ADVANCED HEALTH CORP, S-1/A, 1996-09-09

ADVANCED HEALTH CORP
S-1/A, 1996-09-09
MISC HEALTH & ALLIED SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1996

REGISTRATION NO. 333-06283
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADVANCED HEALTH CORPORATION
(Exact name of registrant as specified in charter)

<TABLE>
<S> <C> <C>
DELAWARE 8099 13-3893841
(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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560 WHITE PLAINS ROAD
TARRYTOWN, NEW YORK 10591
(914) 524-4200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JONATHAN EDELSON, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ADVANCED HEALTH CORPORATION
560 WHITE PLAINS ROAD
TARRYTOWN, NEW YORK 10591
(914) 524-4200
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
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WITH COPIES TO:

JOHN J. SUYDAM, ESQ. MARK KESSEL, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP SHEARMAN & STERLING
30 ROCKEFELLER PLAZA 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10112 NEW YORK, NEW YORK 10022
(212) 408-2400 (212) 848-4000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / / ___________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ___________________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please 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.
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<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)

DATED SEPTEMBER 9, 1996

2,000,000 SHARES

[LOGO]

ADVANCED HEALTH CORPORATION
COMMON STOCK
----------------------

All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Advanced Health Corporation ("Advanced Health" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is estimated that the initial public offering price will be between $11.00
and $13.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"ADVH", subject to official notice of issuance.

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE><CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share................................ $ $ $
Total (3)................................ $ $ $

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</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated to be $850,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."

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

The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York, on or about , 1996.

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

COWEN & COMPANY VOLPE, WELTY & COMPANY

, 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
A diagram captioned "Advanced Health Corporation/Integrating Physician
Management Services with Information Technology", which includes a center circle
with the caption "Advanced Health Integrated Solutions for Physicians" with
boxes above it captioned "Physician Practice Management Services", "Physician
Network Management Services" and "Clinical Information Systems" and boxes below
it captioned "Preserving Practice Ownership by Physicians", "Empowering
Physicians to Succeed in Managed Care", "Providing Point-of-Care Clinical
Decision Support", "Enhancing Physician Communication and Information Access",
"Providing Operations Support and Administrative Efficiencies", "Providing
Disease Management Program Services for High-Cost, High-Volume Specialties".

Med-E-PracticeTM, Smart ScriptsTM, Internet Script WriterTM, Med-E-VisitTM,
Practice Management IntegratorTM, Med-E-NetworkTM, Med-E-Net CentralTM,
Med-E-Net OfficeTM, Med-E-Net IntegratorTM and Med-E-Net CardiologyTM are
trademarks of the Company. Trade names and trademarks of other companies
appearing in this Prospectus are the property of their respective holders.
-------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) reflects a 1.5-for-1 split of the Common Stock effected in the form
of a stock dividend in April 1996 and a .59581-for-1 reverse split of the Common
Stock to be effected prior to the date of this Prospectus (the "Stock Splits")
and (iii) reflects the conversion of all outstanding Convertible Preferred Stock
of the Company into Common Stock upon the consummation of this offering (the
"Preferred Stock Conversion"). Unless the context otherwise requires, all
references in this Prospectus to the Company refer collectively to Advanced
Health Corporation, its predecessor and its subsidiaries.

THE COMPANY

Advanced Health Corporation provides a full range of integrated management
services and clinical information systems to physician group practices, single
legal entities comprised of multiple physicians, and to physician networks,
aggregations of individual physicians and physician groups formed for the
purpose of entering into contracts with third-party payors. The management
services provided by the Company include physician practice and network
development, marketing, payor contracting, financial and administrative
management, clinical information management, human resource management and
practice and network governance. The Company developed its clinical information
systems to provide physicians, at the point of care and on a real-time basis,
with patient-specific clinical and payor information and the ability to generate
patient medical orders and facilitate the implementation of disease management
programs. Through the management of multi-specialty and single-specialty
physician group practices and networks, the Company focuses its management
efforts on high-cost, high-volume disease specialties, such as cardiology,
oncology and orthopedics. The Company currently manages two multi-specialty
physician group practices and two single-specialty physician group practices
comprised of more than 75 physicians in the New York metropolitan area and eight
physician networks with approximately 800 physicians in the greater New York and
Atlanta metropolitan areas, and provides physician group consulting services to
more than 100 physicians.

Health care expenditures in the U.S. totalled approximately $1 trillion in
1994, with approximately 85% of such expenditures controlled by physician
decisions. Increasing concern over the rising cost of health care has led to the
development of managed care programs, which have shifted traditional fee-
for-service reimbursement for physicians to capitated and other fixed-fee
arrangements. As the financial risk of delivering health care shifts from payors
to providers, physicians are faced with increasing management responsibilities
and declining compensation. Because the majority of physicians practice
individually or in two-person groups, they tend to have limited financial and
administrative capacity. Consequently, physician practice management companies
have emerged in recent years to manage the financial and administrative
requirements of physician organizations. More importantly, the Company believes
there exists an even greater need among physicians for clinical management
services and information systems. The Company believes that assisting physicians
in managing the clinical aspects of their practices represents the greatest
opportunity to enhance the quality and reduce the cost of health care.

The Company believes that it is well positioned to attract, organize and
manage physician group practices and networks by offering a full range of
integrated management services and clinical information systems. The Company
believes that its clinical information systems will allow physicians, at the
point of care and on a real-time basis, (i) to access patient-specific clinical
and payor information, (ii) to generate patient instructions, prescriptions and
orders for tests, specialty referrals and specialty procedures and (iii) to
access databases containing managed care and disease management protocols,
diagnostic/treatment preferences and guidelines affecting medical orders. By
combining its group practice and network management services with its clinical
information systems, the Company believes it can provide physicians with
integrated solutions for managing the increased financial opportunities and
risks associated with managed care contracts while allowing physicians to
improve the quality of care.

3
<PAGE>
The Company's strategy includes (i) establishing long-term contractual
alliances with physician organizations, (ii) managing high-cost, high-volume
disease specialties such as cardiology, oncology and orthopedics, (iii)
providing physicians with clinical information at the point of care, (iv)
focusing on selected geographic markets that offer concentrations of physicians
seeking the Company's services and (v) continuing to develop relationships with
key industry participants. The Company has entered into a software license and
integration agreement with Merck Medco Managed Care, Inc. for the Company's
prescription writing software. In addition, the Company has entered into a
contract with an affiliate of PCS Health Systems, Inc., the managed care unit of
Eli Lilly & Company, to provide disease management information services and
software for the treatment of certain diseases.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby.................... 2,000,000 shares
Common Stock to be outstanding after the 6,500,267 shares(1)
offering.......................................
Use of proceeds................................ To repay certain indebtedness and for
working capital and general corporate
purposes, which may include acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol......... ADVH
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)

<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED SIX MONTHS ENDED
INCEPTION DECEMBER 31, JUNE 30,
(AUGUST 27, 1993) TO ----------------- ---------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
-------------------- ------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ -- $ 379 $ 1,054 $ 100 $ 7,617
Cost of sales.................... -- 12 340 22 3,512
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Gross profit..................... -- 367 714 78 4,105
Operating expenses............... 66 1,318 3,255 617 4,034
Research and development
expenses........................... 455 1,582 3,157 1,512 1,875
------ ------- ------- ------- -------
Operating loss................... (521) (2,533) (5,698) (2,051) (1,804)
Other income (expense)........... -- (15) (8) 1 (54)
------ ------- ------- ------- -------
Net loss......................... $ (521) $(2,548) $(5,706) $(2,050) $(1,858)
------ ------- ------- ------- -------
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Net loss per share............... $(0.23) $ (1.03) $ (1.47) $ (0.65) $ (0.37)
------ ------- ------- ------- -------
------ ------- ------- ------- -------
Weighted average number of common
shares and common share
equivalents outstanding(2)......... 2,229 2,482 3,893 3,136 4,991

<CAPTION>
JUNE 30, 1996
---------------------------------
ACTUAL AS ADJUSTED (3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash....................................................................... $ 837 $18,307
Working capital (deficit).................................................. (2,713) 18,757
Total assets............................................................... 8,191 25,661
Total debt................................................................. 4,504 504
Total stockholders' equity................................................. 863 22,333
</TABLE>

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(1) Excludes 783,032 shares issuable upon the exercise of outstanding stock
options at a weighted average exercise price of $3.44 per share and 481,489
shares issuable upon the exercise of outstanding warrants to purchase Common
Stock at a weighted average exercise price of $8.50 per share. Also excluded
are 306,769 shares and 113,995 shares issuable upon the exercise of options
and warrants, respectively, which, in each case, are contingent upon the
Company's achieving certain capitalization levels related to regulatory
requirements or upon the Company's achieving certain performance targets.
See "Management -- Stock Plans" and Notes 3 and 10 of Notes to Consolidated
Financial Statements.

(2) See Notes 2 and 14 of Notes to Consolidated Financial Statements.

(3) Adjusted to give effect to (i) the sale by the Company of 2,000,000 shares
of Common Stock offered hereby at an assumed initial public offering price
of $12.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses and (ii) the receipt and initial
application of the net proceeds therefrom. See "Use of Proceeds."

4
<PAGE>
RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors should be carefully considered in
evaluating the Company and its business before purchasing the shares of Common
Stock offered hereby. The discussion in this Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and in the sections entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as those discussed elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; HISTORY OF LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY

The Company was incorporated in August 1993, began providing physician
practice and network management services in December 1995 and has not yet
commercially installed its clinical information systems. Accordingly, the
Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. As of June 30, 1996, the Company had an
accumulated deficit of approximately $10.6 million. The Company has never
achieved profitability and expects to continue to incur operating losses through
at least the end of 1996. Due to anticipated increases in operating expenses,
the Company's operating results will be adversely affected if sales of its
management services and clinical information systems do not increase. In
addition, the Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in rapidly evolving markets. To
address these risks, the Company must, among other things, expand sales of its
physician practice and network management services, commercialize its clinical
information systems, respond to competitive developments and continue to attract
and retain qualified personnel. Accordingly, there can be no assurance that the
Company will be able to generate sufficient revenue to achieve profitability, to
maintain such profitability, if achieved, on a quarterly or annual basis or to
sustain or increase its revenue growth in future periods. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

DEPENDENCE ON MANAGEMENT CONTRACTS WITH AFFILIATED PHYSICIAN GROUPS AND NETWORKS

The Company's revenue to date has been derived from a limited number of
management agreements between the Company and certain physician groups and
networks. Such management agreements generally have an initial term of five to
20 years and are automatically renewable for additional terms. See "Risk Factors
- -- Concentration of Revenues" and "Business--Contractual Relationships with
Affiliated Physicians." The termination of any one or more of such management
agreements would have a material adverse effect on the Company's revenues and
results of operations. The Company's future growth and profitability is
substantially dependent upon obtaining new contracts for the provision of
services to physician groups and physician networks on satisfactory terms and
conditions. The Company must accurately assess the costs it will incur in
providing services in order to negotiate contracts on terms under which the
Company can expect to realize adequate profit margins or otherwise meet its
objectives. The future growth and profitability of the Company is also dependent
on the Company's ability to effectively integrate the practices of its
affiliated physicians, to manage and control costs and to realize economies of
scale. The integration of new physician practice and network management
contracts, as well as the maintenance of existing contracts, is made more
difficult by reduced reimbursement rates of health care payors at a time when
the cost of providing medical services continues to increase. There can be no
assurance that the Company will obtain new physician practice and network
management contracts on satisfactory terms, or at all. Any failure of the
Company to obtain new contracts and price its services appropriately would have
a material adverse effect on the Company's business, financial condition and
results of operations and the price of the Common Stock. See "Business --
Physician Practice and Network Services."

5
<PAGE>
UNCERTAINTY OF SUCCESSFUL COMMERCIALIZATION OF CLINICAL INFORMATION SYSTEMS

Since its inception in August 1993, the Company has focused on developing
its clinical information systems. However, to date, the Company has commercially
installed its clinical information systems only on a limited basis. The
Company's future growth and profitability is substantially dependent upon the
success of its clinical information systems. The Company believes that market
acceptance of such systems will depend upon the continued growth of managed care
in the Company's markets, the continued increase in the administrative and
clinical complexity of ambulatory medicine, the clinical efficacy of the disease
management programs developed by its affiliated physicians and third parties,
the continued downward trend in the cost of computer hardware, particularly
handheld computing devices and wireless network infrastructures, and the
continued consolidation of physician group practices. No assurance can be given
that the Company's clinical information systems will be accepted or competitive
or that the Company will be successful in taking systems from their current
state of limited commercial introduction to commercial acceptance. If the
Company's clinical information systems do not achieve market acceptance or if
the Company does not develop and maintain sales, marketing and service
expertise, the Company's growth, revenues and results of operations will be
materially adversely affected. See "Business -- Clinical Information Systems."

CONCENTRATION OF REVENUES

In the year ended December 31, 1995, Madison Medical -- The Private Practice
Group of New York, L.L.P. ("Madison") accounted for approximately 36% of the
Company's revenues. In the six months ended June 30, 1996, Madison and the
Advanced Heart Physicians & Surgeons Network, P.C. ("AHP&S") accounted for
approximately 49% and 23% of revenues, respectively. The Company's management
services agreements generally have an initial term of five to 20 years and may
be terminated only for cause. The management services agreement with Madison,
however, gives Madison the right to terminate without cause following the first
year of the term and prior to the end of the tenth year of the term upon payment
of a penalty and thereafter without penalty. In addition, in the year ended
December 31, 1995, the Company's disease management software license and
integration agreement with an affiliate of PCS Health Systems, Inc., the managed
care unit of Eli Lilly & Company, accounted for approximately 32% of the
Company's revenues. Although such affiliate of PCS Health Systems has agreed to
sponsor two pilot programs involving the software applications developed by the
Company, it has no obligation thereafter to use or distribute the Company's
software. Although the Company seeks to build long-term customer relationships,
no assurance can be given that such relationships will continue. Any termination
or significant deterioration of the Company's relationships with its principal
customers could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, a deterioration in
the financial condition of any of its principal customers would materially
adversely affect the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

MANAGEMENT OF GROWTH

The Company recently has experienced, and expects to continue to experience,
substantial growth and has significantly expanded, and expects to continue to
expand, its operations. This growth and expansion has placed, and will continue
to place, significant demands on the Company's management, technical, financial
and other resources. To manage growth effectively, the Company must maintain a
high level of operational quality and efficiency, and must continue to enhance
its operational, financial and management systems and to expand, train and
manage its employee base. To date, the Company has only limited experience in
providing physician practice and network management services and clinical
information systems. To execute its growth strategy, the Company plans to
significantly increase the number of physician practices and networks under
management, expand its clinical information systems customer base, develop
disease management services and develop a sales and marketing organization.
There can be no assurance that the Company will be able to manage growth
effectively, and any failure to do so could have a material adverse effect on
the Company's business, financial condition and results of operations and the
price of the Common Stock.

6
<PAGE>
COST CONTAINMENT AND REIMBURSEMENT TRENDS

The health care industry is experiencing a trend toward cost containment as
government and private third-party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with service
providers. The federal government has implemented, through the Medicare program,
a resource-based relative value scale ("RBRVS") payment methodology for
physician services. This methodology went into effect in 1992 and is continuing
to be implemented in annual increments through December 31, 1996. RBRVS is a fee
schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year, and is subject to increases or decreases at the
discretion of Congress. To date, the implementation of RBRVS has reduced payment
rates for certain of the procedures historically provided by the physician
groups and networks managed by the Company. Management estimates that 35% of the
revenues of physician groups managed by the Company are derived from government
sponsored health care programs (principally, Medicare, Medicaid and state
reimbursed programs). RBRVS-type of payment systems have also been adopted by
certain private third-party payors and may become a predominant payment
methodology. More wide-spread implementation of such programs would reduce
payments by private third-party payors. Rates paid by many private third-party
payors, including those that provide Medicare supplemental insurance, are based
on established physician and hospital charges and are generally higher than
Medicare payment rates. A change in the patient mix of the practices under
Company management that results in a decrease in patients covered by private
insurance could adversely affect the Company's results of operations if the
Company is unable to assist physicians in containing the cost of the provision
of medical services. To the extent that affiliated physicians receive lower
revenue for medical services, there can be no assurance that the Company will be
able to derive sufficient revenues from its relationship with any such
affiliated physicians to achieve or maintain profitability. The Company believes
that cost containment trends will continue to result in a reduction from
historical levels in per-patient revenue for medical practices. Further
reductions in payments to physicians or other changes in reimbursement for
health care services
could have an adverse effect on the Company's operations, unless the Company is
otherwise able to offset such payment reductions. There can be no assurance that
the effect of any or all of these changes in third-party reimbursement could be
offset by the Company through cost reductions, increased volume, introduction of
new services and systems or otherwise. See "Risk Factors -- Uncertainty Related
to Health Care Reform" and "Business -- Government Regulation."

RISKS ASSOCIATED WITH CAPITATED FEE ARRANGEMENTS

As an increasing percentage of patients are coming under the control of
managed care entities, the Company believes that its success will, in part, be
dependent upon the Company's ability to negotiate and manage, on behalf of
physician practice groups and networks, agreements with health maintenance
organizations ("HMOs"), employer groups and other private third-party payors
pursuant to which professional services will be provided on a risk-sharing or
capitated basis by some or all of the physicians affiliated with the Company.
Under some of such agreements, the health care provider accepts a pre-determined
amount per patient per month in exchange for providing all necessary covered
services to the patients covered by the agreement. Such agreements pass the
economic risk of providing care from the payor to the provider. In the Company's
target markets, capitated fee arrangements are relatively new and the Company
has limited experience in negotiating or managing capitated fee agreements. The
proliferation of such agreements in markets served by the Company could result
in greater predictability of revenues, but not necessarily of profits, for
physicians affiliated with the Company. There can be no assurance that the
Company will be able to negotiate, on behalf of the physicians, satisfactory
arrangements on a risk-sharing or capitated basis or that the physician
organizations managed by the Company will be able to provide medical services at
a profit under such arrangements. To the extent affiliated physicians incur
medical costs that limit such affiliated physicians' profitability, there can be
no assurance that the Company will be able to derive sufficient revenues from
its relationship with any such affiliated physicians to achieve or maintain
profitability.

7
<PAGE>

RISKS ASSOCIATED WITH DIRECT CAPITATION

The Company anticipates entering into managed care or capitated
arrangements, either indirectly through the assignment of managed care contracts
entered into between its affiliated physicians and third-party payors or
directly through the formation of an independent physician association ("IPA")
in states in which such entities are permitted to do so without being regulated
as an insurance company. The Company has little experience in managing
capitated-risk arrangements. Revenues under managed care or capitated
arrangements entered into by the Company will generally be a fixed amount per
enrollee. Under such an arrangement, the Company would contract with affiliated
physicians for the provision of health care services and the Company would be
responsible for the provision of all or a portion of the health care
requirements of such enrollees. To the extent that such enrollees require more
care than is anticipated by the Company upon entering into such a contract, the
Company's revenues under such contracts may be insufficient to cover its costs.
Although the Company expects to enter into reinsurance agreements with
third-party insurers in respect of such risk, no assurances can be given that
the Company will be able to obtain such reinsurance on favorable terms, if at
all. In addition, the Company has no experience in forming or managing an IPA.
See "Business -- Contractual Relationships with Affiliated Physicians --
Capitated and Other Fixed-Fee Arrangements."

HIGHLY COMPETITIVE INDUSTRY

The physician practice and network management industry is highly
competitive. The industry is also subject to continuing changes in how services
and products are provided and how providers are selected and paid. As prepaid
medical care continues to grow, the Company may encounter increased competition.
Certain companies are expanding their presence in the physician management
market through the use of several approaches. A number of companies provide
broad management services to primary, multi-specialty and specialty physician
groups, while other companies provide claims processing, utilization review and
other more focused management services. In addition, certain of the Company's
competitors are dedicated to the management of single-specialty practices
focused on diseases such as cardiology, oncology and orthopedics. Certain of the
Company's competitors are significantly larger, have access to greater
resources, provide a wider variety of services and products, have greater
experience in providing health care management services and products and/or have
longer established relationships with customers for these services and products.
The Company believes that competition for services is based on cost and quality
of services. There can be no assurance that the Company's strategy will allow it
to compete favorably in contracting with payors or expanding or maintaining its
physician group practices or networks in existing or new markets. In addition,
many health care providers are consolidating to create larger health care
delivery enterprises with greater regional market power. Such consolidation
could erode the Company's customer base and reduce the size of the Company's
target market. In addition, the resulting enterprises could have greater
bargaining power, which could lead to price erosion affecting the Company's
services. The reduction in the size of the Company's target market or the
failure of the Company to maintain adequate price levels could have a material
adverse effect on the Company's business, financial condition and results of
operations and on the price of the Common Stock.

The market for health care information systems is highly competitive and
rapidly changing. The Company believes that the principal competitive factors
for clinical information systems are the usefulness of the data and reports
generated by the software, customer service and support, compatibility with the
customer's existing information systems, potential for product enhancement,
vendor reputation, price and the effectiveness of sales and marketing efforts.
Many of the Company's competitors and potential competitors have greater
financial, product development, technical and marketing resources than the
Company, and currently have, or may develop or acquire, substantial installed
customer bases in the health care industry. In addition, as the market for
clinical information systems develops, additional competitors may enter the
market and competition may intensify. While the Company believes that it has
successfully differentiated itself from competitors, for example, by offering
clinical information systems that provide patient-specific, point-of-care
information, there can be no assurance that, in the future, competition will not
have a material adverse effect on the Company's

8
<PAGE>
business, financial condition and results of operations and on the price of the
Common Stock. See "Business -- Competition."

GOVERNMENT REGULATION

As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing regulation under numerous
laws administered by governmental entities at the federal, state and local
levels. These laws include the fraud and abuse provisions of the Medicare and
Medicaid statutes, which prohibit the solicitation, payment, receipt or offer of
any direct or indirect remuneration for the referral of Medicare or Medicaid
patients or for the order or provision 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. Such exclusion, if applied to the physician groups or networks managed
by the Company, could result in significant loss of reimbursement. Several
states, including states in which the Company operates, have adopted similar
laws that cover patients in private programs as well as government programs. In
addition, the laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by the courts and by
regulatory authorities. New York State, for example, prohibits percentage
payments from physicians or physician groups to management entities for services
other than billing and collecting and prohibits management entities from
engaging in the delivery of medical services. The Company believes its
operations are in material compliance with applicable laws in all jurisdictions
in which it operates. In addition to complying with the statutory prohibitions
on the corporate practice of medicine, the Company's affiliated management
entities agree contractually not to practice medicine or otherwise provide
medical services. Nevertheless, because of the structure of its relationship
with its affiliated physician groups and networks, many aspects of the Company's
business operations have not been the subject of state or federal regulatory
interpretation and there can be no assurance that a review of the Company's or
its affiliated physicians' businesses by courts or regulatory authorities will
not result in a determination that could adversely affect the operations of the
Company or its affiliated physicians (for example, by rendering the Company's
management services agreements with a physician organization unenforceable) or
that the health care regulatory environment will not change so as to restrict
the Company's or its affiliated physicians' existing operations or expansion. In
addition, recently released regulations dealing with the use of physician
incentives may restrict the extent to which payors or the Company may impose
financial risk upon physicians (or other providers). Violation of such
regulations could result in substantial penalties. Such regulations may reduce
the Company's ability to control its expenses.

The confidentiality of patient records and the circumstances under which
such records may be released are subject to substantial regulation by state and
federal laws and regulations, which govern both the disclosure and use of
confidential patient medical record information. The Company believes that it
complies with the laws and regulations regarding the collection and distribution
of patient data in all jurisdictions in which it operates, but regulations
governing patient confidentiality rights are evolving rapidly and are often
unclear and difficult to apply in the rapidly restructuring health care market.
Additional legislation governing the dissemination of medical record information
is continually being proposed at both the state and federal level. Such proposed
legislation could require patient consent before even coded or anonymous patient
information may be shared with third parties and that holders or users of such
information implement security measures. In addition, the American Medical
Association (the "AMA") has issued a Current Opinion to the effect that a
physician who does not obtain a patient's consent to disclosure of patient
information for commercial purposes, including anonymous disclosure, violates
the AMA's ethical standards with respect to patient confidentiality. While the
AMA's Current Opinions are not law, they may influence physicians' willingness
to obtain patient consents or agree to permit the Company to access clinical
data in their systems without such consents. Any such restrictions could have a
material adverse effect on the Company's ability to market its

9
<PAGE>
services and systems. Although the Company intends to safeguard patient privacy
when clinical data is accessed and to enter patient medical information into or
receive such information from its database only with the consent of the patient,
if a patient's privacy is violated, the Company could be liable for damages
incurred by such patients. There can be no assurance that changes to state or
federal laws will not materially restrict the ability of the Company to obtain
or disseminate patient information. See "Business -- Government Regulation."

FDA REGULATION

Products, including software applications, intended for use in the diagnosis
of disease or other conditions, or in the cure, treatment, mitigation or
prevention of disease, are subject to regulation by the United States Food and
Drug Administration (the "FDA") as medical devices. The laws administered by the
FDA impose substantial regulatory controls over the manufacturing, labeling,
testing, distribution, sale, marketing and promotion of medical devices and
other related activities. These regulatory controls can include compliance with
the following requirements: manufacturer establishment registration and device
listing; current good manufacturing practices; FDA clearance of a premarket
notification submission or FDA approval of a premarket approval application;
medical device adverse event reporting; and general prohibitions on misbranding
and adulteration. Violations of the laws concerning medical devices can result
in, among other things, severe criminal and civil penalties, product seizure,
recall, repair or refund orders, withdrawal or denial of premarket notifications
or premarket approval applications, denial or suspension of government contracts
and injunctions against unlawful product manufacture, labeling, promotion and
distribution or other activities. In its 1989 Draft Policy for the Regulation of
Computer Products (the "1989 Draft Policy Statement"), the FDA stated that it
intended to exempt certain clinical decision support software products from a
number of regulatory controls, and that until those regulations were issued it
would not require manufacturers of such products to comply with requirements
other than the prohibitions on misbranding and adulteration. The Company
believes that its clinical information systems are not medical devices and,
thus, are not subject to the controls imposed on manufacturers of such products
and do not fall within the scope of the 1989 Draft Policy Statement. The Company
further believes that to the extent that its systems were determined to be
medical devices, the systems would fall within the exemptions for decision
support systems provided by the 1989 Draft Policy Statement. The Company has not
sought or obtained a formal opinion of counsel with respect to the issue of FDA
exemption nor has the Company taken action to comply with the controls that
would otherwise apply if the Company's systems were determined to be non-exempt
medical devices. The FDA has stated that it intends to revise its 1989 Draft
Policy Statement and that it may eliminate some or all of the exemptions that it
currently allows. Accordingly, there can be no assurance that the FDA will not
now or in the future make a determination that the Company's current or future
clinical information systems are medical devices subject to FDA regulations and
are ineligible for the exemptions from those regulations. Furthermore, there can
be no assurance that the Company would be able to comply in a timely manner, if
at all, with FDA regulations if the agency made such determinations. Thus, such
determinations by the FDA could significantly delay, or even prevent, the
Company's ability to offer its systems and could otherwise have a material
adverse effect on the Company's business, financial condition and results of
operations and on the price of the Common Stock. See "Business -- Government
Regulation."

UNCERTAINTY RELATED TO HEALTH CARE REFORM

The Company anticipates that Congress and state legislatures will continue
to review and assess alternative health care delivery and payment systems.
Potential approaches that have been considered include mandated basic health
care benefits, controls on health care spending through limitations on the
growth of private health insurance premiums and Medicare and Medicaid spending,
the creation of large insurance purchasing groups and other fundamental changes
to the health care delivery system. Proposals have also been discussed which
would provide incentives for the provision of cost-effective, quality health
care through formation of regional delivery systems. Private sector providers
and payors have embraced certain elements of reform, resulting in increased
consolidation of medical groups and competition among managers of medical
practice groups as these providers and payors seek to form

10
<PAGE>
alliances in order to provide quality, cost-effective care. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company, and there can be no assurance that the adoption of reform
proposals will not have a material adverse effect on the Company's business,
operating results or financial condition. In addition, the announcement of
reform proposals and the investment community's reaction to such proposals, as
well as announcements by competitors and third-party payors of their strategies
to respond to such initiatives, could produce volatility in the trading and
market price of the Common Stock. See "Business -- Government Regulation."

TECHNOLOGICAL CHANGE

The health care information industry is relatively new and is experiencing
rapid technological change, changing customer needs, frequent new product
introductions and evolving industry standards. In addition, as the computer and
software industries continue to experience rapid technological change, the
Company must be able to quickly and successfully adapt its clinical information
systems so that they continue to integrate well with the computer platforms and
other software employed by its customers. There can be no assurance that the
Company will not experience difficulties, including lack of necessary capital or
expertise, that could delay or prevent the successful development and
introduction of system enhancements or new systems in response to technological
changes. The Company's inability to respond to technological changes in a timely
and cost-effective manner could have a material adverse effect on the Company's
business, financial condition and results of operations and on the price of the
Common Stock. See "Business -- Clinical Information Systems."

DEPENDENCE ON PROPRIETARY ASSETS

The Company has made significant investments in its clinical information
systems and relies on a combination of patent, trade secret and copyright laws,
nondisclosure and other contractual provisions and technological measures to
protect its proprietary rights. The Company has two U.S. patent applications and
a foreign patent application commensurate with both U.S. applications but no
issued patents. There can be no assurance that any patent will be issued or, if
issued, that such patent or any other protections will be adequate or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to those of the Company. In addition, there
can be no assurance that the legal protections and precautions taken by the
Company will be adequate to prevent infringement or misappropriation of the
Company's proprietary assets.

Although the Company believes that its clinical information systems do not
infringe upon the proprietary rights of third parties, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future or that a license or similar agreement will be available on
reasonable terms in the event of an unfavorable outcome on any such claim. In
addition, any such claim may require the Company to incur substantial litigation
expenses or subject the Company to significant liabilities and could have a
material adverse effect on the Company's business, financial condition and
results of operations and the price of the Common Stock. See "Business --
Proprietary Rights."

MANAGEMENT SERVICES ORGANIZATIONS NOT WHOLLY-OWNED; PHYSICIAN PUT RIGHTS;
DILUTION

The Company typically establishes a management service organization (an
"MSO") for each physician practice group or network to which it provides
services, which MSO is majority-owned by the Company. The physician group or
network served typically has a minority interest in the MSO. The MSO's assets
consist primarily of its management service contracts with the physician group
or network served and its liabilities consist primarily of its obligations under
its agreements with the Company and its obligations to its employees. Although
the Company has sufficient interests in the MSOs to exercise control over them,
the Company may owe a fiduciary duty to the holders of various minority
interests in such MSOs. Accordingly, the Company may not be able to exercise
unfettered control over such MSOs and may be required to deal with them on terms
no less favorable to such MSOs than could be obtained from unaffiliated third
parties.

11
<PAGE>
Under certain specified circumstances, the Company has the option to cause
certain MSOs to be merged with and into a wholly-owned subsidiary of the Company
in a transaction in which the interests of the physician groups and networks in
such MSOs would be exchanged for Common Stock of the Company (the "Roll Up
Transaction"). The Company has reserved 548,224 shares of Common Stock for
issuance upon consummation of the Roll Up Transaction, all of which shares are
required to be issued if the Company effects the Roll Up Transaction.
Accordingly, the Roll Up Transaction, if effected, will be dilutive to
investors. In addition, certain of the physician groups and networks managed by
the Company have rights to require the Company to purchase all or part of such
physicians' interest in their respective MSOs in the event that the Company does
not consummate the Roll Up Transaction within one year after the satisfaction of
specified conditions. There can be no assurance that the Company will have the
financial resources to purchase such interests in accordance with its
obligations at the time any such rights are exercised, or that the Company would
be able to obtain financing on satisfactory terms or conditions, if at all, to
purchase such interests. To the extent that any future financing requirements
with respect to such put rights are satisfied through the issuance of equity
securities, investors may experience dilution. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Contractual Relationships with Affiliated Physicians."

DEPENDENCE ON KEY PERSONNEL

The Company's ability to market and deliver its services and systems and to
achieve and maintain a competitive position is dependent in large part upon the
efforts of its senior management, particularly Jonathan Edelson, M.D., the
Company's Chairman of the Board and Chief Executive Officer, and Steven
Hochberg, the Company's President. Although the Company is the beneficiary of
$250,000 "key man" life insurance policies on the lives of each of Dr. Edelson
and Mr. Hochberg, the Company does not believe such amount would be adequate to
compensate for the loss of the services of either executive. In addition,
although the Company has entered into employment agreements with most of its
senior executives, including Dr. Edelson and Mr. Hochberg, such agreements will
not assure the services of such employees. The loss of the services of one or
more members of its senior management could have a material adverse effect on
the Company. The Company's future success also will depend upon its ability to
attract and retain qualified management, technical and marketing employees to
support its future growth. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting or
retaining such personnel. The failure to attract and retain such persons could
materially adversely affect the Company. See "Management."

RISK OF LIABILITY CLAIMS

Customer reliance on the Company's services and systems could result in
exposure of the Company to liability claims if the Company's services and
systems fail to perform as intended or if patient care decisions based in part
on guidance from the Company's services and systems are challenged. Even
unsuccessful claims could result in the expenditure of funds in litigation,
diversion of management time and resources or damage to the Company's reputation
and the marketability of the Company's services and systems. While no such
claims have been made against the Company to date, and although the Company
takes contractual steps to obtain indemnification for certain liabilities and
maintains general commercial liability insurance, there can be no assurance that
a successful claim could not be made against the Company, that the amount of
indemnification payments or insurance would be adequate to cover the costs of
defending against or paying such a claim or that the costs of defending against
such a claim or the payment of damages by the Company would not have a material
adverse effect on the Company's business, financial condition and results of
operations and on the price of the Common Stock.

NO PRIOR PUBLIC MARKET; OFFERING PRICE DETERMINED BY AGREEMENT; VOLATILITY OF
STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock. Although the Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, there can be no
assurance that an active trading market for the Common Stock will

12
<PAGE>
develop or continue after this offering. The initial public offering price of
the Common Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters, and may not be indicative of the market
price for the Common Stock after this offering. See "Underwriting." From time to
time after this offering, there may be significant volatility in the market
price for the Common Stock. Results of the Company's operations may fluctuate
significantly from quarter to quarter and will depend on numerous factors,
primarily the timing of the addition of new physician practice groups and
networks under management and the sale of clinical information systems and
associated services. Such fluctuations in quarterly operating results of the
Company, changes in general conditions in the economy, the financial markets or
the health care industry or other developments affecting the Company or its
competitors could cause the market price of the Common Stock to fluctuate
substantially. In addition, in recent years the stock market has experienced
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to their operating performance.

DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of Common Stock in the amount of $8.86 per share, at an assumed
initial public offering price of $12.00 per share (after deducting underwriting
discounts and commissions and estimated offering expenses). Such investors will
experience additional dilution upon the exercise of outstanding options and
warrants. In addition, in the event the Company issues additional Common Stock
in the future, including shares that may be issued in connection with the Roll
Up Transaction or future acquisitions, investors may experience further
dilution. See "Dilution," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Contractual Relationships
with Affiliated Physicians."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of shares of Common Stock (including shares issued upon the exercise
of outstanding options) in the public market after this offering could adversely
affect the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate. Upon
completion of this offering, the Company will have approximately 6,500,267
shares of Common Stock outstanding. The 2,000,000 shares offered hereby will be
freely tradeable without restriction unless they are held by "affiliates" of the
Company as the term is used under the Securities Act of 1933 (the "Securities
Act") and the regulations promulgated thereunder. The remaining approximately
4,500,267 shares are restricted securities that may be sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144 promulgated under the Securities Act. As a result
of the contractual restrictions described below and the provisions of Rules 144,
144(k) and 701 under the Securities Act, additional shares will be available for
sale in the public market as follows: (i) no shares of Common Stock (other than
those shares sold hereby and not held by affiliates) will be available for
immediate sale in the public market on the date of this Prospectus, (ii) 19,272
shares of Common Stock subject to options exercisable within 90 days of the date
of this Prospectus will be freely tradeable by non-affiliates upon the
effectiveness of a registration statement relating to such stock options, (iii)
224,566 shares of Common Stock and 18,432 shares of Common Stock subject to
options exercisable within 90 days of the date of this Prospectus will be
eligible for sale 90 days after the date of this Prospectus, subject to the
volume, manner of sale and reporting requirements of Rule 144, and (iv)
approximately 4,266,800 shares of Common Stock and approximately 9,500 shares of
Common Stock subject to options exercisable within 180 days of the date of this
Prospectus will be eligible for sale upon expiration of the lock-up agreements
180 days after the date of this Prospectus, subject to the volume, manner of
sale and reporting requirements of Rule 144. The holders of 2,941,985 shares of
Common Stock have the right in certain circumstances to require the Company to
register their shares under the Securities Act for resale to the public. If such
holders, by exercising their demand registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Company's

13
<PAGE>
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
"piggyback" registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. See "Shares Eligible for Future
Sale," "Description of Capital Stock" and "Underwriting."

UNSPECIFIED USE OF PROCEEDS

Following this offering, the Company will have approximately $16.4 million
($19.7 million if the Underwriters' over-allotment option is exercised in full)
of the net proceeds of this offering available for working capital and general
corporate purposes, which may include acquisitions. The Company's management,
subject to approval by the Board of Directors in certain circumstances, will
have broad discretion with respect to the application of such proceeds. See "Use
of Proceeds."

POTENTIAL ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BY-LAWS AND THE DGCL

The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws (the "By-laws") and the Delaware General Corporation
Law (the "DGCL") contain provisions which may have the effect of delaying,
deterring or preventing a future takeover or change in control of the Company
unless such takeover or change in control is approved by the Company's Board of
Directors. Such provisions may also render the removal of directors and
management more difficult. The Certificate of Incorporation and By-laws provide
for, among other things, a classified Board of Directors serving staggered terms
of three years, certain advance notice requirements for stockholder nominations
of candidates for election to the Board of Directors and certain other
stockholder proposals, restrictions on who may call a special meeting of
stockholders and a prohibition on stockholder action by written consent. In
addition, the Company's Board of Directors has the ability to authorize the
issuance of up to 5,000,000 shares of preferred stock in one or more series and
to fix the voting powers, designations, preferences and relative, participating,
optional and other special rights and qualifications, limitations or
restrictions thereof without stockholder approval. The DGCL also contains
provisions preventing certain stockholders from engaging in business
combinations with the Company, subject to certain exceptions. See "Description
of Capital Stock."

INVESTMENT COMPANY ACT CONSIDERATIONS

The Investment Company Act of 1940, as amended (the "1940 Act"), requires
the registration of, and imposes various substantive restrictions on, certain
companies that engage primarily, or propose to engage primarily, in the business
of investing, reinvesting or trading in securities, or that fail certain
statistical tests regarding the composition of assets and sources of income, and
are not primarily engaged in business other than investing, holding, owning or
trading securities. The Company believes that it is, and it intends to remain,
primarily engaged in business other than investing, holding, owning or trading
securities. The Company will seek to invest temporarily the proceeds of this
offering, pending their use as described under the caption "Use of Proceeds,"
and to utilize the proceeds of this offering in the manner described under "Use
of Proceeds," so as to avoid becoming subject to the registration requirements
of the 1940 Act. Such investment is likely to result in the Company obtaining
lower yields on the funds invested than might be available in the securities
markets generally. There can be no assurance, however, that such investments and
utilization can be made. If the Company were required to register as an
investment company under the 1940 Act, it would become subject to substantial
regulation with respect to its capital structure, management, operations,
transactions with affiliates, and other matters.

14
<PAGE>
THE COMPANY

The Company's predecessor, Med-E-Systems Corporation ("MES"), was
incorporated on August 27, 1993 as a clinical information systems development
company. Effective August 23, 1995, MES became a subsidiary of the Company
through a tax-free reorganization. The Company was subsequently merged with and
into Majean, Inc., a Delaware corporation, and the surviving corporation changed
its name to Advanced Health Corporation. The Company's executive offices are
located at 560 White Plains Road, Tarrytown, New York 10591, and its telephone
number at that address is (914) 524-4200.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $21.5 million ($24.8 million if
the Underwriters' over-allotment option is exercised in full), at an assumed
initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses.

The Company will use approximately $5.1 million of the net proceeds of this
offering to repay an aggregate of $5.0 million principal amount of indebtedness,
plus interest, including the repayment of an aggregate of $2.0 million principal
amount of indebtedness, plus interest, to certain 21st Century Partnerships.
21st Century Partnerships is a principal stockholder of the Company. See
"Principal Stockholders." The Company issued three 8% promissory notes in the
principal amounts of $1.5 million, $750,000 and $750,000 on February 28, April
26 and June 28, 1996, respectively. The Company issued six 9% promissory notes
in an aggregate principal amount of $2.0 million on June 19 and August 13, 1996
to certain 21st Century Partnerships. All of such notes will mature on the
earlier of the consummation of this offering and the one-year anniversary of
their issuance, in the case of the 8% notes, or July 31, 1997, in the case of
the 9% notes. The proceeds of such notes are being used to finance working
capital. See "Certain Transactions."

The Company intends to use the balance of the net proceeds, approximately
$16.4 million, for working capital and general corporate purposes, which may
include acquisitions. From time to time in the ordinary course of its business,
the Company evaluates possible acquisitions of businesses, products and
technologies that are complementary to those of the Company. The Company
currently has no agreements or understandings, and is not engaged in active
negotiations, with respect to any such acquisition.

Pending the application of the net proceeds of this offering, the Company
intends to invest such proceeds in short-term, investment-grade,
interest-bearing instruments or money market funds.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay dividends in the foreseeable future.
The Company presently intends to retain future earnings, if any, to finance the
expansion of its business. The payment of any cash dividends in the future will
depend on the Company's earnings, financial condition, results of operations,
capital needs, and other factors deemed pertinent by the Company's Board of
Directors, subject to laws and regulations then in effect.

15
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on a pro forma basis giving effect to the Stock Splits and the
Preferred Stock Conversion and (ii) as adjusted to reflect the receipt and
initial application of the estimated net proceeds from the sale by the Company
of 2,000,000 shares of Common Stock offered hereby, at an assumed initial public
offering price of $12.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses):

<TABLE><CAPTION>
JUNE 30, 1996
--------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
Current portion of long-term debt................................ $ 4,378,910 $ 378,910
----------- -----------
----------- -----------
Long-term debt, less current portion............................. $ 125,096 $ 125,096
----------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized
and no shares issued and outstanding......................... -- --
Common Stock, $.01 par value, 15,000,000 shares authorized,
4,500,267 shares issued and outstanding pro forma; and
6,500,267 shares issued and outstanding as adjusted(1)........... 45,003 65,003
Additional paid-in capital....................................... 11,526,538 32,976,538
Accumulated deficit.............................................. (10,633,192) (10,633,192)
Treasury stock, at cost (8,937 shares pro forma and as
adjusted)........................................................ (75,000) (75,000)
----------- -----------
Total stockholders' equity..................................... 863,349 22,333,349
----------- -----------
Total capitalization......................................... $ 988,445 $22,458,445
----------- -----------
----------- -----------
</TABLE>

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

16
<PAGE>
DILUTION

The net tangible book value of the Company as of June 30, 1996 was
$(1,048,338), or $(0.23) per share of Common Stock on a pro forma basis, after
giving effect to the Stock Splits and the Preferred Stock Conversion. "Net
tangible book value per share" represents the amount of the Company's total
tangible assets less the Company's total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of 2,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses), and the initial application of the
net proceeds therefrom, the pro forma net tangible book value of the Company at
June 30, 1996 would have been $20,421,662, or $3.14 per share of Common Stock.
This represents an immediate increase in pro forma net tangible book value of
$3.37 per share to existing stockholders and an immediate, substantial dilution
in pro forma net tangible book value per share of $8.86 per share to purchasers
of shares of Common Stock offered hereby, as illustrated in the following table:

Assumed initial public offering price per share........... $12.00
Pro forma net tangible book value per share at June 30,
1996...................................................... $(0.23)
Increase per share attributable to new investors........ 3.37
------
Pro forma net tangible book value per share after this
offering.................................................. 3.14
------
Dilution per share to new investors....................... $ 8.86
------
------

The following table sets forth, on a pro forma basis, after giving effect to
the Stock Splits and the Preferred Stock Conversion, as of June 30, 1996, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and to be paid by purchasers of shares of Common Stock
offered hereby based upon assumed initial public offering price of $12.00 per
share (before deducting underwriting discounts and commissions and estimated
offering expenses).

<TABLE><CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 4,500,267 69.2% $11,571,541 32.5% $ 2.57
New investors.......................... 2,000,000 30.8 24,000,000 67.5 12.00
--------- ------- ----------- -------
Total............................ 6,500,267 100.0% $35,571,541 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>

The foregoing tables assume no exercise of stock options to purchase 783,032
shares of Common Stock outstanding at a weighted average exercise price of $3.44
per share and 481,489 shares issuable upon the exercise of outstanding warrants
to purchase Common Stock at a weighted average exercise price of $8.50 per
share. The foregoing tables also assume no exercise of 306,769 shares and
113,995 shares issuable upon the exercise of options and warrants, respectively,
which, in each case, are contingent upon the Company's achieving certain
capitalization levels related to regulatory requirements or upon the Company's
achieving certain performance targets. To the extent that any of such options or
warrants are exercised, there will be further dilution to new investors in this
offering. See "Management -- Stock Plans" and Notes 3 and 10 of Notes to
Consolidated Financial Statements.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data for the period from
inception (August 27, 1993) to December 31, 1993 and for the years ended
December 31, 1994 and 1995, and the balance sheet data as of December 31, 1994
and 1995, are derived from the Consolidated Financial Statements of the Company
included elsewhere in this Prospectus, which have been audited by Arthur
Andersen LLP, independent public accountants. The selected consolidated balance
sheet data as of December 31, 1993 are derived from the consolidated financial
statements of the Company which have been audited by Arthur Andersen LLP,
independent public accountants, but which are not included in this Prospectus.
The selected consolidated statement of operations data for the six months ended
June 30, 1995 and 1996 and the selected consolidated balance sheet data as of
June 30, 1996 are derived from the Company's unaudited consolidated financial
statements, which include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and results of operations as of and for the periods then
ended. The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996 or any future period. The selected consolidated
financial data set forth below is qualified by reference to, and should be read
in conjunction with, the Company's Consolidated Financial Statements and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere in this Prospectus.
<TABLE><CAPTION>
YEAR ENDED SIX MONTHS ENDED
PERIOD FROM INCEPTION DECEMBER 31, JUNE 30,
(AUGUST 27, 1993) TO ----------------- -----------------
DECEMBER 31, 1993 1994 1995 1995 1996
--------------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $ -- $ 379 $ 1,054 $ 100 $ 7,617
Cost of sales.......................... -- 12 340 22 3,512
------- ------- ------- ------- -------
Gross profit........................... -- 367 714 78 4,105
Operating expenses..................... 66 1,318 3,255 617 4,034
Research and development expenses...... 455 1,582 3,157 1,512 1,875
------- ------- ------- ------- -------
Operating loss......................... (521) (2,533) (5,698) (2,051) (1,804)
Other income (expense)................. -- (15) (8) 1 (54)
------- ------- ------- ------- -------
Net loss............................... $ (521) $(2,548) $(5,706) $(2,050) $(1,858)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net loss per share..................... $ (0.23) $ (1.03) $ (1.47) $ (0.65) $ (0.37)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average number of common
shares and common share equivalents
outstanding(1)........................... 2,229 2,482 3,893 3,136 4,991

<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1993 1994 1995 1996
----- ------- ------ --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash................................................... $ 7 $ 7 $1,464 $ 837
Working capital (deficit).............................. (435) (1,032) (741) (2,713)
Total assets........................................... 27 913 6,462 8,191
Total debt............................................. -- 416 567 4,504
Total stockholders' equity (deficit)................... (416) (325) 2,675 863
</TABLE>

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

(1) See Notes 2 and 14 of Notes to Consolidated Financial Statements.

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included elsewhere in this
Prospectus.

OVERVIEW

The Company provides a full range of integrated management services and
clinical information systems to physician group practices and physician
networks. The Company generates revenues from (i) fees for managing and
providing consulting services to physician group practices, (ii) fees for
managing physician networks and (iii) fees for use and support of its clinical
information systems, including recurring license, software installation,
software integration, training and data conversion fees. The Company contracts
with its physician practice and network management clients pursuant to long-term
agreements with its MSOs, the results of which MSOs are consolidated in the
Consolidated Financial Statements.

Through its MSOs, the Company enters into long-term management services
agreements with physician group practices, whereby such physician group
practices outsource their non-medical and administrative functions to an MSO.
The MSO earns fees for the provision of such outsourced services, as well as
fees for management, marketing and information services. Fees are based on the
level of services provided and are recognized as these services are rendered.
The Company manages four medical practices consisting of more than 75 physicians
in the greater New York metropolitan area. The Company also provides physician
group consulting services to more than 100 physicians. See "Business --
Physician Practice and Network Services -- Physician Practice Services."

Through its MSOs, the Company enters into management service agreements with
physician networks, pursuant to which the aggregate capitated payments to be
made by a third-party payor to such network are assigned to the MSO. In return
for a management fee, the MSO administers the claims and payments related to the
payor contract by paying a portion, typically 90%, of the capitated payments to
network physicians in return for the physicians' provision of medical services
to network enrollees. At the end of a defined measurement period, the MSO may
pay an additional portion of the capitated payments to the network physicians in
the case of higher than expected medical costs, and the MSO shares any remaining
capitated payments with the physicians. The Company manages eight physician
networks, and is developing additional networks, primarily in the fields of
cardiology, oncology and orthopedics. See "Business -- Physician Practice and
Network Services -- Physician Network Services."

The payor contracts contain risk-sharing provisions whereby incentive
revenue can be earned or losses incurred, by the physician networks, based on
the utilization of physician and hospital services by assigned enrollees. There
can be no assurance that the Company will be able to negotiate, on behalf of the
physicians, satisfactory arrangements on a risk-sharing or capitated basis or
that the physician organizations managed by the Company will be able to provide
medical services at a profit under such arrangements. To the extent affiliated
physicians incur medical costs that limit their profitability, there can be no
assurance that the Company will be able to derive profits from any such
affiliated relationship.

The Company anticipates entering into managed care or capitated
arrangements, either indirectly through the assignment of managed care contracts
entered into between its affiliated physicians and third-party payors or
directly through the formation of an IPA. The Company has little experience in
managing capitated-risk arrangements and has no experience in forming or
managing an IPA. Revenues under any such arrangements entered into by the
Company would generally be a fixed amount per enrollee. Under such an
arrangement, the Company would contract with affiliated physicians for the
provision of health care services and the Company would be responsible for the
provision of all or a portion of the health care requirements of such enrollees.
To the extent that enrollees require more care than is anticipated by the
Company upon entering into such a contract, the Company's revenues under such
contracts may be insufficient to cover its costs. The Company expects to enter
into reinsurance agreements with third-party insurers in respect of a portion of
its risk under such arrangements. See

19
<PAGE>

"Business -- Contractual Relationships with Affiliated Physicians -- Capitated
and Other Fixed-Fee Arrangements."

The Company recognizes revenue from the sale and license of its clinical
information systems upon installation and acceptance, and from software
development and integration as services are provided. The Company has only
recently begun to generate revenues from the commercial sale and installation of
its clinical information systems. The Company has made substantial investment in
the development of its clinical information systems and expects to continue such
investment in the future.

To date, the Company has been dependent on a small number of contracts to
generate the majority of its revenues. In the year ended December 31, 1995,
approximately 68% of the Company's revenues were derived from its contracts with
Madison and an affiliate of PCS Health Systems, Inc., the managed care unit of
Eli Lilly & Company, while in the six months ended June 30, 1996, approximately
72% of the Company's revenues were derived from its contracts with Madison and
AHP&S. The Company expects that the concentration of its revenues will be
reduced as the Company enters into additional contracts to provide management
services and clinical information systems to physician organizations.

The Company believes that its historical results of operations from period
to period are not comparable and that such results are not necessarily
indicative of results for any future periods because the Company was a
development stage company investing in technology development and did not
provide physician practice and network management services prior to December 11,
1995.

ACQUISITIONS

On August 28, 1995, the Company acquired certain assets and assumed certain
liabilities of Peltz Ventimiglia, Inc. ("Peltz"), a physician practice
management consulting company with physician clients located throughout the East
Coast of the United States, for 75,996 shares of Common Stock and contingent
warrants to purchase 113,995 shares of Common Stock at $4.38 per share. The
warrants are only exercisable, as contingent consideration, based on the
achievement of targeted operating performance criteria. The audited financial
statements of Peltz are included elsewhere in this Prospectus.

On September 1, 1995, the Company acquired U.S. Health Connections, Inc.
("Health Connections"), a network management company servicing the Southeastern
United States and headquartered in Atlanta, Georgia, for $150,000 in cash,
30,193 shares of the Common Stock and $150,000 in notes payable. As of June 30,
1996, $75,000 of notes payable remained outstanding. The purchase price also
included an additional 56,611 shares of Common Stock issued into escrow at
closing. These escrowed shares represent contingent consideration that will be
released from escrow based on the achievement of targeted operating performance
criteria. The audited financial statements of Health Connections are included
elsewhere in this Prospectus.

On April 1, 1996, the Company acquired certain assets of Benenson &
Associates, Inc. ("Benenson"), a physician network development company with
approximately 10 network clients located throughout the East Coast of the United
States, for 8,937 shares of Common Stock and $45,000 in cash, payable in two
installments of $22,500 each on the closing date and the first anniversary
thereof.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 and 1995

Net revenue for the six months ended June 30, 1996 increased to $7.6 million
from $100,000 in the comparable period ended June 30, 1995, primarily as a
result of the initiation of the Company's physician group practice and network
management services. The Company began providing physician group practice
management and related services to Madison in December 1995 and to AHP&S in
January 1996. The provision of physician group practice management and related
services accounted for approximately $5.8 million of the Company's net revenue
for the six months ended June 30, 1996. The provision of physician network
management services accounted for approximately $273,000 of the Company's net
revenue for the six months ended June 30, 1996. The Company earned fees for the
use and support of its clinical information systems, including the recognition
of license revenues under its contract with Merck Medco Managed Care, Inc., and
software installation and training revenues, of

20
<PAGE>

approximately $1.5 million for the six months ended June 30, 1996, as compared
to approximately $100,000 of such revenues for the comparable period ended June
30, 1995.

Cost of sales for the six months ended June 30, 1996 increased to $3.5
million from $21,822 for the comparable period ended June 30, 1995. The increase
in cost of sales related primarily to the non-medical and system expenses
outsourced to the Company from Madison and AHP&S.

Operating expenses for the six months ended June 30, 1996 increased to $4.0
million from $616,503 for the comparable period ended June 30, 1995. The
increase in operating expenses reflected expenses related to the provision of
management services for the six months ended June 30, 1996, whereas the Company
was a development stage company for the comparable period ended June 30, 1995.

Research and development expenses for the six months ended June 30, 1996
increased to $1.9 million from $1.5 million for the comparable period ended June
30, 1995, due to an increase in the Company's development activities for its
clinical information systems.

Other expense for the six months ended June 30, 1996 was $53,628 and related
to interest on capital lease obligations and interest on $3.0 million and $1.0
million of indebtedness issued as of June 20, 1996, bearing interest at 8% and
9%, respectively. The Company incurred no interest expense for the comparable
period ended June 30, 1995.

The net loss for the six months ended June 30, 1996 was $1.9 million
compared to a loss of $2.0 million for the six months ended June 30, 1995.

Year Ended December 31, 1995 and 1994

Net revenue for the year ended December 31, 1995 increased to $1.1 million
from $378,878 in the year ended December 31, 1994, primarily as a result of the
initiation of the Company's physician group practice services to Madison in
December 1995, which generated approximately $505,000 of the Company's net
revenue for the year ended December 31, 1995. The Company began to provide
physician network management services in September 1995, which accounted for
approximately $163,000 of the Company's net revenue for the year ended December
31, 1995. The Company earned fees for the use and support of its clinical
information systems, including the recognition of license revenues under its
contract with an affiliate of PCS Health Systems, Inc., the managed care unit of
Eli Lilly & Company, and software installation and training revenues, of
approximately $386,000 for the year ended December 31, 1995, as compared to
$378,878 of such revenues for the year ended December 31, 1994.

Operating expenses for the year ended December 31, 1995 increased to $3.3
million from $1.3 million for the year ended December 31, 1994. The increase in
operating expenses was due to the increases in staffing and general corporate
expenses required to fund the Company's transition from a development stage
company involved in the development of clinical information systems to a full
service physician practice and network management company.

Research and development expenses for the year ended December 31, 1995
increased to $3.2 million from $1.6 million, due to an increase in the Company's
development activities for its clinical information systems.

The net loss for the year ended December 31, 1995 was $5.7 million compared
to a loss of $2.5 million for the year ended December 31, 1994.

As of December 31, 1995, the Company had net operating loss carryforwards
("NOLs") available to offset future book and taxable income of approximately
$8.7 million and $6.2 million, respectively, which expire through 2010. The
difference between the book and tax NOLs relates principally to the differences
between book and tax accounting with respect to start-up costs, depreciation of
fixed assets, amortization of intangible assets and recognition of deferred
revenue. The book income tax benefits of $3.5 million and $1.3 million as of
December 31, 1995 and December 31, 1994, respectively, have been fully reserved
due to the uncertainty of their future realization.

Year Ended December 31, 1994 and Period from Inception (August 27, 1993) through
December 31, 1993

Net revenue for the year ended December 31, 1994 was $378,878, including
license revenues from a third party and development revenues from Physicians'
Online, Inc. See "Certain Transactions." The

21
<PAGE>
Company realized no revenue during the period from inception through December
31, 1993. During both of such periods, the Company was a development stage
company primarily engaged in the development of clinical information systems.

Operating expenses for the year ended December 31, 1994 increased to $1.3
million, from $66,192 in the period from inception to December 31, 1993. The
increase in operating expenses was due, in part, to the inclusion of 12 months
of operating results in 1994 compared with approximately four months in 1993
and, in part, to the increase in staffing expenses and general corporate
expenses required to further develop the Company's clinical information systems.

Research and development expenses for the year ended December 31, 1994
increased to $1.6 million from $454,622 for the period from inception to
December 31, 1993. These expenses related to the Company's development
activities for its clinical information systems.

The net loss for the year ended December 31, 1994 was $2.5 million compared
to a loss of $520,814 for the period from inception through December 31, 1993.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its capital requirements through the
sale of equity and debt securities. The Company issued three 8% promissory notes
in the principal amounts of $1.5 million, $750,000 and $750,000 on February 28,
April 26 and June 28, 1996, respectively. The Company issued six 9% promissory
notes in the aggregate principal amount of $2.0 million on June 19 and August
13, 1996. All of such notes will mature on the earlier of the consummation of
this offering and the one-year anniversary of their issuance, in the case of the
8% notes, or July 31, 1997, in the case of the 9% notes. The proceeds of such
notes are being used to finance working capital. At June 30, 1996, the Company
had cash and cash equivalents of $836,863.

For the year ended December 31, 1995, the Company had a negative cash flow
from its operating activities of $4.3 million, compared with $4.1 million for
the six months ended June 30, 1996. Net cash used in investing activities was
$1.0 million for the year ended December 31, 1995 and principally related to
purchases of property, plant and equipment. Net cash provided by financing
activities was $6.8 million for the year ended December 31, 1995 and related to
the private placement of equity securities. See "Certain Transactions." Net cash
provided by financing activities for the six months ended June 30, 1996 was $3.7
million, principally attributable to the above-described debt issuances.

The Company's operating plan for the remainder of 1996 and for the first two
quarters of 1997 includes continued development of the Company's integrated
management services and clinical information systems. The principal categories
of expenditures include research and development of the Company's clinical
information systems as well as ongoing business development and marketing. The
Company believes that the net proceeds of this offering, cash on hand, interest
income and revenues from operations will be sufficient to fund planned
operations of the Company through at least the end of 1998. The Company has no
planned material capital expenditures or capital commitments. See "Risk Factors
- -- Limited Operating History; History of Losses; Uncertainty of Future
Profitability."

From time to time in the ordinary course of its business, the Company
evaluates possible acquisitions of businesses, products and technologies that
are complementary to those of the Company. The Company currently has no
agreements or understandings, and is not engaged in active negotiations, with
respect to any such acquisition.

Under certain specified circumstances, the Company has the option to cause
the Roll Up Transaction to occur. The Company has reserved 548,224 shares of
Common Stock for issuance upon consummation of the Roll Up Transaction, all of
which will be issued if the Company effects the Roll Up Transaction.
Accordingly, the Roll Up Transaction, if effected, will be dilutive to
investors. In addition, certain of the physician groups and networks managed by
the Company have rights to require the Company to purchase all or part of such
physicians' interest in their respective MSO in the event that the Company does
not consummate the Roll Up Transaction within one year after the satisfaction of
specified conditions. There can be no assurance that the Company will have the
financial resources to purchase such interests in accordance with its
obligations at the time any such rights are exercised, or that the Company would
be able to obtain financing on satisfactory terms or conditions, if at all, to
purchase such interests. See "Business--Contractual Relationships with
Affiliated Physicians."

22
<PAGE>
BUSINESS

OVERVIEW

Advanced Health Corporation provides a full range of integrated management
services and clinical information systems to physician group practices, single
legal entities comprised of multiple physicians, and physician networks,
aggregations of individual physicians and physician groups formed for the
purpose of entering into contracts with third-party payors. The management
services provided by the Company include physician practice and network
development, marketing, payor contracting, financial and administrative
management, clinical information management, human resource management and
practice and network governance. The Company developed its clinical information
systems to provide physicians, at the point of care and on a real-time basis,
with patient-specific clinical and payor information and the ability to generate
patient medical orders and facilitate the implementation of disease management
programs. Through the management of multi-specialty and single-specialty
physician group practices and networks, the Company focuses its management
efforts on high-cost, high-volume disease specialties, such as cardiology,
oncology and orthopedics. The Company currently manages two multi-specialty
physician group practices and two single-specialty physician group practices
comprised of more than 75 physicians in the New York metropolitan area and eight
physician networks with approximately 800 physicians in the greater New York and
Atlanta metropolitan areas, and provides physician group consulting services to
more than 100 physicians. The Company believes its management services and
clinical information systems will enable physicians to enhance the quality and
reduce the cost of health care.

INDUSTRY

Health care expenditures in the United States have risen rapidly over the
past two decades and totalled approximately $1 trillion in 1994. One significant
factor affecting health care expenditures in the United States is the aging of
the population. Older Americans utilize more health care services. In 1992, the
number of Americans 65 years old or over represented 12% of the U.S. population,
but were responsible for approximately 23% of all health care expenditures. In
particular, older Americans spend more on certain medical specialties, such as
cardiology, oncology and orthopedics. In 1992, spending on cardiology, oncology
and orthopedics totalled approximately $200 billion and represented
approximately 17%, 5% and 5%, respectively, of total direct health care costs in
the United States.

Increasing concern over the rising cost of health care in the United States
has led to the development of managed care organizations and programs. Under
such programs, managed care payors typically govern the provision of health care
with the objective of ensuring delivery of quality care in a cost-effective
manner. The traditional fee-for-service method of compensating health care
providers offers few incentives for the efficient utilization of resources and
is generally believed to contribute to health care cost increases at rates
significantly higher than inflation. Consequently, fee-for-service reimbursement
is rapidly being replaced by alternative reimbursement models, including
capitated and other fixed-fee arrangements. The number of private insurance
beneficiaries who are enrolled in HMOs increased by approximately 45% from 1991
to 1995, with approximately 40 million beneficiaries enrolled in HMOs in 1991
and approximately 58 million beneficiaries enrolled in HMOs in 1995. In
addition, the number of Medicare beneficiaries enrolled in managed care programs
increased by approximately 52% from December 1994 to April 1996. The growth in
enrollment in these new reimbursement models is shifting the financial risk of
delivering health care from payors to providers.

As a result of this changing health care environment, health care cost
containment pressures have increased physician management responsibilities while
lowering reimbursement rates to physicians. Consequently, physician compensation
has declined; the average net income for physicians decreased by approximately
4% from 1993 to 1994. Because approximately 67% of all physicians currently
practice individually or in two-person groups, their ability to lower costs and
to negotiate with payors is limited. Individual physicians and small group
practices also tend to have limited administrative capacity, limited ties to
other health care providers (restricting their ability to coordinate care across
a variety of

23
<PAGE>
specialties), limited capital to invest in new clinical equipment and
technologies and limited purchasing power with vendors of medical supplies. In
addition, individual physicians and small group practices typically lack the
information systems necessary to enter into and manage risk-sharing contracts
with payors and to implement disease management programs efficiently.

In response to the foregoing factors, individual physicians and small group
practices are increasingly affiliating with larger group practices and physician
practice management companies ("PPMs"). From 1991 to 1995, the number of
physicians practicing in group practices increased by approximately 14% to a
total of 185,000 physicians, with approximately 5% of such physicians managed by
PPMs. By acquiring physician practices, PPMs are successfully providing
physicians with lower administrative costs, leverage with vendors and payors and
economies of scale necessary to attract capital resources. In addition,
management companies and consultants are organizing independent physician
practices, independent physician associations, physician hospital organizations
and other physician organizations for the purpose of enabling physicians to
contract with managed care payors.

The Company believes that significant opportunities exist, in the
consolidating health care industry, to assist physicians in managing the
administrative aspects of group practices and networks. More importantly, since
clinical decisions made by physicians impact 85% of overall health care
expenditures, the Company believes that even greater opportunities exist to
assist physicians in managing the clinical aspects of group practices and
networks. The Company believes its integrated physician practice and network
management services and clinical information systems will enable physicians to
more effectively control both the quality and cost of health care.

STRATEGY

The objective of the Company is to become a leading provider of integrated
management services and clinical information systems to physician organizations.
By enabling physicians to develop and efficiently manage group practices and
networks, the Company seeks to assist physicians in facilitating risk-based
managed care contracts, developing and implementing disease management programs
and monitoring and controlling health care outcomes and costs. The Company
intends to achieve its objective through the implementation of the following
strategy:

.Establishing Long-Term Alliances with Physician Organizations. The Company is
seeking to partner with physician group practices and networks through
long-term management contracts under which the Company provides a full range of
integrated management and information services. The Company believes that
contracting with physician organizations, rather than acquiring them, permits
physicians to remain independent while providing them with the proper
incentives and resources to improve their organizations. The Company typically
develops an alliance with each physician organization through the establishment
of an MSO. See "Business -- Contractual Relationships with Affiliated
Physicians."

. Managing High-Cost, High-Volume Disease Specialties. The Company believes that
the greatest opportunity for achieving clinical efficiencies is in high-cost,
high-volume disease specialties such as cardiology, oncology and orthopedics.
Total health care expenditures for these medical specialties are expected to
increase with the aging of the U.S. population. The Company seeks to integrate
physicians into multi-specialty and single-specialty practices and networks to
provide them with greater access to managed care contracts and to implement
disease management programs. The Company believes that the evolution of
disease specialty treatment organizations will play a major role in managed
care contracting as payors recognize that the quality of care is improved and
the cost of care reduced when reimbursement and health care services target a
specific disease through coordinated networks of health care providers.

. Providing Physicians with Clinical Information at the Point of Care. The
Company has designed and developed point-of-care clinical information systems
that link physician users and their offices on a real-time basis to other
physicians, health care providers and third-party databases. By facilitating
the

24
<PAGE>
integration of clinical guidelines and efficient access to information, the
Company believes it can assist physicians in improving the quality and
lowering the cost of patient care.

. Focusing on Selected Geographic Markets. The Company seeks to provide its
services to physician group practices and networks located principally in
geographic markets where fee-for-service reimbursement is shifting to
capitated and other risk-based reimbursement and where there are significant
concentrations of physicians specializing in high-cost, high-volume disease
specialties. The Company's initial target markets include the greater New
York, Philadelphia and Atlanta metropolitan areas.

. Developing Strategic Industry Relationships. The Company believes that
developing strategic industry relationships will enhance its ability to
penetrate existing markets, gain access to new markets and develop new
products and services. The Company has entered into a software license and
integration agreement with Merck Medco Managed Care, Inc. for the Company's
prescription writing software. In addition, the Company has entered into a
contract with an affiliate of PCS Health Systems, Inc., the managed care unit
of Eli Lilly & Company, to provide disease management information services and
software for the treatment of certain diseases. The Company is continuing to
seek relationships for the development and distribution to third parties of
its clinical information systems.

The Company intends to use the balance of the net proceeds of this offering
remaining after the repayment of certain indebtedness (see "Use of Proceeds") to
pursue its strategy. The Company's operating plan for the remainder of 1996 and
the first two quarters of 1997 includes continued development of the Company's
integrated management services and clinical information systems. The principal
categories of expenditures include research and development of the Company's
clinical information systems as well as ongoing business development and
marketing. The Company believes that the net proceeds of this offering, cash on
hand, interest income and revenues from operations will be sufficient to fund
planned operations of the Company through at least the end of 1998. The Company
has no planned material capital expenditures or capital commitments. See "Risk
Factors--Limited Operating History; History of Losses; Uncertainty of Future
Profitability."

PHYSICIAN PRACTICE AND NETWORK SERVICES

The Company provides physicians with a full range of integrated services to
form and develop group practices and networks, to manage group practice and
network operations, to develop disease management programs and to manage medical
risk. These integrated services include clinical support and administrative and
marketing services as well as point-of-care information systems and support. The
Company often initially provides physician practice and network services
pursuant to a consulting arrangement. The Company believes that its
point-of-care clinical information systems provide physicians with the
information needed to improve the quality and reduce the cost of health care.

The Company manages two multi-specialty group practices and two
single-specialty group practices located in the New York metropolitan area. The
two multi-specialty group practices are made up of more than 50 physicians who
have, with the Company's assistance, aggregated their practices into group
practices. The medical specialties represented by these two groups include adult
primary care, cardiology, oncology and orthopedics. The two single-specialty
group practices are collectively comprised of more than 25 clinical
cardiologists, interventional cardiologists and cardiothoracic surgeons,
including leading physicians in the areas of minimally invasive coronary artery
bypass grafts and angioplasties employing coronary stents. The Company is
currently negotiating the terms of management agreements with additional
physician group practices in the greater New York, Philadelphia and Atlanta
metropolitan areas.

The Company currently provides physician group consulting services to more
than 100 physicians. Such services have traditionally included group formation
services. More recently, the Company has begun to provide operations development
and strategic planning services to established groups. The Company believes that
the provision of consulting services, particularly operations development and

25
<PAGE>
strategic planning services, may lead to the establishment of long-term practice
management agreements.

The Company manages eight physician networks covering approximately 738,000
lives, with a total of seven payor contracts among such networks. The Company
manages three networks consisting of approximately 225 cardiologists in New
Jersey, Pennsylvania and Delaware, and is developing additional cardiology
networks in New York and Connecticut. The Company anticipates that these
cardiovascular networks will provide comprehensive cardiac care, including
ancillary services. The Company manages a community and medical center-based
oncology network in Atlanta serving approximately 150,000 lives that includes
both medical and radiation oncology. The Company is currently developing an
oncology network in New Jersey. The Company manages an orthopedic network in
Atlanta, covering approximately 205,000 lives and is developing orthopedic
networks in New York, New Jersey, Pennsylvania and Connecticut. In addition, the
Company manages three additional networks in the greater Atlanta area covering
approximately 383,000 lives, including a multi-specialty network, an obstetrics
and gynecology network and a plastic surgery network.

In addition to providing administrative management services to physician
organizations, the Company seeks to differentiate itself by assisting physicians
in managing the clinical aspects of their practices. The Company believes that
its integrated management services and clinical information systems will enhance
the ability of physician group practices and networks to implement disease
management programs and to manage practices under risk-based contracts. The
Company is working to assist physicians in developing disease-specific clinical
practice guidelines and in practicing in accordance with applicable standards of
care. The Company has initially focused the implementation of its
single-specialty disease management strategy on the creation of an integrated
comprehensive cardiovascular care program, which includes physician group
practices, networks and medical support services. It is anticipated that this
disease management program will be delivered through linked practices and
networks of cardiovascular specialists under management and/or development by
the Company who will provide integrated, high-quality care for patients based on
clinical care guidelines developed by the physician network. The Company
anticipates that the physicians within these practices and networks will be
linked together by the Company's clinical information systems.

The Company has expanded its physician practice and network management
expertise through acquisitions. In August 1995, the Company acquired the assets
of Peltz, which provides consulting services to physicians seeking to form group
practices on the East Coast, including assistance in the legal, administrative,
technical, and logistical aspects of group formation and the subsequent
recruiting of new physicians. In September 1995, the Company acquired Health
Connections, an Atlanta-based physician network management company with over two
years of network management experience in disease-specific areas, including
oncology and orthopedics. In April 1996, the Company acquired certain assets of
Benenson, a physician network development company specializing in the formation
of state-wide and regional cardiology and orthopedic networks capable of
marketing and servicing risk-based contracts.

The Company markets its physician practice management and network management
services through (i) direct sales methods, (ii) consultative sales that include
providing advice on the development, consolidation and financing of group
practices and networks and (iii) cross-selling to customers of its clinical
information systems.

PHYSICIAN PRACTICE SERVICES

The Company offers a comprehensive set of physician practice management
services, including practice formation, operations development and strategic
planning, marketing, payor contracting and management, financial and
administrative management, clinical information management, human resource
management and practice governance.

Practice Formation, Operations Development and Strategic Planning. The
Company assists physician group practices in developing and expanding their
practices through a combination of

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<PAGE>
physician recruitment, physician specialty mix analysis, acquisition evaluation
and integration, ancillary services evaluation, financial consulting and
operations development and strategic planning.

Marketing. The Company assists physician group practices in marketing their
medical services to HMOs, insurance companies, self-insured companies and the
patient community. Working closely with the physician group practice, the
Company develops public relations and community outreach programs designed to
educate managed care entities and the patient community about the medical
services provided by the physician group practice.

Payor Contracting and Management. The Company assists physician group
practices in negotiating and structuring managed care contracts with payors for
the provision of physician services. The Company works with physician group
practices to meet credentialling standards and specialty mix requirements of
payors. The Company administers payments to physician providers under payor
contracts.

Financial and Administrative Management. The Company offers a variety of
financial and administrative management services to physician group practices.
The Company's financial management services include accounting, payroll,
finance, payables management, financial reporting, financial controls, insurance
negotiation and billing and collection. The Company's administrative management
services include lease negotiations, facilities contracting and inventory
management.

Clinical Information Management. The Company offers physician group
practices its proprietary clinical information management systems. The
Med-E-Practice suite of applications is delivered as an integrated system of
computer hardware, software and clinical information intended to provide a
physician, at the point of care and on a real-time basis, with access to
databases containing clinical, diagnostic, disease management, patient medical
record and other medical information. The Company's clinical information system
provides a seamless interface with third-party administrative software. See
"Business -- Clinical Information Systems."

Human Resource Management. The Company, through its MSOs, employs and
manages all non-medical personnel that perform administrative, clerical and
secretarial support, billing and collection and records management for a
physician practice. The Company evaluates such employees, establishes personnel
policies and procedures and manages employee benefit programs. The Company also
provides payroll administration on behalf of the physician practice for the
medical personnel.

Practice Governance. The management services agreement that the Company
enters into with a physician practice provides for the establishment of a
management advisory board. Such board is responsible for developing management
and administrative policies for the overall operation of the physician group
practice and guidelines for the delivery of medical services. The management
advisory board is controlled by licensed physicians within the physician group
practice.

PHYSICIAN NETWORK SERVICES

The Company's physician network management services include network
development and strategic planning, disease management program development,
payor marketing and contracting, financial and administrative management,
clinical information management and network governance.

Network Development and Strategic Planning. The Company provides network
development services including feasibility studies, organizational services,
financial services, payor identification services, physician recruiting,
credentialling services and operations development and strategic planning
services.

Disease Management Program Development. The Company provides physician
networks with disease management program development services, including
clinical guidelines development, implementation and management services, data
collection, outcomes measurement and clinical trials development.

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<PAGE>
Payor Marketing and Contracting. The Company assists physician networks in
marketing their medical services to health care payors, including HMOs,
insurance companies, self-insured companies and other managed care entities. The
Company works with each physician network to educate payors about the medical
services provided by such network. The Company structures and negotiates risk-
based contracts on behalf of its affiliated physician networks. The Company
works with physician networks to meet credentialling standards and specialty mix
requirements of payors.

Financial and Administrative Management. The Company offers a variety of
financial and administrative services to physician networks. The financial
services provided by the Company include risk management, capitation allocation
and distribution, claims processing and accounting services. The administrative
services provided by the Company include records maintenance, utilization
management and communications.

Clinical Information Management. The Company offers clinical information
management services to physician networks. The Med-E-Network suite of
applications allows network physicians to process electronic referrals and
electronic claims. Med-E-Network also provides access to electronic payor and
patient eligibility information, third-party databases and patient-specific
diagnostic and clinical information.

Network Governance. The Company assists network medical directors and
governance committees with a variety of governance issues.

CLINICAL INFORMATION SYSTEMS

The Company has developed clinical information systems that link physician
users at the point of care and on a real-time basis with patient data and
clinical guidelines maintained by the Company and third parties. The Company's
clinical information systems consist of proprietary software, third-party
hardware, proprietary and third-party databases and related support services.
The Company's clinical information systems are designed to allow physicians (i)
to access patient-specific clinical and payor information, (ii) to generate
patient instructions, prescriptions and orders for tests, specialty referrals
and specialty procedures and (iii) to access databases containing managed care
and disease management guidelines, diagnostic/treatment preferences and
guidelines affecting medical orders.

The Company's clinical information systems are designed to complement
existing health care information systems and to function with third-party
applications. The clinical information system connects to physician users either
through the use of a hand-held computer equipped with a wireless modem or a
desktop computer using a standard wireline modem. It is anticipated that access
to the Company's clinical information systems will be delivered to physician
users and other health care professionals via both private and public networks,
including the Internet. The Company's product suites operate within a
client/server-based open architecture. The Company's products support HL-7
interfaces, incorporate TCP/IP protocols for real-time data transmission and run
on the Microsoft Windows operating system and standard hardware platforms. The
Company employs proprietary processes and standard commercial security measures
to ensure the privacy of the data communication paths within its products.

The Company has made only limited commercial sales of its clinical
information systems to date. Since October 1994, the Company has provided its
clinical information systems, including user support, data center operations and
network operations, to two pilot sites in Michigan, consisting of approximately
10 physicians and, since December 1995, to a multi-specialty group, consisting
of approximately 35 physicians, that the Company manages in New York. The
Company has developed training and installation templates for its products and
has experience using these templates in its two pilot sites and in a New
York-based physician group practice. The Company has a contract with a
third-party to provide training to its clients. In addition to providing its
clinical information systems to its affiliated physicians, the Company intends
to continue licensing its clinical information systems to third-party health
care organizations. The Company has one employee dedicated to developing
distribution

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<PAGE>
channels for its clinical information systems. In addition, the Company markets
its clinical information systems to physician group practices and networks
together with its management services.

On September 27, 1995, the Company entered into a software license and
integration agreement with Merck Medco Managed Care, Inc. for the Company's
prescription writing software, which provides formulary management, drug
utilization and review ("DUR") edits and linkage to drug therapy protocols. On
August 1, 1995, the Company signed an agreement to provide disease management
information systems and software to an affiliate of PCS Health Systems, Inc.,
the managed care unit of Eli Lilly & Company. The Eli Lilly & Company affiliate
has agreed to sponsor two pilot programs involving the software applications
developed by the Company.

The Company continues to pursue strategic relationships with health care
providers as well as hospital information systems companies, physician practice
management systems companies and on-line services companies for the purpose of
further developing and marketing its information systems.

SYSTEMS

The Company offers a broad range of clinical information systems for
physician users through two suites of applications, Med-E-Practice and
Med-E-Network. Med-E-Practice is designed to be used directly by physician group
practices in support of clinical decision making, clinical ordering and
administrative management. Med-E-Network is designed to support administrative
and clinical decision making for physician networks engaged in capitated and
other fixed-fee arrangements under managed care contracts. These systems have
only been developed by the Company recently, and the initial limited commercial
installations of the Med-E-Practice suite of applications occurred in June 1996.
The Med-E-Network suite of applications is expected to be initially installed
during the fourth quarter of 1996. See "Risk Factors -- Uncertainty of
Successful Commercialization of Clinical Information Systems."

The following table summarizes the two suites of applications offered and
being developed by the Company:

<TABLE><CAPTION>
PRODUCT NAME PRODUCT DESCRIPTION
- --------------------------------- ----------------------------------------------------------
<S> <C>
MED-E-PRACTICE
Smart Scripts.................. Pharmaceutical prescription writing application providing
formulary management, DUR edits and diagnostic coding
linkage to drug therapy protocols.
Med-E-Visit.................... Patient encounter application generating a Superbill with
fully-qualified diagnostic coding linked to appropriate
billing codes required to support outcomes analysis.
Referral....................... Supports multiple referral networks by recording referral
information and providing both network-specific referral
rules and appropriate network specialists.
Conditions Editor.............. Tracks and maintains an active conditions list by patient.
Allergies Editor............... Maintains active and inactive allergy conditions by
patient, supporting charting and DUR editing.
Practice Management
Integrator................... Allows Med-E-Practice applications to integrate with
third-party physician practice management systems using
industry-standard HL-7 records.
Clinical Note.................. Allows physicians to complete clinical notes at the point
of care. Currently in development.
MED-E-NETWORK
Med-E-Net Central.............. Provides centralized administrative functions necessary to
manage risk-taking specialty networks.
Med-E-Net Office............... Integrates physicians in geographically dispersed
networks.
Med-E-Net Integrator........... Provides integration and connectivity between the
applications in the Med-E-Network suite and third-party
databases.
Med-E-Net Cardiology........... Provides cardiology-specific extensions to Med-E-Network
for managing risk-taking cardiology networks.
</TABLE>

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<PAGE>
Med-E-Practice provides administrative and clinical support for physician
group practices. The Med-E-Practice suite is designed for use by physicians at
the point of care and on a real-time basis and is intended to allow better care
decisions by providing better information. All of the applications in the
Med-E-Practice suite are designed to be run on a pen-based, portable, wireless
computer for use in a busy ambulatory practice. The Med-E-Practice suite
consists of the following applications:

Smart Scripts. Smart Scripts is a prescription writing application that
provides the clinician: (i) patient-specific prescription history, (ii)
real-time formulary management, specific to each patient's insurance coverage,
(iii) clinical intervention screening, using third-party DUR modules, (iv)
default dosing, (v) generic substitution, (vi) condition/drug relationship
maintenance and (vii) support for individual customer lists. The Company also
markets Smart Scripts as a stand-alone product. The Company is also developing
an Internet/intranet version of Smart Scripts, "Internet Script Writer."
Internet Script Writer is designed to allow any physician with access to the
Internet to gain the advantages of on-line prescription management. The Internet
Script Writer will provide (i) patient-specific prescription history, (ii)
real-time formulary management, specific to each patient's insurance coverage,
(iii) clinical intervention screening, using third-party DUR modules and (iv)
legible, printed prescriptions. The Company expects that the Internet Script
Writer will be commercially available in the fourth quarter of 1996.

Med-E-Visit. Med-E-Visit is a patient encounter management application that
records procedures and conditions. Med-E-Visit allows for the selection of
laboratory, x-ray, immunization, visit and procedure codes, using standard
diagnostic and billing coding. Med-E-Visit links all procedures with conditions
for outcomes analysis and facilitates correct insurance billing. Med-E-Visit
records follow-up visit requirements and, in conjunction with the Practice
Management Integrator, submits a Superbill to a third-party practice management
system.

Referral. The Referral application simplifies patient referrals through
real-time access to each individual patient's appropriate physician network. The
Referral application records referral information, provides network-specific
referral rules and helps to select the appropriate referral physician by
specialty and location and allows a complete referral form to be created and
printed.

Conditions Editor. The Conditions Editor automatically tracks a patient's
medical condition information generated by the other applications in the
Med-E-Practice suite. It uses disease-specific algorithms to monitor and permit
a physician to record a patient encounter. The Conditions Editor also allows the
clinical user to directly edit and manage the current conditions list.

Allergies Editor. The Allergies Editor allows the clinical user to easily
maintain allergy information for use in the Med-E-Practice suite. Allergy
information is provided by the Conditions Editor to the Smart Scripts
application and other Med-E-Practice applications.

Practice Management Integrator. The Practice Management Integrator
integrates the Med-E-Practice suite with third-party practice management systems
through a Company-designed interface using the industry standard HL-7 interface.

Clinical Note. The Clinical Note is designed to be an "at a glance" utility
bringing the most appropriate information to the physician at the point of care.
The Clinical Note application is intended to enable the physician to review the
most current information regarding the patient's medical history, including
current medications, active and inactive conditions, office visits, past
referrals and pertinent test results. The Clinical Note also permits the
physician to update patient information during the patient encounter with new
clinical findings, new prescriptions, new referrals and new procedure orders.
The automated Clinical Note application structures the input of information and
orders in a focused and customizable format to allow rapid physician-driven data
entry and retrieval. The Clinical Note is expected to be commercially available
in 1997.

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<PAGE>
Med-E-Network is a suite of network management applications supporting
physician networks engaged in risk-based contracts with payors. Med-E-Network
automates network configuration, maintenance of network rules, referral
management, utilization review management, claims and encounter submissions and
financial and clinical reporting. Med-E-Network utilizes a relational database
engine which integrates various sources of information and provides a flexible
repository for developing administrative, financial and clinical reports. The
Med-E-Network suite consists of the following applications:

Med-E-Net Central. Med-E-Net Central is designed to centralize and support
the administrative functions of a risk-taking physician network by (i) providing
pre-certification, (ii) processing claims and encounters, (iii) generating,
managing and matching referrals, (iv) providing financial and clinical
utilization review reporting, (v) providing automated utilization review
approvals and denials and (vi) providing eligibility assistance.

Med-E-Net Office. Med-E-Net Office links physician offices to Med-E-Net
Central. Med-E-Net Office is a forms-based, scaleable, client/server application
supporting referral creation and receipt, claims and encounter submission and
the creation and submission of treatment plans.

Med-E-Net Integrator. The Med-E-Net Integrator provides connectivity between
the applications in the Med-E-Network suite and third-party databases.

Med-E-Net Cardiology. Med-E-Net Cardiology is designed to deliver
procedure-specific guidelines for the management of cardiac disease coupled with
an automated procedure approval and referral engine. Med-E-Net Cardiology is
expected to be commercially available in the third quarter of 1996.

CLINICAL INFORMATION SYSTEMS DEVELOPMENT

The Company believes that the timely development of new clinical information
applications and the enhancement of existing clinical information systems are
important to its competitive position. The Company's product development
strategy is directed toward creating new applications that (i) increase the
functionality of current products by providing enhanced interfaces to
third-party systems and data repositories, (ii) expand coverage along the
continuum of clinical care, (iii) increase coverage to additional disease and
procedure groups and (iv) provide customers with a range of decision support
systems at various price points. The Company has approximately 20 professionals
dedicated to systems development. See "Risk Factors -- Technological Change."

CONTRACTUAL RELATIONSHIPS WITH AFFILIATED PHYSICIANS

The Company typically establishes an MSO for each physician organization it
manages. The MSO is a joint venture between the physician organization and the
Company, with the Company owning at least 51% of the equity in the MSO. The MSO
enters into a long-term management services agreement with the physician
organization pursuant to which the MSO provides group practice management or
network management services that provide both administrative and clinical
support to members of the physician organization. The MSO concurrently enters
into a services agreement with the Company pursuant to which it gains access to
management services and clinical information systems from the Company. The MSO's
assets consist primarily of its management service contracts with the physician
group or network served and its liabilities consist primarily of its obligations
under its agreement with the Company and its obligations to its employees. For
certain MSOs, a stockholders agreement is entered into among the MSO, the
physician organization and the Company. The stockholders agreement, among other
things, (i) restricts the transfer of MSO equity, (ii) provides the terms upon
which, after the occurrence of the Trigger Event (as hereinafter defined), the
MSO can, at the Company's option, be merged with and into a wholly-owned
subsidiary of the Company in the Roll Up Transaction and (iii) grants to the
physician organization the right to put its equity in the MSO to the Company at
a price equal to 110% of the then-current fair market value of the shares of
Common Stock that would have otherwise been issued in the Roll Up Transaction if
the Company does not exercise its option to

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<PAGE>

cause the Roll Up Transaction to occur within one year after the occurrence of
the Trigger Event. In the case of each such MSO, a Trigger Event will occur at
such time as (i) the Company is providing physician practice management services
to at least 300 physicians, (ii) the Company is providing physician network
management services to at least 2,000 physicians, (iii) the Company has at least
$75,000,000 in stockholders' equity and (iv) the Company's Common Stock is
publicly traded. As of August 31, 1996, the Company was providing (i) physician
practice management services to 77 physicians and (ii) physician network
management services to 798 physicians and as of June 30, 1996, the Company had
$863,349 in stockholders' equity. The Company has reserved 548,224 shares of
Common Stock for issuance upon the merger of such MSOs into the Company. See
"Risk Factors -- Management Service Organizations Not Wholly-Owned; Physician
Put Rights; Dilution."

Physician Practices. The management services agreements between the MSO and
a physician practice group generally have an initial term of five to 20 years
and are automatically renewable for additional terms. Such agreements typically
are subject to early termination for cause. The management services agreements
generally obligate an MSO to provide certain non-medical practice management
services to the physician practice group for a monthly fee. The fee paid to the
MSO is generally a combination of fixed fees for certain services and percentage
fees for certain services. For risk-based contracts that the physician practice
group enters into, the management services agreement will generally provide for
additional management fees based upon savings recognized by the physician
practice group because of any cost efficiencies resulting from the MSO's
performance. The fees are set to be competitive within the geographic area in
which the physician practice group is located. A provision restricting the
physician practice group from competing against the MSO or employing the MSO's
employees is generally included in the agreement.

Physician Networks. The management services agreements between the MSO and a
physician network generally have an initial term of at least five years and are
automatically renewable for additional terms. Such agreements typically are
subject to early termination for cause. The management services agreements
generally obligate an MSO to provide certain non-medical practice management
services to the physician network for a fee. The fee paid to the MSO for
risk-based or capitated contracts is generally a service fee equal to the actual
cost, not to exceed a specified percentage of capitated revenues, for providing
the non-medical management services plus an incentive based on savings generated
by the network. The fee paid to the MSO for fee-for-service contracts is
generally equal to the administrative fees included in the managed care contract
plus a management processing fee agreed upon by the MSO and the physician
network. The fees are set to be competitive within the geographic area in which
the physician network is located. In the agreement, the physician network agrees
that the MSO will be the exclusive provider of non-medical management services
to the physician network.

Capitated and Other Fixed-Fee Arrangements. The Company anticipates entering
into managed care or capitated arrangements, either indirectly through the
assignment of managed care contracts entered into between its affiliated
physicians and third-party payors or directly through the formation of an IPA.
The Company has little experience in managing capitated-risk arrangements and
has no experience in forming or managing an IPA. Revenues under any managed care
or capitated arrangements entered into by the Company, whether through the
assignment of a capitated contract entered into by its affiliated physicians or
directly through an IPA, will generally be a fixed amount per enrollee. Under
such an arrangement, the Company would contract with affiliated physicians for
the provision of health care services and the Company would be responsible for
the provision of all or a portion of the health care requirements of such
enrollees. To the extent that enrollees require more care than is anticipated by
the Company upon entering into such a contract, the Company's revenues under
such contracts may be insufficient to cover its costs. The Company expects to
enter into reinsurance agreements with third-party insurers in respect of a
portion of such risk.

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<PAGE>
PROPRIETARY RIGHTS

The Company is relying upon the effectiveness of protection provided by a
combination of patent, trade secret and copyright laws, nondisclosure and other
contractual provisions and technological measures to protect its proprietary
position in its methodologies, databases and software. The Company has two U.S.
patent applications and a foreign patent application commensurate with both U.S.
applications, but no issued patents. The patent applications are directed to the
Company's Smart Scripts prescription management system and related technologies.
No assurance can be provided that a patent or patents will be issued or will
provide the Company with adequate protection. Nor can any assurance be given
that patent, trade secret, copyright or other intellectual property rights can
be successfully asserted in any court action. The Company has also filed
applications for registration of copyrights in its software, user documentation
and databases. The copyright protection accorded to databases, however, is
fairly limited. While the arrangement and selection of data are protectable, the
actual data are not, and others are free to create databases that perform the
same function. The Company distributes its clinical information systems products
under agreements that grant customers non-exclusive licenses and generally
contain terms and conditions restricting the disclosure and use of the Company's
systems. In addition, the Company attempts to protect the secrecy of its
proprietary databases and other trade secrets and proprietary information
through confidentiality agreements with employees, consultants and third
parties.

The Company believes that, aside from the various legal protections of its
proprietary information and technologies, factors such as the technological and
creative skills of its personnel and product maintenance and support are
integral to establishing and maintaining its position within the health care
industry. Although the Company believes that its products do not infringe upon
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future.
See "Risk Factors -- Dependence on Proprietary Assets."

COMPETITION

The provision of physician practice and network management services is a
highly competitive business in which the Company competes for contracts with
several national and many regional and local companies. The Company also
competes with traditional managers of health care services that directly recruit
and manage physicians. In addition, certain of the Company's competitors are
dedicated to or specialize in the management of single-specialty practices
focused on diseases such as cardiology, oncology and orthopedics, specialties on
which the Company intends to focus. Certain of the Company's competitors have
access to substantially greater financial resources than the Company. The
Company believes that competition in this industry is generally based on cost
and quality of services.

The market for health care information systems and services is highly
competitive and rapidly changing. The Company believes that the principal
competitive factors for clinical information systems are the proprietary nature
of methodologies, databases and technical resources, the usefulness of the data
and reports generated by the software, customer service and support,
compatibility with the customer's existing information systems, potential for
product enhancement, vendor reputation, price and the effectiveness of marketing
and sales efforts.

The Company's competitors include other providers of clinical information
systems and practice management systems. Many of the Company's competitors and
potential competitors have greater financial, product development, technical and
marketing resources than the Company, and currently have, or may develop or
acquire, substantial installed customer bases in the health care industry. In
addition, as the market for clinical information systems and practice management
systems develops, additional competitors may enter the market and competition
may intensify. While the Company believes that it will successfully
differentiate its clinical information systems from those of its competitors,
there can be no assurance that future competition will not have a material
adverse effect on the Company.

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<PAGE>
GOVERNMENT REGULATION

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

During the first six months of 1996, approximately 35% of the revenues of
the Company's affiliated physician group practices was derived from payments
made by government-sponsored health care programs (principally, Medicare,
Medicaid and state reimbursed programs). As a result, any change in
reimbursement regulations, policies, practices, interpretations or statutes
could adversely affect the operations of the Company. The federal Medicare
program adopted a system of reimbursement of physician services, RBRVS, which
took effect in 1992 and is expected to be fully implemented by December 31,
1996. The Company expects that the RBRVS fee schedule and other future changes
in Medicare reimbursement will result in some cases in a reduction and in some
cases in an increase from historical levels in the per-patient Medicare revenue
received by certain of the physician organizations with which the Company
contracts. Although the Company does not believe such reductions will have a
material adverse effect on the Company's operating results, the RBRVS fee
schedule may be adopted by other payors, which could have a material adverse
effect on the Company. See "Risk Factors -- Cost Containment and Reimbursement
Trends."

There are also state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment, on
health care providers that fraudulently or wrongfully bill governmental or other
third-party payors for health care services. The federal law prohibiting false
billings allows a private person to bring a civil action in the name of the U.S.
government for violations of its provisions. The Company believes it is in
material compliance with such laws, but there is no assurance that the Company's
activities will not be challenged or scrutinized by governmental authorities.
Moreover, technical Medicare and other reimbursement rules affect the structure
of physician billing arrangements. The Company believes it is in material
compliance with such regulations, but regulatory authorities may differ and in
such event the Company may have to modify its relationship with physician
organizations. Noncompliance with such regulations may adversely affect the
business, financial condition and results of operations of the Company and
subject it and affiliated physician groups to penalties and additional costs.

The laws of many states prohibit business corporations such as the Company
from practicing medicine and employing physicians to practice medicine. The
Company provides only non-medical services and clinical information systems to
physician organizations, does not represent to the public or its clients that it
offers medical services and does not exercise control over the practice of
medicine by the physician organizations with which it contracts. Accordingly,
the Company believes that it is not in violation of applicable state laws
relating to the practice of medicine. The laws in most states regarding the
corporate practice of medicine have been subjected to limited judicial and
regulatory interpretation and, therefore, no assurances can be given that the
Company's activities will be found to be in compliance, if challenged. There can
be no assurance that a review of the Company's or its affiliated physicians'
businesses by courts or regulatory authorities will not result in a
determination that could adversely affect the operations of the Company or its
affiliated physicians (for example, by rendering the Company's management
services agreements with a physician organization unenforceable). In addition to
prohibiting the practice of medicine, numerous states prohibit entities like the
Company from engaging in certain health care related activities such as
fee-splitting with physicians. New York State,

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for instance, prohibits percentage-based payments from physicians or physician
groups to management companies for services other than billing and collection.
Accordingly, expansion of the operations of the Company to certain jurisdictions
may require it to comply with such jurisdictions' regulations which could lead
to structural and organizational modifications of the Company's form of
relationships with physician organizations. Such changes, if any, could have a
material adverse effect on the Company.

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. The Anti-kickback Statute is
broad in scope and has been broadly interpreted by courts in many jurisdictions.
Read literally, the statute places at risk many legitimate business
arrangements, potentially subjecting such arrangements to lengthy, expensive
investigations and prosecutions initiated by federal and state governmental
officials. Many states, including those in which the Company does business, have
adopted similar prohibitions against payments intended to induce referrals of
Medicaid and other third-party payor patients. The Company believes that,
although it is receiving remuneration under the management services agreements
for management services, it is not in a position to make or influence the
referral of patients or services reimbursed under government programs to the
physician groups and, therefore, believes it has not violated the Anti-kickback
Statute. The Company also is not a separate provider of Medicare or state health
program reimbursed services. To the extent the Company is deemed to be either a
referral source or a separate provider under its management services agreements
and to receive referrals from physicians, the financial arrangements under such
agreements could be subject to scrutiny and prosecution under the Anti-kickback
Statute. Violation of the Anti-kickback Statute is a felony, punishable by fines
up to $25,000 per violation and imprisonment for up to five years. In addition,
the Department of Health and Human Services may impose civil penalties excluding
violators from participation in Medicare or state health programs.

In July 1991, in part to address concerns regarding the Anti-kickback
Statute, the federal government published regulations that provide exceptions,
or "safe harbors," for transactions that will be deemed not to violate the
Anti-kickback Statute. Among the safe harbors included in the regulations were
provisions relating to the sale of practitioner practices, management and
personal services agreements and employee relationships. Additional safe harbors
were published in September 1993 offering new protections under the
Anti-kickback Statute to eight activities, including referrals within group
practices consisting of active investors. Proposed amendments to clarify these
safe harbors were published in July 1994 which, if adopted, would cause
substantive retroactive changes to the 1991 regulations. Although the Company
believes that it is not in violation of the Anti-kickback Statute, its
operations may not fit within any of the existing or proposed safe harbors.

Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions,
commonly known as "Stark II," amended prior physician self-referral legislation
known as "Stark I" by dramatically enlarging the field of physician-owned or
physician-interested entities to which the referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits, subject to certain exemptions, a
physician or a member of his immediate family from referring Medicare 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 including the physician's own group practice.
The designated health services include radiology and other diagnostic services,
radiation therapy services, physical and occupational therapy services, durable
medical equipment, parenteral and enteral nutrients, equipment and supplies,
prosthetics, orthotics, outpatient prescription drugs, home health services and
inpatient and outpatient hospital services. The penalties for violating Stark II
include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme." The Company believes that its
activities are not in violation of Stark I or Stark II. However, the Stark
legislation is broad and ambiguous. Interpretative

35
<PAGE>
regulations clarifying the provisions of Stark II have not been issued. While
the Company believes it is in compliance with the Stark legislation, future
regulations could require the Company to modify the form of its relationships
with physician organizations. Moreover, the violation of Stark I or II by the
Company's affiliated physician organizations could result in significant fines
and loss or reimbursement which could materially adversely affect the Company.
Many states in which the Company conducts business have enacted similar laws
applicable to all services.

The Health Care Finance Administration ("HCFA") has issued final regulations
(the "PIP regulations") covering the use of physician incentive plans ("PIPs")
by HMOs and other managed care contractors and subcontractors ("Organizations"),
potentially including the Company. Any Organization that contracts with a
physician group that places the individual physician members of the group at
substantial financial risk for the provision of services (e.g., if a primary
care group takes risk but subcontracts with a specialty group to provide certain
services) must satisfy certain disclosure, survey and stop-loss requirements.
Under the PIP regulations, payments of any kind, direct or indirect, to induce
providers to reduce or limit covered or medically necessary services
("Prohibited Payments") are prohibited. Further, where there are no Prohibited
Payments but there is risk sharing among participating providers related to
utilization of services by their patients, the regulations contain three groups
of requirements: (i) requirements for physician incentive plans that place
physicians at "substantial financial risk;" (ii) disclosure requirements for all
Organizations with PIPs; and (iii) requirements related to subcontracting
arrangements. In the case of substantial financial risk (defined in the
regulations according to several methods, but essentially risk in excess of 25%
of the maximum payments anticipated under a plan with less than 25,000 covered
lives), Organizations must: (1) conduct enrollee surveys; and (2) ensure that
all providers have specified stop-loss protection. The violation of the
requirements of the PIP regulations may result in a variety of sanctions,
including suspension of enrollment of new Medicaid or Medicare members, or a
civil monetary penalty of $25,000 for each determination of noncompliance. In
addition, because of the increasing public concerns regarding PIPs, the PIP
regulations may become the model for the industry as a whole. The new
regulations could have an affect on the ability of the Company to effectively
reduce the costs of providing services, by limiting the amount of risk that may
be imposed upon physicians.

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

Laws in all states regulate the business of insurance and the operation of
HMOs. Many states also regulate the establishment and operation of networks of
health care providers. There can be no assurance that regulatory authorities of
the states in which the Company operates would not apply these laws to require
licensure of the Company's operations as an insurer, as an HMO or as a provider
network. The Company believes that it is in compliance with these laws in the
states in which it does business, but there can be no assurance that future
interpretations of insurance laws and health care network laws by the regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations.

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

36
<PAGE>
The confidentiality of patient records and the circumstances under which
such records may be released is subject to substantial regulation under state
and federal laws and regulations. To protect patient confidentiality, data
entries to the Company's databases delete any patient identifiers, including
name, address, hospital and physician. The Company believes that its procedures
comply with the laws and regulations regarding the collection of patient data in
substantially all jurisdictions, but regulations governing patient
confidentiality rights are evolving rapidly and are often difficult to apply.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. This legislation may
require holders of such information to implement security measures that may be
of substantial cost to the Company. There can be no assurance that changes to
state or federal laws would not materially restrict the ability of the Company
to obtain patient information originating from records.

The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of health care industry participants. During the past several years, government
regulation of reimbursement rates in the United States health care industry has
increased. Lawmakers continue to propose programs to reform the United States
health care system, which may contain proposals to increase governmental
involvement in health care, lower reimbursement rates and otherwise change the
operating environment for the Company's customers. Health care industry
participants may react to these proposals by curtailing or deferring
investments, including investments in the Company's products. The Company cannot
predict what impact, if any, such factors may have on its business, financial
condition and results of operations or on the price of the Common Stock.

Certain products, including software applications, intended for use in the
diagnosis of disease or other conditions, or in the cure, treatment, mitigation
or prevention of disease, are subject to regulation by the FDA under the Federal
Food, Drug and Cosmetic Act of 1938, as amended (the "FDCA"). The FDCA imposes
substantial regulatory controls over the manufacturing, testing, labeling, sale,
distribution, marketing and promotion of medical devices and other related
activities. These regulatory controls can include, for example, compliance with
the following: manufacturer establishment registration and device listing;
current good manufacturing practices; FDA clearance of a premarket notification
submission or FDA approval of a premarket approval application; medical device
adverse event reporting; and general prohibitions on misbranding and
adulteration. Violations of the FDCA can result in severe criminal and civil
penalties, and other sanctions, including, but not limited to, product seizure,
recall, repair or refund orders, withdrawal or denial of premarket notifications
or premarket approval applications, denial or suspension of government
contracts, and injunctions against unlawful product manufacture, labeling,
promotion, and distribution or other activities.

In its 1989 Draft Policy Statement, the FDA stated that it intended to
exempt certain clinical decision support software products from a number of
regulatory controls. Under the 1989 Draft Policy Statement, the FDA stated that
it intended to exempt decision support software products that involve "competent
human intervention before any impact on human health occurs (e.g., where
clinical judgment and experience can be used to check and interpret a system
output)" from the following controls: manufacturer establishment registration
and device listing, premarket notification, and compliance with the medical
device reporting and current good manufacturing practice regulations. In the
1989 Draft Policy Statement, the FDA stated that until it formally exempted
decision support software products from these requirements, manufacturers of
eligible decision support software products would to be required to comply with
those controls.

Since issuing the 1989 Draft Policy Statement, the FDA has not issued a
final policy on this issue and has not formally exempted any products as
discussed in the 1989 Draft Policy Statement. The FDA has referred to the 1989
Draft Policy Statement in official presentations regarding software regulation
and in decisions and opinions regarding the regulatory status of various
products. Over the last few years, however, the FDA has stated that it intends
to issue a new policy concerning computer products. Under this new policy,
exemptions from regulatory controls, if any, would be based upon a product

37
<PAGE>
specific "risk factor" analysis. For purposes of this analysis, the FDA has
considered, among other things, the following: (i) seriousness of the disease to
be diagnosed or treated; (ii) time frame for use of the information; (iii)
concordance with accepted medical practice; (iv) format of data and its
presentation; (v) individualized versus aggregate patient care recommendations;
and (vi) clarity of algorithms used in the software. Given the FDA's intent to
issue a new policy concerning the regulation of computer software, there can be
no assurance as to the effect of such a policy, if any, upon the regulatory
status of the Company's products.

The Company believes that its clinical information systems are not medical
devices under the FDCA and, thus, are not subject to the controls imposed on
manufacturers of medical devices and do not fall within the scope of the 1989
Draft Policy Statement. The Company further believes that to the extent that its
products are determined to be medical devices, they fall within the exemptions
for decision support systems provided by the 1989 Draft Policy Statement. The
Company has not taken action to comply with the requirements that would
otherwise apply if the Company's products were determined to be non-exempt
medical devices.

There can be no assurance that the FDA will not make a request or take other
action to require the Company to comply with any or all current or future
controls applicable to medical devices under the FDCA. There can be no assurance
that, if such a request were made or other action were taken, the Company could
comply in a timely manner, if at all, or that any failure to comply would not
have a material adverse effect on the Company's business, financial condition or
results of operations, or that the Company would not be subjected to significant
penalties or other sanctions. There can be no assurance that the FDA will
continue to permit any or all of the exemptions provided in the 1989 Draft
Policy Statement, or in a new policy statement, if any, or that the FDA will
promulgate regulations formally implementing such exemptions. There can be no
assurance that the Company's current or future clinical information systems will
qualify for future exemptions, if any, nor can there be any assurance that any
future requirements will not have a material adverse effect on the Company's
business, financial condition or results of operations.

LEGAL PROCEEDINGS

The Company is not a party to any litigation that would have a material
adverse effect on its business, results of operations or financial condition.

EMPLOYEES

As of August 31, 1996, the Company had a total of approximately 160
employees, approximately 30 of whom were employed in the Company's information
systems subsidiary. None of the Company's employees is subject to a collective
bargaining agreement. The Company has never experienced a work stoppage and
believes that its employee relations are satisfactory.

PROPERTIES

The Company currently occupies 16,580 square feet of leased office space in
Tarrytown, New York, 4,065 square feet of leased office space in Marietta,
Georgia, 1,180 square feet of leased office space in Wayne, Pennsylvania and
10,742 square feet of leased office and data center space in Chicago, Illinois.
The current lease (including 4,500 square feet of space subleased from
Physicians' Online, Inc. as more fully described under "Certain Transactions")
for the Tarrytown office expires in March 1997 and has an annual rental of
approximately $290,790. The Company has entered into a lease, effective April 1,
1997, for 25,000 square feet at the Tarrytown office. Such lease will have an
annual rental of approximately $500,000 and will expire March 2002. See "Certain
Transactions". The lease for the Marietta office expires in January 2001 and has
an annual rental of approximately $50,000. The lease for the Wayne office
expires in April 1997 and has an annual rental of approximately $20,000. The
lease for the Chicago office expires in March 2001 and has an annual rental of
$180,000 for the current year. The Company believes that these facilities are
adequate for the foreseeable future.

38
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE><CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ----------------------------------------
<S> <C> <C>
Jonathan Edelson, M.D................... 36 Chairman of the Board and Chief
Executive Officer
Steven Hochberg......................... 34 President and Director
Alan B. Masarek......................... 35 Chief Operating Officer and Chief
Financial Officer
Robert Alger............................ 41 Vice President and Chief Information
Officer
Andrew C. Garling, M.D.................. 50 Vice President and Chief Medical Officer
James T. Carney(2)...................... 52 Director
Barry Kurokawa(1)(2).................... 40 Director
Jonathan Lieber(1)(2)................... 30 Director
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

JONATHAN EDELSON, M.D. has been the Chairman of the Board and Chief
Executive Officer of the Company since its inception. Dr. Edelson is a
board-certified internist. Prior to co-founding the Company, Dr. Edelson served
as the Chief Executive Officer of Physicians' Online, Inc. from August 1993 to
December 1994 and as a director from August 1993 to the present. Dr. Edelson was
a senior vice president with ValueRx, Inc., the prescription drug benefits
management unit of Value Health, Inc., from October 1990 to June 1993. As a
practicing physician prior to joining ValueRx, Inc., Dr. Edelson founded Medical
Decision Resources, Inc., a physician profiling and education business, in March
1989, and served as its President through September 1990. Dr. Edelson attended
Yale University, University of Chicago School of Medicine and the Harvard School
of Public Health.

STEVEN HOCHBERG has been President and a director of the Company since its
inception. He is a co-founder of the Company and a co-founder of Physicians'
Online, Inc. Mr. Hochberg served as the President of Physicians' Online, Inc.
from January 1993 to June 1994. Mr. Hochberg served as the President of Ascent
Group, Inc., a financial consulting business that he founded, from February 1992
to January 1993, and as a Vice President of Sigoloff & Associates, management
consultants, from September 1989 to February 1992. In addition, he worked with
Alex. Brown & Sons as a Corporate Finance Associate in 1985 and with Bain &
Company as a Strategy Consultant from 1986 to 1987. Mr. Hochberg, a CPA, holds
an MBA from Harvard Business School.

ALAN B. MASAREK has been Chief Operating Officer and Chief Financial Officer
of the Company since November 1995. Prior to joining the Company, from April
1995 to November 1995, Mr. Masarek was acting as an independent consultant. Mr.
Masarek was President and Chief Executive Officer of the Scovill Group, an
international manufacturer of fasteners and other component items with annual
revenues of approximately $125 million, from February 1994 to April 1995. Prior
to Scovill, Mr. Masarek was President of two divisions of the Bibb Company, a
diversified textile manufacturer, from December 1991 to February 1994. Prior to
that, Mr. Masarek worked for three years as a buyout specialist with the NTC
Group and for five years in the audit division of Arthur Andersen & Co. Mr.
Masarek, a CPA, holds an MBA from Harvard Business School.

ROBERT ALGER has been Vice President and Chief Information Officer of the
Company since February 1995. Prior to joining the Company, Mr. Alger was Chief
Information Officer and Vice President of Information Systems at Blue Shield of
California, from December 1991 to February 1995, and a partner at Scribner,
Jackson & Associates, a technology consulting group, from January 1986 to
December 1991. Mr. Alger received his B.S. from California State
University--Northridge.

39
<PAGE>
ANDREW C. GARLING, M.D. has been Vice President and Chief Medical Officer of
the Company since November 1995. Dr. Garling's experience in medical information
systems includes serving as Vice President of Medical Affairs for TDS, Inc. from
August 1988 to December 1992 and as Chief Information Officer and Vice President
for the Prudential Health Care System's Southern Group Operations from December
1992 to November 1995. Dr. Garling completed his medical degree at Harvard
Medical School with initial specialty training in surgery. He later became board
certified in Emergency Medicine and practiced clinical medicine with the Kaiser
Permanente Medical Group of Northern California from July 1977 to August 1988.
At Kaiser, he also had administrative responsibilities, including serving as
staff president for the hospital system.

JAMES T. CARNEY has been a director of the Company since September 1996. Mr.
Carney has served as General Manager of Benefits Administration for USX
Corporation and Vice President of Administration for United States Steel and
Carnegie Pension Fund since 1989. Mr. Carney was named General Attorney-Employee
Benefits of USX Corporation in 1978, Senior General Attorney-Employee Benefits
and Workers' Compensation in 1985 and Senior General Attorney-Commercial and
Employee Relations for the U.S. Diversified Group in 1986.

BARRY KUROKAWA has been a director of the Company since March 1996. Since
February 1996, Mr. Kurokawa has served as a Managing Director of ProMed Asset
Management, L.L.C. ("ProMed"), a private health care investment management and
services company, and as the President of Blackriver Capital Management, Ltd.,
the general partner of ProMed Partners, L.P. and a consultant to INVESCO Trust
Company, a mutual fund company. From May 1992 to January 1996, he was employed
by INVESCO Trust Company as Senior Vice President and portfolio manager of four
health care funds managed by the firm. From July 1992 to January 1996, Mr.
Kurokawa was also the Vice President of Global Health Services, a closed-end
mutual fund. Before he joined INVESCO, Mr. Kurokawa served as Vice President
Equity Research and health care analyst at Trust Company of the West, an
investment management company, from July 1987 to April 1992.

JONATHAN LIEBER has been a director of the Company since September 1995. Mr.
Lieber has served as an investment analyst focusing on special situation
investments, including the areas of healthcare, banking and other consumer
services, of GeoCapital Corp., since July 1992. Mr. Lieber has served since June
1992 as Vice President of Applewood Capital, where he specializes in consumer
services including healthcare, banking and finance. Additionally, Mr. Lieber has
served as a Vice President of Infomedia Management Co., Inc., the management
company for the general partner of the 21st Century investment partnerships
since February 1995. Prior to joining GeoCapital, Mr. Lieber was employed as a
research analyst at Gabelli & Co., an investment management and brokerage firm,
from 1990 to 1991.

Each of Barry Kurokawa and Jonathan Lieber were elected to the Board of
Directors pursuant to voting agreements which give the holders of the Series B
and C Preferred Stock of the Company the right to elect one director and the
holders of the Series D Preferred Stock of the Company the right to elect one
director. Such agreements will terminate upon the consummation of this offering.

The Board of Directors is divided into three classes, as nearly equal in
number as possible, having terms expiring at the annual meeting of the Company's
stockholders in 1997 (comprised of Mr. Lieber), 1998 (comprised of Messrs.
Carney and Kurokawa) and 1999 (comprised of Dr. Edelson and Mr. Hochberg). At
each annual meeting of stockholders, successors to the class of directors whose
term expires at such meeting will be elected to serve for three-year terms and
until their successors are elected and qualified.

BOARD COMMITTEES

The Board of Directors has established two committees, the Audit Committee
and the Compensation Committee. The Audit Committee is comprised of Messrs.
Kurokawa and Lieber and oversees the

40
<PAGE>

activities of the Company's independent auditors and the Company's internal
controls. The Compensation Committee, which is comprised of Messrs. Carney,
Kurokawa and Lieber, makes recommendations to the Board of Directors with
respect to general compensation and benefit levels, determines the compensation
and benefits for the Company's executive officers and administers the Company's
stock option plans and employee stock purchase plan.

DIRECTOR COMPENSATION

Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. Non-employee directors of the Company are eligible to
receive options under the Company's 1995 Stock Option Plan. See "Management --
Stock Plans."

LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY

The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company 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 Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit. The effect of
these provisions will be to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above. These provisions will not limit the liability
of directors under federal securities laws.

The Company's Certificate of Incorporation provides that the Company shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by law. The Company's Certificate of Incorporation also permits it to
secure insurance on behalf of any director, officer, employee or agent against
any expense, liability or loss arising out of his or her actions in such
capacity.

The Company intends to obtain directors' and officers' liability insurance
("D&O Insurance") prior to the date of this Prospectus, and expects to continue
to carry D&O Insurance following this offering. In addition, the Company has
entered into an indemnification agreement with each of its directors and
officers under which the Company has indemnified each of them against expenses
and losses incurred for claims brought against them by reason of a director or
officer of the Company.

The Company believes that the limitation of liability and indemnification
provisions in its Certificate of Incorporation, the D&O Insurance and the
indemnification agreements will enhance the Company's ability to continue to
attract and retain qualified individuals to serve as directors and officers.
There is no pending litigation or proceeding involving a director, officer or
employee of the Company to which the indemnification provisions would apply.

EXECUTIVE COMPENSATION

The following table sets forth a summary of the compensation earned by the
Company's Chief Executive Officer and the other executive officers of the
Company whose combined salary and bonus for the year ended December 31, 1995 was
in excess of $100,000 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company during the Company's fiscal
year ended December 31, 1995.

41
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE><CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (#) COMPENSATION
- ------------------------------------------------ ---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Jonathan Edelson, M.D........................... 1995 $187,115(1) 101,286 $ 0
Chief Executive Officer
Steven Hochberg................................. 1995 187,115(1) 101,286 0
President
Richard W. Kaplan(2)............................ 1995 142,000(3) 193,637 14,800(4)
Executive Vice President
Robert Alger.................................... 1995 123,937(5) 41,706 0
Vice President and Chief Information Officer
</TABLE>

- ------------
(1) Current annual salary is $220,000.
(2) Mr. Kaplan ceased to be an executive officer of the Company in August 1996.
(3) Mr. Kaplan joined the Company in April 1995. Includes a $17,000 signing
bonus.
(4) Includes living expenses as part of a relocation package for Mr. Kaplan.
(5) Mr. Alger joined the Company in February 1995. Mr. Alger's current annual
salary is $154,000.

The compensation of each of Alan B. Masarek, the Company's Chief Operating
Officer and Chief Financial Officer, and Andrew C. Garling, M.D., the Company's
Vice President and Chief Medical Officer, each of whom joined the Company in
November 1995, is currently in excess of $100,000 on an annual basis.

The following tables set forth, with respect to the Named Executive
Officers, the option grants made during the Company's fiscal year ended December
31, 1995 and the option values at the end of such fiscal year.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE><CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED (#)(3) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------- -------------- ------------ -------- -------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Jonathan Edelson, M.D........... 53,622 4.25% $ 2.52 Mar. 31, 2005 $84,723 $215,560
47,664 3.78% 3.52 Dec. 31, 2005 105,337 267,395
Steven Hochberg................. 53,622 4.25% 2.52 Mar. 31, 2005 84,723 215,560
47,664 3.78% 3.52 Dec. 31, 2005 105,357 267,395
Richard W. Kaplan(2)............ 178,742 14.17% 2.52 -- -- --
14,895 1.18% 3.52 -- -- --
Robert Alger.................... 35,748 2.83% 2.52 Feb. 28, 2005 56,482 143,707
5,958 0.47% 3.52 Dec. 31, 2005 13,167 33,424
</TABLE>

- ------------
(1) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock. The amounts
reflected in this table may not necessarily be achieved.
(2) All options granted to Mr. Kaplan terminated upon the termination of his
employment with the Company.
(3) All options were granted under the Company's 1995 Stock Option Plan. All
options granted had an exercise price equal to the fair market value on the
date of grant. All options were granted on dates that

42
<PAGE>
were 10 years prior to such options' expiration dates. All options may
become fully exercisable on the occurrence of a change in control as
described in the Company's 1995 Stock Option Plan. Options vest at the rate
of one-third per year over a three-year period from the date of grant.

The following table sets forth information with respect to options exercised
during the fiscal year ended December 31, 1995 by each of the Named Executive
Officers and certain information regarding options held at December 31, 1995 by
each of the Named Executive Officers.

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

<TABLE><CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISE REALIZED --------------------------- ----------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(2)
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan Edelson, M.D...... 239,515 $840,413 0 101,286 $ 0 $ 356,527
Steven Hochberg............ 268,114 $940,761 0 101,286 $ 0 $ 356,527
Richard W. Kaplan(3)....... -- -- -- -- -- --
Robert Alger............... -- -- 0 41,706 $ 0 $ 146,805
</TABLE>

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

(1) Value realized is based on a value of $3.52 per share of the Company's
Common Stock, the fair market value of the Company's Common Stock on
December 31, 1995, net of the exercise price paid.
Value realized based upon the $12 proposed offering price per share of the
Company's Common Stock, net of the exercise price paid, would be $2,871,497
for Dr. Edelson's options and $3,214,365 for Mr. Hochberg's options.

(2) Value of unexercised in-the-money options is based on a value of $3.52 per
share of the Company's Common Stock, the fair market value of the Company's
Common Stock on December 31, 1995. Amounts reflected are based on the
assumed value minus the exercise price and multiplying the result by the
number of shares subject to the option.

(3) All options granted to Mr. Kaplan terminated upon the termination of his
employment with the Company.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements (the "Employment
Agreements") with Jonathan Edelson, M.D., its Chairman and Chief Executive
Officer, Steven Hochberg, its President, Alan B. Masarek, its Chief Operating
Officer and Chief Financial Officer, Robert Alger, its Vice President and Chief
Information Officer, and Andrew C. Garling, M.D., its Vice President and Chief
Medical Officer (each, an "Employee"). The Employment Agreements provide that
the annual base salary of each of the Employees is: Dr. Edelson, $220,000; Mr.
Hochberg, $220,000; Mr. Masarek, $200,000; Mr. Alger, $154,000; and Dr. Garling,
$200,000. The Employees are also entitled to receive discretionary bonuses.

The Employment Agreements generally provide for a three-year term that is
automatically renewable for successive one-year terms unless either party gives
prior written notice of its intent not to renew. The Employment Agreements set
forth the compensation arrangements and the employee fringe benefits provided by
the Company to each Employee. In addition, the Employment Agreements set forth
the compensation payable to an Employee in the event of a termination of the
Employee's employment by the Company. Generally, upon the termination of an
Employee's employment by the Company for cause, the Employee is entitled to
receive earned but unpaid salary and reimbursement for business expenses
incurred during the performance of the Employee's duties. If an Employee's
employment with the Company is terminated without cause, due to the death or
incapacity of the Employee or within a specified period after a change of
control (as defined in the Employment Agreements), the Employee is entitled to
receive the amounts payable in the event of a termination for cause plus a cash
severance payment not to exceed the cash compensation received by the Employee
in the prior 12-month period and the vesting of certain shares of Common Stock
and options to purchase

43
<PAGE>
Common Stock of the Company then held by such Employee. Each Employment
Agreement provides a non-compete provision that restricts an Employee from
competing against the Company for a period of one-year following such Employee's
termination of employment with the Company.

STOCK PLANS

1995 Stock Option Plan. The Company has adopted the 1995 Stock Option Plan
(the "1995 Plan"). The 1995 Plan permits the grant of (i) options to purchase
shares of Common Stock intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Stock Options"), and (ii) options that do not so qualify
("Non-Qualified Options"). No award may be granted under the 1995 Plan after the
tenth anniversary of the Plan's adoption. The 1995 Plan is administered by the
Compensation Committee.

1,500,000 shares of Common Stock have been reserved for issuance under the
1995 Plan, subject to adjustment for stock splits, stock dividends,
recapitalizations, reclassifications and similar events. If an option granted
under the 1995 Plan expires unexercised or is terminated or cancelled for any
reason, the shares of Common Stock previously reserved for issuance thereunder
will be available for future option grants under the 1995 Plan.

Options may be granted to persons who are, at the time of grant, employees,
officers or directors of, or consultants or advisors to, the Company, provided
that Incentive Stock Options may only be granted to individuals who are
employees of the Company (within the meaning of Section 3401(c) of the Code).

Options granted under the 1995 Plan must be exercised within no more than
ten years of the grant date, except that an Incentive Stock Option granted to a
person owning more than 10% of the total combined voting power of all classes of
stock of the Company (a "Ten Percent Stockholder") must be exercised within no
more than five years of the grant date. No options may be assigned or
transferred by the optionee other than by will or the laws of descent or
distribution or pursuant to a qualified domestic relations order (as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder). Each option may be exercised only by the optionee during his or her
lifetime.

The exercise price for each option granted will be determined by the
Compensation Committee at the time of grant. For Incentive Stock Options granted
to a Ten Percent Stockholder, the exercise price shall not be less than 110% of
the fair market value per share of Common Stock.

Options may be made exercisable in installments, and the exercisability of
Options may be accelerated by the Compensation Committee. Options granted under
the 1995 Plan typically vest over a three-year period.

In the event of a consolidation or merger in which the Company is not the
surviving corporation, or sale of all or substantially all of the assets of the
Company in which outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or business entity
or a liquidation of the Company (a "Corporate Transaction"), the Compensation
Committee, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding options: (i) provide that such options shall be
assumed, or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), provided that any such option
substituted for incentive stock options shall meet the requirements of Section
424(a) of the Code; (ii) upon written notice to the optionee, provide that all
unexercised options will terminate immediately prior to the consummation of such
transaction unless exercised by the optionee within a specified period following
the date of such notice; (iii) in the event of a Corporate Transaction under the
terms of which holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in the Corporate
Transaction (the "Transaction Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Transaction Price times the
number of shares of Common Stock subject to such outstanding options (to the
extent then exercisable at prices not in excess of the Transaction Price)

44
<PAGE>
and (B) the aggregate exercise price of all such outstanding options in exchange
for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately prior to any
such event.

As of the date of this Prospectus, an aggregate of 843,846 outstanding
options had been granted to approximately 80 directors, officers, employees and
consultants at a weighted average exercise price of $3.13 per share and an
aggregate of 156,154 shares were available for future option grants. Of such
outstanding options, 101,286 were granted to Dr. Edelson, 101,286 to Mr.
Hochberg, 86,037 to Mr. Masarek, 43,196 to Mr. Alger, 39,472 to Dr. Garling,
7,507 to Mr. Kurokawa and 7,507 to Mr. Lieber.

Employee Stock Purchase Plan. The Company has adopted, effective upon the
date of this Prospectus, an employee stock purchase plan (the "Stock Purchase
Plan"). The purpose of the Stock Purchase Plan is to allow the employees of the
Company to acquire a proprietary interest in the Company through the purchase of
shares of Common Stock. Under the Stock Purchase Plan, eligible employees will
be granted options (exercisable by electing to participate in the Plan) to
purchase shares of Common Stock through regular payroll deductions. The Stock
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. The total number of shares of Common Stock that are
authorized for issuance under the Stock Purchase Plan is 1,200,000. All full-
time employees of the Company who have completed at least one year of employment
will be eligible to participate in the Stock Purchase Plan, subject to certain
limited exceptions. Options will be granted every six months to eligible
employees and, if not exercised, will expire on the last day of the six-month
period in which granted. Employees electing to participate for any plan year
will authorize payroll deductions at a stated whole percentage ranging from 2%
to 10% of compensation, as determined by the participant. Employees may also
elect to make payments by check payable to the Company to purchase shares of
Common Stock. Options will be nontransferable other than by will or by operation
of the laws of descent and distribution. The purchase price for shares offered
under the Stock Purchase Plan each year will be equal to a percentage designated
by the Board of Directors (not less than 85%) of the lower of the fair market
value of the Common Stock at the date of grant or the semi-annual date of
exercise as evidenced by the high and low sales prices of the Common Stock on
such date as reported on the Nasdaq National Market. The Stock Purchase Plan
will expire on the tenth anniversary of the date of this Prospectus, unless
sooner terminated by the Board of Directors. The Board of Directors of the
Company may amend, suspend or terminate the Stock Purchase Plan at any time and
from time to time, subject to certain limitations. The Stock Purchase Plan will
be administered by the Compensation Committee.

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<PAGE>
CERTAIN TRANSACTIONS

In connection with the formation of the Company, Jonathan Edelson, M.D., the
Chairman of the Board and Chief Executive Officer of the Company, was issued
157,293 shares of Common Stock for an aggregate purchase price of $1,760. In
February 1994, the Company issued Dr. Edelson 893 shares of Common Stock in lieu
of interest on advances made to the Company. In May 1995, Dr. Edelson exercised
options to purchase 239,515 shares, for which he paid the Company $2,680. In
August 1995, Dr. Edelson purchased 48,260 shares for $576. In 1994, Dr. Edelson
loaned the Company an aggregate of $50,000 to fund working capital. Such loans
have been repaid in full.

In connection with the formation of the Company, Steven Hochberg, President
and a director of the Company, was issued 128,694 shares of Common Stock for an
aggregate purchase price of $1,440. In March 1995, Mr. Hochberg exercised
options to purchase 268,114 shares, for which he paid the Company $3,000. In
August 1995, Mr. Hochberg purchased 48,260 shares for $576. In 1995, Mr.
Hochberg loaned the Company an aggregate of $32,000 to fund working capital.
Such loans have been repaid in full.

In August 1995, the Company issued 2,978 shares of Common Stock to Richard
W. Kaplan, a former officer and director of the Company, for $25,000. On March
15, 1996, the Company loaned Mr. Kaplan $15,000 at a 5% interest rate, to be
repaid over a twelve-month period beginning July 1, 1996. As of August 15, 1996,
Mr. Kaplan had repaid $1,875 of the principal of such loan. The balance of such
loan was forgiven upon termination of Mr. Kaplan's employment with the Company.

In August 1993, the Company issued 971,800 shares of Series A Convertible
Preferred Stock to affiliates of INVESCO Trust Company, a principal stockholder
of the Company, for $97,180. In March 1994, the Company issued 282,900 shares of
Series B Convertible Preferred Stock to affiliates of INVESCO Trust Company for
$2,000,103. In January 1995, the Company issued 200,000 shares of Series C
Convertible Preferred Stock to affiliates of INVESCO Trust Company for
$1,500,000. In August 1995, the Company issued 666,360 shares of Series D
Convertible Preferred Stock to certain 21st Century partnerships, a principal
stockholder of the Company, for $4,997,700. Each share of Series A, B, C and D
Convertible Preferred Stock (collectively, the "Preferred Stock") is convertible
into 1.1189249 shares of Common Stock upon the consummation of this offering.

In June 1996, the Company issued three 9% Series B Promissory Notes in the
aggregate principal amount of $1 million to certain 21st Century Partnerships.
In August 1996, the Company issued three additional 9% Series B Promissory Notes
in the aggregate principal amount of $1 million to certain 21st Century
Partnerships. 21st Century Partnerships is a principal stockholder of the
Company.

In connection with the formation of the Company in 1993, Christian Mayaud,
M.D., a principal stockholder of the Company, was issued 300,288 shares of
Common Stock for an aggregate purchase price of $3,360. In August 1994, Dr.
Mayaud was granted options to purchase 96,521 shares of Common Stock at an
exercise price of $.0112 per share. In March 1995, Dr. Mayaud was granted
options to purchase 11,171 shares of Common Stock at exercise prices of $2.52
per share. In March 1995, Dr. Mayaud exercised the 1994 options to purchase
96,521 shares of Common Stock for which he paid the Company $1,080. In August
1995, Dr. Mayaud purchased 32,174 shares of Common Stock for $360. In 1995, Mr.
Mayaud loaned the Company $25,000 to fund working capital. Such loan has been
repaid in full.

The Company currently subleases approximately 4,500 square feet of office
space in Tarrytown, New York from Physicians' Online, Inc. ("Physicians'
Online"), a Delaware corporation of which Dr. Edelson, Mr. Hochberg and Dr.
Mayaud own approximately 16% of the currently outstanding capital stock.
Physicians' Online was founded in January 1992 by Mr. Hochberg and Dr. Mayaud.
The

46
<PAGE>

yearly base rental on the Physicians' Online sublease equals $77,707, plus
escalations. During the period ended December 31, 1993, the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, Physicians' Online
incurred administrative expenses totalling $105,116, $135,825, $180,631 and
$25,500, respectively, on behalf of the Company for which the Company reimbursed
Physicians' Online. During 1993, Physicians' Online paid the Company a $175,000
fee for the development and implementation of a wireless application. The
Company does not expect to continue to receive administrative services from
Physicians' Online in the future. During 1994, Physicians' Online loaned the
Company $300,000, which loan bore interest at the prime rate. At December 31,
1994, $304,262 was outstanding, which included accrued interest of $4,262. Such
loan was repaid in full in 1995, and the accrued interest was forgiven. During
1995, Physicians' Online borrowed $500,000 from the Company. Such amount bore
interest at the prime rate plus 1% and was repaid in full prior to December 31,
1995. See Note 4 of Notes to Consolidated Financial Statements.

The Company has granted options to purchase shares of Common Stock to its
directors and executive officers. See "Management -- Stock Plans" and Note 10 of
Notes to Consolidated Financial Statements.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors of the Board of
Directors.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Common Stock of the Company as of the
date of this Prospectus and as adjusted to reflect the sale of the shares of
Common Stock offered hereby with respect to (i) each person known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers and
(iv) all directors and officers as a group. Unless otherwise indicated, the
address for each stockholder is c/o the Company, 560 White Plains Road,
Tarrytown, New York 10591.

<TABLE><CAPTION>
NUMBER PERCENTAGE
OF BENEFICIALLY OWNED(1)
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- -------------------------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
INVESCO Trust Company(2)...................................... 1,300,086 28.9% 20.0%
7800 E. Union Avenue
Denver, CO 80237
21st Century Partnerships(3).................................. 595,535 13.2 9.2
767 Fifth Avenue
New York, NY 10153
Christian Mayaud, M.D.(4)..................................... 432,707 9.6 6.7
1235 Oenoke Ridge
New Canaan, CT 06840
Jonathan Edelson(5)........................................... 446,261 9.9 6.9
Steven Hochberg(5)............................................ 457,153 10.2 7.0
Robert Alger(6)............................................... 11,916 * *
Richard W. Kaplan............................................. 2,979 * *
James T. Carney............................................... -- -- --
Barry Kurokawa................................................ -- -- --
Jonathan Lieber............................................... -- -- --
All directors and executive officers as a group (9 925,403 20.4 14.2
persons)(7)...................................................
</TABLE>

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

<TABLE>
<C> <S>
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "Commission") and generally includes voting or investment
power with respect to securities and includes options exercisable within 60 days of the
date of this Prospectus. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of Common Stock shown as beneficially
owned by them. Percentage of beneficial ownership is based on 4,500,267 shares of
Common Stock outstanding as of June 30, 1996 and 6,500,267 shares of Common Stock
outstanding upon the consummation of this offering.
(2) Includes 687,087 shares of Common Stock owned of record by INVESCO Strategic
Portfolios, Inc.--Health Sciences Portfolio ("ISP--HSP") and 618,999 shares of Common
Stock owned of record by The Global Health Sciences Fund ("GHS"). ISP--HSP and GHS are
mutual fund companies advised by INVESCO Funds Group, Inc., which is a subsidiary of
INVESCO PLC. INVESCO Trust Company is a subsidiary of INVESCO Funds Group, Inc.
(3) Includes shares owned by 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P. and 21st Century Foreign Partners, L.P.
(4) Includes options to purchase 3,723 shares of Common Stock that are exercisable within
60 days of the date of this Prospectus.
(5) Includes options to purchase 17,874 shares of Common Stock that are exercisable within
60 days of the date of this Prospectus.
(6) Includes options to purchase 11,916 shares of Common Stock that are exercisable within
60 days of the date of this Prospectus.
(7) See notes (5) and (6). Also includes options to purchase 7,092 shares of Common Stock
held by Alan B. Masarek that are exercisable within 60 days of the date of this
Prospectus.
</TABLE>

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

Following the closing of the sale of the shares offered hereby, the
Company's authorized capital stock will consist of 15,000,000 shares of Common
Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par
value $.01 per share. The following summaries of certain provisions of the
Common Stock and Preferred Stock do not purport to be complete and are subject
to, and qualified by, the provisions of the Company's Restated Certificate of
Incorporation and By-laws, which are included as exhibits to the Registration
Statement of which this Prospectus is a part, and by applicable law.

COMMON STOCK

As of July 12, 1996, there were 4,500,267 shares of Common Stock outstanding
that were held of record by approximately 80 stockholders, after giving effect
to the Stock Splits and the Preferred Stock Conversion. The holders of Common
Stock are entitled to one vote for each share on all matters voted upon by
stockholders, including the election of directors. Subject to the rights of any
then out Preferred Shares, the holders of the Common Stock are entitled to such
dividends as may be declared in the discretion of the Board of Directors out of
funds legally available therefor. Holders of the Common Stock are entitled to
share ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Shares then outstanding. The holders of Common Stock have no
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock are,
and the shares of Common Stock to be issued pursuant to this offering will be,
upon payment of consideration therefor, fully paid and nonassessable.

PREFERRED STOCK

Preferred Stock may be issued from time to time by the Board of Directors as
shares of one or more classes or series. Subject to the provisions of the
Company's Restated Certificate of Incorporation and limitations prescribed by
law, the Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for a change in the voting power,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. Although the Company has no present plans to issue any
shares of Preferred Stock following the consummation of this offering, the
issuance of shares of 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 the Company or an unsolicited acquisition proposal.

REGISTRATION RIGHTS

The holders of 2,941,985 shares of the Company's Common Stock are entitled
to certain rights with respect to the registration of shares of Common Stock
under the Securities Act. Under the terms of the agreements between the Company
and the holders of such registrable securities, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein. These registration
rights have been waived in connection with this Offering. The stockholders
benefiting from these rights may also require the Company to file a registration
statement under the Securities Act at its expense

49
<PAGE>
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration. These registration rights will
expire within three years from the consummation of this Offering and have been
waived by such holders in connection with this Offering. In addition, these
stockholders have the right to require the Company to file up to two additional
registration statements on Form S-3. This right becomes available upon the
eligibility of the Company to use such Form S-3 and will expire within three
years from the consummation of this Offering. All of these rights are subject to
certain conditions and limitations, including the right of the underwriters of
an offering to limit the number of shares included in such registration.

In connection with the outstanding warrants, the holders of the Common Stock
issuable upon exercise of the warrants have certain rights to request the
Company to use its best efforts to effect the registration of the Common Stock
issuable upon the exercise of the warrants in connection with a registered
offering of Common Stock by the Company; provided that the Company will be
required to use its best efforts to include any such Common Stock issuable upon
the exercise of the warrants only after the registration of the Company's own
securities to the extent the underwriter for any such offering would not deem
any inclusion of such Common Stock issuable upon exercise of the warrants to
interfere with such offering. The warrant holders have waived these rights in
connection with this Offering. The rights to notice and inclusion in any
registration terminates with respect to each such share of Common Stock when
such shares issuable upon exercise of the warrants have been registered or sold.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS

As described below, the Company's Restated Certificate of Incorporation and
By-laws contain certain provisions that are intended to enhance the likelihood
of continuity and stability in the composition of the Company's Board of
Directors and which may have the effect of delaying, deterring or preventing a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Company's Board of Directors. Such
provisions may also render the removal of the directors and management more
difficult.

Pursuant to the Restated Certificate of Incorporation, the Board of
Directors of the Company is divided into three classes serving staggered
three-year terms. The By-laws establish an advance notice procedure with regard
to the nomination, other than by or at the direction of the Board of Directors,
of candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of stockholders of the Company. In general,
notice must be received by the Company not less than 130 days prior to the
meeting and must contain certain specified information concerning the person to
be nominated or the matter to be brought before the meeting and concerning the
stockholder submitting the proposal. Special meetings of stockholders may be
called only by the Chairman of the Board, the President of the Company or the
Board of Directors. In addition, the Certificate of Incorporation provides that
stockholders may act only at an annual or special meeting and stockholders may
not act by written consent.

SECTION 203 OF THE DGCL

Section 203 of the DGCL ("Section 203") prevents an "interested stockholder"
(defined in Section 203, generally, as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved either the business combination
or the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who

50
<PAGE>
are also officers of the corporation and by employee stock plans that do not
provide employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the shares of Common Stock of the
Company is The Bank of New York.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the prevailing market price from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future. See "Risk Factors -- Shares Eligible for Future
Sale."

Upon completion of this offering, the Company will have outstanding
6,500,267 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option or outstanding options). Of these shares, the 2,000,000
shares sold in this offering will be freely transferable without restriction or
further registration under the Securities Act unless purchased by "affiliates"
of the Company as that term is defined in Rule 144 of the Securities Act (an
"Affiliate"), which shares will be subject to the resale limitations of Rule 144
adopted under the Securities Act. The remaining 4,500,267 shares outstanding
upon completion of this offering and held by existing shareholders will be
"restricted securities" as that term is defined under Rule 144 (the "Restricted
Shares"). Restricted Shares generally may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of the contractual restrictions described below
and the provisions of Rules 144, 144(k) and 701, additional shares will be
available for sale in the public market as follows: (i) no shares of Common
Stock (other than those shares sold hereby and not held by Affiliates) will be
available for immediate sale in the public market on the date of this
Prospectus, (ii) 19,272 shares of Common Stock subject to options exercisable
within 90 days of the date of this Prospectus will be freely tradeable by
non-Affiliates upon the effectiveness of a registration statement relating to
such stock options, (iii) 224,566 shares of Common Stock and 18,432 shares of
Common Stock subject to options exercisable within 90 days of the Effective Date
will be eligible for sale 90 days after the Effective Date, subject to the
volume, manner of sale and reporting requirements of Rule 144 and (iv)
approximately 4,266,800 shares of Common Stock and approximately 9,500 shares of
Common Stock subject to options exercisable within 180 days of the Effective
Date will be eligible for sale upon expiration of the lock-up agreements 180
days after the Effective Date, subject to the volume, manner of sale and
reporting requirements of Rule 144.

The Company plans to file registration statements to register Common Shares
reserved for issuance under its stock option plans and employee stock purchase
plan. See "Management -- Stock Plans." Once registered, persons acquiring such
shares, whether or not they are Affiliates, will be permitted to resell their
shares in the public market without regard to the Rule 144 holding period.

51
<PAGE>
Upon completion of this offering, the holders of 2,941,985 shares of Common
Stock, or their transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares (except for shares purchased by
Affiliates) becoming eligible for sale immediately upon the effectiveness of
such registration.

The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common Stock, for a
period of 180 days after the Effective Date, without the prior written consent
of Cowen & Company, subject to certain limited exceptions. Additionally, all
directors and executive officers and certain other shareholders of the Company,
holding in the aggregate approximately 4,266,800 shares of Common Stock
outstanding prior to this offering, have agreed with the Underwriters not to
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the Effective Date (the "Lockup Period") without the prior written consent
of Cowen & Company. See "Underwriting." The number of shares of Common Stock
available for sale in the public market is further limited by restrictions under
the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years, including
persons who may be deemed "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the number of shares of Common Stock then outstanding
or the average weekly trading volume of the Common Stock as reported through the
Nasdaq National Market during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned for at least
three years the Restricted Shares proposed to be sold, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitation, manner of
sale provisions, public information requirements or notice requirements. The
Commission has proposed certain amendments to Rule 144 and Rule 144(k) that
reduce the applicable requisite holding periods to one year and two years,
respectively.

Subject to certain limitations on the aggregate offering price of a
transaction and certain other conditions, Rule 701 permits resales of shares
issued prior to the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to certain compensatory benefit plans and contracts commencing
90 days after the issuer becomes subject to the reporting requirements of the
Exchange Act, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule 144.
In addition, the Commission has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this Prospectus, may be sold by persons other than Affiliates subject
only to the manner of sale provisions of Rule 144 and by Affiliates under Rule
144 without compliance with its two-year minimum holding period requirements.

52
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company and Volpe, Welty & Company, have severally agreed to purchase
from the Company the following respective number of shares at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:

<TABLE><CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------ ------------
<S> <C>
Cowen & Company...............................................................
Volpe, Welty & Company........................................................

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

Total................................................................... 2,000,000
------------
------------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may re-allow a
concession not in excess of $ per share to certain other dealers. The
Underwriters have informed the Company that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority. After the
initial public offering of the shares, the offering price and other selling
terms may from time to time be varied by the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
Prospectus, to cover over-allotments, if any. If the Underwriters exercise such
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Common Stock to be purchased by each of them shown in
the foregoing table bears to the total number of shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover over-allotments
made in connection with the sale of shares of Common Stock offered hereby.

The Company's officers and directors and certain other shareholders of the
Company holding in the aggregate approximately 4,266,800 shares of Common Stock
and approximately 9,500 shares of Common Stock subject to options exercisable
within 180 days of the effective date have agreed that they

53
<PAGE>
will not, without the prior written consent of Cowen & Company, offer, sell,
contract or grant any option to purchase or otherwise dispose of any shares of
Common Stock, options, rights or warrants to acquire shares of Common Stock, or
securities exchangeable for or convertible into shares of Common Stock owned by
them during the 180-day period commencing on the Effective Date. In addition,
the Company has agreed that it will not, without the prior written consent of
Cowen & Company, offer, sell, contract or grant any option to purchase or
otherwise dispose of any shares of Common Stock, options, rights or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock during such 180-day period except in certain limited
circumstances.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors
considered in determining the initial public offering price will be prevailing
market and economic conditions, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors, if any, deemed relevant.
The estimated initial public offering price range set forth on the cover of this
Prospectus is subject to change as a result of market conditions and other
factors.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Sullivan Graev & Karabell, LLP, New York, New York and
for the Underwriters by Shearman & Sterling, New York, New York.

EXPERTS

The financial statements included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to Common Stock offered hereby has been filed by
the Company with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus concerning the
provisions or contents of any contract or other document referred to herein are
not necessarily complete. With respect to each such contract or document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description, and each such statement is deemed to be
qualified in all respects by such reference. The Registration Statement and the
exhibits and schedules thereto filed with the Commission may be inspected,
without charge, at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

54
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE><CAPTION>
PAGE
---------
<S> <C>
ADVANCED HEALTH CORPORATION
(FORMERLY MED-E-SYSTEMS CORPORATION)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS....................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets:
As of December 31, 1994 and December 31, 1995 and June 30, 1996 (unaudited).. F-3
Consolidated Statements of Operations:
For the period from inception to December 31, 1993 and for the years ended
December 31, 1994 and 1995
For the six months ended June 30, 1995 and 1996 (unaudited).................. F-4
Consolidated Statement of Shareholders' Equity (Deficit):
From inception to December 31, 1995
For the six months ended June 30, 1996 (unaudited)........................... F-5
Consolidated Statements of Cash Flows:
For the period from inception to December 31, 1993 and for the years ended
December 31, 1994 and 1995
For the six months ended June 30, 1995 and 1996 (unaudited).................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................... F-7-F-19

PELTZ VENTIMIGLIA, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS....................................... F-20
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1994 and August 31, 1995................... F-21
Statements of Operations for the years ended December 31, 1993 and 1994 and
for the eight months ended August 31, 1995..................................... F-22
Statement of Shareholders' Equity for the years ended December 31, 1993 and
1994 and for the eight months ended August 31, 1995............................ F-23
Statements of Cash Flows for the years ended December 31, 1993 and 1994 and
for the eight months ended August 31, 1995..................................... F-24
NOTES TO FINANCIAL STATEMENTS.................................................. F-25

U.S. HEALTH CONNECTIONS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS....................................... F-26
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1994 and August 31, 1995................... F-27
Statements of Operations for the year ended December 31, 1994 and
for the eight months ended August 31, 1995................................. F-28
Statement of Shareholders' Equity for the year ended December 31, 1994 and
for the eight months ended August 31, 1995................................. F-29
Statements of Cash Flows for the year ended December 31, 1994 and
for the eight months ended August 31, 1995................................. F-30
NOTES TO FINANCIAL STATEMENTS.................................................. F-31-F-32

PRO FORMA FINANCIAL INFORMATION
Pro Forma Statement of Operations of Advanced Health Corporation and
Subsidiaries for the year ended December 31, 1995.............................. F-33
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Advanced Health Corporation:

We have audited the accompanying consolidated balance sheets of Advanced
Health Corporation (formerly Med-E-Systems Corporation) (a Delaware corporation)
and subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for the
period from inception (August 27, 1993) to December 31, 1993 and for the years
ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Health Corporation
(formerly Med-E-Systems Corporation) and subsidiaries as of December 31, 1994
and 1995, and the results of their operations and their cash flows for the
period from inception to December 31, 1993 and for the years ended December 31,
1994 and 1995 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

New York, New York
June 19, 1996 (except for the matters
described in Note 14, as to which the date
is August 14, 1996)

F-2
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
CONSOLIDATED BALANCE SHEETS

<TABLE><CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ 6,903 $ 1,464,427 $ 836,863
Accounts receivable.................................... -- 1,020,558 3,302,583
Note receivable........................................ -- 125,000 15,000
Prepaid expenses and deferred registration costs....... 7,134 278,305 335,958
---------- ----------- -----------
Total current assets............................... 14,037 2,888,290 4,490,404
PROPERTY AND EQUIPMENT, net............................. 773,333 1,538,898 1,614,947
DEFERRED INCOME TAXES, net of valuation allowance of
$1,290,849, $3,506,540 and $4,253,278, respectively..... -- -- --
INTANGIBLE ASSETS, net.................................. -- 1,875,611 1,911,687
OTHER ASSETS............................................ 125,711 159,112 173,943
---------- ----------- -----------
Total assets....................................... $ 913,081 $ 6,461,911 $ 8,190,981
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable....................................... $ 319,126 $ 1,312,571 $ 971,331
Accrued expenses....................................... 126,845 407,241 851,795
Due to affiliate....................................... 375,825 -- 50,500
Deferred revenue....................................... -- 1,500,000 950,000
Promissory notes....................................... -- -- 4,000,000
Loan payable related to acquisitions................... 50,000 150,000 100,500
Current portion of capital lease obligations........... 174,247 259,805 278,410
---------- ----------- -----------
Total current liabilities.......................... 1,046,043 3,629,617 7,202,536
---------- ----------- -----------
CAPITAL LEASE OBLIGATIONS............................... 191,799 157,254 125,096
---------- ----------- -----------
Total liabilities.................................. 1,237,842 3,786,871 7,327,632
---------- ----------- -----------
COMMITMENTS (Note 13)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 5,000,000 shares
authorized:.............................................
Series A Convertible Preferred Stock, $.01 par value;
971,800 shares authorized; 971,800, 971,800 and 0
shares issued and outstanding, respectively.......... 9,718 9,718 --
Series B Convertible Preferred Stock, $.01 par value;
282,900 shares authorized; 282,900, 282,900 and 0
shares issued and outstanding, respectively.......... 2,829 2,829 --
Series C Convertible Preferred Stock, $.01 par value;
0, 200,000 and 200,000 shares authorized; 0, 200,000
and 0 shares issued and outstanding, respectively.... -- 2,000 --
Series D Convertible Preferred Stock, $.01 par value;
0, 666,360 and 666,360 shares authorized; 0, 666,360
and 0 shares issued and outstanding, respectively.... -- 6,664 --
Common stock, $.01 par value; 15,000,000 shares
authorized; 930,196, 2,595,649 and 4,500,267 shares
issued and outstanding, respectively................. 9,302 25,957 45,003
Additional paid-in capital............................. 2,726,254 11,479,223 11,526,538
Common stock subscriptions receivable.................. (3,120) -- --
Accumulated deficit.................................... (3,069,744) (8,776,351) (10,633,192)
Less: Treasury stock, at cost (0, 8,937 and 8,937
shares, respectively)................................ -- (75,000) (75,000)
---------- ----------- -----------
Total shareholders' equity (deficit)............... (324,761) 2,675,040 863,349
---------- ----------- -----------
Total liabilities and shareholders' equity
(deficit)............................................... $ 913,081 $ 6,461,911 $ 8,190,981
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE><CAPTION>
FOR THE PERIOD FOR THE YEARS FOR THE SIX
FROM INCEPTION ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
(AUGUST 27, 1993) TO ------------------------- -------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
-------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUE..................... $-- $ 203,878 $ 712,292 $ 100,000 $ 1,530,245
REVENUE FROM MSOs (Note
2).......................... -- -- 341,657 -- 6,086,819
REVENUE FROM RELATED PARTY
(Note 4).................. -- 175,000 -- -- --
----------- ----------- ----------- ----------- -----------
Total Revenues........ -- 378,878 1,053,949 100,000 7,617,064
COST OF SALES............... -- 12,297 340,326 21,822 3,511,787
----------- ----------- ----------- ----------- -----------
Gross profit.......... -- 366,581 713,623 78,178 4,105,277
OPERATING EXPENSES.......... 66,192 1,318,145 3,254,978 616,503 4,033,502
RESEARCH AND DEVELOPMENT
EXPENSES.................... 454,622 1,582,332 3,157,389 1,511,681 1,874,988
----------- ----------- ----------- ----------- -----------
Operating loss........ (520,814) (2,533,896) (5,698,744) (2,050,006) (1,803,213)
OTHER INCOME (EXPENSE)...... -- (15,034) (7,863) 1,341 (53,628)
----------- ----------- ----------- ----------- -----------
Net loss.............. $ (520,814) $(2,548,930) $(5,706,607) $(2,048,665) $(1,856,841)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PER SHARE INFORMATION:
Net loss per share (Note
2).......................... $ (0.23) $ (1.03) $ (1.47) $ (0.65) $ (0.37)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common
shares outstanding
(Note 2).................. 2,229,136 2,482,213 3,893,244 3,135,780 4,991,135
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-4

<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE><CAPTION>
SERIES A SERIES B SERIES C SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE COMMON
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
-------------------- -------------------- -------------------- -------------------- ---------
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE SHARES
-------- --------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION
(August 27, 1993)... -- $ -- -- $ -- -- $ -- -- $ -- --
Common stock
subscriptions....... -- -- -- -- -- -- -- -- 185,893
Issuance of common
stock............... -- -- -- -- -- -- -- -- 718,984
Issuance of Series A
Convertible
Preferred Stock
(Notes 8 and 14)... 971,800 9,718 -- -- -- -- -- -- --
Net loss............ -- -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- --------- ---------
BALANCE, December
31, 1993............ 971,800 9,718 -- -- -- -- -- -- 904,877
Sale and issuance of
common stock (Note
7c)................. -- -- -- -- -- -- -- -- 25,319
Issuance of Series B
Convertible
Preferred Stock
(Notes 8 and 14)... -- -- 282,900 2,829 -- -- -- -- --
Net loss............ -- -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- --------- ---------
BALANCE, December
31, 1994............ 971,800 9,718 282,900 2,829 -- -- -- -- 930,196
Issuance of Common
Stock (Note 7c).... -- -- -- -- -- -- -- -- 50,641
Issuance of Series C
Convertible
Preferred Stock
(Notes 8 and 14)... -- -- -- -- 200,000 2,000 -- -- --
Issuance of common
stock in private
placement........... -- -- -- -- -- -- -- -- 79,780
Redemption of common
stock
subscriptions....... -- -- -- -- -- -- -- -- --
Exercise of stock
options............. -- -- -- -- -- -- -- -- 885,279
Common stock issued
for acquisitions... -- -- -- -- -- -- -- -- 649,753
Issuance of Series D
Convertible
Preferred Stock
(Notes 8 and 14)... -- -- -- -- -- -- 666,360 6,664 --
Purchase of treasury
stock............... -- -- -- -- -- -- -- -- --
Net loss............ -- -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- --------- ---------
BALANCE, December
31, 1995............ 971,800 9,718 282,900 2,829 200,000 2,000 666,360 6,664 2,595,649
Net loss
(unaudited)......... -- -- -- -- -- -- -- -- --
Common stock issued
for acquisition.... -- -- -- -- -- -- -- -- 8,937
Exercise of stock
options............. -- -- -- -- -- -- -- -- 60
Conversion of Series
A, B, C and D
Convertible
Preferred Stock to
Common Stock (Notes
8 and 14).......... (971,800) (9,718) (282,900) (2,829) (200,000) (2,000) (666,360) (6,664) 1,895,621
-------- --------- -------- --------- -------- --------- -------- --------- ---------
BALANCE, June 30,
1996 (unaudited)... -- $ -- -- $ -- -- $ -- -- $ -- 4,500,267
-------- --------- -------- --------- -------- --------- -------- --------- ---------
-------- --------- -------- --------- -------- --------- -------- --------- ---------

<CAPTION>
COMMON STOCK
SUBSCRIPTIONS
ADDITIONAL RECEIVABLE TREASURY STOCK
PAID-IN ----------------- ACCUMULATED -------------------
PAR VALUE CAPITAL SHARES AMOUNT DEFICIT SHARES AMOUNT TOTAL
--------- ----------- -------- ------ ------------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION
(August 27, 1993)... $ -- $ -- -- $-- $ -- -- $ -- $ --
Common stock
subscriptions....... 1,859 1,261 185,893 (3,120) -- -- -- --
Issuance of common
stock............... 7,190 855 -- -- -- -- -- 8,045
Issuance of Series A
Convertible
Preferred Stock
(Notes 8 and 14)... -- 87,462 -- -- -- -- -- 97,180
Net loss............ -- -- -- -- (520,814) -- -- (520,814)
--------- ----------- -------- ------ ------------ ------ ---------- ----------
BALANCE, December
31, 1993............ 9,049 89,578 185,893 (3,120) (520,814) -- -- (415,589)
Sale and issuance of
common stock (Note
7c)................. 253 639,402 -- -- -- -- -- 639,655
Issuance of Series B
Convertible
Preferred Stock
(Notes 8 and 14)... -- 1,997,274 -- -- -- -- -- 2,000,103
Net loss............ -- -- -- -- (2,548,930) -- -- (2,548,930)
--------- ----------- -------- ------ ------------ ------ ---------- ----------
BALANCE, December
31, 1994............ 9,302 2,726,254 185,893 (3,120) (3,069,744) -- -- (324,761)
Issuance of Common
Stock (Note 7c).... 506 (506) -- -- -- -- -- --
Issuance of Series C
Convertible
Preferred Stock
(Notes 8 and 14)... -- 1,498,000 -- -- -- -- -- 1,500,000
Issuance of common
stock in private
placement........... 798 624,261 -- -- -- -- -- 625,059
Redemption of common
stock
subscriptions....... -- -- (185,893) 3,120 -- -- -- 3,120
Exercise of stock
options............. 8,853 10,864 -- -- -- -- -- 19,717
Common stock issued
for acquisitions... 6,498 1,629,314 -- -- -- -- -- 1,635,812
Issuance of Series D
Convertible
Preferred Stock
(Notes 8 and 14)... -- 4,991,036 -- -- -- -- -- 4,997,700
Purchase of treasury
stock............... -- -- -- -- -- 8,937 (75,000) (75,000)
Net loss............ -- -- -- -- (5,706,607) -- -- (5,706,607)
--------- ----------- -------- ------ ------------ ------ ---------- ----------
BALANCE, December
31, 1995............ 25,957 11,479,223 -- -- (8,776,351) 8,937 (75,000) 2,675,040
Net loss
(unaudited)......... -- -- -- -- (1,856,841) -- -- (1,856,841)
Common stock issued
for acquisition.... 89 44,911 -- -- -- -- -- 45,000
Exercise of stock
options............. 1 149 -- -- -- -- -- 150
Conversion of Series
A, B, C and D
Convertible
Preferred Stock to
Common Stock (Notes
8 and 14).......... 18,956 2,255 -- -- -- -- -- --
--------- ----------- -------- ------ ------------ ------ ---------- ----------
BALANCE, June 30,
1996 (unaudited)... $45,003 $11,526,538 -- $-- $(10,633,192) 8,937 $ (75,000) $ 863,349
--------- ----------- -------- ------ ------------ ------ ---------- ----------
--------- ----------- -------- ------ ------------ ------ ---------- ----------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-5
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE><CAPTION>
FOR THE PERIOD FOR THE YEARS FOR THE SIX MONTHS
FROM INCEPTION ENDED DECEMBER 31, ENDED JUNE 30,
(AUGUST 27, 1993) TO -------------------------- --------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
-------------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $ (520,814) $(2,548,930) $(5,706,607) $(2,048,665) $(1,856,841)
Adjustments to reconcile net loss
to net cash used in operating
activities-
Depreciation and amortization... 1,552 146,681 456,819 167,940 422,746
Changes in operating assets and
liabilities-
Accounts receivable........... -- -- (1,020,558) -- (2,282,025)
Note receivable............... -- -- (125,000) -- 110,000
Prepaids and deferred
registration costs............... -- (7,134) (271,171) (49,176) (57,653)
Other assets.................. -- (125,711) (33,401) -- (14,831)
Accounts payable.............. 118,413 200,713 993,445 305,288 (341,240)
Accrued expenses.............. 43,872 82,973 280,396 9,904 444,554
Due to affiliate.............. 105,116 270,709 (375,825) -- 50,500
Deferred revenue.............. 175,000 (175,000) 1,500,000 -- (550,000)
------- ----------- ----------- ----------- -----------
Net cash used in operating
activities....................... (76,861) (2,155,699) (4,301,902) (1,614,709) (4,074,790)
------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Issuance of note receivable from
affiliate........................ -- -- (500,000) -- --
Proceeds from repayment of note
receivable from affiliate....... -- -- 500,000 -- --
Net purchase price of
acquisitions..................... -- -- (150,000) -- --
Purchases of property and
equipment, net................... (21,088) (505,997) (881,531) (75,799) (249,056)
------- ----------- ----------- ----------- -----------
Net cash used in investing
activities....................... (21,088) (505,997) (1,031,531) (75,799) (249,056)
------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Repayment of) proceeds from
loans payable related to
acquisitions..................... -- 50,000 (50,000) -- (94,500)
Net proceeds from sale and
issuance of common stock........ 8,045 639,655 628,179 -- --
Net proceeds from exercise of
stock options.................... -- -- 19,717 -- 150
Net proceeds from promissory
notes............................ -- -- -- -- 4,000,000
Purchase of treasury stock....... -- -- (75,000) -- --
Net proceeds from issuance of
Series A Convertible Preferred
Stock............................ 97,180 -- -- -- --
Net proceeds from issuance of
Series B Convertible Preferred
Stock............................ -- 2,000,103 -- -- --
Net proceeds from issuance of
Series C Convertible Preferred
Stock............................ -- -- 1,500,000 1,815,362 --
Net proceeds from issuance of
Series D Convertible Preferred
Stock............................ -- -- 4,997,700 -- --
Repayment of capital lease
obligations...................... -- (28,435) (229,639) (100,552) (209,368)
------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities....... 105,225 2,661,323 6,790,957 1,714,810 3,696,282
------- ----------- ----------- ----------- -----------
Net change in cash........... 7,276 (373) 1,457,524 24,302 (627,564)
CASH, beginning of period........ -- 7,276 6,903 6,903 1,464,427
------- ----------- ----------- ----------- -----------
CASH, end of period.............. $ 7,276 $ 6,903 $ 1,464,427 $ 31,205 $ 836,863
------- ----------- ----------- ----------- -----------
------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest......................... $-- $ 3,267 $ 21,497 $ 4,557 $ 46,440
------- ----------- ----------- ----------- -----------
------- ----------- ----------- ----------- -----------
Income taxes..................... $-- $ 3,189 $ 14,854 $ -- $ 573
------- ----------- ----------- ----------- -----------
------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING ACTIVITIES:
Capital lease obligations
incurred......................... $-- $ 394,481 $ 280,652 $ 152,177 $ 195,815
------- ----------- ----------- ----------- -----------
------- ----------- ----------- ----------- -----------
Fair market value of common stock
issued for acquisitions......... $-- $ -- $ 1,635,812 $ -- $ 45,000
------- ----------- ----------- ----------- -----------
------- ----------- ----------- ----------- -----------
Loan payable issued for
acquisition...................... $-- $ -- $ 150,000 $ -- $ --
------- ----------- ----------- ----------- -----------
------- ----------- ----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

F-6
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995

1. ORGANIZATION AND BUSINESS

Advanced Health Corporation and subsidiaries (collectively, the "Company" or
"AHC"), provides physician groups and networks with practice and network
management services and clinical information systems and services. The Company's
wholly-owned subsidiary was incorporated on August 27, 1993 as Med-E-Systems
Corporation (formerly Med-E-Mail Corporation), and was engaged at inception to
design and develop clinical information systems for physician users. Effective
August 1995, Med-E-Systems Corporation became a wholly-owned subsidiary of AHC,
an entity incorporated in March 1995, through a stock-for-stock transfer in
which preferred and common shareholders of Med-E-Systems Corporation exchanged
their interests for the same amounts and classes of preferred and common stock
in AHC as those then outstanding in Med-E-Systems Corporation. The Company was
subsequently merged with and into Majean, Inc. (Note 3), a Delaware corporation,
and the surviving corporation changed its name to Advanced Health Corporation.
Concurrent with this transaction, the Company raised approximately $5 million in
a private placement of its securities for the principal purposes of funding the
ongoing development of the Company's clinical information systems and services
and the Company's forward integration into physician practice and network
management services. Management of the Company believes that this financing, as
well as the bridge financing described in Note 14, will be adequate to fund the
Company's operations at least through January 1997.

The Company operates in a highly-regulated environment in which its sources
of revenues are dependent on the Company's ability to successfully negotiate
with third parties for its various services. Currently, the Company depends on
revenue generated by a limited number of customers, including physician groups
and networks which are under long-term contracts.

For a discussion of risks associated with the Company and its business, see
"Risk Factors" in the accompanying initial public offering (Note 14)
registration statement of which these consolidated financial statements and
notes to consolidated financial statements are a part.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
AHC and its wholly-owned subsidiaries: Advanced Health Management Corporation
("AHM", formerly Advanced Clinical Networks Corporation), Med-E-Systems
Corporation ("MES") and Management Service Organization subsidiaries ("MSOs")
established to facilitate the provision of management services to physician
practice and network clients. These consolidated financial statements include
the results of operations of the Company from the inception of MES in August
1993, including other entities formed or acquired from their formation or
acquisition, through December 31, 1995. The structure of the Company's wholly or
majority-owned MSOs presently provides for the Company to receive activity-based
fee income from the MSOs for management services provided, and reimbursement
from the MSOs for certain expenses incurred, with the result being that there
are no profits in the MSO entity for which a minority interest is required to be
calculated. Accordingly, the consolidated financial statements do not reflect
any minority interest in the operations of the MSOs. In the event that profits
remain in MSO entities in the future, minority interests will be reflected in
the Company's consolidated financial statements. Intercompany accounts and
transactions have been eliminated in consolidation.

F-7
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
REVENUE RECOGNITION

Operating revenues are generated from three principal sources:

(a) Physician Practice Revenues: A physician group practice is a single
legal entity comprised of multiple physicians. Through its majority or
wholly-owned consolidated MSOs, the Company enters into management services
agreements with physician group practices, whereby such physician practices
outsource their non-medical and administrative functions to the MSO.
Activity-based fees are generated by the MSO through the provision of these
outsourced services as well as certain additional management, marketing and
information services. Fees are based on the level of services provided and
are recognized as these services are rendered.

(b) Physician Network Revenues: A physician network is an aggregation of
individual physicians and physician groups formed for the purpose of
entering into contracts with third-party payors. A physician network enters
into a contract with a third-party payor pursuant to which the physicians
comprising the network agree to provide medical services to network
enrollees in return for a fixed per enrollee fee. Such contracts are known
as "capitated contracts." The physician network then enters into a
management services agreement with the Company's majority-owned,
consolidated MSO, pursuant to which the aggregate capitated payments are
assigned to the MSO. In return for a management fee, the MSO administers the
claims and payments related to the payor contract by paying a portion,
typically 90%, of the capitated payments to network physicians in return for
the physicians' provision of medical services to network enrollees. At the
end of a defined measurement period, the MSO may pay an additional portion
of the capitated payments to the network physicians in the case of higher
than expected medical costs, and the MSO shares any remaining capitated
payments with the physicians.

In the event that contracts between MSOs and physician practices and
networks are terminated, the terms of the related contracts do not require
the Company, through the MSOs, to return any previously-earned revenues.

(c) Information Systems and Services Revenue: The Company's current
business strategy for providing integrated physician practice and network
management services includes selling its information systems and services as
a means of ultimately providing a full range of services. The Company has,
in order to generate funds and demonstrate the uses of its systems, licensed
certain components of its software to third parties.

The Company recognizes revenue from the sale of its information systems
and services (upon installation and acceptance), and from the licensing of
its software to third parties (upon delivery). Certain of these third
parties provide payment in advance for the development and installation of
software, databases and systems. The Company accounts for these advance
payments as deferred revenue when received, and recognizes revenue ratably
over the period of time during which the software is delivered and services
are performed. In December 1991, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 91-1, "Software Revenue
Recognition". The Company's revenue recognition policy is in compliance with
the provisions of this SOP.

F-8
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade receivables from physician practice
revenues, physician network revenues and information systems and services
revenues.

PROPERTY AND EQUIPMENT

Property and equipment, consisting primarily of electronic data processing
equipment, are stated at cost and depreciated on a straight-line basis over the
useful lives of the assets (3 to 5 years). Equipment held under capital leases
is amortized utilizing the straight-line method over the lesser of the term of
the lease or the estimated useful life of the asset.

INTANGIBLE ASSETS

The Company is in the process of allocating the excess of purchase price
over tangible net assets acquired in the acquisitions described in Note 3 to
specific categories of intangible assets. The total of such excess purchase
price is included in intangible assets and is presently being amortized over
periods of 15 to 20 years.

These amortization periods are evaluated by management on a continuing
basis, and will be adjusted if the lives of the related intangible assets
(expected to be principally goodwill and management contracts) are impaired.

COMPUTER SOFTWARE COSTS

The Company develops computer software which is marketed to third parties.
The Company capitalizes such costs in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed". Amortization of such costs is provided
using the straight-line method over the estimated economic life of the products,
which is generally five years.

The Company has $125,711, $100,569 and $87,998 of unamortized capitalized
computer software costs included in other assets in the accompanying
consolidated balance sheets as of December 31, 1994, December 31, 1995 and June
30, 1996 (unaudited), respectively.

Computer software amortization expense aggregated $0, $0 and $25,142,
respectively, for the period ended December 31, 1993 and for the years ended
December 31, 1994 and 1995, and $12,571 in each of the six month periods ended
June 30, 1995 and 1996 (unaudited).

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred by the Company.

F-9
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INCOME TAXES

At inception, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires recognition of
deferred tax liabilities and assets for the estimated future tax effects of
events that have been recognized in the financial statements or income tax
returns. Under this method, deferred tax liabilities and assets are determined
based on (1) differences between the financial accounting and income tax bases
of assets and liabilities, and (2) carry-forwards, using enacted tax rates in
effect for the years in which the differences and carry-forwards are expected to
reverse and be utilized, respectively (Note 11).

NET LOSS PER COMMON SHARE

Net loss per common share was computed by dividing net loss by the weighted
average number of common shares and common share equivalents outstanding during
the respective years, which includes, for all periods, (i) the effect of the
conversion of common stock equivalent Class A, B, C and D Convertible Preferred
Stock to common stock, (ii) the retroactive effect of the reverse stock split,
both described in Note 14, which will occur concurrent with the consummation of
the Company's initial public offering and (iii) the impact of the issuance, in
the year prior to the Company's pending initial public offering (Note 14), of
504,477 warrants and options for all periods presented. Fully diluted net loss
per common share has not been presented since the inclusion of the impact of
stock options and warrants outstanding (Notes 3, 8, 10 and 14) would be
antidilutive.

RECENTLY ISSUED ACCOUNTING STANDARDS

During March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement establishes financial accounting and reporting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. This statement is effective
for financial statements for fiscal years beginning after December 15, 1995,
although earlier application is encouraged. It is the Company's policy to
account for these assets at the lower of amortized cost or fair value. As part
of an ongoing review of the valuation and amortization of such assets,
management assesses the carrying value of such assets on a continuing basis. If
this review indicates that the assets will not be recoverable as determined by a
nondiscounted cash flow analysis over the remaining amortization period, the
carrying value of these assets would be reduced to their estimated fair market
values. The Company does not expect the impact of the adoption of this
pronouncement to be material.

F-10
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
During October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair value based
method of accounting for stock compensation plans. However, SFAS No. 123 also
permits the Company to continue to measure compensation costs under pre-existing
accounting pronouncements. If the fair value based method of accounting is not
adopted, SFAS No. 123 requires pro forma disclosures of net income (loss) and
net income (loss) per common share in the notes to consolidated financial
statements. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995,
though they may be adopted on issuance. The disclosure requirements of SFAS No.
123 are effective for financial statements for fiscal years beginning after
December 15, 1995, or for an earlier fiscal year for which SFAS No. 123 is
initially adopted for recognizing compensation cost. The Company has not yet
quantified the expected impact of the adoption of this pronouncement.

3. ACQUISITION OF BUSINESSES

ACQUISITIONS

The transaction with Majean, Inc. described in Note 1 was accounted for as a
purchase through the issuance of 543,564 shares of the Company's stock to the
shareholders of Majean, Inc., who were not previously affiliated with the
Company, for an aggregate purchase price of $1,368,471. Additionally, options to
purchase 283,010 shares of common stock at $.0112 per share were issued as part
of this transaction. These options are only exercisable, as contingent
consideration, upon the achievement of certain capitalization levels related to
regulatory requirements. The entire purchase price of this acquisition has been
allocated to intangible assets in the accompanying consolidated balance sheet,
as will any contingent consideration which arises due to the option described
above, based on a twenty-year contract with a MSO, which was contributed to
Majean, Inc. by its shareholders upon its formation immediately prior to the
transaction. Accordingly, this intangible asset is being amortized over a period
of twenty years.

Pursuant to an asset purchase agreement with Peltz Ventimiglia, Inc.
("Peltz") dated August 28, 1995, AHC acquired certain assets and assumed certain
liabilities of Peltz for 75,996 shares of common stock for an aggregate purchase
price of $191,327. Additionally, the former owners of Peltz received warrants to
purchase 113,995 shares of the Company's common stock at $4.38 per share, which
management believes to be in excess of the fair market value of such shares at
the date of grant. These warrants are only exercisable, as contingent
consideration, based on the achievement of targeted operating performance.

Pursuant to a purchase agreement with U.S. Health Connections, Inc. ("Health
Connections") dated September 1, 1995, the Company acquired, through its
subsidiary AHM, all of the outstanding stock of Health Connections for $150,000
in cash, a note for $150,000 due in two installments within one year of the
acquisition and 30,193 shares of common stock, for an aggregate purchase price
of $376,014. Furthermore, the Health Connections purchase agreement calls for
the issuance of an

F-11
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

3. ACQUISITION OF BUSINESSES--(CONTINUED)
additional 56,611 shares of common stock, as contingent consideration, based on
the achievement of targeted operating performance by this entity.

The Company will record the effect of the contingent consideration related
to these acquisitions based upon the provisions of Emerging Issues Task Force
Issue 95-8, "Accounting for Contingent Consideration Paid to the Shareholders of
an Acquired Company in a Purchase Business Combination", which sets forth the
criteria for determining the allocation of contingent consideration as either
additional purchase price or compensation expense. These criteria provide for
the recognition of contingent consideration, as opposed to compensation expense,
upon the exercisability, if any, of such options and warrants where relevant
facts and circumstances, such as continued employment of the sellers, components
of the selling shareholder group, reasons for contingent payments and other
agreements and issues, indicate that such accounting is warranted. Management of
the Company believes that the terms of the acquisitions described above meet the
criteria for recognition of contingent consideration.

These acquisitions described above were valued based on management's
estimate of the fair value of common stock at the date of acquisition, which was
determined by the Company's management by comparisons to (i) arms-length
transactions with unrelated third-parties for the same or similar securities and
(ii) an independent third-party appraisal. Costs in excess of net assets
acquired were recorded as intangible assets as follows:

<TABLE><CAPTION>
PELTZ U.S. HEALTH
MAJEAN, INC. VENTIMIGLIA, INC. CONNECTIONS, INC.
------------ ----------------- -----------------
<S> <C> <C> <C>
Accounts receivable................................ $ -- $ 41,555 $ 40,775
Intangible assets.................................. 1,368,471 183,551 365,239
Current liabilities................................ -- (33,779) (30,000)
------------ ----------------- -----------------
Total purchase price........................... $ 1,368,471 $ 191,327 $ 376,014
------------ ----------------- -----------------
------------ ----------------- -----------------
</TABLE>

PRO FORMA RESULTS OF OPERATIONS

Summarized below are the unaudited pro forma results of operations of the
Company as though these acquisitions had occurred at the beginning of 1994. This
pro forma information does not give effect to any operations of Majean, Inc.,
which had no operations prior to the merger transaction with the Company.
Adjustments have been made for pro forma income taxes and amortization of
intangible assets related to these transactions.

FOR THE YEARS ENDED DECEMBER
31,
-----------------------------
1994 1995
----------- -----------

Pro Forma:
Revenues................................... $ 1,228,409 $ 1,619,621
Net loss................................... (2,467,198) (5,742,954)
Net loss per share......................... $ (1.18) $ (1.66)

F-12
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

3. ACQUISITION OF BUSINESSES--(CONTINUED)

These pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions been
made at the beginning of 1994, or of results which may occur in the future.

4. RELATED PARTY TRANSACTIONS

The Company shares office space and administrative services with Physicians'
Online, Inc. ("POL"), a healthcare information services company which is partly
owned by several of the Company's shareholders, including certain officers and
directors.

During the year ended December 31, 1994, the Company earned $175,000 of
revenue from POL for information systems and services. During the period ended
December 31, 1993 and the years ended December 31, 1994 and 1995, POL also
incurred expenses totaling $105,116, $135,825 and $180,631, respectively, and
$117,362 and $50,500, respectively, for the six months ended June 30, 1995 and
1996 (unaudited), on behalf of the Company for which the Company has reimbursed
POL. The amount due POL, as well as a loan from POL in the amount of $300,000,
which has been repaid, is reflected as due to affiliate in the accompanying
consolidated balance sheet at December 31, 1994. In addition, during 1995, POL
borrowed $500,000 from the Company. POL repaid this amount in full prior to
December 31, 1995.

Revenues from MSOs, which are also related parties, are separately set forth
in the accompanying consolidated financial statements.

Management of the Company believes that these related party transactions
were effected on terms which approximate fair market value.

5. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

<TABLE><CAPTION>
DECEMBER 31, JUNE 30,
---------------------- 1996
1994 1995 (UNAUDITED)
-------- ---------- ------------
<S> <C> <C> <C>
Computer equipment and software.......................... $486,155 $1,152,077 $ 1,378,407
Equipment under capital leases........................... 394,481 681,988 877,803
Leasehold improvements................................... 37,930 60,236 27,049
Furniture and fixtures................................... 3,000 189,448 245,361
-------- ---------- ------------
921,566 2,083,749 2,528,620
Less: Accumulated depreciation and amortization.......... 148,233 544,851 913,673
-------- ---------- ------------
Property and equipment, net.............................. $773,333 $1,538,898 $ 1,614,947
-------- ---------- ------------
-------- ---------- ------------
</TABLE>

Depreciation and amortization aggregated $1,552, $146,681 and $396,618,
respectively, for the period ended December 31, 1993 and for the years ended
December 31, 1994 and 1995, and $167,940 and $368,822, respectively, for the six
months ended June 30, 1995 and 1996 (unaudited).

F-13
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

6. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE><CAPTION>
JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -----------
<S> <C> <C>
Excess of purchase price over net assets acquired.................. $1,917,261 $ 2,007,261
Less: Accumulated amortization..................................... 41,650 95,574
------------ -----------
Intangible assets, net......................................... $1,875,611 $ 1,911,687
------------ -----------
------------ -----------
</TABLE>

Amortization aggregated $41,650 for the year ended December 31, 1995 and
$53,924 for the six months ended June 30, 1996 (unaudited). There were no
intangible assets or related amortization prior to 1995.

7. COMMON STOCK

In connection with the formation of the Company, the Company entered into
two common stock agreements as follows:

(a) On August 30, 1993, the Company entered into agreements for the
subscription of 185,893 shares of common stock for $3,120.

(b) On December 27, 1993, the Company sold 718,984 shares of common
stock for $8,045 pursuant to a private placement agreement dated November 8,
1993. The shares were offered only to the holders of POL stock on a
one-for-one basis pro rata to their shareholdings in POL as of the close of
business on August 30, 1993. In accordance with this agreement, the holders
of these shares have the right, on two occasions, to participate on a
"piggy-back" basis in a registration by the Company under the Securities Act
of 1933, as amended, subject to certain restrictions, for a period ending on
December 27, 1998, and commencing twelve months from the closing of an
initial public offering of the securities of the Company.

(c) In November 1994, the Company sold 75,960 shares of common stock
pursuant to a private placement agreement dated August 22, 1994 for an
aggregate of $639,655. Of these shares sold, all of which were paid for in
1994, 25,319 were issued prior to December 31, 1994 and 50,641 were issued
in January 1995. In accordance with this agreement, the holders of these
shares have the right, on two occasions, to participate on a "piggy-back"
basis in a registration by the Company under the Securities Act of 1933, as
amended, subject to certain restrictions, for a period ending on October 31,
1999, and commencing twelve months from the closing of an initial public
offering of the securities of the Company.

(d) In 1995, the Company sold 79,780 shares of common stock pursuant to
a private placement agreement dated April 21, 1995 for an aggregate of
$625,059. In accordance with this agreement, the holders of these shares
have the right, on two occasions, to participate on a "piggy-back" basis in
a registration by the Company under the Securities Act of 1933, as amended,
subject to certain restrictions, for a period ending on September 30, 2000,
and commencing twelve months from the closing of an initial public offering
of the securities of the Company.

8. CONVERTIBLE PREFERRED STOCK

During 1993, the Company's shareholders authorized 2,000,000 shares of
Preferred Stock with a par value of $.01 per share, of which 971,800 shares were
designated Series A Convertible Preferred Stock. On August 31, 1993, the Company
sold 971,800 shares of Series A Convertible Preferred Stock

F-14
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

8. CONVERTIBLE PREFERRED STOCK--(CONTINUED)

for $97,180. In March 1994, the Company authorized and sold 282,900 shares of
Series B Convertible Preferred Stock for $2,000,103 pursuant to a Private
Placement Agreement. In January 1995, the Company authorized and sold 200,000
shares of Series C Convertible Preferred Stock for $1,500,000 pursuant to a
Private Placement Agreement. In August 1995, the Company authorized and sold
666,360 shares of Series D Convertible Preferred Stock for $4,997,700 pursuant
to a Private Placement Agreement. All of the above shares are not redeemable.

Each individual share of Series A, B, C and D Convertible Preferred Stock
was convertible into 1.5 common shares (see Note 14) at the holder's option,
subject to adjustment for antidilution. The holders of Series A, B, C and D
Convertible Preferred Stock were entitled to receive dividends as and if
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, the holders of Series A, B, C and D Convertible
Preferred Stock were entitled to receive all accrued dividends, if applicable,
plus the liquidation price per share of $.07, $4.71, $5.00 and $5.00,
respectively.

As described in Note 14, all information contained in the accompanying
consolidated financial statements has been retroactively restated to give effect
to the reverse stock split, and the information contained in the accompanying
consolidated balance sheet as of June 30, 1996 (unaudited) has been
retroactively restated to give effect to the conversion of Class A, B, C and D
Convertible Preferred Stock to common stock, both of which transactions will be
effected concurrently with the consummation of the pending initial public
offering. Accordingly, the sale of common stock equivalent Series A, B, C and D
Convertible Preferred Stock is reflected as the sale of 868,512, 252,831,
178,743 and 595,535 shares of common stock, respectively, in the accompanying
consolidated statements of operations for the purpose of computing net loss per
share and in the accompanying consolidated balance sheet as of June 30, 1996
(unaudited).

Subject to certain provisions, prior to the conversion to common stock,
registration rights, as defined in the agreement, were to be exercisable after
the earlier of (1) August 23, 1999, or (2) the effective date of the first
registration statement for a public offering of securities of the Company.
Holders of Series B, C and D Convertible Preferred Stock have voting rights.
Furthermore, holders of Series D Convertible Preferred Stock have the right to
purchase 446,858 shares of common stock at $8.39 per share.

9. STOCK SPLITS

In January 1995, the Company authorized a 100 for 1 stock split on its
Series A and B Preferred Stock and a 100 for 1 stock split on the common stock
sold in 1993 (Note 7 a). In April 1996, the Company effected a 1.5 for 1 stock
split on its common stock in the form of a stock dividend. All information in
the accompanying consolidated financial statements and footnotes has been
retroactively restated to give effect to these stock splits.

10. STOCK OPTIONS AND WARRANTS

STOCK OPTIONS

During 1994, the Company issued options to employees to purchase 970,860
shares of common stock at prices ranging from $.0112 to $2.52 per share. During
1995, the Company issued options to employees to purchase 851,380 shares of
common stock at prices ranging from $2.52 to $3.52 per share. During the six
months ended June 30, 1996, the Company issued options to employees, directors
and

F-15
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

10. STOCK OPTIONS AND WARRANTS--(CONTINUED)
advisors to purchase 105,244 shares of common stock at $5.04 per share. In the
opinion of management, these option prices represented the fair market value of
such shares at the dates of grant.

Transactions involving the Stock Option Plan for the years ended December
31, 1994 and 1995 and for the six months ended June 30, 1996 are summarized as
follows:

<TABLE><CAPTION>
SIX MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------------- 1996
1994 1995 (UNAUDITED)
------------ ----------- -----------
<S> <C> <C> <C>
Outstanding at beginning of period.................. -- 970,860 888,924
Granted........................................... 970,860 851,380 105,244
Exercised......................................... -- (885,279) (60)
Canceled.......................................... -- (48,037) (17,427)
------------ ----------- -----------
Outstanding at end of period........................ 970,860 888,924 976,681
------------ ----------- -----------
------------ ----------- -----------
Range of exercise prices............................ $.0112-$2.52 $2.52-$3.52 $2.52-$5.04
------------ ----------- -----------
------------ ----------- -----------
</TABLE>

STOCK WARRANTS

In October 1995, the Company issued warrants to a financial advisor to
purchase 17,874 shares of common stock at $3.52 per share. In the opinion of
management, the exercise price of $3.52 per share represents the fair value of
such shares at the date the warrants were issued. Accordingly, management has
determined that the intrinsic value of these warrants is not material to the
Company's consolidated financial statements.

11. INCOME TAXES

There is no provision for income taxes in the accompanying consolidated
financial statements because the Company has incurred net operating losses from
inception. As of December 31, 1995, the Company had net operating loss carry
forwards ("NOLs") available to offset future book and taxable income of
approximately $8.7 million and $6.2 million, respectively, which expire through
2010. The difference between the book and tax NOLs relates principally to the
differences between book and tax accounting related to start-up costs,
depreciation of fixed assets, amortization of intangible assets and recognition
of deferred revenue. The future book income tax benefits of $1.3 million and
$3.5 million as of December 31, 1994 and December 31, 1995, respectively, have
been fully reserved due to the fact that it is more likely than not that these
tax benefits will not be recognized in the future.

12. CAPITAL LEASE OBLIGATIONS

The Company is the lessee of certain equipment under capital leases expiring
through 1998. The assets and liabilities are recorded at the lower of the
present value of minimum lease payments or the fair market value of the asset.
The interest rates on the capital leases vary from 2.63% to 17.00%.

F-16
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

12. CAPITAL LEASE OBLIGATIONS--(CONTINUED)

Future minimum payments under these lease agreements are as follows:

YEAR ENDING
DECEMBER 31,
- ----------------------------------------------------------------

1996............................................................ $277,842
1997............................................................ 126,767
1998 and thereafter............................................. 39,994
--------
Total minimum lease payments.................................... 444,603
Less: Amount representing interest.............................. 27,544
--------
Present value of net minimum lease payments..................... $417,059
--------
--------

13. COMMITMENTS

The Company leases certain office space for its operations. Leases for this
space expire through 2002 and call for annual rent with immaterial escalations
through the end of the leases.

The Company has also entered into several operating leases for office
equipment.

Future minimum payments for operating leases at December 31, 1995 are as
follows:

YEAR ENDING
DECEMBER 31,
- ---------------------------------------------------------------

1996........................................................... $ 247,447
1997........................................................... 673,317
1998........................................................... 784,772
1999........................................................... 781,844
2000 and thereafter............................................ 1,539,750

Rent expense for the period ended December 31, 1993 and for the years ended
December 31, 1994 and 1995 was $20,000, $69,774 and $125,881, respectively, and
$60,750 and $180,973 for the six months ended June 30, 1995 and 1996
(unaudited).

14. SUBSEQUENT EVENTS

ACQUISITION

On April 1, 1996, the Company acquired certain assets and assumed certain
liabilities of a network development company in exchange for 8,937 shares of the
Company's common stock and $45,000, to be paid in two installments of $22,500 on
the closing date and the first anniversary thereof, for an aggregate purchase
price of approximately $90,000, all of which is included in intangible assets
(Note 6) in the accompanying unaudited balance sheet as of June 30, 1996. The
pro forma effects of this transaction have not been presented, as the results
are immaterial to the Company's consolidated financial statements taken as a
whole.

FORMATION OF MSOS

In July 1996, the Company obtained a 51% interest in Cardiology First
Management Company ("CFMC"), a newly formed MSO. The Company acquired this
interest as part of the formation of CFMC and concurrent with the signing of a
long-term management services agreement between CFMC and Cardiology First of New
Jersey, P.A., which is a network of cardiologists based in the State of New
Jersey.

F-17
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

14. SUBSEQUENT EVENTS--(CONTINUED)

In July 1996, the Company obtained a 51% interest in Diamond Physician
Management, Inc. ("Diamond"), a newly formed MSO. The Company acquired this
interest as part of the formation of Diamond and concurrent with the signing of
a long-term management services agreement between Diamond and Long Island
Interventional Cardiology, which is a private cardiovascular physician practice
based in Long Island, New York.

In forming these MSOs, the Company conveyed 49% interests to the physician
practice or network in exchange for the execution of the long-term management
services agreements described above. The Company will record the fair value of
this arrangement, which is, in the opinion of management, more readily
determinable than the 49% MSO interest conveyed. These intangible assets, which
the Company does not expect to be material, will be amortized over the life of
the related contracts.

The stockholders agreements for these MSOs, among other things, (i) restrict
the transfer of MSO equity, (ii) provide the terms upon which the MSO can, at
the Company's option, be merged with and into a wholly-owned subsidiary of the
Company in a transaction in which the physician practice or network will receive
stock of the Company in exchange for shares in the MSO, and (iii) grant to the
physician practice or network the right to put its equity share in the MSO to
the Company within one year of the Company's satisfaction of certain specified
targets if the Company has not called its right to acquire those interests
within that period. The agreements provide that these call transactions will be
paid in the Company's common stock, and put transactions will be paid in cash,
and that either
transaction, if effected, would be based on an agreed-upon amount at the time of
the transaction. The Company will, in the event that these transactions take
place, account for such transactions as purchases at the agreed-upon fair market
value of the MSO interest being purchased.

INITIAL PUBLIC OFFERING

The Company is pursuing an initial public offering of its securities. The
proposed offering presently contemplates the sale of 2,000,000 shares of common
stock at $12 per share. The Company plans to use a portion of the proceeds of
the proposed offering to repay the Bridge Financing described below, of which
$4,000,000 was outstanding at June 30, 1996. The supplementary net loss per
share for the six months ended June 30, 1996 (unaudited), which follows, gives
supplemental effect to the issuance of 333,333 shares of common stock for the
entire period during which the related Bridge Financing was outstanding, which
is the number of shares to be issued in the proposed initial public offering,
the proceeds of which would be used to repay the $4,000,000 outstanding at June
30, 1996, as well as to the effect of the reduction of related interest expense
in that period. These shares are presumed outstanding for supplementary purposes
only, and were neither issued nor outstanding for any purpose during the six
months ended June 30, 1996.

<TABLE><CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, 1996
(UNAUDITED)
-------------------
<S> <C>
Supplementary net loss per share.......................................... $ (0.35)
----------
----------
Supplementary weighted average common shares outstanding.................. 5,217,654
----------
----------
</TABLE>

CONVERSION OF CONVERTIBLE PREFERRED STOCK

Pursuant to the terms of the Series A, B, C and D Convertible Preferred
Stock (Note 8), these securities will be converted, on a 1.5 to 1 share basis,
to common stock concurrent with the consummation of the pending public offering
described above. The accompanying unaudited consolidated financial

F-18
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E-SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995

14. SUBSEQUENT EVENTS--(CONTINUED)
statements as of June 30, 1996 and for the period then ended give effect to the
conversion of the Series A, B, C and D Convertible Preferred Stock as if it had
occurred as of that date.

REVERSE STOCK SPLIT AND RECAPITALIZATION

In connection with the pending initial public offering described above, the
Company will effect a recapitalization whereby the presently outstanding common
stock (including converted Series A, B, C and D Convertible Preferred Stock)
will be converted to shares of common stock on a .59581 to 1 share basis. After
this reverse split is effected, the Company will have 5,000,000 shares of
preferred stock authorized and 15,000,000 shares of common stock authorized. All
information contained in the accompanying financial statements and footnotes has
been retroactively restated to give effect to this transaction.

BRIDGE FINANCING

On February 28, 1996, the Company entered into an agreement to issue three
8% promissory notes to an investor for an aggregate amount of $3,000,000. The
Company issued one promissory note and received $1,500,000 upon the closing,
issued a second promissory note and received $750,000 at the second closing
date, April 26, 1996, and issued a third promissory note and recieved the
remaining $750,000 on the third closing date, June 28, 1996. Each note is due on
the earlier of the initial public offering of the Company's securities or one
year from the respective closing dates. Interest is due quarterly on each of the
notes.

In addition, the investor received warrants to purchase 16,757 shares of
common stock of the Company at $16.78 per share which expire on June 28, 2001.
The exercise price of $16.78 per share is, in the opinion of management, greater
than the fair market value of such shares at the date the warrants were issued.
The investor also received 8,937 contingent warrants to purchase the Company's
stock at $8.39 per share. These contingent warrants may be exercised during the
period of January 1, 1997 through June 28, 2001 if payment has not been made on
the notes by the agreed upon payment dates described above or if an initial
public offering is not consummated prior to January 1, 1997; however, if
payments on the notes are made by the specified dates, these contingent warrants
will be canceled.

The Company has entered into an agreement with the owners of the Company's
Series D Convertible Preferred Stock and related warrants (Note 8) for
additional bridge financing in the amount of approximately $2,000,000. This
financing is unsecured, bears interest at 9% and expires on the earlier of the
consummation of an initial public offering or July 31, 1997. On June 19, 1996,
the Company issued three promissory notes in the aggregate principal amount of
$1 million and on August 13, 1996, the Company issued three additional
promissory notes in the aggregate principal amount of $1 million under this
agreement.

15. UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION

The unaudited consolidated financial information for the six months ended
June 30, 1995 and 1996 has been prepared in accordance with generally accepted
accounting principles for interim financial information. In the opinion of the
Company, these unaudited consolidated financial statements reflect all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the audited data
presented herein. The consolidated results of operations for interim periods are
not necessarily indicative of the results to be expected for a full year.

F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Advanced Health Corporation:

We have audited the accompanying balance sheets of Peltz Ventimiglia, Inc.
(a New York corporation) as of December 31, 1994 and August 31, 1995, and the
related statements of operations, shareholders' equity and cash flows for the
years ended December 31, 1993 and 1994 and for the eight months ended August 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Peltz Ventimiglia, Inc. as
of December 31, 1994 and August 31, 1995, and the results of its operations and
its cash flows for the years ended December 31, 1993 and 1994 and for the eight
months ended August 31, 1995 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

New York, New York
June 4, 1996

F-20
<PAGE>
PELTZ VENTIMIGLIA, INC.
BALANCE SHEETS

<TABLE><CAPTION>
DECEMBER 31, AUGUST 31,
1994 1995
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................... $ 3,179 $ 4,344
Accounts receivable................................................ 45,173 41,552
------------ ----------
Total current assets........................................... 48,352 45,896
OTHER ASSETS......................................................... 7,108 7,817
------------ ----------
Total assets................................................... $ 55,460 $ 53,713
------------ ----------
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 17,297 $ 30,394
Accrued expenses................................................... 7,337 3,385
------------ ----------
Total liabilities.............................................. 24,634 33,779
------------ ----------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 1,000 shares authorized; 1,000
shares issued and outstanding, respectively...................... 1 1
Additional paid-in capital......................................... 3,085 3,085
Retained earnings.................................................. 27,740 16,848
------------ ----------
Total shareholders' equity..................................... 30,826 19,934
------------ ----------
Total liabilities and shareholders' equity..................... $ 55,460 $ 53,713
------------ ----------
------------ ----------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-21
<PAGE>
PELTZ VENTIMIGLIA, INC.
STATEMENTS OF OPERATIONS

<TABLE><CAPTION>
FOR THE
FOR THE YEARS ENDED EIGHT MONTHS
DECEMBER 31, ENDED
-------------------- AUGUST 31,
1993 1994 1995
-------- -------- ------------
<S> <C> <C> <C>
REVENUE................................................... $377,032 $499,543 $351,066
OPERATING EXPENSES........................................ 182,205 408,925 363,047
-------- -------- ------------
(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR STATE AND
LOCAL INCOME TAXES........................................ 194,827 90,618 (11,981)
(BENEFIT) PROVISION FOR STATE AND LOCAL INCOME TAXES...... 17,712 8,238 (1,089)
-------- -------- ------------
Net (loss) income................................... $177,115 $ 82,380 $(10,892)
-------- -------- ------------
-------- -------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-22
<PAGE>
PELTZ VENTIMIGLIA, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995

<TABLE><CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993.................... 1,000 $ 1 $3,085 $ 3,960 $ 7,046
Distributions to shareholders............. -- -- -- (164,139) (164,139)
Net income................................ -- -- -- 177,115 177,115
--
------ ---------- -------- --------
BALANCE, December 31, 1993.................. 1,000 1 3,085 16,936 20,022
Distributions to shareholders............. -- -- -- (71,576) (71,576)
Net income................................ -- -- -- 82,380 82,380
--
------ ---------- -------- --------
BALANCE, December 31, 1994.................. 1,000 1 3,085 27,740 30,826
Net (loss)................................ -- -- -- (10,892) (10,892)
--
------ ---------- -------- --------
BALANCE, August 31, 1995.................... 1,000 $ 1 $3,085 $ 16,848 $ 19,934
--
--
------ ---------- -------- --------
------ ---------- -------- --------
</TABLE>

The accompanying notes are an integral part of these statements.

F-23
<PAGE>
PELTZ VENTIMIGLIA, INC.
STATEMENTS OF CASH FLOWS

<TABLE><CAPTION>
FOR THE
FOR THE YEARS ENDED EIGHT MONTHS
DECEMBER 31, ENDED
------------------- AUGUST 31,
1993 1994 1995
-------- ------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................ $177,115 $82,380 $(10,892)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities-
Changes in operating assets and liabilities-
Accounts receivable.................................... (34,369) (10,804) 3,621
Other assets........................................... 5,171 (7,108) (709)
Accounts payable....................................... 24,143 (7,171) 13,097
Accrued expenses....................................... -- 7,337 (3,952)
-------- ------- ------------
Net cash provided by operating activities............ 172,060 64,634 1,165
-------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders............................ (164,139) (71,576) --
-------- ------- ------------
Net cash used in financing activities................ (164,139) (71,576) --
-------- ------- ------------
Net change in cash................................... 7,921 (6,942) 1,165
CASH, beginning of period.................................. 2,200 10,121 3,179
-------- ------- ------------
CASH, end of period........................................ $ 10,121 $ 3,179 $ 4,344
-------- ------- ------------
-------- ------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE>
PELTZ VENTIMIGLIA, INC.
NOTES TO FINANCIAL STATEMENTSE
DECEMBER 31, 1994 AND AUGUST 31, 1995

1. ORGANIZATION AND BUSINESS

Peltz Ventimiglia, Inc. (the "Company") provides physician practice
management consulting services for physicians in the Eastern United States.

On August 28, 1995, the Company entered into a purchase agreement with
Advanced Health Management Corporation ("AHM", formerly Advanced Clinical
Networks Corporation), a wholly-owned subsidiary of Advanced Health Corporation
("AHC"), whereby the Company sold its net assets to AHM for 75,996 shares of AHC
common stock for an aggregate sale price of $191,327.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Fees for physician practice management consulting services are recognized as
services are rendered.

USE OF ESTIMATES

INCOME TAXES

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires
recognition of deferred tax liabilities and assets for the estimated future tax
effects of events that have been recognized in the financial statements or
income tax returns. Under this method, deferred tax liabilities and assets are
determined based on (1) differences between the financial accounting and income
tax bases of assets and liabilities, and (2) carry-forwards, using enacted tax
rates in effect for the years in which the differences and carry-forwards are
expected to reverse and be utilized, respectively.

The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to Federal and certain state income taxes. The
stockholders include their pro rata share of the Company's income in their
personal income tax returns. It is the Company's policy to reimburse its
stockholders for any tax liability resulting from their inclusion of the
Company's income in their respective tax returns.

F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Advanced Health Corporation:

We have audited the accompanying balance sheets of U.S. Health Connections,
Inc. (a Georgia corporation) as of December 31, 1994 and August 31, 1995, and
the related statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1994 and for the eight months ended August 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U.S. Health Connections,
Inc. as of December 31, 1994 and August 31, 1995, and the results of its
operations and its cash flows for the year ended December 31, 1994 and for the
eight months ended August 31, 1995 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

New York, New York
June 5, 1996

F-26
<PAGE>
U.S. HEALTH CONNECTIONS, INC.
BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 24,834 $ 10,436
Accrued expenses................................................... 27,414 15,953
Current portion of long-term debt.................................. 2,838 8,309
Loan payable to shareholder........................................ -- 6,000
Deferred revenue................................................... 10,002 --
------------ ----------
Total current liabilities...................................... 65,088 40,698
LONG-TERM DEBT, net of current portion............................... 8,513 --
------------ ----------
Total liabilities.............................................. 73,601 40,698
------------ ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000 shares authorized; 100 shares
issued and outstanding............................................... 1 1
Additional paid-in capital......................................... 99 99
Retained earnings.................................................. 25,247 25,365
------------ ----------
Total shareholders' equity..................................... 25,347 25,465
------------ ----------
Total liabilities and shareholders' equity..................... $ 98,948 $ 66,163
------------ ----------
------------ ----------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-27
<PAGE>
U.S. HEALTH CONNECTIONS, INC.
STATEMENTS OF OPERATIONS

<TABLE><CAPTION>
FOR THE
FOR THE EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1994 1995
------------ ------------
<S> <C> <C>
REVENUE............................................................ $349,988 $214,606
OPERATING EXPENSES................................................. 318,506 212,002
------------ ------------
Operating income............................................. 31,482 2,604
INTEREST EXPENSE, net.............................................. 948 690
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES........................... 30,534 1,914
PROVISION FOR INCOME TAXES......................................... 5,287 1,796
------------ ------------
Net income................................................... $ 25,247 $ 118
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-28
<PAGE>
U.S. HEALTH CONNECTIONS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994
AND FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994............................. -- $ -- $ -- $ -- $ --
Issuance of common stock............................. 100 1 99 -- 100
Net income........................................... -- -- -- 25,247 25,247
------ --- --- -------- -------
BALANCE, December 31, 1994........................... 100 1 99 25,247 25,347
Net income........................................... -- -- -- 118 118
------ --- --- -------- -------
BALANCE, August 31, 1995............................. 100 $ 1 $ 99 $ 25,365 $25,465
------ --- --- -------- -------
------ --- --- -------- -------
</TABLE>

The accompanying notes are an integral part of this statement.

F-29
<PAGE>
U.S. HEALTH CONNECTIONS, INC.
STATEMENTS OF CASH FLOWS

<TABLE><CAPTION>
FOR THE
FOR THE EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1994 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 25,247 $ 118
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation................................................... 5,200 5,200
Changes in operating assets and liabilities-
Accounts receivable.......................................... (72,596) 31,821
Other assets................................................. (1,592) (60)
Accounts payable............................................. 24,834 (14,398)
Accrued expenses............................................. 27,414 (11,461)
Deferred revenue............................................. 10,002 (10,002)
------------ ------------
Net cash provided by operating activities.................. 18,509 1,218
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net......................... (25,252) (8,884)
------------ ------------
Net cash used in investing activities...................... (25,252) (8,884)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt................................. 11,351 (3,042)
Proceeds from loan payable from related party.................... -- 6,000
Proceeds from sale and issuance of common stock.................. 100 --
------------ ------------
Net cash provided by financing activities.................. 11,451 2,958
------------ ------------
Net change in cash......................................... 4,708 (4,708)
CASH, beginning of period.......................................... -- 4,708
------------ ------------
CASH, end of period................................................ $ 4,708 $ --
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-30
<PAGE>
U.S. HEALTH CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND AUGUST 31, 1995

1. ORGANIZATION AND BUSINESS

U.S. Health Connections, Inc. (the "Company") commenced operations on
January 1, 1994. The Company provides physician network management services for
physician groups in the Southeastern United States.

On September 1, 1995, the Company entered into a purchase agreement with
Advanced Health Management Corporation ("AHM", formerly Advanced Clinical
Networks Corporation), a wholly-owned subsidiary of Advanced Health Corporation
("AHC"), whereby the Company's shareholders sold all of their outstanding stock
to AHM for $150,000 in cash, a $150,000 note receivable and 30,193 shares of AHC
common stock, for an aggregate sale price of $376,014.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company enters into management services agreements with its network
clients whereby the Company recognizes administrative fees for managing
capitated contracts between health maintenance organizations ("HMOs") and
physician networks for the delivery of health care.

PROPERTY AND EQUIPMENT

Property and equipment, consisting primarily of electronic data processing
equipment, are stated at cost and depreciated on a straight-line basis over the
useful lives of the assets (5 years).

USE OF ESTIMATES

INCOME TAXES

F-31
<PAGE>
U.S. HEALTH CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND AUGUST 31, 1995

3. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

<TABLE><CAPTION>
DECEMBER 31, AUGUST 31,
1994 1995
------------ ----------
<S> <C> <C>
Vehicle............................................. $ 14,888 $ 14,888
Computer equipment and software..................... 7,618 12,499
Furniture and fixtures.............................. 2,746 6,749
------------ ----------
25,252 34,136

Less: Accumulated depreciation...................... 5,200 10,400
------------ ----------
Property and equipment, net......................... $ 20,052 $ 23,736
------------ ----------
------------ ----------
</TABLE>

Depreciation aggregated $5,200 for each of the year ended December 31, 1994
and the eight months ended August 31, 1995, respectively.

4. LONG-TERM DEBT

The Company had a loan payable with a bank related to the acquisition of a
vehicle. This loan was payable, with interest at 7.5%, in equal installments
through December 1997 and was repaid in full subsequent to the sale of the
Company to AHC. Accordingly, all long-term debt is reflected as a current
liability in the accompanying balance sheet as of August 31, 1995.

5. RELATED PARTY TRANSACTION

In 1995, the Company borrowed $6,000 from a related party of the majority
shareholder. The loan is due on demand and interest is payable, and is accrued
by the Company at August 31, 1995, at the payment date at a rate equal to the
Company's average borrowing rate.

F-32
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

The following pro forma statement of operations for the year ended December
31, 1995 includes the results of operations of Advanced Health Corporation,
Peltz Ventimiglia, Inc. and U.S. Health Connections, Inc. as if the acquisitions
of Peltz Ventimiglia, Inc. and U.S. Health Connections, Inc. by Advanced Health
Corporation were made on January 1, 1995. The Company believes that this pro
forma statement of operations includes all necessary pro forma adjustments to
give pro forma effect to these transactions as if they had occurred on January
1, 1995.

The pro forma financial information presented below does not purport to be
indicative of the operating results which would have been achieved had the
acquisitions taken place on January 1, 1995 and should not be construed as
representative of the Company's results of operations for any future period.

<TABLE><CAPTION>
ADVANCED PELTZ U.S. HEALTH
HEALTH VENTIMIGLIA, CONNECTIONS, PRO FORMA PRO FORMA
CORPORATION(1) INC.(2) INC.(2) SUBTOTAL ADJUSTMENTS(3) OPERATIONS
-------------- ------------ ------------ ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE................... $ 1,053,949 $351,066 $214,606 $ 1,619,621 $-- $ 1,619,621
COST OF SALES............. 340,326 -- -- 340,326 -- 340,326
-------------- ------------ ------------ ----------- -------------- -----------
Gross Profit.......... 713,623 351,066 214,606 1,279,295 -- 1,279,295
OPERATING EXPENSES........ 6,412,367 363,047 212,002 6,987,416 26,280 7,013,696
-------------- ------------ ------------ ----------- -------------- -----------
Operating income
(loss).................... (5,698,744) (11,981) 2,604 (5,708,121) (26,280) (5,734,401)
OTHER INCOME (EXPENSE).... (7,863) -- (690) (8,553) -- (8,553)
-------------- ------------ ------------ ----------- -------------- -----------
Income (loss) before
income taxes............ (5,706,607) (11,981) 1,914 (5,716,674) (26,280) (5,742,954)
PROVISION (BENEFIT) FOR
INCOME TAXES.............. -- (1,089) 1,796 707 (707) --
-------------- ------------ ------------ ----------- -------------- -----------
Net loss.............. $ (5,706,607) $(10,892) $ 118 $(5,717,381) $(25,573) $(5,742,954)
-------------- ------------ ------------ ----------- -------------- -----------
-------------- ------------ ------------ ----------- -------------- -----------
Pro forma net loss per
share..................... $ (1.66)
-----------
-----------
Pro forma weighted average
common shares
outstanding(4)............ 3,458,838
-----------
-----------
</TABLE>

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

(1) Includes the results of operations of Advanced Health Corporation for the
full year, and the results of operations of Peltz Ventimiglia, Inc. and U.S.
Health Connections, Inc. from September 1, 1995 through December 31, 1995.

(2) Includes the results of operations of Peltz Ventimiglia, Inc. and U.S.
Health Connections, Inc. from January 1, 1995 through August 31, 1995.

(3) Pro forma adjustments give effect to amortization of intangible assets
related to the acquisitions of Peltz Ventimiglia, Inc. and U.S. Health
Connections, Inc., as well as to the tax provision (benefit) which would
have resulted from the combined results of operations, had the acquisitions
been made at the beginning of the year.

(4) Includes the pro forma effect of shares of common stock issued in connection
with the acquisitions of Peltz Ventimiglia, Inc. and U.S. Health
Connections, Inc. as if those shares were issued and outstanding for the
period from January 1, 1995 to December 31, 1995.

F-33
<PAGE>
[Inside Back Cover]

Graphic captioned "Integrating Physician Management Services with
Information Technology", which includes (i) a photograph of a physician holding
a pen-based, portable, wireless computer, captioned "Med-E-Practice/All of the
applications in the Med-E-Practice suite are designed to be run on a pen-based,
portable wireless computer for use in a busy ambulatory practice.", (ii) a
photograph of a computer screen from the Med-E-Visit application, captioned
"Med-E-Visit/A patient encounter application generating a Superbill with
fully-qualified diagnostic coding linked to appropriate billing codes required
to support outcomes analysis.", (iii) a photograph of a computer screen from the
Referral application, captioned "Referral/Support multiple referral networks by
recording referral information and providing both network-specific referral
rules and information regarding appropriate network specialists." and (iv) a
photograph of a computer screen from the Smart Scripts application, captioned
"Smart Scripts/A pharmaceutical prescription-writing application providing
formulary management, DUR edits and diagnostic coding linkage to drug therapy
protocols."
<PAGE>

====================================== ========================================

NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS 2,000,000 SHARES
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN [LOGO]
AUTHORIZED BY THE COMPANY OR ANY OF
THE UNDERWRITERS OR BY ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A ADVANCED HEALTH
SOLICITATION OF AN OFFER TO BUY A CORPORATION
SECURITY OTHER THAN THE SHARES OF
COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH OFFER OR COMMON STOCK
SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE ----------------------
----
PROSPECTUS
Prospectus Summary..................... 3
Risk Factors........................... 5 ----------------------
The Company............................ 15
Use of Proceeds........................ 15
Dividend Policy........................ 15
Capitalization......................... 16
Dilution............................... 17
Selected Consolidated Financial Data... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 19
Business............................... 23
Management............................. 39
Certain Transactions................... 46
Principal Stockholders................. 48
Description of Capital Stock........... 49
Shares Eligible for Future Sale........ 51
Underwriting........................... 53
Legal Matters.......................... 54
Experts................................ 54 COWEN & COMPANY
Additional Information................. 54 VOLPE, WELTY & COMPANY
Index to Financial Statements.......... F-1

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

UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS , 1996
EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

====================================== ========================================

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.

SEC registration fee........................................... $ 11,104
NASD filing fee................................................ 3,520
Nasdaq National Market listing fee............................. *
Blue sky fees and expenses..................................... 25,000
Printing and engraving expenses................................ *
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Transfer agent and registrar fees.............................. *
Miscellaneous.................................................. *
----------
Total...................................................... $ *
----------
----------

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

* To be provided by amendment.

The Company will bear all of the foregoing fees and expenses.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the DGCL authorizes a court to award or a corporation's Board
of Directors to grant indemnification to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Act. Articles Nine and Ten of the Registrant's Certificate of Incorporation
provide for indemnification of its directors and officers and permissible
indemnification of employees and other agents to the maximum extent permitted by
the DGCL. Reference is made to the form of Director Indemnification Agreement
filed as Exhibit 10.20 hereto, which provides for indemnification of directors.
Reference is also made to the Underwriting Agreement filed as Exhibit 1.1
hereto, which sets forth certain indemnification provisions. In addition, the
Registrant maintains liability insurance for its officers and directors.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Registrant has sold and issued the following securities during the past
three years:

On August 30, 1993, the Company sold 185,893 shares of Common Stock to the
Chairman and an employee of the Company, for an aggregate of $3,120.

On December 27, 1993, the Company sold 718,984 shares of Common Stock for
$8,045 pursuant to a rights offering. The shares were offered only to the
holders of Physicians' On-Line, Inc. stock on a one-for-one basis pro rata to
their shareholdings in Physicians' On-Line, Inc.

In November 1994, the Company sold 75,965 shares of Common Stock for an
aggregate of $639,655. Of these shares sold, all of which were paid for in 1994,
25,319 were issued prior to December 31, 1994 and 50,641 were issued in January
1995.

II-1
<PAGE>
In August 1995, the Company issued 2,978 shares of Common Stock to a
director of the Company for $25,000.

In August 1995, the Company issued 543,564 shares of Common Stock to
purchase Majean, Inc. and 75,996 shares of common stock to purchase Peltz
Ventimiglia, Inc. and in September 1995, 30,193 shares of common stock to
purchase U.S. Health Connections, Inc., as more fully described in Note 3 to the
accompanying Consolidated Financial Statements.

In 1995, the Company sold 76,802 shares of Common Stock to investors for an
aggregate of $625,059.

In August 1993, the Company issued 971,800 shares of Series A Convertible
Preferred Stock to investors for $97,180. In March 1994, the Company issued
282,900 shares of Series B Convertible Preferred Stock to investors for
$2,000,103. In January 1995, the Company issued 200,000 shares of Series C
Convertible Preferred Stock to investors for $1,500,000. In August 1995, the
Company issued 666,360 shares of Series D Convertible Preferred Stock to
investors for $4,997,700. Each share of the Preferred Stock is convertible into
1.1189249 shares of Common Stock upon the consummation of this offering.

In February, April and June 1996, the Company issued three 8% Promissory
Notes in the aggregate principal amount of $3 million to an investor.

In June 1996, the Company issued three 9% Series B Promissory Notes in the
aggregate principal amount of $1 million to investors. In August 1996, the
Company issued three additional 9% Series B Promissory Notes in the aggregate
principal amount of $1 million to investors.

During 1995, the Chairman, the President, the principal stockholder and
certain employees exercised stock options for 288,681, 316,376, 128,695 and
151,547 shares, respectively, for $19,717.

During 1996, a former employee exercised stock options for 60 shares of
Common Stock for $150.

In April 1996, the Company issued 8,937 shares of Common Stock to purchase
the assets of Benenson & Associates, Inc. The Registrant issued rights to
acquire Common Stock in the Roll Up Transaction to one physician organization in
December 1995 and two physician organizations in July 1996.

The above securities were offered and sold by the Registrant in reliance
upon an exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii) Rule
701 under the Securities Act. No underwriters were involved in connection with
the sales of securities referred to in this Item 15.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE><CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>

*1.1 Form of Underwriting Agreement

***2.1 Agreement and Plan of Merger dated as of August 2, 1995, among Med-E-Systems
Corporation, MES Acquisition Corp. and the Registrant

***2.2 Agreement and Plan of Merger dated as of August 7, 1995, between the Registrant
and Majean, Inc.

***2.3 Asset Purchase Agreement dated as of August 28, 1995, among Advanced Clinical
Networks Corporation, Peltz Ventimiglia, Inc., Richard Ventimiglia and Steven
Peltz
</TABLE>

II-2
<PAGE>

<TABLE><CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
***2.4 Agreement and Plan of Merger dated as of September 1, 1995, among U.S. Health
Connections, Inc., the Registrant and Advanced Clinical Networks Corporation

**3.1 Restated Certificate of Incorporation of the Registrant, as in effect on the
effective date of the Registration Statement

**3.2 Restated Certificate of Incorporation of the Registrant, as to be in effect upon
the consummation of the Initial Public Offering

**3.3 By-laws of the Registrant

**5 Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such firm)

+***10.1 Development and Marketing Agreement dated as of August 1, 1995, between Med-E-
Systems Corporation and Integrated Disease Management, Inc.

+***10.2 Software License Agreement dated as of September 27, 1995, between Med-E-Systems
Corporation and Medco Containment Services Inc.

+***10.3 System Implementation Agreement dated September 14, 1995, between IDX Systems
Corporation and the Registrant

***10.4 Investors' Rights Agreement dated as of August 31, 1993, among Med-E-Mail
Corporation, Financial Strategic Portfolios, Inc.--Health Sciences Portfolio and
The Global Health Sciences Fund

***10.5 Amended and Restated Investors' Rights Agreement dated as of March 16, 1994,
among Med-E-Mail Corporation, Financial Strategic Portfolios, Inc.--Health
Sciences Portfolio and The Global Health Sciences Fund

***10.6 Amended and Restated Investors' Rights Agreement dated as of January 27, 1995,
among Med-E-Systems Corporation, Invesco Strategic Portfolios, Inc.--Health
Sciences Portfolio and The Global Health Sciences Fund

***10.7 Investors' Rights Agreement dated as of August 23, 1995, among the Registrant,
21st Century Communucations Partners, L.P., 21st Century Communications T-E
Partners, L.P. and 21st Century Communications Foreign Partners, L.P.

***10.8 Registration Rights Agreement dated February 28, 1996, among the Registrant,
Park Avenue Capital, L.P. and Access Industries, LLC

+***10.9 Management Services Agreement dated as of December 11, 1995, between Madison
Medical--The Private Practice Group of New York, L.L.P. and Uptown Physician
Management, Inc.

***10.10 Stockholders' Agreement dated as of December 11, 1995, among Uptown Physician
Management, Inc. and certain stockholders

+***10.11 Management Services Agreement dated as of August 7, 1995, among Advanced Heart
Institute of New York, P.C., Valavanur A. Subramanian, M.D., Jeffrey Moses, M.D.
and Majean Sub 2, Inc.

+***10.12 Management Services Agreement dated as of July 1, 1996 between Specialist
Physicians Management, Inc. and Cardiology First of New Jersey, P.A.

***10.13 Stockholders' Agreement among Specialist Physicians Management, Inc., Specialist
Physicians MSO, L.L.C. and Advanced Health Management Corporation

+***10.14 Management Services Agreement dated as of July 1, 1996 between Diamond Physician
Management, Inc. and Long Island Interventional Cardiology

***10.15 Stockholders' Agreement dated as of July 1, 1996 among Diamond Physician
Management, Inc., Long Island Interventional Cardiology and Advanced Health
Management Corporation

+***10.16 Administrative Services Base Agreement dated as of June 30, 1994, between U.S.
Health Connections, Inc. and The Emory Clinic, Inc.
</TABLE>

II-3
<PAGE>

<TABLE><CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
***10.17 Tarrytown, New York Office Lease Agreement dated November 30, 1995, between
Tarrytown Corporate Center IV, L.P. and the Registrant

***10.18 Tarrytown, New York Office Sublease Agreement dated October 31, 1995, between
American Software, USA, Inc. and the Registrant

***10.19 Chicago Office Lease Agreement dated December 8, 1995, between Adams Family,
L.L.C. and the Registrant

**10.20 Form of Director Indemnification Agreement

***10.21 Employment Agreement between the Registrant and Jonathan Edelson, M.D.

***10.22 Employment Agreement between the Registrant and Steven Hochberg
***10.23 Employment Agreement between the Registrant and Alan B. Masarek
**10.24 Amended and Restated Advanced Health Corporation 1995 Stock Option Plan
**10.25 Employee Stock Purchase Plan
**11.1 Supplemental Net Loss Per Common Share Computation
***21 List of Subsidiaries
**23.1 Consent of O'Sullivan Graev & Karabell, LLP (included as part of its opinion
filed as Exhibit 5 hereto)
**23.2 Consent of Arthur Andersen LLP
***24 Powers of Attorney
***27 Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

*** Previously filed.

+ Portions of such exhibit have been deleted therefrom pursuant to Rule 406
promulgated under the Securities Act of 1933, as amended, and confidential
treatment has been requested therefor.

(b) Financial Statement Schedules

All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements or related notes.

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and By-laws,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in such Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
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

II-4
<PAGE>
is against public policy as expressed in such Securities Act and will be
governed by the final adjudication of such issue.

The Registrant hereby undertakes that:

1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Tarrytown, State of New York, on the 9th day of September, 1996.

ADVANCED HEALTH CORPORATION
By:
*
..................................
Jonathan Edelson, M.D.
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed on the 9th day of September,
1996, by the following persons in the capacities indicated:

<TABLE><CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman of the Board, Chief Executive
............................................. Officer and Director (Principal Executive
Jonathan Edelson, M.D Officer)

* President and Director
.............................................
Steven Hochberg

/s/ ALAN B. MASAREK Chief Operating Officer and Chief Financial
............................................. Officer (Principal Financial and Accounting
Alan B. Masarek Officer)

............................................. Director
James T. Carney

* Director
.............................................
Barry Kurokawa

* Director
.............................................
Jonathan Lieber
</TABLE>

*By: /s/ ALAN B. MASAREK
........................................
Alan B. Masarek
As Attorney-in-Fact

II-6
<PAGE>
EXHIBIT INDEX

<TABLE><CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <S> <C>

*1.1 Form of Underwriting Agreement

***2.1 Agreement and Plan of Merger dated as of August 2, 1995, among
Med-E-Systems Corporation, MES Acquisition Corp. and the Registrant

***2.2 Agreement and Plan of Merger dated as of August 7, 1995, between the
Registrant and Majean, Inc.

***2.3 Asset Purchase Agreement dated as of August 28, 1995, among Advanced
Clinical Networks Corporation, Peltz Ventimiglia, Inc., Richard
Ventimiglia and Steven Peltz

***2.4 Agreement and Plan of Merger dated as of September 1, 1995, among U.S.
Health Connections, Inc., the Registrant and Advanced Clinical Networks
Corporation

**3.1 Restated Certificate of Incorporation of the Registrant, as in effect on
the effective date of the Registration Statement

**3.2 Restated Certificate of Incorporation of the Registrant, as to be in
effect upon the consummation of the Initial Public Offering

**3.3 By-laws of the Registrant

**5 Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such
firm)

+***10.1 Development and Marketing Agreement dated as of August 1, 1995, between
Med-E-Systems Corporation and Integrated Disease Management, Inc.

+***10.2 Software License Agreement dated as of September 27, 1995, between Med-E-
Systems Corporation and Medco Containment Services Inc.

+***10.3 System Implementation Agreement dated September 14, 1995, between IDX
Systems Corporation and the Registrant

***10.4 Investors' Rights Agreement dated as of August 31, 1993, among Med-E-Mail
Corporation, Financial Strategic Portfolios, Inc.--Health Sciences
Portfolio and The Global Health Sciences Fund

***10.5 Amended and Restated Investors' Rights Agreement dated as of March 16,
1994, among Med-E-Mail Corporation, Financial Strategic Portfolios,
Inc.--Health Sciences Portfolio and The Global Health Sciences Fund

***10.6 Amended and Restated Investors' Rights Agreement dated as of January 27,
1995, among Med-E-Systems Corporation, Invesco Strategic Portfolios,
Inc.--Health Sciences Portfolio and The Global Health Sciences Fund

***10.7 Investors' Rights Agreement dated as of August 23, 1995, among the
Registrant, 21st Century Communucations Partners, L.P., 21st Century
Communications T-E Partners, L.P. and 21st Century Communications Foreign
Partners, L.P.

***10.8 Registration Rights Agreement dated February 28, 1996, among the
Registrant, Park Avenue Capital, L.P. and Access Industries, LLC

+***10.9 Management Services Agreement dated as of December 11, 1995, between
Madison Medical--The Private Practice Group of New York, L.L.P. and Uptown
Physician Management, Inc.

***10.10 Stockholders' Agreement dated as of December 11, 1995, among Uptown
Physician Management, Inc., and certain stockholders

+***10.11 Management Services Agreement dated as of August 7, 1995, among Advanced
Heart Institute of New York, P.C., Valavanur A. Subramanian, M.D., Jeffrey
Moses, M.D. and Majean Sub 2, Inc.

+***10.12 Management Services Agreement dated as of July 1, 1996 between Specialist
Physicians Management, Inc. and Cardiology First of New Jersey, P.A.
</TABLE>

<PAGE>

<TABLE><CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <S> <C>
***10.13 Stockholders' Agreement among Specialist Physicians Management, Inc.,
Specialist Physicians MSO, L.L.C. and Advanced Health Management
Corporation

+***10.14 Management Services Agreement dated as of July 1, 1996 between Diamond
Physician Management, Inc. and Long Island Interventional Cardiology

***10.15 Stockholders' Agreement dated as of July 1, 1996 among Diamond Physician
Management, Inc., Long Island Interventional Cardiology and Advanced
Health Management Corporation

+***10.16 Administrative Services Base Agreement dated as of June 30, 1994, between
U.S. Health Connections, Inc. and The Emory Clinic, Inc.

***10.17 Tarrytown, New York Office Lease Agreement dated November 30, 1995,
between Tarrytown Corporate Center IV, L.P. and the Registrant

***10.18 Tarrytown, New York Office Sublease Agreement dated October 31, 1995,
between American Software, USA, Inc. and the Registrant

***10.19 Chicago Office Lease Agreement dated December 8, 1995, between Adams
Family, L.L.C. and the Registrant

**10.20 Form of Director Indemnification Agreement

***10.21 Employment Agreement between the Registrant and Jonathan Edelson, M.D.

***10.22 Employment Agreement between the Registrant and Steven Hochberg

***10.23 Employment Agreement between the Registrant and Alan B. Masarek

**10.24 Amended and Restated Advanced Health Corporation 1995 Stock Option Plan,
as amended

**10.25 Employee Stock Purchase Plan

**11.1 Supplemental Net Loss Per Common Share Computation

***21 List of Subsidiaries

**23.1 Consent of O'Sullivan Graev & Karabell, LLP (included as part of its
opinion filed as Exhibit 5 hereto)

**23.2 Consent of Arthur Andersen LLP

***24 Powers of Attorney

***27 Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

*** Previously filed.

+ Portions of such exhibit have been deleted therefrom pursuant to Rule 406
promulgated under the Securities Act of 1933, as amended, and confidential
treatment has been requested therefor.

EXHIBIT 3.1

[Draft 8/26/96]

CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED HEALTH CORPORATION

Advanced Health Corporation, a Delaware corporation (the
"Corporation"), hereby certifies as follows:

The current name of the Corporation is Advanced Health
Corporation. The Corporation's original Certificate of Incorporation was
originally filed with the Secretary of State of the State of Delaware on
June 20, 1995.

Upon the filing of this Certificate of Amendment of Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware:

(a) each share of the Corporation's Common Stock, $.01 par
value, theretofore outstanding shall, without any action on the part of the
holder thereof, be automatically reclassified, changed and converted into
.59581 shares of Common Stock, $.01 par value, of the Corporation;
provided, however, that (i) such calculation shall be made with respect to
- -------- -------
each holder on an aggregate basis for all shares of Common Stock held by
such holder and (ii) the Corporation shall not issue any fractional shares
of Common Stock resulting from such calculation (each holder shall be
entitled to receive an amount in cash equal to the current market value of
a share of Common Stock (as determined in good faith by the Board of
Directors multiplied by any fractional share of Common Stock otherwise
resulting therefrom) ; and

(b) each holder of the outstanding shares of stock so
reclassified, changed and converted pursuant to the immediately preceding
clause (a) shall be entitled to receive, in exchange for the certificate or
certificates representing the outstanding shares so reclassified, changed
and converted registered in such holder's name, a new certificate or
certificates representing such shares as so converted registered in such
holder's name; provided, however, that the failure of any such holder to so
-------- -------
exchange such holder's certificate or certificates shall in no way affect
the reclassification, change and conversion of such holder's shares as
aforesaid.

The Amendment was duly adopted in accordance with Section 242 of
the General Corporation Law of the State of Delaware and the written
consent of the stockholders of the Corporation to the Amendment was given
in accordance with, and written notice of such stockholder action was given
as provided in, Section 228 of the General Corporation Law of the State of
Delaware.

<PAGE>

IN WITNESS WHEREOF, the Corporation had caused this Certificate
of Amendment of Certificate of Incorporation to be signed as of the ______
day of ___________, 1996, by its President, and attested by its Secretary,
who hereby affirm and acknowledge, under penalties of perjury, that this
Certificate is the act and deed of the Corporation and that the facts
stated herein are true.

By:___________________________
Name:
Title:

ATTESTED:

By:________________________
Name:
Title:

-2-

<PAGE>

State of Delaware

Office of the Secretary of State

________________________________________

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELWARE, DO HEREBY

CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE

OF "MAJEAN, INC.", FILED IN THIS OFFICE ON THE TWENTY-FOURTH DAY OF AUGUST,

A.D. 1995, AT 9 O'CLOCK A.M.

/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State

(SIGNATURE, SEAL, AUTHENTICATION)

<PAGE>

RESTATED CERTIFICATE OF INCORPORATION
OF MAJEAN, INC.
a Delaware Corporation

Majean, Inc., (the "Corporation") a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:

A. The name of the Corporation is Majean, Inc. The Certificate
of Incorporation of the Corporation was originally filed with the Secretary
of State of Delaware on June 20, 1995.

B. This Restated Certificate of Incorporation which restates and
integrates and further amends the Certificate of Incorporation of the
Corporation, was duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law, and was approved by written
consent of the stockholders of the Corporation in accordance with the
provisions of Section 228 of the General Corporation Law.

C. The Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:

ARTICLE I

The name of the Corporation is Majean, Inc.

ARTICLE II

The registered office of the Corporation is to be located at 32
Loockerman Square, Suite L-100 in the City of Dover, in the County of Kent,
in the State of Delaware. The name of its registered agent at such address
is The Prentice-Hall Corporation System, Inc.

ARTICLE III

The nature of the Corporation's business or purposes to be
conducted or promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV

A. Classes of Stock. The Corporation is authorized to issue
----------------
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is 13,000,000 shares. 10,000,000 shares shall be
Common Stock, par value $.01 per share, and 3,000,000 shares shall be
Preferred Stock, par value F$.01 per share, of which 971,800 shares shall
be designate Series A. Convertible Preferred Stock (the "Series A Preferred
Stock"), 282,900 shall be designated Series B Convertible Preferred Stock
(the Series B Preferred Stock") and 200,000 shall be designated Series C
Convertible Preferred Stock (the "Series C Preferred Stock").

<PAGE>

B. Rights, Preferences and Restrictions of Preferred Stock.
--------------------------------------------------------
The Preferred Stock authorized by this Restated Certificate of
Incorporation may be issued from time to time in one or more series. The
rights, preferences, privileges, and restrictions granted to an imposed on
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock are as set forth below in this Article IV (B).

The Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or of any of them. The Board
of Directors is also authorized to increase or decrease the number of
shares of any series (other than the Series A Preferred Stock, the Series B
Preferred Stock, or the Series C Preferred Stock), prior or subsequent to
the issue of that series, but not below the number of shares of such series
then outstanding. In case the number of shares of any series shall be so
decreased, the share constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.

1. Dividend Provisions. Subject to the rights of any series of
-------------------
preferred stock of the Corporation the terms of which specifically provide
that such series ranks senior to the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, or the terms of which
specifically provide that such series ranks pari passu with the Series A
----------
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the
holders of shares of Series A Preferred Stock. Series B Preferred Stock
and Series C Preferred Stock shall be entitled to receive dividends, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common stock
of the Corporation (the "Common Stock") or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) on the Common Stock, when,
as and if declared by the Board of Directors. No dividends shall be
payable upon any Junior Securities (as defined below) of the Corporation
unless equivalent dividends, on an as-converted basis, are declared and
paid concurrently on the Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock. A "Junior Security" shall include the Common
Stock and any series of preferred stock the terms of which specifically
provide that such series ranks junior and subordinate to the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock with
respect to dividends and as to the distribution of assets upon any
liquidation or deemed liquidation and that such shares are not subject to
mandatory redemption or repurchase prior to the date on which no shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock are outstanding. For purposes of this Section 1, the Series A
Preferred Stock and Series B Preferred Stock shall be treated as pari passu
---- -----
with the Series C Preferred Stock.

2. Liquidation Preference
----------------------

(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of shares
of Series C Preferred Stock shall be entitled to receive, in pari passu
---- -----
with the holders of shares of the Series A Preferred Stock and the holders
of shares of the Series B Preferred Stock, and prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
any Junior Securities by

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<PAGE>

reason of their ownership thereof, an amount per share equal to the sum of
$7.50 (as adjusted for stock splits, combinations or similar events) for
each outstanding share of Series C Preferred Stock (the "Series C
Liquidation Preference") plus any declared but unpaid dividends, the
holders of shares of the Series B Preferred Stock shall be entitled to
receive, in pari passu with the holders of shares of the Series A Preferred
---- -----
Stock and the holders of shares of the Series C Preferred Stock, and prior
and in preference to any distribution of any of the assets of the
Corporation to the holders of any Junior Securities by reason of their
ownership thereof, an amount per share equal to the sum of $7.07 (as
adjusted for stock splits, combinations or similar events) for each
outstanding share of Series B Preferred Stock (the "Series B Liquidation
Preference") plus any declared but unpaid dividends, and the holders of
shares of the Series A Preferred Stock shall be entitled to receive, in
pari passu with the holders of shares of the Series B Preferred Stock and
- ---- -----
the holders of shares of the Series C Preferred Stock, and prior and in
preference to any distribution of any of the assets of the Corporation to
the holders of any Junior Securities by reason of their ownership thereof,
an amount per share equal to the sum of $0.10 (as adjusted for stock
splits, combinations or similar events) for each outstanding share of
Series A Preferred Stock (the "Series A Liquidation Preference") plus any
declared but unpaid dividends. If, upon the occurrence of such an event,
the assets and funds thus distributed among the holders of the Series A
Preferred Stock, the holders of the Series B Preferred Stock and the
holders of the Series C Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock, the holders of the Series B Preferred Stock and the
holders of the Series C Preferred Stock in proportion to the preferential
amount each such holder is otherwise entitled to receive.

(b) Upon the completion of the distributions required by
subsection (a) of this Section 2 and any other distribution that may be
required with respect to series of Preferred Stock that may from time to
time come into existence, the holders of Common Stock shall be entitled to
receive an aggregate amount equal to the sum of stated capital plus
additional paid-in capital attributable to the Common Stock, as reflected
on the Corporation's audited consolidated balance sheet as of the end of
the fiscal year next preceding the date of such distribution, which
aggregate amount shall be distributed ratably among the holders of Common
Stock in proportion to the number of shares of Common Stock held by each
such holder. If, upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Common Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
aggregate amount, then the entire remaining assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Common Stock in proportion to the number of shares
of Common Stock held by each such holder.

(c) Upon the completion of the distributions required by
subsection (b) of this Section 2 the remaining assets of the corporation
available for distribution to stockholders shall be distributed among the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and the Common Stock pro rata based on the number of share
--- ----
of Common Stock held by each and issuable upon conversion of all such
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock.

(d) For purposes of this Section 2, a liquidation, dissolution
or winding up of

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<PAGE>

the Corporation shall be deemed to be occasioned by, or to include, (A) the
acquisition of the Corporation by another entity by means of any
transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale of all or substantially all of the assets of
the Corporation; unless the Corporation's stockholders of record as
constituted immediately prior to such acquisitions or sale will,
immediately after such acquisition or sale (by virtue of securities issued
as consideration for the Corporation's acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity.

3. Redemption. The Series A Preferred Stock, the Series B
----------
Preferred Stock and the Series C Preferred Stock are not redeemable.

4. Conversion. The holders of the Series A Preferred
----------
Stock, the Series B Preferred Stock and the Series C Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):

(a) Right to Convert. Each share of Preferred Stock shall
----------------
be convertible, at the option of the holder thereof at any time after the
date of issuance of such share at the office of the Corporation or any
transfer agent for such stock. Each share of Preferred Stock shall be
convertible into the number of fully paid and nonassessable shares of
Common Stock which results from dividing the "Conversion Price" per share
in effect for such series of Preferred Stock at the time of conversion into
the "Conversion Value" per share of such series of Preferred Stock. The
number of shares of Common Stock into which each share of each series of
Preferred Stock is convertible is hereinafter collectively referred to as
the "Conversion Rate" for such series. The initial Conversion Price of
each of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be subject to adjustment as set forth in subsection
4(d). The initial Conversion Price per share of (1) Series A Preferred
Stock shall be $0.10, (2) Series B Preferred Stock shall be $7.07 and (3)
Series C Preferred Stock shall be $7.50. The Conversion Value per share of
(A) Series Preferred Stock shall be $0.10, (B) Series B Preferred Stock
shall be $7.07 and (C) Series C Preferred Stock shall be $7.50.

(b) Automatic Conversion. Each share of Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the then
effective Conversion Rate for such series immediately upon the closing of
the Corporation's sale of its Common Rate for such series immediately upon
the closing of the Corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration
statement on Form S-1 (or any equivalent successor form) under the
Securities Act of 1933, as amended, the public offering price of which is
not less than $12.00 per share (subject to adjustment for stock splits,
combinations or similar events) and results in gross proceeds of not less
than $10,000,000 in the aggregate. In addition each share of Preferred
Stock shall automatically be so converted on the date specified by written
consent or agreement of the holders of sixty-six and two-thirds percent (66
2/3%) of the then outstanding shares of such series of Preferred Stock,
Notwithstanding the foregoing, the provisions of this subsection (b) shall
not cause the automatic conversion of shares of Preferred Stock held by an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") to the extent such conversion would, in the opinion of such
holder's counsel, cause a violation of the 1940 Act or the regulations
promulgated thereunder.

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<PAGE>

(c) Mechanics of Conversion. Before any holder of
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to
the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued.
The Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Preferred
Stock to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock
as of such date. If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933,
as amended, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock upon conversion of
the Preferred Stock shall not be deemed to have converted such Preferred
Stock until immediately prior to the closing of such sale of securities.

(d) Conversion Price Adjustments of Preferred Stock. The
-----------------------------------------------
Conversion Price of the Preferred Stock shall be subject to adjustment from
time to time as set forth below.

(i) (A) If the Corporation shall issue, after the date
upon which any shares of Series C Preferred Stock were first issued (the
"Purchase Date" with respect to such series), any Additional Stock (as
defined below) without consideration or for a consideration per share less
than the Conversion Price for such Series C Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the Conversion
Price for such Series c Preferred Stock in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause
(i) be reduced to the price per share at which the Corporation issued or
sold such shares of Additional Stock; provided, however, that no such
adjustment shall be made upon the issuance, if any, of Common Stock
Purchase Warrants to 21st Century Communications Partners, L.P., 21st
Century Communications T-E Partners, L.P. and 21st Century Communications
Foreign Partners, L.P. (collectively, the "21st Century Warrants"); and
provided, further, that upon the exercise, if any, of the 21st Century
Warrants, the Conversion Price for such Series C Preferred Stock shall be
adjusted only in the manner applicable to the Series A Preferred Stock and
Series B Preferred Stock as set forth in subsection 4(d)(i)(B).

(B) If the Corporation shall issue, after the date
upon which any shares of Series A Preferred Stock or Series B Preferred
Stock were first issued (the "Purchase Date" with respect to such series),
any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such Series A
Preferred Stock, or Series B Preferred Stock in effect immediately prior to
the issuance of such Additional Stock, the Conversion Price for such Series
A Preferred Stock or Series B Preferred Stock, as the case may be, in
effect immediately prior ro each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying

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<PAGE>

such Conversion Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the Corporation for such issuance would purchase
at such Conversion Price, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior ro such issuance
plus the number of shares of such Additional Stock; provided, however, that
no such adjustment shall be made upon the issuance, if any, of the 21st
Century Warrants (although adjustments, if required, may be made upon the
exercise of such warrants).

(C) No adjustment in the Conversion Price for the
Preferred Stock shall be required unless such adjustment would require an
increase or decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of this subsection
(C) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment required to be made hereunder. All
calculations under this section 4(d)(i) shall be made to the nearest one
cent ($0.01). Except to the limited extent provided for in subsections
(F)(3) and (F)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.

(D) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.

(E) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration
other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined in good faith by the Board of
Directors.

(F) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable
for Common Stock or options to purchase or tights to subscribe for such
convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii):

(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments)
of such options to purchase or rights to subscribe for Common Stock shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration determined in the
manner provided in subsections 4(d)(i)(D) and (d)(i)(E)), if any, received
by the Corporation upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights (without taking
into account potential antidilution adjustments) for the Common Stock
covered thereby.

(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any

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<PAGE>

conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the
time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received by the
Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be
received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(D) and (d)(i)(E)).

(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, (excluding
a change resulting solely form the antidilution provisions thereof if such
change results from an event which gives rise to an antidilution adjustment
under this subsection 4(d), the Conversion Price of the Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.

(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.

(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(F)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of he type describe in either subsection
4(d)(i)(F)(3) or (4).

(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(F)) by the Corporation after the Purchase Date other than.

(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof.

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<PAGE>

(B) shares of Common Stock issuable or issued to
employees, advisors, consultants or outside directors of the Corporation
directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Corporation so long as the
cumulative total number of shares of Common Stock so issuable and issued
for a consideration per share less than the Conversion Price in effect
immediately prior to such issuance (and not repurchased at cost by the
Corporation in connection with the termination of employment) does not
exceed 940,000 shares of Common Stock )of which there are options
outstanding on the effective date of this Restated Certificate of
Incorporation for the purchase of 436,000 shares of Common Stock);

(C) Common Stock issued in connection with the
acquisition of management service organizations, physician groups or any
business complementary with the business of the Corporation, provided, that
the cumulative, aggregate number of shares issued in connection with such
acquisitions does not exceed 456,333 shares, excluding shares issued to (i)
the founders of Majean, Inc., a Delaware corporation, (ii) Richard
Ventimiglia and Steven Peltz in connection with the acquisition of Peltz
Ventimiglia, Inc. and (iii) the owners of U.S. Health Connections, Inc. in
connection with the acquisition of such business;

(D) Common Stock issued or issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and any other series of Preferred Stock the issuance of which is
consented to by the holders of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock pursuant to that certain
Amended and Restated Investors' Rights Agreement dated as of January 27,
1995 among Med-E-Systems Corporation and the parties named therein, as
further amended by that certain Amendment dated as of August 23, 1995;

(E) Common Stock issued or issuable in connection with
a merger or consolidation as a result of which the holders of the
Corporation's outstanding securities immediately prior to the consummation
of such transaction hold securities in excess of fifty percent (50%) of the
voting power of the surviving or resulting entity; or

(F) Common Stock issued in connection with equipment
lease financings, or upon exercise or warrants issued to institutional
lenders in connection with non-convertible debt financings, in each case
approved by the Board of Directors of the Corporation, provided that such
issuances are for other than primarily equity financing purposes, and
provided, further, that the cumulative, aggregate number of shares issued
in connection with such equipment lease financings and debt financings does
not exceed five percent (5%) of the number of shares of Common Stock then
outstanding (assuming full conversion of the then outstanding Preferred
Stock and exercise or conversion into Common Stock of all other securities
then outstanding that are exercisable for or convertible into Common
Stock).

(iii) In the event the Corporation should at any time or
form time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock
or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock

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<PAGE>

Equivalents") without payments of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion
or exercise thereof), then, as of such record date (or the date of such
dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on
conversion of each share of such Preferred Stock shall be increased in
proportion to such increase in the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock
Equivalents.

(iv) If the number of shares of common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of each series shall be decreased in
proportion to such decrease in outstanding shares.

(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or tights not referred to in subsection 4(d)(i),
then, in each such case for the purpose of this subsection 4(e), the
holders of the Preferred Stock shall ve entitled to a proportionate share
of any such distribution as though they were the holders of the number of
shares of Common Stock of the Corporation into which their shares of
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.

(f) Recapitalizations. If at any time or form time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided
for elsewhere in this Section 4 or Section 2) provision shall be made so
that the holders of the Preferred Stock shall thereafter be entitled to
receive upon conversion to the Preferred Stock the number of shares of
stock or other securities or property of the Corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
Section 4 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number
of shares issuable upon conversion of the Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.

(g) No Impairment. The Corporation will not, by amendment of
-------------
its Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and the
taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Preferred Stock against
impairment.

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<PAGE>

(h) No Fractional Shares and Certificates as to Adjustments.
-------------------------------------------------------

(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole
share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Preferred
Stock the holder is at the time converting into Common Stock and the number
of shares of Common Stock issuable upon such aggregate conversion.

(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of any series of Preferred Stock pursuant to this
Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion price for such series
of Preferred Stock at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of such Preferred Stock.

(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
the Corporation shall mail to each holder of Preferred Stock at least
twenty (2) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.

(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of the Preferred Stock, in addition to such other remedies as shall
be available to the holder of such Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes, including,
without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to these provisions.

(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at this address appearing on

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<PAGE>

the books of the Corporation.

6. Voting Rights. The Series A Preferred Stock and Series
-------------
B Preferred Stock shall have no right o vote with respect to any questions
upon which holders of the Corporation's capital stock have the right to
vote; provided, however, that upon the filing , if any, of a Certificate of
Designations, Powers, preferences and Rights of a new series of preferred
stock, designated Series D Preferred Stock, and the issuance of at least
650,000 shares of such Series D Preferred Stock, the Series B Preferred
Stock shall be entitled to vote on all matters submitted to the
stockholders and shall have that number of votes equal to the number of
shares of Common Stock into which it is then convertible. The Series C
Preferred Stock shall be entitled to vote on all matters submitted to the
stockholders. Each share of Series C Preferred Stock shall have that
number of votes equal to the number of shares of Common Stock into which it
is then convertible.

7. Status of Converted Stock. In the event any shares of
-------------------------
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by the Corporation,
and all accrued and unpaid dividends (whether or not declared) with respect
to such converted shares shall be cancelled. The Restated Certificate of
Incorporation of the Corporation may be appropriately amended from time to
time to effect the corresponding reduction in the Corporation's authorized
capital stock.

C. Common Stock.
------------

1. Dividend Rights. Subject to the prior rights of
---------------
holders of all classes of stock at the time outstanding having prior rights
as to the dividends, and the rights of series of Preferred Stock which may
from time to time come into existence, the holders of the Common Stock
shall be entitled to receive, when and as declared by the Board of
Directors, out of any assets of the Corporation legally available therefor,
such dividends as may be declared from time to time by the Board of
Directors.

2. Liquidation. Upon the liquidation, dissolution or
-----------
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section B2 of this Article IV hereof.

3. Voting Rights. The holder of each share of Common
-------------
Stock shall have the right to one vote, and shall be entitled to notice of
any stockholders' meeting in accordance with the bylaws of the Corporation,
and shall be entitled to vote upon such matters and in such manner as may
be provided by law.

ARTICLE V

Except as otherwise provided in the Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the bylaws of the Corporation.

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<PAGE>

ARTICLE VI

The number of directors of the Corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.

ARTICLE VII

Elections of the directors need not be by written ballot unless
the bylaws of the Corporation shall so provide.

ARTICLE VIII

Meeting of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the bylaws of the Corporation.

ARTICLE IX

A director of the Corporation shall 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
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit. If the Delaware
General Corporation law is amended or after approval by the stockholders of
this Article to authorize corporate action further eliminating or limiting
the personal liability of directors then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation law as so amended.

Any repeal or modification of the foregoing provisions of this
Article IX by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at
any time of such repeal or modification.

ARTICLE X

The Corporation shall, to the fullest extent permitted by
Delaware law as in effect from time to time, indemnify any person against
all liability and expense (including attorneys' fees) incurred by reason of
the fact that he is or was a director or officer of the Corporation or,
while serving as a director or officer of the Corporation, he is or was
serving at the request of the Corporation as a director, officer, partner
or trustee of, or in any similar managerial or fiduciary position of, or as
an employee or agent of, another corporation, partnership, joint venture,
trust, association, or other entity. Expenses (including attorneys fees)
incurred in defending an action, suit, or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit, or
proceeding to the full extent and under the circumstances permitted by
Delaware law. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee,
fiduciary, or agent of the Corporation against any liability

-12-

<PAGE>

asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Corporation would
have the power to indemnify against such liability under the provisions of
this Article X. The indemnification provided by this Article X shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under this certificate of incorporation, any bylaw, agreement,
vote of stockholders or disinterested directors, statute, or otherwise, and
shall inure to the benefit of their heirs, executors, and administrators.
The provisions of this Article X shall not be deemed to preclude the
Corporation from indemnifying other persons from similar or other expenses
and liabilities as the Board of Directors or the stockholders may determine
in a specific instance or by resolution of general application.

ARTICLE XI

Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this Corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions
of section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.

ARTICLE XII

The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation.

-13-

<PAGE>

IN WITNESS WHEREOF, the undersigned have hereunto signed this amendment and
affirm that the statements made herein are true under the penalties of
perjury, this 23rd day of August, 1995.

ATTEST: MAJEAN, INC.

By: /s/ Angelo Acquista By: /s/ Valavanur A. Subramanian
--------------------- -------------------------------
Angelo Acquista Valavanur A. Subramanian
Secretary President

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<PAGE>

State of Delaware
Office of the Secretary of State

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF DESIGNATION OF "MAJEAN, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF AUGUST, A.D. 1995, AT 9:01 O'CLOCK A.M.

/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State

(SIGNATURE, SEAL, AUTHENTICATION)

<PAGE>

CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES D CONVERTIBLE PREFERRED STOCK
(par value $.01 per share)

MAJEAN, INC.
a Delaware Corporation

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

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

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

The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors (the "Board of Directors") of Majean,
Inc., a Delaware corporation (the "Corporation"), by unanimous written
consent in lieu of a meeting effective August 22, 1995.

RESOLVED, that one series of the class of authorized preferred stock, $.01
par value, of the Corporation is hereby created and that the designations,
powers, preferences and relative, participating, optional or other special
rights of the shares of such series, and qualifications, limitations or
restrictions thereof, are hereby fixed as follows:

1. Number of Shares and Designations. 666,360 shares of the
---------------------------------
preferred stock, $.01 par value, of the Corporation are hereby constituted
as a series of preferred stock of the Corporation designated as Series D
Convertible Preferred Stock ( the "Series D Preferred Stock").

2. Dividend Provisions. The holders of shares of Series D
-------------------
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payments of any dividend (payable other than in Common Stock of the
Corporation (the "Common Stock") or other securities or rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock) on (i) the Common Stock, (ii) the Series
A Convertible Preferred Stock of the Corporation (the "Series A Preferred
Stock"), (iii) the Series B Convertible Preferred Stock of the Corporation
(the "Series B Preferred Stock") and (iv) the Series C Convertible
Preferred Stock of the Corporation (the "Series C Preferred Stock"), when,
as and if declared by the Board of Directors provided,

<PAGE>

however, that in the event that the Board of Directors shall declare a
dividend on shares of the Series D Preferred Stock ,the Board of Directors
shall concurrently declare a dividend of equivalent yield on shares of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock. No dividends shall be payable upon any Junior Securities (as
defined below) of the Corporation unless equivalent dividends, on an as-
converted basis, are declared and paid concurrently on the Series D
Preferred Stock. A "Junior Security" shall include the (i) Common Stock,
(ii) the Series A Preferred Stock, (iii) the Series B Preferred Stock and
(iv) the Series C Preferred Stock.

3. Liquidation Preference
----------------------

(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of shares
of Series D Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to
the holders of any Junior Securities by reason of their ownership thereof,
an amount per share equal to the greater of (a) $7.50 (as adjusted for
stock splits, combinations or similar events) for each outstanding share of
Series D Preferred Stock plus any declared but unpaid dividends or (b) the
amount the holders of shares of Series D Preferred Stock would have
received had such holders converted the shares of Series D Preferred Stock
into Common Stock as provided in Section 4 immediately prior to any
liquidation, dissolution or winding up of the Corporation, either voluntary
or involuntary, plus any declared but unpaid dividends (the "Series D
Liquidation Preference"). If, upon the occurrence of such an event, the
assets and funds thus distributed among the holders of the Series D
Preferred Stock shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amounts, hen the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series D Preferred Stock, in proportion to
the preferential amount each such holder is otherwise entitled to receive.

(b) Upon the completion of the distributions required by
subsection (a) of this Section 3 and any other distribution that may be
required with respect to the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and any other series of
Preferred Stock that may from time to time come into existence, the holders
of Common Stock shall be entitled to receive an aggregate amount equal to
the sum of stated capital plus additional paid-in capital attributable to
the Common Stock, as reflected on the Corporation's audited consolidated
balance sheet as of the end of the fiscal year next preceding the date of
such distribution, which aggregate amount shall be distributed ratably
among the holders of Common Stock in proportion to the number of shares of
Common Stock held by each such holder. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of the
Common Stock shall be insufficient to permit the payment to such holders of
the full aforesaid aggregate amount, then the entire remaining assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Common Stock in proportion to
the number of shares of Common Stock held by each such holder.

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<PAGE>

(c) Upon the completion of the distributions required by
subsection (b) of this Section 3 the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and the Common Stock pro rata
--- ----
based on the number of shares of Common Stock held by each and issuable
upon conversion of all such Preferred Stock.

(d) For purposes of this Section 3, a liquidation, dissolution
or winding up of the Corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the Corporation by another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale of all or substantially all of the assets of
the Corporation; unless the Corporation's stockholders of record as
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as
consideration for the Corporation's acquisition or sale or otherwise) hold
at least 50% of the voting power of the surviving or acquiring entity.

4. Conversion. The holders of the Series D Preferred Stock
----------
shall have conversion rights as follows (the "Conversion Rights"):

(a) Right to Convert. Each share of Series D Preferred Stock
----------------
shall be convertible, at the option of the holder thereof at any time after
the Purchase Date at the office of the Corporation or any transfer agent
for such stock. Each share of Series D Preferred Stock shall be
convertible into the number of fully paid and nonassessable shares of
Common Stock which results from dividing the "Conversion Price" per share
in effect for the Series D Preferred Stock at the time of conversion into
the "Conversion Value" per share of Series D Preferred Stock. The number
of shares of Common Stock into which each share of Series D Preferred Stock
is convertible is hereinafter collectively referred to as the "Conversion
Rate" for such series. The initial Conversion Price per hare of he Series
D Preferred Stock shall be $7.50, and the Conversion Value per share of
series D Preferred Stock shall be $7.50.

(b) Automatic Conversion. Each share of Series D Preferred
--------------------
Stock shall automatically be converted into shares of Common Stock at the
then effective Conversion Rate for such series immediately upon the closing
of the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, the public offering price of which was
not less than $13.125 per share (subject to adjustment for stock splits,
combinations or similar events) and resulted in gross proceeds of not less
than $15,000,000 in the aggregate (a "Qualified IPO"). Notwithstanding the
foregoing, the provisions of this subsection (b) shall not cause the
automatic conversion of shares of Series D Preferred Stock held by an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") to the extent such conversion would, in the opinion of such
holder's counsel, cause a violation of the 1940 Act or the regulations
promulgated thereunder.

-3-

<PAGE>

(c) Mechanics of Conversion. Before any holder of Series D
-----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series D Preferred Stock, and shall give written
notice to the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to
issued. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Series D Preferred Stock, or
to the nominee or nominees off such holder, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be
entitled as aforesaid. Such Conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of Series D Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion
is in connection with an underwritten offering of securities registered
pursuant to the Securities Acto of 1933, as amended, the conversion may, at
the option of any holder tendering Series D Preferred Stock for conversion,
be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled
to receive the Common Stock upon conversion of the Series D Preferred Stock
shall not be deemed to have converted such Series D Preferred Stock until
immediately prior to the closing of such sale of securities.

(d) Conversion Price Adjustments of Series D Preferred Stock.
--------------------------------------------------------
The Conversion Price of the Series D Preferred Stock shall be subject to
adjustment from time to time as set forth below.

(i) (A) If the Corporation shall issue, after the Purchase
Date, any additional Stock (as defined below) without consideration or for
a consideration per share less than he Conversion Price for such series in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for such series in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i))
be reduced to the price determined by dividing (i) an amount equal to the
sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issuance multiplied by the then existing Conversion Price and
(A) the consideration, if any, received by the Corporation upon such
issuance, by (ii) the total number of shares of Common Stock outstanding
immediately after such issuance.

(B) Except to the limited extent provided for in this
subsection (E)(3) and (E)(4), no adjustment of such Conversion Price
pursuant to this subsection 4(d)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.

-4-

<PAGE>

subsequent adjustments required to be made hereunder. All calculations
under this Section 4(d) shall be made to the nearest one cent ($0.01). In
the case of the issuance of Common Stock for cash, the consideration shall
be deemed to be the amount of cash paid therefor before deducting any
reasonable discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or other wise in
connection with the issuance and sale thereof.

(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in
good faith by the Board of Directors.

(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable
for Common Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provision shall apply
for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii):

(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustment(s)
of such options to purchase or rights to subscribe for Common Stock shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in
the manner provided in subsections 4(d)(i)(C) and (d)(i)(D), if any,
received by the Corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the Common
Stock covered thereby.

(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any,
received by the Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration, if any, to
be received by the Corporation (without taking into account potential
antidilution adjustment(s) upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).

-5-

<PAGE>

(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities (excluding a
change resulting solely from the antidilution provisions thereof if such
change results from an event which gives rise to an antidilution adjustment
under this subsection 4(d)), the Conversion Price of the Series D Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.

(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration
of any options or rights related to such convertible or exchangeable
securities, he Conversion Price of the Series D Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.

(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(d)(i)(E)(3) and (4).

(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E)) by the Corporation after the Purchase Date other than
----- ----

(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;

(B) shares of Common Stock issuable or issued to
employees, advisors, consultants or outside directors of the Corporation
directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Corporation so long as the
cumulative total number of shares of Common Stock so issuable and issued
for a consideration per share less than the Conversion Price in effect
immediately prior to such issuance (and not repurchased at cost by the
Corporation in connection with the termination of employment) does not
exceed 940,000 shares of Common Stock (of which there are options
outstanding on the effective date of this Certificate of Designations for
the purchase of 436,000 shares of Common Stock);

-6-

<PAGE>

(C) Common Stock issued in connection with the
acquisition of management service organizations, physician groups or any
business complementary with the business of the Corporation, provided, that
the cumulative, aggregate number of shares issued in connection with such
acquisitions does not exceed 456,333 shares, excluding shares issued to the
(i) founders of Majean, Inc., a Delaware corporation, (ii) Richard
Ventimiglia and Steven Peltz in connection with the acquisition of Peltz
Ventimiglia, INC.. and (iii) the owners of U.S. Health Connections, Inc. in
connection with the acquisition of such business.

(D) Common Stock issued or issuable upon conversion
of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and any other series of Preferred
Stock the issuance of which is consented to by the holders of the Series D
Preferred Stock pursuant to that certain Investors' Rights Agreement dated
as of August 23, 1995 among the Corporation and the parties named therein;

(E) Common Stock issued or issuable in connection with
a merger or consolidation s a result of which the holders of the
Corporation's outstanding securities immediately prior to the consummation
of such transaction hold securities in excess of fifty percent (50%) of the
voting power of the surviving or resulting entity; or

(F) Common Stock issued in connection with equipment
lease financings, or upon exercise of warrants issued to institutional
lenders in connection with non-convertible debt financings, in each case
approved by the Board of Directors of the Corporation, provided that such
issuances are for other than primarily equity financing purposes, and
provided, further, that the cumulative, aggregate number of shares issued
in connection with such equipment lease financings and debt financings does
not exceed five percent (5%) of the number of shares of Common Stock then
outstanding (assuming full conversion of the then outstanding Preferred
Stock and exercise or conversion into Common Stock of all other securities
then outstanding than are exercisable for or convertible into Common
Stock).

(G) Common Stock issuable upon exercise of Common
Stock Purchase Warrants, dated as of even date herewith, issued to 21st
Century Communications Partners, L.P., 21st Century Communications T-E
Partners, L.P. and 21st Century Communications Foreign Partners, L.P.

(iii) In the event the Corporation should at any time or
from time to time after the Purchase date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Conversion Price of the Series D

-7-

<PAGE>

Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such Series
D Preferred Stock shall be increased in proportion to such increase in the
aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.

(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series D Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of each series shall be decreased in
proportion to such decrease in outstanding shares.

(e) Other Distributions. In the event the Corporation
-------------------
shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
subsection 4(d)(i), then, in each such case for the purpose of this
subsection 49c), the holders of the Series D Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they
were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Series D Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock
of the Corporation entitled to receive such distribution.

(f) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided
for elsewhere in this Section 4 or Section 2) provision shall be made so
that the holders of the Series D Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series D Preferred Stock the
number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such recapitalization. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of holders of the
Series D Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares issuable upon conversion of the
Series D Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.

(g) No Impairment. The Corporation will not, by amendment
-------------
of its Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Series D Preferred
Stock against impairment.

-8-

<PAGE>

(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------

(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series D Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon
such conversion shall be determined on the basis of the total number of
shares of Series D Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon
such aggregate conversion.

(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series D Preferred Stock pursuant
to this Section 4, the Corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series D Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Series D Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B)
the Conversion Price for such Series D Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the
conversion of a share of such Series D Preferred Stock.

(i) Notices of Record Date. In the event of any taking by
----------------------
the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
the Corporation shall mail to each holder of Series D Preferred Stock, at
least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.

(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series D Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series
D Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of the Series D Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Series D
Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval of any necessary
amendment to these provisions.

-9-

<PAGE>

(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series D Preferred Stock
shall be deemed given if deposited in the United Stated mail, postage
prepaid, and addressed to each holder of record at his address appearing on
the books of the Corporation.

5. Voting Rights. The Series D Preferred Stock shall be
-------------
entitled to vote on all matters submitted to the stockholders. Each share
shall have that number of votes equal to the number of shares of Common
Stock into which it is then convertible.

6. Status of Converted Stock. In the event any shares of
-------------------------
Series D Preferred Stock shall be converted pursuant to Section 4 hereof,
the shares so converted shall be cancelled and shall not be issuable by the
Corporation, and all accrued and unpaid dividends (whether or not declared)
with respect to such converted shares shall be cancelled. The Restated
Certificate of Incorporation of the Corporation may be appropriately
amended from time to time to effect the corresponding reduction in the
Corporation's authorized capital stock.

(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)

-10-

<PAGE>

IN WITNESS WHEREOF, Majean, Inc. has caused this Certificate of
Designations to be executed this 22nd day of August, 1995.

Attest: Majean, Inc.

By: /s/ Angelo Acquista By: /s/ Valavanur A. Subranaanian
---------------------- ------------------------------
Title: Secretary Title: President
----------------------- --------------------------

-11-

<PAGE>

State of Delaware

Office of the Secretary of State

___________________________________

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY

CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF

MERGER, WHICH MERGES:

"ADVANCED HEALTH CORPORATION", A DELAWARE CORPORATION,

WITH AND INTO "MAJEAN, INC." UNDER THE NAME OF "MAJEAN, INC.", A

CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE,

AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FOURTH DAY OF AUGUST, A.D.

1995, AT 1 O'CLOCK P.M.

/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State

(SIGNATURE, SEAL, AUTHENTICATION)

<PAGE>

State of Delaware
Secretary of State
Division of Corporations
Filed 01:00 pm 08/24/1995

CERTIFICATE OF MERGER
OF

ADVANCED HEALTH CORPORATION
INTO MAJEAN, INC.

The undersigned corporation does hereby certify: FIRST: The name and
------
state of incorporation of each of the constituent corporations of the
merger are as follows:

NAME STATE OF INCORPORATION
- ---- ----------------------
Advanced Health Corporation Delaware

Majean, Inc. Delaware

SECOND: The Agreement and Plan of Merger between the parties to
------

the merger has been approved, adopted, certified, executed and acknowledged
by each of the constituent corporations in accordance with the requirements
of Section 251 of the General Corporation Law of the State of Delaware.

THIRD: The name of the surviving corporation of the merger is
-----
Majean, Inc., a Delaware corporation.

FOURTH: The Certificate of Incorporation of Majean, Inc., a
------
Delaware corporation which is surviving the merger, as amended herein,
shall be the Certificate of Incorporation, as amended and restated of the
surviving corporation.

FIFTH: The executed Agreement and Plan of Merger is on file at
-----
the principal place of business of the surviving corporation.

-13-

<PAGE>

The address of said principal place of business is 560 White Plains Road,
Tarrytown, New York 10501.

SIXTH: A copy of the Agreement and Plan of Merger will be
-----
furnished on request and without cost to any stockholder of any constituent
corporation.

SEVENTH: That the holders of all of the outstanding shares of
-------
the Corporation have adopted a resolution authorizing the amendment to the

Certificate of Incorporation herein above set forth.

MAJEAN, INC.

By: /s/
-----------------------
Name:
Its:

ATTEST:

By: /s/
------------------------
Name:
Its: Secretary

<PAGE>

IN WITNESS WHEREOF, the undersigned have hereunto signed this
certificate and affirm that the statements made herein are true under the
penalties of perjury, this 24th day of August, 1995.
----------

ATTEST: MAJEAN, INC.

By: /s/ Angelo Acquista By: /s/ Valavanur A. Subramanian
--------------------- -------------------------------
Angelo Acquista Valavanur A. Subramanian
Secretary President

<PAGE>

State of Delaware

Office of the Secretary of State

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,

DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE

CERTIFICATE OF AMENDMENT OF "MAJEAN, INC.", CHANGING ITS NAME FROM "MAJEAN,

INC." TO "ADVANCED HEALTH CORPORATION", FILED IN THIS OFFICE ON THE

NINETEENTH DAY OF SEPTEMBER, A.D. 1995, AT 9 O'CLOCK A.M.

/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State

(SIGNATURE, SEAL, AUTHENTICATION)

<PAGE>

CERTIFICATE OF AMENDMENT

RESTATED CERTIFICATE OF INCORPORATION

MAJEAN, INC.

Majean, Inc., a Delaware corporation (the "Corporation"), hereby
certifies as follows:

The current name of the Corporation is Majean, Inc. The
Corporation's original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on June 20, 1995.

The Restated Certificate of Incorporation of the Corporation is
hereby amended (the "Amendment") by deleting, in its entirety, the current
Article FIRST thereof and inserting in place thereof a new Article FIRST to
read as follows:

"The name of the Corporation (the "Corporation") is ADVANCED
HEALTH CORPORATION."

IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment of Certificate of Incorporation to be signed as of the 22nd
day of April, 1996, by its President, and attested by its Secretary, who
hereby affirm and acknowledge, under penalties of perjury, that this
Certificate is the act and deed of the Corporation and that the facts
stated herein are true.

By: /s/ Steven Hochberg
------------------------
Name: Steven Hochberg
Title: President

ATTESTED:

By:
/s/ Richard W. Kaplan
--------------------------
Name: Richard W. Kaplan
Title: Secretary

State of Delaware
Secretary of State
Division of Corporations
Filed 09:00 AM 09/19/1995

<PAGE>

State of Delaware

Office of the Secretary of State

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,

DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE

CERTIFICATE OF AMENDMENT OF "ADVANCED HEALTH CORPORATION", FILED IN THIS

OFFICE ON THE TWENTY-FIFTH DAY OF APRIL, A.D. 1996, AT 9 O'CLOK A.M.

A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE

NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.

/s/ Edward J. Freel
----------------------------------------
Edward J. Freel, Secretary of State

(SIGNATURE, SEAL, AUTHENTICATION)

<PAGE>

CERTIFICATE OF AMENDMENT

RESTATED CERTIFICATE OF INCORPORATION

ADVANCED HEALTH CORPORATION

Advanced Health Corporation, a Delaware corporation (the
"Corporation"), hereby certifies as follows:

The Restated Certificate of Incorporation of the Corporation is
hereby amended (the "Amendment") by deleting, in its entirety, the first
paragraph A of the current ARTICLE IV thereof and inserting in place
thereof a new paragraph A to ARTICLE IV to read as follows:

"Classes of Stock. The Corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is 14,500,000 shares. 11,500,000 shares shall be Common
Stock, par value $.01 per share, and 3,000,000 shares shall be Preferred
Stock, par value $.01 per share, of which 971,800 shares shall be
designated Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 282,900 shall be designated Series B Convertible Preferred Stock
(the "Series B Preferred Stock"), 210,000 shall be designated Series C
Convertible Preferred Stock (the "Series C Preferred Stock") and 666,360
shall be designated Series D Convertible Preferred Stock (the "Series D
Preferred Stock")."

<PAGE>

By: /s/ Steven Hochberg
------------------------
Name: Steven Hochberg
Title: President

ATTESTED:

By: /s/ Richard W. Kaplan
----------------------------
Name: Richard W. Kaplan
Title: Secretary

EXHIBIT 3.2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

ADVANCED HEALTH CORPORATION

The undersigned, Steven Hochberg and Geoffrey Smith, being the
President and Secretary, respectively, of Advanced Health Corporation, a
corporation organized and existing under the laws of the State of Delaware, on
behalf of said corporation, hereby certify as follows:

FIRST: The name of the corporation (hereinafter, the "Corporation")
is Advanced Health Corporation. The Corporation's original Certificate of
Incorporation was filed with the Secretary of State on June 20, 1995.

SECOND: The Certificate of Incorporation of the Corporation as in
effect on the date hereof is hereby amended and restated to read in its entirety
as set forth on Exhibit A hereto.

THIRD: Said amendment and restatement was duly adopted in accordance
with the provisions of Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware.

IN WITNESS WHEREOF, the undersigned have executed this Certificate
this ____ day of _____________, 1996.

By:_____________________________
Steven Hochberg
President

Attest: _______________________
Geoffrey Smith
Secretary

<PAGE>
EXHIBIT A
---------

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

ADVANCED HEALTH CORPORATION

______________________________

ARTICLE I

The name of the Corporation (herein called the "Corporation") is
ADVANCED HEALTH CORPORATION.

ARTICLE II

The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805. The name of the registered agent of the Corporation at such
address is The Prentice-Hall Corporation System.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware Statute").

ARTICLE IV

The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 20,000,000 shares, consisting
of (A) 15,000,000 shares of Common Stock, $.01 par value (the "Common Stock"),
and (B) 5,000,000 shares of Preferred Stock, $.01 par value (the "Preferred
Stock").

The designations, powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof with respect to the Preferred Stock and the Common Stock
are as follows:

<PAGE>
(a) Preferred Stock.
---------------

Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated in the resolution or
resolutions providing for the establishment of such series adopted by the Board
of Directors of the Corporation as hereinafter provided. Except as otherwise
expressly stated in the resolution or resolutions providing for the
establishment of a series of Preferred Stock, any shares of Preferred Stock
which may be redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise expressly provided by law. Different series of Preferred
Stock shall not be construed to constitute different classes of stock for the
purpose of voting by classes unless expressly provided in the resolution or
resolutions providing for the establishment thereof. The Board of Directors of
the Corporation is hereby expressly authorized to issue, from time to time,
shares of Preferred Stock in one or more series, and, in connection with the
establishment of any such series by resolution or resolutions, to determine and
fix such voting powers, full or limited, or no voting powers, and such other
powers, designations, preferences and relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof,
including, without limitation, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be stated in such resolution or
resolutions, all to the fullest extent permitted by the Delaware Statute.
Without limiting the generality of the foregoing, the resolution or resolutions
providing for the establishment of any series of Preferred Stock may, to the
extent permitted by law, provide that such series shall be superior to, rank
equally with or be junior to the Preferred Stock of any other series. Except as
otherwise expressly provided in the resolution or resolutions providing for the
establishment of any series of Preferred Stock, no vote of the holders of shares
of Preferred Stock or Common Stock shall be a prerequisite to the issuance of
any shares of any series of the Preferred Stock authorized by and complying with
the conditions of this Amended and Restated Certificate.

(b) Common Stock.
------------

Each holder of the Common Stock of the Corporation shall be entitled
to one vote for every share of Common Stock outstanding in his name on the books
of the Corporation. Except for and subject to those rights expressly granted to
the holders of the Preferred Stock or except as may be provided by the laws of
the State of Delaware, the holders of Common Stock shall have exclusively all
other rights of stockholders including, but not by way of limitation, (i) the
right to receive dividends, when and as declared by the Board of Directors out
of assets legally available therefor, and (ii) in the event of any distribution
of assets upon liquidation, dissolution or winding up of the Corporation or
otherwise, the right to receive ratably and

-3-

<PAGE>
equally with all holders of all Common Stock all the assets and funds of the
Corporation remaining after the payment to the holders of the Preferred Stock of
the specific amounts that they are entitled to receive upon such liquidation,
dissolution or winding up of the Corporation, if any.

ARTICLE V

(a) Subject to the rights of the holders of any series of Preferred
Stock, from and after the date on which the Common Stock of the Corporation is
registered pursuant to the Securities Exchange Act of 1934, as amended, (A) any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of stockholders of the
Corporation and may not be effected in lieu thereof by any consent in writing by
such stockholders, and (B) special meetings of stockholders of the Corporation
may be called only by the Chairman of the Board, the President or the Board of
Directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of directors then in office.

(b) The number of directors which shall constitute the whole board
shall be such as from time to time shall be fixed by resolution adopted by
affirmative vote of a majority of the Board of Directors except that such number
shall not be less than one or more than nine, the exact number to be determined
by resolution adopted by affirmative vote of a majority of the Board of
Directors. Commencing with the filing of this Amended and Restated Certificate
of Incorporation, the directors of the Corporation shall be divided into three
classes: Class I, Class II and Class III. Membership in such classes shall be
as nearly equal in number as possible. The term of office of the initial Class
I directors shall expire at the annual election of directors by the stockholders
of the Corporation in 1997, the term of office of the initial Class II directors
shall expire at the annual election of directors by the stockholders of the
Corporation in 1998, and the term of office of the initial Class III directors
shall expire at the annual election of directors by the stockholders of the
Corporation in 1999, or thereafter when their respective successors in each case
are elected by the stockholders and qualified, subject, however, to prior death,
resignation, retirement, disqualification or removal from office for cause. At
each succeeding annual election of directors by the stockholders of the
Corporation beginning in 1997, the directors chosen to succeed those whose terms
then expire shall be identified as being of the same class as the directors they
succeed and shall be elected for a term expiring at the third succeeding annual
election of directors by the stockholders of the Corporation, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the

-4-

<PAGE>
number of directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director.

Vacancies and newly created directorships resulting from any increase
in the number of directors may be filled only by the affirmative vote of the
majority of the Board of Directors then in office, although less than quorum, or
by a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor. If the directors fail to fill any
vacancy resulting from a newly created directorship, the stockholders may do so
at the next annual or special meeting of stockholders called for that purpose.

No director may be removed from office without cause and without the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors voting together as a single class.

Election of directors need not be by written ballot unless the By-laws
of the Corporation so provide.

ARTICLE VI

For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:

(a) In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors is
expressly authorized and empowered:

(i) to make, alter, amend or repeal the By-laws in any
manner not inconsistent with the laws of the State of
Delaware or this Restated Certificate of Incorporation;

(ii) without the assent or vote of the stockholders, to
authorize and issue securities and obligations of the
Corporation, secured or unsecured, and to include therein
such provisions as to redemption, conversion or other terms
thereof as the Board of Directors in its sole discretion may
determine, and to authorize the

-5-

<PAGE>
mortgaging or pledging, as security therefor, of any property of the
Corporation, real, personal or mixed, including after-acquired
property;

(iii) to determine whether any, and if any, what part,
of the net profits of the Corporation or of its surplus
shall be declared in dividends and paid to the stockholders,
and to direct and determine the use and disposition of any
such net profits or such surplus; and

(iv) to fix from time to time the amount of net profits
of the Corporation or of its surplus to be reserved as
working capital or for any other lawful purpose.

In addition to the powers and authorities herein or by
statute expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the laws of the State of Delaware, this Restated
Certificate of Incorporation and the By-laws of the Corporation.

(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time
in such manner as shall be provided herein and in the By-laws of the
Corporation.

(c) From time to time any of the provisions of this Restated
Certificate of Incorporation may be altered, amended or repealed, and
other provisions authorized by the laws of the State of Delaware at
the time in force may be added or inserted, in the manner and at the
time prescribed by said laws, and all rights at any time conferred
upon the stockholders of the Corporation by this Restated Certificate
of Incorporation are granted subject to the provisions of this
paragraph (c).

ARTICLE VII

Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them, and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
applica-

-6-

<PAGE>
tion of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.

ARTICLE VIII

The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.

ARTICLE IX

A director of the Corporation shall 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 Delaware Statute or (iv) for
any transaction from which the director derived any improper personal benefit.
If the Delaware Statute is amended after the date of filing of this Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware Statute, as so amended.

Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.

-7-

EXHIBIT 3.3

=================================================================

ADVANCED HEALTH CORPORATION

Incorporated under the laws
of the State of Delaware

_____________________________

AMENDED AND RESTATED BY-LAWS
_____________________________

=================================================================

<PAGE>
TABLE OF CONTENTS

Page
----

ARTICLE I Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Registered Office . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II Meeting of Stockholders . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Annual Meetings . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Special Meetings . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Notice of Meetings . . . . . . . . . . . . . . . . . . . 1
SECTION 4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. Organization . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 6. Order of Business . . . . . . . . . . . . . . . . . . . . 2
SECTION 7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 8. Inspection . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 9. List of Stockholders . . . . . . . . . . . . . . . . . . 4
SECTION 10. No Stockholders' Consent in Lieu of Meeting . . . . . . . 4
SECTION 11. Business Brought Before a Meeting. . . . . . . . . . . . 4

ARTICLE III Board of Directors . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1. General Powers . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2. Number and Term of Office . . . . . . . . . . . . . . . . 5
SECTION 3. Election of Directors . . . . . . . . . . . . . . . . . . 6
SECTION 4. Resignation, Removal and Vacancies . . . . . . . . . . . 6
SECTION 5. Meetings . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 6. Directors' Consent in Lieu of Meeting . . . . . . . . . . 7
SECTION 7. Action by Means of Conference Telephone or Similar
Communications Equipment . . . . . . . . . . . . . . 7
SECTION 8. Committees . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE IV Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1. Executive Officers . . . . . . . . . . . . . . . . . . . 8
SECTION 2. Authority and Duties . . . . . . . . . . . . . . . . . . 8
SECTION 3. Other Officers . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4. Term of Office, Resignation and Removal . . . . . . . . . 9
SECTION 5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 6. The Chairman . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 7. The President . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 8. The Secretary . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 9. The Treasurer . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE V Contracts, Checks, Drafts, Bank Accounts, Etc. . . . . . . . 10
SECTION 1. Execution of Documents . . . . . . . . . . . . . . . . 10
SECTION 2. Deposits . . . . . . . . . . . . . . . . . . . . . . . 11

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<PAGE>
SECTION 3. Proxies with Respect to Stock or Other Securities of
Other Corporations . . . . . . . . . . . . . . . . 11

ARTICLE VI Shares and Their Transfer; Fixing Record Date . . . . . . . 11
SECTION 1. Certificates for Shares . . . . . . . . . . . . . . . . 11
SECTION 2. Record . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3. Transfer and Registration of Stock . . . . . . . . . . 12
SECTION 4. Addresses of Stockholders . . . . . . . . . . . . . . . 12
SECTION 5. Lost, Destroyed and Mutilated Certificates . . . . . . 12
SECTION 6. Regulations . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7. Fixing Date for Determination of Stockholders of
Record . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE VII Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE VIII Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE IX Indemnification and Insurance . . . . . . . . . . . . . . . 14
SECTION 1. Indemnification . . . . . . . . . . . . . . . . . . . . 14
SECTION 2. Insurance . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE X Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 16

-ii-

<PAGE>
ARTICLE I

Offices
-------

SECTION 1. Registered Office. The registered office of ADVANCED
-----------------
HEALTH CORPORATION (the "Corporation") in the State of Delaware shall be at 1013
Centre Road, City of Wilmington, County of New Castle, Delaware 19805, and the
registered agent in charge thereof shall be The Prentice-Hall Corporation
System.

SECTION 2. Other Offices. The Corporation may also have an office or
-------------
offices at any other place or places within or outside the State of Delaware.

ARTICLE II

Meeting of Stockholders
-----------------------

SECTION 1. Annual Meetings. The annual meeting of the stockholders
---------------
for the election of directors, and for the transaction of such other business as
may properly come before the meeting, shall be held at such place, date and hour
as shall be fixed by the Board of Directors (the "Board") and designated in the
notice or waiver of notice thereof.

SECTION 2. Special Meetings. A special meeting of the stockholders
----------------
for any purpose or purposes may be called by the Board, the Chairman or the
President to be held at such place, date and hour as shall be designated in the
notice thereof.

SECTION 3. Notice of Meetings. Except as otherwise required by
------------------
statute, the Certificate of Incorporation of the Corporation (the "Certificate")
or these By-laws, notice of each annual or special meeting of the stockholders
shall be given to each stockholder of record entitled to vote at such meeting
not less than 10 nor more than 60 days before the day on which the meeting is to
be held, by delivering written notice thereof to him personally, or by mailing
a copy of such notice, postage prepaid, directly to him at his address as it
appears in the records of the Corporation, or by transmitting such notice
thereof to him at such address by telegraph, cable or other telephonic
transmission. Every such notice shall state the place, the date and hour of the
meeting, and, in case of a special meeting, the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy, or who shall, in person or by attorney thereunto authorized, waive
such notice in writing, either before or after such meeting. Except as
otherwise provided in these By-laws, neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders need be specified in any
such notice or waiver of notice. Notice of any adjourned meeting of
stockholders shall not be required to be given, except when expressly required
by law.

<PAGE>
SECTION 4. Quorum. At each meeting of the stockholders, except where
------
otherwise provided by the Certificate or these By-laws, the holders of a
majority of the issued and outstanding shares of Common Stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. In the absence of a
quorum, a majority in interest of the stockholders present in person or
represented by proxy and entitled to vote, or, in the absence of all the
stockholders entitled to vote, any officer entitled to preside at, or act as
secretary of, such meeting, shall have the power to adjourn the meeting from
time to time, until stockholders holding the requisite amount of stock to
constitute a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally called.

SECTION 5. Organization.
------------

(a) Unless otherwise determined by the Board, at each meeting of
the stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:

(i) the Chairman;

(ii) the President;

(iii) any director, officer or stockholder of the Corporation
designated by the Board to act as chairman of such meeting and to
preside thereat if the Chairman or the President shall be absent from
such meeting; or

(iv) a stockholder of record who shall be chosen chairman of
such meeting by a majority in voting interest of the stockholders
present in person or by proxy and entitled to vote thereat.

(b) The Secretary or, if he shall be presiding over such meeting
in accordance with the provisions of this Section 5 or if he shall be absent
from such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary has been appointed and is present) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.

SECTION 6. Order of Business. The order of business at each meeting
-----------------
of the stockholders shall be determined by the chairman of such meeting, but
such order of business may be changed by a majority in voting interest of those
present in person or by proxy at such meeting and entitled to vote thereat.

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<PAGE>
SECTION 7. Voting. Except as otherwise provided by law, the
------
Certificate or these By-laws, at each meeting of the stockholders, every
stockholder of the Corporation shall be entitled to one vote in person or by
proxy for each share of Common Stock of the Corporation held by him and
registered in his name on the books of the Corporation on the date fixed
pursuant to Section 7 of Article VI as the record date for the determination of
stockholders entitled to vote at such meeting. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. A person whose
stock is pledged shall be entitled to vote, unless, in the transfer by the
pledgor on the books of the Corporation, he has expressly empowered the pledgee
to vote thereon, in which case only the pledgee or his proxy may represent such
stock and vote thereon. If shares or other securities having voting power stand
in the record of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary shall be given written notice
to the contrary and furnished with a copy of the instrument or order appointing
them or creating the relationship wherein it is so provided, their acts with
respect to voting shall have the following effect:

(a) if only one votes, his act binds all;

(b) if more than one votes, the act of the majority so
voting binds all; and

(c) if more than one votes, but the vote is evenly split on
any particular matter, such shares shall be voted in the manner
provided by law.

If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 7 shall be
a majority or even-split in interest. The Corporation shall not vote directly
or indirectly any share of its own capital stock. Any vote of stock may be
given by the stockholder entitled thereto in person or by his proxy appointed by
an instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided,
--------
however, that no proxy shall be voted after three years from its date, unless
- -------
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Certificate or
these By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a
vote by ballot upon any question, such vote by ballot shall be taken. On a vote
by ballot, each ballot shall be

-3-

<PAGE>
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.

SECTION 8. Inspection. The chairman of the meeting may at any time
----------
appoint one or more inspectors to serve at any meeting of the stockholders. Any
inspector may be removed, and a new inspector or inspectors appointed, by the
Board at any time. Such inspectors shall decide upon the qualifications of
voters, accept and count votes, declare the results of such vote, and subscribe
and deliver to the secretary of the meeting a certificate stating the number of
shares of stock issued and outstanding and entitled to vote thereon and the
number of shares voted for and against the question, respectively. The
inspectors need not be stockholders of the Corporation, and any director or
officer of the Corporation may be an inspector on any question other than a vote
for or against his election to any position with the Corporation or on any other
matter in which he may be directly interested. Before acting as herein
provided, each inspector shall subscribe an oath faithfully to execute the
duties of an inspector with strict impartiality and according to the best of his
ability.

SECTION 9. List of Stockholders. It shall be the duty of the
--------------------
Secretary or other officer of the Corporation who shall have charge of its stock
ledger to prepare and make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
any such meeting, during ordinary business hours, for a period of at least 10
days prior to such meeting, either at a place within the city where such meeting
is to be held, which place shall be specified in the notice of the meeting or,
if not so specified, at the place where the meeting is to be held. Such list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.

SECTION 10. No Stockholders' Consent in Lieu of Meeting.
-------------------------------------------
Stockholders may act only at an annual or special meeting and stockholders may
not act by written consent.

SECTION 11. Business Brought Before a Meeting. 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 (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
brought before the meeting by or at the direction of the Board of Directors or
(c) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder
(including any

-4-

<PAGE>
nomination of a candidate for election as a director), the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 130 days prior
to the meeting; provided, however, that in the event that less than 70 days'
-------- -------
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the date on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting or, if applicable, the name, address and principal occupation of, and
other information required by Item 401 of Regulation S-K with respect to, any
candidate for election as a director, (b) the name and address, as they appear
on the Corporation's books, of the stockholder proposing such business, (c) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder and (d) any material interest of the stockholder in such
business. Notwithstanding anything herein to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 11. The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 11; and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.

ARTICLE III

Board of Directors
------------------

SECTION 1. General Powers. The business, property and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.

SECTION 2. Number and Term of Office. The number of directors shall
-------------------------
be fixed from time to time by the Board. Directors need not be stockholders.
Each director shall hold office until his successor is elected and qualified, or
until his earlier death or resignation or removal in the manner hereinafter
provided.

-5-

<PAGE>
SECTION 3. Election of Directors. At each meeting of the
---------------------
stockholders for the election of directors at which a quorum is present, the
persons receiving the greatest number of votes, up to the number of directors to
be elected, of the stockholders present in person or by proxy and entitled to
vote thereon shall be the directors; provided, however, that for purposes of
-------- -------
such vote no stockholder shall be allowed to cumulate his votes. Unless an
election by ballot shall be demanded as provided in Section 7 of Article II,
election of directors may be conducted in any manner approved at such meeting.

SECTION 4. Resignation, Removal and Vacancies.
----------------------------------

(a) Any director may resign at any time by giving written notice
to the Board, the Chairman, the President or the Secretary. Such resignation
shall take effect at the time specified therein or, if no time shall be
specified therein, upon receipt thereof; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

(b) Any director or the entire Board may be removed, with or
without cause, at any time by vote of the holders of a majority of the shares
then entitled to vote at an election of directors.

(c) Vacancies occurring on the Board for any reason may be
filled by vote of the stockholders, or by vote of the Board or by the directors'
written consent pursuant to Section 6 of this Article III. If the number of
directors then in office is less than a quorum, such vacancies may be filled by
a vote of a majority of the directors then in office.

SECTION 5. Meetings.
--------

(a) Annual Meetings. As soon as practicable after each annual
---------------
election of directors, the Board shall meet for the purpose of organization and
the transaction of other business, unless it shall have transacted all such
business by written consent pursuant to Section 6 of this Article III.

(b) Other Meetings. Other meetings of the Board shall be held
--------------
at such times and places as the Board, the Chairman, the President or any
director shall from time to time determine.

(c) Notice of Meetings. Notice shall be given to each director
------------------
of each meeting, including the time, place and purpose of such meeting. Notice
of each such meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, at least two days before the date on which
such meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded

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<PAGE>
communication, or be delivered personally or by telephone not later than the day
before the day on which such meeting is to be held, but notice need not be given
to any director who shall attend such meeting. A written waiver of notice,
signed by the person entitled thereto, whether before or after the time of the
meeting stated therein, shall be deemed equivalent to notice.

(d) Place of Meetings. The Board may hold its meetings at such
-----------------
place or places within or outside the State of Delaware as the Board may from
time to time determine, or as shall be designated in the respective notices or
waivers of notice thereof.

(e) Quorum and Manner of Acting. A majority of the total number
---------------------------
of directors then in office shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and the vote of a majority of those directors present at any such
meeting at which a quorum is present shall be necessary for the passage of any
resolution or act of the Board, except as otherwise expressly required by law or
these By-laws. In the absence of a quorum for any such meeting, a majority of
the directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.

(f) Organization. At each meeting of the Board, one of the
------------
following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:

(i) the Chairman;

(ii) the President (if a director); or

(iii) any director designated by a majority of the
directors present.

The Secretary or, in the case of his absence, an Assistant Secretary, if an
Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.

SECTION 6. Directors' Consent in Lieu of Meeting. Any action
-------------------------------------
required or permitted to be taken at any meeting of the Board may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by all the directors
then in office and such consent is filed with the minutes of the proceedings of
the Board.

SECTION 7. Action by Means of Conference Telephone or Similar
--------------------------------------------------
Communications Equipment. Any one or more members of the Board may participate
- ------------------------
in a meeting of the Board by means of

-7-

<PAGE>
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.

SECTION 8. Committees. The Board may, by resolution or resolutions
----------
passed by a majority of the whole Board, designate one or more committees, each
such committee to consist of one or more directors of the Corporation, which to
the extent provided in said resolution or resolutions shall have and may
exercise the powers of the Board in the management of the business and affairs
of the Corporation and may authorize the seal of the Corporation to be affixed
to all papers which may require it, such committee or committees to have such
name or names as may be determined from time to time by resolution adopted by
the Board. A majority of all the members of any such committee may determine
its action and fix the time and place of its meetings, unless the Board shall
otherwise provide. The Board shall have power to change the members of any such
committee at any time, to fill vacancies and to discharge any such committee,
either with or without cause, at any time.

ARTICLE IV

Officers
--------

SECTION 1. Executive Officers. The principal officers of the
------------------
Corporation shall be a Chairman, if one is appointed (and any references to the
Chairman shall not apply if a Chairman has not been appointed), a President, a
Secretary and a Treasurer, and may include such other officers as the Board may
appoint pursuant to Section 3 of this Article IV. Any two or more offices may
be held by the same person.

SECTION 2. Authority and Duties. All officers, as between themselves
--------------------
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-laws or, to the
extent so provided, by the Board.

SECTION 3. Other Officers. The Corporation may have such other
--------------
officers, agents and employees as the Board may deem necessary, including one or
more Assistant Secretaries, one or more Assistant Treasurers and one or more
Vice Presidents, each of whom shall hold office for such period, have such
authority, and perform such duties as the Board, the Chairman or the President
may from time to time determine. The Board may delegate to any principal
officer the power to appoint and define the authority and duties of, or remove,
any such officers, agents or employees.

-8-

<PAGE>
SECTION 4. Term of Office, Resignation and Removal.
---------------------------------------

(a) All officers shall be elected or appointed by the Board and
shall hold office for such term as may be prescribed by the Board. Each officer
shall hold office until his successor has been elected or appointed and
qualified or until his earlier death or resignation or removal in the manner
hereinafter provided. The Board may require any officer to give security for
the faithful performance of his duties.

(b) Any officer may resign at any time by giving written notice
to the Board, the Chairman, the President or the Secretary. Such resignation
shall take effect at the time specified therein or, if no time shall be
specified therein, at the time it is accepted by action of the Board. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.

(c) All officers and agents elected or appointed by the Board
shall be subject to removal at any time by the Board or by the stockholders of
the Corporation with or without cause.
SECTION 5. Vacancies. If the office of Chairman, President,
---------
Secretary or Treasurer becomes vacant for any reason, the Board shall fill such
vacancy, and if any other office becomes vacant, the Board may fill such
vacancy. Any officer so appointed or elected by the Board shall serve only
until such time as the unexpired term of his predecessor shall have expired,
unless reelected or reappointed by the Board.

SECTION 6. The Chairman. The Chairman shall give counsel and advice
------------
to the Board and the officers of the Corporation on all subjects concerning the
welfare of the Corporation and the conduct of its business and shall perform
such other duties as the Board may from time to time determine. Unless
otherwise determined by the Board, he shall preside at meetings of the Board and
of the stockholders at which he is present. The Chairman shall be the chief
executive officer of the Corporation.

SECTION 7. The President. The President shall be the chief operating
-------------
officer of the Corporation. The President shall have general and active
management and control of the business and affairs of the Corporation subject to
the control of the Board and shall see that all orders and resolutions of the
Board are carried into effect. The President shall from time to time make such
reports of the affairs of the Corporation as the Board may require and shall
perform such other duties as the Board may from time to time determine.

SECTION 8. The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of the
stockholders and shall record all votes and the

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<PAGE>
minutes of all proceedings in a book to be kept for that purpose. He may give,
or cause to be given, notice of all meetings of the stockholders and of the
Board, and shall perform such other duties as may be prescribed by the Board,
the Chairman or the President, under whose supervision he shall act. He shall
keep in safe custody the seal of the Corporation and affix the same to any duly
authorized instrument requiring it and, when so affixed, it shall be attested by
his signature or by the signature of the Treasurer or, if appointed, an
Assistant Secretary or an Assistant Treasurer. He shall keep in safe custody
the certificate books and stockholder records and such other books and records
as the Board may direct, and shall perform all other duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman or the President.

SECTION 9. The Treasurer. The Treasurer shall have the care and
-------------
custody of the corporate funds and other valuable effects, including securities,
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, shall render to the Chairman, President and directors, at the
regular meetings of the Board, or whenever they may require it, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation and shall perform all other duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board, the Chairman or the President.

ARTICLE V

Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------

SECTION 1. Execution of Documents. The Board shall designate, by
----------------------
either specific or general resolution, the officers, employees and agents of the
Corporation who shall have the power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, checks, drafts and other orders for the payment of
money and other documents for and in the name of the Corporation, and may
authorize such officers, employees and agents to delegate such power (including
authority to redelegate) by written instrument to other officers, employees or
agents of the Corporation; unless so designated or expressly authorized by these
By-laws, no officer, employee or agent shall have any power or authority to bind
the Corporation by any contract or engagement, to pledge its credit or to render
it liable pecuniarily for any purpose or amount.

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<PAGE>
SECTION 2. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board or Treasurer, or any other officer of the Corporation
to whom power in this respect shall have been given by the Board, shall select.

SECTION 3. Proxies with Respect to Stock or Other Securities of Other
----------------------------------------------------------
Corporations. The Board shall designate the officers of the Corporation who
- ------------
shall have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent with respect to such
stock or securities. Such designated officers may instruct the person or
persons so appointed as to the manner of exercising such powers and rights, and
such designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers and
rights.

ARTICLE VI

Shares and Their Transfer; Fixing Record Date
---------------------------------------------

SECTION 1. Certificates for Shares. Every owner of stock of the
-----------------------
Corporation shall be entitled to have a certificate certifying the number and
class of shares owned by him in the Corporation, which shall be in such form as
shall be prescribed by the Board. Certificates shall be numbered and issued in
consecutive order and shall be signed by, or in the name of, the Corporation by
the Chairman, the President or any Vice President, and by the Treasurer (or an
Assistant Treasurer, if appointed) or the Secretary (or an Assistant Secretary,
if appointed). In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate had not ceased to be such officer or officers of the Corporation.

SECTION 2. Record. A record in one or more counterparts shall be
------
kept of the name of the person, firm or corporation owning the shares
represented by each certificate for stock of the Corporation issued, the number
of shares represented by each such certificate, the date thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name shares of

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<PAGE>
stock stand on the stock record books of the Corporation shall be deemed the
owner thereof for all purposes regarding the Corporation.

SECTION 3. Transfer and Registration of Stock.
----------------------------------

(a) The transfer of stock and certificates which represent the
stock of the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6
of the Delaware Code (the Uniform Commercial Code), as amended from time to
time.

(b) Registration of transfers of shares of the Corporation shall
be made only on the books of the Corporation upon request of the registered
holder thereof, or of his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, and upon the
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by a stock power duly executed.

SECTION 4. Addresses of Stockholders. Each stockholder shall
-------------------------
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to him, and, if any stockholder shall
fail to designate such address, corporate notices may be served upon him by mail
directed to him at his post-office address, if any, as the same appears on the
stock record books of the Corporation or at his last known post-office address.

SECTION 5. Lost, Destroyed and Mutilated Certificates. The holder of
------------------------------------------
any shares of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board may,
in its discretion, cause to be issued to him a new certificate or certificates
for such shares, upon the surrender of the mutilated certificate or, in the case
of loss or destruction of the certificate, upon satisfactory proof of such loss
or destruction, and the Board may, in its discretion, require the owner of the
lost or destroyed certificate or his legal representative to give the
Corporation a bond in such sum and with such surety or sureties as it may direct
to indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate.

SECTION 6. Regulations. The Board may make such rules and
-----------
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates for stock of the
Corporation.

SECTION 7. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------

(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting

-12-

<PAGE>
of stockholders or any adjournment thereof, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which record date shall be not more
than 60 nor less than 10 days before the date of such meeting. If no record
date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
-------- -------
record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.

ARTICLE VII

Seal
----

The Board may provide a corporate seal, which shall be in the form of
a circle and shall bear the full name of the Corporation, the year of
incorporation of the Corporation and the words and figures "Corporate Seal -
Delaware".

ARTICLE VIII

Fiscal Year
-----------

The fiscal year of the Corporation shall be the calendar year unless
otherwise determined by the Board.

-13-

<PAGE>
ARTICLE IX

Indemnification and Insurance
-----------------------------

SECTION 1. Indemnification.
---------------

(a) As provided in the Certificate, to the fullest extent
permitted by the General Corporation Law of the State of Delaware (the "Delaware
Statute") as the same exists or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its stockholders for
breach of fiduciary duty as a director.

(b) Without limitation of any right conferred by paragraph (a)
of this Section 1, each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity while serving as a director, officer or employee
or in any other capacity while serving as a director, officer or employee, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware Statute, 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 the Corporation to provide broader indemnification rights than
permitted prior thereto), against all expense, liability and loss (including
attorneys' fees, judgments, fines, excise taxes or amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer or employee and shall inure to the benefit of the indemnitee's
heirs, testators, intestates, executors and administrators; provided, however,
-------- -------
that such person 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 a criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful; provided further, however, that no indemnification
-------- ------- -------
shall be made in the case of an action, suit or proceeding by or in the right of
the Corporation in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such director, officer, employee or agent is
liable to the Corporation, unless a court having jurisdiction shall determine
that, despite such adjudication, such person is fairly and reasonably entitled
to indemnification; provided further, however, that, except as provided in
-------- ------- -------
Section

-14-

<PAGE>
1(c) of this Article IX with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) initiated by such indemnitee was authorized
by the Board. The right to indemnification conferred in this Article IX shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however, that,
-------- -------
if the Delaware Statute requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.

(c) If a claim under Section (b) of this Article IX is not paid
in full by the Corporation within 60 days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of any undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met the applicable standard of conduct set forth in
the Delaware Statute. Neither the failure of the Corporation (including the
Board, independent legal counsel or the stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware Statute, nor an actual
determination by the Corporation (including the Board, independent legal
counsel, or the stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a

-15-

<PAGE>
defense to such suit. In any suit brought by the indemnitee to enforce a right
to indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Section or otherwise
shall be on the Corporation.

(d) The rights to indemnification and to the advancement of
expenses conferred in this Article IX shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Certificate, agreement, vote of stockholders or disinterested directors or
otherwise.

SECTION 2. Insurance. The Corporation may purchase and maintain
---------
insurance, at its expense, to protect itself and any person who is or was a
director, officer, employee or agent of the Corporation or any person who is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware Statute.

ARTICLE X

Amendment
---------

Any by-law (including these By-laws) may be adopted, amended or
repealed by the vote of the holders of a majority of the shares then entitled
to vote, or by the vote of the Board or by the directors' written consent
pursuant to Section 6 of Article III.

* * * * *
* * *
*

-16-

EXHIBIT 5

[O'SULLIVAN GRAEV & KARABELL, LLP]

September 9, 1996

VIA EDGAR

Advanced Health Corporation
560 White Plains Road
Tarrytown, New York 10591

Advanced Health Corporation
2,300,000 Shares of Common Stock, $.01 par value

Dear Sirs:

We have acted as counsel for Advanced Health Corporation, a
Delaware corporation (the "Company") in connection with the
preparation and filing of the Registration Statement of the
Company on Form S-1 (File No. 333-06283) (the "Registration
Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to 2,300,000 shares of its Common
Stock, $.01 par value (the "Common Stock") (including 300,000
shares reserved for issuance pursuant to the Underwriters' over-
allotment option) (such shares of Common Stock are referred to as
the "Shares"), of the Company. Capitalized terms used but not
defined herein shall have the respective meanings ascribed to
them in the Registration Statement. You have requested that we
furnish our opinion as to the matters hereinafter set forth.

In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have
deemed necessary for the purposes of rendering the opinions set
forth below. As to certain questions of fact material to the
opinions contained herein, we have relied upon certificates or
statements of officers of the Company and certificates of public
officials. In such examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us
as originals and conformity to authentic originals of all
documents submitted to us as certified or photostatic copies.

Based upon the foregoing, we are of the opinion as follows:

1. The Company is a validly existing corporation under the
laws of the State of Delaware.

2. Assuming that the Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, as amended (filed as part of Exhibit 3.1 to
the Registration Statement) is filed with the Secretary of State of the State of

<PAGE>

Advanced Health Corporation
September 9, 1996
Page 2

Delaware on or before the date on which the Registration
Statement becomes effective, as contemplated by the Registration
Statement, the Shares will have been duly authorized and, when
issued and sold as contemplated by the Registration Statement
and the Underwriting Agreement to be entered into among the
Company and Cowen & Company and Volpe, Welty & Company, as
representatives of the Underwriters, will be validly issued,
fully paid and nonassessable.

We are admitted to the Bar of the State of New York and we
express no opinion as to the laws of the any other jurisdiction
other than the Delaware General Corporation Law.

We know that we are referred to under the heading "Legal
Matters" in the Prospectus forming a part of the Registration
Statement, and we hereby consent to such use of our name in said
Registration Statement and to the use of this opinion for filing
with said Registration Statement as Exhibit 5 thereto.

Very truly yours,

/s/ O'Sullivan Graev & Karabell, LLP

EXHIBIT 10.20

[FORM]

INDEMNIFICATION AGREEMENT
dated as of _______ __, 1996,
between ADVANCED HEALTH
CORPORATION, a Delaware corporation
(the "Company"), and
________________ (the "Director").

Section 145 of the Delaware General Corporation Law (the "DGCL")
empowers corporations to indemnify persons serving as a director, officer,
employee or agent of such corporation or persons who serve at the request of
such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and Section
145(f) of the DGCL further specifies that the indemnification set forth in said
Section shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.

The Company desires to have the Director serve or continue to serve as
an officer and/or director of the Company free from undue concern for
unpredictable, inappropriate or unreasonable claims for damages by reason of his
being an officer and/or director of the Company or by reason of his decisions or
actions on its behalf; and the Director desires to serve, or to continue to
serve, in such capacity. Accordingly, in consideration of the Director's
serving or continuing to serve as an officer and/or director of the Company, the
parties agree as follows:

1. Indemnification. (a) The Company shall indemnify, defend and
---------------
hold harmless the Director against all expenses, losses, claims, damages and
liabilities, including, without limitation, attorneys' fees, judgments, fines
and amounts paid in settlement (all such expenses, collectively, "Costs"),
actually and reasonably incurred by him in connection with the investigation,
defense or appeal of any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
the Director is a party or threatened to be made a party (all such actions,
collectively, "Proceedings") (i) by reason of the fact that the Director is or
was a director, officer, employee or agent of the Company or of any other corpo-
ration, partnership, joint venture, trust or other enterprise (collectively,
"Affiliates") of which he has been or is serving at the request of, for the
convenience of or to represent the interest of the Company or (ii) by reason of
anything done or not done by the Director in any such capacity referred to in
the foregoing clause (i).

<PAGE>
2. Culpable Action. (a) Notwithstanding the provisions of Section
---------------
l, the Director shall not be entitled to indemnification if (i) the Company is
prohibited from paying such indemnification under applicable law, (ii) the
Director breached his duty of loyalty to the Company or its stockholders or any
Affiliate or its stockholders, (iii) the Director's actions or omissions were
not in good faith or involved intentional misconduct or a knowing violation of
law or (iv) the Director derived an improper personal benefit from any
transaction which is a subject of the applicable Proceeding (any existence or
occurrence described in the foregoing clauses (i)-(iv), individually, a
"Culpable Action").

(b) The existence or occurrence of a Culpable Action shall be
conclusively determined by (i) a non-appealable, final decision of the court
having jurisdiction over the applicable Proceeding or (ii) a non-appealable,
final decision of the Court of Chancery of the State of Delaware (or if such a
decision is appealable, by the court in such State which has jurisdiction to
render a non-appealable, final decision). Such determination shall be final and
binding upon the parties hereto.

(c) The existence or occurrence of a Culpable Action may also be
determined by (i) the Board of Directors of the Company, by a majority vote of a
quorum consisting of directors who were not parties to the applicable Proceeding
(the "Disinterested Directors"), (ii) the stockholders of the Company, by a
majority vote of a quorum consisting of stockholders who were not parties to the
applicable Proceeding (the "Disinterested Stockholders"), or (iii) any other
entity to which the Disinterested Directors or the Disinterested Stockholders
shall have delegated the authority to make such a determination; provided,
--------
however, that such determination shall be binding upon the parties hereto only
- -------
if a determination shall not have been made or shall not be subsequently made
pursuant to Subsection (b) above.

(d) If a Proceeding involves more than one claim, issue or matter,
the determination as to whether there exists or has occurred a Culpable Action
shall be severable as to each and every claim, issue and matter.

(e) The termination of any Proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, does not
---- -----------
change the presumption of Section l that the Director is entitled to indemnifi-
cation hereunder and does not create a presumption that there exists a Culpable
Action.

3. Payment of Costs. The Costs incurred by the Director in
----------------
connection with any Proceeding, including any Proceeding brought pursuant to
Section (2)(b), shall be paid by the Company on an "as incurred" basis;
provided, however, that if it
- -------- -------

-2-

<PAGE>
shall ultimately be determined that there exists or has occurred a Culpable
Action with respect to such Proceeding, the Director shall repay to the Company
the amount (or the appropriate portion thereof as contemplated by Section 2(d))
so advanced, including the costs of obtaining a determination pursuant to
Section 2(b).

4. Severability. If any provision of this Agreement shall be
------------
determined to be illegal and unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.

5. No Right to Employment or Directorship. This Agreement shall not
--------------------------------------
entitle the Director to any right or claim to be retained as an employee and/or
director of the Company or limit the right of the Company to terminate the
employment and/or directorship of the Director or to change the terms of such
employment and/or directorship.

6. Other Rights and Remedies. This Agreement shall not be deemed
-------------------------
exclusive as to any other non-contractual rights to indemnification to which the
Director may be entitled under any provision of law, the Restated Certificate of
Incorporation of the Company, any By-law of the Company or otherwise.

7. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.

8. Descriptive Headings. Descriptive headings are for convenience
--------------------
only and shall not control or affect the meaning or construction of any
provision of this Agreement.

9. Modification. This Agreement shall not be altered or otherwise
------------
amended except pursuant to an instrument in writing signed by each of the
parties.

10. Notice to the Company by the Director. The Director, as a
-------------------------------------
condition precedent to his right to be indemnified under this Agreement, shall
give to the Company notice in writing as soon as practicable of any Proceeding
for which indemnity will or could be sought under this Agreement.

11. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by facsimile
transmission with electronic confirmation of receipt or if sent by nationally-
recognized overnight courier or first class certified mail, postage prepaid,
return receipt requested, addressed to such party at the address set forth below
or such other address as may hereafter be designated in writing by notice given
pursuant to this Section 11:

-3-

<PAGE>
(i) if to the Company, to:

Advanced Health Corporation
560 White Plains Road
Tarrytown, New York 10591
Attention: Chairman of the Board; and

(ii) if to the Director, to:

the Director's name and address as it appears in the records of
the Company.

12. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to contracts
made and performed wholly therein.

13. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns and shall inure to the benefit of the
Director and his spouse, heirs, executors and administrators.

-4-

<PAGE>
IN WITNESS WHEREOF, each of the undersigned have duly executed this
Indemnification Agreement as of the date first above written.

ADVANCED HEALTH CORPORATION

By:________________________________
Name: Jonathan Edelson, M.D.
Title: Chairman of the Board

___________________________________
DIRECTOR

EXHIBIT 10.24

ADVANCED HEALTH CORPORATION

AMENDED AND RESTATED 1995 STOCK OPTION PLAN

1. Purpose.
-------

The purpose of this amended and restated plan (the "Plan") is to
secure for ADVANCED HEALTH CORPORATION (the "Company") and its shareholders the
benefits arising from capital stock ownership by employees, officers and
directors of, and consultants or advisors to, the Company and its subsidiary
corporations who are expected to contribute to the Company's future growth and
success. Except where the context otherwise requires, the term "Company" shall
include all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"). Those provisions of the Plan which
make express reference to Section 422 shall apply only to Incentive Stock
Options (as that term is defined in the Plan).

2. Type of Options and Administration.
----------------------------------

(a) Types of Options. Options granted pursuant to the Plan shall be
----------------
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.

(b) Administrative. The Plan will be administered by the Board of
--------------
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors
may in its sole discretion grant options to purchase shares of the Company's
Common Stock, $.01 par value per share ("Common Stock") and issue shares upon
exercise of such options as provided in the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option agreements and the Plan, to prescribe, amend and rescind rules
and regulations relating to the Plan, to determine the terms and provisions of
the respective option agreements, which need not be identical, and to make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The Board of Directors may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and it shall be the sole and final judge
of such expediency. No director or person acting pursuant to authority
delegated by the Board of Directors shall be liable for any action or
determination under the Plan made in good faith. The Board of Directors may, to
the full extent permitted by or consistent with applicable laws or regulations
(including, without limitation, applicable state law and Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3")), delegate any or all of its powers under the Plan to a
committee (the

<PAGE>
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee with respect to the powers so delegated.

(c) Applicability of Rule 16b-3. Those provisions of the Plan which
---------------------------
make express reference to Rule 16b-3 shall apply to the Company only at such
time as the Company's Common Stock is registered under the Exchange Act, subject
to the last sentence of Section 3(b), and then only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").

3. Eligibility.
-----------

(a) General. Options may be granted to persons who are, at the time
-------
of the grant, employees, officers or directors of, or consultants or advisors
to, the Company; provided, that Incentive Stock Options may only be granted to
--------
individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board of Directors
shall so determine.

(b) Grant of Options to Reporting Persons. From and after the
-------------------------------------
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer who is a Reporting Person (as the terms
"director" and "officer" are defined for purposes of Rule 16b-3) as a recipient
of an option, the timing of the option grant, the exercise price of the option
and the number of shares subject to the option shall be determined either (i) by
the Board of Directors or (ii) by a committee consisting of two or more
directors having full authority to act in the matter, each of whom shall be a
"non-employee director" (as hereinafter defined). For the purposes of the Plan,
a director shall be deemed to be a "non-employee director" only if such person
qualifies as a "non-employee director" within the meaning of Rule 16b-3, as such
term is interpreted from time to time.

4. Stock Subject to Plan.
---------------------

The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 1,500,000 shares
(after giving effect to the reverse stock split to be effected in connection
with the Company's initial public offering). If an option granted under the
Plan shall expire, terminate or be cancelled for any reason without having been
exercised in full, the unpurchased shares subject to such option shall again be
available for subsequent option grants under the Plan.

-2-

<PAGE>

5. Forms of Option Agreements.
--------------------------

As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board of Directors. Such
option agreements may differ among recipients.

6. Purchase Price.
--------------

(a) General. The purchase price per share of stock deliverable upon
-------
the exercise of an option shall be determined by the Board of Directors at the
time of grant of such option; provided, however, that in the case of an
-------- -------
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Market Value (as hereinafter defined) of such stock, at the time of grant
of such option, or shall not be less than 110% of such Fair Market Value in the
case of options described in Section 11(b). "Fair Market Value" of a share of
Common Stock of the Company as of a specified date for the purposes of the Plan
shall mean the closing price of a share of the Common Stock on the principal
securities exchange or the Nasdaq National Market on which such shares are
traded on the day immediately preceding the date as of which Fair Market Value
is being determined, or on the next preceding date on which such shares are
traded if no shares were traded on such immediately preceding day, or if the
shares are not traded on a securities exchange or the Nasdaq National Market,
Fair Market Value shall be deemed to be the average of the high bid and low
asked prices of the shares in the over-the-counter market on the day immediately
preceding the date as of which Fair Market Value is being determined or on the
next preceding date on which such high bid and low asked prices were recorded.
If the shares are not publicly traded, Fair Market Value of a share of Common
Stock (including, in the case of any repurchase of shares, any distributions
which respect thereto which would be repurchased with the shares) shall be
determined in good faith by the Board of Directors.

(b) Payment of Purchase Price. Options granted under the Plan may
-------------------------
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company having Fair
Market Value on the date of exercise equal in amount to the exercise price of
the options being exercised, (ii) by any other means which the Board of
Directors determines are consistent with the purpose of the Plan and with
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board) or
(iii) by any combination of such methods of payment.

7. Option Period.
-------------

Subject to earlier termination as provided in the Plan, each option
and all rights thereunder shall expire on such date as determined by the Board
of Directors and

-3-

<PAGE>
set forth in the applicable option agreement, provided, that such date shall not
--------
be later than ten (10) years after the date on which the option is granted.

8. Exercise of Options.
-------------------

Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. Subject to the requirements in the immediately preceding sentence,
if an option is not at the time of grant immediately exercisable, the Board of
Directors may (i) in the agreement evidencing such option, provide for the
acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.

9. Nontransferability of Options.
-----------------------------

No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or, other than in the case of Incentive Stock Options, pursuant to
a qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. An option may
be exercised during the lifetime of the optionee only by the optionee. In the
event an optionee dies during his employment by the Company or any of its
subsidiaries, or during any exercise period following the date of termination of
such employment, his option shall thereafter be exercisable, during the period
specified in the option agreement, by his executors or administrators to the
full extent to which such option was exercisable by the optionee at the time of
his death during the periods set forth in Section 10 or 11(d).

10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------

Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the option agreement, an optionee may
exercise an option at such times following the termination of the optionee's
employment or other relationship with the Company as shall be set forth in the
option agreement with such optionee, but, except in the case of the optionee's
death, in no event later than the expiration date of the Option. If the
termination of the optionee's employment is for cause or is otherwise
attributable to a breach by the optionee of an employment or confidentiality or
non-disclosure agreement, the option shall expire immediately upon such
termination. The Board of Directors shall have the power to determine what
constitutes a termination for cause or a breach of an employment or
confidentiality or non-disclosure agreement, whether an optionee has been
terminated for cause or has breached such an agreement, and the date upon which
such termination for cause or breach occurs. Any such determinations shall be
final and conclusive and binding upon the optionee.

-4-

<PAGE>

11. Incentive Stock Options.
-----------------------

Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:

(a) Express Designation. All Incentive Stock Options granted under
-------------------
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.

(b) 10% Shareholder. If any employee to whom an Incentive Stock
---------------
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:

(i) The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant; and

(ii) the option exercise period shall not exceed five years
from the date of grant.

(c) Dollar Limitation. For so long as the Code shall so provide,
-----------------
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.

(d) Termination of Employment, Death or Disability. No Incentive
----------------------------------------------
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:

(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
--------
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-statutory option under the Plan;

-5-

<PAGE>

(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and

(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto)
while in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).

For all purposes of the Plan and any option granted hereunder "employment" shall
be defined in accordance with the provisions of Section 1.42I-7(h) of the Income
Tax Regulations (or any successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its expiration
date.

12. Additional Provisions.
---------------------

(a) Additional Option Provisions. The Board of Directors may, in its
----------------------------
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses, to make, arrange for or guaranty loans or to transfer other property to
optionees upon exercise of options, or such other provisions as shall be
determined by the Board of Directors; provided, that such additional provisions
--------
shall not be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.

(b) Acceleration, Extension, Etc. The Board of Directors may, in its
-----------------------------
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
-------- -------
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 (if applicable).

13. General Restrictions.
--------------------

(a) Investment Representations. The Company may require any person
--------------------------
to whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account

-6-

<PAGE>
for investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws, or with covenants or representations made by the Company in connection
with any public offering of its Common Stock.

(b) Compliance with Securities Law. Each option shall be subject to
------------------------------
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.

14. Rights as a Shareholder.
-----------------------

The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.

15. Adjustment Provisions for Recapitalizations, Reorganizations and
----------------------------------------------------------------
Related Transactions.
--------------------

(a) Recapitalizations and Related Transactions. If, through or as a
-------------------------------------------
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under the Plan, (y) the number and kind of shares
or other securities subject to any then outstanding options under the Plan, and
(z) the price for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which such options
remain exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 15 if such adjustment (i) would cause the Plan to fail
to comply

-7-

<PAGE>
with Section 422 of the Code or with Rule 16b-3 or (ii) would be considered as
the adoption of a new plan requiring stockholder approval.

(b) Reorganization, Merger and Related Transactions. If the Company
-----------------------------------------------
shall be the surviving corporation in any reorganization, merger or
consolidation of the Company with one or more other corporations, any then
outstanding option granted pursuant to the Plan shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock subject
to such options would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the purchase price as to which such options may be exercised so
that the aggregate purchase price as to which such options may be exercised
shall be the same as the aggregate purchase price as to which such options may
be exercised for the shares remaining subject to the options immediately prior
to such reorganization, merger, or consolidation.

(c) Board Authority to Make Adjustments. Any adjustments under this
-----------------------------------
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, in any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.

16. Merger, Consolidation, Asset Sale, Liquidation, etc.
----------------------------------------------------

(a) General. In the event of a consolidation or merger in which the
-------
Company is not the surviving corporation, or sale of all or substantially all of
the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company (collectively, a
"Corporate Transaction"), the Board of Directors of the Company, or the board of
directors of any corporation assuming the obligations of the Company, may, in
its discretion, take any one or more of the following actions, as to outstanding
options: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such options substituted for Incentive
--------
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a Corporate Transaction under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Corporate Transaction
(the "Transaction Price"), make or provide for a cash payment to the optionees
equal to the difference between (A) the Transaction Price times the number of
shares of Common Stock subject to such outstanding options (to the extent then
exercisable at prices not in excess of the Transaction Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the

-8-

<PAGE>
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.

(b) Substitute Options. The Company may grant options under the Plan
------------------
in substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.

17. No Special Employment Rights.
----------------------------

Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.

18. Other Employee Benefits.
-----------------------

Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.

19. Amendment of the Plan.
---------------------

(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.

(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive

-9-

<PAGE>
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and any outstanding option to the extent necessary to ensure the
qualification of the Plan and any options granted hereunder under Rule 16b-3.

20. Withholding.
-----------

(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the amount
of tax to be withheld is to be determined. An optionee who has made an election
pursuant to this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.

(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within two years from the date the option was granted or within one year from
the date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required by law, to remit to the Company, at the time of an
in the case of any such disposition, an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
such disposition, whether or not, as to both (i) and (ii), the optionee is in
the employ of the Company at the time of such disposition.

(c) Notwithstanding the foregoing, in the case of a Reporting Person
whose options have been granted in accordance with the provisions of Section
3(b) herein, no election to use shares for the payment of withholding taxes
shall be effective unless made in compliance with any applicable requirements of
Rule 16b-3.

21. Cancellation and New Grant of Options, Etc.
-------------------------------------------

The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the price per share of the cancelled
options or (ii) the amendment of the terms of any and all outstanding options
under the Plan to provide an option exercise price per share

-10-

<PAGE>
which is higher or lower than the then-current exercise price per share of such
outstanding options.

22. Effective Date and Duration of the Plan.
---------------------------------------

(a) Effective Date. The Plan shall become effective when adopted by
--------------
the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.

(b) Termination. Unless sooner terminated in accordance with Section
-----------
16, the Plan shall terminate upon the earlier of (i) the close of business on
the day next preceding the tenth anniversary of its adoption by the Board of
Directors, or (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise or cancellation of options
granted under the Plan. If the date of termination is determined under (i)
above, then options outstanding on such date shall continue to have force and
effect in accordance with the provisions
of the instruments evidencing such options.

23. Provision for Foreign Participants.
----------------------------------

The Board of Directors may, without amending the Plan, modify awards
or options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.

-11-

<PAGE>
24. Governing Law.
-------------

The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.

-12-

EXHIBIT 10.25

ADVANCED HEALTH CORPORATION

Employee Stock Purchase Plan
----------------------------

1. NATURE OF THE PLAN

The Advanced Health Corporation Employee Stock Purchase Plan (the
"Plan") is intended to provide a method whereby employees of Advanced Health
Corporation, a Delaware corporation (the "Company"), and its subsidiaries will
have an opportunity to acquire a proprietary interest in the Company through the
purchase of shares of the Common Stock, $.01 par value, of the Company. It is
the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Plan shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code. The Company is offering to sell shares of Common
Stock to eligible employees pursuant to the terms and conditions set forth in
this Plan. The maximum number of shares of Common Stock that may be issued
under the Plan is 1,200,000 (after giving effect to the revenue stock split to
be effected in connection with the Company's initial public offering), subject
to adjustment upon changes in the capitalization of the Company as provided in
Section 10(c).

2. DEFINITIONS

"Board of Directors" means the Board of Directors of the Company.

"Committee" means the Committee appointed by the Board of Directors to
administer the Plan as contemplated by Section 9.

"Common Stock" means the Common Stock, $.01 par value, issued by the
Company.

"Employee" means any person who is customarily employed on a full-time
or part-time basis by the Company or any of its subsidiaries and is regularly
scheduled to work more than 20 hours per week and five months or more in a
calendar year.

"Option Period" means each semi-annual period, commencing on January 1
and ending on June 30 and commencing on July 1 and ending on December 31;
provided, however, that the first Option Period under the Plan (the "Initial
- -------- -------
Option Period") shall commence on the date of the execution of the Underwriting
Agreement among the Company and the underwriters named therein with respect to
the initial public offering of the Common Stock (the "Underwriting Agreement")
and end on December 31, 1996. Each Option Period includes only regular pay days
falling within it.

"Purchase Price" has the meaning set forth in Section 5 (b).

<PAGE>
3. ELIGIBILITY AND PARTICIPATION

(a) Initial Eligibility. Each Employee shall be eligible to
-------------------
participate in the Plan on the first day of the first Option Period after the
date of hire as an Employee with either the Company or any of its subsidiaries.

(b) Restrictions on Participation. Notwithstanding any provisions of
-----------------------------
the Plan to the contrary, no Employee shall be granted rights or options to
purchase Common Stock under the Plan if, immediately after the grant, such
Employee would own stock, and/or hold outstanding options or rights to purchase
stock, possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company. For purposes of this paragraph, the rules of
Section 424(d) of the Code shall apply in determining stock ownership of any
Employee.

(c) Commencement of Participation. An eligible Employee may commence
-----------------------------
participation in the Plan by completing a payroll deduction authorization form
provided by the Company and filing it with the Company's payroll administrator
10 working days before the start of an Option Period. Payroll deductions for an
Employee shall commence for the applicable Option Period when his or her
authorization for a payroll deduction becomes effective and shall remain
effective until all shares of Common Stock authorized for the Plan under Section
1 have been issued, unless sooner terminated by the Employee as provided in
Section 6. Payroll deductions nay not be increased or decreased during any
Option Period, except to reflect changes in base pay during such Option Period.
Anything contained herein to the contrary notwithstanding, with respect to the
Initial Option Period only, all eligible Employees shall be deemed to have
elected to participate in the Plan as of the first day of such Option Period;
provided, however, that in order to continue such participation for any other
- -------- -------
Option Period, each such Employee must complete and file a payroll deduction
authorization form as required by this Section 3(c).

4. PAYMENT OF PURCHASE PRICE

(a) Payroll Deductions. At the time an Employee files his or her
------------------
payroll deduction authorization form, he or she shall elect to have deductions
made from his or her pay on each payday during the time he or she participates
in the Plan at a fixed dollar amount chosen by such Employee, except that such
amount may not be less then 2% nor more than 10% of the amount of such
Employee's regular pay. An Employee may discontinue his or her participation in
the Plan as provided in Section 6, but no other change can be made during an
Option Period.

(b) Initial Option Period. With respect to the Initial Option Period
---------------------
only, an Employee may pay for shares of Common Stock purchased pursuant to the
Plan by check or payroll

-2-

<PAGE>
deduction or a combination thereof or such other method as shall be permitted by
the Committee; provided, however, that the purchase price for such shares for
-------- -------
such Initial Option Period shall not be less than 2% nor more than 10% of the
amount of such Employee's regular pay during such Initial Option Period.

5. GRANTING OF RIGHT TO PURCHASE

(a) Number of Shares. On the first day of each Option Period, each
----------------
Employee participating in the Plan shall be deemed to be granted options to
purchase, and on the last day of each Option Period, each such Employee shall be
deemed to have exercised such options to purchase, that number of shares of
Common Stock equal to the quotient obtained by dividing (i) the aggregate dollar
amount that he or she has elected to have withheld for the Option Period by (ii)
the Purchase Price. Anything contained herein to the contrary notwithstanding,
but subject to the limitations set forth in Section 5(f) hereof, in the case of
the Initial Option Period only, on the first day of such Initial Option Period,
each eligible Employee shall be granted options to purchase that number of
shares of Common Stock equal to the quotient obtained by dividing (A) 10% of
such Employee's regular pay during such Initial Option Period by (B) the
Purchase Price, and on the last day of such Initial Option Period, each such
Employee shall be deemed to have exercised such options to purchase such number
of such shares of Common Stock for which such Employee shall have paid the
Purchase Price no later than the last day of such Initial Option Period.

(b) Purchase Price. The purchase price (the "Purchase Price") of
--------------
Common Stock for an Employee for any Option Period shall be equal to eighty-five
percent (85%) of the lower of (x) the closing price of the Common Stock on the
first day of such Option Period and (y) the closing price of the Common Stock on
the last day of such Option Period (or, in each case, if such day shall not be a
trading day, on the next preceding business day on which trading occurred on the
Nasdaq Stock Market); provided, however, that in the case of the Initial Option
-------- -------
Period only, the Purchase Price shall be equal to eighty-five percent (85%) of
the lower of (A) the initial public offering price per share of the Common Stock
and (B) the closing price of the Common Stock on the last day of such Initial
Option Period (or if such day shall not be a trading day, on the next preceding
business day on which trading occurred on the Nasdaq Stock Market).

(c) Purchase of Shares. Unless an Employee has given written notice
------------------
to the Company under Section 6(a), amounts withheld for or otherwise paid by him
or her shall be used on the last day of such Option Period to purchase the
number of whole shares of Common Stock that his or her accumulated payroll
deductions and other payments, if any, at that time will purchase at the
Purchase Price and any excess amount at that time will be

-3-

<PAGE>
retained by the Company for him or her until the next purchase of shares under
the Plan.

(d) Transferability of Rights. During an Employee's lifetime, rights
-------------------------
held by the Employee to purchase Common Stock under the Plan shall be
exercisable only by that Employee.

(e) Delivery of Stock. Following the end of each Option Period, the
-----------------
Company will deliver, or cause the Company's transfer agent to deliver, to each
Employee certificates representing the Common Stock purchased by the Employee
hereunder during such Option Period.

(f) Annual Purchase Limit. No Employee shall be granted rights to
---------------------
purchase Common Stock under the Plan that permit his or her rights to purchase
Common Stock under all plans of the Company intended to qualify under Section
423 of the Code to accrue at a rate which exceeds $25,000 in fair market value
of Common Stock (determined at the time such right is granted) for each calendar
year in which such right is outstanding. Any amounts received from an Employee
which cannot be used to purchase Common Stock as a result of this limitation
will be returned as soon as practicable to the Employee without interest.

6. WITHDRAWAL

(a) In General. An Employee may revoke his or her payroll deduction
----------
election under the Plan for an Option Period by giving written notice to the
Company (on any form prescribed by the Committee) at any time after the
commencement of such Option Period. Any of the Employee's payroll deductions
credited to him or her (attributable to unused amounts from the prior Option
Period related to fractional shares) will be paid to him or her without interest
promptly after receipt of his or her notice of withdrawal, and no further
payroll deductions will be made from his or her pay during such Option Period.
Anything contained herein to the contrary notwithstanding, an Employee may
revoke his or her participation in the Plan for the Initial Option Period by
giving written notice to the Company (on any form prescribed by the Committee)
at any time after the commencement of such Option Period.

(b) Effective on Subsequent Participation. An Employee's withdrawal
-------------------------------------
under Section 6(a) will have no effect upon his or her eligibility to
participate in the Plan for any succeeding Option Period or any similar plan
which may hereafter be adopted by the Company; provided, however, that pursuant
-------- -------
to Section 3(c), an Employee who withdraws from participation under Section 6(a)
may not again participate in the Plan until the next succeeding Option Period.

(c) Termination of Employment. Upon termination of the Employee's
-------------------------
employment with the Company and its subsidiaries,

-4-

<PAGE>
any outstanding rights of the Employee to purchase Common Stock during the
Option Period in which his or her employment terminates shall be deemed to be
terminated and any accumulated payroll deductions or other payments at such time
will be returned to the Employee, without interest.

7. INTEREST

No interest will be paid or allowed on any money withheld or received
by the Company under Section 4 of the Plan.

8. STOCK

(a) Maximum Shares. If the total number of shares of Common Stock
--------------
for which rights are exercised on the last day of any Option Period in
accordance with Section 5(c) causes the aggregate number of shares of Common
Stock issued under the Plan since its effective date (as set forth in Section
10(d)) to exceed the maximum number of shares of Common Stock authorized under
Section 1, the Committee shall make a pro rata allocation of the shares
available for delivery and distribution in as uniform a manner as shall be
practicable and as it shall determine to be equitable, and the balance of
payroll deductions or other payments of each Employee under the Plan shall be
returned to him or her without interest as promptly as possible.

(b) Participant's Interest in Stock. An Employee will have no
-------------------------------
interest in shares of Common Stock hereunder until such shares are purchased
under Section 5(c). Such shares shall not be transferable by the Employee until
certificates are delivered to him or her pursuant to Section 5(e).

(c) Registration of Stock. Stock to be delivered to an Employee
---------------------
under the Plan will be registered in the name of the Employee.

(d) Restrictions on Purchase. The Committee may, in its discretion,
------------------------
require as a condition to the exercise of any rights to purchase hereunder, that
the shares of Common Stock reserved for issuance under the Plan shall have been
duly listed, upon official notice of issuance, on the Nasdaq Stock Market and
registered pursuant to a Registration Statement under the Securities Act of
1933, as amended, which with respect to said shares shall be effective.

9. ADMINISTRATION

(a) Appointment of Committee. The Board of Directors shall appoint a
------------------------
committee (the "Committee") to administer the Plan, which shall consist of two
or more non-employee members of the Board of Directors. Members of the
Committee shall serve at the pleasure of the Board of Directors and will be
subject to removal by the Board of Directors at any time. No member of the

-5-

<PAGE>
Committee shall be eligible to purchase Common Stock under the Plan.

(b) Authority of Committee. Subject to the express provisions of the
----------------------
Plan, the Committee shall have the authority, in its discretion, to interpret
and construe any and all provisions of the Plan, to adopt rules and regulations
for administering the Plan and to make all other determinations deemed necessary
or advisable for administering the Plan. The Committee's determination on such
matters shall be conclusive.

(c) Rules Governing the Administration of the Committee. The
---------------------------------------------------
Committee may select one of its members as its Chairman and shall hold its
meetings at such times and places at it shall deem advisable and may hold
telephonic meetings. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. The
Committee may correct any defect or omission or reconcile any inconsistency in
the Plan, in the manner and to the extent it shall deem desirable. Any decision
or determination reduced to writing and signed by a majority of the members of
the Committee shall be as fully effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a secretary
and shall make such rules and regulations for the conduct of its business as it
shall dean advisable.

10. MISCELLANEOUS

(a) Transferability. Neither the payroll deductions or other
---------------
payments of an Employee nor any rights with regard to the purchase of stock
under the Plan may be assigned, transferred, pledged or otherwise disposed of in
any way by the Employee other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge or other
disposition shall be without effect.

(b) Use of Funds. All amounts withheld or received by the Company
------------
under this Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such amounts.

(c) Adjustment Upon Changes in Capitalization. (i) If, while any
-----------------------------------------
rights to purchase shares are outstanding, the outstanding shares of Common
Stock of the Company have increased, decreased, changed into or been exchanged
for a different number or kind of shares or securities of the Company or another
entity through reorganization, merger, recapitalization, reclassification, stock
split, reverse stock split or similar transaction, appropriate and proportionate
adjustments may be made by the Committee in the number and/or kind of shares
which are subject to purchase under outstanding rights and in the purchase price
or prices applicable thereto. In addition, in any

-6-

<PAGE>
such event, the number and/or kind of shares which may be offered hereunder
shall also be proportionately adjusted.

(ii) Upon the dissolution or liquidation of the Company, or upon
a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, no further shares will be available for purchase by
Participants under the Plan, except that any payroll deductions or other
payments collected in that Option Period will be immediately applied to purchase
whole shares of Common Stock. The Board of Directors shall take such steps in
connection with such transactions as it shall deem necessary to assure that the
provisions of this Section 10(c)(ii) shall thereafter be applicable, as nearly
as reasonably may be determined.

(d) Amendment and Terminations. The Board of Directors shall have
---------------------------
complete power and authority to terminate or amend the Plan; provided, however,
-------- -------
that the approval of the holders of a majority of the votes that may be cast by
all of the holders of shares of Common Stock and preferred stock of the Company,
if any, entitled to vote (voting as a single class) shall be obtained prior to
any such amendment becoming effective if such approval is required by law or is
necessary to comply with the regulations promulgated by the Securities and
Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934,
as amended, or with the Code or the regulations promulgated by the Treasury
Department thereunder. No termination, modification or amendment of the Plan
may, without the consent of an Employee then having an outstanding right under
the Plan to purchase stock, adversely affect such right.

(e) Effective Date. The Plan shall become effective on the later to
--------------
occur of (i) the date on which the Plan is approved by the stockholders of the
Company entitled to vote thereon and (ii) the date on which the Underwriting
Agreement is executed; provided, however, that the Plan will not be effective if
-------- -------
the stockholder vote occurs more than 12 months before or after the Plan is
adopted by the Board of Directors of the Company. The Plan will terminate on
the earlier of (A) the tenth anniversary of the effective date of the Plan and
(B) the date on which all shares of Common Stock available for issuance under
the Plan have been sold.

(f) No Employment Rights. The Plan does not, directly or indirectly,
--------------------
create in any Employee or class of Employees any right with respect to
continuation of employment by the Company or any of its subsidiaries, and it
shall not be deemed to interfere in any way with the right of the Company or of
any of its subsidiaries to terminate, or otherwise modify, an Employee's
employment at any time.

-7-

<PAGE>

(g) Effect of Plan. The provisions of the Plan shall, in accordance
--------------
with its terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.

(h) Governing Law. The laws of the State of Delaware will govern all
-------------
matters relating to this Plan except to the extent superseded by the laws of the
United States.

-8-

EXHIBIT 11.1

ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
(FORMERLY MED-E SYSTEMS CORPORATION)
SUPPLEMENTAL NET LOSS
PER COMMON SHARE COMPUTATION

<TABLE><CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE 30, 1996
--------------------
<S> <C>
(UNAUDITED)
CALCULATION OF SUPPLEMENTAL SHARES OUTSTANDING:
Debt to be repaid by offering proceeds................................... $ 4,000,000
Proceeds per share....................................................... 12.00
--------------------
Additional shares assumed outstanding.................................... 333,333
--------------------
Additional weighted average common shares outstanding.................... 226,519
Weighted average common shares outstanding............................... 4,991,135
--------------------
Supplemental weighted average common shares outstanding.................. 5,217,654
--------------------
--------------------

SUPPLEMENTAL NET LOSS PER SHARE:
Net loss................................................................. $ (1,856,841)
Pro forma impact of use of proceeds on interest expense.................. 46,440
--------------------
Supplemental net income loss............................................. (1,810,401)
Supplemental weighted average common shares outstanding.................. 5,217,654
--------------------
Supplemental net income loss per common share............................ $ (0.35)
--------------------
--------------------
</TABLE>

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
dated June 19, 1996 (except for the matters described in Note 14, as to which
the date is August 14, 1996), June 4, 1996 and June 5, 1996 and to all
references to our Firm included in or made a part of this registration
statement.

ARTHUR ANDERSEN LLP

New York, New York
September 5, 1996