,
MedPartners does not believe it is in violation of the Anti-Kickback Statute and
the Medicare Referral Payment Law because MedPartners does not refer, or
influence the referral of, patients or services reimbursed under governmental
programs to the physician practices. While MedPartners believes it is in
compliance with such legislation, future regulations and interpretations of
existing regulations could require MedPartners to modify the form of its
relationship with physician groups which could have a material adverse effect on
the operating results and financial condition of MedPartners.

The Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services (the "DHHS") has promulgated regulatory
"safe harbors" under the Medicare Referral Payments Law that describe payment
practices between healthcare providers and referral sources that will not

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be subject to criminal prosecution and that will not provide the basis for
exclusion from the Medicare and Medicaid programs. MedPartners retains
healthcare professionals to provide advice and non-medical services to
MedPartners in return for compensation pursuant to employment, consulting or
service contracts. MedPartners also enters into contracts with hospitals under
which MedPartners provides products and administrative services for a fee. Many
of the parties with whom MedPartners contracts refer or are in a position to
refer patients to MedPartners. The breadth of these federal laws, the paucity of
court decisions interpreting these laws, the limited nature of regulatory
interpretations and the absence of court decisions interpreting the safe harbor
regulations have resulted in ambiguous and varying interpretations of these
federal laws and regulations. The OIG or the United States Department of Justice
(the "DOJ") could seek a determination that MedPartners' past or current
policies and practices regarding contracts and relationships with healthcare
providers violate federal law. In such event, no assurance can be given that
MedPartners' interpretation of these laws will prevail, except with respect to
those matters that were the subject of the OIG investigation. See "-- Legal
Proceedings". The failure of MedPartners' interpretation of these laws to
prevail could materially adversely affect the operating results and financial
condition of MedPartners.

Caremark agreed, in its settlement agreement with the OIG and DOJ prior to
the Caremark Acquisition, to continue to enforce certain compliance-related
oversight procedures. Should the oversight procedures reveal violations of
federal law, Caremark would be required to report such violations to the OIG and
DOJ. Caremark is therefore subject to increased regulatory scrutiny and, in the
event that Caremark commits legal or regulatory violations, it may be subject to
an increased risk of sanctions or penalties, including disqualification as a
provider of Medicare or Medicaid services which could have a material adverse
effect on the operating results and financial condition of MedPartners.

State Referral Payment Laws. MedPartners is also subject to state statutes
and regulations that prohibit payments for referral of patients and referrals by
physicians to healthcare providers with whom the physicians have a financial
relationship. State statutes and regulations generally apply to services
reimbursed by both governmental and private payors. Violations of these laws may
result in prohibition of payment for services rendered, loss of pharmacy or
health provider licenses as well as fines and criminal penalties. State statutes
and regulations that may affect the referral of patients to healthcare providers
range from statutes and regulations that are substantially the same as the
federal laws and the safe harbor regulations to a simple requirement that
physicians or other healthcare professionals disclose to patients any financial
relationship the physicians or healthcare professionals have with a healthcare
provider that is being recommended to the patients. These laws and regulations
vary significantly from state to state, are often vague, and, in many cases,
have not been interpreted by courts or regulatory agencies. Management believes
MedPartners' operations are in material compliance with existing law, but there
can be no assurance that MedPartners' existing business arrangements will not be
successfully challenged in one or more states. MedPartners is not materially
dependent upon revenues derived from any single state. Adverse judicial or
administrative interpretations of such laws in several states, taken together,
could, however, have a material adverse effect on the operating results and
financial condition of MedPartners. In addition, expansion of MedPartners'
operations to new jurisdictions could require structural and organizational
modifications of MedPartners' relationships with physician groups in order to
comply with new or revised state statutes. Such structural and organizational
modifications could have a material adverse effect on the operating results and
financial condition of MedPartners.

Corporate Practice of Medicine Laws. The laws of many states 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 Note 1 to the consolidated financial
statements, MedPartners believes that it has perpetual and unilateral control
over the assets and operations of the various affiliated professional
corporations. However, 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
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 and its contractual arrangements with affiliated
physicians will not be successfully challenged as constituting the unlicensed

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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 and its
affiliates by courts or regulatory authorities will not result in a
determination that could adversely affect their operations or that the
healthcare regulatory environment will not change so as to restrict existing
operations or expansion thereof. In the event of action by any regulatory
authority limiting or prohibiting MedPartners or any affiliate from carrying on
its business or from expanding the operations of MedPartners and its affiliates
to certain jurisdictions, structural and organizational modifications of
MedPartners may be required, which could have a material adverse effect on the
operating results and financial condition of MedPartners.

Antitrust Laws. In connection with the corporate practice of medicine laws
referred to above, the physician practices with which MedPartners is affiliated
necessarily are organized as separate legal entities. As such, the physician
practice entities may be deemed to be persons separate both from MedPartners and
from each other under the antitrust laws and, accordingly, subject to a wide
range of laws that prohibit anticompetitive conduct among separate legal
entities. MedPartners believes it is in compliance with these laws and intends
to comply with any state and federal laws that may affect its development of
integrated healthcare delivery networks. There can be no assurance, however,
that a review of MedPartners' business by courts or regulatory authorities would
not adversely affect the operations of MedPartners and its affiliated physician
groups.

Insurance Laws. The assumption of risk on a prepaid basis by health
provider networks is occurring with increasing frequency, and the practice is
being reviewed by various state insurance commissioners as well as the National
Association of Insurance Commissioners to determine whether the practice
constitutes the business of insurance. MedPartners believes that it is currently
in material compliance with the insurance laws in the states where it is
operating, and it intends to comply with interpretative and legislative changes
as they may develop. There can be no assurance, however, that MedPartners'
activities will not be challenged or scrutinized by governmental authorities or
that future interpretations of the insurance laws by such governmental
authorities will not require licensure or restructuring of some or all of
MedPartners' operations in any such state. In the event that MedPartners is
required to become licensed under these laws, the licensure process can be
lengthy and time consuming and, unless the regulatory authority permits
MedPartners to continue to operate while the licensure process is progressing,
MedPartners could experience a material adverse change in its operating results
and financial condition while the licensure process is pending. In addition,
many of the licensing requirements mandate strict financial and other
requirements which MedPartners may not be able to meet. Further, once licensed,
MedPartners would be subject to continuing oversight by and reporting to the
respective regulatory agency.

Other State and Local Regulation. On March 5, 1996, the DOC issued the
Restricted License to Pioneer Network in accordance with the requirements of the
Knox-Keene Act. The Restricted License authorizes Pioneer Network to operate as
a healthcare service plan in the State of California. MedPartners, through
Pioneer Network, utilizes the Restricted License to contract with HMOs for a
broad range of healthcare services, including both institutional and
professional medical services. The Knox-Keene Act and the regulations
promulgated thereunder subject entities that are licensed as healthcare service
plans in California to substantial regulation by the DOC. In addition, licensees
under the Knox-Keene Act must file periodic financial data and other information
(that 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 to take enforcement
actions against licensees that fail to comply with such requirements.

The operation of Pioneer Hospital, USFMC and Friendly Hills is highly
regulated, and each is accredited by the Joint Commission on Accreditation of
Healthcare Organizations. Accreditation from the Joint Commission on
Accreditation of Healthcare Organizations 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, USFMC and Friendly Hills
is licensed and regulated as a general acute care hospital by the State of
California Department of Health Services. Additionally, each of Pioneer
Hospital, USFMC and Friendly Hills has a clinical

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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.

Pharmacy Licensing and Operation. MedPartners is subject to federal and
state laws and regulations governing pharmacies. Federal controlled substance
laws require MedPartners 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 an 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
employed by each branch must also satisfy state licensing requirements.

Several states have enacted legislation that requires mail service
pharmacies located outside such state to register with the state board of
pharmacy prior to mailing drugs into the state and to meet certain operating and
disclosure requirements. These statutes generally permit a mail service pharmacy
to operate in accordance with the laws of the state in which it is located. In
addition, various pharmacy associations and state boards of pharmacy have
promoted enactment of laws and regulations directed at restricting or
prohibiting the operation of out-of-state mail service pharmacies by, among
other things, requiring compliance with all laws of certain states into which
the mail service pharmacy dispenses medications whether or not those laws
conflict with the laws of the state in which the pharmacy is located. To the
extent that such laws or regulations are found to be applicable to MedPartners'
operations, MedPartners would be required to comply with them. Some states have
enacted laws and regulations which, if successfully enforced, would effectively
limit some of the financial incentives available to plan sponsors that offer
mail service prescription programs. The United States Department of Labor has
commented that such laws and regulations are pre-empted by the Employee
Retirement Income Security Act of 1974, as amended. The Attorney General in one
state has reached a similar conclusion and has raised additional constitutional
issues. Finally, the Bureau of Competition of the Federal Trade Commission
("FTC") has concluded that such laws and regulations may be anticompetitive and
not in the best interests of consumers. To date, there have been no formal
administrative or judicial efforts to enforce any of such laws against
MedPartners. To the extent that any of the foregoing laws or regulations
prohibit or restrict the operation of mail service pharmacies and are found to
be applicable to MedPartners, they could have an adverse effect on MedPartners'
prescription mail service operations. United States Postal Service regulations
expressly permit the transmission of prescription drugs through the postal
system. The United States Postal Service has authority to restrict such
transmission.

The PBM and disease management services of MedPartners are subject to state
and federal statutes and regulations governing the operation of pharmacies,
repackaging of drug products, dispensing of controlled substances, reimbursement
under federal and state medical assistance programs, financial relationships
between healthcare providers and potential referral sources, medical waste
disposal, risk sharing by non-insurance companies and workplace health and
safety. MedPartners' operations may also be affected by changes in ethical
guidelines and changes in operating standards of professional and trade
associations and private accreditation commissions such as the American Medical
Association, the National Committee for Quality Assurance and the Joint
Commission on Accreditation of Healthcare Organizations.

Future Legislation, Regulation and Interpretation. As a result of the
continued escalation of healthcare costs and the inability of many individuals
to obtain health insurance, numerous proposals have been or may be introduced in
the United States Congress and state legislatures relating to healthcare reform.
There can be no assurance as to the ultimate content, timing or effect of any
healthcare reform legislation, nor it is possible at this time to estimate the
impact of potential legislation, which may be material, on MedPartners. Further,
although MedPartners exercises care in structuring its arrangements with
physicians to comply in all material respects with the above-referenced laws,
there can be no assurance that (i) government officials charged with
responsibility for enforcing such laws will not assert that MedPartners or
certain transactions in which MedPartners is involved are in violation thereof
and (ii) such laws will ultimately be interpreted by the courts in a manner
consistent with MedPartners' interpretation.

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EMPLOYEES

As of March 31, 1997, MedPartners, including its affiliated professional
entities, employed approximately 20,900 people on a full-time equivalent basis.

CORPORATE LIABILITY AND INSURANCE

MedPartners' business entails an inherent risk of claims of physician
professional liability. In recent years participants in the healthcare industry
have become increasingly subject to large claims based on theories of medical
malpractice that entail substantial defense costs. Through the ownership and
operation of Pioneer Hospital, USFMC and Friendly Hills, all acute care
hospitals, MedPartners could also be subject to allegations of negligence and
wrongful acts. To protect its overall operations from such potential
liabilities, MedPartners has a multi-tiered corporate structure and preserves
the operational integrity of each of its operating subsidiaries. In addition,
MedPartners 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 many of the affiliated physicians,
practices and operations. 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 requires each physician group with which it
affiliates to obtain and maintain professional liability and workers'
compensation insurance coverage. Such insurance may provide additional coverage,
subject to policy limits, in the event MedPartners were held liable as a
co-defendant in a lawsuit for professional malpractice against a physician. In
addition, generally, MedPartners is indemnified under the practice management
agreements by the affiliated physician groups for liabilities resulting from the
performance of medical services. However, there can be no assurance that any
future claim or claims will not exceed the limits of these available insurance
coverages or that indemnification will be available for all such claims.

PROPERTIES

MedPartners' corporate headquarters is located at 3000 Galleria Tower in
Birmingham, Alabama. Additionally, MedPartners has corporate offices in Long
Beach, California, Knoxville, Tennessee and Northbrook, Illinois. MedPartners
currently owns or leases facilities providing medical services in 26 states,
Puerto Rico and six countries. MedPartners also leases, subleases or occupies,
pursuant to certain acquisition agreements, the clinic facilities of the
affiliated physician groups. MedPartners anticipates that as the affiliated
practices continue to grow and add new services, expanded corporate facilities
will be required.

LEGAL PROCEEDINGS

MedPartners is named as a defendant in various legal actions arising
primarily out of services rendered by physicians and others employed by its
affiliated physician entities and Pioneer Hospital, USFMC and Friendly Hills, as
well as 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' and the medical group's insurance carrier has either declined to
provide coverage or has provided a defense subject to a reservation of rights.
Management does not view any of these actions as likely to result in an
uninsured award which would have a material adverse effect on the operating
results and financial condition of MedPartners.

In May 1996, two stockholders of Caremark, each purporting to represent a
class, filed 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 then proposed merger with
MedPartners. The complaints seek unspecified damages, injunctive relief, and
attorneys' fees and expenses. The plaintiffs have not pursued these actions in
any manner since the consummation of the Caremark Acquisition, but if they do,
MedPartners intends to defend these cases vigorously. Although the ultimate
outcome of such litigation cannot be predicted, MedPartners does not believe
such litigation, if adversely determined, would have a material adverse effect
on the operating results and financial condition of MedPartners.

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In June 1995, Caremark agreed to settle an investigation with the DOJ, OIG,
the Veterans Administration, the Federal Employee Health Benefits Program
("FEHBA"), the Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS") and related state investigative agencies in all 50 states and the
District of Columbia (the "OIG Settlement"). Under the terms of the OIG
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 basis of these guilty pleas was Caremark's failure to provide certain
information to CHAMPUS and FEHBP, federally funded healthcare benefit programs,
concerning financial relationships between Caremark and a physician in each of
Minnesota and Ohio. The OIG Settlement allows Caremark to continue participating
in Medicare, Medicaid and other government healthcare programs. Under the OIG
Settlement, Caremark agreed to make civil payments of $85.3 million to the
federal government in installments 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. Caremark took an after-tax
charge of $154.8 million in 1995 for these settlement payments, costs to defend
ongoing derivative, security and other lawsuits, and other related costs. This
charge has been reflected in Caremark's discontinued operations and will not
materially affect MedPartners' ability to pursue its long-term business
strategy. There can be no assurance, however, that the ultimate costs related to
the OIG Settlement will not exceed these estimates or that additional costs,
claims and damages will not occur, or if they occur, will not have a material
adverse effect on the operating results and financial condition of MedPartners.

In March 1996, Caremark agreed to settle all disputes with a number of
private payors. These disputes relate to businesses that were covered by the OIG
Settlement. The settlements resulted in an after-tax charge of approximately
$43.8 million. In addition, Caremark paid $24.1 million after tax to cover the
private payors' pre-settlement and settlement-related expenses. An after-tax
charge for the above amounts was recorded in first quarter 1996 discontinued
operations.

In August and September 1994, stockholders of Caremark, 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 and the Exchange
Act, and fraud and negligence and various state law claims in connection with
public disclosures by Caremark regarding Caremark's business practices and the
status of the OIG investigation. 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
Exchange Act only, was certified as a class. The parties to all of the
complaints continue to engage in discovery proceedings. MedPartners intends to
defend these cases vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of MedPartners, there can be no assurance that the ultimate
resolution of this matter, if adversely

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determined, would not have a material adverse effect on the operating results
and financial condition of MedPartners.

In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of the 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 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 state
complaint seeks unspecified damages, attorneys' fees and expenses and an award
of punitive damages. In November 1996, in response to a motion by the
plaintiffs, the Court dismissed the United States District Court cases without
prejudice. On March 27, 1996, the Minnesota state court lawsuit was dismissed
with prejudice. In July 1995, another patient of this same physician filed a
separate complaint in the District Court 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.
MedPartners intends to defend these cases vigorously. Although management
believes, based on information currently available, that the ultimate resolution
of this matter is not likely to have a material adverse effect on the operating
results and financial condition of MedPartners, there can be no assurance that
the ultimate resolution of this matter, if adversely determined, would not have
a material adverse effect on the operating results and financial condition of
MedPartners.

In May 1996, three home infusion companies, 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 laws, the antitrust laws
and of California's unfair business practices statute. The complaint seeks
unspecified treble damages and attorneys' fees and expenses. MedPartners intends
to defend this case vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of MedPartners, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of MedPartners.

In September 1995, Coram Healthcare Corporation ("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 $209.0 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 April 1, 1995, between Coram and Caremark, breach
of related contracts, fraud, negligent misrepresentation and a right to
contractual indemnity. Coram's amended complaint included claims for specific
performance, declaratory relief, injunctive relief, and requested damages of
$5.2 billion. However, at a pretrial hearing in May 1997 and in motions
subsequently filed with the court, counsel for Coram stated to the court that,
with respect to compensatory damages, Coram was realistically seeking
approximately $300 million. Caremark filed counterclaims against Coram in this
lawsuit and 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 the Company's home infusion business to Coram.
The lawsuit filed in federal court in Chicago has been dismissed, but on appeal
by Caremark the dismissal was reversed and the lawsuit was remanded. Coram's
lawsuit is currently in the pre-trial stage and the trial is expected to
commence in late June 1997. The net recorded value of amounts owed by Coram to
MedPartners was approximately $55 million at December 31, 1996. This amount
represents management's best estimate of the net realizable value of the amounts
owed by

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Coram to MedPartners, based upon information available to MedPartners and is
supported by the independent valuation by Integrated Health Services, Inc.
MedPartners intends to defend these cases vigorously. Although MedPartners
cannot predict with certainty the outcome of these proceedings, based on
information currently available as to the viability of the claims interposed by
Coram, the evidence which MedPartners understands will be advanced by Coram to
support such claims and the defenses available to MedPartners, management
believes that the ultimate resolution of this matter is not likely to have a
material adverse effect on the operating results or financial condition of
MedPartners. However, an adverse determination could have a material adverse
effect on the operating results or financial condition of MedPartners.

Beginning in September 1994, Caremark was named as a defendant in a series
of lawsuits added to a pending group of actions (including a class action)
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 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. All of these actions have been transferred by the Judicial Panel
for Multidistrict Litigation to the United States District Court for the
Northern District of Illinois for coordinated pretrial procedures. Caremark was
not named in the class action. In April 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. On
July 1, 1996, the district court directed entry of a partial final order in the
class action approving an amended settlement with certain of pharmaceutical
manufacturers. The amended settlement provides for a cash payment by the
defendants in that action of approximately $351.0 million to class members in
settlement of conspiracy claims as well as a commitment from the settling
manufacturers to abide by certain injunctive provisions. All class action claims
against non-settling manufacturers as well as all opt out and other claims
generally, including all Robinson-Patman Act claims against Caremark, remain
unaffected by the settlement. The district court also certified to the court of
appeals for interlocutory review certain orders relating to non-settled
conspiracy claims against the pharmaceutical manufacturers and wholesalers.
These interlocutory orders do not relate to any of the claims brought against
Caremark. MedPartners intends to defend these cases vigorously. Although
management believes, based on information currently available, that the ultimate
resolution of this matter is not likely to have a material adverse effect on the
operating results and financial condition of MedPartners, there can be no
assurance that the ultimate resolution of this matter, if adversely determined,
would not have a material adverse effect on the operating results and financial
condition of MedPartners.

In December 1994, Caremark was notified by the FTC that it was conducting a
civil investigation of the industry concerning whether acquisitions, alliances,
agreements or activities between prescription benefit managers and
pharmaceutical manufacturers, including Caremark's alliance agreements with
certain drug manufacturers, violate Sections 3 or 7 of 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. MedPartners intends to
defend these cases vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of MedPartners, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of MedPartners.

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<PAGE> 79

MEDPARTNERS' MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF MEDPARTNERS

The following table sets forth certain information about the executive
officers and directors of MedPartners:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Larry R. House.............................. 53 Chairman of Board, President and Chief Executive
Officer and Director
Mark L. Wagar............................... 45 President -- Western Operations
John J. Gannon.............................. 58 President -- Eastern Operations
H. Lynn Massingale, M.D..................... 44 President -- Team Health
Harold O. Knight, Jr........................ 39 Executive Vice President and Chief Financial
Officer
Tracy P. Thrasher........................... 34 Executive Vice President and Corporate Secretary
Edward J. Novinski.......................... 38 Executive Vice President -- Managed Care
John M. Deane............................... 42 Executive Vice President -- Information Services
J. Brooke Johnston, Jr...................... 57 Senior Vice President and General Counsel
Charles C. Clark............................ 47 Senior Vice President and Chief Tax Officer
Peter J. Clemens, IV........................ 32 Vice President of Finance and Treasurer
Mark S. Weeks............................... 34 Vice President of Finance and Controller
Richard M. Scrushy.......................... 44 Director
Larry D. Striplin, Jr.(1)................... 67 Director
Charles W. Newhall III(1)................... 52 Director
Ted H. McCourtney(2)........................ 58 Director
Walter T. Mullikin, M.D..................... 79 Director
John S. McDonald, J.D.(1)................... 64 Director
Rosalio J. Lopez, M.D.(2)................... 44 Director
Richard J. Kramer........................... 54 Director
C.A. Lance Piccolo(2)....................... 56 Director
Roger L. Headrick(1)........................ 60 Director
Harry M. Jansen Kraemer, Jr................. 42 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 since August 1993, and has been Chairman of the Board since January
1993. From 1985 to 1992, he was Chief Operating Officer of HEALTHSOUTH
Rehabilitation Corporation, now HEALTHSOUTH Corporation ("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
("Capstone"), the American Sports Medicine Institute, UAB Research Foundation
and Monitor MedX.

Mark L. Wagar has been President -- Western Operations of MedPartners since
January 1996. From January 1995 through December 1995, Mr. Wagar was Chief
Operating Officer of MME. From March 1994 to December 1994, he was the President
of CIGNA HealthCare of California, a healthcare plan serving enrollees in
California, Oregon and Washington, 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 healthcare management for over 20 years, including 10 years in
managed care companies.

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<PAGE> 80

John J. Gannon has been President -- Eastern Operations of MedPartners
since July 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 healthcare financial
feasibility studies.

H. Lynn Massingale, M.D. has been President of Team Health since its
formation in March 1994. Dr. Massingale has served as President of Southeastern
Emergency Physicians, Inc., a subsidiary of Team Health, since 1981. A graduate
of the University of Tennessee Center for Health Sciences in Memphis, Dr.
Massingale is certified by the National Board of Medical Examiners, Tennessee
Board of Medical Examiners and American Board of Emergency Medicine. Dr.
Massingale's professional memberships include the Knoxville Academy of Medicine,
Tennessee Medical Association, American Medical Association and American College
of Emergency Physicians.

Harold O. Knight, Jr. has been Executive Vice President and Chief Financial
Officer of MedPartners since November 1994. Mr. Knight was Senior Vice President
of Finance and Treasurer of MedPartners from August 1993 to November 1994, and
from March 1993 to August 1993, Mr. Knight served as Vice President of Finance
of MedPartners. 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 MedPartners since
November 1994 and has been Corporate Secretary since March 1994. Ms. Thrasher
was Senior Vice President of Administration from March 1994 to November 1994,
and from January 1993 to March 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.

Edward J. Novinski has been Executive Vice President of Managed Care for
MedPartners since September 1996. Prior to joining MedPartners, Mr. Novinski was
most recently Vice President of Network Management for United HealthCare
Corporation in their corporate office and held various positions from August
1986 to August 1996. Mr. Novinski was responsible for United HealthCare's
network strategies for physician and hospital relationships which supported
United HealthCare's diverse managed care product line. From 1977 to 1986, Mr.
Novinski was with Lutheran General Health System in managerial and
administrative positions including Director of Physician Practice Management for
a large multi-specialty group.

John M. Deane has been Executive Vice President, Information Services of
MedPartners since January 1997. From January 1995 through December 1996, Mr.
Deane was Vice President Information Services and CIO of Caremark Pharmaceutical
Services Group, based in Northbrook, Illinois. Prior to 1995, Mr. Deane was
Director, Information Services -- Planning and Consulting for the Whirlpool
Corporation and a Senior Manager on large IS projects for Price Waterhouse's
Management Consulting Services practice in the Midwest, where he led large IS
engagements for various Fortune 100 companies.

J. Brooke Johnston, Jr. has been Senior Vice President and General Counsel
of MedPartners since April 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 Mr. Johnston 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 services company.

Charles C. Clark has been Senior Vice President and Chief Tax Officer of
MedPartners since January 1997. Prior to that, Mr. Clark was a Partner with KPMG
Peat Marwick, having served as Tax Partner in Charge of the Birmingham, Alabama
office and leader of tax services for the Health Care & Life Sciences practice
in the Southeast. Mr. Clark was with KPMG Peat Marwick for twenty-one (21)
years. Mr. Clark is a

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<PAGE> 81

Certified Public Accountants holding memberships in the American Institute of
Certified Public Accountants and the Alabama and Mississippi Societies of
Certified Public Accountants.

Peter J. Clemens, IV has been Vice President of Finance and Treasurer of
MedPartners since April 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 a Masters Degree in Business
Administration from Vanderbilt University in 1991.

Mark S. Weeks has been Vice President of Finance and Controller of
MedPartners since June 1994. From 1985 to 1994, Mr. Weeks was with Ernst & Young
LLP, most recently as Senior Manager. Mr. Weeks is a certified public accountant
and a member of the American Institute of Certified Public Accountants.

Richard M. Scrushy has been a member of MedPartners' 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.

Larry D. Striplin, Jr. has been a member of MedPartners' Board of Directors
since January 1993. Since December 1995, Mr. Striplin has been the Chairman and
Chief Executive Officer of Nelson-Brantley Glass Contractors, Inc. and Chairman
and Chief Executive Officer 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.

Charles W. Newhall, III has been a member of MedPartners' 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.

Ted H. McCourtney has been a member of MedPartners' Board of Directors
since August 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, each of
which is publicly traded.

Walter T. Mullikin, M.D., a surgeon, has been a member of MedPartners'
Board of Directors since November 1995. Dr. Mullikin was Chairman of the Board
of the general partner of MME from 1989 to 1995. 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 stockholder of Mullikin
Independent Practice Association ("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 MedPartners' Board of Directors
since November 1995. Mr. McDonald was the Chief Executive Officer of the general
partner of MME from March 1994 to 1995, and he was an executive of Pioneer
Hospital and their related entities since 1967. Mr. McDonald was also a
director, the Secretary and a stockholder 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 MedPartners' Board of Directors
since November 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 stockholder
of MIPA.

Richard J. Kramer has been a member of MedPartners' Board of Directors
since November 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,

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<PAGE> 82

Inc., a multi-hospital/healthcare system headquartered in Minneapolis, which he
joined in 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.

C.A. Lance Piccolo has been Vice Chairman of MedPartners' Board of
Directors since September 1996. From August 1992 to September 1996, he was
Chairman of the Board of Directors and Chief Executive Officer of Caremark. From
1987 until November 1992, Mr. Piccolo was an Executive Vice President of Baxter
and from 1988 until November 1992, he served as a director of Baxter. Mr.
Piccolo also serves as a director of Crompton & Knowles Corporation ("CKC") and
Baxter, each of which is publicly traded.

Roger L. Headrick has been a member of MedPartners' Board of Directors
since September 1996 and has been President and Chief Executive Officer of the
Minnesota Vikings Football Club since 1991. Additionally, since June 1989, Mr.
Headrick has been President and Chief Executive Officer of ProtaTek
International, Inc., a bio-process and biotechnology company that develops and
manufactures animal vaccines. Prior to 1989, he was Executive Vice President and
Chief Financial Officer of The Pillsbury Company, a food manufacturing and
processing company. Mr. Headrick also serves as a director of CKC.

Harry M. Jansen Kraemer, Jr. has been a member of MedPartners' Board of
Directors since September 1996, and is a Vice President and Chief Financial
Officer of Baxter, having served in that capacity since November 1993. He was
promoted to Baxter's three-member Office of the Chief Executive in June 1995,
and appointed to Baxter's Board of Directors in November 1995. In addition to
his duties as its chief financial officer he is responsible for Baxter's Global
Hospital Business, Global Renal Business, and the Baxter Japan subsidiary. Mr.
Kraemer has been an employee of Baxter since 1982 serving in a variety of
positions, including Vice President, Group Controller for Baxter's hospital and
alternate-site businesses, president of Baxter's Hospitex Division and Vice
President Finance and Operations for Baxter's global-business group.

The executive employment agreement of Mr. House requires that he be
nominated as a director during the term of the employment agreement. Drs.
Mullikin and Lopez and Messrs. McDonald and Kramer initially became members of
the Board of Directors in connection with the acquisition of MME, and Messrs.
Piccolo, Headrick, Hodson and Kraemer became members of the Board of Directors
in connection with the Caremark Acquisition, where it was agreed that at least
four members of MedPartners' thirteen member Board of Directors would be
designated by Caremark to serve for a three-year period. There are no family
relationships between any Directors, nominees for director or executive officers
of MedPartners. The Board of Directors of MedPartners held a total of eight
meetings and acted by unanimous written consent nine times during 1996.

CLASSIFIED BOARD OF DIRECTORS

Pursuant to the terms of MedPartners' Certificate of Incorporation and
Bylaws, the Board of Directors 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
1998, a second class holds office for a term that will expire at the Annual
Meeting of Stockholders to be held in 1999 and a third class holds office for a
term that will expire at the Annual Meeting of Stockholders to be held in 2000.
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, 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. House, McDonald, Kramer, Newhall and Headrick have terms
expiring in 1998; Messrs. Striplin and Kraemer and Dr. Mullikin have terms
expiring in 1999; and Messrs. Scrushy, McCourtney and Piccolo and Dr. Lopez have
terms expiring in

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<PAGE> 83

2000. MedPartners' Board of Directors elect 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 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. The Audit Committee makes recommendations
to the Board of Directors of MedPartners with respect to MedPartners' financial
statements and the appointment of independent auditors, reviews significant
audit and accounting policies and practices, meets with MedPartners' 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. The Audit Committee consists of Messrs. McCourtney and
Piccolo and Dr. Lopez. During 1996, there were three meetings of the Audit
Committee.

The Compensation Committee has the responsibility for reviewing the
performance of the officers of MedPartners and recommending to the Board of
Directors of MedPartners' annual salary and bonus amounts for all officers of
MedPartners. The Compensation Committee also administers MedPartners' 1993 Stock
Option Plan, 1995 Stock Option Plan, MedPartners Incentive Compensation Plan and
MedPartners 1997 Long Term Incentive Compensation Plan. The Compensation
Committee consists of Messrs. Newhall, Striplin, McDonald and Headrick. During
1996, there were two meetings of the Compensation Committee.

EXECUTIVE COMPENSATION

Executive Officer Compensation. The following table presents certain
information concerning compensation paid or accrued for services rendered to
MedPartners in all capacities during the years ended December 31, 1996, 1995 and
1994, for the Chief Executive Officer and the four other most highly compensated
executive officers of MedPartners 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
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- AWARDS
OTHER ------------
ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION UNDERLYING COMPENSATION
POSITION HELD YEAR SALARY ($) BONUS ($) ($)(1) OPTIONS (#) ($)
------------------ ---- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Larry R. House(2)............. 1996 $717,852 $1,786,429 -- 2,700,000(6) $ 25,000(8)
Chairman of the Board, 1995 349,908 600,000 -- 828,000 28,335
President and Chief 1994 335,000 -- -- 457,000 25,474
Executive Officer
Mark L. Wagar(3).............. 1996 350,002 579,674 -- 700,000(7) 32,516(8)
President -- Western 1995 346,601 -- -- 250,000 30,485
Operations
James G. Connelly, III(4)..... 1996 383,852 2,883,981(5) $ 74,400 230,000 417,120(8)
President -- Caremark
Kristen E. Gibney(4).......... 1996 330,147 2,153,582(5) 620,200 175,000 427,566(8)
Vice President -- Caremark
Michelle J. Hooper(4)......... 1996 253,641 1,318,713(5) -- 100,000 184,448(8)
Vice President -- Caremark
</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.

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<PAGE> 84

(2) Pursuant to a reimbursement agreement, MedPartners 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) Mr. Wagar commenced employment on November 28, 1995, at the time of the MME
Acquisition. The table includes all compensation paid to him in 1995.
(4) These Named Executive Officers commenced employment on September 5, 1996,
at the time of the Caremark Acquisition. The table includes all
compensation paid to them in 1996.
(5) Bonuses for these Named Executive Officers include the following amounts:
Mr. Connelly -- $2,707,968 retention bonus; Ms. Gibney -- $1,962,174
retention bonus, and $55,800 restricted stock option; Ms.
Hooper -- $1,127,305 retention bonus, and $55,800 restricted stock option.
(6) Includes 500,000 options originally granted in 1995 and repriced in 1996,
and 600,000 options granted in 1996 but effectively cancelled by subsequent
repricing.
(7) Includes 250,000 options originally granted in 1995 and repriced in 1996,
and 150,000 options granted in 1996 but effectively cancelled by subsequent
repricing.
(8) Other compensation shown for the Named Executive Officers in 1996 includes
contributions by MedPartners in the following amounts: Mr. House -- $25,000
split dollar life insurance; Mr. Wagar -- $25,000 split dollar life
insurance, $6,766 long term disability insurance and $750 401(k) plan; Mr.
Connelly -- $10,357 split dollar life insurance, $11,124 life insurance,
$21,946 401(k) plan and $373,693 non-qualified pension plan; Ms.
Gibney -- $4,916 split dollar life insurance, $17,919 401(k) plan, and
$404,731 non-qualified pension plan; and Ms. Hooper -- $2,994 split dollar
life insurance, $15,384 401(k) plan, and $166,070 non-qualified pension
plan.

Option Grants in 1996. The following table contains information concerning
the grant of stock options under the Stock Option Plans (as defined below) to
the Named Executive Officers in 1996:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
---------------------------------------------------------------- OF STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
UNDERLYING OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION -------------------------
NAME GRANTED (#)(1) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------------ ---------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Larry R. House.......... 500,000(3)(4) 4.4% $16.625 11/20/05 $ 4,791,434 $11,911,841
600,000(3)(5) 5.3 25.750 4/9/06 9,716,422 24,623,321
600,000(3)(6) 5.3 16.625 4/9/06 6,046,764 15,197,843
1,000,000(3) 8.9 16.625 7/23/06 10,455,373 26,495,968
Mark L. Wagar........... 150,000(4) 1.3% $16.625 11/28/05 $ 1,441,636 $ 3,586,240
100,000(3)(4) 0.9 16.625 11/28/05 961,091 2,390,827
150,000(5) 1.3 25.750 4/9/06 2,429,106 6,155,830
150,000(6) 1.3 16.625 4/9/06 1,511,691 3,799,461
150,000 1.3 16.625 7/23/06 1,568,306 3,974,395
James G. Connelly,
III................... 230,000 2.0% $19.875 9/4/06 $ 2,874,835 $ 7,285,395
Kristen E. Gibney....... 175,000 1.6% $19.875 9/4/06 $ 2,187,374 $ 5,543,235
Michele J. Hooper....... 100,000 0.9% $19.875 9/4/06 $ 1,249,928 $ 3,167,563
</TABLE>

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

(1) 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 5-year period beginning on the original grant
date.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) or its time of repricing (remaining term),
as applicable. It is calculated by assuming that the stock price on the date
of grant or repricing 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

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appreciated stock price. No gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
(3) These options are 100% vested.
(4) These options were originally granted in 1995, but were repriced in 1996.
(5) These options were granted in 1996, but were effectively cancelled by
subsequent repricing.
(6) These options are the repriced options that effectively replaced options
granted earlier in 1996.

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 1996 and the number and value
of securities underlying unexercised options held by the Named Executive
Officers at December 31, 1996.

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

<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FY-END(#) FY-END($)(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Larry R. House........... 55,000 $1,694,000 2,428,000/ -- $11,532,500/$--
Mark L. Wagar............ -- $ -- 220,000/330,000 $ 907,500/$1,361,250
James G. Connelly, III... -- $ -- 610,465/184,000 $ 5,401,324/$161,000
Kristen E. Gibney........ 47,388(2) $ 620,200 211,236/ -- $1,408,721/$--
Michele J. Hooper........ -- $ -- 213,170/ 80,000 $1,588,429/$70,000
</TABLE>

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

(1) Based on December 31, 1996 closing price for MedPartners Common Stock of
$20.75.
(2) Includes options to purchase shares of Caremark exercised prior to the
Caremark Acquisition and gives effect to the exchange ratio of 1.21 shares
of MedPartners Common Stock for each share of Caremark.

DIRECTOR COMPENSATION

Officers of MedPartners do not receive any additional compensation for
serving as members of the Board of Directors or any of its committees. Effective
January 1, 1996 and prior to July 25, 1996, non-employee directors were paid
directors' fees of $2,500 for each meeting of the Board of Directors attended in
person, $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. Directors were reimbursed for travel costs and other
out-of-pocket expenses incurred in attending each meeting of the Board of
Directors or one of its committees. In addition, non-employee directors received
an annual grant of stock options for 10,000 shares of MedPartners' Common Stock
under the Stock Option Plans (as hereinafter defined). Such options vest in 20%
increments and expire ten years after the grant date. The exercise price of such
options was determined by the closing price of MedPartners' Common Stock on the
NYSE on the date of the option grant. Effective July 26, 1996, non-employee
directors were paid directors' fees of $3,000 for each meeting of the Board of
Directors attended in person, $1,000 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, non-employee directors
receive an annual grant of stock options for 25,000 shares of MedPartners'
Common Stock under the Stock Option Plans. In July 1996, each of Messrs. Kramer,
McCourtney, McDonald, Newhall, Scrushy and Striplin and Dr. Mullikin were
granted an option to purchase 10,000 shares of Common Stock, all at an exercise
price of $16.625 per share, the market price on the grant date. See
"-- Executive Compensation -- Option Grants in 1996".

Dr. Lopez was granted an option to purchase 30,000 shares of MedPartners
Common Stock in April 1996 (repriced in July 1996) and 35,000 shares of Common
Stock in September 1996, which shares have an exercise price of $16.625 per
share and $19.875 per share, respectively.

76
<PAGE> 86

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Newhall, McCourtney and McDonald served on the Compensation
Committee of the Board of Directors of MedPartners in 1996, until Mr. Headrick
replaced Mr. McCourtney in September 1996. Mr. House served on the Compensation
Committee until February 1996.

In connection with the MME Acquisition, MedPartners entered into a
Termination and a Consulting Agreement with Mr. McDonald. Under the Termination
Agreement, Mr. McDonald's employment agreement with MME was terminated in
consideration for 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 and a trust set up by MedPartners
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.
Under the five-year Consulting Agreement, Mr. McDonald will receive in
consideration for his services a consulting fee of $2,230,000, to be paid over
the term of the agreement 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 "Principal
Stockholders of MedPartners -- Certain Relationships and Related Transactions --
MME Acquisition Agreements".

EMPLOYMENT AGREEMENTS

MedPartners has employment agreements with Messrs. House and Wagar
(individually, the "Executive" and collectively, the "Executives"). Mr. House's
employment agreement, which has a term of five years, provides that Mr. House
shall be employed as the Chairman of the Board, President and Chief Executive
Officer and shall be nominated as a director of MedPartners during such term.
The agreement provides for a base salary of $935,700, an annual incentive bonus
of up to $776,700, based on the achievement of certain performance standards
established by the Compensation Committee, and eligibility for other benefits
normally found in executive employment agreements. The employment agreement for
Mr. Wagar provides for a base salary of $350,000 and for an annual incentive and
performance bonus of up to 75% of base salary in addition to employee benefits
similar to those provided in Mr. House's agreement. Each of the employment
agreements is automatically extended for an additional year on the anniversary
thereof unless MedPartners shall give prior notice of non-extension.

The Executives are entitled to certain compensation upon termination of
their employment agreement prior to its expiration. If MedPartners terminates
the agreement for "Cause" (as defined) or if the Executive terminates without
"Good Reason" (as defined), the Executive will receive a lump sum payment of six
months base salary (12 months in the case of Mr. House) plus certain employment
benefits. If the agreement terminates due to the Executive's death, disability
or retirement, the Executive will receive a lump sum payment of six months base
salary (12 months in the case of Mr. House), accrued bonus and immediate vesting
of all stock options. If the Executive terminates the agreement for "Good
Reason" and no "Change in Control" (as defined) of MedPartners has occurred, the
Executive will receive continued salary and bonus payments for three years (or,
if greater, for the remainder of the contract term in the case of Mr. House),
continued participation in employee benefit plans for such period and immediate
vesting of all stock options. If MedPartners terminates the agreement without
Cause after a Change in Control or if the Executive terminates after a Change in
Control for Good Reason, the Executive shall receive a lump sum payment equal to
three times the Executive's base salary and bonus at the time of termination,
continued benefits for a term of three years and immediate vesting of all stock
options. The agreements provide that any payment by MedPartners to the Executive
which is subject to the excise tax imposed by Section 4999 of the Code shall be
"grossed up" such that the Executive retains an amount of the "gross up" payment
equal to the excise tax imposed on the original payment.

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<PAGE> 87

PRINCIPAL STOCKHOLDERS OF MEDPARTNERS

The following table sets forth certain information regarding beneficial
stock ownership of MedPartners as of May 1, 1997: (i) each director and Named
Executive Officer of MedPartners, (ii) all directors and executive officers as a
group, and (iii) each stockholder known by MedPartners to be the beneficial
owner of more than 5% of the outstanding MedPartners 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.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
MEDPARTNERS %
NAME OF BENEFICIAL OWNER POSITION HELD COMMON STOCK OWNED
------------------------ ------------- ------------ -----
<S> <C> <C> <C>
Larry R. House....................... Chairman of the Board, President and
Chief Executive Officer 4,820,522(1) 2.75%
Mark L. Wagar........................ President -- Western Operations 301,005(2) *
James G. Connelly, III............... President -- Caremark 649,145(3) *
Kristen E. Gibney.................... Vice President -- Caremark 20,945 *
Michele J. Hooper.................... Vice President -- Caremark 267,584(4) *
Roger L. Headrick.................... Director 91,938(5) *
Harry M. Jansen Kraemer, Jr.......... Director 5,565(6) *
Richard J. Kramer.................... Director 1,876,974(7) 1.09%
Rosalio J. Lopez, M.D................ Director 120,069(8) *
Ted H. McCourtney.................... Director 63,841(9) *
John S. McDonald, J.D................ Director 310,281(10) *
Walter T. Mullikin, M.D.............. Director 439,424(11) *
Charles W. Newhall III............... Director 1,509,000(12) *
C. A. Lance Piccolo.................. Director 1,427,519(13) *
Richard M. Scrushy................... Director 1,927,500(14) 1.12%
Larry D. Striplin, Jr................ Director 110,100(15) *
All executive officers & directors as
a group (26 persons)............... 15,507,426(16) 8.67%
AIM Management Group Inc. ........... 12,224,845(17) 7.13
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Wachovia Bank and Trust Company...... 9,317,000(18) 5.4
Trust Services Division
301 Main Street
Winston-Salem, NC 27150
</TABLE>

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

* Less than one percent.
(1) Includes options to purchase 3,653,000 shares.
(2) Includes options to purchase 298,000 shares.
(3) Includes options to purchase 610,465 shares.
(4) Includes options to purchase 213,170 shares.
(5) Includes options to purchase 59,208 shares, and 1,210 shares held by
spouse.
(6) Includes options to purchase 5,000 shares, and 50 shares held by spouse.
(7) Includes options to purchase 9,000 shares, and 1,867,674 shares held by
DCNHS -- West Partnership, L.P. ("DCNHS"). Mr. Kramer is the President and
Chief Executive Officer of Catholic Healthcare West, which is the sole
general partner of DCNHS. Mr. Kramer disclaims beneficial ownership of the
shares held by DCNHS.
(8) Includes options to purchase 31,000 shares, and 81,293 shares held in trust
for the benefit of Dr. Lopez and members of his family.

78
<PAGE> 88

(9) Includes options to purchase 9,000 shares.
(10) Includes options to purchase 9,000 shares, and 301,281 shares held by
certain trusts for the benefit of Mr. McDonald.
(11) Includes options to purchase 9,000 shares, and 430,424 shares held by the
Mullikin Family Trust U/D/T, dated February 10, 1976, for the benefit of
Dr. Mullikin and members of his family.
(12) Includes options to purchase 9,000 shares, and 1,500,000 shares held by New
Enterprise Associates VI, Limited Partnership ("NEA"). Mr. Newhall is a
general partner of NEA Partners VI, Limited Partnership, which is the
general partner of NEA. Mr. Newhall disclaims beneficial ownership of the
shares held by NEA.
(13) Includes options to purchase 1,317,126 shares.
(14) Includes options to purchase 29,000 shares, 250,000 shares held in trust
for minor children, and 1,098,500 shares held by HEALTHSOUTH. Mr. Scrushy
is Chairman of the Board, President and Chief Executive Officer of
HEALTHSOUTH. Mr. Scrushy disclaims beneficial ownership of the shares held
by HEALTHSOUTH.
(15) Includes options to purchase 13,000 shares.
(16) Includes options to purchase 7,381,517 shares.

(17) Based on information contained in a Schedule 13G dated February 12, 1997.
Shares held for which AIM Management Group Inc. (together with its
wholly-owned subsidiaries, AIM Advisors, Inc. and AIM Capital Management
Inc., "AIM") acts as investment advisor. AIM claims shared voting and
dispositive power with respect to all such shares.

(18) Shares held as Trustee for MedPartners, Inc. Employee Compensation Trust.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

MME ACQUISITION AGREEMENTS

Termination Agreements. In November 1995 in connection with the MME
Acquisition, MedPartners 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 and a
trust set up by MedPartners 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.

Consulting Agreements. In November 1995, MedPartners 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 the term of the agreement 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 the term of the agreement 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.

CAREMARK ACQUISITION AGREEMENTS

Termination Agreements. In September 1996 in connection with the Caremark
Acquisition, the employment of Messrs. Piccolo and Hodson was terminated,
entitling them to severance payments of $2,805,426 and $1,052,138, respectively,
and certain other benefits provided in their severance agreements. See
"MedPartners' Management -- Compensation Committee Interlocks and Insider
Participation".

Consulting Agreements. In September 1996, MedPartners and each of Messrs.
Piccolo and Hodson, each of whom became a director of MedPartners as part of the
Caremark Merger, entered into a consulting agreement (the "Piccolo Agreement"
and "Hodson Agreement", respectively). The term of the Piccolo

79
<PAGE> 89

Agreement is ten years, unless terminated sooner. Over the course of such
ten-year period, Mr. Piccolo will be paid consulting fees totaling approximately
$5.4 million. The "gross up" provisions of that severance agreement will apply
to payments made pursuant to the Piccolo Agreement in the event such consulting
payments are determined to be "excess parachute" payments. Mr. Piccolo or his
spouse will be eligible to participate in all health and medical employee
benefit plans and programs available, from time to time, to employees of
MedPartners and Caremark until he reaches the age of 65. After age 65, Mr.
Piccolo and his spouse will be provided with a prescription drug program
comparable to that provided Caremark employees through Caremark's prescription
drug benefit program. Mr. Piccolo will be provided with an adequate office and
secretarial support, as well as reimbursement of reasonable expenses, and will
be subject to certain non-compete and confidentiality restrictions.

The term of the Hodson Agreement is one year, unless terminated sooner.
Over the term, Mr. Hodson will be paid consulting fees of $318,856. The Hodson
Agreement may be extended on the same terms for an additional one-year period.
The "gross up" provisions of that severance agreement will apply to payments
made pursuant to the Hodson Agreement in the event such consulting payments are
determined to be "excess parachute" payments.

80
<PAGE> 90

SELECTED FINANCIAL INFORMATION -- INPHYNET

The following table sets forth selected consolidated financial information
of InPhyNet on a historical basis for the last five fiscal years and the first
quarters of 1996 and 1997. All of the following selected financial data should
be read in conjunction with InPhyNet's consolidated financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- InPhyNet" appearing elsewhere
in this Prospectus -- Proxy Statement.

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------------------------------------- MARCH 31,
1996 -------------------
1992 1993 1994 1995 (RESTATED)(6) 1996 1997
-------- -------- -------- -------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Total revenue........... $196,501 $224,205 $270,370 $325,340 $408,520 $ 87,903 $122,507
Total operating
expenses.............. 188,535 211,611 253,853 304,013 385,689 81,545 117,012
-------- -------- -------- -------- -------- -------- --------
Income from
operations............ 7,966 12,594 16,517 21,327 22,831 6,358 5,495
Total non-operating
(income) expense...... (257) 231 907 1,234 1,278 (326) (56)
-------- -------- -------- -------- -------- -------- --------
Income before minority
interest and income
tax expense........... 8,223 12,363 15,610 20,093 21,553 -- --
Minority interest in net
income(2)............. 73 1,126 2,711 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before income tax
expense............... 8,150 11,237 12,899 20,093 21,553 6,032 5,439
Income tax expense(4)... 338 282 153 8,805 8,512 2,382 2,149
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 7,812 $ 10,955 $ 12,746 $ 11,288(3) $ 13,041(1) $ 3,650 $ 3,290
-------- -------- -------- -------- -------- -------- --------
Net income per share.... $ 0.75(3) $ 0.81(1) $ 0.23 $ 0.20
-------- -------- -------- --------
Weighted average shares
outstanding........... 15,038 16,021 16,067 16,727
-------- -------- -------- --------
SUPPLEMENTAL STATEMENT
OF INCOME DATA
(UNAUDITED):
Historical income before
income tax expense.... $ 8,150 $ 11,237 $ 12,899
Pro forma purchase of
minority interest..... 73 1,126 2,711
-------- -------- --------
Supplemental income
before income tax
expense............... 8,223 12,363 15,610
Pro forma income tax
expense(4)............ 3,289 4,945 6,244
-------- -------- --------
Supplemental net income
(5)................... $ 4,934 $ 7,418 $ 9,366
-------- -------- --------
Supplemental net income
per share............. $ 0.76 $ 0.74
-------- --------
Supplemental weighted
average shares
outstanding(5)........ 9,765 12,703
-------- --------
BALANCE SHEET DATA:
Working capital......... $ 18,992 $ 11,713 $ 29,221 $ 51,536 $ 57,055 $ 59,703 $ 63,142
-------- -------- -------- -------- -------- -------- --------
Total assets............ $ 55,039 $ 68,299 $ 96,702 $123,216 $145,779 $132,085 $157,331
-------- -------- -------- -------- -------- -------- --------
Long-term debt, net of
current portion....... $ 12,495 $ 13,246 $ 9,635 $ 9,617 $ 339 $ 15,725 $ 309
-------- -------- -------- -------- -------- -------- --------
Total stockholders'
equity................ $ 13,960 $ 15,278 $ 51,192 $ 82,368 $ 97,911 $ 86,580 $105,202
-------- -------- -------- -------- -------- -------- --------
</TABLE>

81
<PAGE> 91

- ---------------
(1) Net income has been reduced by one time charges consisting of loss on sale
of physician practices of $682,000 and certain management restructuring
charges of $250,000 recorded during the three months ended June 30, 1996.
The effect of these costs, net of tax, is to reduce net income per share by
$0.04.
(2) See Notes 1 and 3 to InPhyNet's consolidated financial statements for
information regarding minority interests.
(3) Net income has been reduced by transaction costs of $1.7 million incurred in
connection with the acquisitions of Radiology Associates of Hollywood, Inc.
and MetroAmerican Radiology, Inc., and employee severance and other costs of
$0.8 million. The effect of these costs, net of tax, in addition to $0.9
million of tax conversion expenses (see Note 7 to InPhyNet's consolidated
financial statements) is to reduce net income per share by $0.16.
(4) Prior to August 19, 1994, InPhyNet had elected to be taxed as a Subchapter S
corporation with respect to federal income taxes, and for those states that
recognize such tax election, state income taxes. Under this election, in
lieu of corporate income taxes, the stockholders were taxed (rather than the
corporation) on InPhyNet's income in accordance with their respective
ownership interests. The pro forma net income and net income per share
amounts have been computed as if InPhyNet was subject to federal and state
income taxes (in those states recognizing such election) based on the
corporate income tax rates in effect during the respective periods.
(5) Supplemental net income and supplemental weighted average shares outstanding
were derived by giving effect to the 1994 purchases of minority interests of
InPhyNet with common stock as if such purchases had occurred on January 1,
1992. See Notes 1 and 3 to InPhyNet's consolidated financial statements.
(6) Restated to reflect InPhyNet's change in accounting for the costs associated
with the PCA Agreement. (See Note 4 to InPhyNet's consolidated financial
statements).

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<PAGE> 92

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

GENERAL

InPhyNet commenced operations in 1974 to provide physician practice
management services to hospital emergency departments. Since that time, InPhyNet
has expanded its business to include (i) the Hospital Physician Services
division, through which it delivers emergency medicine, radiology and other
hospital-based physician services, and (ii) the Capitated Medical Services
division, through which it manages the delivery of comprehensive medical
services under contracts with HMOs and correctional institutions and the
delivery of fee-for-service medical services through primary care practices and
home health agencies.

InPhyNet's contracts with its hospital physician services clients typically
provide for payments on either a fee-for-service basis, whereby InPhyNet bills
patients or third-party payors directly for medical professional services, or a
flat-fee basis, whereby InPhyNet is paid a fixed amount by the hospital based on
the number of hours of medical staffing provided or number of patients treated.
Fee-for-service contracts may, in certain instances, involve the payment of a
subsidy to InPhyNet by the client. Under capitated medical services contracts,
InPhyNet receives a fixed monthly fee (global capitation) for each covered life
in exchange for assuming responsibility for the provision of medical services.
Fee-for-service contracts, which usually require InPhyNet to assume the
financial risks relating to patient volume, payor mix and reimbursement rates,
have longer collection periods than flat-fee and capitated fee contracts and
require InPhyNet to bear the credit risk of collecting from uninsured
individuals.

Under InPhyNet's fee-for-service contractual arrangements, the fee
schedules for medical services have historically increased on a periodic basis.
Such fee increases result in additional net revenue, but also result in
increased contractual adjustments due to fixed reimbursements from certain
third-party payors, such as Medicare, Medicaid and worker's compensation. The
higher schedules also result in an increase in charity and other adjustments due
to the increase in uncollected amounts that relate to uninsured or underinsured
private payors. In addition, contracts with a higher percentage of indigent
patients also generally result in an increased percentage of charity and other
adjustments.

Effective January 15, 1997, InPhyNet acquired Emergency Management
Specialists, Inc. As a result of the transaction, InPhyNet acquired contracts to
provide physician staffing, management and consulting services to various
hospitals and clinics. The transaction was accounted for as a pooling of
interests.

On September 17, 1996, InPhyNet was endorsed by the Texas Medical
Association (TMA) to offer the provision of practice management, managed care
and consulting services to its over 34,000 physician members. Practice
management services will include the development of physician networks,
marketing, contract negotiations, capitation management, utilization management,
claims adjudication, quality assurance, financial analysis, and accounts
receivable management. Consulting services will include strategic planning,
business plan creation, network development, payor contracting and fee
reimbursement.

On September 5, 1996, InPhyNet entered into the PCA Agreement. Under the
agreement, InPhyNet will manage independent primary care physicians in South
Florida and the Tampa Bay region. At December 31, 1996, the physicians provided
primary care services to approximately 50,500 covered lives: 24,500 in South
Florida and 26,000 in the Tampa Bay area. PCA provides comprehensive health care
service through its Health Maintenance Organizations, Life and Property and
Casualty Insurance Carriers and Worker's Compensation administrators located
throughout the southeastern United States and the Caribbean. InPhyNet has
restated its financial statements as of and for the year ended December 31, 1996
to expense as incurred costs relating to the PCA Agreement (See discussion of
Total Operating Expenses for the period 1996 compared to 1995).

Effective July 2, 1996, InPhyNet acquired certain of the assets of NHS. As
a result of this transaction, InPhyNet acquired contracts to provide medical
care to inmates in correctional institutions. The transaction was accounted for
as a purchase.

83
<PAGE> 93

Effective January 16, 1996, InPhyNet acquired SMS. As a result of this
transaction, InPhyNet added two medical centers to its base of primary care
practices. The transaction was accounted for as a purchase.

The following discussion provides an analysis of InPhyNet's results of
operations, and liquidity and capital resources, and should be read in
conjunction with InPhyNet's Consolidated Financial Statements and notes thereto.
The operating results of the periods presented were not significantly affected
by inflation.

RESULTS OF OPERATIONS

The following table sets forth divisional revenue (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------------------- ----------------------------------------------------
PERCENT PERCENT PERCENT
1997 INCREASE 1996 1996 INCREASE 1995 INCREASE 1994
-------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hospital Physician
Services Division... $ 55,272 3.0% $53,670 $216,819 2.9% $210,679 19.1% $176,959
Capitated Medical
Services Division:
Managed Care........ 43,313 125.5% 19,177 113,588 61.2% 70,451 64.7% 42,784
Correctional Care... 23,922 59.3% 15,055 78,113 76.7% 44,210 (12.7)% 50,627
-------- ------- -------- -------- --------
Total Capitated
Medical Services
Division............ 67,235 96.5% 34,232 191,701 67.2% 114,661 22.8% 93,411
-------- ------- -------- -------- --------

Total Revenue... $122,507 39.4% $87,902 $408,520 25.6% $325,340 20.3% $270,370
======== ======= ======== ======== ========
</TABLE>

Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996

Total Revenue. Total revenue increased by $34.6 million, or 39.4%, to
$122.5 million for the three months ended March 31, 1997 from $87.9 million for
the same period in 1996. The increase was primarily due to acquisitions
completed during 1996, new contract awards and increased revenues from existing
contracts.

Hospital Physician Services Division revenue increased marginally to $55.3
million for the three months ended March 31, 1997 from $53.7 million for the
same period in 1996.

Capitated Medical Services Division revenue increased by $33.0 million, or
96.5%, to $67.2 million for the three months ended March 31, 1997 from $34.2
million for the same period in 1996. The increase was primarily due to the net
addition of 16 correctional care contracts which added $8.8 million in revenue,
including the July 1, 1996 acquisition of 6 contracts from National Health
Services, Inc., the July 1, 1996 agreement with PCA Health Plans of Florida,
Inc. and PCA Family Health Plans Inc. (together, "PCA") which added $21.7
million in revenue and annual rate increases from existing contracts.

Total Operating Expenses. Operating expenses increased by $35.5 million,
or 43.6%, to $117.0 million for the three months ended March 31, 1997 from $81.5
million for the same period in 1996. The increase was primarily due to a $4.7
million increase in compensation and related benefits and a $28.8 million
increase in contracted medical services. The increase in contracted medical
services is due to a $5.5 million increase from the net addition of 16
correctional care contracts and a $23.0 million increase related to the PCA
Agreement.

Income Before Income Tax Expense. Income before income tax expense
decreased by $0.6 million, or 10.0%, to $5.4 million for the three months ended
March 31, 1997 from $6.0 million for the same period in 1996, due primarily to
the factors set forth above.

Income Tax Expense. Income tax expense decreased by $0.3 million, or
12.5%, to $2.1 million for the three months ended March 31, 1997 from $2.4
million for the same period in 1996.

Net Income. Net income decreased by $0.4 million, or 10.8%, to $3.3
million for the three months ended March 31, 1997 from $3.7 million for the same
period in 1996, due to the factors discussed above.

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<PAGE> 94

1996 Compared to 1995

Total Revenue. Total revenue increased by $83.2 million, or 25.6%, to
$408.5 million for the year ended December 31, 1996 from $325.3 million for the
same period in 1995. The increase was primarily due to acquisitions completed
during 1996 (see "Business of InPhyNet -- Recent Developments"), new contract
awards and increased revenue from existing contracts.

Hospital Physician Services revenue increased by $6.1 million, or 2.9%, to
$216.8 million for the year ended December 31, 1996 from $210.7 million for the
same period in 1995. This was a result of an increase of approximately $10.0
million due to the replacement of certain fee-for-service contracts with new
contracts having higher reimbursement rates per patient visit and to annual fee
schedule increases. This increase was offset by a net loss of 14 Department of
Defense and emergency department contracts representing a net decrease of 50,000
patient visits during 1996 resulting in decreased revenues of approximately $2.7
million.

Capitated Medical Services revenue increased by $77.0 million, or 67.2%, to
$191.7 million for the year ended December 31, 1996 from $114.7 million for the
same period in 1995. The increase was due partly to an increase in Managed Care
revenue of $43.1 million, or 61.2%, to $113.6 million from $70.5 million
primarily due to the PCA Agreement which added $35.6 million in revenue and
growth in revenue of $4.0 million from the agreement with Kaiser. Additionally,
Correctional Care revenue increased by $33.9 million, or 76.7%, to $78.1 million
for the year ended December 31, 1996 from $44.2 million for the same period in
1995, due primarily to $12.3 million in revenue from the acquisition of NHS, and
a net increase of 6 other new Correctional Care contracts started in 1996 and a
net increase of six new contracts started in the last half of 1995 which
accounted for the remaining $21.6 million increase in revenue.

Total Operating Expenses. Operating expenses increased by $81.7 million,
or 26.9%, to $385.7 million for the year ended December 31, 1996 from $304.0
million for the same period in 1995. This was primarily due to higher
compensation expense and related benefits of $26.1 million resulting from an
increase in the number of healthcare and administrative personnel in
correctional care due to the NHS acquisition and the addition of new
Correctional Care contracts from the prior year. Additionally, contracted
medical services expenses were approximately $15.1 million higher due to the
increase in Correctional Care contracts and the acquisition of NHS. This same
category of expenses increased to $40.3 million in Managed Care primarily due to
the addition of the PCA Agreement. Originally, $6.2 million of this expense,
representing management's estimate of certain expected losses, had been
capitalized as deferred acquisition costs associated with provider contracts
InPhyNet was required to assume according to the terms of the PCA Agreement. The
deferred acquisition costs were being amortized over the term of the PCA
Agreement which is five years. Due to the restatement of its Financial
Statements (see Note 4 to InPhyNet's consolidated financial statements),
InPhyNet eliminated the deferred acquisition costs and expensed these costs in
the period incurred. An additional amount of $3.1 million had been capitalized
for future costs associated with these provider contracts. Due to restatement,
the $3.1 million was expensed in the first quarter of 1997 and there will be no
amortization expense associated with this contract in 1997 or any future
periods.

The increase was offset by $1.7 million incurred in 1995 for transaction
expenses associated with the Poolings and $0.8 million of employee severance and
other costs associated with reorganizing certain operations of InPhyNet. The
severance and other charges have been included in compensation and related
benefits, and other operating expense in InPhyNet's consolidated statements of
income.

Income Before Income Tax Expense. Income before income tax expense
increased by $1.5 million, or 7.5%, to $21.6 million for the year ended December
31, 1996 from $20.1 million for the same period in 1995 due to the factors set
forth above.

Income Tax Expense. Income tax expense decreased by $0.3 million, or 3.4%,
to $8.5 million for the year ended December 31, 1996 from $8.8 million for the
same period in 1995. The decrease was due to a 1995 tax charge of approximately
$0.9 million from the conversion of one of InPhyNet's subsidiaries from an S
Corporation to a C Corporation upon its acquisition. The decrease was partially
offset by the increase in income before tax expense.

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Net Income. Net income increased by $1.7 million, or 15.0%, to $13.0
million for the year ended December 31, 1996, from $11.3 million for the same
period in 1995 due to the factors discussed above.

1995 Compared to 1994

Total Revenue. Total revenue increased by $54.9 million, or 20.3%, to
$325.3 million for the year ended December 31, 1995 from $270.4 million for the
same period in 1994. The increase was primarily due to acquisitions completed
during 1994 and 1995 (see "Business of InPhyNet -- Recent Developments"), new
contract awards and increased revenues from existing contracts.

Hospital Physician Services revenue increased by $33.7 million, or 19.1%,
to $210.7 million for the year ended December 31, 1995 from $177.0 million for
the same period in 1994. The increase was primarily a result of the
MetroAmerican acquisition, which added $13.8 million of revenue, and an increase
of $16.0 million from annual fee schedule increases offset by a decrease of $4.5
million due to a decrease in patient volume of approximately 70,000 visits.
Contract gains and losses were relatively flat in 1995 and the last half of
1994.

Capitated Medical Services revenue increased by $21.3 million, or 22.8%, to
$114.7 million for the year ended December 31, 1995 from $93.4 million for the
same period in 1994. This was a result of an increase in Managed Care revenue of
$27.7 million, or 64.7%, to $70.5 million from $42.8 million primarily due to
the acquisition of five primary care practices operating at eight sites, which
generated approximately $17.0 million in revenues, with the remainder of the
increase due to having a full year's revenue from other managed care
acquisitions completed during 1994. The increase was offset by reduced
Correctional Care revenue of $6.4 million due primarily to a net increase of 10
new Correctional Care contracts accounting for approximately $12.6 million in
revenues, offset by the loss of the Massachusetts Department of Corrections
contracts at June 30, 1994, which would have generated approximately $19.0
million during the last half of 1994.

Total Operating Expenses. Operating expenses increased by $50.1 million,
or 19.7%, to $304.0 million for the year ended December 31, 1995 from $253.9
million for the same period in 1994. The increase was primarily due to an
increase in compensation expense and related benefits of $30.0 million resulting
from an increase in the number of healthcare and administrative personnel
associated with the MetroAmerican acquisition, the acquisition of the five
primary care practices and new contracts, an increase in contracted medical
services of $16.1 million due primarily to the growth in managed health care
services offset by a decrease in insurance expense of $1.7 million due to a
favorable shift in business mix and a favorable policy renewal for professional
liability insurance.

The increase was also due to $1.7 million in transaction expenses
associated with the Poolings and $0.8 million of employee severance and other
costs associated with reorganizing certain operations of InPhyNet. The severance
and other amounts have been included in compensation and related benefits, and
other operating expense in InPhyNet's consolidated statements of income.

Minority Interest in Net Income. There was no minority interest for the
year ended December 31, 1995 versus $2.7 million for the same period in 1994.
This was due to InPhyNet's purchase of minority interests at the time of
InPhyNet's IPO. See Notes 1 and 3 to InPhyNet's consolidated financial
statements.

Income Before Income Tax Expense. Income before income tax expense
increased by $7.2 million, or 55.8%, to $20.1 million for the year ended
December 31, 1995 from $12.9 million for the same period in 1994 due to the
factors set forth above.

Income Tax Expense. Income tax expense increased to $8.8 million for the
year ended December 31, 1995 from $0.2 million for the same period in 1994. This
is due to the fact that InPhyNet had elected to be taxed as a Subchapter S
corporation, and was not subject to federal and state income taxes, until the
time of the IPO, when InPhyNet converted to C corporation status. In the current
year InPhyNet incurred an additional $0.9 million in income tax expense due to
the conversion of MetroAmerican to a C corporation. See Note 7 to InPhyNet's
consolidated financial statements.

Net Income. Net income decreased by $1.4 million, or 11.0%, to $11.3
million for the year ended December 31, 1995, from $12.7 million for the same
period in 1994 due to the factors set forth above.

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Supplemental Net Income. After giving effect to the supplemental
adjustments which assume that minority interests were purchased for common stock
of InPhyNet as of January 1, 1994 and that InPhyNet was subject to federal and
state income taxes prior to the IPO, net income increased by $1.9 million, or
20.2%, to $11.3 million for the year ended December 31, 1995, from $9.4 million,
on a supplemental basis, for the same period in 1994.

LIQUIDITY AND CAPITAL RESOURCES

InPhyNet has met its cash requirements through cash generated by its
operating activities, bank borrowings and equity offerings. InPhyNet's principal
uses of cash have been to support its operations, which generated $16.7 million
in 1996, fund acquisitions, acquire capital equipment and repay outstanding
debt. Prior to the IPO, InPhyNet paid dividends to its stockholders and
distributions to minority interests. These dividends and distributions were
primarily for payment of taxes on income, includable by the stockholders and
partners in their personal income tax returns, as a result of InPhyNet's
predecessor and affiliated partnerships being a Subchapter S corporation and
limited partnerships, respectively.

Three Months Ended March 31, 1997

Net cash provided by operating activities was $2.6 million for the three
months ended March 31, 1997 versus $0.07 million for the three months ended
March 31, 1996. This increase of $2.5 million in net cash provided by operating
activities resulted from increased cash collections on accounts receivable and
the increase in pre-paid capitation related to the PCA Agreement of
approximately $2.0 million.

Net cash used in investing activities was $2.3 million for the three months
ended March 31, 1997 and was primarily the result of $1.2 million for
acquisitions and $1.9 million for purchases of capital equipment.

Net cash provided by financing activities was $2.8 million for the three
months ended March 31, 1997 and was primarily the result of $2.9 million in
proceeds from the exercise of stock options.

As a result of the factors discussed above, cash increased to $6.8 million
at March 31, 1997 from $3.6 million at December 31, 1996.

Three Months Ended March 31, 1996

Net operating activities resulted in a break-even cash flow during the
three months ended March 31, 1996.

Net cash used in investing activities of $3.9 million was primarily the
result of expenditures of $2.9 million for acquisitions and purchases of capital
equipment for $1.3 million.

Net cash provided by financing activities of $6.6 million was primarily the
result of borrowings of $8.2 million under InPhyNet's Amended and Restated
Revolving Credit and Reimbursement Agreement (the "Credit Facility") with its
bank and $0.5 million in proceeds from the issuance of common stock, offset by
principal payments under the Credit Facility of $2.1 million.

As a result of the factors discussed above, cash increased to $4.0 million
at March 31, 1996 from $1.3 million at December 31, 1995.

Year Ended December 31, 1996

Net cash provided by operating activities was $16.7 million for the year
ended December 31, 1996, due primarily to cash generated by operations, a $17.2
million increase in accrued medical claims expense associated with the PCA
Agreement, offset by a $14.4 million increase in accounts receivable primarily
due to the start up of several new corrections contracts and a $3.5 million
decrease in the reserve for self-insured claims from the payment of expiring
professional liability reserves relating to InPhyNet's Self Insured Retention
(SIR).

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Net cash used in investing activities of $6.8 million was due to
expenditures of $3.1 million for acquisitions and purchases of capital equipment
of $4.7 million.

Net cash used in financing activities of $7.5 million was due to $18.9
million of principal payments offset by borrowings of $9.7 million on the Credit
Facility and proceeds from the exercise of stock options of $1.7 million.

As a result of the factors discussed above, cash increased by $2.3 million
to $3.6 million at December 31, 1996 from $1.3 million at December 31, 1995.

Year Ended December 31, 1995

Net cash used in operating activities was $5.8 million for the year ended
December 31, 1995, due primarily to an increase in accounts receivable of
approximately $13.3 million caused by the start-up of new Corrections contracts,
the implementation of a new fee-for-service billing system, the modification of
InPhyNet's professional liability insurance policy to provide for first dollar
coverage and payments of expiring policy SIR expense reserves and the increase
in income tax payments due to InPhyNet becoming a C Corporation at the time of
the IPO, offset by cash generated from operations.

Net cash used in investing activities of $9.6 million was primarily the
result of expenditures of $7.0 million for acquisitions and purchases of capital
equipment for $4.0 million.

Net cash provided by financing activities of $15.3 million was primarily
the result of $16.2 million in net proceeds from InPhyNet's second public
offering which was effective November 1995, $0.9 million in proceeds from the
exercise of stock options, and borrowings of $26.2 million under the Credit
Facility, offset by payments of $27.9 million on the Credit Facility.

As a result of the factors discussed above, cash decreased to $1.3 million
at December 31, 1995 from $1.4 million at December 31, 1994.

General

InPhyNet's number of days of revenue in average outstanding trade
receivables for the years ended December 31, 1996, 1995 and 1994 were 70, 69,
and 64 days, respectively. The higher number of days in outstanding receivables
at December 31, 1996 and 1995 is due to the start-up of several new
fee-for-service and Corrections contracts in 1996 and 1995.

In November 1995, InPhyNet executed an amendment with its bank to increase
the amount available under the Credit Facility to $60.0 million. The Credit
Facility matures September 30, 1998. At December 31, 1996, no amounts were
outstanding under the Credit Facility. At December 31, 1995, there was $9.0
million outstanding under the Credit Facility.

InPhyNet expects to satisfy its anticipated demands and commitments for
cash in the next twelve months from existing cash, cash provided by operations
and amounts available under its Credit Facility. If InPhyNet's requirements for
working capital and capital expenditures, including future acquisitions, exceed
currently anticipated levels, InPhyNet may be required to obtain additional
funds, if available, in the credit or capital markets.

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BUSINESS OF INPHYNET

GENERAL

InPhyNet is one of the largest physician management organizations in the
United States and has over 22 years of experience in managing physicians for a
variety of clients, including hospitals, HMOs and governmental entities. As of
March 31, 1997, InPhyNet managed approximately 2,000 physicians and 3,100 other
clinical and administrative personnel and had 208 contracts with hospitals and
governmental entities in 27 states pursuant to which InPhyNet was responsible
for the comprehensive healthcare needs of approximately 122,000 individuals.
During 1996, InPhyNet delivered services for approximately 2.7 million patient
visits. InPhyNet's total revenues have grown from approximately $110 million in
1990 to $408.5 million in 1996 and from approximately $87.9 million for the
quarter ending March 31, 1996 to approximately $122.5 million for the quarter
ending March 31, 1997.

InPhyNet's business consists primarily of managing physicians and other
medical personnel for its two divisions: (i) Hospital Physician Services,
through which InPhyNet delivers emergency medicine, radiology, primary care and
other hospital-based physician services under contracts primarily with hospitals
and the U.S. Department of Defense; and (ii) Capitated Medical Services, through
which InPhyNet manages the delivery of comprehensive medical services under
contracts primarily with HMOs and various state and local correctional
institutions and the delivery of fee-for-service medical services through
primary care practices and home health agencies. Hospital Physician Services and
Capitated Medical Services accounted for 53% and 47%, respectively, of
InPhyNet's total revenue in 1996.

INDUSTRY

Health care in the United States traditionally has been delivered through a
fragmented system of health care providers, including individual or small groups
of primary care physicians and specialists. According to the American Medical
Association ("AMA"), there are approximately 565,000 practicing physicians in
the United States. A 1993 AMA study estimates that there are over 86,000
physicians practicing in 3,600 multi-specialty group practices (three or more
physicians) and over 82,000 physicians practicing in 12,700 single specialty
group practices in the United States. The majority of the existing medical
groups are small, consisting of 15 physicians or less with 45% having under five
physicians.

The role of the primary care physician is changing dramatically. While
these physicians continue to control the direct delivery of patient care, the
practice environment has shifted due to increasing cost consciousness, trends
toward managed care and growing demand for primary care. Historically, the lack
of coordination in medical care has contributed to over-utilization of health
care services, increasing health care costs at rates significantly higher than
inflation. In response, third-party payors have been implementing measures to
contain costs and improve the availability of medical services. These measures,
which include limits on the utilization of specialized health care services and
alternative methods of reimbursement, have shifted the health care industry
toward models of managed care. In these models, the primary care physician and
physician management organization are playing increasingly important roles.

Growth opportunities for physician management organizations have increased
as a result of increased outsourcing by health care institutions, including
hospitals, HMOs and governmental entities. This outsourcing has increased as a
result of concerns over the accelerating costs of health care and the burdens
associated with providing medical care. These burdens include significant
reimbursement pressures, greater administrative burdens and a more competitive
landscape. Physician management organizations, such as InPhyNet, have expertise
in recruiting, scheduling, retaining and managing qualified physicians, billing
and collecting for their services, recordkeeping, risk management, quality
assurance and controlling medical malpractice and other costs. Hospitals, HMOs
and governmental entities, as well as other third-party payors and
intermediaries, increasingly are turning to these outside providers of physician
services to provide cost-effective care. Although this trend to outsource has
been most apparent in hospital emergency departments, the principles of
physician practice management are increasingly being applied to other
hospital-based physician services, such as radiology, anesthesiology and
pediatrics, as well as to primary group practices.

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In response to the changing practice environment, physicians are
consolidating their practices to increase negotiating leverage and reduce
escalating administrative costs. This trend has led many physicians to affiliate
themselves with organizations such as InPhyNet that provide access to the
capital required to implement information systems and technologies, which often
improve the quality of care and reduce costs. Such organizations also have
practice management expertise as well as the cost accounting and quality
assurance systems necessary to enter into sophisticated risk-sharing contracts
with payors. In addition, larger organizations frequently have ties with other
providers and have an ability to offer a variety of medical services that
smaller organizations do not have.

STRATEGY

InPhyNet's strategy is to develop its business by addressing significant
changes in the role and practice patterns of the physician in the health care
services industry. Elements of this strategy include:

Expand Presence in Capitated Medical Services. InPhyNet has extensive
experience in providing managed care services under contracts with HMOs,
and comprehensive medical services on a capitated basis to state and local
correctional institutions. In addition, InPhyNet has over twelve years of
experience in managing medical care delivery networks, which combine
capitated primary care clinics with affiliated hospitals and subcapitation
of independent specialty groups to provide integrated care on a 24-hour
basis. InPhyNet capitalizes on its experience to expand services provided
to existing clients, obtain new managed care contracts and contracts with
correctional institutions and build and acquire physician practices in
targeted geographic markets.

Enhance Leading Franchise in Hospital Physician Services. InPhyNet is
one of the nation's largest providers of emergency department services.
With the 1995 acquisitions of MetroAmerican Radiology, Inc.
("MetroAmerican") and Radiology Associates of Hollywood, Inc. ("Radiology
Associates"), InPhyNet believes it has become a leading provider of
radiology practice management services. InPhyNet's existing base of
hospital contracts provides opportunities for internal growth through the
cross-selling of services to other departments. InPhyNet continues to
expand its hospital-based services into other departments such as
pediatrics, intensive care, anesthesiology, neonatology and internal
medicine. InPhyNet obtains new hospital clients both by contracting with
hospitals that previously managed their own departments and by replacing
existing practice management companies.

Acquire, Integrate and Manage Physician Practices. InPhyNet develops
new markets and expands in its existing markets through acquisitions of
physician practices. InPhyNet increases revenue in acquired practices by
implementing programs that improve documentation of care delivered,
centralize negotiation of third-party payor contracts, increase the scope
of services offered and, in primary care practices, accelerate the
transition of patients from traditional fee-for-service plans to capitated
managed care programs. InPhyNet has developed a strong physician culture,
including highly capable physician managers with the ability to more
efficiently manage their practices. InPhyNet believes that these factors
give it a competitive advantage over hospitals and HMOs in acquiring,
recruiting and managing physician practices.

OPERATIONS

Capitated Medical Services

Capitated Medical Services includes InPhyNet's Managed Care and Corrections
operations. Revenue for Capitated Medical Services division was approximately
$191.7 million, $114.7 million and $93.4 million for the years ended December
31, 1996, 1995 and 1994, respectively and, $67.2 million and $34.2 million for
the three months ended March 31, 1997 and 1996, respectively.

Managed Care. InPhyNet sub-contracts with HMOs to manage the delivery of
comprehensive medical services to their enrollees. At March 31, 1997, InPhyNet
managed the delivery of such services to approximately 80,000 HMO enrollees and
to fee-for-service patients at its 14 clinics in South Florida and through its
agreements with Physician Corporation of America and Kaiser Permanente. See
"-- Recent

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Developments". InPhyNet either employs primary care physicians or contracts for
primary care physician services for HMO enrollees and typically provides for
other services with hospitals and medical specialists on a discounted
fee-for-service basis (81% of total InPhyNet contracted medical costs in 1996)
or on a sub-capitated basis (19% of total InPhyNet contracted medical costs in
1996).

InPhyNet manages its risk for the cost of providing comprehensive
healthcare services by: (1) contracting on a discounted fee-for-service basis
whereby InPhyNet must concurrently and carefully manage utilization of hospital
and medical specialists. InPhyNet has developed a utilization management program
that tracks and reviews the medical appropriateness of inpatient days and
referrals to medical specialists. This program is coordinated and maintained
through InPhyNet's management information system. InPhyNet uses this information
to provide concurrent medical review and to provide, on a retrospective basis,
feedback to physicians in order to improve the quality of medical care and
increase productivity. The systems permit InPhyNet to track a physician with
fee-for-service relationships with InPhyNet, to assess physicians' practice
patterns, compliance with protocols, patient outcomes and billing in accordance
with agreed upon fee schedules, and (2) sub-capitated risk contracting which
transfers the responsibility to provide the required services and the related
financial risk to a third party.

InPhyNet believes that it will have significant opportunities to expand its
managed care business primarily as a result of two factors. First, practice
management organizations are better qualified than most third-party payors to
recruit, manage and retain physicians and deliver services on a high quality,
cost-effective basis. Second, InPhyNet believes that the HMO segment of the
managed care industry offers one of the best long-term solutions to controlling
health care costs because of the independence and flexibility it offers primary
care physicians.

Under InPhyNet's HMO contracts, InPhyNet receives a fixed, prepaid monthly
fee for each covered life in exchange for assuming responsibility for the
provision of medical services, subject to certain limitations. To the extent
that enrollees require more frequent or extensive care than was anticipated by
InPhyNet, the revenue to InPhyNet under a contract may be insufficient to cover
the costs of the care provided.

Correctional Care. InPhyNet provides comprehensive medical services,
including mental health and dental services, to inmates in various state and
local correctional institutions. InPhyNet provides primary care physician
services directly and typically subcontracts other services with hospitals and
medical specialists on either a capitated or discounted fee-for-service basis.
At March 31, 1997, InPhyNet had contracts with 45 correctional institutions and
managed the health care services provided to approximately 42,300 inmates at 65
sites. During 1996, InPhyNet acquired substantially all the assets of NHS
National Health Services, Inc. ("NHS") including 6 contracts at 13 sites, and
was awarded 6 new contracts with correctional institutions covering 14 sites.

Four factors have created growth opportunities for InPhyNet in correctional
care. First, correctional institutions throughout the country are increasingly
contracting with private companies to manage the provision of medical services
to inmates to control health care costs. Second, difficulties in recruiting and
managing physicians and related support staffs have compelled governmental
agencies to contract with physician management organizations to deliver on-site
health care services to inmates. Third, the outsourcing of such health care
services allows governmental agencies to shift the financial risk associated
with the delivery of medical services to inmates to private physician management
organizations, which have greater experience in managing such risks. Fourth,
physician management companies have experience in meeting federal and state
mandated healthcare requirements. Moreover, InPhyNet has established itself as a
physician management organization that can satisfy the various criteria that
serve as barriers to entry in this field. These criteria include requirements
that physician management organizations have a minimum of five years experience
in the corrections environment, current references in correctional care, the
posting of performance bonds or letters of credit in order to secure InPhyNet's
performance and prior success in obtaining National Commission of Correctional
Health Care accreditation for correctional institutions.

Under correctional care contracts, InPhyNet is paid monthly on the basis of
each correctional institution's average daily inmate population. Typically,
InPhyNet is also entitled to additional reimbursement for any health care
related expenditures incurred above a certain dollar amount of outside medical
expenses

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per inmate per year, as well as reimbursement for the cost of treating inmates
in connection with certain extraordinary events.

Hospital Physician Services

Hospital Physician Services includes emergency physician and other contract
staffing services and certain related business services. Revenue for the
Hospital Physician Services division was approximately $216.8 million, $210.7
million, and $177.0 million for the years ended December 31, 1996, 1995 and
1994, respectively, and $55.3 million and $53.7 million for the three months
ended March 31, 1997 and 1996, respectively.

Emergency Physician and Other Contract Staffing. InPhyNet contracts with
hospitals throughout the United States to provide physicians and other medical
personnel. InPhyNet provides staffing primarily to emergency and radiology
departments, as well as pediatrics, anesthesiology, intensive care, neonatology
and internal medicine departments. In most cases, InPhyNet is contractually
required to provide physician staffing coverage at a hospital facility on a
24-hour basis, 365 days a year. At March 31, 1997, InPhyNet provided management
and physician services under 147 contracts with hospitals and governmental
entities in 22 states.

Hospitals turn to organizations such as InPhyNet because the outsourcing of
physician management services relieves hospital administrators of the burden of
providing physician coverage. InPhyNet is better qualified than most hospitals
to recruit, manage and retain physicians, bill and collect for medical
professional services, deliver services on a cost-effective basis and control
medical malpractice costs. As a result, InPhyNet believes that it offers
hospitals an attractive alternative for meeting the medical staffing needs of
hospitals' emergency, radiology and other departments, while maintaining a
consistently high level of quality care. Demand for emergency care has increased
as patients who do not have access to a primary care physician turn to emergency
rooms for primary care services as well as for urgent medical problems.
According to the American Hospital Association, the total number of emergency
department visits in 1993 was approximately 97 million, in comparison to less
than 80 million visits in 1984.

Under its Hospital Physician Services contracts, InPhyNet generally assumes
the risk for physician staffing to meet the medical needs of the hospitals'
patients. InPhyNet is paid for its services on either a fee-for-service or
flat-fee basis. As of March 31, 1997, approximately 69% of Hospital Physician
Services' revenue was derived from fee-for-service contracts. Under its
fee-for-service agreements, InPhyNet directly bills and collects the fee
component of the charges for medical services rendered by InPhyNet's health care
professionals. InPhyNet accepts and assumes the financial risks relating to
patient volume and payor mix and delays related to reimbursement through
government sponsored programs or third-party payors. Under certain contracts,
InPhyNet bills hospital patients directly for the medical services rendered by
its health care professionals and also receives a contractual subsidy from the
hospital to supplement revenue from direct billing. Under its flat-fee
contracts, InPhyNet is paid a fixed amount for providing the required medical
staffing services.

InPhyNet has expanded its scope of hospital-based management services to
include radiology services. In July 1995, InPhyNet acquired MetroAmerican, a
hospital-based radiology practice management business headquartered in the
Raleigh-Durham area of North Carolina, with fee-for-service contracts at
hospitals and clinics located in nine states. In September 1995, InPhyNet
acquired Radiology Associates, located in Hollywood, Florida, which provides
radiology and management services to hospitals, outpatient centers, radiation
oncology centers and a regional teleradiology reading facility. See "-- Recent
Developments".

Department of Defense and Other Services. InPhyNet provides physicians,
nurse and clerical support services for active duty and retired military
personnel and their dependents in emergency departments, ambulatory care centers
and primary care clinics operated by the Department of Defense. Under Department
of Defense contracts, InPhyNet is generally paid a fixed amount, per patient
visit or per hour of service, without regard to the scope of professional
services provided. Under per patient fixed fee arrangements, InPhyNet assumes
the risk if patient volume is below expectations. At March 31, 1997, InPhyNet's
military medical services were provided under 15 contracts with the Department
of Defense.

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InPhyNet also offers medical record transcription services and provides
professional billing and collection services to physician practice groups. In
addition, InPhyNet provides physicians on a temporary, or locum tenens, basis to
various clients.

RECENT DEVELOPMENTS

On September 5, 1996, InPhyNet entered into the PCA Agreement, which has an
initial term of five years and an option for an additional five years. Under the
PCA Agreement, InPhyNet will manage independent primary care physicians in South
Florida and the Tampa Bay region. At December 31, 1996, physicians provided
primary care services to approximately 50,500 covered lives: 24,500 in South
Florida and 26,000 in the Tampa Bay area. PCA provides comprehensive health care
service through its Health Maintenance Organizations, Life and Property and
Casualty Insurance Carriers and Worker's compensation administrators located
throughout the southeastern United States and the Caribbean.

On September 21, 1995, InPhyNet entered into an exclusive agreement with
Kaiser Permanente ("Kaiser") in Ohio to develop and operate a primary care and
specialty physician network on a capitated basis in Summit and Stark counties of
Northeast Ohio. Kaiser provides comprehensive healthcare services to
approximately 190,000 Northeast Ohio residents. Kaiser Permanente's 12 regions
provide care for more than 6.5 million people in 16 states and the District of
Columbia.

InPhyNet's recent acquisitions are as follows:

<TABLE>
<CAPTION>
REVENUE IN
LAST
FULL YEAR
NUMBER PRIOR TO
DATE OF ACQUISITION COMPANY BUSINESS OF SITES ACQUISITION
- ------------------- ------- -------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
January 1997 Emergency Management Physician Staffing 3 $ 5.1
Specialists, Inc.
July 1996 NHS National Health Physician Staffing 13 $20.5
Services, Inc.
January 1996 Sachs, Morris & Sklaver, Primary Care Practices 2 $ 1.8
Inc.
September 1995 Radiology Associates of Physician Staffing 16 $16.9
Hollywood, Inc.
July 1995 MetroAmerican Radiology, Physician Staffing 21 $13.1
Inc.
February-April 1995 Various Five Primary Care 8 $20.8
Practices
</TABLE>

Effective January 16, 1996, InPhyNet acquired Sachs, Morris & Sklaver, Inc.
("SMS"). As a result of this transaction, InPhyNet added two medical centers to
its base of primary care practices. The transaction was accounted for as a
purchase.

Effective September 1, 1995, InPhyNet acquired Radiology Associates.
Radiology Associates, provides radiology and management services to hospitals,
outpatient centers, radiation oncology centers and a regional teleradiology
reading facility. The transaction was accounted for as a pooling of interests.

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Effective July 1, 1995, InPhyNet acquired MetroAmerican. As a result of
this transactions, InPhyNet acquired contracts to provide radiology services on
a fee-for-service basis at hospitals and clinics located in nine states. The
transaction was accounted for as a pooling of interests.

As a result of the acquisitions of Radiology Associates and MetroAmerican
(the "Poolings"), combined with InPhyNet's existing operations, InPhyNet
believes it has become a leading provider of radiology practice management
services in the United States with approximately 100 radiologists operating in
nine states.

During 1995, InPhyNet acquired five primary care physician practices (the
"Primary Care Practices"), operating at eight sites. All of such acquisitions
have been accounted for as purchases.

CORPORATE OPERATIONS

Physician Recruiting. InPhyNet maintains an extensive proprietary database
of physician information which enables it to identify and select qualified
candidates for practice opportunities as staffing needs arise. Candidates are
recruited, interviewed and screened by InPhyNet's physicians. Subsequently, the
candidates are assigned to a health care facility, where their credentials are
generally reviewed and verified a second time.

Contracts with physicians generally have a one-year term and automatically
renew, subject to cancellation by either party for any reason and at any time
with 90 or 180 days' notice. In general, physician contracts are not tied to a
specific location and contain two-year noncompete provisions.

Utilization Management. InPhyNet has developed and implemented a
utilization management system that has successfully reduced both inpatient days
and referrals to medical specialists. This program is coordinated and maintained
by a management information system that collects data derived from patient
outcomes, physician case management decisions and practice patterns. InPhyNet
uses this information to provide feedback to physicians in order to increase
their productivity and improve the quality of medical care provided.

Risk Management. InPhyNet has professional liability exposure with respect
to potential negligent acts of its medical professional employees and
contractors. As part of its efforts to reduce such exposure, InPhyNet manages
and monitors the quality and performance of its physicians. Additionally,
InPhyNet maintains a proactive claims management program that employs a
dedicated group of physicians and attorneys who are responsible for handling
claims made against InPhyNet and its agents. A combination of the efficient
claims management program, historical claims experience, shifting business mix
from hospital based emergency medicine to capitated medical services and
increased professional liability insurance buying power (due to InPhyNet's
growth) have enabled InPhyNet to decrease InPhyNet's cost of malpractice
insurance as a percentage of net revenue from 2.3% in 1992 to 1.6% in 1996.

Billing and Collection Operations. InPhyNet maintains its own billing and
collections operations, in Fort Lauderdale, Florida, and Akron, Ohio, that were
responsible for invoicing approximately 2.8 million patient visits during 1996.
To improve patient care documentation and billing efficiency, InPhyNet has
implemented, where it is commercially feasible, proprietary voice-activated
dictation systems in emergency departments to enhance the speed and accuracy of
InPhyNet's process for filing reimbursement claims in its fee-for-service
operations. In certain other emergency departments, InPhyNet provides a
centralized transcription service to document, legibly and efficiently, the
services rendered. InPhyNet's systems are designed to enhance its ability to
document the providing of physician services in an environment of increasing
scrutiny by third-party payors. InPhyNet also markets its billing and
transcription services to physicians and administrators employed by outside
third parties.

MARKETING

Hospital-Based Contracts. InPhyNet maintains a staff of marketing
officers, regional directors and telemarketers to direct the marketing of
hospital physician services. Contracting opportunities generally result from
referrals by hospital administrators, information provided by physicians
(including contracted physicians meeting the temporary staffing needs of
hospitals) and requests for proposals received directly from hospitals. After
visiting a prospective hospital client, InPhyNet develops a proposal based on an
analysis of patient

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volume, the projected cost of obtaining physician staffing coverage and the
probable collection rate of fee-for-service gross revenue based upon a review of
the local usual and customary rates. Following such analyses, InPhyNet submits a
written proposal with contract terms tailored to the particular hospital's
needs. Contracts typically have terms of one to three years, subject to
termination by either party at any time with 90 days' notice.

Managed Care Contracts. Prior to 1996, expansion in InPhyNet's managed
care business resulted primarily from the acquisition of primary care clinics
that have contracts with Humana Medical Plan, Inc. and affiliates ("Humana").
InPhyNet conducts joint marketing programs with Humana which are designed to
increase the number of Humana enrollees in a particular area where InPhyNet
operates primary care clinics. InPhyNet's contracts with Humana provide that
either party may terminate a contract upon 60 days' notice.

Through its recent diversification of its managed care business to other
third-party payors, InPhyNet has been able to reduce the portion of managed care
revenue derived from contracts with Humana from 84% in 1995 to 36% in the first
quarter of 1997.

In September 1995, InPhyNet entered into an agreement with Kaiser to
develop and operate a primary care and specialty physician network on a
capitated basis, located in Northeast Ohio. InPhyNet started to provide services
in January 1996. InPhyNet expects that growth in its managed care business will
result from building and acquiring primary care practices in targeted geographic
areas and making arrangements with HMOs in those areas to provide medical
services. InPhyNet maintains frequent contact with Humana and other HMOs
regarding opportunities for InPhyNet to develop managed care operations in new
areas. Additionally, in September 1996, InPhyNet entered into a five-year
agreement with PCA to manage a network of independent primary care physicians.
See " -- Recent Developments".

Correctional Care and Other Governmental Contracts. InPhyNet obtains its
initial contract with a governmental agency through a competitive bidding
process. Requests for proposals are carefully reviewed to determine which
opportunities are within InPhyNet's capabilities and offer the potential for an
adequate profit margin. The pricing of the bid is based on, among other things,
an analysis of the staffing requirements, projected costs based on InPhyNet's
past experience in providing similar services, salary data from the specific
area and estimates of overhead costs. Contracts are usually awarded for a period
of one year with options to renew for subsequent years. Most contracts are
subject to termination by either party with 60 to 90 days' notice at any time
during the contract.

GOVERNMENT REGULATION

Current federal and state laws regulate the relationships between providers
and suppliers of health care services, on the one hand, and physicians and other
clinicians, on the other. These laws include the fraud and abuse provisions of
the Medicare and Medicaid statutes, which prohibit solicitation, payment,
receipt or offering of any direct or indirect remuneration for the referral of
Medicare or Medicaid patients or for the ordering or providing of Medicare or
Medicaid covered services, items or equipment. 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 monetary penalties and exclusion from participation in the
Medicare and Medicaid programs which could adversely affect InPhyNet's
operations.

The laws of many states prohibit physicians from splitting fees with
nonphysicians and prohibit business corporations from providing or holding
themselves out as providers of medical care. While InPhyNet believes it complies
in all material respects with state fee splitting and corporate practice of
medicine laws, there can be no assurance that, given varying and uncertain
interpretations of such laws, InPhyNet would be found to be in compliance with
all restrictions on fee splitting and the corporate practice of all medicine in
all states. InPhyNet currently operates in certain states through professional
corporations, and has formed professional corporations or qualified foreign
professional corporations to do business in several other states where corporate
practice or medicine laws may require InPhyNet to operate through such a
structure. As discussed in Note 1 to the Consolidated Financial Statements,
InPhyNet believes it has unilateral and perpetual control over the assets and
operations of the various affiliated professional corporations. A determination
that

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InPhyNet is in violation of applicable restrictions on fee splitting and the
corporate practice of medicine in any state in which it operates could have a
material adverse effect on InPhyNet.

Finally, both federal and state laws provide for the award of damages and
the assessment of substantial civil penalties against any person who knowingly
files or causes to be filed or presented a false claim for payment of services,
or the making, using or causing to be made or used a false record in connection
with the filing of a false claim. Violation of the federal False Claims Act may
also result in exclusion from participation in the Medicare and Medicaid
programs. It is not necessary to intend to defraud the government or have actual
knowledge of the falsity of the claim or supporting record for a violation to
occur. It is enough to constitute a "knowing" violation of the False Claims Act
that one acts in "deliberate ignorance" or "reckless disregard" of the truth or
falsity of the information alleged to be false. A violation of and successful
action brought under the False Claims Act or similar state law against InPhyNet
or physicians managed by it could have a material adverse effect on InPhyNet.

FEDERAL GOVERNMENT CONTRACTING REQUIREMENTS

InPhyNet's federal governmental contracting activities with government
healthcare facilities are subject to substantial regulation under federal law
and by applicable contracting agencies. Contracts with government agencies are
generally complex in nature and require contractors to comply with exacting
technical specifications and numerous administrative regulations. Substantial
penalties can result from noncompliance with the technical specifications of a
contract. Upon failure to perform or violation of applicable contractual or
statutory provisions, a contractor may be barred or suspended from obtaining
future contracts for specified periods of time and/or be the subject of criminal
investigation and prosecution. InPhyNet is subject to periodic audits and
reviews in the ordinary course of business by federal government audit and
review agencies which can result in reductions in contract payments. Under the
Truth in Negotiations Act, the federal government is entitled for three years
after final payment on any negotiated fixed-price contract to examine all of
InPhyNet's cost records with respect to such contract to determine whether
InPhyNet used complete, accurate and current cost and pricing information in
preparing bids on such contract or any amendments thereto. In addition, the
federal government has the right for up to six years after final payment to
recoup payments based upon such examination. Section 31 of the Federal
Acquisition Regulations governs the allowability of costs incurred by InPhyNet
in the performance of its government contracts to the extent such costs are
allocable to its government contracts.

CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS

Certain of InPhyNet's affiliates contract with physicians and other health
care professionals as independent contractors. Since these professionals are
regarded as independent contractors, such affiliates do not withhold federal or
state income taxes, make federal or state unemployment tax payments or provide
workers' compensation insurance with respect to such independent contractors.
The payment of applicable taxes is regarded by InPhyNet as the responsibility of
such independent contractors. InPhyNet believes that this classification of
these health care professionals as independent contractors is proper for federal
tax purposes. One such affiliate was audited by the Internal Revenue Service in
1991 and its classification was not challenged. A contrary determination by
federal taxing authorities either with respect to such treatment of independent
contractors since 1991 or regarding other affiliates' or such subsidiary's
classification of physicians as independent contractors, or a change in existing
law, could have a material adverse effect on InPhyNet's operating results.

CORPORATE EXPOSURE TO PROFESSIONAL LIABILITIES

Due to the nature of its business, InPhyNet becomes involved as a defendant
in medical malpractice lawsuits, some of which are currently ongoing, and is
subject to the attendant risk of substantial damage awards. The most significant
source of potential liability in this regard is the negligence of health care
professionals employed or contracted by InPhyNet. To the extent such health care
professionals are employees of InPhyNet or were regarded as agents of InPhyNet
in the practice of medicine, InPhyNet could be held liable for their negligence.
In addition, InPhyNet could be found in certain instances to have been negligent
in

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performing its contract management services even if no agency relationship with
the health care professional exists. InPhyNet's contracts with hospitals and
governmental agencies generally require InPhyNet to indemnify such other parties
for losses resulting from the negligence of health care professionals managed by
InPhyNet. InPhyNet maintains professional liability insurance on a claims made
basis in amounts deemed appropriate by management, based upon historical claims
and the nature and risks of its business. There can be no assurance, however,
that a future claim or claims will not exceed the limits of available insurance
coverage, that any insurer will remain solvent and able to meet its obligations
to provide coverage for any claim or claims or that such coverage will continue
to be available, or available with sufficient limits and at a reasonable cost,
to adequately and economically insure InPhyNet's operations in the future.

COMPETITION

The provision of physician management services to hospitals, HMOs and
governmental entities is a highly competitive business in which InPhyNet
competes with several national, regional, and local providers of physician
management services. Furthermore, InPhyNet competes with traditional managers of
health care services, such as hospitals, which directly recruit and manage
physicians. Certain of InPhyNet's competitors have access to substantially
greater financial resources than InPhyNet.

While the bases for competition vary somewhat among business lines,
competition is generally based on quality of care and cost. More specifically,
with respect to nonmilitary hospital physician services, competition is focused
on patient utilization, risk management and service quality. Competition in the
areas of military hospital physician services and correctional institution
services are especially cost sensitive due to the fact that, in each of these
areas, awards of contracts are generally made as a result of a competitive
bidding process. In managed care, InPhyNet believes the market for developing
and providing management of primary care networks which contract with HMOs and
employers will increasingly be based on patient access, quality of care,
outcomes management and cost.

EMPLOYEES

At March 31, 1997, InPhyNet employed or contracted with approximately 5,100
people on a full and part-time basis. Approximately 2,000 of these individuals
are physicians (including physician managers) and 3,100 are nonphysician
clinical and administrative professionals.

PROPERTIES

InPhyNet leases its headquarters in Fort Lauderdale, Florida (approximately
58,200 square feet). In addition, InPhyNet leases space for its billing and
management information services department in Plantation, Florida (approximately
28,000 square feet) and for its billing operations in Akron, Ohio (approximately
22,700 square feet).

LEGAL PROCEEDINGS

InPhyNet is involved in various legal proceedings incidental to its
business, substantially all of which involve claims related to the alleged
malpractice of employed and contracted medical professionals. In the opinion of
InPhyNet's management, no individual item of litigation or group of similar
items of litigation, taking into account the insurance coverage maintained by
InPhyNet, is likely to have a material adverse effect on InPhyNet's financial
position.

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INPHYNET'S MANAGEMENT

The table below sets forth the names, ages and titles of the persons who
are directors and executive officers of InPhyNet:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH INPHYNET
- ---- --- ----------------------
<S> <C> <C>
Clifford Findeiss.................... 56 Chairman of the Board, President and Chief Executive
Officer
Erie D. Chapman, III................. 53 Senior Executive Vice President, Chief Operating
Officer and Director
George W. McCleary, Jr............... 45 Executive Vice President, Chief Financial Officer,
Secretary and Director
Jere D. Creed........................ 55 Senior Vice President, Hospital Physician Services and
Director
Marta Prado.......................... 45 Senior Vice President, Capitated Medical Services and
Director
Neil J. Principe..................... 51 Senior Vice President, Hospital Physician Services --
Business Development and Director
Victor J. Weinstein.................. 51 Senior Vice President, Mergers and Acquisitions,
Treasurer and Director
Thomas E. Dewey, Jr.(1)(2)........... 64 Director
Donald C. Wegmiller(1)(2)............ 58 Director
</TABLE>

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

(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.

Clifford Findeiss, Chairman of the Board of Directors since August 1994,
has served as President and Chief Executive Officer of InPhyNet since 1974. He
was a founder of InPhyNet. Dr. Findeiss holds a B.S. in Mechanical Engineering
from Northwestern University (1964), an M.D. from Northwestern University
Medical School (1968), and an M.S. in Pharmacology from Northwestern University
(1969).

Erie D. Chapman, III, a Director since May 1995, was appointed Chief
Operating Officer of InPhyNet in November 1995. He was President and Chief
Executive Officer of U.S. Health Corporation, an Ohio not-for-profit company he
cofounded, from 1984 until June 1995, and was Chief Executive Officer and Vice
Chairman (1992-1994) and President and Chief Executive Officer (1983-1992) of
Riverside Methodist Hospitals, Columbus, Ohio. Mr. Chapman currently serves as a
director of 13 privately held corporations. He holds a B.S. degree from
Northwestern University (1965) and a J.D. from George Washington University
(1968). He is a member of the Ohio Bar Association.

George W. McCleary, Jr., a Director since August 1994, has served as
Executive Vice President, Chief Financial Officer and Secretary since August
1994. He has been employed by InPhyNet since December 1983. Mr. McCleary holds a
B.A. from Boston University (1974), a Masters degree in International Business
from the American Graduate School of International Management (1975), and a J.D.
from Stetson University College of Law (1979). He is a member of the Florida Bar
Association.

Jere D. Creed, a Director since August 1994, has served as Senior Vice
President, Hospital Physician Services since September 1993. He was a founder of
InPhyNet and has been an executive officer since 1974. Dr. Creed holds a B.A.
from Youngstown University (1964) and an M.D. from the University of Miami
School of Medicine (1970). He is certified by the ABEM and is an examiner for
the ABEM. Dr. Creed serves as a Clinical Associate Professor of Medicine at the
University of Miami School of Medicine.

Marta Prado, a Director since August 1994, was appointed to Senior Vice
President, Capitated Medical Services in November 1995. Ms. Prado had served as
Senior Vice President, Correctional Care since September 1993. She has been
employed by InPhyNet since 1980. Ms. Prado holds a B.S. in Nursing from the
University of Miami School of Nursing and Medicine (1971).

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Neil J. Principe, a Director since August 1994, was appointed Senior Vice
President, Hospital Physician Services -- Business Development in November 1995.
Dr. Principe had served as Vice President, Recruitment since September 1993. He
has been an executive officer of InPhyNet since 1974. He holds a B.A. from
Cornell University (1967), and an M.D. from the State University of New York
Downstate Medical College (1971). He has completed a residency in internal
medicine and is certified by the ABEM and by the ABIM.

Victor J. Weinstein, a Director since August 1994, was appointed Senior
Vice President, Mergers and Acquisitions, and Treasurer in November 1995. He has
been affiliated with InPhyNet since 1976. Dr. Weinstein holds a B.A. from Tulane
University (1966) and an M.D. from Tulane University Medical School (1970). He
has completed a residency in internal medicine and is certified by the ABEM and
by the ABIM.

Thomas E. Dewey Jr., a Director since August 1994, has been a General
Partner of McFarland Dewey & Co., a financial advisory services firm since 1989.
Prior to the formation of McFarland Dewey & Co., he was President of Thomas E.
Dewey, Jr. & Co., Inc., a financial advisory services firm, from 1976 to 1989,
and a General Partner of Kuhn, Loeb & Co. from 1965 to 1975. Mr. Dewey is a
director of Northwest Natural Gas Company and Chairman Emeritus of Lenox Hill
Hospital, New York, N.Y. He holds an A.B. from Princeton University (1954) and
an M.B.A. from Harvard University (1958).

Donald C. Wegmiller, a Director since August 1994, has been President of
the Management Compensation Group/Healthcare, a consulting firm that specializes
in compensation and benefit programs for health care executives and physicians,
since April 1993. From 1978 to April 1993, Mr. Wegmiller was President and Chief
Executive Officer of Health Span Health Services (a successor to Health One
Corporation), a Minneapolis-based health care system. Mr. Wegmiller also served
as Chairman of the Board of American Hospital Association and currently serves
as a director of Possis Medical, Inc., Minnesota Power & Light Company, HBO &
Company, and Medical Graphics Corporation. He holds a B.A. from the University
of Minnesota (1960), and an M.A. from the University of Minnesota (1962).

CLASSIFIED BOARD OF DIRECTORS

InPhyNet's Board of Directors is divided into three classes -- Class I,
Class II and Class III -- which must be as equal in number of members as
possible. Each class of directors serves for a three year term and is elected on
a rotating three-year basis.

The Class I Directors (Clifford Findeiss, George W. McCleary, Jr., Neil J.
Principe and Erie D. Chapman, III) hold office until the 1998 annual
stockholders meeting. The Class II Directors (Jere D. Creed, Thomas E. Dewey,
Jr., Marta Prado and Victor J. Weinstein) hold office until the 1999 annual
stockholders meeting. The Class III Director (Donald C. Wegmiller) holds office
until the 1997 annual stockholders meeting. If the Merger is consummated, these
individuals will no longer be Directors of InPhyNet.

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Executive Officer Compensation. The following table sets forth the
compensation received by InPhyNet's Chief Executive Officer and the four other
most highly compensated executive officers of InPhyNet (collectively, the "Named
Executive Officers") for services in all capacities for the years ended December
31, 1996, 1995 and 1994:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- ---------- ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Clifford Findeiss 1996 362,500 -- -- -- --
Chairman of the Board of Directors, 1995 420,826 -- -- -- --
Chief Executive Officer and President 1994 388,317 -- -- -- 144
Erie D. Chapman, III(1) 1996 275,000 -- 57,035(2) -- 251,876(3)
Senior Executive Vice President, 1995 27,500 -- -- 210,000 --
Chief Operating Officer and Director 1994 -- -- -- -- --
George W. McCleary, Jr. 1996 350,000 -- -- 75,000 --
Executive Vice President, 1995 375,000 -- -- 12,000 --
Chief Financial Officer, 1994 374,999 35,000 -- 25,000 51
Secretary and Director
Jere D. Creed 1996 253,750 -- -- -- --
Senior Vice President, Hospital 1995 350,000 -- -- -- --
Physician Services and Director 1994 353,029 -- -- -- 144
Marta Prado 1996 290,000 -- -- 75,000 156,700(3)
Senior Vice President, Capitated 1995 238,114 -- -- 8,000 --
Medical Services and Director 1994 200,000 25,000 -- 20,000 51
</TABLE>

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

(1) Mr. Chapman assumed his position with InPhyNet on November 17, 1995.
(2) Under the terms of Mr. Chapman's employment agreement, he received 3,202
shares of restricted stock that vest ratably over 12 months. At December 31,
1996, Mr. Chapman owned 3,202 shares of restricted stock.
(3) Represents compensation from the exercise of stock options.

Option Grants in 1996. The following tables set forth, with respect to any
of the Named Executive Officers, options granted during InPhyNet's last fiscal
year and the future potential realized value of such options at assumed annual
rates of stock price appreciation:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZED VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS MARKET STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE PRICE AT OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION -----------------------------
NAME GRANTED (#) FISCAL YEAR SHARE GRANT (2) DATE 0% ($) 5% ($) 10% ($)
- ---- ----------- ------------ --------- --------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George W. McCleary, Jr. 75,000(1) 11.79% $17.20 $17.75 January 2002 41,250 413,598 865,218
Marta Prado 75,000(1) 11.79% $17.20 $17.75 January 2002 41,250 413,598 865,218
</TABLE>

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

(1) These options were granted in December 1996 under the 1994 Stock Incentive
Plan. One-third of the options granted became fully vested and exercisable
on January 2, 1997, and one-third of the options granted will vest and
become exercisable on each of January 2, 1998 and January 2, 1999,
respectively.
(2) As reported on the Nasdaq National Market on the date of grant.

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table provides certain information concerning the
exercise of options during fiscal 1996, the number of securities underlying
unexercised options held by any of the Named Executive Officers and the value of
each such officer's unexercised options at December 31, 1996:

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

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE(#) EXERCISABLE/UNEXERCISABLE($)
- ---- --------------- ----------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Erie D. Chapman, III.............. 40,000 251,876 43,333/126,667 31,666/ 88,334
George W. McCleary, Jr............ -- -- 231,295/ 95,335 2,014,490/110,010
Marta Prado....................... 10,000 156,700 135,412/ 89,668 1,168,946/100,008
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors determines executive
compensation, subject to the terms of each executive officer's employment
agreement with InPhyNet. No executive officer of InPhyNet served on any board of
directors or compensation committee of any entity other than InPhyNet with which
any member of the Compensation Committee is affiliated.

EMPLOYMENT AGREEMENTS

InPhyNet is a party to employment agreements with each of its Named
Executive Officers. The provisions of the employment agreements are
substantially identical, except for Mr. Chapman's (which is described below).
The employment agreements, other than Mr. Chapman's, have terms of three years,
expiring on December 1, 1999. The employment agreements with Messrs. Findeiss,
Chapman, McCleary, Creed and Ms. Prado, provide for base annualized salaried
compensation of $362,500, $275,000, $350,000, $253,750, and $290,000,
respectively, for such persons through December 1, 1999. Each employment
agreement requires the officer to devote substantially all of his time and
attention to InPhyNet's business. InPhyNet may terminate the employment
agreements for any reason at any time. In the event of a termination by InPhyNet
without cause, the officer is entitled to one year's salary plus a prorated
portion of any bonus the officer would have earned. The employment agreements
provide that for one year after termination of employment with InPhyNet for any
reason, the officer will not directly or indirectly, own, manage, operate, join,
control or participate in or be connected with, as an officer, employee,
partner, stockholder, or otherwise, any business, individual, partnership, firm,
or corporation which is at the time engaged principally or significantly in a
business which is, directly or indirectly, at the time in competition with the
business of InPhyNet (or any subsidiary or affiliate) in an area in which
InPhyNet (or such subsidiary or affiliate) then conducts business.

Mr. Chapman's employment agreement is for a term of three years expiring on
December 31, 1998, with InPhyNet's option to extend for two additional one-year
terms. Under the terms of Mr. Chapman's employment agreement, InPhyNet agreed to
grant Mr. Chapman 3,202 shares of stock each January 1st over the term of the
employment agreement. Each grant vests at the rate of one-twelfth on the last
day of each month, during the year of each grant. Mr. Chapman is also to be paid
a quarterly bonus of $18,750, if InPhyNet meets or exceeds the projected street
consensus of InPhyNet's quarterly earnings per share as listed on First Call
Research Network on the first day of the fiscal year and an annual bonus of
$50,000 if InPhyNet meets or exceeds its budgeted annual revenues for a fiscal
year, excluding revenues attributable to any entities acquired in transactions
accounted for as poolings of interests with respect to periods prior to the
acquisition date. The employment agreement of Mr. Chapman has a change of
control provision that provides for a severance payment in an amount equal to
his annual compensation if, during the six months following a change in control,
he is terminated without cause or, in certain circumstances, there is a
substantial diminution in his duties.

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In the event that there is a change of control in InPhyNet, certain
provisions of executive employment agreements and stock option plans will become
effective. Each Named Executive Officers' respective employment agreement
provides (except in the case of Erie D. Chapman, III) for severance payments in
an amount equal to (i) 1.5 times each such officer's annual salary if, within 12
months following a change of control, the officer terminates his employment for
any reason or the Surviving Corporation terminates such officer's employment
other than for disability or cause, and (ii) 0.5 times such officer's annual
salary, if at least 12 but not more than 25 months following a change of
control, the Surviving Corporation terminates such officer's employment other
than for disability or cause or if the officer terminates his employment for
good reason.

In addition, at December 31, 1996, the Named Executive Officers have
current option grants, the vesting of which will accelerate upon a change of
control of InPhyNet, including Erie D. Chapman, III (126,667 options at exercise
prices ranging from $16.00 to $17.375 per share), George W. McCleary, Jr.
(95,335 options at exercise prices ranging from $12.00 to $19.76 per share) and
Marta Prado (89,668 options at exercise prices ranging from $12.00 to $19.76 per
share).

PRINCIPAL STOCKHOLDERS OF INPHYNET

The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of May 12, 1997 by: (i) each person
known to InPhyNet to beneficially own more than 5% of the InPhyNet Common Stock;
(ii) each director and nominee for director of InPhyNet; (iii) each executive
officer named in the Summary Compensation Table; and (iv) all directors and
executive officers of InPhyNet as a group. Except as otherwise indicated, each
stockholder named has sole voting and investment power with respect to such
stockholder's shares.

<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
OF COMMON STOCK
------------------------------------------------------------
NUMBER STOCK OPTIONS TOTAL SHARES PERCENTAGE OF
OF EXERCISABLE BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES WITHIN 60 DAYS(3) OWNED SHARES
- ------------------------ --------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
Clifford Findeiss(1)........................ 1,028,666 -- 1,028,666 6.28%
Joseph J. Badal............................. 925,854 -- 925,854 5.66%
Jere D. Creed(1)............................ 974,669 -- 974,669 5.95%
T. Rowe Price Associates, Inc.(4)........... 936,800 -- 936,800 5.72%
Neil J. Principe............................ 489,320 -- 489,320 2.99%
Victor J. Weinstein(1)...................... 451,203 -- 451,203 2.76%
George W. McCleary, Jr...................... 155,932 262,295 418,227 2.51%
Marta Prado................................. 87,325 164,412 251,737 1.52%
Erie D. Chapman, III........................ 4,403(2) 46,666 51,069 *
Donald C. Wegmiller......................... -- 9,166 9,166 *
Thomas E. Dewey, Jr......................... -- 9,166 9,166 *
All directors and executive officers as a
group (nine persons)...................... 3,191,518 491,705 3,683,223 21.84%
</TABLE>

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

* Less than 1%.
(1) The shares beneficially owned by Drs. Findeiss, Creed and Weinstein are held
through the J. Clifford Findeiss Revocable Trust, the Jere D. Creed
Revocable Trust and the Victor Jerome Weinstein Revocable Trust,
respectively.
(2) Includes 1,201 shares of Common Stock that have vested through May 12, 1997
pursuant to the January 1, 1997 annual grant of 3,202 shares of InPhyNet
Common Stock in accordance with Mr. Chapman's employment agreement. See
"InPhyNet's Management" -- Employment Agreements".
(3) Includes all vested options and options that will vest within 60 days after
May 12, 1997.
(4) Based on information contained in a Schedule 13G dated February 14, 1997.
The principal business address of T. Rowe Price Associates, Inc. is 100 E.
Pratt Street, Baltimore, Maryland 21202.

102
<PAGE> 112

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

One of the buildings used for InPhyNet's corporate offices is leased from
Barr-Bell Limited, a Florida limited partnership. InPhyNet acquired an 8 percent
limited partnership interest in the partnership which owns and operates the
building. Clifford Findeiss, InPhyNet's Chief Executive Officer, President and
Chairman of the Board of Directors, and Neil J. Principe, a Senior Vice
President of Business Development and Director, are Barr-Bell limited partners.
The total rent paid during the year ended December 31, 1996 was approximately
$443,000, which will increase annually in proportion to increases in the
Consumer Price Index. The lease provides for the payment by InPhyNet of a
proportionate share of increases in operating expenses over the base year in
addition to the monthly rent. The lease term expires December 31, 1997.

During 1996, InPhyNet incurred professional fees in an aggregate amount of
approximately $97,000 for financial advisory services provided to InPhyNet by
McFarland Dewey. InPhyNet has also agreed to pay McFarland Dewey a financial
advisory fee in connection with the Merger. See "The Merger -- Interests of
Certain Persons in the Merger". Thomas E. Dewey, Jr., a member of InPhyNet's
Board of Directors, is a general partner in McFarland Dewey. In addition, a
brother of InPhyNet's Chief Financial Officer is a general partner in McFarland
Dewey.

InPhyNet believes that the terms of the transactions described above are
fair to InPhyNet and comparable to what would have been obtained in arm's-length
negotiations with unaffiliated parties.

103
<PAGE> 113

PRO FORMA CONDENSED FINANCIAL INFORMATION

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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $2,909,024 $3,908,717 $5,222,019 $1,237,715 $1,454,778
Operating expenses:
Clinic expenses.......................................... 1,200,291 1,785,564 2,683,107 637,117 747,171
Non-clinic goods and services............................ 1,365,203 1,688,075 2,019,895 477,264 555,818
General and administrative expenses...................... 169,273 172,896 173,428 46,032 44,587
Depreciation and amortization............................ 44,384 62,394 86,579 20,651 26,610
Net interest expense..................................... 16,214 19,114 24,715 7,030 9,781
Merger expenses.......................................... -- 69,064 308,945 34,448 --
Loss on investments...................................... -- 86,600 -- -- --
Other, net............................................... (143) (192) (1,075) (107) (39)
---------- ---------- ---------- ---------- ----------
Net operating expenses............................. 2,795,222 3,883,515 5,295,594 1,222,435 1,383,928
---------- ---------- ---------- ---------- ----------
Income (loss) before pro forma income taxes and
discontinued operations.................................. 113,802 25,202 (73,575) 15,280 70,850
Pro forma income tax expense (benefit)..................... 50,292 (6,987) 3,215 8,878 27,074
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations................... 63,510 32,189 (76,790) 6,402 43,776
Loss (income) from discontinued operation.................. (25,902) 136,528 68,698 68,698 --
---------- ---------- ---------- ---------- ----------
Pro forma net income (loss)................................ $ 89,412 $ (104,339) $ (145,488) $ (62,296) $ 43,776
========== ========== ========== ========== ==========
Pro forma net income (loss) per share(1)................... $ 0.61 $ (0.66) $ (0.83) $ (0.37) $ 0.24
========== ========== ========== ========== ==========
Number of shares used in pro forma net income (loss) per
share calculations(1)(2)................................. 146,773 158,109 174,269 169,381 184,579
========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 148,375
Working capital............................................. 257,173
Total assets................................................ 2,515,376
Long-term debt, less current portion........................ 764,202
Total stockholders' equity.................................. 864,276
</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 the 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 1.18 shares of
MedPartners Common Stock for each share of InPhyNet Common Stock.

104
<PAGE> 114

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 141,578 $ 6,797 $ -- $ 148,375
Accounts receivable less allowance for bad
debts..................................... 610,675 88,658 -- 699,333
Inventory.................................... 131,403 419 -- 131,822
Prepaid expenses and other current assets.... 77,556 17,465 -- 95,021
Income tax receivable........................ 1,223 -- -- 1,223
Deferred tax assets.......................... 34,030 763 -- 34,793
---------- -------- -------- ----------
Total current assets................. 996,465 114,102 -- 1,110,567
Property and equipment......................... 507,878 12,770 (7,700)(A) 512,948
Intangible assets, net......................... 681,720 28,090 -- 709,810
Deferred tax assets............................ 10,243 (860) -- 9,383
Other assets................................... 170,299 2,369 -- 172,668
---------- -------- -------- ----------
Total assets......................... $2,366,605 $156,471 $ (7,700) $2,515,376
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 305,974 $ 10,035 $ 42,300 (A) $ 358,309
Accrued medical claims payable............... 95,817 20,975 -- 116,792
Other accrued expenses and liabilities....... 334,119 19,416 -- 353,535
Current portion of long-term debt............ 24,224 534 -- 24,758
---------- -------- -------- ----------
Total current liabilities............ 760,134 50,960 42,300 853,394
Long-term debt, net of current portion......... 763,893 309 -- 764,202
Other long-term liabilities.................... 33,504 -- -- 33,504
Stockholders' equity:
Common stock................................. 172 164 (145)(B) 191
Additional paid-in capital................... 822,472 70,387 145 (B) 893,004
Shares held in trust......................... (150,200) -- (150,200)
Notes receivable from shareholders........... (1,590) -- (1,590)
Accumulated earnings......................... 138,220 34,651 (50,000)(A) 122,871
---------- -------- -------- ----------
Total stockholders' equity........... 809,074 105,202 (50,000) 864,276
========== ======== ======== ==========
Total liabilities and stockholders'
equity............................. $2,366,605 $156,471 $ (7,700) $2,515,376
========== ======== ======== ==========
</TABLE>

105
<PAGE> 115

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................... $1,332,271 $122,507 $ -- $1,454,778
Operating expenses:
Clinic expenses............................... 640,623 106,548 -- 747,171
Non-clinic goods and services................. 555,818 -- -- 555,818
General and administrative expenses........... 35,399 9,188 -- 44,587
Depreciation and amortization................. 25,334 1,276 -- 26,610
Net interest expense.......................... 9,686 95 -- 9,781
Other, net.................................... -- (39) -- (39)
---------- -------- ------ ----------
Net operating expenses................ 1,266,860 117,068 -- 1,383,928
---------- -------- ------ ----------
Income before pro form income taxes............. 65,411 5,439 -- 70,850
Pro forma income tax expense.................... 24,925 2,149 -- 27,074
---------- -------- ------ ----------
Pro forma net income............................ $ 40,486 $ 3,290 $ -- $ 43,776
========== ======== ====== ==========
Pro forma net income per share.................. $ 0.25 $ 0.20 $ 0.24
========== ======== ==========
Number of shares used in pro forma net income
per share calculations........................ 164,841 16,727 3,011(C) 184,579
========== ======== ====== ==========
</TABLE>

106
<PAGE> 116

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue.................................. $1,149,812 $87,903 $ -- $1,237,715
Operating expenses:
Clinic expenses............................ 563,224 73,893 -- 637,117
Non-clinic goods and services.............. 477,264 -- -- 477,264
General and administrative expenses........ 39,439 6,593 -- 46,032
Depreciation and amortization.............. 19,592 1,059 -- 20,651
Net interest expense....................... 6,741 289 -- 7,030
Merger expenses............................ 34,448 -- -- 34,448
Other, net................................. (144) 37 -- (107)
---------- ------- ------ ----------
Net operating expenses............. 1,140,564 81,871 -- 1,222,435
---------- ------- ------ ----------
Income before pro forma income taxes and
discontinued operations.................... 9,248 6,032 -- 15,280
Pro forma income tax expense................. 6,496 2,382 -- 8,878
---------- ------- ------ ----------
Income from continuing operations............ 2,752 3,650 -- 6,402
Loss from discontinued operations............ 68,698 -- -- 68,698
---------- ------- ------ ----------
Pro forma net (loss) income.................. $ (65,946) $ 3,650 $ -- $ (62,296)
========== ======= ====== ==========
Pro forma net (loss) income per share........ $ (0.44) $ 0.23 $ (0.37)
========== ======= ==========
Number of shares used in pro forma net (loss)
income per share calculations.............. 150,422 16,067 2,892(C) 169,381
========== ======= ====== ==========
</TABLE>

107
<PAGE> 117

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL PRO PRO
---------------------- FORMA FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................... $4,813,499 $408,520 $ -- $5,222,019
Operating expenses:
Clinic expenses............................... 2,332,958 350,149 -- 2,683,107
Non-clinic goods and services................. 2,019,895 -- -- 2,019,895
General and administrative expenses........... 142,789 30,639 -- 173,428
Depreciation and amortization................. 81,929 4,650 -- 86,579
Net interest expense.......................... 23,930 785 -- 24,715
Merger expenses............................... 308,695 250 -- 308,945
Other, net.................................... (1,569) 494 -- (1,075)
---------- -------- ------- ----------
Net operating expenses................ 4,908,627 386,967 -- 5,295,594
---------- -------- ------- ----------
(Loss) income before pro forma income taxes and
discontinued operations....................... (95,128) 21,553 -- (73,575)
Pro forma income tax (benefit) expense.......... (5,297) 8,512 -- 3,215
---------- -------- ------- ----------
(Loss) income from continuing operations........ (89,831) 13,041 -- (76,790)
Loss from discontinued operations............... 68,698 -- -- 68,698
---------- -------- ------- ----------
Pro forma net (loss) income..................... $ (158,529) $ 13,041 $ -- $ (145,488)
========== ======== ======= ==========
Pro forma net (loss) income per share........... $ (1.02) $ 0.81 $ (0.83)
========== ======== ==========
Number of shares used in pro forma net (loss)
income per share calculations................. 155,364 16,021 2,884(C) 174,269
========== ======== ======= ==========
</TABLE>

108
<PAGE> 118

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................... $3,583,377 $325,340 $ -- $3,908,717
Operating expenses:
Clinic expenses............................... 1,512,380 273,184 -- 1,785,564
Non-clinic goods and services................. 1,688,075 -- -- 1,688,075
General and administrative expenses........... 148,515 24,381 -- 172,896
Depreciation and amortization................. 58,705 3,689 -- 62,394
Net interest expense.......................... 17,621 1,493 -- 19,114
Merger expenses............................... 66,564 2,500 -- 69,064
Loss on investments........................... 86,600 -- -- 86,600
Other, net.................................... (192) -- -- (192)
---------- -------- ------ ----------
Net operating expenses................ 3,578,268 305,247 -- 3,883,515
---------- -------- ------ ----------
Income before pro forma income taxes and
discontinued operations....................... 5,109 20,093 -- 25,202
Pro forma income tax (benefit) expense.......... (15,792) 8,805 -- (6,987)
---------- -------- ------ ----------
Income from continuing operations............... 20,901 11,288 -- 32,189
Loss from discontinued operations............... 136,528 -- -- 136,528
---------- -------- ------ ----------
Pro forma net (loss) income..................... $ (115,627) $ 11,288 $ -- $ (104,339)
========== ======== ====== ==========
Pro forma net (loss) income per share........... $ (0.82) $ 0.75 $ (0.66)
========== ======== ==========
Number of shares used in pro forma net (loss)
income per share calculations................. 140,364 15,038 2,707(C) 158,109
========== ======== ====== ==========
</TABLE>

109
<PAGE> 119

MEDPARTNERS, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................... $2,638,654 $270,370 $ -- $2,909,024
Operating expenses:
Clinic expenses............................... 969,345 230,946 -- 1,200,291
Non-clinic goods and services................. 1,365,203 -- -- 1,365,203
General corporate expenses.................... 148,990 20,283 -- 169,273
Depreciation and amortization................. 41,832 2,552 -- 44,384
Net interest expense.......................... 15,235 979 -- 16,214
Other, net.................................... (143) -- -- (143)
---------- -------- ----- ----------
Net operating expenses................ 2,540,462 254,760 -- 2,795,222
Income before pro forma income taxes and
discontinued operations....................... 98,192 15,610 -- 113,802
Pro forma income tax expense.................... 44,048 6,244 -- 50,292
---------- -------- ----- ----------
Income from continuing operations............... 54,144 9,366 -- 63,510
Income from discontinued operations............. (25,902) -- -- (25,902)
---------- -------- ----- ----------
Pro forma net income............................ $ 80,046 $ 9,366 $ -- $ 89,412
========== ======== ===== ==========
Pro forma net income per share.................. $ 0.61 $ 0.74 $ 0.61
========== ======== ==========
Number of shares used in pro forma net income
per share calculations........................ 131,783 12,703 2,287(C) 146,773
========== ======== ===== ==========
</TABLE>

110
<PAGE> 120

NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION

The proposed Merger is intended to be accounted for as a pooling of
interests. The pro forma combined statements of operations assumed that the
Merger was consummated at the beginning of the earliest period presented. The
pro forma condensed combined balance sheet assumes that the transaction was
consummated on March 31, 1997.

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

The following adjustments are necessary to reflect the Merger (in
thousands):

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

<TABLE>
<CAPTION>
PROPERTY TOTAL
AND ACCOUNTS ACCUMULATED MERGER
EQUIPMENT PAYABLE EARNINGS CHARGE
--------- -------- ----------- -------
<S> <C> <C> <C> <C>
InPhyNet...................................... $(7,700) $42,300 $(50,000) $50,000
</TABLE>

The following is a detail of the estimated merger expense:

<TABLE>
<S> <C>
Severance and related benefits.............................. $ 7,000
Operational restructuring................................... 17,000
Lease abandonment........................................... 1,500
Non-compatible technology................................... 6,000
Brokerage fees.............................................. 9,000
Professional fees........................................... 3,000
Other transaction related costs............................. 3,200
Transition costs............................................ 3,000
Filing fees................................................. 300
-------
$50,000
=======
</TABLE>

The non-compatible technology primarily relates to computer hardware and
software that will be abandoned after the Merger. These assets are currently
being utilized in the operations of InPhyNet but are not compatible with the
planned operations for MedPartners. Severance and related benefits represent
anticipated payments to identified employees, as required by their respective
employment agreements, who will be terminated after the Merger and certain other
payments anticipated to be made to certain employees. The operational
restructuring and transitional costs of $17,000 and $3,000 respectively,
represent management's best estimate of the costs to consolidate operations of
the thirty-five existing MedPartners physician practices in Florida with the
operations of certain practices of InPhyNet. This plan was formulated by
MedPartners' and InPhyNet's management in order to more efficiently provide
services in markets where multiple locations will exist as a result of the
Merger. The plan of consolidation calls for affected operations to be merged
over a period of twelve to twenty-four months. These costs also include costs
associated with the merging of InPhyNet's and MedPartners' hospital based
operations including the combining of systems, facilities and management
resources as well as costs associated with the formation of a regional operating
and reporting infrastructure.

B. To reflect the exchange of approximately 19,318 shares of MedPartners
Common Stock for all the issued and outstanding shares of InPhyNet Common Stock.

C. To adjust pro forma amounts based on historical share amounts,
converting each outstanding share of InPhyNet Common Stock into MedPartners
Common Stock based on the fixed Exchange Ratio of 1.18.

111
<PAGE> 121

DESCRIPTION OF CAPITAL STOCK OF MEDPARTNERS

AUTHORIZED CAPITAL STOCK

The MedPartners Certificate of Incorporation currently provides that
MedPartners may issue 9,500,000 shares of Preferred Stock, par value $.001 per
share (the "MedPartners Preferred Stock"), 500,000 shares of Series C Preferred
Stock, par value $.001 per share (the "MedPartners Series C Preferred Stock"),
and 400,000,000 shares of the Common Stock.

COMMON STOCK

Holders of the MedPartners 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 Preferred Stock, holders
of MedPartners Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by MedPartners's Board of Directors
out of funds legally available therefor. All outstanding shares of MedPartners
Common Stock are fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of MedPartners, holders of MedPartners
Common Stock will be entitled to share ratably in the assets of MedPartners
remaining after payment or provision for payment of all of MedPartners's debts
and obligations and liquidation payments to holders of any outstanding shares of
MedPartners Preferred Stock.

PREFERRED STOCK

MedPartners' Board of Directors, without further stockholder authorization,
is authorized to issue shares of MedPartners 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 Common Stock and one or more series of MedPartners 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 Common Stock and one or more series of MedPartners Preferred Stock.
Although MedPartners has no present plans to issue any shares of MedPartners
Preferred Stock, the issuance of shares of MedPartners 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 or an unsolicited
acquisition proposal.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE DGCL

Classified Board of Directors. The MedPartners Certificate of
Incorporation and the MedPartners Bylaws provide for MedPartners' 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. See "MedPartners' Management -- Classified Board of Directors".

MedPartners believes that a classified board of directors will help to
assure the continuity and stability of MedPartners' Board of Directors and
MedPartners' business strategies and policies as determined by MedPartners'
Board of Directors, since a majority of the directors at any given time will
have had prior experience as directors of MedPartners. MedPartners believes that
this, in turn, will permit MedPartners' 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 MedPartners' Board of Directors. As a result, a provision
relating to a classified MedPartners' Board of Directors may discourage proxy
contests for the election of directors or purchases of a substantial block of
the MedPartners Common Stock because its provisions could operate to prevent
obtaining control of MedPartners' 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. 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
Certificate of Incorporation does not provide otherwise.

112
<PAGE> 122

Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. The MedPartners Bylaws establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
MedPartners' 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 (the "Business Procedure").

The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for MedPartners' Board of
Directors to the Corporate Secretary of MedPartners. The requirements as to the
form and timing of that notice are specified in the MedPartners Bylaws. If the
Chairman of MedPartners' 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 Corporate Secretary of MedPartners. The requirements as to the form and
timing of that notice are specified in the MedPartners Bylaws. If the Chairman
of MedPartners' 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 Bylaws do not give MedPartners' 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 Bylaws (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, even if the conduct of such
solicitation or such attempt might be beneficial to MedPartners and its
stockholders.

Delaware Takeover Statute. MedPartners 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 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.

STOCKHOLDER RIGHTS PLAN

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

The MedPartners Rights Plan provides that one right (a "Right") will be
issued with each share of the MedPartners Common Stock (whether originally
issued or from MedPartners' treasury) prior to the Rights

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Distribution Date (as defined therein). 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 as described below. When exercisable, each Right will entitle the
owner to purchase from MedPartners one one-hundredth of a share of MedPartners
Series C Preferred Stock at a purchase price of $52.00 per share. The
MedPartners Series C Preferred Stock may be issued in fractional shares.

Except as described below, the Rights will be evidenced by all the
MedPartners Common Stock certificates and will be transferred with the
MedPartners Common Stock certificates, and no separate Rights certificates will
be distributed. The Rights will separate from the MedPartners 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 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 the MedPartners Common Stock as of the Rights
Distribution Date and thereafter the separate Rights certificates alone will
represent the Rights.

The MedPartners 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 Common Stock. In the
event of liquidation, the holders of the MedPartners 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 Common Stock. Each share of the MedPartners Series C
Preferred Stock will have 100 votes and will vote together with the shares of
MedPartners Common Stock. In the event of any merger, consolidation or other
transaction in which shares of MedPartners Common Stock are changed or
exchanged, each share of MedPartners Series C Preferred Stock will be entitled
to receive 100 times the amount received per share of MedPartners Common Stock.
These rights are protected by customary anti-dilution provisions. The
MedPartners Series C Preferred Stock will, if issued, be junior to any other
series of MedPartners Preferred Stock which may be authorized and issued by
MedPartners, unless the terms of any such other series provide otherwise. The
MedPartners Series C Preferred Stock will not be redeemable. Once the shares of
MedPartners Series C Preferred Stock are issued, the MedPartners Certificate of
Incorporation may not be amended in a manner which would materially alter or
change the powers, preferences or special rights of the MedPartners 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 the MedPartners
Series C Preferred Stock, voting separately as a class. Because of the nature of
the MedPartners Series C Preferred Stock dividend, liquidation and voting
rights, the value of a share of the MedPartners Series C Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of MedPartners 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
Common Stock at a price and on terms determined by at least a majority of the
members of MedPartners' Board of Directors who are not officers of MedPartners
and who are not representatives, nominees, affiliates or associates of an
Acquiring Person, to be (a) at a price which is fair to MedPartners'
stockholders and (b) otherwise in the best interests of MedPartners and its
stockholders (a "Qualifying Offer")), (ii) an Acquiring Person engages in
certain self-dealing transactions involving MedPartners, such as, (a) merging or
consolidating into or with MedPartners where MedPartners survives and the
MedPartners Common Stock remains outstanding, (b) transferring assets to
MedPartners in exchange for MedPartners' securities, or acquiring securities
from MedPartners other than on the same basis as from all other stockholders,
(c) transferring assets to or from MedPartners on terms less favorable than
arm's length, (d) transferring to or from MedPartners' 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 the MedPartners Common Stock
beneficially owned by the Acquiring Person, each holder of a Right will

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thereafter have the right to receive, upon the exercise thereof at the then
current exercise price, shares of MedPartners Common Stock (or, in certain
circumstances, cash, property or other securities of MedPartners) 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 MedPartners 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 as set forth below.

In the event that, at any time following the Stock Acquisition Date, (i)
MedPartners is acquired in a merger or other business combination transaction in
which MedPartners is not the surviving corporation or the MedPartners Common
Stock is changed or exchanged (other than a merger which follows a Qualifying
Offer and satisfies certain other requirements), or (ii) 50% or more of
MedPartners' 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 ten days following the Stock Acquisition Date,
MedPartners may redeem the Rights in whole, but not in part, at a price of $.001
per Right. Immediately upon the action of MedPartners' 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, 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, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for shares of MedPartners 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 MedPartners'
Board of Directors prior to the Rights Distribution Date. After the Rights
Distribution Date, the provisions of the Rights Agreement may be amended by
MedPartners' 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 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 without the prior approval of MedPartners' Board of Directors.
The effect of the Rights may be to inhibit a change in control of MedPartners
(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
stockholders.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

The MedPartners Certificate of Incorporation contains a provision
eliminating or limiting director liability to MedPartners 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 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 MedPartners' 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 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.

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In addition, the MedPartners Certificate of Incorporation and the
MedPartners Bylaws provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, or agent of MedPartners
who by reason of the fact that he or she is a director, officer, employee, or
agent of MedPartners, 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
MedPartners Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock, which Convertible Preferred Stock has now been converted into
MedPartners Common Stock, were entitled to certain rights with respect to the
registration under the Securities Act of the 7,000,562 shares of MedPartners
Common Stock into which the MedPartners Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock were converted. The shares of MedPartners
Common Stock covered by the foregoing registration rights are now eligible for
resale either under Rule 144 of the Securities Act or without restriction.
Accordingly, at the request of MedPartners, most of the holders of the
MedPartners 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 has entered into a Registration Rights Agreement with certain
of the holders of MedPartners Common Stock pursuant to which such persons will
have the right to require that MedPartners register shares of MedPartners 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 were the only persons
deemed to be "affiliates" of MedPartners, following the combination of
MedPartners and MME. In the March 1996 public offering carried out by
MedPartners, 1,358,921 shares of MedPartners' Common Stock were sold by 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".

In addition, from time-to-time, MedPartners 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 March 31, 1997, a total
of approximately 5,300,000 shares of MedPartners Common Stock were subject to
such registration rights.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the MedPartners Common Stock is First
Chicago Trust of New York, New York, New York.

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COMPARISON OF RIGHTS OF INPHYNET STOCKHOLDERS
AND MEDPARTNERS STOCKHOLDERS

Both MedPartners and InPhyNet are incorporated in Delaware. Holders of the
InPhyNet Shares will have their rights and obligations as stockholders of
MedPartners after the Merger governed by Delaware law and the MedPartners
Certificate of Incorporation and the MedPartners Bylaws. Set forth below is a
summary comparison of the material rights of a MedPartners stockholder under the
MedPartners Certificate of Incorporation and Bylaws, on the one hand, and the
material rights of an InPhyNet stockholder under the InPhyNet Certificate of
Incorporation and Bylaws, on the other hand. The information set forth below is
qualified in its entirety by reference to the Certificate of Incorporation and
Bylaws of MedPartners and InPhyNet.

CLASSES AND SERIES OF CAPITAL STOCK

InPhyNet. InPhyNet is authorized by its Certificate of Incorporation to
issue up to 70,000,000 shares of capital stock, of which 50,000,000 shares are
designated common stock, par value $.01 per share, and 20,000,000 are designated
preferred stock, par value $.10 per share (the "InPhyNet Preferred Stock").

As of the Record Date, there were 16,370,910 shares of InPhyNet Common
Stock outstanding. In addition, there were outstanding options under InPhyNet's
stock option plans to purchase an additional 1,715,761 shares of InPhyNet Common
Stock. An additional 436,050 shares of InPhyNet Common Stock have been reserved
for future grants under such plans. Each share of InPhyNet Common Stock includes
the associated right to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock, par value $.10 per share, pursuant to
InPhyNet's stockholders rights plan.

The Board of Directors of InPhyNet has the authority to issue the InPhyNet
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 the Record Date, there were no shares of
InPhyNet Preferred Stock issued and outstanding, and the Board of Directors of
InPhyNet has no present intention of issuing shares of InPhyNet Preferred Stock.

MedPartners. MedPartners is authorized by the MedPartners Certificate of
Incorporation to issue up to 410,000,000 shares of capital stock, of which
400,000,000 shares are designated MedPartners Common Stock, par value $.001 per
share, 9,500,000 shares are designated MedPartners Preferred Stock, par value
$.001 per share, and 500,000 shares are designated MedPartners Series C
Preferred Stock. As of May 9, 1997, there were 171,518,190 shares of MedPartners
Common Stock outstanding. In addition, there were outstanding options under
MedPartners' stock option plans to purchase an additional 18,649,056 shares of
MedPartners Common Stock. An additional 7,169,188 shares of MedPartners Common
Stock have been reserved for future option grants under such plans.

The Board of Directors of MedPartners has the authority to issue the
MedPartners 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 June 4, 1997, there were no
shares of MedPartners Preferred Stock issued and outstanding, and the Board of
Directors of MedPartners has no present intention of issuing shares of
MedPartners Preferred Stock.

As a consequence of and following the Merger, InPhyNet stockholders will
not hold InPhyNet Shares and the associated rights to acquire InPhyNet's Series
A Junior Participating Preferred Stock, but will instead hold shares of
MedPartners Common Stock and the associated rights to acquire the MedPartners
Series C Preferred Stock.

SIZE AND ELECTION OF THE BOARD OF DIRECTORS

InPhyNet. The InPhyNet Certificate of Incorporation and the InPhyNet
Bylaws provide for the InPhyNet Board of Directors to be divided into three
classes, with the number of directors in each class to be as equal as possible.
Each class serves a staggered three year term. With a classified board of
directors, at least two annual meetings of stockholders, instead of one, are
required to effect a change in the majority of the

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Board of Directors. The InPhyNet Certificate of Incorporation provides that
InPhyNet's Board of Directors will consist of not less than three nor more than
fifteen directors. The InPhyNet Bylaws provide that the size of the InPhyNet
Board of Directors shall be fixed by the resolution of the InPhyNet Board of
Directors. Directors are elected by a plurality of votes cast at the annual
meeting of stockholders.

The InPhyNet Bylaws state that any vacancy among the directors may be
filled by a majority of the remaining directors, even if less than a quorum,
provided that if stockholders remove a director they may also fill the vacancy
created by such removal and also provided that if the directors fail to fill any
vacancy, the stockholders may fill the vacancy at any special meeting called for
such purpose.

MedPartners. The MedPartners Certificate of Incorporation and the
MedPartners Bylaws provide for the MedPartners Board of Directors to be divided
into three classes, as nearly equal in number as is reasonably possible, serving
staggered terms. With a classified board of directors, at least two annual
meetings of stockholders, instead of one, will be required to effect a change in
the majority of the Board of Directors. The MedPartners Bylaws provide that the
MedPartners Board of Directors shall consist of not more than thirteen
directors, but in any event shall consist of at least three directors and that
the size of the MedPartners Board of Directors shall be fixed by the resolution
of the MedPartners Board of Directors. Directors of MedPartners are elected by a
plurality of votes cast at the annual meeting of stockholders.

As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock with respect
to the size and composition of the MedPartners Board of Directors will be
governed by the MedPartners Bylaws as described in the preceding paragraph.

REMOVAL OF DIRECTORS

InPhyNet. The InPhyNet Bylaws provide that a director may be removed from
office only with cause and only by the vote of the holders of 75% of the shares
of capital stock entitled to vote thereon.

MedPartners. The MedPartners Bylaws 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 Merger, the holders of InPhyNet
Shares exchanged for MedPartners Common Stock will be able to remove a director
from the MedPartners 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

InPhyNet. InPhyNet's Common Stock has no conversion features. The InPhyNet
Certificate of Incorporation provides for the issuance of 20,000,000 shares of
InPhyNet Preferred Stock. The Board of Directors has the authority, without
further action by the stockholders, to designate the rights, preferences,
privileges and restrictions of the InPhyNet Preferred Stock. If the Board of
Directors was to designate a series of InPhyNet Preferred Stock, such InPhyNet
Preferred Stock could be entitled to preferential payments in the event of the
dissolution of InPhyNet.

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

As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock with respect
to the conversion and dissolution features of the

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MedPartners Common Stock will be governed by the MedPartners Certificate of
Incorporation as described in the preceding paragraph.

AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BYLAWS

Under the DGCL, unless a corporation's certificate of incorporation or
bylaws 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. If such amendment increases or
decreases the number of authorized shares of any class or series or the par
value of such shares or adversely affects the shares of such class or series,
such amendment requires the approval of the holders of a majority of the
outstanding stock of such class or series.

InPhyNet. The InPhyNet Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock states that the Certificate of
Incorporation of InPhyNet shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority of all the shares of
Series A Junior Participating Preferred Stock, if any, that are then
outstanding, voting separately as a class.

The InPhyNet Bylaws provide that the affirmative vote of the holders of 80%
of the shares of capital stock entitled to vote thereon is required to amend,
alter, change or repeal the article of the InPhyNet Bylaws related to the
classification and election of directors. The InPhyNet Certificate of
Incorporation and Bylaws provide that the InPhyNet Bylaws may be altered,
amended or repealed by a vote of the holders of 75% of the shares of capital
stock or by a majority of the Board of Directors, except to the extent that any
bylaws adopted by the stockholders provide otherwise.

MedPartners. The MedPartners Certificate of Incorporation provides that
the powers and rights of the MedPartners Series C Preferred Stock cannot be
materially altered adversely without the affirmative vote of the holders of a
majority of all the shares of MedPartners Series C Preferred Stock, if any that
are then outstanding, voting separately as a class. The MedPartners Certificate
of Incorporation and the MedPartners Bylaws provide that the MedPartners Bylaws
may be altered, amended or repealed by a vote of a majority of the entire
MedPartners Board of Directors, as well as by a majority of the outstanding
stock entitled to vote thereon.

As a consequence of and following the Merger, (i) the holders of InPhyNet
Shares exchanged for MedPartners Common Stock will not be able to materially
alter adversely the powers and rights of the MedPartners Series C Preferred
Stock without the affirmative vote of the holders of a majority of the
outstanding MedPartners Series C Preferred Stock, voting separately as a class
and (ii) the MedPartners Bylaws may be altered, amended or repealed by a vote of
a majority of the entire MedPartners Board of Directors, as well as by a
majority of the outstanding stock entitled to vote thereon.

SPECIAL MEETINGS OF STOCKHOLDERS

InPhyNet. The InPhyNet Bylaws provide that a special meeting of the
InPhyNet stockholders may be called by the Board of Directors, the Chairman of
the Board of Directors and the President, and shall be called by the President
at the request of a majority of the outstanding shares of capital stock entitled
to vote.

MedPartners. The MedPartners Bylaws provide that a special meeting of the
MedPartners 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 Board of Directors or by the holders of at least a majority of the
outstanding shares of capital stock of MedPartners entitled to vote.

As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock with respect
to special meetings of stockholders will be governed by the MedPartners Bylaws
as described in the preceding paragraph.

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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 and the InPhyNet Certificates of Incorporation includes such a
provision which limits such liability to the fullest extent permitted under
Delaware law.

Each of the MedPartners and InPhyNet Certificates of Incorporation 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 MedPartners only if he or she is a director of MedPartners and is
acting in his or her capacity as director, and do not apply to officers of
MedPartners who are not directors.

STOCKHOLDER RIGHTS PLAN

InPhyNet. The InPhyNet Common Stock is subject to a rights plan which may
inhibit a change in control of InPhyNet that might be beneficial to InPhyNet's
stockholders.

MedPartners. The MedPartners Common Stock is subject to a rights plan
which may inhibit a change in control of MedPartners that might be beneficial to
MedPartners' stockholders.

As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock will be
subject to the MedPartners rights plan which may inhibit a change of control of
MedPartners that might be beneficial to MedPartners' stockholders.

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS

InPhyNet. The InPhyNet Bylaws do not contain specific provisions requiring
advance notice of stockholder nominations of candidates for election as
directors or for other matters to be brought by stockholders before an annual
meeting of stockholders of InPhyNet.

MedPartners. The MedPartners Bylaws establish an advance notice procedure
with regard to the nomination, other than by or at the direction of the
MedPartners 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.

The MedPartners Bylaws provide that nominations of persons for election to
the MedPartners Board of Directors may be made at a meeting of stockholders by
or at the direction of the MedPartners Board of Directors, by any nominating
committee or person appointed by the MedPartners Board of Directors, or by any
stockholder of MedPartners who complies with the notice procedures set forth
below. Such nominations, other than those made by or at the direction of the
MedPartners Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of MedPartners. To be timely, a stockholder's notice
shall be delivered to or mailed and received at the principal executive offices
of MedPartners 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 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

120
<PAGE> 130

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
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 may require any proposed nominee to furnish such other
information as may reasonably be required by MedPartners to determine the
eligibility of such proposed nominee to serve as a director of MedPartners.

The MedPartners Bylaws 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 Board of Directors, otherwise
properly brought before the meeting by or at the direction of the MedPartners
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. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of MedPartners, 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 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, InPhyNet stockholders wishing
to nominate candidates to the MedPartners Board of Directors or bring business
before a meeting of stockholders will have to comply with the notice procedures
of MedPartners, including with respect to the time such notice must be given.

ACTION BY WRITTEN CONSENT

InPhyNet. The InPhyNet Bylaws provide that any action required or
permitted to be taken by the stockholders of InPhyNet at any annual or special
meeting may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, is executed by the
holders of the outstanding capital stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares of capital stock entitled to vote thereon were present and
voted.

MedPartners. The MedPartners Certificate of Incorporation provides that,
since MedPartners Common Stock is listed on a national securities exchange, any
action required or permitted to be taken by the stockholders of MedPartners 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 InPhyNet
Shares exchanged for MedPartners 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

121
<PAGE> 131

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.

InPhyNet. The InPhyNet Certificate of Incorporation provides that each
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed 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, trustee, employee or agent of InPhyNet or in any
other capacity with another corporation, partnership, joint venture, trust or
other enterprise, will be indemnified by InPhyNet to the fullest extent
permitted by the laws of the State of Delaware, if such person acted in good
faith and in a manner he or she reasonably believed to be in, and not opposed
to, the best interests of InPhyNet, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The InPhyNet Bylaws provide that InPhyNet shall indemnify any and all of
its directors or officers, including former directors or officers, and any
employee, who shall serve as an officer or director of any corporation at the
request of InPhyNet, to the fullest extent permitted under and in accordance
with the law of the State of Delaware.

MedPartners. The MedPartners Bylaws 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, or is or was
serving at the request of MedPartners 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 to the fullest 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 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 and the consolidated
financial statements of InPhyNet at December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996, appearing in this
Prospectus 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.

Representatives of InPhyNet's independent auditors, Ernst & Young LLP, will
be present at the Special Meeting to respond to appropriate questions and will
have the opportunity to make a statement if they desire to do so.

INPHYNET STOCKHOLDER PROPOSALS

If the Merger is not consummated, InPhyNet will hold a 1997 Annual Meeting
of Stockholders. As noted in InPhyNet's proxy statement relating to the 1996
Annual Meeting of Stockholders, any stockholder

122
<PAGE> 132

proposals intended to be presented at InPhyNet's 1997 Annual Meeting of
Stockholders, if the Merger is not consummated prior thereto, must have been
received by InPhyNet on or before December 17, 1996 to be eligible for inclusion
in the Proxy Statement and form of proxy to be distributed by the InPhyNet Board
of Directors in connection with such meeting.

LEGAL MATTERS

The validity of the shares of MedPartners Common Stock to be issued to the
stockholders of InPhyNet pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C., Birmingham, Alabama.

OTHER BUSINESS

The Board of Directors of InPhyNet is not aware of any business to be acted
upon at the Special Meeting other than as described in the Notice of the Special
Meeting or as otherwise 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.

123
<PAGE> 133

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MEDPARTNERS, INC.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
Consolidated Balance Sheet as of March 31, 1997
(unaudited)............................................... F-26
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1997 (unaudited)................. F-27
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1997 (unaudited)................. F-28
Notes to Consolidated Financial Statements (unaudited)...... F-29

INPHYNET MEDICAL MANAGEMENT INC.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Report of Ernst & Young LLP, Independent Certified Public
Accountants............................................... F-31
Consolidated Balance Sheets at December 31, 1995 and 1996
(restated)................................................ F-32
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1995 and 1996 (restated)............... F-33
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1994, 1995 and 1996
(restated)................................................ F-34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 (restated)............... F-35
Notes to Consolidated Financial Statements (restated for
1996)..................................................... F-36
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
Condensed Consolidated Balance Sheets at March 31, 1997
(unaudited) and December 31, 1996 (restated).............. F-53
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1997 (unaudited).......... F-54
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1997 (unaudited).... F-55
Notes to Condensed Consolidated Financial Statements --March
31, 1997 (unaudited)...................................... F-56
Supplementary Data: Consolidated Quarterly Financial
Information (unaudited)................................... F-57
Schedule II -- Valuation and Qualifying Accounts............ F-58
</TABLE>

F-1
<PAGE> 134

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
MedPartners, Inc.

We have audited the accompanying consolidated balance sheets of
MedPartners, Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 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.

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,
Inc. at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

Birmingham, Alabama
February 3, 1997

F-2
<PAGE> 135

MEDPARTNERS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 86,276 $ 123,779
Marketable securities..................................... 35,567 --
Accounts receivable, less allowances for bad debts of
$80,077 in 1995 and $120,350 in 1996................... 506,226 563,519
Inventories............................................... 122,337 150,156
Deferred tax assets, net.................................. 95,026 52,479
Income tax receivable..................................... -- 2,496
Prepaid expenses and other current assets................. 40,216 54,689
---------- ----------
Total current assets................................... 885,648 947,118
Property and equipment, net................................. 458,780 505,060
Intangible assets, net...................................... 370,960 659,202
Deferred tax asset, net..................................... -- 18,333
Other assets................................................ 89,226 136,256
Net assets of discontinued operations....................... 36,300 --
---------- ----------
Total assets........................................... $1,840,914 $2,265,969
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 280,958 $ 280,060
Other accrued expenses and liabilities.................... 220,086 375,618
Accrued medical claims payable............................ 52,434 93,043
Notes payable............................................. 81,900 --
Current portion of long-term debt......................... 15,640 28,084
---------- ----------
Total current liabilities.............................. 651,018 776,805
Long-term debt, net of current portion...................... 531,774 715,657
Other long-term liabilities................................. 42,053 34,010
Deferred tax liabilities, net............................... 23,995 --
Contingencies (Note 13)
Stockholders' equity:
Common stock, $.001 par value; 400,000 shares authorized,
issued -- 146,390 in 1995 and 165,281 in 1996.......... 146 165
Additional paid-in capital................................ 477,362 788,636
Notes receivable from stockholders........................ (1,930) (1,665)
Unrealized loss on marketable securities, net of taxes.... (7) --
Unamortized deferred compensation......................... (2,682) --
Shares held in trust, 9,317 in 1995 and 1996.............. (150,200) (150,200)
Retained earnings......................................... 269,385 102,561
---------- ----------
Total stockholders' equity............................. 592,074 739,497
---------- ----------
Total liabilities and stockholders' equity............. $1,840,914 $2,265,969
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 136

MEDPARTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net revenue............................................. $ 2,638,654 $ 3,583,377 $ 4,813,499
Operating expenses:
Affiliated physician services......................... 433,758 657,826 980,429
Outside medical expenses.............................. 102,496 149,185 311,900
Clinic expenses....................................... 433,091 705,369 1,040,629
Non-clinic goods and services......................... 1,365,203 1,688,075 2,019,895
General and administrative expenses................... 148,990 148,515 142,789
Depreciation and amortization......................... 41,832 58,705 81,929
Net interest expense.................................. 15,235 17,621 23,930
Merger expenses....................................... -- 66,564 308,695
Losses on investments................................. -- 86,600 --
Other, net............................................ (143) (192) (1,569)
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes......................... 98,192 5,109 (95,128)
Income tax expense (benefit)............................ 44,048 (15,792) (5,297)
----------- ----------- -----------
Income (loss) from continuing operations...... 54,144 20,901 (89,831)
Discontinued operations:
Income (loss) from discontinued operations net of
taxes of $18,000, $(72,100) and $(35,849) in 1994,
1995 and 1996, respectively........................ 25,902 (168,342) (71,221)
Net gains on sales of discontinued operations......... -- 31,814 2,523
----------- ----------- -----------
Income (loss) from discontinued operations.... 25,902 (136,528) (68,698)
----------- ----------- -----------
Net income (loss)....................................... $ 80,046 $ (115,627) $ (158,529)
=========== =========== ===========
Earnings per common and common equivalent shares
outstanding:
Income (loss) from continuing operations.............. $ 0.41 $ 0.15 $ (0.58)
Income (loss) from discontinued operations............ 0.20 (0.97) (0.44)
----------- ----------- -----------
Net income (loss)....................................... $ 0.61 $ (0.82) $ (1.02)
=========== =========== ===========
Weighted average common and common equivalent shares
outstanding........................................... 131,783 140,364 155,364
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 137

MEDPARTNERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year................................ $ 111 $ 119 $ 146
Beginning balance of immaterial poolings of interests
entities............................................... -- -- 6
Common stock issued and capital contributions............. 8 9 10
PPSI common stock issued during the two months ended
December 31, 1995...................................... -- -- 1
Conversion of preferred stock............................. -- 7 --
Stock issued in connection with acquisitions.............. -- 2 2
Contributions to employee benefit trust................... -- 9 --
-------- -------- --------
Balance, end of year...................................... 119 146 165
ADDITIONAL PAID-IN-CAPITAL:
Balance, beginning of year................................ 154,350 202,611 477,362
Beginning balance of immaterial poolings of interests
entities............................................... -- 2 620
PPSI common stock issued during the two months ended
December 31, 1995...................................... -- -- 588
Common stock issued and capital contributions............. 61,852 98,812 226,190
Capital distributions..................................... (18,743) (30,970) --
Exercise of stock options................................. 802 1,124 43,996
Deferred compensation on issuance of options.............. 4,350 -- --
Conversion of preferred stock............................. -- 19,994 --
Stock issued in connection with acquisitions.............. -- 35,598 39,880
Contribution to employee benefit trust.................... -- 150,191 --
-------- -------- --------
Balance, end of year...................................... 202,611 477,362 788,636
NOTES RECEIVABLE FROM STOCKHOLDERS:
Balance, beginning of year................................ (2,396) (2,349) (1,930)
Net change in notes receivable from stockholders.......... 47 419 265
-------- -------- --------
Balance, end of year...................................... (2,349) (1,930) (1,665)
UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES:
Balance, beginning of year................................ (166) 14 (7)
Unrealized gain (loss) on marketable securities, net of
taxes.................................................. 180 (21) 7
-------- -------- --------
Balance, end of year...................................... 14 (7) --
UNAMORTIZED DEFERRED COMPENSATION:
Balance, beginning of year................................ -- (3,552) (2,682)
Amortization of deferred compensation..................... 798 870 2,682
Deferred compensation on issuance of options.............. (4,350) -- --
-------- -------- --------
Balance, end of year...................................... (3,552) (2,682) --
SHARES HELD IN TRUST:
Balance, beginning of year................................ -- -- (150,200)
Contribution to employee benefit trust.................... -- (150,200) --
-------- -------- --------
Balance, end of year...................................... -- (150,200) (150,200)
RETAINED EARNINGS:
Balance, beginning of year................................ 324,677 396,994 269,385
Beginning balance of immaterial poolings of interests
entities............................................... -- (308) (238)
Net income (loss)......................................... 80,046 (115,627) (158,529)
Dividends and distributions paid.......................... (10,008) (11,674) --
Pro forma tax provision of pooled entities................ 2,279 -- --
Net loss for two months ended December 31, 1995 for
PPSI................................................... -- -- (8,057)
-------- -------- --------
Balance, end of year...................................... 396,994 269,385 102,561
-------- -------- --------
Total stockholders' equity........................ $593,837 $592,074 $739,497
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 138

MEDPARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Income (loss) from continuing operations.................... $ 54,144 $ 20,901 $ (89,831)
Adjustments for non-cash items:
Depreciation and amortization............................. 41,832 58,705 81,929
Provision (benefit) for deferred taxes.................... 12,451 (69,273) (37,350)
Merger expenses........................................... -- 66,564 308,695
Loss on sale of investments............................... -- 86,600 --
Other..................................................... 6,755 1,683 94
Changes in operating assets and liabilities, net of effects
of acquisitions........................................... (71,622) (12,384) (103,704)
---------- --------- ---------
Net cash and cash equivalents provided by continuing
operations........................................... 43,560 152,796 159,833
Investing activities:
Cash paid for merger expense.............................. -- (53,600) (143,285)
Net cash used to fund acquisitions........................ (126,697) (205,051) (157,396)
Additions to intangibles.................................. -- (7,235) (19,515)
Purchase of property and equipment........................ (102,702) (124,455) (122,127)
(Purchases) proceeds of marketable securities............. (17,560) 1,636 27,558
Other..................................................... (1,305) 546 74
---------- --------- ---------
Net cash and cash equivalents used in investing
activities........................................... (248,264) (388,159) (414,691)
Financing activities:
Common stock issued and capital contributions............. 128,109 83,407 270,198
Capital distributions..................................... (21,045) (37,771) --
Proceeds from debt........................................ 267,563 156,728 1,781,498
Repayment of debt......................................... (35,188) (85,546) (1,647,866)
Dividends and distributions paid.......................... (7,453) (9,355) --
Other..................................................... 68 (3) 266
---------- --------- ---------
Net cash and cash equivalents provided by financing
activities........................................... 332,054 107,460 404,096
Cash flow from discontinued operations, net of divestiture
proceeds.................................................. (180,000) 114,500 (115,835)
---------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ (52,650) (13,403) 33,403
Cash and cash equivalents at beginning of year.............. 152,329 99,679 87,081
Beginning cash and cash equivalents of immaterial poolings
of interests entities..................................... -- -- 3,295
---------- --------- ---------
Cash and cash equivalents at end of year.................... $ 99,679 $ 86,276 $ 123,779
========== ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest............................................... $ 18,241 $ 33,294 $ 41,860
========== ========= =========
Income taxes........................................... $ 28,436 $ 14,820 $ (21,351)
========== ========= =========
</TABLE>

Non-cash investing activities include notes and other obligations issued
for acquisitions of $1.2 and $30.8 million in 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 $45.8 and $39.9 million of
stock for acquisitions in 1995 and 1996, respectively.

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 139

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ACCOUNTING POLICIES

Description of Business

MedPartners, Inc. (The "Original Predecessor") was incorporated in January
1993, and affiliated with its initial physician practice in November 1993.
Mullikin Medical Enterprises, L.P. ("MME") was formed by the merger of several
physician partnerships in 1994, and the original business was organized in 1957.
MedPartners/Mullikin, Inc. was formed as a result of the November 1995 business
combination between the Original Predecessor and MME. In February and September
of 1996, MedPartners/Mullikin, Inc. combined with Pacific Physician Services,
Inc. ("PPSI") and Caremark International Inc. ("Caremark"), respectively. These
business combinations were accounted for as poolings of interests. The combined
companies were renamed MedPartners, Inc. (herein referred to as the "Company" or
"MedPartners") in conjunction with the business combination with Caremark. The
financial information referred to in this discussion reflects the combined
operations of these entities and several additional immaterial entities
accounted for as poolings of interests.

MedPartners is the largest physician practice management ("PPM") company in
the United States. The Company develops, consolidates and manages integrated
healthcare delivery systems. Through its network of affiliated group and
independent practice association ("IPA") physicians, the Company provides
primary and specialty healthcare services to prepaid enrollees and
fee-for-service patients. The Company also operates one of the largest
independent prescription benefit management ("PBM") programs in the United
States and provides disease management services and therapies for patients with
certain chronic conditions.

The Company affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to prepaid payor systems. The Company enhances clinic operations
by centralizing administrative functions and introducing management tools, such
as clinical guidelines, utilization review and outcome measurement. The Company
provides affiliated physicians with access to capital and advanced management
information systems. In addition, MedPartners contracts with health maintenance
organizations and other third-party payors that compensate the Company and its
affiliated physicians on a prepaid basis (collectively "HMOs"), hospitals and
outside providers on behalf of its affiliated physicians. These relationships
provide physicians with the opportunity to operate under a variety of payor
arrangements and increase their patient flow.

The Company offers medical group practices and independent physicians a
range of affiliation models. These affiliations are carried out by the
acquisition of PPM entities or practice assets, either for cash or through
equity exchange, or by affiliation on a contractual basis. The Company enters
into long-term practice management agreements with the affiliated physicians
that provide for the management of their practices by the Company while at the
same time providing for the clinical independence of the physicians.

The Company also manages outpatient prescription drug benefit programs for
clients throughout the United States, including corporations, insurance
companies, unions, government employee groups and managed care organizations.
The Company dispenses national prescriptions daily through four mail service
pharmacies and manages patients' immediate prescription needs through a national
network of retail pharmacies. The Company is in the process of integrating its
PBM program with the PPM business by providing pharmaceutical services to the
affiliated physicians, clinics and HMOs. The Company's disease management
services are intended to meet the healthcare needs of individuals with chronic
diseases or conditions. These services include the design, development and
management of comprehensive programs that comprise drug therapies, physician
support and patient education. The Company currently provides therapies and
services for individuals with such conditions as hemophilia, growth disorders,
immune deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.

F-7
<PAGE> 140

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
subsidiaries. The Company also consolidates professional corporations (PCs) in
which it obtains a controlling financial interest by virtue of a long-term
practice management agreement (and, in some cases, a transfer agreement) between
a wholly-owned subsidiary of the Company and the PC.

Where there is a transfer agreement with the PC, it enables the Company to
require the stockholder(s) of the PC, at any time and for any reason, to
transfer, at a nominal price, shares of the PC to a transferee selected by the
Company. Where such agreements exist, the physician-stockholders of the PC, are,
as a general rule, designated by the Company and are senior members of the
Company's management. Because each stockholder of the PC is the Company's
nominee, whom the Company can replace at will, the transfer agreement provides
the Company with unilateral control.

Contracts with hospitals and payors for the provision of medical services
which are entered into directly between the hospitals or the payor (e.g., HMOs
and health plans) and the Company or a wholly-owned subsidiary of the Company,
contributed approximately 66% of the Company's 1996 PPM revenue (35% of
consolidated revenue, since PPM revenue comprised 53% of consolidated revenue,
and PBM and Specialty Services comprised the remaining 47%). In these cases, the
contractual revenue is earned by the Company or a legal subsidiary of the
Company. In some cases, the Company contracts with its PCs to provide medical
services under these payor or hospital contracts. The Company consolidates these
PCs by virtue of its rights under a practice management agreement and, in most
cases, a transfer agreement. The PCs do not have any external revenue because,
as noted above, all revenue is generated through contracts with the Company.
Consolidation of these PCs, therefore, does not materially affect the Company's
consolidated financial statements.

For PCs that have directly entered into contracts with payors and/or that
have the right to receive payment directly from payors for the provision of
medical services in the Company's clinics, the Company consolidates these PCs
because it obtains a controlling financial interest solely by virtue of a
long-term practice management agreement with the PC (the Company generally does
not have a transfer agreement with these types of PCs). The revenue earned by
these PCs represented 34% of PPM revenue (18% of consolidated revenue) during
1996. Practice management agreements with PCs that hold payor contracts and/or
the right to receive payment directly from payors provide three general types of
financial arrangements regarding the compensation of the physician-stockholders
of those PCs.

PCs that contributed 9% of PPM revenue (5% of consolidated revenue) during
1996 have practice management agreements that provide the physician-stockholders
a negotiated fixed dollar amount. At the Company's sole discretion, the
physicians are eligible to receive a bonus paid by the Company based on
performance criteria and goals. The amount of any discretionary bonus is
determined solely by the Company's management and is not directly correlated to
clinic revenue or gross profit. To the extent the clinic's net revenue increases
or decreases under these practice management agreements, physician compensation
will also increase or decrease, pro rata, based on the practice's compensation
as a percentage of the clinic net revenue.

PCs that contributed 16% of PPM revenue (8% of consolidated revenue) during
1996 have practice management agreements that compensate the
physician-stockholder on a fee-for-service basis. The respective clinics
generally earn revenue on a fee for service basis, and physician compensation
typically represents between 40 and 70 percent of the clinic's net revenue.

PCs that contributed 9% of PPM revenue (5% of consolidated revenue) during
1996 provided physician-stockholders with a salary, plus bonus, and a
profit-sharing payment of a percentage of the clinic's net income (i.e.,
contractual revenue less base physician compensation, bonus and clinic
expenses).

F-8
<PAGE> 141

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under these various types of agreements, revenue is assigned to the Company
by the PC. The Company is responsible for the billing and collection of all
revenue for services provided at its clinics, as well as for paying all
expenses, including physician compensation. The Company compensates the PCs,
which in turn compensate the physicians. The Company is not reimbursed for the
clinic expenses, rather it is responsible and at risk for all such expenses. In
effect, the Company retains any residual from the operations of its PCs (and
funds any deficit). No earnings accumulate in its PCs or are available for the
payment of dividends to the physician-stockholders. In addition, the legal
owners of its PCs do not have a substantive capital investment that is at risk
and the Company has substantially all of the capital at risk. Based on the terms
of the practice management agreement, there is no economic value attributable to
the capital stock of those PCs.

The Company's practice management agreements with its PCs are long-term.
The practice management agreements include the following provisions: (i) the
initial term is 20 to 40 years; (ii) renewal provisions call for automatic and
successive extension periods; (iii) the PCs cannot unilaterally terminate their
agreements with the Company unless the Company fails to cure a breach of its
contractual responsibilities thereunder within 30 days after notification of
such breach; (iv) the Company is obligated to maintain a continuing investment
of capital; (v) the Company employes the non-physician personnel of its PCs,
and; (vi) the Company assumes full responsibility for the operating expenses of
the PC in return for an assignment of the PC's revenue.

The Company has unilateral control over its PCs because the practice
management agreements provide the following: (i) the Company has exclusive
authority over all operating decision making (except for the dispensing of
medical services); (ii) the Company has the exclusive authority to negotiate and
execute contracts on behalf of its PCs: (iii) the Company has the exclusive
authority to establish and approve operating and capital budgets of its PCs,
including establishing total amounts to be paid to the physicians (budgets are
established with the advice of an Advisory Board composed of physicians and
members of the Company's management); (iv) the Company has the authority to
hire, assign and terminate non-medical personnel employed by its PCs; (v) the
practice management agreement establishes guidelines for the selection, hiring
and termination of physicians by its PCs, and the Company recruits candidates
for physician openings; (vi) the physician-stockholders of its PCs are required
to cooperate with the Company to expand their respective practices at the
Company's direction; (vii) where the physicians are eligible for bonuses,
determination of the amount of the bonus is within the sole discretion of the
Company; (viii) the Company manages and administers all business functions of
its PCs, including billing and collecting all medical service revenue, paying
all expenses and purchasing all capital assets; (ix) the Company receives an
assignment from its PCs of all rights to receive revenue from the provision of
medical services; (x) the Company owns all the operational and depository
accounts and has total control of all cash deposits related to clinic revenue;
(xi) under an assignment, the Company owns all of its PCs' accounts receivable;
(xii) the Company contracts for the provision of medical care with each of its
PCs and not with individual physicians; and (xiii) the Company performs the
negotiations and controls the implementation and administration of all payor
contracts. The execution of any contracts on behalf of the Company's PCs by
physician-stockholders of those PCs is simply perfunctory. The approval of the
physician-stockholders of the PC is required with respect to the financial and
operational actions of the PC only in rare and isolated cases. In all
circumstances, the rights of the legal owners of the PC are protective in nature
and do not allow the legal owners of the PC to participate in the control of the
PC in any substantive fashion.

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> 142

MEDPARTNERS, 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 approximate fair value.

Marketable Securities

Effective August 1, 1994, the Company adopted Financial Accounting
Standards Board 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 unless a decline in value is judged other than temporary.
When this is the case, unrealized losses are reflected in income. 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, which are primarily finished goods, consist of pharmaceutical
drugs, medical equipment and supplies and 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, 10 to 20 years for leasehold improvements and 10 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.

Interest costs associated with the construction of certain capital assets
are capitalized as part of the cost of those assets. Interest costs
approximating $4.3 million were capitalized in 1996. The Company also
capitalizes purchased and internally developed software costs to the extent they
are expected to benefit future operations.

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. 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 development
costs. The Company has elected to amortize these costs over a period not to
exceed the term of the related practice

F-10
<PAGE> 143

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

management agreements. 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.

Restatement of Financial Statements

The Company has merged with several entities during 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 these entities (see Note 11).

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.

Prior to the poolings of interests noted previously, several entities were
S Corporations and MME and related real estate entities were partnerships and
were therefore not subject to federal and state income taxes. Pro forma income
tax provisions are reflected in income tax expense in the consolidated
statements of operations for 1994 to provide for additional federal and state
income taxes which would have been incurred had these entities been taxed as C
Corporations. The pro forma income tax expense included in 1994 operations was
$2.3 million.

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 are adjusted in
future periods as final settlements are determined.

During 1994, 1995 and 1996, approximately 6% of net revenue was received
from governmental programs. Governmental 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 24%, 28% and 29% of
the Company's total net revenue in 1994, 1995 and 1996, 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, 1996 is adequate to cover claims which will ultimately
be paid.

Reclassifications

Certain prior-year balances have been reclassified to conform with the
current year's presentation. Such reclassifications had no material effect on
the previously reported consolidated financial position, results of operations
or cash flows of the Company.

Fiscal Year

At January 1, 1996, PPSI changed its fiscal year-end from July 31 to
December 31. Amounts consolidated for PPSI prior to January 1, 1996 were based
on an October 31 year-end. As a result, the

F-11
<PAGE> 144

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consolidated financial statements for the years ended December 31, 1994 and 1995
include the 12 months of operations of PPSI for the years ended October 31, 1994
and 1995.

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 stock-based compensation plans. The
Company applies APB 25 and related interpretations in accounting for its plans
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 No. 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 determined that long-lived assets are fairly
stated in the accompanying balance sheets, 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. DISCONTINUED OPERATIONS

During 1995, Caremark divested several non-strategic businesses. 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, Caremark 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 monitor
patients for potentially serious side effects. Net revenue of this business was
$12.3 million for the three months ended March 31, 1995 and $84.0 million for
the year ended December 31, 1994. The after-tax gain on disposition of this
business was $11.1 million.

Effective April 1, 1995, Caremark 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 13). Net revenue of this business
was $96.1 million for the period ended April 1, 1995 and $441.9 million for the
year ended December 31, 1994. 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 13.

Effective September 15, 1995, Caremark 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 revenue of this business for the 1995
period up to the date

F-12
<PAGE> 145

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of sale was $8.9 million and $29.4 million for the year ended December 1994.
There was no after-tax gain or loss on the disposition.

Effective December 1, 1995, Caremark 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 revenue of this business for the 1995 period up
to the date of sale was $69.1 million and $55.8 million for the year ended
December 31, 1994. The after-tax gain on disposition of this business was $24.7
million.

Effective February 29, 1996, Caremark 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 $2.5 million, which was included in 1995 discontinued
operations.

3. FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and cash 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 $84.1 and $44.8 million at December 31, 1995 and
1996, respectively. The carrying value of debt obligations was $168.6 and $450.0
million at December 31, 1995 and 1996, respectively. The fair value of these
obligations approximated $156.4 and $451.9 million at December 31, 1995 and
1996, respectively. The fair value of marketable securities is determined using
market quotes and rates. The fair value of non-marketable securities 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 $21.8, $31.0 and $34.5 million in 1994, 1995 and
1996, respectively. Interest income totaled $6.6, $13.4 and $10.6 million in
1994, 1995 and 1996, respectively.

4. INTANGIBLE ASSETS

Goodwill, which totaled $327.0 and $610.9 million at December 31, 1995 and
1996, respectively, represents the excess of consideration paid for companies
acquired in purchase transactions over the fair value of net assets acquired.
Also included in intangible assets for the years ended December 31, 1995 and
1996 were organizational costs of $20.3 and $23.1 million, respectively. As of
December 31, 1995 and 1996, intangible assets, including goodwill, are stated
net of accumulated amortization of $26.8 and $55.3 million, respectively.

F-13
<PAGE> 146

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 38,498 $ 54,340
Buildings and leasehold improvements........................ 191,937 184,817
Equipment................................................... 305,076 386,059
Construction in progress.................................... 81,879 91,923
-------- --------
617,390 717,139
Less accumulated depreciation and amortization.............. (158,610) (212,079)
-------- --------
$458,780 $505,060
======== ========
</TABLE>

The net book value of capitalized lease property approximated $9.8 and
$11.1 million at December 31, 1995 and 1996, respectively. Capitalized software
costs included in construction in progress approximated $56.5 million at
December 31, 1996, the majority of which was placed into service on January 1,
1997.

6. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Advances under Credit Facility, due 2001.................... $290,000 $213,000
6 7/8% Senior Notes due 2003, less unamortized discount of
$0.4 million.............................................. 99,600 --
Bonds Payable with interest at 7 3/8%, interest only paid
semi-annually, due in 2006................................ -- 450,000
Convertible subordinated debentures with interest at 5.50%,
interest only paid semi-annually, due in 2003............. 69,000 --
Notes payable to physicians and stockholders in annual
installments through 2001, interest rates ranging from 5%
to 12%.................................................... 15,329 14,118
Other long-term notes payable............................... 60,739 48,370
Capital lease obligations................................... 12,746 18,253
-------- --------
547,414 743,741
-------- --------
Less amounts due within one year............................ (15,640) (28,084)
-------- --------
$531,774 $715,657
======== ========
</TABLE>

The Company entered into a $1 billion Revolving Credit and Reimbursement
Agreement (the "Credit Facility"), which became effective simultaneously with
the closing of the Caremark acquisition on September 5, 1996, replacing its then
existing credit facility. At the Company's option, pricing on the Credit
Facility is based on either a debt to cash flow test or the Company's senior
debt ratings. No principal is due on the facility until its maturity date of
September 2001. As of December 31, 1996, there was $213 million outstanding
under the facility. The rate approximated 6.5% at December 31, 1996. The Credit
Facility contains affirmative and negative covenants which, among other things,
require the Company to maintain certain financial ratios (including minimum net
worth, minimum fixed charge coverage ratio, maximum indebtedness to cash flow),
and set certain restrictions on investments, mergers and sales of assets.
Additionally, the Company is required to obtain bank consent for acquisitions
with an aggregate purchase

F-14
<PAGE> 147

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price in excess of $75 million and which have more than half of the
consideration paid in cash. The Credit Facility is unsecured but provides a
negative pledge on substantially all assets of the Company. As of December 31,
1996, the Company was in compliance with the covenants in the Credit Facility.

Effective October 8, 1996, the Company completed a $450 million Senior Note
offering. The ten year notes carry a coupon rate of 7 3/8%. Interest on the
notes is payable semi-annually on April 1 and October 1 of each year. The notes
are not redeemable by the Company prior to maturity and are not entitled to the
benefit of any mandatory sinking fund. The notes are general unsecured
obligations of the Company, ranking senior in right of payment to all existing
and future subordinated indebtedness of the Company and pari passu in right of
payment with all existing and future unsubordinated and unsecured obligations of
the Company. The notes are effectively subordinated to all existing and future
secured indebtedness of the Company and to all existing and future indebtedness
and other liabilities of the Company's subsidiaries. Net proceeds from the note
offering were used to reduce amounts under the Credit Facility.

On October 30, 1996, the Company completed its tender offer for Caremark's
$100 million 6 7/8% notes due August 15, 2003. Of the $100 million principal
amount of such notes outstanding, approximately $99.9 million principal amount
were tendered and purchased. The total consideration for each $1,000 principal
amount of outstanding notes tendered was $1,017.72.

The following is a schedule of principal maturities of long-term debt as of
December 31, 1996.

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997........................................................ $ 30,093
1998........................................................ 17,745
1999........................................................ 7,924
2000........................................................ 6,449
2001........................................................ 215,674
Thereafter.................................................. 469,984
Amounts representing interest and discounts................. (4,128)
--------
Total............................................. $743,741
========
</TABLE>

Operating Leases: Operating leases generally consist of short-term lease
agreements for professional office space where the medical practices are located
and administrative office space. 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, 1996.

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997........................................................ $ 76,481
1998........................................................ 77,351
1999........................................................ 60,837
2000........................................................ 51,660
2001........................................................ 43,734
Thereafter.................................................. 170,794
--------
Total............................................. $480,857
========
</TABLE>

7. INCOME TAX EXPENSE

At December 31, 1996, the Company had a cumulative net operating loss
("NOL") carryforward for federal income tax purposes of approximately $184
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 2011.

F-15
<PAGE> 148

MEDPARTNERS, 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 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Merger/acquisition costs.................................. $38,326 $51,696
Bad debts................................................. 15,007 15,971
Securities write-down..................................... 33,708 --
Accrued and deferred compensation benefits................ 6,780 --
Accrued vacation.......................................... -- 5,427
NOL carryforward.......................................... 23,970 72,484
Alternative minimum tax credit carryforward............... -- 20,195
Other..................................................... 17,273 29,190
------- -------
Gross deferred tax assets................................... 135,064 194,963
Valuation allowance for deferred tax assets................. (1,249) (2,419)
Deferred tax liabilities
State taxes............................................... 1,721 2,264
Merger reserves........................................... -- 4,235
Legal reserve............................................. 26,800 4,400
Shared risk receivable.................................... 7,182 7,135
Securities write-down..................................... -- 13,449
Excess tax depreciation................................... 2,974 30,363
Goodwill.................................................. 8,103 9,648
Other amortization........................................ -- 31,115
Other..................................................... 16,004 19,123
------- -------
Gross deferred tax liabilities.............................. 62,784 121,732
------- -------
Net deferred tax asset...................................... $71,031 $70,812
======= =======
</TABLE>

Income tax expense (benefit) on continuing operations is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................... $24,580 $ 44,640 $ 28,205
State................................................. 7,017 8,841 3,848
------- -------- --------
31,597 53,481 32,053
Deferred:
Federal............................................... 10,722 (59,602) (31,125)
State................................................. 1,729 (9,671) (6,225)
------- -------- --------
12,451 (69,273) (37,350)
------- -------- --------
$44,048 $(15,792) $ (5,297)
======= ======== ========
</TABLE>

F-16
<PAGE> 149

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal tax at statutory rate........................... $34,367 $ 1,788 $(33,295)
Add (deduct):
State income tax, net of federal tax benefit.......... 5,284 (2,037) (1,369)
Increase (decrease) in valuation allowance............ -- (14,240) 1,170
Non deductible merger expense......................... -- -- 24,786
Other................................................. 4,397 (1,303) 3,411
------- -------- --------
$44,048 $(15,792) $ (5,297)
======= ======== ========
</TABLE>

8. CAPITALIZATION

The Company's Third Restated Certificate of Incorporation provides that the
Company may issue 9.5 million shares of Preferred Stock, par value $0.001 per
share, .5 million shares of Series C Junior Participating Preferred Stock, par
value $0.001 per share, and 400 million shares of Common Stock, par value $0.001
per share. As of December 31, 1996 no shares of the preferred stock were
outstanding.

On February 28, 1995, the Company completed an initial public offering of
5.1 million shares of its common stock. Gross and net proceeds of the offering
were $65.8 million and $60.4 million, respectively. Proceeds of the offering
were used to pay outstanding indebtedness under the bank credit facility. Net
proceeds were also used to fund acquisitions of certain assets of physician
practices, expansion of physician services, working capital and other general
corporate purposes.

On March 13, 1996, the Company completed a secondary public offering of 6.6
million shares of its common stock. The net proceeds of the offering were $194.0
million. Proceeds of the offering were used to pay outstanding indebtedness
under the then existing credit facility. In April 1996, $69 million of the
proceeds were used to repay PPSI's convertible subordinated debentures. 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.

9. STOCK BASED COMPENSATION PLANS

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. Under the plans the Company sold 743,117, 582,132 and 267,232 shares
to employees in 1994, 1995 and 1996, respectively. The compensation cost for the
stock purchase plan is included in the pro forma information below. Compensation
cost is recognized for the fair value of the employee's purchase rights, which
was estimated using the same valuation model and assumptions below with the
exception of an expected purchase right expected life of 1 year. The
weighted-average fair value of those purchase rights granted in 1995 and 1996
was $6.47 and $8.66, respectively.

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 the market value of the stock on the dates of grant. Awarded options
typically vest and become exercisable in incremental installments over five
years and expire no later than ten years and one day from the date of grant. The
number of shares authorized under the various plans was 22.5 million as of
December 31, 1996.

F-17
<PAGE> 150

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes stock option activity for the indicated
years:

<TABLE>
<CAPTION>
1995 1996
------------------------------- -------------------------------
WEIGHTED- WEIGHTED-
OPTIONS AVERAGE OPTIONS AVERAGE
(IN THOUSANDS) EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding:
Beginning of year................ 13,895 $ 10.39 15,292 $ 13.73
Granted.......................... 5,681 19.19 11,641 19.26
Exercised........................ (1,796) (6.78) (4,130) (10.78)
Canceled/expired................. (2,488) (12.55) (5,841) (24.04)
------ ------
End of year...................... 15,292 13.73 16,962 14.69
Exercisable at end of year......... 4,926 13.66 11,611 13.75
Weighted-average fair value of
options granted during the
year............................. $10.13 $12.45
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS
EXERCISE PRICE OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
RANGE AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------------- -------------- ---------------- ---------------- -------------- ----------------
(IN THOUSANDS) (YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
under $12.00....... 547 7.28 $ 0.55 246 $ 0.57
$12.00-$16.99...... 13,933 7.93 14.31 10,758 13.71
$17.00 and above... 2,482 9.57 19.89 607 19.74
</TABLE>

Under various plans, the Company has made grants of restricted common stock
to provide incentive compensation to key employees. Restricted stock activity is
summarized below:

<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Restricted stock outstanding:
Beginning of year......................................... 320 278
Granted................................................... 339 1
Canceled.................................................. (26) (6)
Vested (free of restrictions)............................. (355) (273)
---- ----
End of year............................................... 278 --
==== ====
</TABLE>

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock-based compensation plans under the fair value method as
described in Statement 123. The fair value for these options and employee
purchase rights was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Risk-free interest rates.................................... 6.16% 6.28%
Expected volatility......................................... .431 .431
Expected option lives (years)............................... 5.6 5.6
Expected stock purchase lives (years)....................... 1.0 1.0
</TABLE>

F-18
<PAGE> 151

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement 123, the Company's net income and
earnings per share would have been reduced to pro forma net income (loss) from
continuing operations of $9.7 and $(134.6) million and pro forma net losses of
$(126.8) and $(203.3) million for the years ended December 31, 1995 and 1996,
respectively. Per share amounts would have been reduced to pro forma net income
(loss) from continuing operations of $0.07 and $(0.87) and pro forma net losses
per share of $(0.90) and $(1.31) for the years ended December 31, 1995 and 1996,
respectively.

10. ACQUISITIONS

During the years ended December 31, 1994, 1995 and 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 a practice management agreement which
generally has a 20-40 year term. (See "Basis of Presentation" in Note 1.)

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 Company invested
approximately $143.2 million in cash, stock and notes for other acquisitions in
1995.

In January 1996, Caremark completed its agreement with CIGNA Healthcare of
California, a managed healthcare 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") for approximately $80.4
million in cash. The transaction has been accounted for by the purchase method
of accounting. During the year ended December 31, 1996, $157.4 million in cash
and 2 million shares of stock valued at $39.9 million were given in exchange for
the net assets of CIGNA and other entities. Results of operations would not have
been materially different in 1994, 1995 and 1996 had these transactions occurred
as of the beginning of the respective years.

All of the aforementioned acquisitions have been accounted for by the
purchase method of accounting. As such, operating results of acquired businesses
are included in the Company's Consolidated Financial Statements as of their
respective dates of acquisition.

F-19
<PAGE> 152

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. MERGERS

Effective February 22, 1996 and September 5, 1996, the Company merged with
PPSI and Caremark, respectively, in transactions that were accounted for as
poolings of interests. The Company exchanged 10,981,904 and 90,508,558 shares of
its common stock for all of the outstanding common stock of PPSI and Caremark,
respectively. During the year ended December 31, 1996, the Company also
exchanged 11,296,786 shares of its common stock in additional transactions
accounted for as poolings of interests. The Company's historical financial
statements for all periods have been restated to include the results of all
material transactions accounted for as poolings of interests.

<TABLE>
<CAPTION>
OTHER
POOLINGS COMBINED
MEDPARTNERS PPSI CAREMARK OF INTERESTS (AS REPORTED)
----------- -------- ---------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Net revenue................. $ 506,818 $308,226 $1,775,200 $ 48,410 $2,638,654
Net (loss) income........... (10,660) 7,598 80,400 2,708 80,046
Year ended December 31,1995
Net revenue................. 742,388 411,132 2,374,300 55,557 3,583,377
Net (loss) income........... (9,717) 10,205 (116,300) 185 (115,627)
Year ended December 31, 1996
Net revenue................. 1,071,819 410,102 3,203,512 128,066 4,813,499
Net (loss) income........... (141,680) (10,464) (3,359) (3,026) (158,529)
</TABLE>

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
ending 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 the effect of excluding
PPSI's results of operations for the two months ending December 31, 1995. The
net loss for the two month period ended December 31, 1995 relates primarily to
increases in PPSI's reserves to conform to the Company's methodology of
calculating reserves. The following is a summary of operations and cash flow for
the two months ending December 31, 1995 (in thousands):

<TABLE>
<S> <C>
Statement of Operations Data:
Net revenue............................................... $ 69,850
Operating expenses:
Affiliated physician services............................. 32,600
Outside medical expenses.................................. 14,861
Clinic expenses........................................... 26,034
General and administrative 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)
========
</TABLE>

F-20
<PAGE> 153

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Cash Flow Data:
Net cash used by operating activities..................... $ (3,569)
Net cash provided by investing activities................. 4,455
Net cash used in financing activities..................... (81)
--------
Net increase in cash and cash equivalents................. $ 805
========

Included in pre-tax loss for the year ended December 31, 1996 are merger
costs totaling $308.7 million. Approximately $32.5 and $251.3 million relate to
the mergers with PPSI and Caremark, respectively. The components of this cost
are as follows (in thousands):

<TABLE>
<S> <C>
Investment banking fees..................................... $ 31,774
Professional fees........................................... 16,674
Other transaction costs..................................... 11,645
Transition and debt restructuring........................... 39,011
Severance costs for identified employees.................... 56,948
Impairment of assets........................................ 41,616
Abandonment of facilities................................... 15,921
Noncompatible technology.................................... 9,498
Conforming of accounting policies........................... 23,728
Operational restructuring................................... 30,324
Other charges............................................... 31,556
--------
Total....................................................... $308,695
========
</TABLE>

12. 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 made a
required contribution of approximately 3% percent of non-key employee salaries
for the Plan year ended December 31, 1996, 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 1996 also had various employee retirement plans, that will or
have been incorporated into the Company's Plan. Participants of Caremark's
401(k) Plan may contribute up to 12% of their annual compensation to the plan
and Caremark matches the participants' contributions up to 3% of compensation.
The expenses related to all plans during the years ended December 31, 1994, 1995
and 1996 were approximately $7.9 million, $6.0 million and $7.7 million,
respectively.

Caremark sponsored 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. Caremark'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 federal income tax reporting purposes.

F-21
<PAGE> 154

MEDPARTNERS, 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 related to the Caremark sponsored defined benefit plan:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Assumptions:
Discount rate............................................. 8.75% 7.25% 8.75%
Increase in compensation levels........................... 5.0% 5.0% 5.0%
Expected long-term return on assets....................... 10.5% 9.5% 9.5%
Components (in thousands):
Service cost-benefits earned.............................. $4,600 $2,100 $3,024
Interest cost on projected obligation..................... 2,300 2,200 2,635
Actual return on assets................................... (1,300) (1,700) (3,121)
Net amortizations......................................... 700 100 698
Deferred asset gain....................................... -- -- 1,233
Merger expenses:
Special termination benefits.............................. -- -- 4,675
Curtailment loss.......................................... -- -- 502
------ ------ ------
Net pension expense....................................... $6,300 $2,700 $9,646
====== ====== ======
</TABLE>

The following table presents the funded status of the Caremark plans, the
net pension liability recognized in the consolidated balance sheets and related
actuarial assumptions as of December 31:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Assumptions:
Discount rate............................................. 7.25% 8.75%
Increase in compensation levels........................... 5.0% 5.0%
Funded status and net pension liability (in thousands):
Actuarial present value of benefit obligations:
Vested benefits........................................ $22,200 $37,453
Accumulated benefits................................... 25,000 41,141
Effect of future salary increases...................... 7,200 --
------- -------
Projected benefits..................................... 32,200 41,141
Less: plan assets at fair value(1).......................... 20,900 24,977
------- -------
Projected benefit obligations in excess of plan assets...... 11,300 16,164
Less: unrecognized net loss................................. (4,800) --
------- -------
Net pension liability....................................... $ 6,500 $16,164
======= =======
</TABLE>

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

(1) Primarily equity and fixed income securities.

13. CONTINGENCIES

On September 11, 1995, Coram Healthcare Corporation ("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 therapy 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 Caremark, breach of related contracts, fraud, negligent

F-22
<PAGE> 155

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 counterclaims
against Coram in this lawsuit and also filed a lawsuit in the United States
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. The lawsuit filed in federal court in Chicago
has been dismissed, but on appeal by Caremark the dismissal was reversed and the
lawsuit was remanded. Coram's lawsuit is currently in the discovery phase, with
a scheduled trial date in June 1997. The net recorded value of amounts owed by
Coram to the Company was approximately $55 million at December 31, 1996. This
amount represents management's best estimate of the net realizable value of the
amounts owed by Coram to the Company, based upon information available to the
Company and is supported by the independent valuation by Integrated Health
Services, Inc. Although the Company cannot predict with certainty the outcome of
these proceedings, based on information currently available as to the viability
of the claims interposed by Coram, the evidence which the Company understands
will be advanced by Coram to support such claims and the defenses available to
the Company, management believes that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results or
financial condition of the Company. However, an adverse determination could have
a material adverse effect on the operating results or financial condition of the
Company.

In March 1996, Caremark agreed to settle all disputes with a number of
private payors. The settlements resulted in an after-tax charge of $43.8
million. These disputes related to businesses that were covered by Caremark's
settlement with federal and state agencies in June 1995 discussed below. In
addition, Caremark agreed to pay $24.1 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. During the year ended December 31, 1996, Caremark paid $105.1
million, with an additional $3.3 million plus interest to be paid over the next
six months, related to the settlements.

In June 1995, Caremark agreed to settle an investigation of Caremark 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"). Under the
terms of the OIG 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, 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 CHAMPUS, FEHBP and federal funded healthcare benefit programs,
concerning financial relationships between Caremark and a physician in each of
Minnesota and Ohio. Caremark 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.

The Company cannot determine at this time what costs may be incurred in
connection with future disposition of nongovernmental claims or litigation. 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 or
that the ultimate costs related to the settlements will not exceed estimates in
the preceding paragraphs.

F-23
<PAGE> 156

MEDPARTNERS, 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 OIG investigation discussed above. 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 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
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 state
complaint seeks unspecified damages, attorneys' fees and expenses and an award
of punitive damages. In November 1996, in response to a motion by the
plaintiffs, the Court dismissed the United States District Court cases without
prejudice. 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. 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.

Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions (including a class action)
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. All of these
actions have been transferred by the Judicial Panel for Multidistrict Litigation
to the United States District Court for the Northern District of Illinois for
coordinated pretrial procedures. Caremark was not named in the class action. In
April 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. On July 1, 1996, the district court directed
entry of a partial final order in the class action approving an amended
settlement with certain of pharmaceutical manufacturers. The amended settlement
provides for a cash payment by the

F-24
<PAGE> 157

MEDPARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

defendants in the class action (which does not include Caremark) of
approximately $351.0 million to class members in settlement of conspiracy claims
as well as a commitment from the settling manufacturers to abide by certain
injunctive provisions. All class action claims against non-settling
manufacturers as well as all opt out and other claims generally, including all
Robinson-Patman Act claims against Caremark, remain unaffected by the
settlement. The district court also certified to the court of appeals for
interlocutory review certain orders relating to non-settled conspiracy claims
against the pharmaceuticals manufacturers and wholesalers. These interlocutory
orders do not relate to any of the claims brought against Caremark. The Company
intends to defend these cases vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of the Company, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of the Company.

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 of
the Clayton Act or Section 5 of the Federal Trade Commission Act. The specific
nature, scope, timing and outcome of this 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.

In May 1996, two stockholders, each purporting to represent a class, filed
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 then proposed merger with the Company. The complaints
seek unspecified damages, injunctive relief, and attorneys' fees and expenses.
The plaintiffs in these actions have made no effort to pursue these claims and
the Company does not believe that these complaints will have a material adverse
effect on the operating results and financial condition of the Company.

Although the Company cannot predict with certainty the outcome of
proceedings described above, based on information currently available,
management believes that the ultimate resolution of such proceedings,
individually and in the aggregate, is not likely to have a material adverse
effect on the Company.

The Company 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 adverse effect on the Company's
business or its results of operations, cash flows or financial condition.

14. SUBSEQUENT EVENTS

On January 20, 1997, the Company agreed to merge with InPhyNet Medical
Management Inc. ("InPhyNet"), a provider of hospital based physician services
headquartered in the Ft. Lauderdale area. In 1996, InPhyNet provided physician
practice management services at 188 service sites in 26 states with
hospital-based services and capitated networks. The consideration for this
transaction is based on a fixed exchange ratio of 1.18 shares of MedPartners
common stock for each share of InPhyNet common stock. Based on this ratio,
approximately 19 million shares of the Company's common stock will be issued in
exchange for all outstanding shares of InPhyNet common stock, valuing the
transaction at approximately $493 million. The transaction is expected to be
accounted for as a pooling of interests and is expected to close during the
first six months of 1997.

F-25
<PAGE> 158

MEDPARTNERS, INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31,
1997
---------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 141,578
Accounts receivable, less allowances for bad debts of
$124,925............................................... 610,675
Inventories............................................... 131,403
Income tax receivable..................................... 1,223
Deferred tax assets, net.................................. 34,030
Prepaid expenses and other current assets................. 77,556
----------
Total current assets.............................. 996,465
Property and equipment, net................................. 507,878
Intangible assets, net...................................... 681,720
Deferred tax asset.......................................... 10,243
Other assets................................................ 170,299
----------
Total assets...................................... $2,366,605
==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 305,974
Accrued medical claims payable............................ 95,817
Other accrued expenses and liabilities.................... 334,119
Current portion of long-term liabilities.................. 24,224
----------
Total current liabilities......................... 760,134
Long-term debt, net of current portion...................... 763,893
Other long-term liabilities................................. 33,504
Stockholders' equity:
Common stock, $.001 par value; 400,000 shares authorized;
171,537 issued......................................... 172
Additional paid-in capital................................ 822,472
Notes receivable from stockholders........................ (1,590)
Shares held in trust, 9,317 shares........................ (150,200)
Retained earnings......................................... 138,220
----------
Total stockholders' equity........................ 809,074
----------
Total liabilities and stockholders' equity........ $2,366,605
==========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-26
<PAGE> 159

MEDPARTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenue................................................. $1,149,812 $1,332,271
Operating expenses:
Clinic expenses........................................... 563,224 640,623
Non-clinic goods and services............................. 477,264 555,818
General and administrative expenses....................... 39,439 35,399
Depreciation and amortization............................. 19,592 25,334
Net interest expense...................................... 6,741 9,686
Merger expenses........................................... 34,448 --
Other, net................................................ (144) --
---------- ----------
Income from continuing operations before income taxes....... 9,248 65,411
Income tax expense.......................................... 6,496 24,925
---------- ----------
Income from continuing operations........................... 2,752 40,486
Discontinued operations:
Loss from discontinued operations......................... (71,221) --
Net gains on sales of discontinued operations............. 2,523 --
---------- ----------
Loss from discontinued operations........................... (68,698) --
---------- ----------
Net income (loss)........................................... $ (65,946) $ 40,486
========== ==========
Earnings per common and common equivalent share:
Income from continuing operations......................... $ 0.02 $ 0.25
Operating loss from discontinued operations............... (0.46) --
---------- ----------
Net income (loss)................................. $ (0.44) $ 0.25
========== ==========
Weighted average common and common equivalent shares
outstanding............................................... 150,422 164,841
========== ==========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-27
<PAGE> 160

MEDPARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income from continuing operations....................... $ 2,752 $ 40,486
Adjustments to reconcile net income from continuing
operations to net cash and cash equivalents provided by
operating activities:
Depreciation and amortization.......................... 19,592 25,334
Provision for deferred taxes........................... 2,577 23,451
Merger expenses........................................ 34,448 --
Other.................................................. -- 612
Changes in operating assets and liabilities, net of
effects of acquisitions............................... (24,641) (44,630)
-------- --------
Net cash and cash equivalents provided by
operating activities............................. 34,728 45,253
Investing activities:
Cash paid for merger charges.............................. (17,754) (25,887)
Net cash used to fund acquisitions........................ (76,012) (43,144)
Purchase of property and equipment........................ (30,758) (16,769)
Additions to intangibles, net of acquisitions............. (1,464) (5,256)
Net proceeds from marketable securities................... 27,482 --
Other..................................................... 5 (1,335)
-------- --------
Net cash and cash equivalents used in investing
activities....................................... (98,501) (92,391)
Financing activities:
Common stock issued and capital contributions............. 224,114 24,464
Proceeds from debt........................................ 18,786 120,805
Repayment of debt......................................... (96,241) (79,445)
Other..................................................... 64 75
-------- --------
Net cash and cash equivalents provided by
financing activities............................. 146,723 65,899
Cash provided by (used in) discontinued operations.......... 44,300 (1,453)
-------- --------
Net increase in cash and cash equivalents................... 127,250 17,308
Cash and cash equivalents at beginning of period............ 87,081 123,779
Beginning cash and cash equivalents of immaterial pooling of
interests entities........................................ 3,295 491
-------- --------
Cash and cash equivalents at end of period.................. $217,626 $141,578
======== ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

F-28
<PAGE> 161

MEDPARTNERS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of MedPartners
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.

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, 1996 audited
consolidated financials statements and the notes thereto.

NOTE 2. ACQUISITIONS

During the three months ended March 31, 1997, MedPartners, through its
wholly-owned subsidiaries, acquired certain operating assets of various medical
practices. Simultaneously with each medical practice acquisition, MedPartners
entered into a practice management agreement which generally has a 20 to 40 year
term. Pursuant to the practice management agreements, MedPartners 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 MedPartners 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 MedPartners, 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 $50.1 million. A total of $43.1
million in cash and 329,070 shares of stock valued at approximately $7.0 million
were given in exchange for these assets during the three months ended March 31,
1997.

NOTE 3. DISCONTINUED OPERATIONS

Effective February 29, 1996, MedPartners 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 $2.5 million. In March 1996, Caremark agreed to
settle all disputes with a number of private payors. The settlements resulted in
an after-tax charge of $43.8 million. These disputes related to businesses that
were covered by Caremark's settlement with federal and state agencies in June
1995. In addition, Caremark agreed to pay $24.1 million after-tax to cover the
private payors' pre-settlement and settlement related expenses. An after-tax
charge for the above amounts is included in first quarter 1996 discontinued
operations. MedPartners's consolidated financial statements present the
operating income and net assets of these discontinued operations separately from
continuing operations.

NOTE 4. SUBSEQUENT EVENTS

On January 20, 1997, MedPartners agreed to merge with InPhyNet Medical
Management Inc. ("InPhyNet"), a provider of hospital based physician services
headquartered in the Ft. Lauderdale area. In 1996, InPhyNet provided physician
practice management services at 188 service sites in 26 states with
hospital-based services and capitated networks. The consideration for this
transaction is based on a fixed

F-29
<PAGE> 162

MEDPARTNERS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exchange ratio of 1.18 shares of MedPartners common stock for each share of
InPhyNet common stock. Based on this ratio, approximately 19 million shares of
MedPartner's common stock will be issued in exchange for all outstanding shares
of InPhyNet's common stock. The transaction is expected to be accounted for as a
pooling of interests and is expected to close during the second quarter of 1997.

On May 2, 1997, MedPartners completed a transaction in which it acquired
Aetna Professional Management Corporation ("APMC"), Aetna U.S. Healthcare's
physician practice management business, and most of the Health Ways Family
Medical Centers and affiliated group practices. The Company's acquisition of
Health Ways Family Medical Centers includes 47 Health Ways and affiliated
medical centers which employ 189 physicians; and the six independent practice
associations ("IPAS") which represent nearly 800 physicians to which APMC
provides practice management and other services. Health Ways and the affiliated
centers are located in seven metropolitan markets where MedPartners already has
a presence, including Atlanta, the Baltimore/D.C. and northern Virginia area,
Philadelphia, Dallas, Akron, Chicago, and southern California. Health Ways and
the affiliated centers provide primary and specialty care to approximately
280,000 individuals, including 40,000 Aetna U.S. Healthcare members. As part of
the APMC acquisition, MedPartners will enter into a 10-year agreement which will
allow the members of the Company's networks of affiliated physicians to be
authorized providers for many of the 14 million members of Aetna U.S.
Healthcare's health plan.

F-30
<PAGE> 163

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
InPhyNet Medical Management Inc.

We have audited the accompanying consolidated balance sheets of InPhyNet
Medical Management Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the index at Item 14(a)(2). These financial statements and
schedule are the responsibility of InPhyNet's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
InPhyNet Medical Management Inc. and Subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 4, the Company has restated its financial statements
to expense as incurred costs associated with the PCA Agreement.

ERNST & YOUNG LLP

Miami, Florida
February 14, 1997, except
for the second paragraph
of Note 4, as to which the
date is May 20, 1997

F-31
<PAGE> 164

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(RESTATED)
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,305 $ 3,618
Accounts receivable, net of allowances of approximately
$91,000 and $83,000 at December 31, 1995 and 1996...... 69,759 84,300
Accounts receivable from affiliates....................... 559 202
-------- --------
70,318 84,502
Deferred income taxes..................................... 2,014 741
Prepaid expenses.......................................... 4,633 8,945
Other current assets...................................... 3,559 5,819
-------- --------
Total current assets.............................. 81,829 103,625
Equipment, furniture and leasehold improvements, net........ 11,186 11,709
Other assets:
Cost in excess of net assets acquired, net of accumulated
amortization of approximately $2,391 and $1,413 at
December 31, 1995 and 1996, respectively............... 26,111 27,773
Other assets.............................................. 4,090 2,672
-------- --------
30,201 30,445
-------- --------
Total assets...................................... $123,216 $145,779
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related benefits................. $ 15,096 $ 15,713
Accounts payable and other current liabilities............ 6,517 8,472
Accrued medical claims.................................... 1,501 18,693
Reserve for self-insured claims........................... 7,179 3,692
-------- --------
Total current liabilities......................... 30,293 46,570
======== ========
Long-term debt, net of current portion...................... 9,617 339
Deferred income taxes....................................... 938 959
Stockholders' equity:
Common stock, par value -- $0.01; 50,000 shares
authorized, 15,690 and 15,821 issued and outstanding at
December 31, 1995 and 1996, respectively............... 157 158
Additional paid-in capital................................ 63,731 66,386
Retained earnings......................................... 18,480 31,367
-------- --------
Total stockholders' equity........................ 82,368 97,911
-------- --------
Total liabilities and stockholders' equity........ $123,216 $145,779
======== ========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-32
<PAGE> 165

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- ----------
(RESTATED)
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net revenue................................................. $267,401 $323,782 $ 407,239
Revenue from affiliates..................................... 2,969 1,558 1,281
-------- -------- ----------
Total revenue..................................... 270,370 325,340 408,520
Expenses:
Compensation and related benefits......................... 179,223 209,194 235,299
Contracted medical services............................... 33,029 49,111 104,514
Insurance................................................. 13,522 11,784 12,252
Acquisition costs associated with poolings of interests
(Note 3)............................................... -- 1,700 --
Other..................................................... 28,079 32,224 33,624
-------- -------- ----------
Total operating expenses.......................... 253,853 304,013 385,689
-------- -------- ----------
Income from operations...................................... 16,517 21,327 22,831
Nonoperating (income) expense:
Interest income........................................... (326) (417) (349)
Interest expense.......................................... 1,305 1,910 1,134
Loss on sale of Physician Practices....................... -- -- 682
Other non-operating income................................ (72) (259) (189)
-------- -------- ----------
Total nonoperating expense........................ 907 1,234 1,278
-------- -------- ----------
Income before minority interest and income tax expense...... 15,610 20,093 21,553
Minority interest in net income............................. 2,711 -- --
-------- -------- ----------
Income before income tax expense............................ 12,899 20,093 21,553
Income tax expense (Note 7)................................. 153 8,805 8,512
-------- -------- ----------
Net income.................................................. $ 12,746 $ 11,288 $ 13,041
======== ======== ==========
Net income per share........................................ $ 0.75 $ 0.81
======== ==========
Weighted average shares outstanding......................... 15,038 16,021
======== ==========
Supplemental data (unaudited) (Note 1):
Historical income before income taxes....................... $ 12,899
Pro forma purchase of minority interest..................... 2,711
--------
Supplemental income before income tax expense............... 15,610
Pro forma income tax expense................................ 6,244
--------
Supplemental net income..................................... $ 9,366
--------
Supplemental net income per share........................... $ 0.74
========
Supplemental weighted average shares outstanding............ 12,703
========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-33
<PAGE> 166

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER ADDITIONAL TOTAL
OF COMMON PAID-IN RETAINED STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994..................... 8,502 $ 85 $ 81 $15,112 $ 15,278
Adjustment to reflect change in accounting
method for equity investments................ -- -- -- 696 696
Net income..................................... -- -- -- 12,746 12,746
Offering, net of expenses...................... 2,100 21 21,609 -- 21,630
Dividends...................................... -- -- -- (4,254) (4,254)
Transfer of predecessor company retained
earnings to additional paid-in capital upon
conversion from an S to a C Corporation...... -- -- 16,277 (16,277) --
Issued in connection with acquisitions......... 3,256 33 5,794 -- 5,827
Unrealized holding losses on available-for-sale
investments.................................. -- -- -- (704) (704)
Other.......................................... 140 1 (1) (27) (27)
------ ---- ------- ------- --------
BALANCE AT DECEMBER 31, 1994................... 13,998 140 43,760 7,292 51,192
Adjustments to beginning balances for the
acquisition of MetroAmerican Radiology,
Inc. ........................................ 473 5 -- 1,780 1,785
Net income..................................... -- -- -- 11,288 11,288
Offering, net of expenses...................... 1,000 10 16,213 -- 16,223
Transfer of acquired company retained earnings
to additional paid-in capital upon conversion
from an S to a C Corporation................. -- -- 1,780 (1,780) --
Exercise of stock options...................... 204 2 1,209 -- 1,211
Issued in connection with acquisitions......... 57 -- 775 -- 775
Unrealized appreciation on available-for-sale
investments.................................. -- -- -- 41 41
Other.......................................... (42) -- (6) (141) (147)
------ ---- ------- ------- --------
BALANCE AT DECEMBER 31, 1995................... 15,690 157 63,731 18,480 82,368
Net income (restated).......................... -- -- -- 13,041 13,041
Exercise of stock options...................... 131 1 2,655 -- 2,656
Unrealized depreciation on available-for-sale
investments.................................. -- -- -- (154) (154)
------ ---- ------- ------- --------
BALANCE AT DECEMBER 31, 1996 (RESTATED)........ 15,821 $158 $66,386 $31,367 $ 97,911
====== ==== ======= ======= ========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-34
<PAGE> 167

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
(RESTATED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Cash received from services rendered........................ $ 259,064 $ 312,239 $ 394,466
Cash paid for compensation and related benefits............. (176,956) (208,680) (234,942)
Cash paid for contracted medical services................... (31,727) (48,825) (83,680)
Cash paid for insurance..................................... (12,808) (14,412) (17,746)
Cash paid for other operating expenses...................... (25,539) (34,516) (36,161)
Interest received........................................... 326 420 349
Interest paid............................................... (1,305) (1,910) (1,119)
Income taxes paid........................................... (2,228) (10,119) (4,503)
--------- --------- ---------
Net cash provided by (used in) operating
activities...................................... 8,827 (5,803) 16,664
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (8,052) (7,012) (3,089)
Purchases of equipment...................................... (3,454) (3,973) (4,746)
Other investing activities.................................. (1,249) 1,418 1,009
--------- --------- ---------
Net cash used in investing activities............. (12,755) (9,567) (6,826)
FINANCING ACTIVITIES:
Proceeds from stock offering................................ 22,028 16,223 --
Proceeds from exercise of stock options..................... -- 897 1,684
Proceeds from borrowings of long-term debt.................. 15,851 26,152 9,700
Principal payments on long-term debt........................ (23,196) (27,872) (18,909)
Dividends................................................... (7,860) -- --
Partnership distributions to minority interests............. (2,930) -- --
Stock redemptions........................................... (28) (147) --
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 3,865 15,253 (7,525)
--------- --------- ---------
Net increase (decrease) in cash................... (63) (117) 2,313
Cash at beginning of period................................. 1,485 1,422 1,305
--------- --------- ---------
Cash at end of period....................................... $ 1,422 $ 1,305 $ 3,618
========= ========= =========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES:
Net income.................................................. $ 12,746 $ 11,288 $ 13,041
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation.............................................. 1,865 2,518 3,140
Amortization.............................................. 687 1,220 1,510
Loss on sale of physician practices....................... -- -- 682
Other non-cash charges (credits) to operations, net....... (72) (178) 385
Increase in accounts receivable........................... (12,077) (13,292) (14,411)
Decrease in accounts receivable from affiliates........... 771 192 357
(Increase) decrease in prepaid expenses and other current
assets................................................. 20 (5,079) (2,615)
Increase (decrease) in accounts payable................... 2,153 (1,679) 799
Increase (decrease) in accrued medical claims............. (953) 282 17,192
Increase in accrued compensation and related benefits..... 2,267 515 357
Increase (decrease) in reserve for self-insured claims.... 784 (2,505) (3,487)
Increase (decrease) in income taxes payable............... 121 64 (1,580)
Increase (decrease) in deferred income taxes.............. (2,196) 851 1,294
Minority interest in net income........................... 2,711 -- --
--------- --------- ---------
Net cash provided by (used in) operating
activities...................................... $ 8,827 $ (5,803) $ 16,664
========= ========= =========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-35
<PAGE> 168

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

InPhyNet Medical Management Inc. (together with its Subsidiaries,
"InPhyNet" or the "Company") was incorporated in May 1994 as the successor to
Emergency Medical Services Associates, Inc. ("EMSA") which commenced operations
in 1974 to provide physician management services to hospital emergency
departments. Since that time, the Company has expanded the range and scope of
its services and its business now consists of (i) Hospital Physician Services,
through which it delivers emergency medicine and other hospital-based physician
services under contracts with hospitals and the United States Department of
Defense and (ii) Capitated Medical Services, through which it manages the
delivery of comprehensive medical services under contracts with Health
Maintenance Organizations ("HMOs") and state and local correctional
institutions.

In August 1994, the Company completed an initial public offering (the
"IPO") of 2,415,000 shares of its common stock at a price of $12.00 per share.
Of the shares offered, 2,100,000 shares were offered by the Company and 315,000
shares were offered by certain stockholders of the Company (the "Offering
Stockholders"). Net proceeds to the Company were approximately $21,630,000 after
deducting underwriting commissions of approximately $1,773,000 and offering
expenses of approximately $1,797,000. The net proceeds were used to reduce the
Company's long-term debt. The Company did not receive any of the proceeds from
the shares sold by the Offering Stockholders.

In November 1995, the Company completed a public offering of 3,225,000
shares of its common stock at a price of $18.00 per share. Of the shares
offered, 1,000,000 shares were offered by the Company and 2,225,000 shares were
offered by certain stockholders of the Company (the "Selling Stockholders"). Net
proceeds to the Company were approximately $16,223,000 after deducting
underwriting commissions of approximately $900,000 and offering expenses of
approximately $877,000. The net proceeds were used to reduce the Company's
long-term debt. The Company did not receive any of the proceeds from the shares
sold by the Selling Stockholders.

REVENUE

Revenue is recorded in the period services are rendered as determined by
the respective contract with each health care provider.

The Company directly contracts with hospitals, HMO's, various state and
local government agencies and the United States Department of Defense to provide
medical services.

The Company's contracts with its hospital physician services clients
(approximately 53% of total Company revenue at December 31, 1996) typically
provide for payments on either a fee-for-service basis (72% of hospital
physician services revenue at December 31, 1996), whereby the Company bills
patients or third-party payors directly for medical services, or a flat-fee
basis (28% of hospital physician services revenue at December 31, 1996), whereby
the Company is paid a fixed amount based on the number of hours of medical
staffing or number of patient visits provided. Fee-for-service contracts also
may, in certain instances, involve the payment of a subsidy to the Company by
the client. Fee-for-service contracts, which usually require the Company to
assume the financial risks relating to patient volume, payor mix and
reimbursement rates, have longer collection periods than flat-fee and capitated
fee contracts and require the Company to bear the credit risk of uninsured
individuals.

The Company's contracts with the Department of Defense provide for payment
to the Company based on the number of patient visits or the number of hours
worked. The Company is at risk for the medical services provided if the number
of patient visits or hours worked exceed certain limits as defined in the
contracts.

F-36
<PAGE> 169

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the Company's contracts with HMO's (approximately 28% of total
Company revenue at December 31, 1996), the Company receives a fixed, monthly fee
from third-party payors for each covered life in exchange for assuming
responsibility for the provision of medical services. To the extent that
enrollees require more frequent or extensive care than was anticipated by the
Company, revenue to the Company under a contract may be insufficient to cover
the costs of care provided.

When it is probable that expected future health care costs and maintenance
costs under a contract or group of existing contracts will exceed anticipated
capitation revenue on those contracts, the Company recognizes losses on its
prepaid healthcare services with HMOs.

The Company provides comprehensive medical services, including mental
health and dental services, to inmates in various state and local correctional
institutions (approximately 19% of total Company revenue at December 31, 1996).
The Company provides primary care physician services directly and typically
subcontracts other services with hospitals and medical specialists on either a
capitated or discounted fee-for-service basis.

Approximately 93% of InPhyNet's revenue is earned through contracts which
are directly between the payor (i.e., HMO, hospital, correctional facility or
Department of Defense) and InPhyNet or a wholly owned subsidiary of InPhyNet. In
these cases, the contractual revenue is earned by InPhyNet or a consolidated
subsidiary in which InPhyNet owns a direct and majority voting interest.

Approximately 7% of InPhyNet's revenue relates to contracts with hospitals
to which a Controlled Entity (as defined below), rather than InPhyNet or a
wholly owned subsidiary of InPhyNet, is a party.

MEDICAL COSTS

The Company employs or subcontracts with physicians on an hourly or salary
basis to provide medical services under the Company's hospital, HMO,
correctional care and Department of Defense contracts. Additionally, some
physicians may receive a bonus at the discretion of the Company.

The Company provides for claims incurred but not yet reported based on past
experience together with current factors. Estimates are adjusted as changes in
these factors occur and such adjustments are reported in the year of
determination. Although considerable variability is inherent in such estimates,
management believes that these reserves are adequate.

PRINCIPLES OF CONSOLIDATION

The Company's consolidated financial statements include the accounts of
InPhyNet, investments in which it has a greater than 50% voting interest and
Controlled Entities (as defined below). All significant intercompany accounts
and transactions have been eliminated in consolidation.

The Company has entered into management contracts and stock transfer
restriction agreements (the "Transfer Agreements") with professional
corporations ("Controlled Entities") owned by one or more physicians. The
management and Transfer Agreements may not be terminated by the Controlled
Entities for any reason. The physician(s) that own the Controlled Entities are
generally treated as employees of the Company and are solely responsible for the
practice of medicine and delivery of medical services. The management contracts
provide that the Company shall be responsible for the general management and
administration of the day-to-day operations of the Controlled Entities,
including but not limited to business planning, financial management,
bookkeeping, accounting, data processing as well as human resources management.
The management contracts also provide that the Company shall have the exclusive
right to select the individuals serving as directors of Controlled Entities. The
Transfer Agreements provide that all shares of the Controlled Entities are
required to be transferred to a "Designated Transferee" for a nominal amount
paid to the transferor at the Company's sole option, at any time and for any
reason. These agreements

F-37
<PAGE> 170

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

provide the Company with unilateral and perpetual control over the assets and
business operations of the entities.

Notwithstanding the lack of legal record ownership of the Controlled
Entities, consolidation of the entities is necessary to present fairly the
financial position and results of operations of the Company because of the
existence of a parent-subsidiary relationship by means other than record
ownership by the Company of the Controlled Entities voting stock.

Investments in unconsolidated joint ventures ("Affiliates") in which a 20%
to 50% voting interest is owned by the Company are carried at cost plus equity
in earnings since the date of acquisition.

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 financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH

Deposits in banks may exceed the amount of insurance provided on such
deposits. The Company performs reviews of the credit worthiness of its
depository banks. The Company has not experienced any losses on its deposits of
cash.

ACCOUNTS RECEIVABLE

Accounts receivable result primarily from medical services provided to
patients on a fee-for-service basis and on a fixed compensation or capitated
basis from hospitals, military facilities and prison systems where the Company
provides medical services. Fee-for-service amounts are paid by government
sponsored health care programs (primarily Medicare and Medicaid), insurance
companies, self-insured employees and patients. These receivables are
geographically dispersed throughout the United States.

Accounts receivable include an allowance for contractual adjustments,
charity and other adjustments. Contractual adjustments result from differences
between the rates charged for the service performed and amounts reimbursed under
government sponsored health care programs and insurance contracts. Charity and
other adjustments represent services provided to patients for which fees are not
expected to be collected at the time the service is provided.

AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities, which are included in other assets, are
carried at fair market value, with resulting unrealized holding gains and losses
reported as a separate component of stockholders' equity. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income (see Note 16).

STOCK BASED COMPENSATION

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 Financial Accounting
Standards Board (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

F-38
<PAGE> 171

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exercise price of the Company's employee stock options generally equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized (see Note 12).

EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS

Equipment, furniture and leasehold improvements are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets. Equipment and furniture are depreciated over a 5-7 year period.
Leasehold improvements are amortized over the underlying assets' useful lives or
the term of the lease, whichever is shorter.

COSTS IN EXCESS OF NET ASSETS ACQUIRED

Costs in excess of net assets acquired are stated net of accumulated
amortization and are amortized on a straight-line basis over periods ranging
from ten to forty years. The Company periodically evaluates the recovery of the
carrying amount of costs in excess of net assets acquired by determining if any
impairment indicators are present. These indicators include duplication of
resources resulting from acquisitions, income derived from businesses acquired,
the estimated undiscounted cash flows of the entity over the remaining
amortization period and other factors.

INCOME TAXES

Prior to the IPO, EMSA was taxed under the provisions of Subchapter S of
the Internal Revenue Code, which generally provides that in lieu of corporate
income taxes, stockholders are taxed on the Company's taxable income in
accordance with their ownership interests. As a result, the accompanying
financial statements include no provision for income taxes related to EMSA's
income prior to the completion of the IPO.

Concurrent with the IPO, EMSA converted to C Corporation status and became
an accrual basis taxpayer with respect to federal income taxes and, for those
states that recognize such tax election, state income taxes. Accordingly, for
the year ended December 31, 1994, the consolidated statement of income includes
pro forma adjustments (unaudited) for income tax expense which would have been
recorded had EMSA been a taxable corporation based on the tax laws in effect
during that period.

Prior to its acquisition, MetroAmerican was taxed under the provisions of
Subchapter S of the Internal Revenue Code. Concurrent with the acquisition of
MetroAmerican, MetroAmerican converted to C Corporation status and became an
accrual basis taxpayer with respect to federal income taxes and, for those
states that recognize such tax election, state income taxes. Income tax expense
that would have been recorded if the Company had been subject to corporate
income taxes for that period is not significant.

Deferred income taxes have been provided in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes" (Statement 109) (see
Note 7).

LONG-LIVED ASSETS

FASB Statement No. 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 amounts. The
Company adopted Statement 121 in 1996 and, based on current circumstances, does
not believe that any impairment indicators are present.

F-39
<PAGE> 172

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NET INCOME PER SHARE

The computation of net income per share is based upon the weighted average
number of common shares and common stock equivalents, primarily from stock
options, outstanding during the period using the treasury stock method. Weighted
average shares outstanding gives effect to the shares of common stock issued in
connection with the Radiology Associates acquisition which was accounted for as
a pooling of interests, as if the shares were outstanding for all periods
presented. Shares issued in connection with the acquisition of MetroAmerican,
which was accounted for as an immaterial pooling of interests, were treated as
outstanding as of January 1, 1995 (see Note 3).

SUPPLEMENTAL NET INCOME AND SUPPLEMENTAL NET INCOME PER SHARE (UNAUDITED)

Supplemental net income is calculated assuming the minority interests were
purchased for common stock of the Company on January 1, 1994 and the Company was
a taxable entity for all periods presented.

The supplemental weighted average number of shares outstanding gives effect
to the issuance of common stock in connection with the acquisition of the
minority interests as if these transactions occurred on January 1, 1994.

RECLASSIFICATIONS

Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year's presentation.

2. PROPOSED MERGER AGREEMENT

On January 21, 1997, the Company and MedPartners, Inc. ("MedPartners")
announced they have agreed to merge. Upon consummation of the merger, each share
of the Company's common stock will be exchanged for MedPartners common stock.
Also, all of the Company's options will vest and will be converted into options
of MedPartners based on the exchange ratio. The consummation of the merger is
subject to, among other things, performance by each party under the merger plan
and regulatory approval. In addition, the approval of the transaction requires
approval by the shareholders of the Company and the Board of Directors of
MedPartners.

3. ACQUISITIONS

Effective May 1, 1994, in a transaction accounted for as a purchase, the
Company acquired substantially all the assets of Fox Healthcare Services Inc.
and affiliated entities ("Fox Healthcare") for $5,000,000 in cash, excluding
expenses associated with the acquisition of approximately $100,000, and a
preferred limited partnership interest in the Company. At the time of the IPO,
the preferred limited partnership interest was exchanged for $2,750,000 of the
Company's common stock at the initial offering price of $12 per share. Costs in
excess of net assets acquired were approximately $7,750,000. Fox Healthcare
provides medical care to members of Humana Medical Plan, Inc. through the
Company's clinics and also contracts with other medical providers for other
medical services such as inpatient care and certain diagnostic procedures.

Effective May 24, 1994, the Company acquired, in a purchase transaction,
the common stock of two home health care companies ("AmCare") for $1,800,000 in
cash and a $600,000 promissory note. Costs in excess of net assets acquired were
approximately $2,500,000.

Contemporaneous with the completion of the IPO, the Company exchanged
127,090 shares of its common stock for the 1.79% limited partnership interest in
the Company. This transaction, which was accounted for as a purchase, resulted
in costs in excess of net assets acquired of approximately $880,000.

F-40
<PAGE> 173

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma summary (in thousands) combines the
consolidated results of operations of the Company, Fox Healthcare, AmCare and
the acquisition of the minority interests and the preferred limited partnership
interest in the Company, as if these transactions had occurred at January 1,
1994, after giving effect to certain adjustments including the amortization of
goodwill, among others. The unaudited pro forma summary does not purport to be
indicative of the results which may have been obtained had the acquisitions been
consummated at the dates assumed, or of future results of operations of the
consolidated companies.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994
------------------
(UNAUDITED)
<S> <C>
Total revenue............................................... $279,777
========
Income before income tax expense............................ $ 15,717
========
Net income.................................................. $ 9,430
========
Net income per share........................................ $ 0.74
========
</TABLE>

During the year ended December 31, 1995, the Company acquired, in
transactions accounted for as purchases, substantially all the assets and
operations of five primary care practices for approximately $6.7 million and
approximately 57,000 shares of the Company's common stock valued at $17.68 per
share. Costs in excess of net assets acquired were approximately $7.5 million.
The pro forma effects of these acquisitions on total revenue, net income and
earnings per share are not material.

Effective July 1, 1995, in a transaction accounted for as a pooling of
interests, the Company acquired MetroAmerican Radiology, Inc. and an affiliated
entity ("MetroAmerican"). The accounts and results of operations of
MetroAmerican have not been included in the accompanying financial statements
prior to January 1, 1995, because the restatement would not have a material
effect on the Company's consolidated financial statements. In connection with
the transaction, the Company exchanged approximately 473,000 shares of common
stock for all of the outstanding shares of MetroAmerican. As a result of this
transaction, the Company acquired contracts to provide radiology services on a
fee-for-service basis. The expenses associated with the transaction were
approximately $500,000.

Effective September 1, 1995, in a transaction accounted for as a pooling of
interests, the Company acquired Radiology Associates of Hollywood, Inc. and
affiliated entities ("Radiology Associates"). As a result, the accompanying
financial statements include the accounts and results of operations of Radiology
Associates for all periods presented. In connection with the transaction, the
Company exchanged 1,625,000 shares of common stock for all of the outstanding
shares of Radiology Associates. Radiology Associates, provides radiology and
management services to hospitals, outpatient centers, radiation oncology centers
and a regional teleradiology reading facility. Expenses associated with the
transaction were approximately $1,200,000.

F-41
<PAGE> 174

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Prior to the date of the acquisition, total revenue and net income (loss)
for the Company and the pooled entities are as follows:

<TABLE>
<CAPTION>
INPHYNET
MEDICAL POOLED
MANAGEMENT INC. ENTITIES CONSOLIDATED
--------------- -------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Total revenue................................. $253,425 $16,945(2) $270,370
======== ======= ========
Net income.................................... $ 12,542 $ 204(2) $ 12,746
======== ======= ========
YEAR ENDED DECEMBER 31, 1995:
Total revenue................................. $306,455 $18,885(1) $325,340
======== ======= ========
Net income (loss)............................. $ 11,546 $ (258)(1) $ 11,288
======== ======= ========
</TABLE>

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

(1) Represents results of MetroAmerican and Radiology Associates from January 1,
1995 to the date of acquisition.
(2) MetroAmerican was accounted for as an immaterial pooling of interests and
accordingly the accounts and results of its operations have not been
included in the Consolidated Financial Statements prior to January 1, 1995.

Effective January 16, 1996, in a transaction accounted for as a purchase,
the Company acquired all of the outstanding stock of Sachs, Morris & Sklaver,
Inc. for approximately $3.1 million. As a result of this transaction, the
Company added two medical centers to its base of primary care practices. Costs
in excess of net assets acquired were approximately $3.0 million. The pro forma
effects of this acquisition on total revenue, net income and earnings per share
are not material.

Effective July 2, 1996, in a transaction accounted for as a purchase, the
Company acquired certain assets of NHS National Health Services, Inc. As a
result of this transaction, the Company acquired contracts to provide medical
care to inmates in correctional institutions. The agreement stipulates that
installments of the purchase price be determined on each annual anniversary of
the transaction's effective date over a period of five years based upon the
contracts' future operating performance. Accordingly, costs in excess of net
assets acquired will be recognized upon determination of the ultimate purchase
price over the five year period. At closing, the total consideration paid and
costs in excess of net assets acquired was not significant. The pro forma
effects of this acquisition on total revenue, net income and earnings per share
are not material.

4. SIGNIFICANT AGREEMENTS AND RESTATEMENT

Effective July 1, 1996, the Company entered into a five-year agreement (the
"PCA Agreement"), with an option for an additional five years, with Physician
Corporation of America ("PCA"). Under the PCA Agreement, InPhyNet will manage
independent primary care physicians in South Florida and the Tampa Bay region.
At December 31, 1996, physicians provided primary care services to approximately
50,500 covered lives: 24,500 in South Florida and 26,000 in the Tampa Bay area.
PCA provides comprehensive health care service through its HMOs, Life and
Property and Casualty Insurance Carriers and Workers' Compensation
administrators located throughout the southeastern United States and the
Caribbean.

The Company has restated its financial statements as of and for the year
ended December 31, 1996, to expense as incurred costs relating to the PCA
Agreement. The Company had established a $9.3 million reserve for future
estimated losses associated with the provider contracts the Company was required
to assume under the PCA Agreement. The Company recorded the $9.3 million as
deferred contract acquisition costs and was amortizing these costs over the
initial five year life of the contract with PCA. Through December 31, 1996, the
Company had charged $6.2 million of losses from the PCA Agreement against this
reserve. As a

F-42
<PAGE> 175

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

result of the restatement the reserve for losses under the PCA Agreement and
deferred contract acquisition costs have been eliminated and costs associated
with the PCA Agreement are being expensed as incurred. This change resulted in a
decrease in previously reported 1996 income from operations of $6.9 million; net
income of $3.7 million and income per share of $0.23.

5. EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS

Equipment, furniture, and leasehold improvements are comprised of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Equipment................................................... $ 14,683 $ 17,546
Furniture................................................... 5,467 6,306
Leasehold improvements...................................... 1,325 1,589
-------- --------
21,475 25,441
Less accumulated depreciation............................... (10,289) (13,732)
-------- --------
Equipment, furniture, and leasehold improvements, net....... $ 11,186 $ 11,709
======== ========
</TABLE>

6. NET REVENUE

Net revenue consists of gross charges, net of allowances for contractual,
charity and other adjustments. Contractual adjustments are based on the
difference between charges at established rates and amounts estimated by
management to be reimbursable by the Medicare and Medicaid programs, and public
and private insurance contracts under applicable laws, regulations and program
instructions. Reimbursable amounts are generally less than the established gross
charge.

Final determination of amounts earned for certain patients is subject to
review by appropriate program representatives. Charity and other adjustments
represent services provided to patients for which fees are not expected to be
collected at the time the service is provided.

Net revenue consists of the following (in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross revenue................................... $ 468,281 $ 567,436 $ 674,467
Less allowances for contractual, charity and
other adjustments............................. (200,880) (243,654) (267,228)
--------- --------- ---------
Net revenue..................................... $ 267,401 $ 323,782 $ 407,239
========= ========= =========
</TABLE>

Net revenue attributable to major customers consists of the following (in
thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Humana Medical Plans, Inc. and its affiliates... $ 37,199 $ 58,866 $ 60,691
========= ========= =========
Department of Corrections, State of
Massachusetts................................. $ 18,905 $ -- $ --
========= ========= =========
</TABLE>

Effective June 30, 1994, the contract with the Department of Corrections,
State of Massachusetts was not renewed with the Company.

F-43
<PAGE> 176

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

HISTORICAL

Concurrent with the IPO, the Company converted to C Corporation status and
became an accrual basis taxpayer with respect to federal income taxes and, for
those states that recognize such tax election, state income taxes.

Significant components of income tax expense (benefit) are as follows (in
thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal....................................... $ 2,411 $ 6,128 $ 6,303
State and local............................... 405 1,826 915
--------- --------- ---------
Total current......................... 2,816 7,954 7,218
--------- --------- ---------
Deferred:
Federal....................................... (2,263) 652 1,071
State and local............................... (400) 199 223
--------- --------- ---------
Total deferred.................................. (2,663) 851 1,294
--------- --------- ---------
$ 153 $ 8,805 $ 8,512
========= ========= =========
</TABLE>

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.

The Company's net deferred tax assets (liabilities) are comprised of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Current deferred income taxes:
Deferred tax assets....................................... $ 4,408 $ 2,538
Deferred tax liabilities.................................. (2,394) (1,797)
------- -------
2,014 741
------- -------
Long-term deferred income taxes:
Deferred tax assets....................................... 473 419
Deferred tax liabilities.................................. (1,411) (1,378)
------- -------
(938) (959)
------- -------
Net deferred tax assets (liabilities)....................... $ 1,076 $ (218)
======= =======
</TABLE>

Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Insurance reserves.......................................... $ 2,770 $ 1,382
Allowance for charity and other adjustments................. 95 (1,104)
Change in accounting method for income taxes from cash to
accrual................................................... (2,745) (628)
Other....................................................... 956 132
------- -------
Net deferred tax assets (liabilities)....................... $ 1,076 $ (218)
======= =======
</TABLE>

F-44
<PAGE> 177

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliation of income tax attributable to net income computed at
federal statutory rates to income tax expense is as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996
----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate..................... $ 4,386 34% $6,832 34% $7,544 35%
State and local income taxes, net of federal
tax benefit.................................. 253 2 1,324 6 968 5
Taxes on income earned prior to revocation of
Subchapter S election........................ (1,871) (15) (243) -- -- --
Tax expense (benefit) from conversion to C
Corporation.................................. (2,615) (21) 892 4 -- --
------- --- ------ -- ------ --
$ 153 --% $8,805 44% $8,512 40%
======= === ====== == ====== ==
</TABLE>

Prior to July 1, 1995, MetroAmerican was a Subchapter S Corporation and,
accordingly, was not subject to corporate income taxes. Concurrent with the
acquisition of MetroAmerican on July 1, 1995, MetroAmerican converted to C
corporation status and became an accrual basis taxpayer with respect to federal
income taxes and, for those states that recognize such tax election, state
income taxes. Accordingly, at the date of the transaction, the Company recorded
a charge to income tax expense of approximately $892,000 to reflect the
cumulative effect of adopting Statement 109.

SUPPLEMENTAL INCOME TAXES

The following unaudited supplemental information reflects income tax
expense that would have been incurred during the year ended December 31, 1994,
had the Company and its subsidiaries been subject to income taxes (in
thousands):

<TABLE>
<S> <C>
Current:
Federal................................................... $4,721
State and local........................................... 1,249
------
Total current..................................... 5,970
------
Deferred:
Federal................................................... 217
State and local........................................... 57
------
Total deferred.................................... 274
------
$6,244
======
</TABLE>

The unaudited pro forma income tax expense differed from the amounts
computed by applying the federal statutory rate of 34% to income before income
taxes as follows (in thousands) for the year ended December 31, 1994:

<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
Tax at U.S. statutory rate.................................. $5,307 34%
State and local income taxes, net of federal tax benefit.... 937 6%
------ --
$6,244 40%
====== ==
</TABLE>

F-45
<PAGE> 178

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. PROFESSIONAL LIABILITY LOSS RESERVE

In August 1995, the Company renewed substantially all of its professional
liability coverage with a commercial insurance company. The new policy is on a
claims made basis with a prefunded extended reporting endorsement. The extended
reporting endorsement effectively provides for first dollar coverage for
professional liability claims. The policy expires in August 1999.

Historically, the Company maintained professional liability coverage for
the Company and its employee and independent contractor physicians with a
commercial insurance company on a claims made basis. The policy included a
self-insured retention and the Company has recorded an estimate of its liability
for this self-insured portion of its professional liability claims.

The Company is involved in various legal proceedings incidental to its
business, substantially all of which involve claims related to the alleged
malpractice of employed and contracted medical professionals. In the opinion of
the Company's management, no individual item of litigation or group of similar
items of litigation, taking into account the insurance coverage maintained by
the Company, is likely to have a material adverse effect on the Company's
financial position, results of operations and liquidity.

9. LONG-TERM DEBT

On November 22, 1995, the Company entered into an Amended and Restated
Revolving Credit and Reimbursement Agreement (the "Agreement") with its bank.
The Agreement superseded the former term loan facility and extended to the
Company an unsecured revolving loan commitment of up to $60,000,000. The maximum
amount available to the Company is reduced by outstanding letters of credit (see
Note 10).

Long-term debt is comprised of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -----
<S> <C> <C>
$60,000 revolving credit and reimbursement arrangement,
variable interest rate as selected by the Company (ranging
from 6.765% to 7.25% as of December 31, 1995). Interest
payments are due on the last day of an interest period, as
defined in the Agreement (at least quarterly) with the
entire amount outstanding due September 30, 1998.......... $ 9,000 $ --
Other....................................................... 1,019 851
------- -----
10,019 851
Current portion............................................. (402) (512)
------- -----
$ 9,617 $ 339
======= =====
</TABLE>

Under the terms of the Agreement, among other restrictive covenants, the
Company must maintain, on a consolidated basis, certain financial ratios
relating to leverage, working capital, and net worth. The Agreement also
restricts, among other things, the amount of loans and investments in any entity
which is not part of the consolidated group, capital expenditures, additional
indebtedness and limits the payment of cash dividends on its common stock to
twenty-five percent of current period net income.

F-46
<PAGE> 179

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt as of December 31, 1996 matures as follows (in thousands):

10. LETTERS OF CREDIT

Unused outstanding letters of credit are comprised of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ -------
<S> <C> <C>
Outstanding under state regulations as collateral for the
self-insured portion of the Company's workers'
compensation programs..................................... $ 200 $ 100
Available to insurance carrier as collateral for the
company's professional liability insurance program........ 1,000 1,000
Available as collateral for correctional care contracts..... 650 650
Available as collateral for PCA Agreement................... -- 13,310
------ -------
$1,850 $15,060
====== =======
</TABLE>

All of the unused outstanding letters of credit expire during 1997. The
Company intends to renew each letter of credit as they expire.

11. RETIREMENT PLAN

The Company maintains the EMSA 401(k) Profit Sharing Plan (the "Plan"), a
deferred profit sharing plan which covers substantially all full-time employees
and provides for discretionary employer contributions in such amounts as the
Board of Directors may annually determine. Employer contributions vest ratably
over five years. The Plan may be terminated at any time without further
obligation by the Company. However, should the plan be terminated, employees
will become 100% vested with respect to the employer contributions.

The Company's contribution to the Plan for the years ended December 31,
1996, 1995 and 1994 was approximately $455,000, $321,000 and $296,000,
respectively.

12. STOCKHOLDERS' EQUITY

COMMON STOCK

The Company is authorized to issue 50,000,000 shares of common stock, par
value $0.01 per share. In May 1994, the Board of Directors of EMSA declared a
165.1 to 1 stock split, which became effective on the effective date of the IPO.
The Company's consolidated financial statements have been retroactively restated
to reflect 1) the stock split, 2) the increase in the number of authorized
shares, and 3) the shares issued in connection with the Poolings as of the date
the respective transactions are recorded in the Company's consolidated financial
statements.

F-47
<PAGE> 180

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PREFERRED STOCK

The Company is authorized to issue 20,000,000 shares of preferred stock,
par value $0.10 per share. The Company has no present plans to issue any shares
of preferred stock. In August 1995, the Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan"). In order to implement the Rights Plan, the
Board of Directors declared a dividend of one Right for each share of the
Company's common stock to stockholders of record on September 1, 1995. Each
Right, when exercisable, represents the right to purchase one one-thousandth of
a share of a newly issued series of Preferred Stock of the Company designated
"Series A Junior Participating Preferred Stock," par value $.10 per share. The
exercise price of the Rights is $85.00 per Right, the redemption price is $0.01
per Right, and the Rights expire on August 23, 2005. In the event that any
person or entity, together with affiliates or associates, acquires more than a
certain specified percentage of voting stock of the Company, each Right will
entitle the holder (other than an acquiring person and its affiliates or
associates) to acquire, in certain circumstances, additional shares of voting
stock at less than the prevailing market price. The Company has reserved 50,000
shares of the Series A Junior Participating Preferred Stock for issuance upon
exercise of the Rights.

DIVIDENDS AND PARTNERSHIP DISTRIBUTIONS

Prior to the IPO, when the Company was taxed as an S Corporation, the Board
of Directors of the Company approved dividends and partnership distributions in
the following amounts (in thousands) during the year ended December 31, 1994:

<TABLE>
<S> <C>
Dividends................................................... $4,254
Partnership distributions to minority interests............. 1,746
------
$6,000
======
</TABLE>

STOCK OPTION PLANS

During 1994, the Company adopted the 1994 Stock Incentive Plan ("Stock
Incentive Plan") and the Non-Employee Director Stock Option Plan ("Directors
Plan"). Under the Stock Incentive Plan and the Directors Plan, the Company is
authorized to issue options to purchase 2,500,000 and 200,000 shares of the
Company's common stock, respectively.

Stock Incentive Plan options are granted at the discretion of the
Compensation Committee of the Company and typically expire ten years after the
date of the grant. The exercise price of options issued is determined by the
Compensation Committee in accordance with the provisions of the plan document.
Under the Stock Incentive Plan, the Company is authorized to grant stock
options, stock appreciation right, restricted stock award, phantom stock awards
and performance share units. In the event that there is a change in control of
the Company, the plan stipulates that all outstanding options will become fully
vested and exercisable.

Directors Plan options are granted at the fair market value on the date of
the grant and expire ten years from the date of grant. Concurrent with being
elected as a director, each non-employee director is granted an option to
purchase 10,000 shares of common stock, and is automatically granted an option
to purchase an additional 2,500 shares of common stock each year at the annual
shareholders meeting. In the event that there is a change in control of the
Company, the plan stipulates that all outstanding options will become fully
vested and exercisable.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
which provides an alternative to APB No. 25. Statement 123 allows for a fair
value based method of accounting for stock options. However, for companies that
continue to account for stock-based compensation arrangements under APB 25, such
as the Company, Statement 123 requires disclosure of the pro forma effect on net
income and earnings per share of its fair value

F-48
<PAGE> 181

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based accounting for those arrangements. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions for 1996, 1995 and 1994,
respectively; risk free interest rates of 6.04%, 5.24% and 6.49%, dividend
yields of 0%, volatility factors of the expected market price of the Company's
common stock of .601 and a weighted-average expected life of the options of 3
years. As of December 31, 1996, the weighted average remaining contractual life
of all options outstanding was 4.25 years.

The following unaudited pro forma summary presents the Company's net income
and earnings per share as if the estimated fair value of the options were
amortized to expense over the options' vesting period (in thousands except
earnings per share information):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1995 1996
------- -------
<S> <C> <C>
Pro forma net income........................................ $11,156 $11,605
======= =======
Pro forma net income per share.............................. $ 0.74 $ 0.72
======= =======
</TABLE>

The pro forma effect of compensation expense from stock option awards on
pro forma net income reflects the vesting of 1995 option awards in 1995 and
1996, and 1996 option awards in 1996, in accordance with Statement 123. Because
pro forma compensation expense associated with a stock option award is
recognized over the vesting period, the initial impact of applying Statement 123
may not be indicative of pro forma compensation expense in future years, when
the effect of multiple awards will be reflected in pro forma net income.

A summary of the Company's stock option activity, and related information
for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS FOR EXERCISE OPTIONS FOR EXERCISE OPTIONS FOR EXERCISE
SHARES (000) PRICE ($) SHARES (000) PRICE ($) SHARES (000) PRICE ($)
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-Beginning
of year............. 347 9.08 1,030 10.81 1,454 13.55
Granted............... 706 11.70 522 18.13 684 16.90
Exercised............. -- -- (79) 11.10 (128) 13.29
Forfeited............. (23) 12.00 (19) 12.00 (34) 15.73
------ ------ ------
Outstanding-end of
year................ 1,030 10.81 1,454 13.55 1,976 14.62
====== ====== ======
Exercisable at end of
year................ 347 639 730
====== ====== ======
Weighted-average fair
value of options
granted during the
year................ $ 4.69 $ 8.57 $ 6.37
====== ====== ======
</TABLE>

F-49
<PAGE> 182

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options outstanding and exercisable at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
(000'S) LIFE PRICE (000'S) PRICE
----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$9.08-$15.00...................... 915 4.5 yrs. $10.88 659 $10.50
$15.01-$23.53..................... 1,061 4.7 yrs. $17.84 71 $17.81
----- -----
1,976 730
===== =====
</TABLE>

Options available for grant at December 31, 1996 are as follows (in
thousands):

<TABLE>
<S> <C>
Stock Incentive Plan........................................ 281
Directors Plan.............................................. 160
---
441
===
</TABLE>

13. PRO FORMA HISTORICAL NET INCOME PER SHARE

The pro forma historical net income per share amounts, as required by
generally accepted accounting principles, after giving effect to the pro forma
income tax adjustments as described in Note 1, are as follows for the year ended
December 31, 1994 (in thousands, except per share data):

<TABLE>
<S> <C>
Historical income before income tax expense................. $12,899
Pro forma income tax expense................................ 5,160
-------
Pro forma net income........................................ $ 7,739
=======
Pro forma net income per share.............................. $ 0.72
=======
Historical weighted average shares outstanding.............. 10,785
=======
</TABLE>

14. RELATED PARTY TRANSACTIONS

One of the buildings used for corporate offices of the Company is leased
from a Florida limited partnership. In consideration for signing the lease, the
Company was granted an 8 percent limited partnership interest in the partnership
which owns and operates the building. In addition, this limited partnership has
two limited partners who are directors, officers and stockholders of the
Company. The lease provides for the payment of a proportionate share of
increases in operating expenses over the base year in addition to the monthly
rent. The lease term expires December 31, 1997. The amounts paid during the
years ended December 31, 1996, 1995 and 1994 were approximately $443,000,
$413,000 and $408,000, respectively.

In September 1993, the Company assumed a lease for office space in a
building that is owned by certain stockholders of the Company. The lease term
expires December 31, 2000. The amounts paid during the years ended December 31,
1996, 1995 and 1994 were approximately $332,000, $354,000, and $298,000,
respectively.

The Company received income of approximately $1,281,000, $1,558,000, and
$2,969,000 for the years ended December 31, 1996, 1995 and 1994, respectively,
for administrative, consulting, and billing fees provided to Affiliates. At
December 31, 1996 and 1995, accounts receivable from Affiliates related to the
above services were approximately $202,000 and $559,000, respectively.

The Company incurred professional fees of approximately $97,000, $220,000
and $441,000 for financial advisory services provided to the Company during the
years ended December 31, 1996, 1995, and 1994, respectively, by the Company's
financial advisor. A general partner of the Company's financial advisor is a

F-50
<PAGE> 183

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

member of the Company's Board of Directors. In addition, a brother of the
Company's Chief Financial Officer is a general partner in the same financial
advisory firm.

During 1995, the Company incurred approximately $100,000 for services
provided by a consulting firm, a partner of which is a member of the Company's
Board of Directors. Upon termination of the consulting services, the individual
serving as a director accepted a position as the Company's Chief Operating
Officer.

15. OPERATING LEASES

The Company is obligated under various noncancelable operating leases. The
minimum future obligation under these agreements at December 31, 1996 is as
follows (in thousands):

<TABLE>
<S> <C>
1997........................................................ $ 3,886
1998........................................................ 3,068
1999........................................................ 2,777
2000........................................................ 1,654
2001........................................................ 1,186
2002 and thereafter......................................... --
-------
$12,571
=======
</TABLE>

Rent expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $3,792,000, $3,453,000, and $2,736,000, respectively. Certain of
the Company's operating leases contain rent escalation clauses and renewal
options as defined in the respective agreements.

16. EQUITY SECURITIES

In May 1993 the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" (the
"Statement"). The Company adopted the provisions of the statement for
investments held as of or acquired after January 1, 1994. In accordance with the
Statement, prior period financial statements have not been restated to reflect
the change in accounting principle. The cumulative effect as of January 1, 1994
of adopting the Statement increased the opening balance of stockholders' equity
by approximately $696,000 to reflect the net unrealized holding gains on
securities classified as available-for-sale previously carried at lower of cost
or market. No unrealized holding losses on investments have been reflected in
1994 net income. As of December 31, 1996, the fair market value and cost of the
Company's marketable equity securities were approximately $300,000 and $500,000,
respectively.

17. FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

CASH

The carrying amount reported in the balance sheet for cash approximates its
fair value.

ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts reported in the balance sheet for accounts receivable
and accounts payable approximate their fair value.

F-51
<PAGE> 184

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVESTMENT SECURITIES

The fair values for equity securities are based on quoted market prices.

LONG TERM DEBT

The carrying amount of the Company's long term debt approximates their fair
value. The Credit Facility contains borrowing options of 1 to 6 months at which
time borrowed amounts are repaid or reborrowed at new interest rates based on
prime or LIBOR.

F-52
<PAGE> 185

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(RESTATED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 3,618 $ 6,797
Accounts receivable, net of allowances of approximately
$82,960 and $83,480 at March 31, 1997 and December 31,
1996, respectively..................................... 84,300 88,658
Accounts receivable from affiliates....................... 202 282
-------- -----------
84,502 88,940
Prepaid expenses and other assets......................... 15,505 18,365
-------- -----------
Total current assets.............................. 103,625 114,102
Equipment, furniture and leasehold improvements, net........ 11,709 12,770
Other assets:
Cost in excess of net assets acquired, net................ 27,773 28,090
Other assets.............................................. 2,672 2,369
-------- -----------
30,445 30,459
-------- -----------
Total assets...................................... $145,779 $ 157,331
======== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related benefits................. $ 15,713 $ 15,815
Accounts payable and other current liabilities............ 27,165 31,544
Reserve for self-insured claims........................... 3,692 3,601
-------- -----------
Total current liabilities......................... 46,570 50,960
Long-term debt, net of current portion...................... 339 309
Deferred income taxes....................................... 959 860
Stockholders' equity:
Common stock, par value -- $.01, 50,000 shares authorized,
16,363 and 15,821 issued and outstanding, at March 31,
1997 and December 31, 1996, respectively............... 158 164
Additional paid-in capital................................ 66,386 70,387
Retained earnings......................................... 31,367 34,651
-------- -----------
Total stockholders' equity........................ 97,911 105,202
-------- -----------
Total liabilities and stockholders' equity........ $145,779 $ 157,331
======== ===========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

F-53
<PAGE> 186

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Net revenue................................................. $87,504 $122,227
Revenue from affiliates..................................... 399 280
------- --------
Total revenue..................................... 87,903 122,507
Expenses:
Compensation and related benefits......................... 57,528 62,199
Contracted medical services............................... 13,134 41,905
Insurance................................................. 2,727 3,348
Other..................................................... 8,156 9,560
------- --------
Total operating expenses.......................... 81,545 117,012
------- --------
Income from operations.................................... 6,358 5,495
Nonoperating income (expense):
Interest expense.......................................... (362) (183)
Interest income........................................... 73 88
Other..................................................... (37) 39
------- --------
Total nonoperating expense........................ (326) (56)
------- --------
Income before income tax expense............................ 6,032 5,439
Income tax expense.......................................... 2,382 2,149
------- --------
Net income.................................................. $ 3,650 $ 3,290
======= ========
Net income per share........................................ $ 0.23 $ 0.20
======= ========
Weighted average shares outstanding......................... 16,067 16,727
======= ========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

F-54
<PAGE> 187

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1997
------- -------
<S> <C> <C>
Net cash provided by operating activities................... $ 68 $ 2,604
Cash flows from investing activities:
Acquisitions.............................................. (2,903) (1,247)
Purchases of equipment.................................... (1,334) (1,934)
Cash distributions, loans and repayments to and from
affiliates............................................. 349 313
Other investing activities................................ (42) 606
------- -------
Net cash used in investing activities....................... (3,930) (2,262)
Cash flows from financing activities:
Proceeds from exercise of stock options................... 483 2,937
Proceeds from notes payable............................... 8,200 --
Principal payments on notes payable....................... (2,110) (100)
Net cash provided by financing activities................... 6,573 2,837
Net increase in cash........................................ 2,711 3,179
Cash at beginning of period................................. 1,305 3,618
------- -------
Cash at end of period....................................... $ 4,016 $ 6,797
======= =======
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

F-55
<PAGE> 188

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements (the
"Financial Statements") of Inphynet Medical Management Inc. and Subsidiaries
(the "Company") are unaudited, and in the opinion of management, include all
normal and recurring adjustments which are necessary for a fair presentation in
accordance with generally accepted accounting principles. Accordingly, the
Financial Statements should be read in conjunction with the more complete
disclosures contained in the Company's audited consolidated financial statements
included in the Company's Annual Report for the year ended December 31, 1996.
The results of operations for the interim periods presented are not necessarily
indicative of the results of operations for the full year.

2. NEW PRONOUNCEMENTS

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings per Share and Statement of
Financial Accounting Standards No. 129 ("SFAS 129"), Disclosure of Information
about Capital Structure. SFAS 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. SFAS 129 establishes standards for disclosing information about an
entity's capital structure and applies to all entities. Management believes that
the adoption of those standards, when effective, will not have a significant
impact on the Company's financial statements.

3. RECENT DEVELOPMENTS

On January 20, 1997, the Company agreed to merge with MedPartners, Inc.
("MedPartners"). MedPartners is the largest physician practice management
company in the nation and operates the country's largest independent
prescription benefits management service. The consideration for this transaction
is based on a fixed exchange ratio of 1.18 shares of MedPartners common stock
for each share of the Company's common stock. Based on this ratio, approximately
19.5 million shares of MedPartners common stock will be issued in exchange for
all outstanding shares of the Company's common stock. The transaction is
expected to be accounted for as a pooling of interests and is expected to close
during the second quarter of 1997.

4. SIGNIFICANT AGREEMENT AND RESTATEMENT

Effective July 1, 1996, the Company entered into a five-year agreement (the
"PCA Agreement"), with an option for an additional five years, with Physician
Corporation of America ("PCA"). Under the PCA Agreement, the Company manages
independent primary care physicians in South Florida and the Tampa Bay region.
At March 31, 1997, these physicians provided primary care services to
approximately 54,000 covered lives: 23,700 in South Florida and 30,300 in the
Tampa Bay area. PCA provides comprehensive health care services through its
HMO's, Life and Property and Casualty Insurance Carriers and Worker's
Compensation administrators located throughout the southeastern United States
and the Caribbean.

The Company has restated its financial statements as of and for the year
ended December 31, 1996 to expense as incurred costs relating to the PCA
Agreement. The Company had established a $9.3 million reserve for future
estimated losses associated with the provider contracts the Company was required
to assume under the PCA Agreement. The Company recorded the $9.3 million as
deferred contract acquisition costs and was amortizing these costs over the
initial five year life of the contract with PCA. Through December 31, 1996, the
Company had charged $6.2 million of losses from the PCA Agreement against this
reserve. As a result of the restatement the reserve for losses under the PCA
Agreement and deferred contract acquisition costs have been eliminated and costs
associated with the PCA Agreement are being expensed as incurred. This change
resulted in a decrease in previously reported 1996 income from operations of
$6.9 million; net income of $3.7 million and income per share of $0.23.

F-56
<PAGE> 189

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

SUPPLEMENTARY DATA
(UNAUDITED)

CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (IN THOUSANDS)(EXCEPT PER SHARE
DATA):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Total revenue................................ $77,106 $81,858 $ 82,034 $ 84,342
Operating expenses........................... 71,767 76,412 78,133 77,701
------- ------- -------- --------
Income from operations....................... $ 5,339 $ 5,446 $ 3,901 $ 6,641
======= ======= ======== ========
Net income................................... $ 2,823 $ 3,169 $ 1,208(2) $ 4,088
======= ======= ======== ========
Net income per share......................... $ 0.19 $ 0.21 $ 0.08(2) $ 0.26
======= ======= ======== ========
Weighted average number of common shares
outstanding................................ 14,629 14,810 15,026 15,614
======= ======= ======== ========
YEAR ENDED DECEMBER 31, 1996
Total revenue................................ $87,903 $90,466 $113,340 $116,811
Operating expenses........................... 81,545 83,864 108,076(3) 112,204(3)
------- ------- -------- --------
Income from operations....................... $ 6,358 $ 6,602 $ 5,264(3) $ 4,607(3)
======= ======= ======== ========
Net income................................... $ 3,650 $ 3,590(1) $ 3,127(3) $ 2,674(3)
======= ======= ======== ========
Net income per share......................... $ 0.23 $ 0.22(1) $ 0.20(3) $ 0.16(3)
======= ======= ======== ========
Weighted average number of common shares
outstanding................................ 16,067 16,061 15,966 16,002
======= ======= ======== ========
</TABLE>

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

(1) Net income has been reduced by one time charges consisting of the loss on
the sale of physician practices of $0.7 million and certain management
restructuring charges of $0.3 million recorded during the three months ended
June 30, 1996. The effect of these costs, net of tax, is to reduce net
income per share by $0.04.
(2) Net income has been reduced by acquisition costs incurred in connection with
poolings of interest of $1.7 million and employee severance and other costs
of $0.8 million. The effect of these costs, net of tax, in addition to $0.9
million of tax conversion charge (see Note 7 to the Company's consolidated
financial statements) is to reduce net income per share by $0.16.

(3) Restated to reflect the Company's change in accounting for costs associated
with the PCA Agreement. See Note 4 to the Company's 1996 financial
statements.

F-57
<PAGE> 190

INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
- ----------- ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowances for contractual, charity and
other adjustments....................... $91,000 -- $267,000 $(275,000) $83,000
YEAR ENDED DECEMBER 31, 1995
Allowances for contractual, charity and
other adjustments....................... $63,000 -- $244,000 $(216,000) $91,000
YEAR ENDED DECEMBER 31, 1994
Allowances for contractual, charity and
other adjustments....................... $47,000 -- $201,000 $(185,000) $63,000
</TABLE>

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

(1) See Note 6 to the consolidated financial statements of InPhyNet.
(2) Accounts written off, net of recoveries.

F-58
<PAGE> 191

ANNEX A

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of January 20, 1997 (the
"Agreement"), among MEDPARTNERS, INC., a Delaware corporation (the "Parent"),
SEABIRD MERGER CORPORATION, a Delaware corporation (the "Subsidiary"), and
INPHYNET MEDICAL MANAGEMENT INC., a Delaware corporation (the "Company").

WHEREAS, the Boards of Directors of the Parent, the Company and the
Subsidiary have approved the merger of the Company with and into the Subsidiary
(the "Merger"), upon the terms and conditions set forth in this Agreement,
whereby each share of Common Stock, par value $.01 per share, of the Company
(the "Company Common Stock"), not owned directly or indirectly by the Company,
will be converted into the right to receive the merger consideration provided
for herein (the Company Common Stock may be sometimes hereinafter referred to as
the "Company Shares");

WHEREAS, each of the Parent, the Subsidiary and the Company 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
(as defined herein) 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 subject to the conditions set forth in
this Agreement, and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), the Company shall be merged with and into the
Subsidiary at the Effective Time (as defined in Section 1.3). Following the
Effective Time, the separate corporate existence of the Company shall cease and
the Subsidiary 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 "InPhyNet Medical Management, Inc." and shall succeed
to and assume all the rights and obligations of the Company in accordance with
the DGCL.

1.2. The Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. New York City Time on a date to be specified by the parties
(the "Closing Date"), which shall be no later than the second business day after
the satisfaction or waiver of the conditions set forth in Sections 9.1, 9.2 and
9.3, at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York, unless another date or place is agreed to in
writing by the parties hereto.

1.3. Effective Time. Subject to the provisions of this Agreement, the
Company and the Subsidiary shall file a Certificate of Merger (the "Certificate
of Merger") executed in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL to effect the
Merger 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
Parent, the Subsidiary and the Company 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
the DGCL. Without limiting the generality of the foregoing, and subject thereto
and any other applicable laws, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and the Subsidiary
shall vest in the

A-1
<PAGE> 192

Surviving Corporation, and all debts, liabilities, restrictions, disabilities
and duties of the Company and the Subsidiary shall become the debts,
liabilities, restrictions, disabilities and duties of the Surviving Corporation.

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 the Company Shares:

(a) Subsidiary Common Stock. Each share of Common Stock, par value
$1.00 per share, of the Subsidiary issued and outstanding immediately prior
to the Effective Time shall remain issued and outstanding.

(b) Cancellation of Certain Shares of Company Common Stock. Each
share of Company Common Stock that is owned by the Company, the Parent or
by any subsidiary of the Company or the Parent shall automatically be
canceled and retired and shall cease to exist, and none of the Common
Stock, par value $.001 per share, of the Parent (the "Parent Common
Stock"), cash or other consideration shall be delivered in exchange
therefor.

(c) Conversion of the Company Shares. At the Effective Time, each
Company Share (other than the Company Shares to be canceled in accordance
with Section 2.1(b)) issued and outstanding immediately prior to the
Effective Time, including the corresponding right (the "Company Right") to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.10 per share (the "Company Series A
Preferred"), of the Company pursuant to the terms of the Amended and
Restated Rights Agreement, dated as of November 16, 1995, between the
Company and State Street Bank and Trust Company, as it may be amended from
time to time (the "Company Rights Agreement"), shall be converted into the
right to receive 1.311 shares of Parent Common Stock (the "Exchange
Ratio"), including the corresponding right (the "Parent Right"), with
respect to each share of Parent Common Stock, to purchase one one-hundredth
of a share of Series C Junior Participating Preferred Stock, par value
$.001 per share (the "Parent Series C Preferred Stock"), of the Parent
pursuant to the terms of the Stockholders' Rights Agreement, dated as of
March 1, 1995, among MedPartners, Inc., now MP of Delaware, Inc. and a
wholly owned subsidiary of MedPartners, Inc. and Chemical Bank, a national
banking association, as it may be amended from time to time (the "Parent
Rights Agreement"). All such shares of Parent Common Stock shall be fully
paid and nonassessable and, together with the Parent Rights, are
hereinafter sometimes referred to as the "Parent Shares". Upon such
conversion, all such Company Shares shall be canceled and cease to exist,
and each holder thereof shall cease to have any rights with respect thereto
other than the right to receive the Parent Shares issued in exchange
therefor and cash in lieu of fractional Parent Shares in accordance with
the terms provided herein. Prior to the Distribution Date (as defined in
the Company Rights Agreement) and unless the context otherwise requires,
all references in this Agreement to the Company Common Stock shall be
deemed to include the Company Rights; prior to the Rights Distribution Date
(as defined in the Parents Rights Agreement) and unless the context
otherwise requires, all references in this Agreement to the Parent Company
Stock shall be deemed to include the Parent Rights.

(d) Stock Options. At the Effective Time, all rights with respect to
Company Common Stock pursuant to any Company stock options which are
outstanding at the Effective Time, whether or not then vested or
exercisable, shall be converted into and become rights with respect to
Parent Common Stock, and the Parent shall assume each Company stock option
in accordance with the terms of any stock option plan under which it was
issued and any stock option agreement by which it is evidenced. It is
intended that the foregoing provisions shall be undertaken in a manner that
will not constitute a "modification" as defined in Section 425 of the Code,
as to any stock option which is an "incentive stock option." Each Company
stock option so assumed shall be exercisable for that number of shares of
the Parent Common Stock equal to the number of the Company Shares subject
thereto multiplied by the Exchange Ratio, and shall have an exercise price
per share equal to the Company exercise price divided by the Exchange
Ratio. All options issued pursuant to the Company's 1994 Stock Incentive
Plan and the 1994 Non-

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Employee Director Stock Option Plan shall be fully vested at the Effective
Time in accordance with the terms of such Plans.

(e) Adjustment of Exchange Ratio. If after the date hereof and prior
to the Effective Time the Parent shall have declared a stock split
(including a reverse split) of Parent Common Stock or a dividend payable in
Parent Common Stock, or any other distribution of securities or dividend
(in cash or otherwise) to holders of Parent Common Stock with respect to
their Parent 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
Exchange Ratio shall be appropriately adjusted to reflect such stock split,
dividend or other distribution of securities.

2.2. Exchange of Certificates.

(a) Exchange Agent. Prior to the Effective Time, the Parent shall
enter into an agreement with First Chicago Trust Company of New York (the
"Exchange Agent"), which provides that the Parent shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
the Company Shares, for exchange in accordance with this Section 2.2 and
the Merger Agreement, through the Exchange Agent, (i) certificates
representing the shares of the Parent Common Stock issuable pursuant to
Section 2.1 and (ii) cash in an amount equal to the aggregate amount
required to be paid in lieu of fractional interests of Parent Common Stock
pursuant to Section 2.2(e) (such shares of the Parent Common Stock,
together with any dividends or distributions with respect thereto with a
record date after the Effective Time, and together with the cash referred
to in clause (ii) of this Section 2.2(a), being hereinafter referred to as
the "Exchange Fund") in exchange for outstanding Company Shares.

(b) Exchange Procedures. As soon as practicable 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 Company Shares (the "Certificates") whose shares
were converted into the right to receive the merger consideration provided
for in 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 the Parent may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by the Parent, 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 Parent Common Stock and cash which such holder has the right to receive
pursuant to the provisions of Sections 2.1 and 2.2, and the Certificate so
surrendered shall forthwith be canceled. If any cash or any certificate
representing the Parent Shares is to be paid to or issued in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, a certificate representing the proper number of shares of the
Parent 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 to the Exchange
Agent any transfer or other taxes required by reason of the issuance of
shares of the Parent Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Exchange
Agent 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 the Parent
Common Stock and cash in lieu of any fractional shares of the Parent 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 the Parent
Common Stock. To the extent permitted by law, former stockholders of record
of the Company shall be entitled to vote after the Effective Time at any
meeting of the Parent's stockholders the number of whole shares of Parent
Common Stock into which their respective Company Shares are converted,
regardless of whether such holders have exchanged their Certificates for
certificates representing Parent Common Stock in accordance with this
Section 2.2.

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(c) Distribution with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent 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 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be paid to the holder of the certificates representing whole shares of
Parent 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 Parent 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 Parent 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 Parent Common Stock. If any holder of converted
Company Shares shall be unable to surrender such holder's Certificates
because such Certificates shall have been lost or destroyed, such holder
may deliver in lieu thereof an affidavit and indemnity bond in form and
substance and with surety reasonably satisfactory to the Parent.

(d) No Further Ownership Rights in Company Shares. All shares of
Parent 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 Company
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 canceled 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 Parent 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 the
Parent. Notwithstanding any other provision of this Agreement, each holder
of Company Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Parent 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 Parent Common Stock multiplied by the
per share closing price on the New York Stock Exchange Composite Tape of
Parent Common Stock on the date of the Effective Time (or, if shares of the
Parent Common Stock do not trade on The New York Stock Exchange, Inc. (the
"NYSE") on such date, the first date of trading of the Parent Common Stock
on the NYSE after the Effective Time).

(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 the Parent, upon
demand, and any holders of the Certificates who have not theretofore
complied with this Section 2 shall thereafter look only to the Parent for
payment of Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock and any dividends or distributions with respect to the
Parent Common Stock.

(g) No Liability. None of the Parent, the Subsidiary, the Company or
the Exchange Agent shall be liable to any person in respect of any shares
of Parent 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 Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock or any
dividends or distributions with respect to Parent 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

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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 the Parent, on a daily
basis. Any interest and other income resulting from such investments shall
be paid to the Parent.

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. Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary
shall be the Bylaws 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
Bylaws.

2.5. Directors and Officers. 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 Bylaws 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 the
Company 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 Agreement 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 sole stockholder,
its Board of Directors, committees elected or appointed by the Board of
Directors, and all its 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 the Subsidiary.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Parent and the Subsidiary
as follows:

3.1. Organization, Existence and Good Standing of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all necessary corporate power and
authority to own its properties and assets and to carry on its business as
presently conducted. The Company is not, and has not been within the two years
immediately preceding the date of this Agreement, a subsidiary or division of
another corporation, nor has the Company within such time owned, directly or
indirectly, any shares of the Parent Common Stock.

3.2. Subsidiaries or Affiliated Entities.

(a) Attached as Schedule 3.2 to the Disclosure Schedule delivered to
the Parent by the Company at the time of the execution and delivery of this
Agreement (the "Company Disclosure Schedule") is a list of all subsidiaries
of the Company and all professional corporations or professional
associations of which the Company has the right to control the voting
securities (individually, a "Company Subsidiary" and collectively, the
"Company Subsidiaries") and their states of incorporation, and all general
or limited partnerships in which a general partner is the Company, a
Company Subsidiary or another partnership directly or indirectly controlled
by the Company (individually, a "Company Partnership" and collectively, the
"Company Partnerships"), and their states of organization.

(b) Except as set forth in Schedule 3.2 to the Company Disclosure
Schedule, neither the Company, nor any Company Subsidiary nor any Company
Partnership owns an equity interest in or controls, directly or indirectly,
any other corporation, association, partnership, joint venture, business
organization or

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limited liability company or other entity, other than the Company
Subsidiaries and the Company Partnerships.

3.3. Organization, Existence and Good Standing of Company Subsidiaries and
Company Partnerships.

(a) Each Company Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation. Each Company Subsidiary has all necessary corporate power to
own its properties and assets and to carry on its business as presently
conducted.

(b) Each Company Partnership that is a limited partnership is validly
formed, each Company Partnership that is a general partnership has been
duly organized, and each Company Partnership is in good standing under the
laws of its respective state of organization. Each Company Partnership has
all necessary power to own its property and assets and to carry on its
business as presently conducted.

3.4. Foreign Qualifications. The Company, each Company Subsidiary and each
Company Partnership that is not a general partnership is qualified to do
business as a foreign corporation or foreign limited partnership, as the case
may be, 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 the Company.

3.5. Capitalization. The Company's authorized capital stock consists of
50,000,000 shares of Common Stock, par value $.01 per share, of which 15,820,597
shares were issued and outstanding as of the close of business on January 17,
1997, and 20,000,000 shares of Preferred Stock, par value $.10 per share, of
which no shares are issued and outstanding and 50,000 shares of Company Series A
Preferred were reserved for issuance upon exercise of the Company Rights. All of
the issued and outstanding Company Shares are duly and validly issued, fully
paid and nonassessable. Except as disclosed in the Company Documents (as herein
defined), and except as set forth in Schedule 3.5 to the Company Disclosure
Schedule, there are no options, warrants or similar rights granted by the
Company, or outstanding securities convertible into Company Common Stock, or any
other agreements to which the Company 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 Company Shares. There are no obligations,
contingent or otherwise, of the Company or any Company Subsidiary or Company
Partnership to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock of or other equity interest in any Company
Subsidiary or Company Partnership.

3.6. Power and Authority; Non-Contravention.

(a) Subject to the satisfaction of the conditions precedent set forth
herein, the Company has all necessary corporate power and authority to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered or to be executed and delivered by it
pursuant to this Agreement, and, subject to the satisfaction of the
conditions precedent set forth herein, has taken all action required by its
Certificate of Incorporation, Bylaws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and delivery
by the Parent and the Subsidiary, constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms.

(b) Except as set forth in Schedule 3.6 to the Company Disclosure
Schedule, the execution and delivery of this Agreement 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 Bylaws of the Company 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 Company, any Company Subsidiary or any Company Partnership 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 the Company; provided, however, nothing contained herein
is intended to constitute a representation or warranty with

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respect to any conflict or violation or other impact upon the Certificate
of Incorporation, Bylaws, mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which the Parent or any of
its subsidiaries is a party or to which any such parties are bound.

3.7. Company Public Information. The Company has heretofore made available
to the Parent a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it with the Securities and
Exchange Commission (the "SEC") (as any such documents have since the time of
their original filing been amended, the "Company Documents") since January 1,
1995, which are all the documents (other than preliminary material) that it was
required to file with the SEC since such date. As of their respective dates, the
Company Documents 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 their respective dates, the Company Documents
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated under such statutes. The financial statements contained
in the Company Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of the Company and its consolidated
subsidiaries, fixed or contingent, required to be stated therein, and present
fairly the financial condition of the Company and its consolidated subsidiaries
at said dates and the consolidated results of operations and cash flows of the
Company and its consolidated subsidiaries for the periods then ended. The
consolidated balance sheet of the Company at September 30, 1996, included in the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 of
the Company is herein sometimes referred to as the "Company Balance Sheet."

3.8. Contracts, etc.

(a) All material contracts, leases, agreements and arrangements to which
the Company or any of the Company Subsidiaries or Company Partnerships is a
party (collectively, the "Company Material Contracts") are legally valid and
binding in accordance with their terms and in full force and effect. Except as
disclosed in Schedules 3.8 and 3.10 to the Company Disclosure Schedule, to the
knowledge of the Company, all parties to the Company Material Contracts have
complied with the provisions of such contracts, and to the knowledge of the
Company, 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 noncompliance with or
invalidity of the Company Material Contract or the default or breach thereunder
or thereof would not, individually or in the aggregate, have a material adverse
effect on the Company.

(b) Except as set forth in Schedule 3.8(b) to the Company Disclosure
Schedule, no Company Material Contract 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 such Company Material Contracts which, if terminated,
would not have a material adverse effect on the Company.

(c) Except as set forth in Schedule 3.8(c) to the Company Disclosure
Schedule, none of the Company or any Company Subsidiary or Company Partnership
has 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 3.9) or entered into any noncompetition
agreement or similar agreement materially restricting its ability to engage in
any business in any location.

3.9. Properties and Assets. The Company (including, as applicable, the
Company Subsidiaries or the Company Partnerships) owns all of the real and
personal property included in the Company Balance Sheet (except assets recorded
under capital lease obligations and such property as has been disposed of during
the ordinary course of the Company's business since the date of the Company
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 Schedule 3.9 to the Company Disclosure Schedule or
in the Company Documents.

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3.10. Legal Proceedings. Except as disclosed in the Company Documents or
as listed in Schedule 3.10 to the Company Disclosure Schedule, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against the Company, at law or in equity, relating to or affecting
the Company, any Company Subsidiary or any Company Partnership, which
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Company or a material adverse effect on the
ability of the Company to consummate the transactions contemplated hereby. To
the knowledge of the Company, Schedule 3.10 to the Company Disclosure Schedule
sets forth a true and complete list, as of the date hereof, of all pending
professional liability claims, non-professional liability insurance claims and
actions pending before the Equal Employment Opportunity Commission (EEOC) to
which the Company, any Company Subsidiary or any Company Partnership is a named
party.

3.11. Subsequent Events. Except as disclosed in the Company Documents
filed prior to the date hereof or as set forth in Schedule 3.11 to the Company
Disclosure Schedule, the Company (including the Company Subsidiaries and the
Company Partnerships) has not, since the date of the Company 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) which discharge or satisfaction would have a
material adverse effect on the Company, other than (i) liabilities shown or
reflected on the Company Balance Sheet or (ii) liabilities incurred since
the date of the Company Balance Sheet in the ordinary course of business.

(c) Incurred any funded indebtedness or 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 the Company, except
as may have been required due to income or operations of the Company since
the date of the Company 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 the
Company.

(e) Sold or transferred any of the assets material to the consolidated
business of the Company, canceled any material debts or claims or waived
any material rights, except in the ordinary course of business.

(f) Except for annual increases in the base rates of compensation and
bonuses of officers and employees in the ordinary course of business,
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 the Company
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 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 this
Agreement.

(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 the Company's stock option plans or
stock purchase plans).

(i) Declared, set aside or paid any dividend or made any other
distribution or payment with respect to any shares of its capital stock or
directly or indirectly redeemed, purchased or otherwise acquired any shares
of its capital stock or the capital stock or equity interests of any
Company Subsidiary or Company Partnership.

(j) Changed in any material respect the accounting methods or
practices followed by the Company, including any material change in any
assumption underlying, or method of calculating, any bad debt,

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contingency or other reserve, except as may be required by changes in
generally accepted accounting principles.

3.12. Accounts Receivable.

(a) Since the date of the Company Balance Sheet, the Company 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, except as
may be required by changes in generally accepted accounting principles.

(b) The Company (including the Company Subsidiaries and the Company
Partnerships) 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 the Company. Without limiting the generality of the foregoing,
neither the Company nor any Company Subsidiary or Company Partnership has
received notice from any government authority alleging that the Company or
any Company Subsidiary or Company Partnership is in violation of any
Medicare and Medicaid provider agreements to which it is a party.

3.13. Tax Returns. The Company 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 the
Company. The Company has made all payments shown as due on such returns. Except
as reflected in Schedule 3.13 to the Company Disclosure Schedule, the Company
has not been notified that any material tax returns of the Company are currently
under audit by the Internal Revenue Service or any state or local tax agency.
The Company is not a party to any agreement 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.

3.14. Employee Benefit Plans; Employment Matters.

(a) Except as disclosed in the Company Documents or as set forth in
Schedule 3.14(a) to the Company Disclosure Schedule, neither the Company
nor any Company Subsidiary or Company Partnership has established or
maintains or is obligated to make contributions to or under or otherwise
participate in (i) any bonus or other type of incentive compensation plan,
program, agreement, policy, commitment, contract 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 disclosed in the Company
Documents or listed in Schedule 3.14(a) (individually, a "Company Plan" and
collectively, the "Company Plans") have to the knowledge of the Company,
and except as set forth in Schedule 3.14(a) been operated and administered
in all material respects in accordance with, as applicable, ERISA, the
Code, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay
Act of 1967, as amended, 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 the Company or any Company Subsidiary or Company Partnership has
resulted in a "prohibited transaction" (as defined in ERISA) with respect
to the Company Plans that has had a material adverse effect and that is not
subject to a statutory or regulatory exception. To the knowledge of the
Company, no "reportable event" (as defined in ERISA) has occurred with
respect to any of the Company Plans which is subject to Title IV of ERISA
except as set forth in Schedule 3.14(a). Neither the Company nor any
Company Subsidiary or Company Partnership has previously made, is currently
making, or is 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 Company Documents or as set forth in
Schedule 3.14(b) to the Company Disclosure Schedule, neither the Company
nor any Company Subsidiary or Company Partnership is 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

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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
Agreement 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 the benefits of
which will be accelerated by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.

3.15. Compliance with Laws. Except as disclosed in the Company Documents
or as set forth in Schedule 3.15 to the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary or Company Partnership 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 Occupational Safety and Health Act, the Americans with
Disabilities Act, the applicable Medicare or 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 the Company or any
Company Subsidiary or any Company Partnership which, if it were determined that
a violation had occurred, would have a material adverse effect on the Company.

3.16. Regulatory Approvals. Except as disclosed in the Company Documents
or in Schedule 3.16 to the Company Disclosure Schedule, the Company and each
Company Subsidiary or Company Partnership, 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 or hold such
license, certificate of need or regulatory approval would not have a material
adverse effect on the Company. All such licenses, certificates of need and other
regulatory approvals related to the business, operations and facilities of the
Company and each Company Subsidiary or Company Partnership 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 the Company. 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 the Company, 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 and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR Act"), the consummation of the Merger will not violate any law or
restriction to which the Company is subject which, if violated, would have a
material adverse effect on the Company.

3.17. Brokers. Except for fees payable to Morgan Stanley & Co.
Incorporated and McFarland Dewey & Co. pursuant to their respective engagement
letters, dated January 15, 1997 and January 17, 1997, 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 the Parent or the Company or any subsidiary or other controlled
entity of the Parent or the Company resulting from any action taken by the
Company or its officers, directors or agents, or any of them.

3.18. Vote Required. The affirmative vote of the holders of a majority of
the outstanding Company Shares entitled to vote thereon is the only vote of the
holders of any class or series of the Company capital stock necessary for the
Company to approve this Agreement, the Merger and the transactions contemplated
thereby.

3.19. Pooling Matters. To the best knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to take any action that
(without giving effect to any actions taken or agreed to be taken by the Parent
or any of its affiliates) would prevent the Parent from accounting for the
business combination to be effected by the Merger as a pooling of interests for
financial reporting purposes.

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3.20. No Untrue Representations. No representation or warranty by the
Company in this Agreement, and no Schedule or certificate issued by the Company
and furnished or to be furnished to the Parent pursuant hereto, or in connection
with the transactions contemplated 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 in
light of all of the circumstances then prevailing.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUBSIDIARY
RELATED TO THE SUBSIDIARY

The Subsidiary and the Parent, jointly and severally, hereby represent and
warrant to the Company as follows:

4.1. Organization, Existence, Good Standing and Capitalization of the
Subsidiary. The Subsidiary is a corporation duly organized, validly existing
and 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 $.01 per
share, all of which shares are issued and registered in the name of and owned by
the Parent. The Subsidiary has not, within the two years immediately preceding
the date of this Agreement, owned, directly or indirectly, any Company Shares.

4.2. Power and Authority; Non-Contravention.

(a) The Subsidiary has all necessary corporate power and authority to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered, or to be executed and delivered, by it
pursuant to this Agreement, and, subject to the satisfaction of the
conditions precedent set forth herein, has taken all actions required by
law, its Certificate of Incorporation, its Bylaws or otherwise, to
authorize the execution and delivery of this Agreement and such related
documents. The Agreement has been duly and validly executed and delivered
by the Subsidiary and, assuming the due authorization, execution and
delivery by the Company, constitutes the legal, valid and binding
obligation of the Subsidiary in accordance with its terms.

(b) The execution and delivery of this Agreement 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 Bylaws 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. Brokers. There are no claims for brokerage commissions, investment
bankers' fees or finder's fees in connection with the transaction contemplated
by this Agreement resulting from any action taken by the Subsidiary or any of
its officers, directors or agents.

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. The Subsidiary was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby. Other than the obligations created under this Agreement, the Subsidiary
has no obligations or liabilities (contingent or otherwise) under any contracts,
claims, leases, loans or otherwise.

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SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT

The Parent hereby represents and warrants to the Company as follows:

5.1. Organization, Existence and Good Standing of the Parent. The Parent
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Parent has all necessary corporate power to
own its properties and assets and to carry on its business as presently
conducted. The Parent is not, and has not been within the two years immediately
preceding the date of this Agreement, a subsidiary or division of another
corporation, nor has the Parent within such time owned, directly or indirectly,
any of the Company Shares.

5.2. Subsidiaries and Affiliated Entities.

(a) Attached as Schedule 5.2 to the Parent Disclosure Schedule
delivered to the Company by the Parent at the time of the execution and
delivery of this Agreement (the "Parent Disclosure Schedule") is a list of
all subsidiaries of the Parent (individually, a "Parent Subsidiary," and
collectively, the "Parent Subsidiaries") and their states of incorporation
and all professional corporations or professional associations of which the
Parent has control and their states of incorporation. Except as set forth
in Schedule 5.2 to the Parent Disclosure Schedule, the Parent does not own
stock in and does not control, directly or indirectly, any other
corporation, association, partnership or business organization.

(b) Also disclosed in Schedule 5.2 to the Parent Disclosure Schedule
is a list of all general or limited partnerships in which a general partner
is the Parent, a Parent Subsidiary or another partnership controlled by the
Parent (individually a "Parent Partnership" and collectively, the "Parent
Partnerships"), and all limited liability companies in which the Parent, or
a Parent Subsidiary or a Parent Partnership is a member (individually, a
"Parent LLC," the Parent Partnerships and the Parent LLCs being
collectively called the "Other Parent Entities"), and their states of
organization.

(c) Except as set forth in Schedule 5.2 to the Parent Disclosure
Schedule, neither the Parent nor any Parent Subsidiary owns an equity
interest in, nor does such entity control, directly or indirectly, any
other joint venture or partnership.

(d) Although the financial results of the medical groups affiliated
with the Parent physician practice management business are consolidated for
accounting purposes on the Parent Balance Sheet, the terms "Parent
Subsidiary" and "Other Parent Entity" do not include any affiliated medical
groups.

(e) For the purposes of the representations and warranties of the
Parent set forth in this Agreement, any act, event, development or state of
facts affecting or otherwise relating to any professional corporation or
professional association of which the Parent has, directly or indirectly,
control or with which the Parent, any Parent Subsidiary or Other Parent
Entity has a long-term management contract, which act, event, development
or state of facts has or could reasonably be expected to adversely affect
the Parent, any Parent Subsidiary or Other Parent Entity, shall be deemed
an act, event, development or state of facts affecting or relating to the
Parent, any Parent Subsidiary or Other Parent Entity, as the case may be,
to the extent of such adverse effect.

5.3. Organization, Existence and Good Standing of Parent Subsidiaries and
Other Parent Entities.

(a) Each Parent Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation. Each Parent Subsidiary has all necessary corporate power to
own its properties and assets and to carry on its business as presently
conducted.

(b) Each Parent Partnership that is a limited partnership is validly
formed, each Parent Partnership that is a general partnership has been duly
organized, and each Parent Partnership is in good standing under the laws
of its respective state of organization. Each Parent Partnership has all
necessary power to own its property and assets and to carry on its business
as presently conducted.

(c) Each Parent LLC is a limited liability company validly formed and
in good standing under the laws of its respective state of organization.
Each Parent LLC has all necessary power to own its property and assets and
to carry on its business as presently conducted.

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5.4. Foreign Qualifications. The Parent, each Parent Subsidiary and each
Other Parent Entity that is not a general partnership is qualified to do
business as a foreign corporation, foreign limited partnership or foreign
limited liability company, as the case may be, 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 the Parent.

5.5. Capitalization. The Parent's authorized capital stock consists of
400,000,000 shares of Common Stock, par value $.001 per share, of which
166,684,478 shares were issued and outstanding as of the close of business on
January 17, 1997, and no shares are held in treasury, and 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, and 500,000 shares of Parent
Series C Preferred Stock reserved for issuance upon the exercise of the Parent
Rights, of which no shares are issued and outstanding and no shares are held in
treasury. All of the issued and outstanding shares of the Parent Common Stock
have been duly and validly issued and are fully paid and nonassessable. Except
as disclosed in the Parent Documents (as herein defined), and except as
described in Schedule 5.5 to the Parent Disclosure Schedule, there are no
options, warrants or similar rights granted by the Parent or any other
agreements to which the Parent 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 the Parent Common Stock.
There are no obligations, contingent or otherwise, of the Parent or any Parent
Subsidiary or Other Parent Entity to repurchase, redeem or otherwise acquire any
shares of Parent Common Stock or the capital stock of or other equity interest
in any Parent Subsidiary or Other Parent Entity.

5.6. Parent Common Stock. On the Closing Date, the Parent will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of the Company Shares in
accordance with the provisions of this Agreement. The Parent 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.

5.7. Power and Authority; Non-Contravention.

(a) Subject to the satisfaction of the conditions precedent set forth
herein, the Parent has all necessary corporate power and authority to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered, or to be executed and delivered, by it
pursuant to this Agreement, and, subject to the satisfaction of the
conditions precedent set forth herein has taken all actions required by
law, its Certificate of Incorporation, its Bylaws or otherwise, to
authorize the execution and delivery of this Agreement and such related
documents. This Agreement has been duly and validly executed and delivered
by the Parent and, assuming the due authorization, execution and delivery
by the Company, constitutes the legal, valid and binding obligation of the
Parent enforceable against the Parent in accordance with its terms.

(b) The execution and delivery of this Agreement 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 contemplated hereby will not, violate any provisions of the
Certificate of Incorporation or Bylaws of the Parent, 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 the Parent, any Parent Subsidiary or Other Parent Entity is a
party or by which it is bound, or violate any restrictions of any kind to
which the Parent is subject which, if violated or accelerated, would have a
material adverse effect on the Parent.

5.8. Parent Public Information. The Parent has heretofore made available
to the Company a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it or its predecessors,
MedPartners, Inc. and MedPartners/Mullikin Inc., with the SEC (as any such
documents have since the time of their original filing been amended, the "Parent
Documents") since January 1, 1995, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the Parent Documents 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,

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in light of the circumstances under which they were made, not misleading. As of
their respective dates, the Parent Documents complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, and
the rules and regulations promulgated under such statutes. The financial
statements contained in the Parent Documents, together with the notes thereto,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated (except as may be
indicated in the notes thereto, or, in the case of the unaudited financial
statements, as permitted by Form 10-Q), reflect all known liabilities of the
Parent, fixed or contingent, required to be stated therein, and present fairly
the financial condition of the Parent at said dates and the consolidated results
of operations and cash flows of the Parent for the periods then ended. The
consolidated balance sheet of the Parent at September 30,1996, included in the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 of
the Parent is herein sometimes referred to as the "Parent Balance Sheet."

5.9. Contracts, etc.

(a) All material contracts, leases, agreements and arrangements to
which the Parent or any of the Parent Subsidiaries or Other Parent Entities
is a party (collectively, the "Parent Material Contracts") are legally
valid and binding in accordance with their terms and in full force and
effect. To the knowledge of the Parent, all parties to the Parent Material
Contracts have complied with the provisions of such Contracts, and to the
knowledge of the Parent, 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 noncompliance with or invalidity of the Parent Material Contract or the
default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on the Parent.

(b) Except as set forth in Schedule 5.9 to the Parent Disclosure
Schedule, no Parent Material Contract 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 such Parent Material Contracts which,
if terminated, would not have a material adverse effect on the Parent.

5.10. Legal Proceedings. Except as listed in Schedule 5.10 to the Parent
Disclosure Schedule, there are no actions, suits or proceedings pending or, to
the knowledge of the Parent, threatened against the Parent, any Parent
Subsidiary or Other Parent Entity at law or in equity, relating to or affecting
the Parent, any Parent Subsidiary or any Other Parent Entity, including the
Merger, which individually or in the aggregate, could reasonably be expected to
have a material adverse effect on the Parent, or a material adverse effect on
the ability of the Parent to consummate the transactions contemplated hereby.

5.11. Subsequent Events. Except as set forth on Schedule 5.11 to the
Parent Disclosure Schedule, the Parent (including the Parent Subsidiaries and
the Other Parent Entities) has not, since the date of the Parent 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) which discharge or satisfaction would have a
material adverse effect on the Parent, other than (i) liabilities shown or
reflected on the Parent Balance Sheet or (ii) liabilities incurred since
the date of the Parent Balance Sheet in the ordinary course of business.

(c) Incurred any funded Indebtedness or 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 the Parent, except
as may have been required due to income or operations of the Parent since
the date of the Parent Balance Sheet.

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(e) Sold or transferred any of the assets material to the consolidated
business of the Parent, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.

(f) Except for annual increases in the base rates of compensation and
bonuses of officers and employees in the ordinary course of business,
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 the Parent
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.

(j) Changed in any material respect the accounting methods or
practices followed by the Company, including any material change in any
assumption underlying, or method of calculating any bad debt, contingency
or other reserve, except as may be required by changes in generally
accepted accounting principles.

5.12. Accounts Receivable.

(a) Since the date of the Parent Balance Sheet, the Parent 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, except as
may be required by changes in generally accepted accounting principles.

(b) The Parent (including the Parent Subsidiaries and the Other Parent
Entities) 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
the Parent. Without limiting the generality of the foregoing, neither the
Parent nor any Parent Subsidiary or Other Parent Entity has received notice
from any governmental authority alleging that the Parent or any Parent
Subsidiary is in violation of any Medicare and Medicaid provider agreements
to which it is a party, which violation would have a material adverse
effect on the Parent.

5.13. Tax Returns. The Parent 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 the
Parent. The Parent has made all payments shown as due on such returns.

5.14. Compliance with Laws. Neither the Parent nor any Parent Subsidiary
or Other Parent Entity 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 Occupational Safety
and Health Act, the Americans with Disabilities Act, 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

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ordinance has been received by the Parent or any Parent Subsidiary or Other
Parent Entity which, if it were determined that a violation had occurred, would
have a material adverse effect on the Parent.

5.15. Regulatory Approvals. Except as disclosed in the Parent Documents or
in Schedule 5.15 to the Parent Disclosure Schedule, the Parent and each Parent
Subsidiary or Other Parent Entity, 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 or hold such
license, certificate of need or regulatory approval would not have a material
adverse effect on the Parent. All such licenses, certificates of need and other
regulatory approvals relating to the business, operations and facilities of the
Parent and each Parent Subsidiary or Other Parent Entity 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 the Parent. Any and all past litigation concerning such
licenses, certificates of need and regulatory approvals, and all claims and
causes of action raised therein, have 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 the Parent, 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 and the HSR Act, the consummation of the Merger will not violate any law or
restriction to which the Parent is subject which, if violated, would have a
material adverse effect on the Parent.

5.16. Investment Intent. The Parent is acquiring the Company Shares
hereunder for its own account and not with a view to the distribution or sale
thereof, and the Parent has no understanding, agreement or arrangement to sell,
distribute, partition or otherwise transfer or assign all or any part of the
Company Shares to any other person, firm or corporation.

5.17. Brokers. Except for the fee payable to Smith Barney Inc. pursuant to
the engagement letter, dated November 8, 1996, there are no valid claims for
brokerage commissions, finder's fees or similar fees in connection with the
transactions contemplated by this Agreement which may be now or hereafter
asserted against the Parent or the Company or any subsidiary or other controlled
entity of the Parent or the Company resulting from any action taken by the
Parent or any of its officers, directors or agents or any of them.

5.18. No Stockholder Vote Required. No vote is required of the holders of
the outstanding capital stock of the Parent to approve this Agreement, the
Merger and the transactions contemplated hereby.

5.19. Pooling Matters. To the best knowledge of the Parent, neither the
Parent nor any of its affiliates has taken or agreed to take any action that
(without giving effect to any actions taken or agreed to be taken by the Company
or any of its affiliates) would prevent the Company from accounting for the
business combination to be effected by the Merger as a pooling of interests for
financial reporting purposes.

5.20. No Untrue Representations. No representation or warranty by the
Parent in this Agreement, and no Schedule or certificate issued by the Parent
and furnished or to be furnished to the Parent pursuant hereto, or in connection
with the transactions contemplated 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 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, each of the Company
and the Parent will give to the other party and its counsel, accountants
and other representatives reasonable access to all the properties,
documents, contracts, personnel files and other records of such party and
shall furnish the other party 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. Each party will disclose and make
available to the other party and its representatives all books, contracts,
accounts, personnel records, letters of intent, papers, records,
communications with regulatory authorities and other documents relating to
the

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business and operations of such party. In addition, the Company shall make
available to the Parent all such banking, investment and financial
information as shall be necessary to allow for the efficient integration of
the Company's banking, investment and financial arrangements with those of
the Parent at the Effective Time.

(b) The Company hereby agrees to provide the Parent with such
information and documentation as the lenders under the Revolving Credit and
Reimbursement Agreement, dated as of September 5, 1996, between the Parent
and NationsBank National Association (South), as agent for the lenders
named therein, shall reasonably request in connection with their review of
the Merger.

6.2. Return of Records. If the transactions contemplated hereby are not
consummated and this Agreement 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 September 18, 1996, between the Company and the
Parent (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. Except as contemplated by this Agreement,
each of the Company and the Parent will use its reasonable best efforts to
preserve its business organization intact, to keep available to the Parent and
the Surviving Corporation the services of their present employees, and to
preserve for the Parent and the Surviving Corporation the goodwill of the
suppliers, customers and others having business relations with them and their
respective subsidiaries.

7.2. Material Transactions. Except as contemplated by this Agreement,
prior to the Effective Time, neither the Company nor any Company Subsidiary nor
Company Partnership will (other than as required pursuant to the terms of this
Agreement and the related documents), without first obtaining the written
consent of the Parent:

(a) Encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of
the Company or the Company Subsidiaries or the Company Partnerships, other
than in the ordinary course of business or as otherwise disclosed herein.

(b) Enter into any employment contract or similar agreement in which
the cash compensation is in excess of $100,000 per annum, or the term is
greater than one year, which is not terminable upon notice of 90 days or
less, at will, and without penalty to the Company or such Company
Subsidiary or Company Partnership, other than physician contracts entered
into in the ordinary course of business.

(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
$1,000,000, other than in the ordinary course of business.

(d) Issue or sell, or agree to issue or sell, any shares of capital
stock or other securities of the Company or such Company Subsidiary or
Company Partnership, except upon exercise of currently outstanding stock
options.

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(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 the
Company'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, except in the ordinary course of business
consistent with prior practices.

(g) Guarantee the obligation of any person, firm or corporation,
except in the ordinary course of business consistent with prior practices.

(h) Amend its Certificate or Articles of Incorporation or Bylaws.

(i) Take any action of a character described in Section 3.11(a) to
3.11(j), inclusive.

7.3. Meeting of Stockholders. The Company will take all steps necessary in
accordance with its Certificate of Incorporation and Bylaws to call, give notice
of, convene and hold meetings of its stockholders (the "Stockholder Meeting") as
soon as practicable after the effectiveness of the Registration Statement (as
defined in Section 7.4 hereof), for the purpose of approving and adopting this
Agreement and the transactions contemplated hereby and for such other purposes
as may be necessary. Unless this Agreement shall have been validly terminated as
provided herein, the Board of Directors of the Company (subject to the
provisions of Section 8.1(d) hereof) will (i) recommend to its stockholders the
approval and adoption of this Agreement, 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 Agreement and the
transactions contemplated hereby.

7.4. Registration Statement.

(a) The Parent shall prepare and file with the SEC and any other
applicable regulatory bodies, as soon as reasonably practicable, a
Registration Statement on Form S-4 with respect to the shares of the Parent
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 the Company containing the information
required by the Exchange Act (the "Proxy Statement"). The Parent shall use
its reasonable best efforts to cause the Registration Statement to be
declared effective and to maintain such effectiveness until all of the
shares of the Parent Common Stock covered thereby have been distributed.
The Parent 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 statements which have become false or misleading. The
Parent shall use its reasonable best efforts to have the Proxy Statement
approved by the SEC under the provisions of the Exchange Act. The Parent
shall provide the Company with copies of all filings made pursuant to this
Section 7.4 and shall consult with the Company on responses to any comments
made by the Staff of the SEC with respect thereto.

(b) The information specifically designated as being supplied by the
Company for inclusion or incorporation by reference 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
the Company Common Stock, at the time of the Stockholder 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 the Company for inclusion or
incorporation by reference 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 the Company Common Stock, at the time of the
Stockholder 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

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made, not misleading. If at any time prior to the Effective Time, any event
or circumstance relating to the Company, or its officers or directors,
should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement, the Company shall promptly inform the Parent. All documents, if
any, that the Company is responsible for filing with the SEC in connection
with the transactions contemplated hereby 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 the
Parent for inclusion or incorporation by reference 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
the Company Common Stock, at the time of the Stockholder 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 the Parent for inclusion or
incorporation by reference in the Proxy Statement in connection with the
Stockholder Meeting shall not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to holders of the
Company Common Stock, at the time of the Stockholder 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 the Parent or its
officers or Directors, should be discovered by the Parent which should be
set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, the Parent shall promptly inform the Company and shall
promptly file such amendment to the Registration Statement. All documents
that the Parent 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, the Parent shall use its reasonable
best efforts to cause the shares of Parent 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
Untied States, and to take any other actions which may be necessary to
enable the Common Stock to be issued pursuant to the Merger to be
distributed in each such jurisdiction.

(e) Prior to the Closing Date, the Parent shall file a Subsequent
Listing Application with the NYSE relating to the shares of the Parent
Common Stock to be issued in connection with the Merger, and shall cause
such shares of the Parent Common Stock to be listed on the NYSE, upon
official notice of issuance, prior to the Closing Date.

(f) The Company shall furnish all information to the Parent with
respect to the Company and the Company Subsidiaries as the Parent may
reasonably request for inclusion in the Registration Statement, the Proxy
Statement and shall otherwise cooperate with the Parent in the preparation
and filing of such documents.

7.5. Exemption from State Takeover Laws. The Company shall take all
reasonable steps necessary to exempt the Merger from the requirements of any
state takeover statute or other similar state law which would prevent or impede
the consummation of the transactions contemplated hereby, by action of the
Company's Board of Directors or otherwise.

7.6. HSR Act Compliance. The Parent and the Company shall promptly make
their respective filings, and shall thereafter use their reasonable best efforts
to promptly make any required submissions, under the HSR Act with respect to the
Merger and the transactions contemplated hereby. The Parent and the Company will
use their respective reasonable best 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. The Parent and the Company will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this

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Agreement, 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 or Nasdaq. The parties shall issue a joint press
release, mutually acceptable to the Parent and the Company, promptly upon
execution and delivery of this Agreement.

7.8. No Solicitations. The Company 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 all or any
significant portion of the equity securities of the Company or of the assets of
the Company and the Company Subsidiaries and Company Partnerships 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 the Company 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, the Company 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 the Parent or an
affiliate or associate or agent of the Parent, respectively) concerning any
merger, sale of assets, sale of or tender offer for its shares or similar
transactions involving all or any significant portion of the equity securities
of the Company or of the assets of the Company and the Company Subsidiaries and
Company Partnerships. The Company shall promptly notify the Parent 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, such notification
to include the identity of such third party and the proposed terms of such
possible Acquisition Transaction. In addition, the Company shall notify the
Parent within one day of determining to provide information to any corporation,
partnership, person or other entity or group in connection with any possible
Acquisition Transaction.

7.9. Other Actions. Subject to the provisions of Section 7.8 hereof, none
of the Company, the Parent 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 Agreement not being
satisfied, or (unless such action is required by applicable law) which would
materially adversely affect the ability of the Company or the Parent to obtain
any consents or approvals required for the consummation of the Merger without
imposition of a condition or restriction which would have material adverse
effect on the Surviving Corporation or which would otherwise materially impair
the ability of the Company or the Parent to consummate the Merger in accordance
with the terms of this Agreement or materially delay such consummation.

7.10. Accounting Methods. Neither the Parent nor the Company 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.

7.11. Pooling and Tax-Free Reorganization Treatment. Neither the Parent
nor the Company 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.

7.12. Affiliate and Pooling Agreements. The Parent and the Company will
each use their respective reasonable best efforts to causes 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 the Parent as soon as practicable an agreement in the
form attached hereto as Exhibit 7.12 relating to the disposition of shares of
the Company Common Stock and shares of the Parent Common Stock held by such
person and the shares of the Parent Common Stock issuable pursuant to this
Agreement.

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7.13. Cooperation.

(a) The Parent and the Company 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 Agreement shall have been validly terminated as provided herein, each
of the Parent and the Company 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 Agreement and to
consummate the transactions contemplated hereby, subject, in the case of
the Company, 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 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 the Parent and the Company will
promptly cooperate with and furnish information to the other in connection
with any such burden suffered by, or requirement imposed upon, either of
then or any of their subsidiaries or affiliates in connection with the
foregoing.

7.14. Company Stock Options.

(a) As soon as reasonably practicable after the Effective Time, the
Parent shall deliver to the holders of the Company stock options,
appropriate notices setting forth such holders' rights pursuant to any
stock option plans under which such Company stock options were issued and
any stock option agreements evidencing such options which shall continue in
full force and effect on the same terms and conditions (subject to the
adjustments required by Section 2.1(d) or this Section 7.14 after giving
effect to the Merger and the assumption of such options by the Parent as
set forth herein) as in effect immediately prior to the Effective Time. The
Parent shall comply with the terms of the stock option plans, and the stock
option agreements as so adjusted, and shall use its reasonable best efforts
to ensure, to the extent required by, and subject to the provisions of,
such plans or agreements, that the Company stock options which qualified as
incentive stock options prior to the Effective Time shall continue to
qualify as incentive stock options after the Effective Time.

(b) The Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of the Parent Common Stock for
delivery upon exercise of the Company stock options assumed by the Parent
in accordance with Section 2.1(d). As soon as practicable after the
Effective Time, the Parent shall file with the SEC a registration statement
on Form S-8 with respect to shares of the Parent Common Stock subject to
such assumed Company stock options and shall use its best efforts to
maintain the effectiveness of a registration statement or registration
statements covering such options (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such the
Company stock options remain outstanding. The Parent shall administer the
plans assumed pursuant to Section 2.1(d) hereof in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act to the extent the
applicable plan complied with such rule prior to the Merger.

(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer and vesting with respect to the
Company stock options awarded under any plan, program, or arrangement of
the Company or any of its subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to
the Merger and the assumption by the Parent as set forth above.

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7.15. Publication of Combined Results. The Parent agrees that after the
end of the first full calendar month after the Effective Time, the Parent shall
cause publication of the combined results of operations of the Parent and the
Company in the First Quarterly Report on Form 10-Q which shall be filed after
such period. For purposes of this Section 7.15, the term "publication" shall
have the meaning provided in SEC Accounting Series Release No. 135.

7.16. Tax Opinion Certificates. Each of the Parent and the Company agrees
that it shall provide certificates containing reasonable representations to
counsel for the Parent and the Company in connection with such counsels'
rendering of their opinions as to the federal income tax consequences of the
Merger provided for in Section 9 of this Agreement.

7.17. Consents; Amendments, Etc.

(a) The Parent, the Subsidiary and the Company shall use their
reasonable best efforts, consistent with sound business judgment, to obtain
all material consents, approvals and authorizations of third parties with
respect to all material 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 the Parent or the
Company, as the case may be, except where the failure to obtain such
consent, approval or authorization would not have a material adverse effect
on the business of the Surviving Corporation.

(b) The Parent, the Subsidiary and the Company shall use their best
efforts to obtain, or obtain the transfer of, any licenses and other
regulatory approvals necessary to allow the Surviving Corporation to
operate the Company's business, unless the failure to obtain such transfer
or approval would not have a material adverse effect on the Company.

7.18. Compensation Plans. The Parent confirms that the consummation of the
Merger constitutes a "Change in Control" or "Change of Control" of the Company
for all purposes within the meaning of all the Company Plans and compensation
plans or compensation agreements of the Company.

7.19. Insurance; Indemnification; Benefits.

(a) The Parent shall, or shall cause the Surviving Corporation to,
maintain in effect for not less than three years after the Effective Time
the Company's current policy of directors' and officers' liability
insurance for the benefit of the individuals who, at or before the
Effective Time, were directors or officers of the Company with respect to
matters occurring prior to the Effective Time; provided, however, that (i)
the Parent may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous to the
covered officers and directors and (ii) the Parent shall not be required to
pay an annual premium for such insurance in excess of two times the last
annual premium paid prior to the date hereof, but in the event such premium
shall exceed such amount shall purchase as much coverage as possible for
such amount.

(b) From and after the Effective Time, the Parent shall indemnify,
defend and hold harmless the officers, directors and employees of the
Company and the Company Subsidiaries who were such at any time prior to the
Effective Time (the "Indemnified Parties") from and against all losses,
expenses, claims, damages or liabilities arising out of the transactions
contemplated by this Agreement to the fullest extent permitted or required
under applicable law, provided, however that the requirement to advance
expenses shall be limited to those instances in which the indemnified party
undertakes to repay such amount if it shall ultimately be determined that
he is not required to be indemnified under Section 145(c) of the DGCL. The
Parent agrees that all rights to indemnification existing in favor of the
directors, officers and employees of the Company and the Company
Subsidiaries as provided in the Company's or the Company's Subsidiaries'
Certificate of Incorporation or Bylaws, as applicable and as in effect as
of the date hereof, with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect
from and after the Effective Time, and the Parent shall, and shall cause
the Surviving Corporation to, indemnify and hold harmless such persons to
the extent so provided. In the event of any actual or threatened claim,
action, suit, proceeding or investigation in respect of any indemnifiable
matter under this Section 7.19, (i) the Parent shall cause the Surviving

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Corporation to pay the reasonable fees and expenses of counsel selected by
the Indemnified Party in advance of the final disposition of any such
action to the fullest extent permitted by applicable law, upon receipt of
any undertaking required by applicable law, and (ii) the Parent shall cause
the Surviving Corporation to cooperate in the defense of any such matter.

(c) The Parent covenants and agrees that, following the Effective
Time, it will, or it will cause the Surviving Corporation to, (A) honor in
accordance with their terms all benefits accrued or vested under the
Company Plans as of the Effective Time, and (B) honor in accordance with
their terms all contracts, arrangements, commitments, or understandings
described in Schedule 3.14(b) to the Company Disclosure Schedule.

(d) The provisions of this Section 7.19 and Sections 7.14 and 7.18
shall survive the Merger, and are intended to be for the benefit of, and
shall be enforceable by, any officer, director, employee, trustee or agent
of the Company (or any Company Subsidiary or Company Partnership), and such
person's heirs or representatives, that is the subject of such Section as
the case may be (the expenses, including reasonable attorneys' fees, that
may be incurred thereby in enforcing such provisions to be paid by the
Parent).

7.20. Company Rights Agreement. The Company will amend, prior to the
Effective Time, the Company Rights Agreement to the extent necessary to provide
that the execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not (i) cause the Parent or any of its
affiliates to become an Acquiring Person (as defined in the Company Rights
Agreement), or (ii) otherwise affect the rights of the holders of Company
Rights, including by causing such Company Rights to separate from the underlying
shares or by giving such holders the right to acquire securities of any party
hereto.

7.21. Resignation of Company Directors. On or prior to the Closing Date,
the Company shall deliver to the Parent evidence satisfactory to the Company of
the resignations of Directors of the Company, such resignations to be effective
immediately after the Effective Time.

7.22. Notice of Subsequent Events. The Parent and the Company shall notify
each other of any changes, additions or events occurring after the date hereof
which would cause any material adverse change or material adverse effect with
respect to the notifying party, promptly after obtaining knowledge of the same.

7.23. Conduct of Business by Parent Pending the Merger. Prior to the
Effective Time, unless the Company shall otherwise agree in writing or except as
otherwise required by this Agreement, the Parent shall not, nor shall it permit
any of the Parent Subsidiaries or Other Parent Entities to: (i) issue or sell,
or agree to issue or sell, other than in an acquisition approved by the Parent's
Board of Directors in accordance with the policies and procedures adopted by the
Parent's Board of Directors for such acquisitions, any shares of capital stock
or other securities (except for options granted under the Parent's existing
stock option plans at an exercise price not less than the fair market value at
the time of grant) of the Parent or such Parent Subsidiary or Other Parent
Entity, except upon exercise of currently outstanding stock options or pursuant
to stock purchase plans, or (ii) amend its Certificate of Incorporation or
Articles of Incorporation, except to increase the authorized number of shares of
capital stock of the Parent, or amend its Bylaws in any manner which would have
a material adverse effect on the Merger. In addition, during the period from the
date hereof to the Effective Time, the Subsidiary shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement.

7.24. Restructuring the Merger. If the Company and the Parent mutually
determine that a forward subsidiary merger would adversely affect the ability of
the parties to consummate the Merger and that a reverse subsidiary merger would
not, the Merger will be restructured in the form of a reverse subsidiary merger
of the Subsidiary into the Company, with the Company being the Surviving
Corporation. In such event, this Agreement shall be appropriately modified to
reflect such form of merger.

7.25. Tax Covenants Following the Effective Time. Following the Effective
Time, the Parent shall not, and shall cause the Surviving Corporation not to,
take any action following the Effective Time which could disqualify the Merger
as a "reorganization" within the meaning of Section 368(a) of the Code.

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SECTION 8. TERMINATION, AMENDMENT AND WAIVER

8.1. Termination. This Agreement 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 the Company Common Stock and the
holders of the Parent Common Stock:

(a) by mutual written consent of the Parent, the Subsidiary and the
Company;

(b) by either the Parent or the Company;

(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of the Company
Common Stock shall not have been obtained;

(ii) if the Merger shall not have been consummated on or before
August 31, 1997, unless the failure to consummate the Merger is the
result of a willful and material breach of this Agreement by the party
seeking to terminate this Agreement; 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 a United States federal or state court of competent
jurisdiction or other United States federal or state 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; provided, that the party seeking to terminate this
Agreement shall have used all reasonable efforts to remove such order,
decree, ruling or other action; or

(iv) in the event of a material breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement 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
occurrence or discovery of such breach by the breaching party, whichever
is later (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 Agreement); or

(c) by either the Parent or the Company 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 the Parent) or Section 9.3 (in the case of the Company) is
not capable of being satisfied prior to the end of the period referred to
in Section 8.1(b)(ii); or

(d) by the Company, if the Company'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 Company Shares or shall have
withdrawn such recommendation or (ii) approved, recommended or endorsed any
Acquisition Transaction (as defined in Section 7.8) other than this Merger
or (iii) resolved to do any of the foregoing; or

(e) by the Company, if the average of the last per share sale price of
the Parent Common Stock for the ten consecutive trading days ending on the
fifth trading day immediately preceding the date set for the Stockholder
Meeting as reported on the NYSE Composite Tape is equal to or less than
$17.125; or

(f) by the Company, upon the occurrence of a change, addition or event
requiring the Parent to give notice pursuant to Section 7.22 that (x) would
give rise to the failure of a condition set forth in Section 9.3(b) and (y)
is not capable of being cured prior to the end of the period referred to in
Section 8.1(b)(ii); provided, that the Company shall only be permitted to
terminate the Agreement within ten days after receipt of any such notice
and the information reasonably requested by it in order to evaluate the
significance of such change, addition or event; and provided, further, that
if the Company does not give the Parent written notice of termination
within such 10-day period, the Company shall be deemed to

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have consented to such change, addition or event and shall not be entitled
thereafter to assert that such change, addition or event gives rise to a
failure of a condition set forth in Section 9.3(b); or

(g) by the Parent, upon the occurrence of a change, addition or event
requiring the Company to give notice pursuant to Section 7.22 that (x)
would give rise to the failure of a condition set forth in Section 9.2(b)
and (y) is not capable of being cured prior to the end of the period
referred to in Section 8.1(b)(ii); provided, that the Company shall only be
permitted to terminate the Agreement within ten days after receipt of any
such notice and the information reasonably requested by it in order to
evaluate the significance of such change, addition or event; and provided,
further, that if the Parent does not give the Company written notice of
termination within such 10-day period, the Parent shall be deemed to have
consented to such change, addition or event and shall not be entitled
thereafter to assert that such change, addition or event gives rise to a
failure of a condition set forth in Section 9.2(b).

8.2. Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement 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, 7.7, 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 Agreement.

8.3. Amendment. This Agreement 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 the Company Shares; provided, however, that after
such approval, there shall be made no amendment that pursuant to Section 251(d)
of the DGCL requires further approval by such stockholders without such further
approval. This Agreement 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 Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.3, waive compliance with any of the agreements or conditions contained in this
Agreement. 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 Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.

8.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement 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 each of the Parent,
the Subsidiary and the Company, action by its Board of Directors or the duly
authorized designee of the Board of Directors.

8.6. Expenses; Break-up Fees.

(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party
incurring such expense, except that expenses (other than legal, accounting
and investment banking costs, which shall be paid by the party incurring
such expenses) incurred in connection with preparing, filing, printing and
mailing the Proxy Statements and the Registration Statement shall be shared
equally by the Parent and the Company.

(b) In the event of a termination of this Agreement by the Company
pursuant to Section 8.1(d) as a result of the Board of Directors approving,
recommending or endorsing an Acquisition Transaction and within one year
after the effective date of such termination, the Company is the subject of
an Acquisition Transaction with any Person (as defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) (other than a party hereto), then at the
time of the consummation of such Acquisition Transaction, the Company shall
pay to the Parent a break-up fee of $12 million in immediately available
funds.

(c) The Company acknowledges that the provisions for the payment of
break-up fees and the allocation of expenses contained in this Section 8.6
are an integral part of the transactions contemplated

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by this Agreement and that, without these provisions, the Parent and the
Subsidiary would not have entered into this Agreement. Accordingly, if a
break-up fee shall become due and payable by the Company, and the Company
shall fail to pay such amount when due pursuant to this Section, and, in
order to obtain such payment, suit is commenced by the Parent which results
in a judgment against the Company therefor, the Company shall pay the
Parent's reasonable costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest computed on any
amounts determined to be due pursuant to this Section (computed from the
date upon which such amounts were due and payable pursuant to this Section)
and such costs (computed from the dates incurred) at the prime rate of
interest announced from time to time by NationsBank, National Association
(South). The obligations of the Company under this Section 8.6 shall
survive any termination of this Agreement.

In the event a break-up fee is payable pursuant to this Section 8.6, the
payment of any such break-up fee shall be the sole and exclusive remedy of the
Parent.

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 the
Parent, the Subsidiary and the Company):

(a) None of the Parent, the Subsidiary or the Company nor any of their
respective subsidiaries shall be subject to any order, decree or injunction
by a United States federal or state court of competent jurisdiction which
(i) prevents the consummation of the Merger or (ii) would impose any
material limitation on the ability of the Parent 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 the Company and the
Company Subsidiaries and the Company Partnerships, 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
that makes the consummation of the Merger and any other transaction
contemplated hereby illegal.

(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.

(d) The holders of shares of the Company Common Stock shall have
approved the adoption of this Agreement and any other matters submitted to
them for the purpose of approving the transactions contemplated hereby.

(e) The shares of the Parent 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 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.
.

(f) The Merger shall qualify for "pooling of interests" accounting
treatment, and the Parent and the Company shall each have received a
letter, dated the Closing Date, from Ernst & Young LLP as to their
concurrence with the Parent and the Company to that effect if the Merger is
consummated in accordance with the terms and provisions of this Agreement.

(g) The Registration Statement shall have been declared effective and
no stop order with respect to the Registration Statement shall be in
effect.

9.2. Conditions to Obligations of the Parent. The obligations of the
Parent 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 the Parent):

(a) The agreements of the Company 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 the Company shall have

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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 the Company set forth in
Section 3.11(a) shall be true and correct as of the date of this Agreement
and as of the Closing Date as described in the next sentence. The
representations and warranties of the Company set forth in this Agreement
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 Agreement 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 the Company shall not be deemed to be in breach of any such
representations or warranties by taking any action permitted (or approved
by the Parent) under this Agreement. The Parent and the Subsidiary shall
have been furnished with a certificate, executed by a duly authorized
officer of the Company, dated the Closing Date, certifying as to the
fulfillment of the foregoing conditions.

(c) The Parent shall have received an opinion from Haskell Slaughter &
Young, L.L.C. to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, which
opinion may be based upon reasonable representations of fact provided by
officers of the Parent, the Company and the Subsidiary.

(d) The Parent shall have received an opinion from Willkie Farr &
Gallagher substantially to the effect set forth in Exhibit 9.2(d) hereto.

(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required to execute, deliver and perform this Agreement
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.

9.3. Conditions to Obligations of the Company. The obligations of the
Company 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 the Company):

(a) The agreements of the Parent 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 the Parent and the
Subsidiaries 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 the Parent set forth in
Section 5.11(a) shall be true and correct as of the date of the Agreement
and as of the Closing Date as described in the next sentence. The
representations and warranties of the Parent and the Subsidiary set forth
in this Agreement 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 Agreement 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). The Company shall have been furnished with a certificate, executed
by duly authorized officers of the Parent and the Subsidiary, dated the
Closing Date, certifying in such detail as the Company may reasonably
request as to the fulfillment of the foregoing conditions.

(c) The Company shall have received an opinion from Willkie Farr &
Gallagher 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 the Parent,
the Company and the Subsidiary.

(d) The Company shall have received an opinion from Haskell Slaughter
& Young, L.L.C. substantially to the effect set forth in Exhibit 9.3(d)
hereto.

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(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 Agreement 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.

SECTION 10. MISCELLANEOUS

10.1. Nonsurvival of Representations and Warranties. Unless expressly
provided otherwise, none of the representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time. All covenants and agreements set forth in this Agreement shall
survive in accordance with their terms.

10.2. Notices. Any communications required or desired to be given
hereunder shall be deemed to have be 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 the Parent or the Subsidiary:

MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attention: President
Fax: (205) 733-4154

with a copy to:

Haskell, Slaughter & Young, L.L.C.
1200 AmSouth/Harbert Plaza
Birmingham, Alabama 35244
Attention: F. Hampton McFadden, Jr., Esq.
Fax: (205) 324-1133

If to the Company:

InPhyNet Medical Management, Inc.
1200 South Pine Island Road, Suite 600
Fort Lauderdale, Florida 33324
Attention: President
Fax: (954) 424-2939

with a copy to:

InPhyNet Medical Management, Inc.
1200 South Pine Island Road, Suite 600
Fort Lauderdale, Florida 33324
Attention: General Counsel
Fax: (954) 424-7903

and with a copy to:

Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: William N. Dye, Esq.
Fax: (212) 821-8111

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<PAGE> 219

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 Agreement.

10.4. Governing Law. This Agreement shall be interpreted, construed and
enforced with the laws of the State of Delaware, applied without giving effect
to any conflicts-of-law principles.

10.5. "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.

10.6. "Material adverse change" or "material adverse effect." "Material
adverse change" or "material adverse effect" means, when used in connection with
the Company or the Parent, 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 and other controlled entities identified herein or in any Schedule
or Disclosure Schedule delivered pursuant to this Agreement, including the
subsidiaries and other entities, 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 the Company with
the consent of the Parent; 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.

10.7. "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 10.8 regardless of the quantity of
any such material).

10.8. "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.

10.9. Captions. 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.

10.10. Entire Agreement. This Agreement, the Company Disclosure Schedule,
the Parent Disclosure Schedule, the Appendices 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.

10.11. Counterparts. 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.

10.12. Binding Effect. This Agreement shall be binding on, and shall inure
to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as expressly provided in Section 7.19(d), 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.

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<PAGE> 220

10.13. No Rule of Construction. 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.

IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have caused
this Agreement to be executed by their respective duly authorized officers, all
as of the day and year first above written.

MEDPARTNERS, INC.

By: /s/ LARRY R. HOUSE
-----------------------------------
Name: Larry R. House
Title: Chairman, President and
Chief Executive Officer

SEABIRD MERGER CORPORATION

By: /s/ LARRY R. HOUSE
-----------------------------------
Name: Larry R. House
Title: Chairman, President and
Chief Executive Officer

INPHYNET MEDICAL MANAGEMENT INC.

By: /s/ CLIFFORD FINDEISS
------------------------------------
Name: Clifford Findeiss
Title: Chairman, President and
Chief Executive Officer

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AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER

AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment"), dated as
of May 21, 1997, among MEDPARTNERS, INC., a Delaware corporation (the "Parent"),
SEABIRD MERGER CORPORATION, a Delaware corporation (the "Subsidiary"), and
INPHYNET MEDICAL MANAGEMENT INC., a Delaware corporation (the "Company").

WHEREAS, the parties entered into an Agreement and Plan of Merger dated as
of January 20, 1997 (the "Merger Agreement"); and

WHEREAS, the parties desire to amend the Exchange Ratio, the conditions to
the effectiveness of the Merger and the events of termination of the Merger
Agreement as set forth in the Merger Agreement;

NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereby agree as follows:

Section 1. Amendment. The parties hereby agree that the Merger
Agreement shall be amended as follows:

(a) The definition of "Exchange Ratio" set forth in the Merger
Agreement is hereby amended by deleting the phrase "1.311 shares of
Parent Common Stock" contained in the first sentence of Section 2.1(c)
of the Merger Agreement and replacing it with the phrase "1.18 shares of
Parent Common Stock".

(b) Sections 8.1(b)(iv), 8.1(f), 8.1(g), 9.1(a), 9.1(b), 9.1(c),
9.2(a), 9.2(b), 9.2(e), 9.3(a), 9.3(b) and 9.3(e) of the Merger
Agreement are hereby amended by deleting each of such Sections in its
entirety and replacing each of such Sections with the word "Reserved."

(c) Section 9.1(e) is hereby amended by deleting such Section in
its entirety and replacing such Section with the following:

"(c) The shares of the Parent Common Stock to be issued in
connection with the Merger shall have been listed on the NYSE, upon
official notice of issuance."

(d) Section 8.1(b)(ii) of the Merger Agreement is hereby amended by
deleting the phrase "July 31, 1997" and replacing it with the phrase
"August 31, 1997."

Section 2. Representations and Warranties of the Parent and the
Subsidiary. The Parent and the Subsidiary, jointly and severally,
represent and warrant to the Company that (i) the Parent and the Subsidiary
have the full corporate power and authority to execute and deliver this
Amendment and (ii) the execution and delivery of this Amendment have been
duly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Parent or the Subsidiary are necessary for
the Parent or the Subsidiary to perform their respective obligations under
the Amendment and the Merger Agreement. The Amendment has been duly and
validly executed and delivered by the Parent and the Subsidiary and,
assuming the due authorization, execution and delivery by the Company,
constitutes the legal, valid and binding obligation of the Parent and the
Subsidiary, enforceable against the Parent and the Subsidiary in accordance
with its terms.

Section 3. Representations and Warranties of the Company. The Company
represents and warrants to the Parent and the Subsidiary that (i) the
Company has the full corporate power and authority to execute and deliver
this Amendment and (ii) the execution and delivery of this Amendment have
been duly authorized by all necessary corporate action, and, subject to the
satisfaction of the conditions precedent set forth in the Merger Agreement,
no other corporate proceedings on the part of the Company are necessary for
the Company to perform its obligations under this Amendment and the Merger
Agreement. The Amendment has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and delivery
by the Parent and the Subsidiary, constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms.

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<PAGE> 222

Section 4. Governing Law. This Amendment 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.

Section 5. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Amendment.

Section 6. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement; provided that at least
one counterpart is executed by each party herein named. Delivery of an
executed signature page by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Amendment.

Section 7. Defined Terms. Capitalized terms used but not otherwise
defined herein shall have the meaning provided in the Merger Agreement.

Section 8. Effect of Amendment. Except as expressly amended hereby,
the Merger Agreement shall remain in full force and effect, as originally
executed by the parties.

IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf by its duly authorized officers, all as of the day and
year first above written.

MEDPARTNERS, INC.

By: /s/ LARRY R. HOUSE

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

Name: Larry R. House

Title: Chairman, President and

Chief Executive Officer

SEABIRD MERGER CORPORATION

By: /s/ LARRY R. HOUSE

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

Name: Larry R. House

Title: Chairman, President and

Chief Executive Officer

INPHYNET MEDICAL MANAGEMENT INC.

By: /s/ CLIFFORD FINDEISS

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

Name: Clifford Findeiss

Title: Chairman, President and

Chief Executive Officer

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ANNEX B

OPINION OF INPHYNET'S FINANCIAL ADVISOR

[Letterhead of Morgan Stanley & Co. Incorporated]

May 21, 1997

Board of Directors
InPhyNet Medical Management Inc.
1200 South Pine Island Road
Suite 600
Fort Lauderdale, FL 33324

Members of the Board:

We understand that InPhyNet Medical Management Inc. ("InPhyNet" or the
"Company"), MedPartners, Inc. ("MedPartners") and Seabird Merger Corporation, a
wholly owned subsidiary of MedPartners ("Merger Sub"), have entered into an
Agreement and Plan of Merger, dated as of May 21, 1997 (the "Merger Agreement"),
which provides, among other things, for the merger (the "Merger") of InPhyNet
with and into Merger Sub. Pursuant to the Merger, each issued and outstanding
share of common stock, par value $.01 per share, of InPhyNet (the "InPhyNet
Common Stock"), other than shares held in treasury or held by MedPartners or any
direct or indirect wholly owned subsidiary of MedPartners or InPhyNet, will be
converted into the right to receive 1.180 shares (the "Exchange Ratio") of
common stock, par value $.001 per share, of MedPartners (the "MedPartners Common
Stock"). The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.

You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
InPhyNet Common Stock. We note that we provided a financial fairness opinion to
the Board of Directors on the exchange ratio in the proposed transaction with
MedPartners approved by the Board of Directors on January 20, 1997.

For purposes of the opinion set forth herein, we have:

- reviewed certain publicly available financial statements and other
information of InPhyNet and MedPartners, respectively;

- reviewed certain internal financial statements and other financial
and operating data concerning InPhyNet and MedPartners prepared by the
managements of InPhyNet and MedPartners, respectively;

- analyzed certain financial projections prepared by the managements
of InPhyNet and MedPartners, respectively;

- discussed the past and current operations and financial condition
and the prospects of InPhyNet and MedPartners with senior executives of
InPhyNet and MedPartners, respectively;

- reviewed the reported prices and trading activity for the InPhyNet
Common Stock and the MedPartners Common Stock;

- compared the financial performance of InPhyNet and MedPartners and
the prices and trading activity of the InPhyNet Common Stock and the
MedPartners Common Stock with that of certain other comparable companies
and their securities;

- reviewed and discussed with the senior managements of InPhyNet and
MedPartners the strategic objectives of the Merger and certain other
benefits of the Merger;

- analyzed certain pro forma financial projections for the combined
company prepared by InPhyNet and MedPartners;

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<PAGE> 224

- reviewed and discussed with the senior managements of InPhyNet and
MedPartners their estimates of the synergies and cost savings expected to
result from the Merger;

- reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions;

- participated in discussions and negotiations among representatives
of InPhyNet and MedPartners and their financial and legal advisors;

- reviewed the Merger Agreement and certain related documents; and

- performed such other analyses and considered such other factors as
we have deemed appropriate.

We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to the financial projections, including the estimates of
synergies and other benefits expected to result from the Merger, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
InPhyNet and MedPartners, respectively. We have not made any independent
valuation or appraisal of the assets or liabilities of InPhyNet and MedPartners,
nor have we been furnished with any such appraisals. We have also assumed that
the Merger will be accounted for as a "pooling-of-interests" business
combination in accordance with U.S. Generally Accepted Accounting Principals,
will qualify as a reorganization under the provisions of section 368 of the
Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the Merger Agreement. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of the date hereof.

We have acted as financial advisor to the Board of Directors of InPhyNet in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services to InPhyNet and MedPartners and have
received fees from MedPartners for the rendering of these services.

It is understood that this letter is for the information of the Board of
Directors of InPhyNet, except that this opinion may be included in its entirety
in any filing made by InPhyNet with the Securities and Exchange Commission with
respect to the Merger. We express no opinion and make no recommendation as to
how the stockholders of InPhyNet should vote at the stockholders' meeting held
in connection with the Merger.

Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of InPhyNet Common Stock.

Very truly yours,

MORGAN STANLEY & CO. INCORPORATED

By: /s/ MARY ANNE CITRINO
-----------------------------------
Mary Anne Citrino
Principal

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<PAGE> 225

ANNEX C
INPHYNET MEDICAL MANAGEMENT INC.

PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, JUNE 26, 1997

The undersigned hereby appoints Clifford Findeiss, M.D. and George W.
McCleary, Jr., jointly and severally, as proxy for the undersigned, with full
power of substitution, to represent the undersigned and to vote all of the
shares of the common stock of InPhyNet Medical Management Inc. ("InPhyNet")
which the undersigned is entitled to vote at the special meeting (the "Special
Meeting") of stockholders of InPhyNet to be held on June 26, 1997, and at any
and all adjournments thereof, to:

1. Approve and adopt the Agreement and Plan of Merger, dated as of January
20, 1997, as amended by Amendment No. 1 dated as of May 21, 1997 (the
"Merger Agreement"), by and among MedPartners, Inc. ("MedPartners"),
Seabird Merger Corporation ("Seabird") and InPhyNet whereby (i) InPhyNet
will merge with and into Seabird and become a wholly-owned subsidiary of
MedPartners and (ii) each share of common stock, par value $0.01 per
share, of InPhyNet will be converted, upon the consummation of the
Merger, into the right to receive 1.18 shares of Common Stock, par value
$0.001 per share, of MedPartners.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

THE BOARD OF DIRECTORS OF INPHYNET RECOMMENDS A VOTE FOR THIS PROPOSAL.

2. Authorize the Board of Directors of InPhyNet to adjourn or postpone the
Special Meeting to permit the further solicitation of proxies, if
necessary.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

THE BOARD OF DIRECTORS OF INPHYNET RECOMMENDS A VOTE FOR THIS PROPOSAL.

3. Approve, in the discretion of the persons named above, any other matters
that may properly come before the Special Meeting.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and will be
voted as directed herein. If this proxy is returned and no direction is given,
this proxy will be voted FOR the proposals in paragraphs 1 and 2 and, in the
discretion of the proxies, upon such other business as may properly come before
the Special Meeting, and any adjournment or postponement thereof.

Dated , 1997
----------------

-----------------------------
Signature of Stockholder

-----------------------------
Title

-----------------------------
Signature, if held jointly

When shares are held by
joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee,
guardian, corporate officer or
partner, please give full title as
such. If a corporation, please sign
in corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person. This Proxy votes all
shares held in all capacities.

PLEASE MARK, SIGN, DATE AND MAIL PROMPTLY.

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<PAGE> 226

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

MEDPARTNERS, 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. The MedPartners Certificate of
Incorporation contains a provision eliminating or limiting director liability to
MedPartners 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 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
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 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. The MedPartners Bylaws provide for mandatory indemnification
rights, subject to limited exceptions, to any director, officer, employee, or
agent of MedPartners who, by reason of the fact that he or she is a director,
officer, employee, or agent of MedPartners, 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 has entered into agreements with all of its directors and its
executive officers pursuant to which MedPartners has agreed to indemnify such
directors and executive officers against liability incurred by them by reason of
their services as a director or executive officer to the fullest extent
allowable under applicable law. In addition, MedPartners 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.

INPHYNET MEDICAL MANAGEMENT INC.

Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including attorneys'
fees) incurred by any officer or director in defending such

II-1
<PAGE> 227

action, provided that the director or officer undertake to repay such amount if
it shall be ultimately determined that he is not entitled to be indemnified by
the corporation.

A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's by-laws, agreement, vote or otherwise.

InPhyNet's Certificate of Incorporation provides that a director of
InPhyNet shall not be personally liable to InPhyNet or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the officer's or director's duty of loyalty to
InPhyNet 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, or (iv) for any transaction from which the director
derived any improper personal benefit.

InPhyNet's Bylaws provide that, to the extent permitted by the DGCL,
InPhyNet shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was or has agreed to serve as a director or officer of InPhyNet,
or is or was serving or has agreed to serve at the request of InPhyNet as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding and any
appeal therefrom. Such indemnification shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
bylaw of InPhyNet, agreement, vote of stockholders or disinterested directors or
otherwise, including insurance purchased and maintained by InPhyNet, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The Bylaws further provide
that such indemnification provisions shall be deemed to be a contract between
InPhyNet and each officer and director who serves in any such capacity at any
time while such provisions as well as the relevant DGCL provisions are in effect
and any repeal or modification thereof shall not adversely affect any right or
obligation then existing with respect to any state of facts then or previously
existing or any action, suit or proceeding previously or thereafter brought or
threatened based in whole or in part upon any such state of acts. Such a
contract right may not be modified retroactively without the consent of the
officer or director.

ITEM 21. EXHIBITS

Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
(2)-1 -- Agreement and Plan of Merger, dated as of January 20, 1997
as amended by Amendment No. 1 dated as of May 21, 1997,
among MedPartners, Inc., Seabird Merger Corporation and
InPhyNet Medical Management Inc., attached to this
Registration Statement as Annex A to the Prospectus-Proxy
Statement for InPhyNet, is hereby incorporated herein by
reference. List of Exhibits to Agreement and Plan of Merger.
(3)-1 -- MedPartners, Inc. Third Restated Certificate of
Incorporation, filed as Exhibit (3)-1 to MedPartners Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, is hereby incorporated herein by reference.
(3)-2 -- MedPartners, Inc. Second Amended and Restated Bylaws, filed
as Exhibit (3)-2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
</TABLE>

II-2
<PAGE> 228

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
(4)-1 -- MedPartners, Inc. Stockholders' Rights Agreement, filed as
Exhibit (4)-1 to MedPartners' Registration Statement on Form
S-4 (Registration No. 333-00774), is hereby incorporated
herein by reference.
(4)-2 -- Amendment No. 1 to the Rights Plan of MedPartners, Inc.,
filed as Exhibit (4)-2 to MedPartners Annual Report on Form
10-K for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(4)-3 -- Amendment No. 2 to the Rights Agreement of MedPartners,
Inc., filed as Exhibit (4)-2 to MedPartners' Registration
Statement on Form S-3 (Registration No. 333-17339), is
hereby incorporated herein by reference.
(5) -- Opinion of Haskell Slaughter & Young L.L.C., as to the
legality of the shares of MedPartners Common Stock being
registered.
(8)-1 -- Opinion of Haskell Slaughter & Young L.L.C. as to certain
federal income tax consequences of the Merger.
(8)-2 -- Opinion of Willkie Farr & Gallagher as to certain federal
income tax consequences of the Merger.
(10)-1 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
C.A. Lance Piccolo, filed as Exhibit (10)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-2 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
Thomas W. Hodson, filed as Exhibit (10)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-3 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners, Inc. and Walter T. Mullikin, M.D.,
filed as Exhibit (10)-1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein as reference.
(10)-4 -- Termination Agreement, dated as of November 29, 1995, by and
between MedPartners/ Mullikin, Inc. and Walter T. Mullikin,
filed as Exhibit (10)-2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-5 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners/ Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-6 -- Termination Agreement, dated as of November 29, 1995 by and
between MedPartners/ Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-7 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Larry R. House, filed as Exhibit
(10)-7 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-8 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Mark L. Wagar, filed as Exhibit (10)-8
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-9 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Harold O. Knight, Jr., filed as
Exhibit (10)-9 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
(10)-10 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Tracy P. Thrasher, filed as Exhibit
(10)-10 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
</TABLE>

II-3
<PAGE> 229

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
(10)-11 -- Credit Agreement, dated September 5, 1996, by and among
MedPartners, Inc., NationsBank, National Association
(South), as administrative agent for the Lenders, The First
National Bank of Chicago, as Documentation Agent for the
Lenders, and the Lenders thereto, filed as Exhibit (10)-17
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-12 -- Amendment No. 1 to Credit Agreement and Consent, dated
September 5, 1996, by and among MedPartners, Inc.,
NationsBank, National Association (South), as administrative
agent for the Lenders, The First National Bank of Chicago,
as Documentation Agent for the Lenders, and the Lenders
thereto, filed as Exhibit (10)-18 to the Company's
Registration Statement on Form S-1 (Registration No.
333-12465), is hereby incorporated herein by reference.
(10)-13 -- MedPartners/Mullikin, Inc. 1993 Stock Option Plan, filed as
Exhibit (4)-1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-00234), is hereby
incorporated herein by reference.
(10)-14 -- MedPartners/Mullikin, Inc. 1995 Stock Option Plan, as
amended, filed as Exhibit (4)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-00774), is hereby incorporated herein by reference.
(10)-15 -- MedPartners Incentive Compensation Plan, filed as Exhibit
(4)-2 to the Company's Registration Statement of Form S-8
(Registration No. 333-11875), is hereby incorporated herein
by reference.
(10)-16 -- Caremark International, Inc. 1992 Stock Option Plan for
Non-Employee Directors, filed as Exhibit (4)-2 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-14163), is hereby incorporated herein by reference.
(10)-17 -- MedPartners 1997 Long Term Incentive Compensation Plan,
dated as of February 25, 1997, filed as Exhibit (10)-17 to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(10)-18 -- Form of Consulting and Non-Compete Agreement dated as of
June , 1997, by and between MedPartners, Inc. and J.
Clifford Findeiss, M.D.
(10)-19 -- Form of Consulting and Non-Compete Agreement dated as of
June , 1997, by and between MedPartners, Inc. and George
W. McCleary, Jr.
(11) -- Statements re: Computation of Per Share Earnings, filed as
Exhibit (11) to MedPartners Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and MedPartners
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, are hereby incorporated herein by reference.
(21) -- Subsidiaries of MedPartners, filed as Exhibit (21) to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately
following signature pages to the Registration Statement.
(23)-2 -- Consent of Haskell Slaughter & Young L.L.C. (included in the
opinions filed as Exhibit (5) and (8)-1).
(23)-3 -- Consent of Willkie Farr & Gallagher (included in the opinion
filed as Exhibit (8)-2).
(23)-4 -- Consent of Morgan Stanley & Co. Incorporated. See pages
immediately following signature pages to the Registration
Statement.
(24) -- Powers of Attorney. See the signature page to the original
filing of this Registration Statement.
(99)-1 -- InPhyNet Proxy attached to this Registration Statement as
Annex C to the Prospectus-Proxy Statement for InPhyNet is
hereby incorporated herein by reference.
</TABLE>

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,

II-4
<PAGE> 230

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.

(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-5
<PAGE> 231

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 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 June 4, 1997.

MEDPARTNERS, 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 Amendment
No. 3 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, President June 4, 1997
- ----------------------------------------------------- and Chief Executive Officer
Larry R. House and Director

* Executive Vice President and June 4, 1997
- ----------------------------------------------------- Chief Financial Officer
Harold O. Knight, Jr. (Principal Financial and
Accounting Officer)

* Director June 4, 1997
- -----------------------------------------------------
Richard M. Scrushy

* Director June 4, 1997
- -----------------------------------------------------
Larry D. Striplin, Jr.

* Director June 4, 1997
- -----------------------------------------------------
Charles W. Newhall III

* Director June 4, 1997
- -----------------------------------------------------
Ted H. McCourtney

* Director June 4, 1997
- -----------------------------------------------------
Walter T. Mullikin, M.D.

* Director June 4, 1997
- -----------------------------------------------------
John S. McDonald, J.D.

* Director June 4, 1997
- -----------------------------------------------------
Richard J. Kramer

* Director June 4, 1997
- -----------------------------------------------------
Rosalio J. Lopez, M.D.

* Director June 4, 1997
- -----------------------------------------------------
C.A. Lance Piccolo
</TABLE>

II-6
<PAGE> 232

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>

Director June 4, 1997
*
- -----------------------------------------------------
Roger L. Headrick

* Director June 4, 1997
- -----------------------------------------------------
Harry M. Jansen Kraemer, Jr.

*By: /s/ LARRY R. HOUSE
------------------------------------------------
Larry R. House
Attorney-in-fact
</TABLE>

II-7
<PAGE> 233

EXHIBIT (23)-1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 3, 1997, with respect to the consolidated
financial statements of MedPartners, Inc., and our report dated February 14,
1997 (except for the second paragraph of Note 4, as to which the date is May 20,
1997), with respect to the consolidated financial statements and schedule of
InPhyNet Medical Management Inc. and Subsidiaries, in the Registration Statement
(Form S-4, No. 333-24639) and related Prospectus of MedPartners, Inc. for the
registration of shares of its Common Stock.

ERNST & YOUNG LLP

Birmingham, Alabama

May 30, 1997

<PAGE> 234

EXHIBIT (23)-4

CONSENT OF MORGAN STANLEY & CO. INCORPORATED

June 4, 1997

MedPartners, Inc.
InPhyNet Medical Management Inc.

Dear Sirs:

We hereby consent to the inclusion in the Registration Statement on Form
S-4 of MedPartners, Inc. ("MedPartners") relating to the proposed merger of
InPhyNet Medical Management Inc. with MedPartners, of our opinion letter in the
Prospectus-Proxy Statement which is a part of the Registration Statement, and to
the references of our firm name therein. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations adopted by the Securities and Exchange Commission thereunder nor
do we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.

Very truly yours,

MORGAN STANLEY & CO. INCORPORATED

By: /s/ MARY ANNE CITRINO
-----------------------------------
Name: Mary Anne Citrino
Title: Principal
<PAGE> 235

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C> <C>
(2)-1 -- Agreement and Plan of Merger, dated as of January 20, 1997
as amended by Amendment No. 1 dated as of May 21, 1997,
among MedPartners, Inc., Seabird Merger Corporation and
InPhyNet Medical Management Inc., attached to this
Registration Statement as Annex A to the Prospectus-Proxy
Statement for InPhyNet, is hereby incorporated herein by
reference. List of Exhibits to Agreement and Plan of Merger.
(3)-1 -- MedPartners, Inc. Third Restated Certificate of
Incorporation, filed as Exhibit (3)-1 to MedPartners Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, is hereby incorporated herein by reference.
(3)-2 -- MedPartners, Inc. Second Amended and Restated Bylaws, filed
as Exhibit (3)-2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
(4)-1 -- MedPartners, Inc. Stockholders' Rights Agreement, filed as
Exhibit (4)-1 to MedPartners' Registration Statement on Form
S-4 (Registration No. 333-00774), is hereby incorporated
herein by reference.
(4)-2 -- Amendment No. 1 to the Rights Plan of MedPartners, Inc.,
filed as Exhibit (4)-2 to MedPartners Annual Report on Form
10-K for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(4)-3 -- Amendment No. 2 to the Rights Agreement of MedPartners,
Inc., filed as Exhibit (4)-2 to MedPartners' Registration
Statement on Form S-3 (Registration No. 333-17339), is
hereby incorporated herein by reference.
(5) -- Opinion of Haskell Slaughter & Young L.L.C., as to the
legality of the shares of MedPartners Common Stock being
registered.
(8)-1 -- Opinion of Haskell Slaughter & Young L.L.C. as to certain
federal income tax consequences of the Merger.
(8)-2 -- Opinion of Willkie Farr & Gallagher as to certain federal
income tax consequences of the Merger.
(10)-1 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
C.A. Lance Piccolo, filed as Exhibit (10)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-2 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
Thomas W. Hodson, filed as Exhibit (10)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-3 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners, Inc. and Walter T. Mullikin, M.D.,
filed as Exhibit (10)-1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein as reference.
(10)-4 -- Termination Agreement, dated as of November 29, 1995, by and
between MedPartners/Mullikin, Inc. and Walter T. Mullikin,
filed as Exhibit (10)-2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
</TABLE>

<PAGE> 236

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C> <C>
Consulting Agreement, dated as of November 29, 1995, by and
(10)-5 between MedPartners/Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-6 -- Termination Agreement, dated as of November 29, 1995 by and
between MedPartners/Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-7 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Larry R. House, filed as Exhibit
(10)-7 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-8 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Mark L. Wagar, filed as Exhibit (10)-8
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-9 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Harold O. Knight, Jr., filed as
Exhibit (10)-9 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
(10)-10 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Tracy P. Thrasher, filed as Exhibit
(10)-10 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-11 -- Credit Agreement, dated September 5, 1996, by and among
MedPartners, Inc., NationsBank, National Association
(South), as administrative agent for the Lenders, The First
National Bank of Chicago, as Documentation Agent for the
Lenders, and the Lenders thereto, filed as Exhibit (10)-17
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-12 -- Amendment No. 1 to Credit Agreement and Consent, dated
September 5, 1996, by and among MedPartners, Inc.,
NationsBank, National Association (South), as administrative
agent for the Lenders, The First National Bank of Chicago,
as Documentation Agent for the Lenders, and the Lenders
thereto, filed as Exhibit (10)-18 to the Company's
Registration Statement on Form S-1 (Registration No.
333-12465), is hereby incorporated herein by reference.
(10)-13 -- MedPartners/Mullikin, Inc. 1993 Stock Option Plan, filed as
Exhibit (4)-1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-00234), is hereby
incorporated herein by reference.
(10)-14 -- MedPartners/Mullikin, Inc. 1995 Stock Option Plan, as
amended, filed as Exhibit (4)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-00774), is hereby incorporated herein by reference.
(10)-15 -- MedPartners Incentive Compensation Plan, filed as Exhibit
(4)-2 to the Company's Registration Statement of Form S-8
(Registration No. 333-11875), is hereby incorporated herein
by reference.
</TABLE>

2
<PAGE> 237

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C> <C>
(10)-16 -- Caremark International, Inc. 1992 Stock Option Plan for
Non-Employee Directors, filed as Exhibit (4)-2 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-14163), is hereby incorporated herein by reference.
(10)-17 -- MedPartners 1997 Long Term Incentive Compensation Plan,
dated as of February 25, 1997, filed as Exhibit (10)-17 to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(10)-18 -- Form of Consulting and Non-Compete Agreement dated as of
June , 1997, by and between MedPartners, Inc. and J.
Clifford Findeiss, M.D.
(10)-19 -- Form of Consulting and Non-Compete Agreement dated as of
June , 1997, by and between MedPartners, Inc. and George
W. McCleary, Jr.
(11) -- Statements re: Computation of Per Share Earnings, filed as
Exhibit (11) to MedPartners Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and MedPartners
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, are hereby incorporated herein by reference.
(21) -- Subsidiaries of MedPartners, filed as Exhibit (21) to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 is hereby incorporated herein by
reference.
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately
following signature pages to the Registration Statement.
(23)-2 -- Consent of Haskell Slaughter & Young L.L.C. (included in the
opinions filed as Exhibit (5) and (8)-1).
(23)-3 -- Consent of Willkie Farr & Gallagher (included in the opinion
filed as Exhibit (8)-2).
(23)-4 -- Consent of Morgan Stanley & Co. Incorporated. See pages
immediately following signature pages to the Registration
Statement.
(24) -- Powers of Attorney. See the signature page to the original
filing of this Registration Statement.
(99)-1 -- InPhyNet Proxy attached to this Registration Statement as
Annex C to the Prospectus-Proxy Statement for InPhyNet is
hereby incorporated herein by reference.
</TABLE>

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

<PAGE> 1

EXHIBIT 5

[HASKELL SLAUGHTER & YOUNG, L.L.C.]

PLEASE REPLY TO: BIRMINGHAM

June 4, 1997

MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244-2331

RE: REGISTRATION STATEMENT ON FORM S-4 --
MEDPARTNERS, INC. / INPHYNET MEDICAL MANAGEMENT INC.
OUR FILE NO. 48367-071

Gentlemen:

We have served as counsel for MedPartners, 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, as amended
(Commission File No. 333-24639) (the "Registration Statement"), of up to
22,287,000 shares of Common Stock, par value $.001 per share, of the Company
(the "Shares") to be issued pursuant to that certain Agreement and Plan of
Merger, dated as of January 20, 1997, as amended by Amendment No. 1 dated May
21, 1997, by and among the Company, Seabird Merger Corporation, a Delaware
corporation, and InPhyNet Medical Management Inc., a Delaware corporation.
This opinion is furnished to you pursuant to the requirements of the
Registration Statement.

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 and the authorization and adoption of the Agreement as we have 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:

<PAGE> 2

MedPartners, Inc.
June 4, 1997
Page 2

1. The Shares have been duly authorized.

2. Upon issuance, sale and delivery of the Shares as contemplated in
the Registration Statement and the Agreement, the Shares will be legally issued,
fully paid and nonassessable.

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, L.L.C.

By /s/ Robert E. Lee Garner
------------------------------
Robert E. Lee Garner

<PAGE> 1

EXHIBIT(8)-1

June 4, 1997

MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244

RE: AGREEMENT AND PLAN OF MERGER AMONG MEDPARTNERS, INC., SEABIRD MERGER
CORPORATION AND INPHYNET MEDICAL MANAGEMENT INC.

Gentlemen:

We have acted as counsel to MedPartners, Inc., a Delaware corporation
("Parent"), in connection with the proposed merger (the "Merger") of Inphynet
Medical Management Inc., a Delaware corporation ("Company"), with and into
Seabird Merger Corporation, a Delaware corporation ("Subsidiary") and
wholly-owned subsidiary of Parent, pursuant to the terms of the Agreement and
Plan of Merger, dated as of January 20, 1997, as amended by Amendment No. 1
dated May 21, 1997 (the "Plan of Merger"), by and among Parent, Subsidiary and
Company, as described in more detail in the Plan of Merger and in the
Registration Statement on Form S-4 (Commission File No. 333-24639) to be filed
by Parent with the Securities and Exchange Commission on June 4, 1997, as
amended (the "Registration Statement"). This opinion is being provided in
satisfaction of the conditions set forth in Section 9.2(c) of the Plan of
Merger. All capitalized terms, unless otherwise specified, have the meaning
assigned to them in the Registration Statement.

In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Plan of Merger, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of all natural persons, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. In
rendering the opinion set forth below, we have relied upon certain written
representations and covenants of Parent, Subsidiary and Company which are
annexed hereto (the "Representations and Warranties").

- 1 -
<PAGE> 2

In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.

Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:

(i) Provided the Merger qualifies as a statutory merger under
the General Corporation Law of the State of Delaware, the Merger
will constitute a reorganization within the meaning of Section
368(a) of the Code, and Parent, Subsidiary and Company 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 Parent, Subsidiary
or Company as a result of the Merger;

(iii) No gain or loss will be recognized by a Company
stockholder who receives solely shares of Parent Common Stock in
exchange for Company Shares;

(iv) The receipt of cash in lieu of fractional shares of
Parent Common Stock will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
Parent. 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, provided the redemption
is not essentially equivalent to a dividend;

(v) The tax basis of the shares of Parent Common Stock
received by a Company stockholder will be equal to the tax bases
of the Company Shares exchanged therefor, excluding any basis
allocable to a fractional share of Parent Common Stock for which
cash is received; and

(vi) The holding period of the shares of Parent Common Stock
received by a Company stockholder will include the holding period
or periods of the Company Shares exchanged therefor, provided that
the Company Shares are held as a capital asset within the meaning
of Section 1221 of the Code at the Effective Time of the Merger.

The Merger should have no immediate federal income tax consequences to
Parent stockholders.

- 2 -
<PAGE> 3

Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.

We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectuses which form a part of the Registration Statement,
and to the filing of this opinion as an Exhibit thereto.

Very truly yours,

HASKELL SLAUGHTER & YOUNG, L.L.C.

By /s/ Ross N. Cohen
------------------------------
Ross N. Cohen

- 3 -

<PAGE> 1

EXHIBIT (8)-2

[Letterhead of Willkie Farr & Gallagher]

June 5, 1997

InPhyNet Medical Management Inc.
1200 South Pine Island Road, Suite 600
Fort Lauderdale, Florida 33324

Gentlemen:

This opinion is being delivered to you pursuant to Section 9.3(c) of
the Agreement and Plan of Merger, dated as of January 20, 1997, as amended by
Amendment No. 1 thereto, dated May 21, 1997 (as amended, the "Agreement"),
between MedPartners, Inc., a Delaware corporation ("Parent"), Seabird Merger
Corporation, a Delaware corporation and wholly owned subsidiary of Parent
("Subsidiary"), and InPhyNet Medical Management Inc., a Delaware corporation
(the "Company"). Pursuant to the Agreement, the Company will merge with and
into Subsidiary (the "Merger"). Subsidiary will survive the Merger and remain a
wholly owned subsidiary of Parent.

Except as otherwise provided, capitalized terms referred to herein have
the meanings ascribed to them in the Agreement. All section references are to
the Internal Revenue Code of 1986, as amended (the "Code").

We have acted as your legal counsel in connection with certain aspects
of the Merger. In rendering the opinions expressed herein, we have examined and,
with your consent, relied upon (without any independent investigation thereof)
statements and representations in the following documents (including all
schedules and exhibits thereto): (i) the Agreement; (ii) the Prospectus-Proxy
Statement on Form S-4 (Commission File No. 333 - 24639) filed with the
Securities and Exchange Commission on April 4, 1997, amended by Amendment No. 1
thereto filed on April 23, 1997, Amendment No. 2 thereto filed on May 27, 1997
and Amendment No. 3 thereto filed on June 4, 1997 (the "Prospectus-Proxy
Statement"); (iii) an opinion of Haskell Slaughter & Young, LLC addressed to
Parent and dated the date hereof, that the Merger will qualify as a
reorganization under Section 368(a) of the Code; and (iv) such other
instruments and documents related to the formation, organization and operation
of Parent, Subsidiary and the Company or to the consummation of the Merger and
the transactions contemplated or completed in connection therewith as we have
deemed necessary or appropriate.

In our examination of the foregoing documents, we have assumed, with
your consent: (i) that original documents (including signatures) are authentic,
documents submitted to us as copies conform to their original documents, and
there has been, or will have been, due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof;
(ii) that all representations and statements set forth in such documents are
true and correct at all times; (iii) that any representation or statement made
"to the knowledge of "or similarly qualified is correct and accurate without
such qualification at all times; and (iv) that all obligations imposed by any
such documents on the parties thereto have been or will be performed or
satisfied in accordance with their terms and that there will be no change in
facts or applicable law prior to the Effective Time which would change any of
the opinions set forth in this letter. With your consent we have also assumed,
and this opinion is subject to the condition, that the Merger qualifies as a
statutory merger under the General Corporation Law of the State of Delaware.

<PAGE> 2

For purposes of rendering the opinions expressed herein, we also have
assumed, with your consent, the accuracy of the statements contained in letters
of representation provided to us from Parent, Subsidiary and the Company as well
as representations contained in certificates provided to us by certain Company
stockholders, all of which are dated the date hereof. These representations
relate to the Merger and its qualification as a reorganization under the Code.

Based upon such facts, assumptions and representations and subject to
the qualifications stated below, we are of the following opinions:

(i) the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code and Parent, Subsidiary and the Company 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 the Company as a result of
the Merger;

(iii) no gain or loss will be recognized by a Company stockholder who
receives solely shares of Parent Common Stock in exchange for Company Shares;

(iv) the receipt of cash in lieu of fractional shares of Parent Common
Stock will be treated as if the fractional shares were distributed as part of
the exchange and then were redeemed by Parent;

(v) the tax basis of the shares of Parent Common Stock received by a
Company stockholder will be equal to the tax basis of the Company Shares
exchanged therefor, excluding any basis allocable to a fractional share of
Parent Common Stock for which cash is received; and

(vi) the holding period of the shares of Parent Common Stock received
by a Company stockholder will include the holding period or periods of the
Company Shares exchanged therefor, provided that the Company Shares are held as
a capital asset of the Company stockholder within the meaning of Section 1221 of
the Code at the Effective Time.

In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below.

1. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transactions that may be
undertaken in connection with the Merger). In particular, we express no opinion
regarding: (i) whether and the extent to which any Company stockholder who has
provided or will provide services to, or who agrees not to compete with,
Parent, Subsidiary or the Company will have compensation income under any
provision of the Code; (ii) the effects of such compensation income, including,
but not limited to, the effect upon the basis and holding period of the Parent
Common Stock received by any such stockholder in the Merger; (iii) the
potential application of the "golden parachute" provisions (Sections 280G,
3121(v)(2) and 4999) of the Code; the alternative minimum tax provisions
(Sections 55, 56 and 57) of the Code or Sections 341 or 708 of the Code or the
regulations promulgated thereunder; (iv) the survival and/or availability of
any tax attributes or elections of the Company, after application of any
provisions of the Code, as well as the regulations promulgated thereunder and
judicial interpretations thereof; (v) the tax consequences of any transaction
in which Company stock or a right to acquire Company stock was received; and
(vi) the tax consequences of the Merger (including the opinions set forth
above) as applied to stockholders of the Company with special tax status or
circumstances (and/or holders of options or warrants for Company stock) or that
may be relevant to particular classes of Company stockholders (and/or holders
of options or warrants for Company stock) such as corporate stockholders
subject to the alternative minimum tax, foreign persons, and holders of shares
acquired upon the exercise of stock options or in other compensatory
transactions.

<PAGE> 3

2. This opinion is given as of the date hereof and is based upon the
application of federal income tax laws arising under the Code, judicial
decisions, administrative regulations and published rulings and procedures, all
existing as of the date hereof. In the event of a material change in the
federal tax law or pertinent facts prior to the Effective Time, our opinions
might be adversely affected and may not be relied upon and we may not be in a
position to issue a similar opinion as of the Effective Time. Our opinion is
based upon our analysis of current tax law and is not binding on the Internal
Revenue Service or the courts, and there can be no assurance that the Internal
Revenue Service will not asset a contrary position. Furthermore, no assurance
can be given that future legislative, judicial or administrative changes,
either on a prospective or retroactive basis, would not adversely affect the
accuracy of the conclusions stated herein. Nevertheless, we undertake no
responsibility to inform you of new developments in the application or
interpretation of the federal income tax laws.

3. No opinion is expressed as to any transaction other than the Merger
as described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material portion thereof, or if all of the representations, warranties,
statements and assumptions upon which we have relied are not true and accurate
at all relevant times. In the event that one of the statements, representations,
warranties or assumptions upon which we have relied is incorrect, or is
materially changed prior to the Effective Time, our opinions might be adversely
affected and may not be relied upon.

4. This opinion is being delivered to you in connection with, and
pursuant to, the Agreement and the Prospectus-Proxy Statement, and it may not be
relied upon for any other purpose without our prior written consent.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,

Willkie Farr & Gallagher

<PAGE> 1

EXHIBIT 10-18

CONSULTING AND NON-COMPETE AGREEMENT

This CONSULTING AND NON-COMPETE AGREEMENT (the "Agreement"), entered into
this day of June, 1997, by and between MEDPARTNERS, INC., a Delaware
corporation ("MedPartners"), and J. CLIFFORD FINDEISS, M.D. (the "Consultant").
Capitalized terms not defined herein shall have the meaning assigned to them in
the Merger Agreement or Section 3 hereof.

WHEREAS, MedPartners intends to acquire InPhyNet Medical Management Inc.
("InPhyNet") pursuant to the terms and conditions of the Plan and Agreement of
Merger, dated as of January 20, 1997, as amended by Amendment No. 1 dated as of
May 21, 1997, by and among MedPartners, Inc., Seabird Merger Corporation and
InPhyNet (the "Merger Agreement"), and is engaged in the provision of healthcare
services in various locations;

WHEREAS, MedPartners recognizes that the reputation, knowledge and
expertise of Consultant represent a significant asset to InPhyNet and that the
services of Consultant will be of significant value to MedPartners and its
stockholders;

WHEREAS, InPhyNet and Consultant have entered into a Senior Executive
Employment Agreement, dated as of December 1, 1996 (the "Employment Agreement"),
providing for, among other things, the terms of Consultant's termination of
employment with InPhyNet; and

WHEREAS, MedPartners and Consultant wish to set forth their understanding
with respect to the terms and conditions relating to the Services to be
performed by Consultant hereunder.

NOW, THEREFORE, in consideration of the provisions hereof, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

1. Termination of Employment/Duties of Consultant. MedPartners and
Consultant acknowledge that at the Effective Time, Consultant's employment with
InPhyNet shall have been terminated without cause entitling Consultant to the
payments and benefits provided for in Section 5 of the Employment Agreement.
During the Term of this Agreement, Consultant shall be retained by the
MedPartners as a consultant in connection with MedPartners' business. Consultant
shall report directly to the Chairman of the Board of Directors of MedPartners
(the "Chairman") and shall provide such consulting services as shall from time
to time be requested by MedPartners in writing or otherwise. In performing such
services, Consultant shall be retained by MedPartners as a consultant in
connection with MedPartners' acquisitions and in connection with the
consummation of the transactions contemplated by the Merger Agreement,
specifically in the Emergency Medicine and Correctional Care businesses.
Consultant agrees to assist MedPartners in the integration of the businesses
acquired by MedPartners on the Closing Date in connection with the consummation
of the transactions contemplated by the Merger Agreement and with the
development and implementation of plans and actions to realize synergies in
connection with the Merger. Further, Consultant shall consult with the Chairman
in identifying possible acquisitions, assisting MedPartners in negotiations
related to proposed acquisitions, including placing phone calls and writing
letters as necessary, and using all
<PAGE> 2

other contacts and other resources of Consultant to consummate proposed
acquisitions, identifying areas of potential synergy between MedPartners and any
such businesses generally, and shall consult with the Chairman with respect to
MedPartners' development and implementation of plans of action to realize such
synergies for MedPartners, including cross-selling opportunities and
consolidation of certain functional areas.

It is understood and agreed by the parties to this Agreement that the
consulting services to be requested of and provided as set forth herein are
intended to help MedPartners in its efforts to integrate the businesses of the
companies combined pursuant to the Merger Agreement and that the benefit to be
obtained under the Agreement by MedPartners is the benefit of Consultant's
knowledge, experience and contacts gained over the years in the operation of
InPhyNet's business and in the healthcare industry generally. The amount of time
to be spent by Consultant in carrying out the duties to be requested of him
herein is not the key and it is agreed that it is MedPartners' intention that
the Consultant be requested to provide consulting services hereunder.

MedPartners and Consultant acknowledge that any difference between the
compensation to be paid to Consultant pursuant to this Agreement and the total
compensation paid to Consultant when Consultant was a full-time employee is a
result of arm's length negotiations between Consultant and MedPartners and
reflects (a) MedPartners' desire to have access to Consultant's unique skills
and abilities and Consultant's agreement to make his services available to
MedPartners on less than a full-time basis; and (b) Consultant's agreement to
not compete with MedPartners during the Term of this Agreement as set forth in
Section 5(a) of this Agreement. MedPartners acknowledges that Consultant will
have other business activities and will use his reasonable best efforts to
perform Services under this Agreement on a prompt basis consistent with such
other activities.

2. Term of Agreement. Unless terminated sooner in accordance with the
provisions of this Agreement, MedPartners shall engage Consultant, and
Consultant accepts such engagement, under the terms and conditions set forth
herein, for a Term beginning at the Effective Time and ending upon the close of
business on the first anniversary of the Effective Time.

3. Definitions. The following terms shall have the meanings set forth
below:

"Board" shall mean the Board of Directors of MedPartners.

"Consulting Fee" shall mean the consulting fee provided for in
Paragraph 4(a) hereof.

"Services" shall mean the services to be performed by Consultant
pursuant to this Agreement, as further described in Section 1 hereof.

"Term of this Agreement" shall mean the period of time specified in
Paragraph 2 hereof.

"Termination of Services" shall mean the termination of Consultant's
Services for any reason whatsoever, including death.

4. Consultants Rights From and After the Closing Date. (a) Consulting
Fee. Consultant shall be paid a consulting fee by MedPartners (the "Consulting
Fee") in the
<PAGE> 3

amount of $500,000, payable on a monthly basis on the first day of each month,
in consideration of the performance of the Services. In addition, as used
herein, "Consulting Fee" shall be deemed to include such other fees and amounts
as may be paid or reimbursed to Consultant under this Agreement. Each portion of
the Consulting Fee shall be deemed fully earned as of the date MedPartners
becomes obligated to pay such portion.

(b) Independent Contractor. Consultant shall be an independent contractor
of MedPartners and not an employee, and Consultant shall not be authorized to
bind or act on behalf of MedPartners.

(c) Expense Reimbursement. During the Term of this Agreement, Consultant
shall be entitled to reimbursement of reasonable expenses, including travel and
lodging expenses, incurred by Consultant in performance of his Services
hereunder consistent with MedPartners' policies and practices applicable to
members of senior management at the time.

(d) Non-Competition Fee. Consultant shall be paid a non-compete fee in
the amount of $1 million by MedPartners on the Effective Date as compensation
for the agreement to, and performance of, the restrictions set forth in Section
5 of this Agreement.

(e) Secretarial Services, Office and Parking Space. During the Term of
this Agreement, MedPartners shall provide Consultant with the use of a secretary
as well as office and parking space (the "Facilities") in connection with his
performance of the Services. The Facilities shall be made available to
Consultant as well as the other corporate executives on an "as needed" basis
upon reasonable notice to MedPartners.

(f) Miscellaneous. Consultant shall have the right to use the
professional sporting event tickets described in Exhibit A hereto during the
term of this Agreement so long as they are owned by MedPartners. Consultant
shall have the right of first refusal with respect to such tickets in the event
MedPartners elects to dispose of such tickets.

5. Confidentiality and Competition Restrictions. During the one (1) year
period commencing on the Effective Date of this Agreement, Consultant shall not,
without prior written consent of the Board or pursuant to and consistent with
the order of any court, legislative body or regulatory agency: (a) engage
directly or indirectly (including, by way of example only, as a principal,
partner, joint venturer, employee, consultant or agent), nor have any direct or
indirect interest, in any business which competes with MedPartners in any
material respect; or (b) disclose to any third party, either directly or
indirectly, any non-public information regarding MedPartners' business,
customers, financial conditions, strategies or operations, the disclosure of
which could possibly harm MedPartners in any material respect. Clause (a) above
shall not apply to any investment by Consultant in the stock of a
publicly-traded corporation, provided such investment constitutes less than five
percent of such corporation's total outstanding capital stock. The provisions of
Section 5(a) supersede the provisions of Section 6.02 of the Employment
Agreement.

6. Termination. MedPartners may terminate this Agreement (other than the
obligations under Section 5 of this Agreement) if the Chairman, in his sole
discretion, shall determine that Consultant has not effectively and timely
performed the consulting duties requested of Consultant under this Agreement, or
if Consultant violates the provisions of Section 5 of this Agreement, or shall
otherwise engage in conduct that is demonstrably and
<PAGE> 4

materially injurious to MedPartners, upon 30 days written notice to Consultant;
provided, however, that no such termination by reason of non-performance by
Consultant of the Services described in Section 1 of this Agreement shall be
effective unless MedPartners shall have first given Consultant written notice at
least 30 days prior to the time it intends to terminate the Agreement, detailing
the reason for such termination. Consultant shall then have that 30-day period
to cure the reasons for such termination. It is agreed that no such termination
shall be effected so long as Consultant is making a good faith effort in all the
circumstances to fulfill his obligations hereunder. This Agreement may not be
terminated by MedPartners other than for Consultant's non-performance, which
termination shall be in the manner described in this Section 6. Termination of
the Agreement shall extinguish all further obligations of payment or performance
hereunder.

7. Successors. The rights and duties of a party hereunder shall not be
assignable by that party; provided, however, that this Agreement shall be
binding upon and shall inure to the benefit of any successor of MedPartners, and
any such successor shall be deemed substituted for MedPartners under the terms
of this Agreement. The term "successor" as used herein shall include any Person
which at any time, by merger, purchase or otherwise, acquires substantially all
of the assets of MedPartners.

8. Attorneys Fees. In any action at law in equity brought by any party
hereto to enforce any of the provisions or rights under this Agreement, the
non-prevailing party shall reimburse the prevailing party for all costs and
expenses incurred by the prevailing party, including reasonable attorneys fees
in connection with such action.

9. Entire Agreement. With respect to the matters specified herein, this
Agreement, together with the Employment Agreement, contains the entire agreement
between MedPartners and Consultant and supersedes all prior written agreements,
understandings and commitments between MedPartners and Consultant. No amendments
to this Agreement may be made except through a written document signed by
Consultant and approved in writing by the Board.

10. Validity. In the event that any provisions of this Agreement are held
to be invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Agreement.

11. Sections and Other Headings. Sections and other headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

12. Notice. Any notice or demand required or permitted to be given under
this Agreement shall be made in writing and shall be deemed effective upon the
personal delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid, and addressed in the case
of MedPartners to the attention of the Board at MedPartners' then principal
place of business, presently 3000 Galleria Tower, Suite 1000, Birmingham,
Alabama 35244 and in the case of Consultant to 3120 N.E. 46th Street, Fort
Lauderdale, Florida 33308. Either party may change the address to which such
notices are to be addressed by giving the other party notice of such change in
the manner herein set forth.
<PAGE> 5

13. Right of Retention. Nothing stated in or implied by this Agreement
shall prevent MedPartners from terminating the Services of Consultant at any
time nor prevent Consultant from voluntarily terminating his Services at any
time, on the terms and conditions provided herein.

14. Withholding Taxes and Other Deductions. To the extent required by
law, MedPartners shall withhold from any payments due Consultant under this
Agreement any applicable federal, state or local taxes and such other deductions
as are prescribed by law.

15. Applicable Law. To the full extent controllable by stipulation of
MedPartners and Consultant, this Agreement shall be interpreted and enforced
under Delaware law.

16. Cooperation. Consultant acknowledges and agrees that following the
termination of Consultant's services with MedPartners, Consultant may be
contacted by MedPartners or its legal counsel concerning various lawsuits or
other legal matters about which Consultant may have knowledge. Consultant agrees
to cooperate with all reasonable requests for assistance from MedPartners in
this regard. Consultant further agrees to notify MedPartners if Consultant is
served with a subpoena or other legal process, or otherwise contacted by or
asked to provide information to, any other party (including government agencies)
concerning investigations, lawsuits or other legal proceedings involving either
or both of MedPartners. MedPartners agrees to compensate Consultant after the
Term of this Agreement on a basis agreed upon by Consultant and MedPartners and
to reimburse Consultant for all reasonable expenses incurred by Consultant
following the termination of this Agreement in fulfilling these obligations.
These obligations are subject to any and all personal rights and privileges that
Consultant may have concerning any of these matters.

17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

IN WITNESS WHEREOF, MedPartners has caused this Consulting and Non-Compete
Agreement to be executed by its duly authorized representative and Consultant
has executed this Agreement as of the date first above written.

MEDPARTNERS, INC.

By:
--------------------------------------
Larry R. House
Chairman of the Board, President
and chief Executive Officer

--------------------------------------
J. CLIFFORD FINDEISS, M.D.

<PAGE> 1

EXHIBIT 10-19

CONSULTING AND NON-COMPETE AGREEMENT

This CONSULTING AND NON-COMPETE AGREEMENT (the "Agreement"), entered into
this day of June, 1997, by and between MEDPARTNERS, INC., a Delaware
corporation ("MedPartners"), and GEORGE W. MCCLEARY, JR. (the "Consultant").
Capitalized terms not defined herein shall have the meaning assigned to them in
the Merger Agreement or Section 3 hereof.

WHEREAS, MedPartners and Consultant wish to set forth their understanding
with respect to the terms and conditions relating to the Services to be
performed by Consultant hereunder.

identifying possible acquisitions, assisting MedPartners in negotiations related
to proposed acquisitions, including placing phone calls and writing letters as
necessary, and using all other contacts and other resources of Consultant to
consummate proposed acquisitions, identifying areas of potential synergy between
MedPartners and any such businesses generally, and shall consult with the
Chairman with respect to MedPartners' development and implementation of plans of
actions to realize such synergies for MedPartners, including cross-selling
opportunities and consolidation of certain functional areas.

MedPartners and Consultant acknowledge that any difference between the
compensation to be paid to Consultant pursuant to this Agreement and the total
compensation paid to Consultant when Consultant was a full-time employee is a
result of arm's length negotiations between Consultant and MedPartners and
reflects MedPartners' desire to have access to Consultant's unique skills and
abilities and Consultant's agreement to make his services available to
MedPartners on less than a full-time basis. MedPartners acknowledges that
Consultant will have other business activities and will use his reasonable best
efforts to perform Services under this Agreement on a prompt basis consistent
with such other activities.

3. Definitions. The following terms shall have the meanings set forth
below:

"Board" shall mean the Board of Directors of MedPartners.

"Consulting Fee" shall mean the consulting fee provided for in
Paragraph 4(a) hereof.

"Services" shall mean the services to be performed by Consultant
pursuant to this Agreement, as further described in Section 1 hereof.

"Term of this Agreement" shall mean the period of time specified in
Paragraph 2 hereof.

"Termination of Services" shall mean the termination of Consultant's
Services for any reason whatsoever, including death.
<PAGE> 3

4. Consultants Rights From and After the Closing Date. (a) Consulting
Fee. Consultant shall be paid a consulting fee by MedPartners (the "Consulting
Fee") in the amount of $600,000, $350,000 of which shall be paid at the
Effective Time and $250,000 of which shall be paid on the first anniversary of
the Effective Time. In addition, as used herein, "Consulting Fee" shall be
deemed to include such other fees and amounts as may be paid or reimbursed to
Consultant under this Agreement. Each portion of the Consulting Fee shall be
deemed fully earned as of the date MedPartners becomes obligated to pay such
portion.

(b) Independent Contractor. Consultant shall be an independent contractor
of MedPartners and not an employee, and Consultant shall not be authorized to
bind or act on behalf of MedPartners.

(d) Non-Competition Fee. Consultant shall be paid a non-compete fee in
the amount of $400,000 by MedPartners on the Effective Date as compensation for
the restrictions set forth in Section 5 of this Agreement.

5. Confidentiality and Competition Restrictions. During the one (1) year
period commencing on the Effective Date of this Agreement, Consultant shall not,
without prior written consent of the Board or pursuant to and consistent with
the order of any court, legislative body or regulatory agency: (a) engage
directly in any business which competes with MedPartners in a manner which could
adversely affect MedPartners' contractual relationships as in effect at the
Effective Time; or (b) disclose to any third party, either directly or
indirectly, any non-public information regarding MedPartners' business,
customers, financial conditions, strategies or operations, the disclosure of
which could possibly harm MedPartners in any material respect. Clause (a) above
shall not apply to any investment by Consultant in the stock of a
publicly-traded corporation, provided such investment constitutes less than five
percent of such corporation's total outstanding capital stock. The provisions of
Section 5(a) supersede the provisions of Section 6.02 of the Employment
Agreement.

6. Termination. MedPartners may terminate this Agreement if the Chairman,
in his sole discretion, shall determine that Consultant has not effectively and
timely performed the consulting duties requested of Consultant under this
Agreement, or if Consultant violates the provisions of Section 5 of this
Agreement, or shall otherwise engage in conduct that is demonstrably and
materially injurious to MedPartners, upon 30 days written notice to Consultant;
provided, however, that no such termination by reason of non-performance by
Consultant of the Services described in Section 1 of this Agreement shall be
effective unless MedPartners shall have first given Consultant written notice at
least 30 days prior to the time it intends to terminate the Agreement, detailing
the reason for such termination. Consultant shall then have that 30-day period
to cure the reasons for such termination. It is agreed that no such termination
shall be effected so long as Consultant is making a good
<PAGE> 4

faith effort in all the circumstances to fulfill his obligations hereunder. This
Agreement may not be terminated by MedPartners other than for Consultant's
non-performance, which termination shall be in the manner described in this
Section 6. Termination of the Agreement shall extinguish all further obligations
of payment or performance hereunder.

12. Notice. Any notice or demand required or permitted to be given under
this Agreement shall be made in writing and shall be deemed effective upon the
personal delivery thereof if delivered or, if mailed, 48 hours after having been
deposited in the United States mail, postage prepaid, and addressed in the case
of MedPartners to the attention of the Board at MedPartners' then principal
place of business, presently 3000 Galleria Tower, Suite 1000, Birmingham,
Alabama 35244 and in the case of Consultant to 2680 Natoma Street, Miami,
Florida 33133. Either party may change the address to which such notices are to
be addressed by giving the other party notice of such change in the manner
herein set forth.

15. Applicable Law. To the full extent controllable by stipulation of
MedPartners and Consultant, this Agreement shall be interpreted and enforced
under Delaware law.

17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

MEDPARTNERS, INC.

By:
--------------------------------------
Larry R. House
Chairman of the Board, President
and chief Executive Officer

--------------------------------------
GEORGE W. MCCLEARY, JR., ESQ.