BIRMAN MANAGED CARE INC, SB-2/A, 1996-10-31

BIRMAN MANAGED CARE INC
SB-2/A, 1996-10-31
MANAGEMENT CONSULTING SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION NO. 333-11957

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

BIRMAN MANAGED CARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 6749 62-1584092
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

502 GOULD DRIVE
COOKEVILLE, TENNESSEE 38506
(615) 432-6532
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)

DAVID N. BIRMAN, M.D.
PRESIDENT AND CEO
502 GOULD DRIVE
COOKEVILLE, TENNESSEE 38506
(615) 432-6532; (615) 432-6536 (TELECOPIER)
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN H. HEUBERGER, ESQ. ROBERT S. KANT, ESQ.
PETER B. ROSS, ESQ. JERE M. FRIEDMAN, ESQ.
RUDNICK & WOLFE O'CONNOR, CAVANAGH, ANDERSON, KILLINGSWORTH & BESHEARS, P.A.
203 NORTH LASALLE STREET, SUITE 1800 ONE EAST CAMELBACK ROAD, SUITE 1100
CHICAGO, ILLINOIS 60601 PHOENIX, ARIZONA 85012
(312) 368-4014 (602) 263-2400
(312) 984-2299 (TELECOPIER) (602) 263-2900 (TELECOPIER)
</TABLE>
------------------------

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the registration statement is declared effective.

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
effective registration statement for the same offering. [ ]

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
============================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share(2)................................ $0 0
- ----------------------------------------------------------------------------------------------------------------------------
Warrants(3)............................................................... 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Units(4).................................................................. $12,031,875 $4,148.92
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, reserved for issuance under
Warrants(5)............................................................. $15,650,350 $5,396.67
- ----------------------------------------------------------------------------------------------------------------------------
Representative's Warrants................................................. $1,550 $0.53
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Representative's Warrants.......... $1,255,500 $432.93
- ----------------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of Representative's Warrants.............. 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Warrants issuable upon exercise of
Representative's Warrants............................................... $1,360,900 $469.28
- ----------------------------------------------------------------------------------------------------------------------------
Total $30,300,175 $10,448.33
============================================================================================================================
</TABLE>

(1) Estimated solely for purposes of computing the registration fee.
(2) Includes 232,500 shares which the Underwriters have the option to purchase
to cover over-allotments.
(3) Includes 232,500 warrants which the Underwriters have the option to purchase
to cover over-allotments.

(4) Each Unit is consisting of one share of Common Stock, par value $.001 per
share, and one Warrant.
(5) Includes 232,500 shares issuable upon exercise of warrants included in the
Underwriters' over-allotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
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.

SUBJECT TO COMPLETION, DATED OCTOBER 31, 1996

PROSPECTUS
LOGO

1,550,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT

Birman Managed Care, Inc. (the "Company") is offering hereby 1,550,000
units ("Units"), each consisting of one share of the Company's Common Stock
("Common Stock") and one redeemable Common Stock Purchase Warrant ("Warrant") to
purchase one share of Common Stock at a price of $ (130% of the initial
public offering price of the Units), subject to adjustment in certain
circumstances, until 36 months from the date of this Prospectus. The Common
Stock and the Warrants included in the Units will be separately transferable
upon issuance. Commencing 90 days after the date of this Prospectus, the
Warrants will be redeemable by the Company at $.01 per Warrant upon 30 days'
notice mailed within 15 days after the closing bid price of the Common Stock on
the Nasdaq National Market ("Nasdaq") has equalled or exceeded $ per
share (110% of the exercise price of the Warrants) for a period of 20
consecutive trading days. See "Description of Securities."

Prior to this offering, there has been no public market for the Units,
Common Stock, or Warrants, and there can be no assurance that any such market
will develop. It is currently anticipated that the initial public offering price
will range between $5.75 and $6.75 per Unit. Application has been made to have
the Common Stock and Warrants approved for quotation on Nasdaq under the symbols
"BMAN" and "BMANW," respectively. The public offering price for the Units has
been determined arbitrarily by negotiations between the Company and W.B. McKee
Securities, Inc. (the "Representative") and does not necessarily bear any
relationship to the Company's results of operations, net worth, prospects, or
other commonly recognized criteria of value. See "Risk Factors" and
"Underwriting."
---------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AS WELL AS
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND
"DILUTION."
---------------------
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.
<TABLE>
<CAPTION>
=====================================================================================================
UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Per Unit................ $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)................ $ $ $
====================================================================================================
</TABLE>

(1) Excludes a non-accountable expense allowance to the Representative of the
Underwriters equal to 3% of the total Price to Public and the value of
warrants to purchase 155,000 Units (the "Representative's Warrants") to be
issued to the Representative. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $ , including the non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
232,500 additional Units at the public offering price solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ , and $ , respectively. See
"Underwriting."
---------------------
The Units are being offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the right to reject any order, in whole or in part, and subject to certain other
conditions. It is expected that delivery of the Units will be made against
payment therefor at the offices of W.B. McKee Securities, Inc., Phoenix, Arizona
on or about , 1996.
---------------------
W.B. MCKEE SECURITIES, INC.
The date of this Prospectus is , 1996
<PAGE> 3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY 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.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified pubic accountants after the end of each fiscal year, and quarterly
reports for the first three fiscal quarters of each year containing unaudited
summary consolidated financial information.
<PAGE> 4
PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes that (i) neither the
over-allotment option granted to the Underwriters nor the Representative's
Warrants will be exercised, and (ii) no other currently outstanding warrants or
options will be exercised.

THE COMPANY

The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost, and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. In pursuing these goals,
the Company currently provides its proprietary "Quality Management Program" to
hospitals to educate their medical staffs on patient management. As an expansion
of its business, the Company is developing and will operate various managed care
health programs ("health plans") in association with physician networks,
hospitals, and other health care providers based upon its belief that it can
apply its Quality Management Program experience to improve the management and
delivery of health care services in managed care systems. As part of its health
plan business, the Company will organize physicians into independent practice
associations, or networks, that will provide services to the Company's health
plans as well as independent health plans. The Company concentrates its efforts
on rural communities, particularly in the south-central, southeast, and central
United States, with an initial focus for its health plans on Mississippi and
Tennessee, where the development of managed care programs has lagged behind
other areas of the country.

Under its Quality Management Program, physicians employed by the Company
consult directly with attending physicians at hospitals regarding their overall
patient management program, as systematized in the medical record. The Quality
Management Program is designed to (i) improve patient care by encouraging the
use of the Company's proprietary methodology to assist physicians in the
identification of symptoms and conditions, to determine appropriate treatment,
and to prioritize the goals and objectives of the treatment plan, (ii) reduce
the cost to its hospital-clients of patient care as a result of the early
intervention in identified health problems, and (iii) more accurately describe
in the medical record the severity and complexity of the patient's illness and
the resources utilized to treat the patient. The benefits of the Quality
Management Program typically result in increased Medicare reimbursements for the
Company's hospital-clients.

The Company's strategy is to be an important provider of health care
consulting services and health plans. Key aspects of this strategy include (a)
concentrating the Company's Quality Management Program and health plan
operations in predominately rural areas in order to take advantage of the lack
of market penetration, the relative lack of competition, and the local
reputation and relationships it has developed; (b) focusing on the role of the
physician as the most important factor in the delivery of health care services
through co-ownership of the Company's health plans with physicians who provide
services to those health plans and through local physician participation in
developing and implementing treatment standards for their communities; (c)
increasing the number of clients for its Quality Management Program by offering
new services and expanding its marketing efforts in its existing market area and
by introducing its services into new market areas; and (d) applying the
experience it has gained through its Quality Management Program to the
development and operation of health plans.

3
<PAGE> 5

THE OFFERING

Securities Offered.................. 1,550,000 Units, each consisting of one
share of Common Stock and one Warrant.
The Common Stock and Warrants included
in the Units will be separately
transferable upon issuance.

Terms of Warrants................... Each Warrant entitles the holder
thereof to purchase, at any time until
three years after the date of this
Prospectus, one share of Common Stock
at a price of $ per share (130% of
the initial public offering price of
the Units), subject to adjustment.
Commencing 90 days after date of this
Prospectus, the Warrants will be
subject to redemption by the Company,
in whole but not in part, at $.01 per
Warrant on 30 days' notice mailed
within 15 days after the closing bid
price of the Common Stock as reported
on Nasdaq equals or exceeds $ per
share (110% of the exercise price of
the Warrants) for a period of 20
consecutive trading days. See
"Description of Securities."
Common Stock outstanding prior to
this offering..................... 6,931,082 shares(1)

Securities to be outstanding after
this offering....................... 8,481,082 shares of Common Stock and
1,550,000 Warrants(1)

Use of Proceeds..................... The Company intends to apply the net
proceeds of this offering to develop,
establish, and expand its health plans
($2,500,000); establish reserves in
furtherance of its health plans
($3,000,000); complete an acquisition
($1,000,000); expand its Quality
Management Program ($500,000); and
provide working capital for general
corporate purposes ($1,128,125). See
"Use of Proceeds."(2)

Proposed Nasdaq Symbols............. Common Stock: BMAN
Warrants: BMANW

Risk Factors and Dilution........... A purchase of Units involves a high
degree of risk and immediate and
substantial dilution to the purchasers
in this offering. See "Risk Factors"
and "Dilution."
- ---------------
(1) Does not include (a) 1,018,566 shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options, or (b) 57,805 shares of
Common Stock reserved for issuance upon the exercise of outstanding
warrants. The outstanding stock options vest over a three-year period. The
outstanding warrants first become exercisable in January 1997. See
"Management -- Stock Option Plans" and "Description of
Securities -- Warrants."

(2) At an assumed offering price of $6.25 per Unit, the net proceeds to the
Company from this offering are expected to be approximately $8.1 million
(approximately $9.4 million if the Underwriters' over- allotment is
exercised in full).

4
<PAGE> 6

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA(2)
--------------
FISCAL YEAR ENDED JUNE 12 MONTHS
30, ENDED
------------------------- JUNE 30,
1995 1996 1996
---------- ---------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenue.......................................... $ 4,818 $ 8,417 $ 8,417
Costs and expenses:
Cost of revenue............................... 2,381 2,279 2,279
Selling, general and administrative........... 3,114 4,237 4,309
---------- ---------- ----------
Income (loss) from operations................. (677) 1,901 1,829
---------- ---------- ----------
Income (loss) from continuing operations......... (483) 1,172 1,130
---------- ---------- ----------
Net income (loss)................................ $ (699) $ 1,172 $ 1,130
========== ========== ==========
Net income (loss) per share(1)................... $ (.09) $ .15 $ .12
========== ========== ==========
Weighted average common shares outstanding......... 7,725,434 7,725,434 9,275,434
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
---------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................... $2,916,807 $2,008,758 $ 10,136,883
Total assets...................................... $4,009,891 $5,057,488 $ 13,185,613
Total liabilities................................. $ 820,912 $1,868,509 $ 1,868,509
Stockholders' equity.............................. $3,188,979 $3,188,979 $ 11,317,104
</TABLE>

- ---------------
(1) Net income per share is calculated on the basis of the weighted average
shares outstanding of Common Stock for each year presented. See Note 1 of
Notes to Consolidated Financial Statements.

(2) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton Management Group, Inc. ("Canton"), as to which the Company
had entered into a definitive acquisition agreement. The pro forma combined
statement of operations data and consolidated balance sheet data for fiscal
1996 does not purport to represent what the Company's results of operations
or consolidated balance sheet data would have been if such acquisition had
been consummated on July 1, 1995. Although the Company anticipates that the
acquisition will close prior to the end of calendar year 1996, there can be
no assurance that such transaction will close by such time, or at all. See
"Unaudited Pro Forma Financial Information."

(3) Gives effect on a pro forma, as adjusted basis to (a) the acquisition of
Canton, and (b) the sale by the Company of the Units offered hereby at an
assumed initial public offering price of $6.25 per Unit and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."
---------------------

Unless the context otherwise requires, the term "Company" refers to Birman
Managed Care, Inc., a Delaware corporation, and its subsidiaries, including
Birman & Associates, Inc., BMC Health Plans, Inc., and Hughes & Associates, Inc.
The address of the Company is 502 Gould Drive, Cookeville, Tennessee 38506, and
its telephone number is (615) 432-6532. Except as otherwise indicated, the
information in this Prospectus has been adjusted to give effect to the change of
the state of incorporation of the Company from Tennessee to Delaware on
September 9, 1996 by means of a merger in which the shareholders of the
predecessor Tennessee corporation received 72.939 shares of the Company's Common
Stock for each 100 shares of common stock of the Tennessee corporation then
outstanding.

5
<PAGE> 7

RISK FACTORS

The purchase of Units involves a high degree of risk. In addition to the
other information contained in this Prospectus, prospective purchasers should
consider carefully the factors listed below in evaluating a purchase of Units.

EXPANSION INTO NEW BUSINESS

Since it began its business in 1991, the Company has derived substantially
all of its revenue from its Quality Management Program activities. The Company's
health plan business is in the start-up stage. There can be no assurance that
the Company will be successful in introducing its health plans or that the
health plans will achieve or maintain profitability in the future. Thus,
historic operating results may not be indicative of future operating results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Growth Strategy."

GROWTH STRATEGY AND LIMITATIONS ON GROWTH

The Company's growth strategy involves the development and operation of
health plans, primarily in rural communities. The success of these health plans
will depend upon the Company's ability to obtain and maintain necessary state
licenses, organize physician networks, secure employers as subscribers to the
health plans, secure Medicare and Medicaid contracts for its health plans,
secure adequate numbers of enrollees to make its health plans economically
viable, and manage the health plans. Identifying and recruiting candidates to be
participating providers and obtaining the necessary licenses to offer and
operate health plans can be a lengthy, complex, and costly process. Although the
Company believes that its reputation and relationships with hospitals and
physicians in market areas in which it intends to establish health plans will
enable it to organize physician networks and enlist other providers for its
health plans, there can be no assurance that the Company will be able to do so,
that the Company will be able to obtain necessary licenses, or that the Company
will be able to operate profitably any health plan.

The Company has recently experienced rapid growth in its Quality Management
Program business. The continued rapid growth of that business may impair the
Company's ability to provide effectively its consulting services, particularly
if the Company is unable to recruit and train an adequate number of qualified
physicians and allied health specialists and adequately manage and supervise its
staff of physicians and allied health specialists. In addition, there can be no
assurance that the Company will manage its expanding operations effectively or
that it will be able to achieve its planned growth. See "Business -- Growth
Strategy."

POTENTIAL FLUCTUATION IN OPERATIONS AND OPERATING RESULTS

The Company's operating results could vary from period to period as a
result of seasonality in discharges of Medicare patients by Quality Management
Program hospital-clients, fluctuations in severity of illness, changes in the
Medicare prospective payment system, the expiration of contracts to provide
Quality Management Program services coupled with a failure to replace such
contracts with comparable engagements, underperforming contract engagements, and
changes in governmental regulations. The Company's operating results will also
vary from period to period as a result of the development, marketing, start-up,
and management of its health plan business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

RISK OF MEDICARE AUDITS ON QUALITY MANAGEMENT PROGRAM BUSINESS

Hospitals and physicians providing services under Medicare are subject to
regulatory responsibilities imposed by the Health Care Financing Administration
("HCFA"). Peer Review Organizations ("PROs") engaged by HCFA in each state
routinely review and audit reimbursement requests, including patient admissions,
quality of care, and appropriateness of diagnostic-related group ("DRG")
selections, among other things. The depth of review varies from hospital to
hospital. There is always a risk that PRO attention may focus with increased
scrutiny on reimbursement requests submitted by hospital-clients of the Company
that achieve increased reimbursements as a result of the Quality Management
Program. In addition, HCFA

6
<PAGE> 8

investigates allegations of fraud and abuse of Medicare and Medicaid and has
instituted a multi-state program called "Operation Restore Trust" to punish
persons engaged in fraud and abuse of Medicare and Medicaid, recover funds,
identify areas of vulnerability, and prevent fraud. Among the areas of
investigatory interest to HCFA are billing code fraud, billing schemes, and
kickbacks involving providers. Historically, the Quality Management Program has
not been the cause of a focused review or audit by a PRO or a formal
investigation by HCFA. However, there can be no assurance that focused reviews,
audits, or investigations will not occur in the future. A denial of
reimbursement requests submitted by a hospital-client as a result of the
implementation of the Quality Management Program may result in the Company being
required to reimburse all or a portion of its fees to the hospital-client, could
result in one or more hospital-clients seeking to withdraw from their contracts,
and could result in a formal investigation by HCFA. Such events could have a
material adverse effect on the Company.

PRINCIPAL CLIENT

The Company has provided Quality Management Program services to various
hospitals operated by Quorum Health Care, Inc. ("Quorum") since 1991. Services
to hospitals operated by Quorum produced approximately 42% of the Company's
Quality Management Program revenue in fiscal 1996. Historically, the on-site
management of each Quorum hospital has made its own decision regarding the
engagement of the Company, and the Company has entered into a separate contract
with each engaging Quorum facility. The Company is endeavoring to expand its
Quality Management Program client base to reduce its dependence on Quorum
hospitals.

NEED TO PREDICT AND CONTROL HEALTH CARE COSTS

The profitability of the Company's health plans will depend in large part
upon the ability of the Company to predict health care costs accurately and to
control those costs through the negotiation of favorable provider contracts and
the imposition of utilization management, case management, and quality assurance
programs. The demographic characteristics in the rural communities to be served
by the Company's health plans may contribute to health care costs that exceed
Company projections or increase more rapidly than anticipated. In this regard,
persons in the rural communities to be served by the Company's health plans may,
among other things, be older and have lower incomes than persons in other areas
of the country. Changes in health care practices, inflation, new technologies,
major epidemics, diseases and catastrophes, clusters of high-cost cases, and
numerous other factors affecting the delivery and costs of health care cannot be
predicted or controlled and may adversely affect the Company's ability to
predict and control health care costs and claims. In addition, there can be no
assurance that provider agreements negotiated in the future will not result in
substantially higher costs to the Company that cannot be passed through to
payors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

RISK OF LIMITED HEALTH PLANS

The Company intends to offer prospective payors three health plan
alternatives: a health maintenance organization ("HMO"), a preferred provider
organization ("PPO"), and a point-of-service option. Initially, it will offer
only HMOs to commercial and perhaps Medicaid enrollees. Because PPOs and the
point-of-service option require the additional component of indemnity insurance,
the availability of the PPOs and point-of-service option will require separate
licensure of an insurance company and agent and is not expected to be available
to payors and/or enrollees for at least six months following the launch of each
HMO plan. National Benefits Resources, Inc. ("NBR"), a managing general
underwriter of indemnity insurance products and a stockholder in the Company, is
assisting the Company in arranging the necessary insurance licenses. However,
there can be no assurance that the Company will be able to offer a PPO or a
point-of-service option at the time or times that it desires to do so or that
any of the Company's health plans that are launched will be successful in
offering its intended spectrum of plans.

HEALTH CARE REFORM

As a result of the escalation of health care costs and the inability of
many individuals and employers to obtain affordable health insurance, numerous
health care reform proposals have been, and may continue to be, introduced in
the United States Congress and state legislatures. Among the proposals under
consideration are

7
<PAGE> 9

price controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health care coverage to their employees, the creation of a
government health insurance plan or plans that would cover all citizens,
mandated health plan benefits, mandated provider payment arrangements, and other
proposals involving various aspects of health plan operations. There can be no
assurance which, if any, of these proposals will be adopted or the effect on the
Company of any such proposals that are adopted. See "Business -- Government
Regulation."

GOVERNMENT REGULATION

The Company, its Quality Management Program hospital-clients, the health
plans to be organized by the Company, and health insurance companies are subject
to substantial regulation at both the federal and state levels. The Company is
subject to a number of laws governing issues as diverse as relationships between
health care providers and their referral sources, prohibitions against providers
referring patients to an entity with which the provider has a financial
relationship, licensure and other regulatory approvals, the corporate practice
of medicine, and regulation of unprofessional conduct by providers, including
fee-splitting arrangements. Although the Company believes that its current
operations comply, and its proposed operations will comply, with relevant
federal and state laws, many aspects of the relationships between the Company
and its hospital-clients and the Company's health plans have not been the
subject of judicial or administrative interpretation. An adverse review or
determination by any court or applicable administrative agency or changes in the
regulatory requirements could have a material adverse effect on the operations
and financial condition of the Company.

Regulatory matters affecting HMOs and health insurance companies in
particular include regulations relating to cash reserves, minimum net worth,
licensing requirements, approval of policy language and benefits, mandatory
products and benefits, provider compensation arrangements, premium rates, and
periodic examinations by federal and state agencies. The Company will be subject
to state insurance laws if and to the extent it assumes the risk for the
provision of health services. In addition, the Company is subject to federal and
state antitrust laws, which prohibit the Company from engaging in
anticompetitive activities, such as monopolization and price fixing. State
regulations may also restrict the ability of Company HMOs to distribute funds to
the Company. Changes also could be made in Medicare and Medicaid reimbursement
rates. Many states have adopted, or are considering, regulations relating to
mandatory benefits, provider compensation, "any willing provider" provisions,
and the composition of physician networks. Changes in federal and state laws
could increase health care costs and administrative expenses. There can be no
assurance that any future regulatory action by governmental agencies will not
have an adverse impact on the profitability or marketability of the Company's
health plans in their respective jurisdictions. See "Business -- Government
Regulation."

DEPENDENCE UPON REIMBURSEMENT BY THIRD-PARTY PAYORS

Clients for the Company's Quality Management Program derive, and the
Company through its health plans will derive, substantial revenue from
third-party payors. The health care industry is undergoing cost-containment
pressures as third-party payors seek to impose lower reimbursement and
utilization rates and to negotiate reduced rate payments with medical service
providers. The Company believes that this trend will continue. Reductions in
payments to hospitals or other changes in reimbursements for health care
services could have a direct or indirect material adverse effect on the Company.

SUBSTANTIAL COMPETITION

The Company's Quality Management Program competes for hospitals as clients
in the revenue optimization sector of the health care consulting business. The
Company's health plans will compete in the managed care and insurance sectors of
the health care industry. Both sectors are highly competitive. Within each
sector, there are a large number of competitors, many of which have
substantially greater financial, technical, marketing, and management resources
than the Company. Although the Company believes the acceptance of its Quality
Management Program and its familiarity with and reputation in rural areas will
enable it to compete successfully, there can be no assurance that the Company
will be able to compete

8
<PAGE> 10

effectively against existing competitors or that additional competitors will not
enter the rural markets the Company plans to serve. See
"Business -- Competition."

RISKS ASSOCIATED WITH HEALTH PLAN CONTRACTS; CAPITATED FEE REVENUE

The Company's success will depend, in part, upon its ability to develop and
market its point-of-service options that offer enrollees the right to select
providers at the time services are sought from the HMO or the PPO or from
outside the system. The Company will offer its HMOs to payors on a prepaid
basis, pursuant to which the HMO will accept a capitated or prepaid per member
per month fee for providing all necessary covered services to a payor's
enrollees. Comparable per member per month capitated fees are then paid by an
HMO to the participating providers. HMO contracts shift much of the financial
risk of providing health care from the payor to the provider. The proliferation
of HMO elections by enrollees could result in greater predictability of Company
revenue and related expenses, while increased elections for PPO and point of
service options by enrollees could result in greater unpredictability of
expenses if enrollees that do not select the HMO option require more frequent or
extensive care than anticipated. As a result, the Company may incur additional
costs that would reduce or eliminate any earnings under its contracts. The
Company intends to reinsure catastrophic and excess risks. There can be no
assurance that the Company will be able to negotiate satisfactory contracts with
payors or with health care providers or obtain or maintain catastrophic
reinsurance.

LIABILITY AND INSURANCE

The physicians and allied health specialists employed by the Company in its
Quality Management Program do not treat patients, make any treatment or
diagnostic decisions, or provide any medical services. Although the Company
believes that the Quality Management Program activities of its physicians do not
constitute the practice of medicine or establish physician-patient relationships
for which the Company could incur liability, the Company may be exposed to the
risk that professional liability claims could be brought against the Company by
third parties.

In its health plan business, the Company will provide only non-medical
services. It will not control or direct the practice of medicine by the
physicians or the compliance with certain regulatory and other requirements
directly applicable to physicians or physician groups. However, Company-managed
networks may become subject to claims, suits, or complaints relating to services
and products provided by the physicians in the network, and there can be no
assurance that such claims will not be asserted against the Company.

Although the Company maintains, and expects to continue to maintain,
insurance coverage for professional liability claims, such insurance, by its
nature, is limited in the scope of coverage and amount. Each of the Company's
health plans will maintain, and the Company will require each physician
participating in the Company's health plans to maintain, comprehensive
professional liability insurance. There can be no assurance that any claims
asserted against the Company will not be successful or, if successful, will not
exceed the limits of any insurance coverage maintained by or for the benefit of
the Company. Furthermore, there can be no assurance that insurance coverage will
continue to be available at acceptable rates. See "Business -- Potential
Liability and Insurance."

New forms of health care organizations have increasingly been subject to
liability for reasons such as failing to credential providers properly or
contributing to physician malpractice. In response, many health care
organizations obtain general liability, managed care, and professional liability
insurance coverage. In addition, medical directors have also faced professional
liability claims and state licensure challenges. The Health Care Quality
Improvement Act of 1986, however, provides immunity from damages for
professional review actions taken by professional review bodies, including
health plans, in good faith, provided that certain procedural standards are met.
The Company intends to comply with such procedures in its professional review
actions. However, no assurance can be given that the Company will satisfy the
indemnity requirements or that any insurance coverage the Company obtains will
be adequate to protect against all claims that may be asserted against the
Company.

9
<PAGE> 11

Like HMOs and health insurers generally, the Company intends to exclude
certain health care services from coverage under its health plans. In the
ordinary course of its health plan business, the Company will be subject to
claims by its enrollees arising out of decisions made by its health plans to
restrict treatment or to restrict reimbursements for certain services. The loss
of any such claim, resulting in a significant punitive or other damage award or
a directive that the Company significantly change its operations, could have a
material adverse effect on the Company. In addition, the risk of potential
liability under punitive damage theories may increase significantly the
difficulty of obtaining reasonable settlements of coverage claims. There can be
no assurance that successful claims of enrollees will not have a material
adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

The Company depends to a significant extent on the efforts and skills of
its key personnel, particularly David Birman, M.D. and D. Bradley Seitzinger,
M.D., with respect to its Quality Management Program business and Vincent W.
Wong and Mark C. Wade with respect to its health plan business. The Company has
entered into employment agreements with all four of these key employees. The
loss, incapacity, or unavailability of any of these individuals could adversely
affect the Company's operations. In addition, it may be necessary for the
Company to attract and retain additional individuals to support the growth of
its business or to replace key personnel in the event of the termination of
their employment with the Company. The Company intends to acquire a $1,000,000
key man insurance policy on the life of Dr. Birman. See
"Management -- Employment Agreements."

FUTURE CAPITAL NEEDS

Implementing the Company's growth strategy will require substantial
additional capital for the development of its health plans and for the marketing
and expansion of its Quality Management Program. To date, the Company has
financed its growth primarily through operating income, a bank term loan, and
the proceeds of private offerings of shares of Common Stock, the most recent
offering being completed in June 1996. The Company believes that its existing
cash resources, together with the net proceeds from this offering, cash flow
from operations, and available lines of credit will be sufficient to meet the
Company's working capital and expansion needs for the next 24 months.

Since the rate of expansion of the Company's business will depend on the
availability of capital, the Company may be required to raise additional capital
in the future. The Company may obtain such capital through additional borrowings
or the issuance of additional equity or debt securities, either of which could
have an adverse effect on the value of the securities offered by this
Prospectus. There can be no assurance that the Company will be able to secure
such financing, if necessary, on favorable terms. If the Company is unable to
secure additional financing in the future, its ability to pursue its growth
strategy may be delayed, perhaps indefinitely, and its results of operations for
future periods could be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

VOTING CONTROL

Upon completion of this offering, David N. Birman, M.D., the Chairman of
the Board, President, and Chief Executive Officer of the Company, will have sole
beneficial ownership, together with his wife, Sue D. Birman, Executive Vice
President and a director of the Company, of approximately 61.83% of the
outstanding shares of the Common Stock of the Company. Consequently, absent a
further issuance of shares of Common Stock, Dr. Birman will continue to be able
to control the election of the Board of Directors of the Company and thereby
determine the Company's policies and the outcome of corporate actions requiring
stockholder approval.

ABSENCE OF DIVIDENDS

The Company has paid no cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Any future dividends will

10
<PAGE> 12

depend on the earnings, if any, of the Company, its financial requirements, and
other factors. See "Dividend Policy."

IMMEDIATE AND SUBSTANTIAL DILUTION

The purchasers of Units offered hereby will experience immediate and
substantial dilution of the pro forma net tangible book value of the shares of
Common Stock included in the Units in the amount of $5.06 per share, assuming an
initial public offering price of $6.25 per Unit. In the event that the Warrants
included in the Units, the Representative's Warrants, or other warrants or
options to purchase Common Stock are exercised, or in the event that the Company
issues additional shares of Common Stock in the future, including shares that
may be issued in connection with future acquisitions, purchasers of Units in
this offering may experience further dilution in the pro forma net tangible book
value per share of Common Stock. See "Dilution."

NO PRIOR MARKET FOR COMMON STOCK OR WARRANTS; POSSIBLE VOLATILITY OF MARKET
PRICE

Prior to this offering, there has been no public market for the Units or
the underlying Common Stock or Warrants, and there can be no assurance that an
active public market for such securities will develop or continue after this
offering. If an active public market for such securities does not develop or is
not sustained, it will be more difficult for an investor desiring to liquidate
his, her or its investment in the securities in an orderly fashion and could
result in a decline in the market price for the securities, perhaps below the
price paid by the investor for such securities. The initial public offering
price of the Units was determined by negotiations between the Company and the
Representative and may not be indicative of the market price for the Common
Stock or Warrants after this offering. See "Underwriting" for factors considered
in determining the initial public offering price. From time-to-time after this
offering, there may be significant volatility in the market price for the Common
Stock and Warrants. Quarterly operating results of the Company, the timing of
the launch of health plans, changes in general conditions in the economy or the
health care industry, legislative and regulatory actions, or other developments
affecting the Company or its competitors could cause the market price of the
Common Stock and Warrants to fluctuate substantially. On occasion, the equity
markets have experienced significant price and volume fluctuations that have
affected the market prices for many companies' securities, at times for reasons
unrelated to the operating performance of those companies. Concern about the
potential effects of health care reform measures has contributed to the
volatility of stock prices of companies in health care and related industries
and may similarly affect the price of the Common Stock and Warrants following
this offering. Any such fluctuations that occur following this offering may
adversely affect the market price of the Common Stock and Warrants.

Commencing 90 days after the date of this Prospectus, the Warrants will be
subject to redemption by the Company, in whole but not in part, at $0.01 per
Warrant on 30 days' notice mailed within 15 days after the closing bid price of
the Common Stock as reported on Nasdaq has equalled or exceeded $ per share
(110% of the exercise price of the Warrants) for any 20 consecutive trading
days. See "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of Common Stock after this
offering, or the perception that such a sale could occur, could adversely affect
prevailing market prices for the Common Stock and Warrants. In addition, any
such sales or perception of such sales could 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. After giving effect to the
sale of Units offered hereby, the Company will have 8,481,082 shares of Common
Stock outstanding. Of these shares, 1,550,000 shares of Common Stock are
included in the Units. The remaining 6,931,082 shares are "restricted
securities" within the meaning of Rule 144 ("Rule 144") adopted under the
Securities Act of 1933, as amended (the "Securities Act"). The restricted shares
may be sold in the future in compliance with Rule 144. Rule 144 generally
provides that beneficial owners of Common Stock who have held such common stock
for two years may sell, within any three-month period, a number of shares not
exceeding the greater of 1% of the total outstanding shares or the average
weekly trading volume of

11
<PAGE> 13

the shares during the four calendar weeks preceding such sale. The Company has
agreed not to sell any shares of its Common Stock, and its directors, officers,
and certain stockholders, holding in the aggregate substantially all of the
Company's currently outstanding shares of Common Stock, have agreed not to
offer, sell, or otherwise dispose of any of their shares, in each case for a
period of 24 months after the date of this Prospectus except as otherwise
permitted by the Representative. The Representative may consider permitting a
sale of shares subject to so-called "lock-up" agreements in private
transactions, for inclusion of such shares in registered public offerings, and
if the Representative reasonably determines that the sale of such shares would
not result in a material adverse effect to the value of the securities.

The Securities and Exchange Commission (the "Commission") has recently
proposed reducing the initial Rule 144 holding period to one year. It is unclear
whether or when such rule change will be enacted. If enacted, such modification
will reduce the time when certain shares of the Common Stock become eligible for
resale.

STATE AND FEDERAL REGISTRATION REQUIREMENTS FOR THE EXERCISE OF WARRANTS

Holders of Warrants will have the right to exercise the Warrants only if at
the time of proposed exercise the underlying shares of Common Stock are
qualified or registered for sale pursuant to an effective registration statement
under the Securities Act and under applicable securities laws of the states in
which such holders reside (if not exempt from such qualification or registration
requirements). In addition, the securities laws of certain states may require
the holders of Warrants to exercise such Warrants through a registered broker-
dealer. The Warrant Agreement requires the Company to maintain an effective
registration statement under the Securities Act for the term of the Warrants.
There can be no assurance, however, that the Company will be able to maintain
such registration or qualification at all times at which the holders of Warrants
may desire to exercise their Warrants or in every state in which such holders
reside. Holders of Warrants residing in states where such shares are not
qualified or registered or otherwise exempt from such requirements may be denied
the right to exercise those Warrants.

STOCK ISSUABLE PURSUANT TO REPRESENTATIVE'S WARRANTS, OPTIONS, AND OTHER
WARRANTS

The Company has agreed to issue to the Representative the Representative's
Warrants to purchase 155,000 Units, which include the option to acquire
additional shares of Common Stock upon exercise of the Warrants included
therein. The holders of the Representative's Warrants will have the right to
require the Company to register under the Securities Act both the
Representative's Warrants and the underlying securities. The Representative's
Warrants will be exercisable at a price equal to 120% of the initial public
offering price of the Units, or $ , during the four-year period commencing
one year after the date of this Prospectus. The Company has also reserved
1,558,780 shares of Common Stock for issuance under the Company's stock option
plans (the "Stock Option Plans") and 57,805 shares of Common Stock for issuance
under warrants previously issued by the Company. The exercise price of the
previously granted options is $1.37 per share ($6.25 per share for options
granted to non-employee directors) and the weighted average exercise price of
the previously issued warrants is $1.39 per share. With the exception of one
option that is vested as to 20,058 shares, the previously granted options may be
exercised beginning February 1, 1997. The previously issued warrants are
exercisable at any time on or after January 1, 1997 and before December 31,
2001.

The holders of the Representative's Warrants, options granted or that may
be granted under the Company's Stock Option Plans, and outstanding warrants may
profit from a rise in the market price of the Common Stock. The existence of the
Representative's Warrants, options, and warrants may adversely affect the terms
on which the Company may obtain additional equity financing. Moreover, such
holders are likely to exercise their rights at a time when the Company would
otherwise be able to obtain capital on terms more favorable than could be
obtained through the exercise of such warrants and options.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and of the
Delaware General Corporation Law (the "Delaware GCL") could, together or
separately, discourage potential acquisition proposals,

12
<PAGE> 14

delay or prevent a change in control of the Company, and limit the price that
certain investors might be willing to pay in the future for shares of the Common
Stock. Certain of these provisions (i) permit the issuance, without further
stockholder approval, of preferred stock with rights and privileges that could
be senior to the Common Stock, and (ii) require a super-majority vote
requirement in connection with the adoption of certain corporate transactions
not unanimously recommended to the stockholders by the Board of Directors,
including merger, sale of asset and securities acquisition transactions.
Following this offering, the Company will also be subject to Section 203 of the
Delaware GCL which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. See "Description of
Securities." Because any person interested in acquiring the Company or its
business could be obligated to do so in a transaction negotiated with management
of the Company, the prospects of a disposition of the Company through an auction
process are reduced, thereby reducing the potential that a significant premium
over the market value of shares of Common Stock would occur. However, because
the directors of the Company owe a fiduciary duty to the stockholders, if a
decision to sell the Company is made the directors could have an obligation to
maximize the price paid for the Company or the shares of its Common Stock.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements and information contained under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" concerning future, proposed, and intended activities
of the Company and the health care industry, and other statements contained
herein regarding matters that are not historical facts are forward-looking
statements (as such term is defined in the Securities Act). Forward-looking
statements, by their very nature, include risks and uncertainties. Accordingly,
actual results may differ, perhaps materially, from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include those discussed under "Risk Factors."

13
<PAGE> 15

THE COMPANY

The Company was incorporated in 1994 in Tennessee under the name BA Forum,
Inc. Its name was changed to Birman Managed Care, Inc. in October 1995. The
Company was reincorporated in Delaware in September 1996. The Company serves as
the holding company for Birman & Associates, Inc. and BMC Health Plans, Inc.
Birman & Associates, Inc. has been engaged in the business of providing the
Quality Management Program since 1991. As of June 30, 1995, Birman & Associates,
Inc. distributed all of the shares of capital stock of Birman Farms, Inc., a
livestock breeding operation, as a dividend to its then sole shareholder, David
N. Birman, M.D. In July 1995, Dr. Birman contributed all of the outstanding
common stock of Birman & Associates, Inc. to the Company. BMC Health Plans, Inc.
was formed in November 1994 to pursue the development of the Company's health
plan business with Dr. Birman as its sole shareholder. In January 1995, Dr.
Birman contributed all of the outstanding common stock of BMC Health Plans, Inc.
to the Company.

In furtherance of its health plan business, in June 1996 the Company
acquired substantially all of the assets of Hughes & Associates, Inc.
("Hughes"), a Jackson, Mississippi-based provider of utilization review services
to insurance companies and health care plans.

On September 6, 1996, the Company entered into a definitive agreement to
acquire substantially all of the issued and outstanding shares of capital stock
of Canton, an inactive holder of a certificate of authority to operate a HMO in
Mississippi. Upon closing of the acquisition, Canton will be renamed Care3, Inc.
and will become a partially owned subsidiary of the Company. Other persons,
particularly certain of the founders of Canton and selected physicians, will be
minority shareholders of Care3, Inc. and may acquire up to 40% of the equity
securities of Care3, Inc. for nominal consideration. The Company anticipates
that it will own not less than 60% of Care3, Inc.

Through another newly formed subsidiary, MMMC, Inc., the Company is
embarking into the management services organization ("MSO") business by entering
into an administrative services agreement with a network of private medical
practitioners in the Gulfport, Mississippi area, MedSouth, Inc. ("MedSouth").
The Company anticipates that it will hold a 90% interest in the MSO, with
MedSouth owning the balance of the capital stock.

The Company's executive offices are located at 502 Gould Drive, Cookeville,
Tennessee 38506; its telephone number is (615) 432-6532.

14
<PAGE> 16

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,550,000 Units
offered hereby, at an assumed initial public offering price of $6.25 per Unit,
are estimated to be approximately $8,128,125 (approximately $9,392,343 if the
Underwriters' over-allotment option is exercised in full), after deducting
estimated offering expenses of approximately $590,625 ($634,219 if the
Underwriters' over-allotment option is exercised in full) and underwriting
discounts and commissions. The Company currently intends to use the net proceeds
of this offering for the following purposes:

<TABLE>
<CAPTION>
ESTIMATED
PURPOSE AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
HMO restricted cash reserves(1).......................................... $3,000,000
Development and implementation of health plans(2)........................ $2,500,000
Acquisition of Canton(3)................................................. $1,000,000
Expansion of Quality Management Program business(4)...................... $ 500,000
Working capital for general corporate purposes........................... $1,128,125
</TABLE>

- ---------------
(1) This amount represents the estimated sums required to be deposited in
restricted accounts to evidence the Company's solvency under the HMO
licensing regulations of the states of Tennessee and Kentucky and other
states.

(2) This amount includes the estimated cost of developing and implementing a
health plan in Tennessee and the possible development and implementation of
similar plans in Kentucky and approximately two other states.

(3) This amount includes the estimated cost of completing the acquisition of
Canton, the holder of a certificate of authority to operate a HMO in
Mississippi, including the cash portion of the purchase price to be paid to
the shareholders of Canton and the start-up operation of the health plan in
Mississippi.

(4) This amount includes the estimated costs of developing computer software and
databases to enhance the Quality Management Program; the recruitment,
employment, and training of professional staff members, including
physicians; and Quality Management Program marketing and promotional costs
and expenses to be incurred through July 31, 1997.

Until applied as set forth above, the net proceeds will be invested in
short-term, investment-grade instruments or bank certificates of deposit.
Investment of the net proceeds in short-term securities rather than operations
could adversely affect the Company's overall return on its capital.

The foregoing represents the Company's current intentions with respect to
the allocation of the net proceeds of this offering based upon its present plans
and business conditions. There can be no assurance that unforeseen events or
changes in business conditions or federal or state or government regulations
will not result in the application of the proceeds of this offering in a manner
other than as described in this Prospectus. See "Risk Factors."

Any funds received by the Company upon exercise of the Warrants, the
Underwriters' over-allotment option, and the Representative's Warrant will be
added to working capital.

DIVIDEND POLICY

To date, the Company has not paid any cash dividends on its Common Stock.
The payment of dividends in the future will be within the discretion of the
Board of Directors and will depend on the Company's earnings, capital
requirements, financial condition, and other relevant factors. The Board of
Directors does not intend to declare any cash dividends in the foreseeable
future, but instead intends to retain earnings for use in the Company's business
operations. See "Risk Factors -- Absence of Dividends" and "Description of
Securities."

15
<PAGE> 17

DILUTION

The difference between the public offering price per share of Common Stock
(assuming no value is attributed to the Warrants) and the as adjusted pro forma
net tangible book value per share of Common Stock after this offering and giving
effect to the acquisition of Canton constitutes the dilution to investors in
this offering. Pro forma net tangible book value per share is determined by
dividing the pro forma net tangible book value (total pro forma assets less
intangible assets and total liabilities) by the number of outstanding shares of
Common Stock.

At June 30, 1996, the pro forma net tangible book value of the Company was
$1,931,019, or $0.28 per share of Common Stock. At June 30, 1996, after giving
effect to the sale of the Units offered hereby at an assumed initial offering
price of $6.25 (less underwriting discounts and commissions and estimated
expenses of this offering), and assuming no exercise of the Underwriters'
over-allotment option, the as adjusted pro forma net tangible book value at that
date would be $10,059,144, or $1.19 per share. This represents an immediate
increase in the adjusted pro forma net tangible book value of $.91 per share to
existing stockholders and an immediate dilution of $5.06 per share to new
investors, or 80% of the assumed offering price of $6.25 per share.

The following table illustrates the per share dilution to new investors
without giving effect to the results of operations of the Company subsequent to
June 30, 1996:

<TABLE>
<S> <C> <C>
Assumed public offering price......................................... $6.25
Pro forma net tangible book value at June 30, 1996.................. $.28
Increase attributable to new investors.............................. $.91
Net tangible book value after offering................................ $1.19
-----
Dilution to new investors............................................. $5.06
=====
</TABLE>

In the event the Underwriters exercise the over-allotment option in full,
the as adjusted pro forma net tangible book value per share would be $1.30,
which would result in dilution to the public investors of $4.95.

The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company (assuming no value is attributed to the
Warrants and not including any shares of Common Stock issuable upon exercise of
the Warrants), the amount and percentage of consideration paid, and the average
price per share paid by existing stockholders and by new investors in this
offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 6,931,082 81.72% $ 2,010,000 17.18% $ .29
Public investors................. 1,550,000 18.28% $ 9,687,500 82.82% $6.25
--------- ------ ----------- ------
Total.................. 8,481,082 100.00% $11,697,500 100.00%
========= ====== =========== ======
</TABLE>

The above table assumes no exercise of (i) the Underwriters' over-allotment
option, (ii) the Representative's Warrants, (iii) other outstanding warrants to
purchase 57,805 shares of Common Stock at a weighted average exercise price of
$1.39 per share, (iv) options to purchase 1,006,566 shares of Common Stock
granted to key employees at an exercise price of $1.37 per share, and (v)
options to purchase 12,000 shares of Common Stock granted to non-employee
directors at an exercise price of $6.25 per share. See "Risk
Factors -- Immediate and Substantial Dilution," "Management -- Compensation of
Directors," "Management -- Fiscal 1996 Option Grants," "Principal Stockholders,"
"Underwriting," and "Description of Securities."

16
<PAGE> 18

CAPITALIZATION

The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization as of June 30, 1996, giving
effect to the acquisition of Canton, as if such acquisition had occurred on such
date, and (iii) the pro forma capitalization as of June 30, 1996, as adjusted to
give effect to the sale of the Units offered hereby (at an assumed public
offering price of $6.25 per Unit, without giving effect to the Underwriters'
over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds," as if all such events had occurred on June
30, 1996.

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
---------- ------------ --------------
<S> <C> <C> <C>
Long-term debt(1)(2)................................ $ 7,037 $ 607,037 $ 607,037
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding... 0 0 0
Common Stock, $.001 par value, 25,000,000 shares
authorized; 6,931,082 shares issued and
outstanding actual and 8,481,082 shares issued
and outstanding pro forma as adjusted(3)....... 6,931 6,931 8,481
---------- ---------- ----------
Additional paid-in capital.......................... 1,780,612 1,780,612 9,907,187
---------- ---------- ----------
Retained earnings................................... 1,401,436 1,401,436 1,401,436
---------- ---------- ----------
Total stockholders' equity................ $3,188,979 $3,188,979 $ 11,317,104
========== ========== ==========
Total capitalization...................... $3,196,016 $3,796,016 $ 11,924,141
========== ========== ==========
</TABLE>

- ---------------
(1) The purchase price for Canton is $1,500,000, payable $700,000 in cash at the
closing and $800,000 payable in four equal annual installments of $200,000
of principal plus interest at 2% per annum on the unpaid principal balance
commencing on the first anniversary of the closing.

(2) The Company has a $1,000,000 maximum principal amount working capital
revolving line of credit facility with American National Bank and Trust
Company of Chicago. The facility has an initial maturity date of October
31, 1997. The facility provides for the accrual of interest on the unpaid
balance at an annual rate equal to the lender's prime rate, adjusted daily.
The facility is secured by the accounts receivable of the Quality
Management Program and of Hughes.

(3) Excludes (a) 1,006,566 shares of Common Stock subject to options pursuant to
the Company's 1995 Option Plan at an exercise price of $1.37 per share; (b)
12,000 shares of Common Stock subject to options pursuant to the Company's
1996 Directors' Plan at an exercise price of $6.25 per share, (c) 57,805
shares of Common Stock issuable upon exercise of outstanding Common Stock
purchase warrants at a weighted average exercise price of $1.39 per share,
(d) 1,550,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Units, and (v) 310,000 shares of Common Stock subject to
the Representative's Warrants (including shares issuable upon exercise of
the Warrants underlying the Representative's Warrants.) See
"Management -- Stock Option Plans" and "Description of Securities."

17
<PAGE> 19

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following summary historical financial data have been derived from the
audited consolidated financial statements of the Company. The historical
consolidated statement of operations data set forth below with respect to the
fiscal years ended June 30, 1995 and June 30, 1996 and the consolidated balance
sheet data at June 30, 1996 are derived from, and are qualified by reference to,
the audited Consolidated Financial Statements included elsewhere in this
Prospectus and should be read in conjunction with those financial statements and
notes thereto.

<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA(1)
--------------
FISCAL YEAR ENDED JUNE 12 MONTHS
30, ENDED
------------------------- JUNE 30,
1995 1996 1996
---------- ---------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenue.......................................... $ 4,818 $ 8,417 $ 8,417
Costs and expenses:
Cost of revenue............................... 2,381 2,279 2,279
Selling, general and administrative........... 3,114 4,237 4,309
---------- ---------- ----------
Income (loss) from operations................. (677) 1,901 1,829
---------- ---------- ----------
Income (loss) from continuing operations......... (483) 1,172 1,130
---------- ---------- ----------
Net income (loss)................................ $ (699) $ 1,172 $ 1,130
========== ========== ==========
Net income (loss) per share(2)................... $ (.09) $ .15 $ .12
========== ========== ==========
Weighted average common shares outstanding......... 7,725,434 7,725,434 9,275,434
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
---------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................... $2,916,807 $2,008,758 $ 10,136,883
Total assets...................................... $4,009,891 $5,057,488 $ 13,185,613
Total liabilities................................. $ 820,912 $1,868,509 $ 1,868,509
Stockholders' equity.............................. $3,188,979 $3,188,979 $ 11,317,104
</TABLE>

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

(1) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton, as to which the Company has entered into a definitive
acquisition agreement. The pro forma combined statement of operations data
for fiscal 1996 does not purport to represent what the Company's results of
operations would have been if such acquisition had been consummated on July
1, 1995. Although the Company anticipates that the acquisition will close
prior to the end of calendar year 1996, there can be no assurance that such
transaction will close by such time, or at all. Proforma condensed
consolidated financial statements (unaudited) of the Company are included in
the "Financial Statements" section of this Prospectus.

(2) Net income per share is calculated on the basis of the weighted average
shares outstanding of Common Stock for each year presented. See Note 1 of
Notes to Consolidated Financial Statements.

(3) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton, as to which the Company has entered into a definitive
acquisition agreement. The pro forma consolidated balance sheet data for
fiscal 1996 does not purport to represent what the Company's consolidated
balance sheet data would have been if such acquisition had been consummated
on July 1, 1995. Although the Company anticipates that the acquisition will
close prior to the end of calendar year 1996, there can be no assurance that
such transaction will close by such time, or at all. See "Unaudited Pro
Forma Financial Information."

(4) Gives effect on a pro forma, as adjusted basis to (a) the acquisition of
Canton, and (b) the sale by the Company of the Units offered hereby at an
assumed initial public offering price of $6.25 per Unit and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."

18
<PAGE> 20

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

BUSINESS AND ORGANIZATION

The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost, and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. The Company commenced
operations in 1991 as Birman & Associates, Inc. to provide its proprietary
Quality Management Program to hospitals to educate their medical staffs on
patient management. As an expansion of its business, the Company, through BMC
Health Plans, Inc., is developing and will operate various health plans in
association with physician networks and other health care providers based upon
its belief that it can apply its Quality Management Program experience to
improve the management and delivery of health care services in managed care
systems. As part of its health plan business, the Company will organize
physicians into independent practice associations, or networks, that will
provide services to health plans, including those operated by the Company. The
Company concentrates its efforts on rural communities, particularly in the
south-central, southeast, and central United States, with an initial focus for
its health plans in Mississippi and Tennessee, where the development of managed
care programs has lagged behind other areas of the country.

The Company has historically rendered its consulting services under
contracts with hospital-clients that typically provide for results oriented
compensation to the Company based upon increases in the hospital-clients'
revenue attributable to the Quality Management Program. The Company also has
fixed rate and combined fixed rate and results oriented engagements with certain
hospital-clients. Substantially all of the Company's revenue in its 1995 and
1996 fiscal years was derived from consulting fees from its Quality Management
Program.

The Company intends to leverage the expertise and professional
relationships it has gained from providing its Quality Management Program and to
capitalize on the evolution from traditional fee-for-service to capitated
systems in rural communities. The Company currently is developing and will
operate a variety of community-based, physician-driven, comprehensive health
plans. To accelerate entry into the health plan business in Mississippi, the
Company has entered into a definitive agreement to acquire Canton, an inactive
holder of a certificate of authority to operate an HMO in Mississippi, and has
arranged for MedSouth Inc. to provide health care services through its provider
network consisting of approximately 350 physicians, four hospitals, and several
ancillary health service providers in the Gulfport, Mississippi area. The
Company currently anticipates that the Mississippi HMO will commence operations
in the fourth quarter of calendar 1996. In addition, the Company plans to apply
to the State of Tennessee for an HMO license to utilize a physician network the
Company is developing in that state.

To position itself for future expansion, in 1994 the Company was
incorporated as Birman Managed Care, Inc. in Tennessee to be the holding company
for Birman & Associates, BMC Health Plans Inc., and any other future
subsidiaries. In connection with the formation of the Company as a holding
company for its subsidiaries, in June 1995 Birman & Associates, Inc. distributed
to its then sole shareholder, David N. Birman, M.D., all of the shares of
capital stock of Birman Farms, Inc., a livestock breeding operation. In
September 1996, the Company was reincorporated as a Delaware corporation.

The following discussion of the results of the operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. Historical results and percentage relationships among accounts are
not necessarily an indication of trends in operating results for any future
period. The consolidated financial statements present the accounts of Birman
Managed Care, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company changed its fiscal year end for financial reporting purposes from
December 31 to June 30 beginning with the 1995 fiscal year.

19
<PAGE> 21

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenue represented by
certain items reflected in the Company's consolidated Statement of Operations
for the periods indicated.

<TABLE>
<CAPTION>
FISCAL YEAR
JUNE 30
---------------
1995 1996
----- -----
<S> <C> <C>
Revenue.............................................................. 100.0% 100.0%
Cost of revenue...................................................... 49.4% 27.1%
Gross margin......................................................... 50.6% 72.9%
Selling, general and administrative expenses......................... 64.7% 50.3%
Income (loss) from operations........................................ (14.1)% 22.6%
Other income (expense):
Interest expense................................................... (1.2)% (.5)%
Interest income.................................................... .6% .5%
Loss on sale of assets............................................. -- (.1)%
Income (loss) before provision for income taxes...................... (14.7)% 22.5%
Provision for income tax (expense) benefit........................... 4.7% (8.6)%
Income (loss) from continuing operations............................. (10.0)% 13.9%
Loss from discontinued operations.................................... (4.5)% --
Net income (loss).................................................... (14.5)% 13.9%
</TABLE>

FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1995

Revenue. For the fiscal year ended June 30, 1996, revenue from the Quality
Management Program increased by $3.6 million to $8.4 million, or 75%, over the
revenue for fiscal 1995. Approximately 75% of this increase was attributable to
an overall improvement in the Company's results from the Quality Management
Program as measured by increases in the hospital-clients' Medicare related
revenue and approximately 25% of this increase was attributed to management's
action to initiate engagements by new hospital-clients. Period to period changes
in the volume of the Quality Management Program business of the Company is
measured in aggregate annual Medicare discharges of the Company's
hospital-clients. Aggregate Medicare discharges is a factor of the size and
number of hospital-clients. The aggregate Medicare discharges of the
hospital-clients increased from 30,000 in fiscal 1995 to 36,000 in fiscal 1996
and the number of hospital-clients increased from 20 in June, 1995 to 29 in June
1996.

Cost of Revenue. The cost of revenue includes all costs directly
associated with the operations of the Quality Management Program, including
compensation of physicians and allied medical specialists, consulting staff
travel and lodging, and other direct costs of the Quality Management Program. In
fiscal 1996, the Company changed the compensation program for its physicians and
allied medical specialists from fixed per diem rates to a combination of salary
and performance-based arrangements and implemented a geographically focused
marketing plan that was effective in improving the utilization of existing
consulting personnel and resources. These changes reduced the cost of revenue by
approximately $100,000 in fiscal 1996. This cost decrease, combined with
increased revenue, resulted in a 22% improvement in the gross margin from fiscal
1995 to fiscal 1996.

Selling, General and Administrative Expenses. For fiscal 1996, selling,
general and administrative expenses increased to $4.2 million from $3.1 million
in fiscal 1995. Approximately 72% of this increase is a result of a full year of
costs of executive and administrative personnel hired in mid-fiscal 1994 to
position the Company to develop its health plan business, the expenditure of
funds to develop the health plan business. In addition, the Company increased
its Quality Management Program marketing efforts and incurred costs associated
with the exploration of acquisition opportunities. As a percentage of revenue,
selling, general and administrative expense decreased from 64.7% to 50.3% in
fiscal 1996, a 14% improvement, as a result of an enhanced marketing plan that
increased revenues significantly. The enhanced marketing plan included the

20
<PAGE> 22

addition of new sales personnel, the expansion into new markets, and the
utilization of a team approach to marketing, which included involving physicians
in the marketing effort. Management currently intends to continue to utilize the
new sales approach in the foreseeable future. During the first four months of
fiscal 1997, the Company recruited four new hospital-clients.

Interest Income and Expense. Interest income increased almost $20,000, or
64%, in fiscal 1996 over fiscal 1995 as a result of the accrual of interest on
loans made by the Company to Dr. Birman in connection with the farm operations
distributed to him in fiscal 1995. See "Discontinued Operations" below. Interest
expense decreased approximately $13,000, an improvement of 23% in fiscal 1996
over fiscal 1995, as a result of the Company repaying the $483,896 outstanding
principal balance of its term loan.

Discontinued Operations. The losses from discontinued operations for
fiscal 1995 related to a farm operated by the Company during the period that Dr.
Birman was the sole shareholder of Birman & Associates, Inc. All assets and
liabilities related to the farm operation were distributed by the Company to Dr.
Birman as of the close of fiscal 1995. During fiscal 1996, no expenses were
incurred by the Company in connection with this discontinued operation. However,
the Company lent Dr. Birman approximately $28,000 per month throughout fiscal
1996 to fund negative cash flow experienced by the farm. The total amount lent
to Dr. Birman during the period of July 1, 1995 through September 9, 1996 was
approximately $465,000 to defray the operating and ownership costs of the farm.
Accordingly, as of September 9, 1996, Dr. Birman owed a total of $775,000 to the
Company. See "Certain Transactions."

RECENT AND PROPOSED ACQUISITIONS

In furtherance of its health plan business, in June 1996 the Company
acquired substantially all of the assets of Hughes, a provider of utilization
review services to insurance companies and health plans. Hughes did not
contribute materially to the results of operations of the Company for fiscal
1996. The Company anticipates that Hughes will make a reasonable direct
contribution to the revenue and net operating income of the Company beginning in
fiscal 1997, particularly after the Company commences its health plan business.
In this regard, the utilization review and case management services of Hughes
are expected to enable the Company to market its physician networks and
management service organization services to large, self-funded employee groups.

As discussed under "Business and Organization," above, the acquisition of
Canton will provide to the Company a certificate of authority to operate an HMO
in Mississippi. Closing of this acquisition is scheduled to occur during the
fourth quarter of calendar year 1996, at which time the Company's Mississippi
HMO will commence operations. The effect on operations of the Mississippi HMO
will depend to a large extent on the Company's ability to attract enrollees to
its Mississippi health plan which, in turn, will depend to a significant extent
upon the Company's ability to offer HMO, PPO, and point-of-service options to
its enrollees. Because the Company's health plan business will be in a
"Start-up" phase for at least six months after the HMO commences operations in
Mississippi, the Company anticipates that the Canton acquisition will result in
a net operating loss during at least the first three quarters of fiscal 1997.

SEASONALITY

Historically, revenue and operating results can vary significantly from
period to period based upon seasonality. The Company typically realizes a
substantial portion of its revenue during the calendar quarters ending December
31, March 31, and June 30, with significantly lower revenue realization during
the calendar quarter ended September 30. Additionally, revenue fluctuates from
month-to-month based on the total number of Medicare discharges experienced by
hospital-clients and hospital-clients' average case mix index reflecting
severity of illness. The Company anticipates that this seasonality will diminish
with the introduction of health plan revenue.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to market its Quality Management Program and
to develop and launch its health plan business including, among other costs, the
organization of the requisite management infrastructure

21
<PAGE> 23

necessary to implement the Company's health plan business plan. During fiscal
1995, the Company financed its operating and business development activities
primarily through operating revenue, net borrowings in excess of repayments of
principal of $542,930 under a term loan made available to the Company by First
American National Bank of Tennessee, net collections on notes receivable from
Dr. Birman and short-term borrowings from a director and unrelated third parties
of $171,854, and proceeds of $144,299 from the sale of assets.

During fiscal 1996, the Company financed its operations and business
development activities primarily through operating revenue and the net proceeds
of a $1,605,043 private placement of Common Stock. In fiscal 1996, the Company
repaid the entire principal balance of its term loan using proceeds from the
private placement of Common Stock. In addition, the Company repaid $175,000 of
short-term borrowings through the exchange of 127,645 shares of Common Stock.

The Company is committed to acquire all of the outstanding capital stock of
Canton for $1,500,000, payable $700,000 in cash plus $800,000 by promissory
notes payable in four equal annual installments of $200,000 each plus interest
at the rate of 2% per annum on the unpaid principal balance. Additional capital
will be required to establish the reserves required under Mississippi and
Tennessee HMO regulations and to further develop and market the Company's health
plans.

The Company has recently arranged a $1,000,000 maximum principal amount
working capital line of credit facility with American National Bank and Trust
Company of Chicago. The credit facility is secured by a pledge of the Company's
Quality Management Program and quality assurance/utilization review accounts
receivable. These receivables are obligations of the hospital-clients to the
Company and of insurance company and self-insured employer clients to Hughes,
and are not Medicare or Medicaid receivables.

The Company believes that the net proceeds of this offering, together with
its existing cash resources and available credit facilities, will be sufficient
to meet the Company's anticipated acquisitions, expansion, and working capital
needs for the next 24 months. The Company, however, may raise capital through
the issuance of long-term or short-term debt or the issuance of securities in
private or public transactions to fund future expansion of its business either
before or after the end of the 24-month period. There can be no assurance that
acceptable financing for future transactions can be obtained.

IMPACT OF NEW ACCOUNTING STANDARDS

Recent Pronouncements

During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires the Company
to review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS 121 will become
effective for the Company's fiscal year ending June 30, 1997. The Company has
studied the implications of SFAS 121 and, based on its initial evaluation, does
not expect it to have a material impact on the Company's financial condition or
results of operations.

During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies that elect not to
adopt the new method of accounting. The Company will continue to account for
employee purchase rights and stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123 disclosures will be effective for
fiscal years beginning after December 31, 1995.

22
<PAGE> 24

BUSINESS

OVERVIEW

The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost, and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. In pursuing these goals,
the Company currently provides its proprietary Quality Management Program to
hospitals to educate their medical staffs on patient management. As an expansion
of its business, the Company is developing and will operate various health plans
in association with physician networks, hospitals, and other health care
providers based upon its belief that it can apply its Quality Management Program
experience to improve the management and delivery of health care services in
managed care systems. As part of its health plan business, the Company will
organize physicians into independent practice associations, or networks, that
will provide services to the Company's health plans as well as to independent
health plans. The Company concentrates its efforts on rural communities,
particularly in the south-central, southeast, and central United States, with an
initial focus for its health plans on Mississippi and Tennessee, where the
development of health care management systems and managed care programs has
lagged behind other areas of the country.

Under its Quality Management Program, physicians employed by the Company
consult directly with attending physicians at hospital-clients regarding their
overall patient management program, as systematized in the medical record. The
Quality Management Program is designed to (i) improve patient care by
encouraging the use of the Company's proprietary methodology to assist
physicians in the identification of symptoms and conditions, to determine
appropriate treatment, and to prioritize the goals and objectives of the
treatment plan, (ii) reduce the cost to its hospital-clients of patient care as
a result of the early intervention in identified health problem, and (iii) more
accurately describe in the medical record the severity and complexity of the
patient's illness and the resources utilized to treat the patient. The benefits
of the Quality Management Program typically result in increased Medicare
reimbursements for the Company's hospital-clients.

To leverage the expertise and professional relationships it has gained from
providing its Quality Management Program and to capitalize on the evolution from
traditional fee-for-service to capitated systems in rural communities, the
Company currently is developing and will operate a variety of community-based,
physician-driven, comprehensive health plans. The Company's health plans are
being designed to provide high-quality and cost-efficient health care by
aligning the interests of physicians and their patients by involving selected
community physicians in the development and implementation of treatment
standards, by including selected leaders in the physician community as owners of
the local health plans, and by providing participating physicians with the
opportunity to share in savings realized from their own practice management
through the return of a portion of the risk pools established to protect against
cost overruns. The Company's health plans will offer a number of programs,
including a point-of-service option that will enable patients to control their
health care costs while maintaining access to a broad range of providers. Under
the point-of-service option, patients will have the flexibility to select
physicians participating in the Company's HMO, PPO, or indemnity plan at the
time service is sought in order to control their health care costs while
maintaining access to a broad range of providers.

INDUSTRY BACKGROUND

General

In response to escalating health care costs over the past 20 years, federal
and state governmental authorities have increasingly emphasized stringent
cost-containment measures and employers, consumers, and other purchasers of
health care have sought cost-effective alternatives to traditional indemnity
insurance, under which providers generally receive payment on a fee-for-service
basis.

Although traditional health insurance plans permit enrollees to select any
physician or hospital, enrollees are often responsible for significant
deductibles and provider charges in excess of reimbursement allowances.
Developed primarily as an alternative to traditional indemnity insurance, HMOs
arrange for the delivery of health care to enrollees through participating
health care providers for a fixed monthly premium with little or no deductibles
or copayments regardless of the frequency, value, or type of health care
services utilized.

23
<PAGE> 25

HMOs generally are able to arrange for health care delivery at lower costs than
those associated with traditional indemnity insurance plans by managing the
utilization of health care services, by imposing case management procedures, by
negotiating with providers for discounts from standard health care provider
rates, and through risk-sharing arrangements with the providers.

Since the mid-1980s, increased employer focus on health care costs,
employee choice, and flexibility in obtaining health care has led to the
development of additional managed health care options, some of which are
self-funded. These alternatives include PPOs and point-of-service options. In a
PPO, the enrollee obtains care from a network of preferred providers who provide
services on a discounted fee-for-service basis. A point-of-service option offers
a combination of HMO, PPO, and indemnity insurance. Option plans have gained
favor with some large employer groups because they allow consolidation of health
benefit programs and often permit the enrollee to choose providers within the
HMO or to select a PPO or unaffiliated provider at a higher out-of-pocket cost.
While increasingly popular as a means of expanding employee choice, these
alternatives also result in increased health care costs to employers to the
extent that employees select health care options without the managed care
features of HMOs.

Medicare and Medicaid

In 1965, Congress enacted the Medicare and Medicaid programs as a part of
the Social Security Amendments. Medicare is a national health insurance program
for disabled and aged Americans that separates coverage for inpatient hospital
services and physician services, compensates physicians on a "usual and
customary" charge basis, and pays hospitals on a reasonable cost basis. In
general, most Americans who either (i) are age 65 or older, (ii) receive
disability payments under Social Security, or (iii) need a kidney transplant or
renal dialysis are entitled to inpatient hospital services, commonly known as
Medicare Part A benefits. By paying a monthly fee, any person entitled to Part A
benefits also may choose to receive additional coverage for physician and
outpatient ambulatory service coverage, commonly known as Medicare Part B. The
Medicare program is administered by HCFA, a division of the Department of Health
and Human Services, although HCFA has assigned most of the day-to-day
administration of the Medicare program to private enterprises, such as insurance
companies, appointed as fiscal intermediaries.

In response to spiralling increases in Medicare expenditures, significant
amendments were made to the Medicare program in 1983, including a conversion of
the Part A program to the prospective payment system. Under Part A of the
Medicare program, the Medicare program currently pays a hospital a preset amount
on a per-case basis based upon a prospectively assigned reimbursement value. A
prospective payment is established by classifying each Medicare patient admitted
by the hospital into one of 495 diagnosis-related groups ("DRGs"). Each DRG is
cost-weighted based on an index of average costs set by HCFA. To determine the
reimbursement rate for the hospital, the relative cost weight for an assigned
DRG is then multiplied by a blended rate assigned to the hospital that takes
into account various factors, such as location, Medicare utilization, and
community economics.

The average value of all DRGs assigned to cases within a given time frame
is referred to as the case mix index ("CMI"). The CMI represents the average
severity of the cases treated by a hospital. The greater the severity of
illness, the higher the CMI; the greater the CMI, the higher the Medicare
reimbursement. A hospital must efficiently provide high-quality care and
accurately report its severity of illness through appropriate DRGs in order to
realize fair compensation under the Medicare system.

Medicaid is a federal/state program that provides medical assistance for
low income individuals who are aged, blind, disabled, or eligible for Aid to
Families with Dependent Children assistance. In general, each state administers
its own Medicaid program. The amount of federal payments contributed to each
state's Medicaid program is based upon the state's per-capita income level. To
qualify for federal Medicaid funds, a state Medicaid program must meet minimum
requirements regarding coverage and services. States also may elect to extend
coverage to larger populations or offer a broader range of services. Under
Medicaid, hospitals are generally paid based on their reasonable costs or
variations on prospective payment systems and physicians are paid using a
charge-based system, fee schedules, or relative value scales.

24
<PAGE> 26

Managed Care

Managed care encompasses various arrangements among health care providers,
payors, and enrollees that apply utilization review, utilization of
authorization systems, case management, and allocation of risks and rewards to
increase the efficiency of delivery of health care services. Managed care
delivery systems may include coalitions of independent medical practices,
alliances between hospitals and individual medical practices or physician
networks, PPOs, and HMOs. The primary tools used to manage the allocation of
health care services are capitation and other prepayment arrangements that
transfer a portion of the financial risk of providing health care services to
the providers. Under capitation programs, health care providers receive payment
in advance in a fixed monthly amount per member per month or a fixed amount upon
the occurrence of a specific defined health problem. As a result, the provider
bears the economic risk that the actual cost of caring for plan enrollees
exceeds the capitation rate. Through contributions to and participation in risk
pool reserves, the health plans create economic incentives designed to encourage
providers to monitor enrollees, eliminate inefficiencies, and reduce unnecessary
utilization of services while maintaining and improving the quality of patient
care.

Managed care systems generally assign responsibility for a patient's
medical care to a primary care physician who monitors case history, coordinates
medical services, and typically authorizes, in advance, all specialty and
non-primary care services other than emergency care. Prepaid health plans are
designed to obligate providers to plan and coordinate the services administered
to enrollees, assure the continuity and appropriateness of care, and control the
use of medical resources through (i) utilization management, (ii) case
management, and (iii) associated quality assurance verifications (collectively,
"Treatment Standards"). Utilization management is a process occurring before
authorization of treatment that evaluates the need for and extent of treatment.
Case management is the process occurring after authorization of treatment to
monitor the actual administration of treatment. Quality assurance is the ongoing
evaluation of the level of care being provided to the patients. In many large
managed care organizations, Treatment Standards are set on a company-wide or
national basis by a panel of physicians, allied health professionals, and
business personnel employed by the health care company. The Company believes
that health plans that require local physicians to adhere strictly to
company-wide or national Treatment Standards often limit the physicians'
autonomy and thereby weaken the traditional physician-patient relationship.

Payors, including governmental entities and employers, increasingly expect
health care plans and providers to develop and maintain quality results through
utilization review and quality assurance programs and to accept an allocable
share of the risk of providing medical care. This focus on cost-containment and
financial risk sharing has placed independent providers and small and mid-sized
provider groups at a significant competitive disadvantage because of their
typically higher operating costs, limited purchasing power, and limited risk
management experience. Accordingly, many providers have sought to affiliate with
experienced organizations that manage the non-medical aspects of their
practices, such as office management and billing.

Company Position

Based upon its Quality Management Program experience, the Company believes
that providers in rural areas prefer management organizations that are local in
nature and permit physician ownership and involvement in setting Treatment
Standards. In both its Quality Management Program and its health plan business,
the Company recognizes the importance of the physician as the director of the
consumption of medical services for patients. In the Quality Management Program,
physicians employed by the Company work directly with a hospital-client's
attending physicians to improve their identification of symptoms and conditions,
diagnosis, utilization management, and case management. The Company's health
plan business will feature networks of community-based physicians who will
establish Treatment Standards at a local level and who will have a financial
interest in the efficient delivery of appropriate health care. Through the
unique involvement by physicians, the Company believes that its Quality
Management Program and health care systems address industry concerns and create
attractive and distinctive products.

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GROWTH STRATEGY

The Company's strategy is to build on the strong reputation, health care
and management experience, and market position of its Quality Management Program
to further expand that consulting business and to penetrate rapidly the managed
care segment of the industry. The Company plans to employ the following
strategies to reach these objectives:

- Focus on Rural Markets. The Company plans to focus its Quality
Management Program and health plan operations predominantly in rural areas
in order to take advantage of the lack of market penetration, less
competitive market conditions, and the local reputation and relationships
it has developed through its Quality Management Program. Large,
urban-based medical consulting and managed care providers historically
have not concentrated their efforts on rural areas. As a result, rural
areas are served by fewer health care organizations than larger
metropolitan areas and competitive factors are less intense. In addition,
the Company's experience in serving rural areas through its Quality
Management Program has resulted in the Company gaining a reputation and
relationships in these areas and enhancing its understanding of the
special characteristics of health care in these areas.

- Focus on the Role of the Physician. The Company focuses on the role of
the physician as the most important factor in the delivery of health care
services. The Company's health plans will be organized to align the
interests of the participating physicians with those of the patients, to
enhance the physician-patient relationship, and to reduce the influence of
third parties in the delivery of health care services in local
communities. Local physicians will participate in establishing Treatment
Standards, have an ownership interest in the Company's health plans
serving the physicians' community, and share in risk pools savings. The
Company believes that these factors will enable it to attract and retain
local physicians for its health plans and to utilize the reputation of
these local providers to attract payors and enrollees.

- Develop New Quality Management Program Clients and Services. The Company
plans to increase the number of its clients for its Quality Management
Program by expanding its marketing efforts in its existing market areas,
entering new market areas, and offering new services to existing and new
clients. The Company intends to develop and offer to its Quality
Management Program clients a comprehensive line of additional services
that will ultimately include utilization review of patient care services,
medical information management, access to proprietary computer database
information to evaluate trends in patient treatment, and development of
billing procedures for third-party payors under traditional indemnity,
managed care, and governmental plans.

- Launch Health Plans Applying the Quality Management Experience. The
Company plans to utilize the experience it has gained in its Quality
Management Program in the areas of patient case management, efficient
utilization of health care resources, and proper substantiation of
treatment to assist community physicians in participating in the
establishment of Treatment Standards for the Company's health plans. The
Company believes that this expertise will enable it to transition
providers in rural areas successfully from traditional fee-for-service
reimbursement to capitated health care plans.

QUALITY MANAGEMENT PROGRAM

Concept

Under its Quality Management Program, the Company's specially trained
physicians provide consultation to attending physicians regarding the overall
treatment of patients and the documentation of such treatment with a view
towards improving patient care, containing the cost of patient care, optimizing
the receipt of appropriate Medicare reimbursements, working to reduce
malpractice claims, and improving patient satisfaction. The central premises of
the Quality Management Program are (i) recognizing the physician as the primary
director of medical services for the patient and (ii) assisting the physician to
develop a problem-oriented format that produces a complete, consistent, and
legible medical record that is essential to quickly and accurately identify and
prioritize disease conditions and treatment plans in order to improve patient
care and patient satisfaction, reduce the cost of health care by controlling
resource consumption, ensure receipt of appropriate Medicare reimbursement, and
reduce malpractice claims.

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The attending physician is responsible for the initial patient contact, the
initial evaluation of symptoms and conditions, preliminary diagnosis, hospital
admissions, referrals to specialists, ordering of laboratory services, and
prescribing medication. This places the attending physician in the unique
position of influencing the hospital's reimbursement revenue, costs, and
liability. Since the writing of orders is the responsibility of the attending
physician, the attending physician in essence controls the process and usage of
almost all health care. As a result, a significant aspect of the Quality
Management Program involves consultation and training of the attending physician
at the hospital in facilitating efficient delivery of high-quality health care.

The medical record is the primary tool used by physicians to direct the
medical treatment of a patient, communicate instructions to other health care
service providers, evaluate the progress of the patient, support reimbursements
from third-party payors, including Medicare, and evidence compliance with
Treatment Standards and professional responsibilities. The Company believes that
complete, systemized, and legible medical records enable physicians to design
and record appropriate treatment plans, similar to a business plan, to address
symptoms and conditions that affect the patient from admission to discharge, and
to prioritize, in writing, goals and objectives for appropriate management.
Through the formulation of treatment plans and improved documentation, the
physician focuses on proper diagnosis and thereby becomes more effective in
measuring the patient's severity of illness and progress. The Quality Management
Program also typically results in a more accurate reporting of the hospital's
DRG elections, which results in increased Medicare reimbursement to the
hospital.

The treatment plans and documentation may be applied to clinical guidelines
and quality assessment procedures to increase the total quality of care and
evidence compliance with Treatment Standards. Recognition of the severity of
illness and well-documented records of treatment reduces the likelihood of
errors and omissions, thereby decreasing the liability exposure to the physician
and the hospital.

Operations

Following engagement, the Company assigns a team consisting of a physician
and an allied health specialist to each hospital-client. The team profiles the
client's Medicare patient medical records and identifies problem areas (such as
legibility, proper documentation of patients' histories and physical condition,
discharge summaries, and patient education) in order to identify the specific
hospital-client's needs. After an extended program introduction, the team
interacts on a weekly basis with attending physicians and allied health
professionals in the hospital, on a peer-to-peer level, to assist them in
adopting in their daily routines the practice management methods underlying the
Quality Management Program. A Company executive informs the hospital's chief
executive officer or chief financial officer of the status of the engagement
through a monthly report that summarizes net revenue from Medicare
reimbursements to the client, changes in CMI, and other operating information.

The Quality Management Program emphasizes a problem-solving approach.
Working with the hospital-client's medical records, the Company's physicians
conduct concurrent and retrospective reviews to train attending physicians to
present their findings of symptoms and conditions more thoroughly; to specify
clinical care; to prioritize treatment goals and objectives; to document
properly the process of patient management; and to work to use hospital-client
resources effectively. The Company's allied health specialists educate the
hospital-client's allied health staff regarding the reimbursement process,
encourage coding decisions recognizing legitimate resource expenditures, and
assure proper preparation and maintenance of supporting documentation. As a
result, this program supports the implementation of quality health care
services, while creating a medical record that supports the selection of coding
options that provide optimal and appropriate reimbursement.

The Company knows of no principal competitor that features peer-to-peer
training of physicians. The Company believes that the use of physicians on its
consulting staff heightens the Company's professionalism and expertise, provides
greater flexibility in addressing client needs, and maximizes the Company's
impact and value for its clients. These factors distinguish the Company from
other firms offering competing services.

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Fee Structures

A key feature of the Quality Management Program is the Company's fee
arrangements. The Company offers fee arrangements that are (i) results oriented,
(ii) fixed for the term of the contract, or (iii) a combination of fixed fee and
results oriented arrangements. Results oriented fees are measured by increases
in the hospital-client's revenue attributable to the Quality Management Program.
While the Company's revenue from each client varies depending on client size,
the Company receives an average monthly fee under all fee arrangements of
approximately $30,000 per client. The Company generally enters into two-year
agreements with each hospital-client, which are often renewed.

Client Benefits

The Company believes that its Quality Management Program provides
hospital-clients with improved quality of care and cost effectiveness, increased
patient satisfaction, better utilization of hospital resources, increased
compliance with Medicare coding and reimbursement requirements, increased net
revenue and realization of appropriate payment for services rendered, and
decreased liability exposure. While considerable variation in reimbursement
gains occur on a per-hospital basis as a result of factors such as hospital size
and patient population mix, Quality Management Program hospital-clients
typically experience increased Medicare reimbursements of between 10% and 25%
within the first year of the Company's engagement.

HEALTH PLANS

Concept

To leverage the expertise and professional relationships it has developed
through its Quality Management Program, the Company currently is developing a
variety of community-based, physician-driven, comprehensive health plans. To
align the interests of the participating physicians with those of the enrollees,
local physicians will participate in establishing Treatment Standards and will
share in cost savings in patient care through the return of a portion of risk
pools established to protect against cost overruns. In addition, selected
physicians will have an ownership interest in the local health plans and
management service organizations to be organized by the Company. The Company
anticipates that the Treatment Standards will encourage participating physicians
to apply the Company's Quality Management Program in their practices in order to
improve the efficiency of the delivery of health care services and thereby
maximize their returns from the risk pools.

Through health-care providers, the Company's health plans will offer
enrollees a comprehensive range of health care services, including ambulatory
and outpatient physician care, hospital care, and ancillary diagnostic and
therapeutic services. The Company also intends to provide vision, prescription
drug, and dental services on an indemnity basis.

The Company's health plans will include HMO, PPO, and point-of-service
options. The point-of-service option will allow enrollees to choose from among
participating and non-participating providers each time medical attention is
desired. The point-of-service option will be available for all types of
enrollees, including Medicare and Medicaid enrollees, if applicable. See "Risk
Factors -- Risk of Limited Health Plans." In order to provide the PPO and
point-of-service options, the Company has entered into an alliance with NBR
under which NBR will arrange licensing, product development, indemnity insurance
coverage, reinsurance coverage, provider excess insurance coverage,
underwriting, and insurance compliance services. The Company will pay NBR a fee
equal to 4.5% of the gross premium revenues derived from the health plans. The
Company and NBR are addressing a more comprehensive alliance agreement that
will, among other things, permit NBR to designate a representative to the
Company's Board of Directors at a later date.

Because of the Company's presence in the rural south-central, southeast,
and central United States health care market, the initial market area for the
Company's health plans will be in Mississippi and Tennessee. Currently, the
Company is establishing provider networks for its health plan business and
initiating the licensure process to operate health plans in these states. The
Company currently anticipates that its first health plan will be operational in
Mississippi in the fourth quarter of calendar 1996.

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Plan Management

The Company plans to organize separate community-based management service
organizations ("MSOs") to provide administrative services to each community
health plan and physician network. The Company will centralize each MSO's
management and administrative services. Each MSO will be owned by the Company
and selected participating physicians. These MSOs will afford providers with
access to the experience of the Company in the health care business and in the
Quality Management Program. The economies of scale inherent in a MSO will enable
the Company to reduce operating costs by centralizing certain clerical
functions, group purchasing, claims processing, and negotiation of health plan
contracts.

Once physician networks are established in a market, the Company will
administer capitated contracts by profiling costs of care based on patient
populations, analyzing physician treatment patterns, and monitoring specific
health plan contract requirements. The Company believes that its Quality
Management Program experience in the areas of information systems, utilization
management, physician relationships, reimbursement, and case management will
provide it with an advantage in providing these aspects of its health plan
business.

Unlike many large national organizations, each MSO will have its own
committee in which local physicians will participate. The committee will
implement a quality assurance program for the health plan, conduct peer reviews
to assure compliance with MSO rules and other Treatment Standards, and implement
and review other Treatment Standards. The Company will encourage providers to
apply the Quality Management Program methodology in their delivery of
cost-effective, quality care.

After formation of the MSOs, the Company intends to represent the physician
networks in arranging access by other health plans operating in the local
communities and to market the physician networks and MSO administrative services
to large, self-funded employer groups. Under self-funded plans, employers self-
insure their health care expenses and pay for health care claims as such claims
are incurred. The Company will offer utilization review, case management,
provider network discounts, and claims processing for these self-insured plans.
To provide utilization review and case management services to the health plans,
in June 1996 the Company acquired Hughes & Associates, Inc. ("Hughes"), a
Jackson, Mississippi-based company. Hughes acts as the health care authorization
service for a number of indemnity insurance companies and health plans and is
certified to provide utilization review services in Tennessee, Mississippi, and
Louisiana.

Anticipated Sources of Revenue

The Company expects to generate health plan revenue from (i) premium
charges to employers and enrollees, (ii) Medicare and state welfare system
payments, and (iii) network access fees charged to self-funded employers and
other health care plans. The Company intends to structure its premium rates
primarily through community rating, based upon the aggregate costs of basic
benefit plans for the Company's entire membership population calculated on a
per-member/per-month basis and converted into premium rates based on coverage.
The Company intends to adjust the premium rates for various groups based upon
the average age, sex, claims experience, utilization experience, incurred but
not reported claims, inflationary factors, credibility, and reinsurance pooling
levels. The enrollees will pay copayments, coinsurance, or deductibles at the
time certain services are provided in order to encourage appropriate utilization
of health care services by enrollees.

The Company envisions that it will contract with Medicare and state welfare
systems to provide its health care services. Mississippi has recently enacted
legislation that encourages state welfare participation in managed care
programs. Tennessee provides state welfare system access to HMOs and PPOs
through TennCare(TM).

The Company's MSOs will receive a percentage of the premiums paid to the
Company's health plans as fees for its management services. Each of the
Company's health plans will contract with its applicable MSO for the provision
of management services.

The Company intends to represent its provider networks in negotiating with
self-insured employers and other health care systems for access to the provider
network. Access fees will vary depending upon the number

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of providers in the network. The Company also may provide administrative,
utilization review, case management services, provider network discounts, and
claims processing to self-insured employers for a fee.

Provider Fees

The Company's health plans will compensate physicians, hospitals, and other
health care providers through capitation or discounted fee-for-service payments.
The Company intends to compensate its capitated providers at a flat
per-member/per-month rate, utilizing financial participation in risk pools to
encourage physicians to provide high-quality medical care through the
application of the Company's Quality Management Program. The PPO providers will
be compensated on a discounted fee-for-service basis, and the indemnity
providers will be paid on pre-established fee schedule rates, less deductibles
and coinsurance amounts paid by enrollees. Providers generally will be required
to obtain pre-authorization for certain treatments and will be obligated to
deliver health care according to the health plan's Treatment Standards in order
to assure proper treatment and prevent inappropriate charges. The Company will
obtain reinsurance of catastrophic and excess claims through NBR. Thus, the
health plans will allocate financial risk among the Company, participating
providers, insurers, and enrollees.

Recent Developments

Mississippi. The Company plans to launch its first health plan in
Mississippi during the fourth quarter of calendar 1996. To accelerate entry into
the health plan business in Mississippi, the Company has entered into a
definitive agreement to acquire Canton, an inactive holder of a certificate of
authority to operate an HMO in Mississippi, and has arranged for MedSouth to
provide health care services through its provider network consisting of
approximately 350 physicians, four hospitals, and several ancillary health
service providers in the Gulfport, Mississippi area. The Company has also
established a MSO to provide administrative and management services to MedSouth.
Upon closing of the acquisition of Canton, the Company will be in a position to
provide HMO health care services to enrollees in six counties in southern
Mississippi. The Company then intends to enlist other service providers,
primarily in the northern and the Delta regions of Mississippi, and to apply for
qualification to provide services to Medicaid beneficiaries in Mississippi.
Certain of the sellers of Canton and MedSouth will be minority owners of the
Mississippi health plan, and MedSouth will have an ownership interest in the MSO
that will provide administrative services to MedSouth. The Company anticipates
that it will be in a position to offer PPO and point-of-service options to
enrollees in Mississippi approximately six months after the introduction of the
HMO.

Tennessee. The Company, together with 35 local primary care
physician-shareholders, has organized a provider network for a health plan to
serve 16 counties in the Cumberland Valley region of Tennessee. The physician
network has contracted with over 285 primary care physicians and 650 specialty
physicians to provide services on a capitated fee and discounted fee for service
basis. The Company is in the process of contracting with hospitals and other
providers to complete this network. The Company plans to apply to the state of
Tennessee for an HMO license utilizing this network in the fourth quarter of
calendar 1996. The Company also has organized a MSO to provide administrative
services to the network and the health plan.

Kentucky. The Company has identified Kentucky as a natural extension of
its health plan business because of its proximity to Tennessee, a favorable
regulatory environment, and the Company's experience in Kentucky with its
Quality Management Program. The Company recently has begun discussions with
representatives of four independent practice associations that are possible
candidates for the basis of a physician network in central Kentucky.

SALES AND MARKETING

The Company markets its Quality Management Program through a direct sales
force consisting of three full-time sales professionals. The sales force employs
a team marketing approach utilizing Company physicians. The Company participates
in hospital trade shows and utilizes a proprietary database to identify
prospective hospital-clients on the basis of CMI and demographic information.
The Company has found that its most successful engagements have evolved from
acceptance of its Quality Management Program by each

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of the hospital-prospect's administrative, attending physician, and medical
records staff groups. Once the Company has identified a prospective
hospital-client, it provides introductory information designed to demonstrate
the effectiveness and potential benefits of the program to the prospect's senior
administrative and financial officers. Thereafter, the Company follows a
coordinated effort to include the hospital's attending physicians and medical
records specialists in the engagement decision making process.

The Company currently plans to market its health plans through a small
direct full-time sales force that will include members of the Company's senior
management and local and national third-party brokers and agents. The Company
will market its health plans to local commercial employers, individuals, and
self-funded employers. In addition, the Company will contract with sponsors of
government programs such as state welfare agencies. Once a payor has selected
the Company to provide health plan services, the Company will shift its
marketing focus to prospective enrollees through newsletters, brochures,
enrollee education programs, seminars, direct mail advertising, and responses to
satisfaction surveys. The Company intends to develop print advertising directed
at payors and direct advertising to prospective enrollees through consumer media
campaigns. The Company's marketing programs will emphasize the local physician
ownership of the health plan, commitment to preventative care, access to quality
providers and services, understanding of the particular local market, variety of
products, and price stability. The Company believes that the local physician
ownership of its health plans will be advantageous to its marketing effort in
the Gulfport, Mississippi area where it will offer its first health plan.

The Company intends to apply for Medicaid approval of its health plans in
Mississippi and Tennessee. Once its plans are so approved, the welfare agency in
each state will assign Medicaid-qualified residents to the Company's health plan
after giving consideration to the patient's choice of physician and choice of
available health plans. The Company's physician network will provide services to
Medicaid recipients in return for capitated payments. The Company believes that
its name recognition and reputation as a locally owned health plan will be
significant factors in encouraging Medicaid recipients to select the Company's
health plan over competing plans. The Company intends to apply for Medicare risk
contracts after each health plan reaches minimum commercial membership
requirements.

CUSTOMERS

Since 1991, the Company has provided its Quality Management Program in
approximately 80 hospitals located in 13 states. Currently, the Company is
providing its Quality Management Program at approximately 34 hospitals in 11
states. The Company's clients are located principally in rural markets where
health care facilities frequently lack the resources to develop internal quality
training programs. The Company seeks two-year agreements with each Quality
Management Program client. The Company's engagement is often continued beyond
the initial two-year term on a fixed fee basis. Out of approximately 80
engagements, only three have been terminated prior to the end of the two-year
term.

Services provided to hospitals operated by Quorum resulted in approximately
42% of the Company's revenue in fiscal 1996. Quorum operates 249 acute care
facilities in 41 states. Over the past five years, the Company has provided its
Quality Management Program at 33 Quorum-operated facilities. Currently, the
Company is providing Quality Management Program services at 12 Quorum-operated
facilities. Historically, the on-site management of each Quorum hospital has
made its own decision regarding the engagement of the Company and the Company
has entered into a separate contract with each engaging Quorum facility. The
Company has no long-term contractual or other relationships with Quorum.

The Company recently contracted to provide Quality Management Program
services to Community Medical Center in Toms River, New Jersey, under an
agreement that provides for a initial fixed fee of $225,000 per month. The
monthly fee is subject to quarterly adjustment based upon the case mix index
experience of the hospital during the preceding quarterly period of the
agreement. The agreement with Community Medical Center has an initial term of 30
months commencing December 1, 1996, subject to early termination rights begining
in April, 1997, and is renewable annually.

The Company anticipates that the customers of its health plan business will
include employees and individuals located in its health plan market areas and
state welfare agencies servicing Medicaid recipients

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located in those areas. Large employers offering self-funded health plans will
be sought as customers of the Company's MSOs. See "Business -- Sales and
Marketing."

COMPETITION

Although its Quality Management Program services are significantly
different from those offered by other hospital consulting services, the Company
competes for consulting business primarily with revenue-optimization service
companies. Approximately 500 to 700 companies of varying size offer
revenue-optimization services that may be considered competitive with the
Company. Competitors include the health care consulting practice groups of
Andersen Consulting, the Gailer Review Group, Health Care Management Advisors,
Inc., Iameter, MC Strategies, Inc., National Coding Service, Inc., Quality
Medical Consultants, Inc., and J. A. Thomas & Associates, Inc., an Ernst & Young
preferred provider. Most of these firms have substantially greater financial,
technical, marketing, and management resources than the Company. The Company
does not believe that any single company commands significant market share.
Larger, more established consulting firms have an enhanced competitive position
due, in part, to established name recognition and direct access to
hospital-clients through the provision of other services. Smaller firms,
although not necessarily offering services comparable to those of the Company,
compete on the basis of price. There can be no assurance that the Company will
continue to be able to compete successfully. The Company competes for its
Quality Management Program clients by distinguishing its services from those
provided by revenue optimization service companies, which generally do not use a
physician-dominated consulting staff comparable to that of the Company or
embrace a peer-to-peer teaching approach.

The managed care industry is highly competitive. The Company's health plans
will compete with other providers of health care services, including regional
hospitals and physician practice groups. Competitors include large indemnity
insurers with established managed care operations, such as Aetna, Blue Cross &
Blue Shield, CIGNA, and Prudential; HMOs, such as U.S. Health Care, Humana,
Kaiser Permanente, and Quorum; physician management companies, such as
MedPartners/Mulliken; and physician sponsored organizations. Many competitors
offer a broader range of health care services than the Company's health plans
will offer, have extensive relationships with group specialty practices, and
have financial, managerial, marketing, and technical resources that are much
greater than those of the Company.

The managed health care industry has experienced significant changes in
recent years, primarily as a result of rising health care costs. Employer groups
have demanded a variety of health care options, such as traditional indemnity
insurance, HMOs, PPOs, and point-of-service options. The Company's proposed
operations ultimately will compete with providers of all of these products. The
Company will be required to respond to various competitive factors affecting the
health care industry generally, including new medical technologies that may be
introduced, general trends relating to demand for health care services,
regulatory, economic, and political factors, changes in patient demographics,
and competitive pricing strategies by HMOs and other health care plans. The
Company will be subject to competition in any new geographic area it may enter,
with respect to any products it may offer, and with respect to any commercial
and governmental health care programs developed. There can be no assurance that
the Company will be able to compete successfully.

The Company believes that health plans are in demand in rural communities
where the transition from traditional fee-for-service to capitation has lagged
other areas of the country. The Company believes that the principal competitive
factors in the health plan market include price, participation by practicing
physicians, reputation in the community and other rural markets, documented
performance, profitability, and quality. Based upon these competitive factors,
the Company believes that it will be able to compete successfully in the rural
markets by adhering to its business strategy.

GOVERNMENT REGULATION

The Company is subject to various state and federal laws that regulate the
relationship between providers of health care services and payors as well as
laws and regulations relating to business corporations in general. Although many
aspects of the Company's Quality Management Program have not been the subject of
state or federal regulatory interpretation, the Company believes its current
operations are, and its proposed operations

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will be, in material compliance with applicable laws. There can be no assurance,
however, that a review of the Company's current or proposed businesses by courts
or regulatory authorities 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 existing
operations or their expansion.

In recent years, numerous legislative proposals have been introduced or
proposed in the United States Congress and in some state legislatures that would
effect major changes in the United States health care system at both the
national and state level. It is not clear at this time which proposals, if any,
will be adopted or, if adopted, what effect such proposals would have on the
Company's business. There can be no assurance that currently proposed or future
health care legislation or other changes in the administration or interpretation
of governmental health care programs will not have a material adverse effect on
the Company.

Licensure

All states impose licensing requirements on individual physicians and on
certain types of providers of health care services. While the performance of
consulting services to hospitals and management services on behalf of medical
practices does not currently require any regulatory approval on the part of the
Company, there can be no assurance that such activities will not be subject to
licensure in the future.

Corporate Practice of Medicine

Many states, including Mississippi, Tennessee, and Kentucky, maintain
prohibitions against physicians practicing medicine as a business corporation.
These laws vary from state to state and are enforced by the state courts and
regulatory authorities with broad discretion. The Company could incur liability
in the event it fails to enter into appropriate contractual arrangements with
physicians or other health care professionals in conjunction with its consulting
activities or health plans. The Company will not employ physicians to practice
medicine, will not represent to the public that it offers medical services, and
will not control or interfere with the practice of medicine by physicians.
Accordingly, the Company does not believe that its operations will violate
applicable state laws regulating the practice of medicine by a business
corporation. However, because the laws governing the corporate practice of
medicine vary from state to state, any expansion of the operations of the
Company to a state with strict corporate practice of medicine laws may require
the Company to modify its operations, resulting in increased financial risk to
the Company. In addition, there can be no assurance that the Company's
arrangements with health care providers will not be successfully challenged as
constituting the unauthorized practice of medicine.

State Fee-Splitting and Referral Prohibitions

A number of states have enacted laws that prohibit the payment for
referrals and other types of kickback arrangements and prohibit physicians from
splitting professional fees. These statutes are sometimes quite broad and, as a
result, prohibit otherwise legitimate business arrangements. A number of states,
for example, prohibit compensation arrangements that provide for the payment of
rent for furnishing space, facilities, equipment, or personnel services used by
a licensed physician based on a percentage of income from such physician's
practice. Penalties for violating these statutes may include revocation,
suspension, or probation of the physician's license or other disciplinary
action, as well as monetary penalties. Alleged violations also have been used to
declare a contract to be void as against public policy.

As described below, many states have enacted laws that prohibit physicians
and, in some cases, all health care workers, from splitting fees or referring
patients to entities with which such physician or health care worker has a
financial relationship, regardless of the patient's source of payment. Most
states provide exceptions that permit health care workers to provide health
services personally and as part of a group practice.

Tennessee prohibits a physician from referring patients to an entity in
which the physician has an investment interest. The definition of an investment
interest does not include an investment in a publicly traded entity. Penalties
for violation of this prohibition include licensing sanctions and civil
penalties up to $5,000 for each prohibited referral.

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Kentucky prohibits a health care provider from knowingly soliciting,
receiving, or offering any remuneration in return for purchasing, leasing,
ordering, or arranging for any goods, service, or items for which payment may be
received, regardless of the source of payment. In addition, no provider may
knowingly make, offer, or receive a payment for referring a patient to another
provider for the furnishing of benefits regardless of the source of payment. The
penalties for a violation of this provision may be a fine, prohibition on
billing or collecting from patients or third-party payors, or repayment of
reimbursement for the services related to the referral. In addition, Kentucky
prohibits a physician from giving or receiving, directly or indirectly, any
compensation for referring a person to communicate with a licensed physician in
such physician's professional capacity or for any professional services not
actually and personally rendered. The penalties for a violation of this
provision may be a five-year probation or suspension or revocation of such
physician's license.

Pursuant to the terms of the Quality Management Program agreements and the
proposed management services agreements for the Company's health plans, the
Company will receive fees based upon receivables and a percentage of premiums.
The Company believes that its fee structures comply in all material respects
with the fee splitting laws of the states in which it currently operates or
proposes to operate in the future. However, there can be no assurance that such
laws will not be interpreted broadly or amended to be more expansive. Further,
expansion of the operations of the Company to certain jurisdictions may require
it to comply with such jurisdictions' regulations, which could require
structural and organizational modifications of the Company's business. Such
changes, if any, could have a material adverse effect on the Company. However,
since the Company believes that it meets many of the states' exceptions and
intends to structure its health plans to comply with such statutes, the Company
believes that the risk of state action taken against the Company or any of the
Company's contracted health care providers pursuant to the above-referenced
provisions is minimal.

State Regulation of Insurance Business and HMOs

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. Many state insurance commissioners have interpreted their
insurance statutes to prohibit entities from entering into risk-based managed
care contracts unless there is an entity licensed to engage in the business of
insurance in the chain of contracts. An entity not licensed to provide insurance
that contracts directly with a self-insured employer in such a state may be
deemed to be engaged in the unlicensed business of insurance. The Company
intends to obtain all required or appropriate licenses for its health plan
business operations as an HMO or as a provider network. NBR has agreed to
arrange licensed insurers to provide indemnity coverage to enrollees in the
Company's health plans. The Company believes that it is and will be in
compliance with the laws that regulate the business of insurance in the states
in which it does business, but there can be no assurance that future
interpretations of insurance and health care network laws by 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.

Many states also require managed care organizations to contract with any
willing qualified provider that desires to contract with the organization. The
Company could incur liability in the event a managed care organization under the
Company's control fails so to contract.

Federal Medicare and Medicaid Related Regulation

Since the Company's Quality Management Business focuses on Medicare
reimbursement and the Company's health plans will provide services to Medicare
and Medicaid patients, the Company is and will be subject to a number of federal
laws prohibiting certain activities and arrangements relating to services or
items, that are reimbursable by Medicare or Medicaid or other state-funded
programs.

The False Claims Act. The False Claims Act imposes civil liability on
persons or corporations that make false or fraudulent claims to the government
for payment. A violation of the False Claims Act may result in liability for
monetary penalties and exclusion from the Medicare and Medicaid programs. The
Company takes measures to ensure that hospital-clients of its Quality Management
Program do not submit false or fraudulent claims to the government, and the
Company intends to take similar protective measures with respect to its health
plan business. Because the Company's current revenue relates to Medicare
payments

34
<PAGE> 36

and the Company anticipates that the health plan business could, in the future,
receive significant revenue from Medicare and Medicaid, an exclusion from the
Medicaid and Medicare programs as a result of a violation of the False Claims
Act could have a material adverse effect on the Company. The Company, as well as
its hospital-clients, could incur liabilities for violations of the False Claims
Act.

Prohibition on Assignment. The Medicare and Medicaid laws prohibit the
assignment of Medicare and Medicaid receivables. As a result, the Company could
not obtain a pledge of Medicare and Medicaid receivables as security for payment
of remuneration owed to the Company by a health care provider if it so desired.
Similarly, the Company could not pledge or assign its Medicare and Medicaid
receivables as security for bank lines of credit or other lending arrangements.

Anti-kickback Statute. Certain provisions of the Social Security Act
prohibit the offer, payment, solicitation, or receipt of any form of
remuneration either (i) in return for the referral of Medicare or state health
program patients or patient care opportunities, or (ii) 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").
The Anti-kickback Statute is broad in scope and has been broadly interpreted by
courts in many jurisdictions, potentially subjecting such arrangements to
lengthy expensive investigations and prosecutions initiated by federal and state
governmental officials. In particular, HCFA has expressed concern that physician
ownership in entities in a position to receive referrals from such physicians
may violate the Anti-kickback Statute.

In part to address concerns regarding the Anti-kickback Statute, since July
1991 the Department of Health and Human Services has promulgated regulations
that provide exceptions, or "safe harbors," for certain transactions that are
deemed not to violate the Anti-kickback Statute. The safe harbors include
protection for waivers or coinsurance and deductible amounts, negotiated
discounts by providers, management and personal services agreements, and
investment interests. Since the Company intends to offer physicians an ownership
interest in its health plans, the Company plans to structure such ownership so
that payments made to physician-investors in its health plans in the form of a
return on an investment interest, such as a dividend or interest income, meet
the investment interest safe harbor and therefore are not deemed to be
prohibited "remuneration" under the Anti-kickback Statute. Accordingly, the
Company intends to structure its health plan ownership so that (i) no more than
40% of the investment interests will be held by investors who are in a position
or make or influence referrals to the health plan; (iii) no more than 40% of the
gross revenue of the health plan will come from referrals, items or services
furnished or business otherwise generated from investors; and (iii) the terms of
the investment interests offered to investors who are in a position to make or
influence referrals to the health plan will be the same as the terms offered to
investors who are not in such position. There can be no assurance, however, that
more than 40% of the gross revenue of any of the Company's health plans will
consistently come from referrals, items or services furnished or business
otherwise generated from persons or entities other than physician-investors.

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. Although the
Company does not believe that its current operations violate or that its
proposed operations will violate the Anti-kickback Statute, there can be no
assurance that in the future regulatory authorities will not determine that the
Company's operations violate the Anti-kickback Statute. Because the Company
anticipates that its health plans will receive significant revenue as a result
of health care services provided to Medicaid and Medicare enrollees, an
exclusion from the Medicaid and Medicare programs as a result of a violation of
the Anti-kickback Statute could have a material adverse effect on the Company.

Federal Self-Referral Prohibitions. Significant prohibitions against
physician self-referrals for services covered by Medicare and Medicaid programs,
commonly known as "Stark II," were enacted by Congress in the Omnibus Budget
Reconciliation Act of 1993. These prohibitions amended prior physician
self-referral legislation known as "Stark I," which applied only to clinical
laboratory referrals, by dramatically enlarging the list of services and
investment interests to which the referral prohibitions apply. Subject to
certain exemptions, Stark II prohibits a physician or a member of such
physician's immediate family from referring Medicare or Medicaid patients to any
entity providing "designated health services" in which the physician has

35
<PAGE> 37

an ownership or investment interest or with which the physician has entered into
a compensation arrangement, including the physician's own group practice, unless
such practice satisfies the "group practice" exception. The designated health
services include the provision of clinical laboratory services, radiology, and
other diagnostic services, including ultrasound 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.

Although the definitions of ownership interests and compensation
arrangements are extremely broad, certain ownership interests and compensation
arrangements will not trigger the proscriptions of Stark II. In particular,
exceptions exist for prepaid health plans and personal services agreements. The
prepaid health plan exception covers a physician's ownership interest and
compensation arrangement in the case of services furnished by a prepaid health
plan. The personal services agreement exception covers compensation pursuant to
certain written agreements, such as management or independent contractor
agreements. Because the Company will use reasonable efforts to ensure that its
health plans meet the exceptions described above, the Company believes that the
risk that referrals of patients by physicians who have an interest in the health
plans or an agreement with the Company will be limited.

Interpretative regulations clarifying the provisions of Stark I were issued
on August 14, 1995, and Stark II regulations are scheduled to be proposed in
January 1997. Although the Company believes its proposed health plan operations
will be in compliance with the Stark legislation, future regulations could
require the Company to modify its health plan business. In addition, the
penalties for violating Stark II include a prohibition on Medicaid and Medicare
reimbursement and civil penalties of as much as $15,000 for each violative
referral and $100,000 for participation in a "circumvention scheme" and
exclusion from the Medicare and Medicaid programs. Because the Company
anticipates that its health plans will receive significant revenue as a result
of health care services provided to Medicaid and Medicare enrollees, an
exclusion from the Medicaid and Medicare programs as a result of a violation of
the self-referral prohibitions could have a material adverse effect on the
Company.

POTENTIAL LIABILITY AND INSURANCE

The Company may be exposed to potential professional liability claims by
patients of hospital-clients and patients of providers that participate in the
Company's health plans as a result of the negligence or other acts of
physicians. The physicians employed by the Company as part of the Quality
Management Program do not treat patients, attend patient encounters, make any
treatment or diagnosis decisions, or provide any medical services in connection
with that program. However, any claims based on allegations that the Company's
physicians are engaged in the practice of medicine that ultimately are
successful could result in substantial damage awards to claimants, which may
exceed the limits of any applicable insurance coverage. The Company's health
plans will involve the delivery of health care services to the public.
Consequently, the health plans will be exposed to the risk of professional
liability claims and may become subject to claims, suits, or complaints relating
to services and products provided by such plans, and there can be no assurance
that such claims will not be asserted against the Company. In connection with
its Quality Management Program business, the Company currently maintains special
errors and omissions insurance of $1,000,000 per occurrence with a deductible of
$10,000 and general liability insurance of $2,000,000 in the aggregate and
$1,000,000 per occurrence. In its health plan business, the Company will
maintain an occurrence malpractice liability insurance policy with limits of
$5,000,000 in the aggregate and $1,000,000 per occurrence and will require
physicians to maintain malpractice liability insurance in amounts which it deems
adequate for the types of medical services provided. There can be no assurance,
however, that such insurance will be sufficient to cover potential claims or
that adequate levels of coverage will be available in the future at a reasonable
cost. In the event of a successful claim against the Company that is partially
or completely uninsured, the Company's financial condition and reputation could
be materially and adversely affected.

New forms of managed care organizations have increasingly been subject to
liability for reasons such as failure to credential providers properly or
contributing to physician malpractice. In response, many managed care
organizations and other health care entities are not only obtaining general
liability insurance but also managed care and professional liability insurance
coverage. Medical directors also have also faced professional

36
<PAGE> 38

liability claims and state licensure challenges. The Health Care Quality
Improvement Act of 1986, however, provides immunity from damages for
professional review actions taken by professional review bodies, including
health plans, in good faith, provided that certain procedural standards are met.
The Company intends to comply with such procedures in its professional review
actions. However, no assurances can be given that the insurance coverages
obtained by the Company, tort reform, or immunity provisions will be adequate to
insure against all claims that may be asserted against the Company or that
insurance coverage will continue to be available at acceptable costs.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES

The Company regards certain features of its services and documentation as
proprietary and relies on a combination of contract, copyright, and trade secret
laws and other measures to protect its proprietary information. As part of its
confidentiality procedures, the Company generally obtains nondisclosure
agreements from its employees and hospital-clients and limits access to and
distribution of its software, documentation, and other proprietary information.
The Company believes that trade secret and copyright protection are less
significant than factors such as the knowledge, ability, and experience of the
Company's employees and the timeliness and quality of the services it provides.
The Company has recently filed applications with the U.S. Patent and Trademark
Office to register the tradenames and marks Birman(TM), Care3(TM), and
WellFirst(TM) for use in the Company's businesses. Care3 will be the brand name
of the Company's health plans.

FACILITIES

The Company is headquartered in Cookeville, Tennessee, where it occupies
approximately 4,000 square feet of space on a month-to-month basis. In addition,
the Company rents offices on a month-to-month basis in Scottsdale, Arizona and
Gulfport, Mississippi. All office space occupied by the Company is leased from
unaffiliated third parties. The Company is seeking substitute office space on a
build-to-suit basis in Cookeville, Tennessee and on a long-term lease basis in
Phoenix, Arizona. Cookeville is approximately 80 miles east of Nashville,
Tennessee.

EMPLOYEES

At August 31, 1996, the Company employed 59 persons and has contractual
arrangements with 21 physicians and other health care professionals. A total of
26 employees are responsible for the administrative affairs of the Company; 20
employees are directly involved in the Quality Management Program business; and
nine employees are directly involved in developing the health plans. The Company
is not subject to any collective bargaining agreements, and it considers its
relations with employees to be good.

With respect to its Quality Management Program, the Company has a staff of
seven full-time employee-physicians and 15 part-time physician-consultants, all
of whom have at least six years of medical practice experience, specializing in
areas that include internal medicine, surgery, obstetrics, gynecology,
pediatrics, oncology, family practice, and emergency room medicine. The Company
also employs 12 full-time and six part-time allied health specialist employees.

LEGAL PROCEEDINGS

On November 2, 1995, Dallas Riley, Jr., a former employee of Birman &
Associates, Inc., filed a lawsuit against Birman & Associates, Inc., David N.
Birman, M.D., and Liberty Mutual Insurance Company in the Circuit Court of
Putnam County, Tennessee seeking permanent disability benefits under the
Tennessee Worker's Compensation statute or, alternatively, $500,000 in damages
for personal injury sustained through the alleged negligence of Birman &
Associates, Inc. Mr. Riley claims that he was permanently disabled as a result
of an injury that he suffered at a Company-sponsored event. The Company's
workers' compensation insurance carrier has recently advised the Company that it
intends to deny coverage of the claim on the basis that the plaintiff is an
independent contractor and not an employee. The Company's general liability
insurance carrier has agreed to defend the Company in the action under
reservation of rights to contest the timeliness of the Company's notice. The
Company believes Mr. Riley's claims are without merit and intends to defend this
action vigorously. There are no other material legal proceedings pending against
the Company.

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<PAGE> 39

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to each
member of the Board of Directors and each executive officer of the Company.
Directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been elected and qualified. Officers
are appointed by and serve at the discretion of the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
David N. Birman, M.D. .................... 44 Chairman of the Board, President, and Chief
Executive Officer
Sue D. Birman............................. 38 Executive Vice President and Director
Robert D. Arkin........................... 42 Executive Vice President, Chief Operating
Officer, Secretary, General Counsel, and
Director
Douglas A. Lessard........................ 35 Vice President, Treasurer, and Chief
Financial Officer
Vincent W. Wong........................... 38 President and Chief Executive Officer - BMC
Health Plans, Inc.
Mark C. Wade.............................. 40 Executive Vice President-Sales and
Marketing - BMC Health Plans, Inc.
D. Bradley Seitzinger, M.D. .............. 41 Executive Vice President -- Physician
Services - Birman & Associates, Inc.
William F. Barenkamp, II.................. 41 Vice President and Chief Operating Officer -
Birman & Associates, Inc.
James J. Rhodes........................... 39 Director
Diedrich Von Soosten...................... 56 Director
</TABLE>

David N. Birman, M.D. has served as Chairman of the Board of Directors,
President, and Chief Executive Officer of the Company and its predecessor
corporations since May 1991. From February 1990 to mid-1991, Dr. Birman served
as Chairman of the Board of Birman, Mathes & Associates, Inc., a consulting
company providing quality management and Medicare reimbursement review services
to rural hospitals. From April 1989 until January 1990, Dr. Birman served as a
consultant, providing quality management and Medicare reimbursement review
services to five rural hospitals. Previously, Dr. Birman was employed by
Whitwell Medical Center, Whitwell, Tennessee where, as a physician assistant, he
performed certain clinical duties and developed patient care management
techniques and reporting strategies that formed the basis for development of the
Quality Management Program. Dr. Birman received his M.D. from the Universidad
Tecnologica de Santiago, his B.A., with honors in Biology from Occidental
College, and certification as a physician assistant in primary care and surgery
from the University of Southern California School of Medicine.

Sue D. Birman has served as Executive Vice President and director of the
Company and its predecessor corporations since May 1991 and served as their
Chief Financial Officer from May 1991 until June 1996. From February 1990 to
mid-1991, Ms. Birman assisted Dr. Birman in the financial aspect and business
development of Birman, Mathes & Associates, Inc. From April 1989 until January
1990, Ms. Birman assisted Dr. Birman in the operation of his consulting firm.
Ms. Birman is the spouse of David N. Birman, M.D.

Robert D. Arkin has served as Chief Operating Officer of the Company since
June 1996, as a director since April 1996, and as Secretary and a General
Counsel since March 1996. Prior to joining the Company, Mr. Arkin was engaged
for 16 years in the private practice of law, concentrating in the areas of
securities, health, and intellectual property law, including from 1980 to 1984
as an associate and from 1985 to 1986 as a partner with the Minneapolis,
Minnesota law firm of Leonard, Street and Deinard. Mr. Arkin is licensed to
practice law in the states of Minnesota and Georgia.

Douglas A. Lessard has served as Chief Financial Officer of the Company
since June 1996 and as Controller since January 1996. Mr. Lessard provided
accounting and consulting services to the Company from

38
<PAGE> 40

April 1995 through December 1995. From March 1993 through March 1995, Mr.
Lessard served as the Chief Executive Officer and from September 1991 through
March 1993, as Chief Financial Officer of the American Institute of Professional
Careers, Inc., a private college in Phoenix, Arizona, which provides
post-secondary education in legal and other specialized career fields. From
March 1989 through September 1991, Mr. Lessard was employed as the Controller
for Arizona Building and Development, Inc., a real estate development and
management company. Mr. Lessard is a Certified Public Accountant in the State of
Arizona.

Vincent W. Wong has served as President, Chief Executive Officer, and as a
director of BMC Health Plans, Inc. since January 1996. For approximately five
years before joining BMC Health Plans, Inc., Mr. Wong was employed by Foundation
Health Corporation, a New York Stock Exchange listed managed care organization.
During such time, Mr. Wong served in positions of increasing responsibility
culminating in his service as Vice President of Operations. From 1984 to 1991,
Mr. Wong was employed in marketing by Blue Cross Blue Shield of Ohio.

Mark C. Wade has served as Executive Vice President -- Sales and Marketing
of BMC Health Plans, Inc. since July 1995 and has been employed by BMC Health
Plans, Inc. since March 1995. From November 1993 to March 1995, Mr. Wade served
as the founding director and president of Forum Health Care, Inc., a consulting
firm specializing in the development and management of integrated health care
delivery networks for both the private and public sectors. From February 1988 to
November 1993, Mr. Wade served in several positions at Health Management
Associates, Inc., an Arizona company that, commencing in 1982, developed and
managed four prepaid Medicaid plans that operated in 11 of Arizona's 15
counties, a prepaid Medicaid plan in Las Vegas, Nevada, and other managed care
programs. Mr. Wade's last position with Health Management Associates, Inc. was
as vice president for all private sector commercial sales and marketing activity
with particular emphasis on commercial provider networks, including marketing to
large insurance companies and self-funded payors, integrated delivery systems,
pharmacy networks, managed care benefit designs, and utilization management and
third-party administration services.

D. Bradley Seitzinger, M.D. currently serves as Executive Vice
President -- Physician Services of Birman & Associates, Inc. Since September
1991, Dr. Seitzinger has served in several other capacities at Birman &
Associates, Inc., including Regional Physician Manager, Vice President of
Quality Management, Vice President of Physician Operations, and Senior Vice
President of Physician Operations. From September 1989 to September 1991, Dr.
Seitzinger was assistant vice president of medical affairs for Peer Review
Systems, Inc., a private company that contracted with HCFA to perform Medicare
physician peer review for the State of Ohio. Prior to 1993, Dr. Seitzinger
worked in concurrent capacities, including, from 1986 to 1992, assistant
professor of internal medicine at The Ohio State University College of Medicine,
and from 1987 to 1992, private practice as an internal medicine specialist at
Medical Evaluation Services, Inc., Columbus, Ohio. He is certified by the
American Board of Internal Medicine. Dr. Seitzinger received his M.D. from The
Ohio State University. He is licensed to practice medicine in Arizona, Indiana,
Ohio, and Tennessee.

William F. Barenkamp, II has been employed by Birman & Associates, Inc.
since November 1993, currently as Vice President and Chief Operating Officer.
From January 1991 to November 1993, Mr. Barenkamp attended Dallas Theological
Seminary, receiving an M.A. in Theology in 1993. During such period, Mr.
Barenkamp served as associate pastor at East Grand Baptist Church, Dallas,
Texas. From November 1986 to December 1990, Mr. Barenkamp was the Director of
Marketing and Sales for CSS/Cooper Hotels, Inc. of Memphis, Tennessee.

Diedrich Von Soosten became a director of the Company in September 1996.
Since 1990, Mr. Von Soosten has been Managing Partner of Coloney Von Soosten &
Associates, Inc., a management consulting and financial advisory services firm
specializing in business turnarounds. Prior to 1990, Mr. Von Soosten was an
independent consultant providing restructuring and turnaround assistance to
underperforming businesses. Mr. Von Soosten is a former director and officer of
the Association of Certified Turnaround Professionals.

James J. Rhodes became a director of the Company in September 1996. Since
1986, Mr. Rhodes has served as a Regional Manager in the pension division of
ManuLife Financial (The Manufacturer's Life Insurance Company (USA)), a global
financial services company offering annuities, insurance, and investment
products.

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<PAGE> 41

BOARD COMMITTEES

There are two committees of the Board of Directors: the Compensation
Committee and the Audit Committee. The Compensation Committee determines the
Company's executive compensation policies and practices and changes in
compensation and benefits for senior management. The Compensation Committee also
administers the Company's 1995 Stock Option Plan. The Audit Committee reviews
the internal accounting procedures of the Company, consults with the Company's
independent accountants, and reviews the services provided by such accountants.
Messrs. Rhodes and Von Soosten currently serve as the members of the
Compensation Committee and Audit Committee.

COMPENSATION OF DIRECTORS

All directors receive reimbursement for reasonable expenses incurred in
connection with their attendance at Board of Directors and committee meetings.
In addition, all non-employee directors receive $2,000 for each Board meeting
that they attend. All non-employee directors are also entitled to receive awards
and options to purchase shares of Common Stock under the 1996 Non-Employee
Directors' Non-Qualified Stock Option Plan. See "Management -- Stock Option
Plans -- 1996 Directors' Option Plan."

EXECUTIVE COMPENSATION

The following table provides certain information concerning the
compensation earned by the Company's Chief Executive Officer and the four next
highly compensated executive officers who received compensation in excess of
$100,000 for services rendered in all capacities to the Company for fiscal 1996
(the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
OTHER -----------------------------
ANNUAL ALL OTHER
SALARY BONUS COMPENSATION AWARDS/OPTIONS COMPENSATION
NAME AND THEN-PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------------- ---- ------- ------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David N. Birman, M.D. ........... 1996 350,000 60,000 69,025 -- --
Chairman of the Board, 1995 275,000 -- 52,922 -- --
President, and Chief Executive 1994 262,500 -- 48,223 -- --
Officer(1)
D. Bradley Seitzinger, M.D. ..... 1996 203,301 15,000 14,272 145,879 --
Executive Vice President -- 1995 174,325 -- 13,731 -- --
Physician Services(2) 1994 158,290 -- 13,344 -- --
Sue D. Birman.................... 1996 150,000 40,000 11,834 -- --
Executive Vice President, Chief 1995 118,617 -- 11,968 -- --
Financial Officer (until May 1994 63,643 -- 11,279 -- --
1996), and Director(3)
Richard M. Ross.................. 1996 202,500 -- 17,588 -- --
Vice Chairman (until August 1995 15,000 -- 47,674 -- --
1996) (4) 1994 -- -- 27,095 -- --
Robert D. Arkin.................. 1996 41,250 -- 247,885 291,758 --
Chief Operating Officer and 1995 -- -- -- -- --
Secretary(5) 1994 -- -- -- -- --
</TABLE>

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

(1) Other Annual Compensation for David N. Birman, M.D. for fiscal 1996 was
$5,484 in medical insurance premiums, $40,903 in officer's life insurance
premiums, $19,638 in auto allowance, and $3,000 in 401(k) matching
contributions; for fiscal 1995, $4,900 in medical insurance premiums,
$29,550 in officer's life insurance premiums, $16,000 in auto allowance,
and $2,472 in 401(k) matching contributions; and for fiscal 1994, $6,156 in
medical insurance premiums, $26,472 in officer's life insurance premiums,
and $15,595 in auto allowance.

40
<PAGE> 42

(2) Other Annual Compensation for D. Bradley Seitzinger, M.D. for fiscal 1996
was $5,484 in medical insurance premiums, $6,708 in auto allowance, and
$2,080 in 401(k) matching contributions; for fiscal 1995, $4,900 in medical
insurance premiums, $7,188 in auto allowance, and $1,643 in 401(k) matching
contributions; and for fiscal 1994, $6,156 in medical insurance premiums and
$7,188 in auto allowance.

(3) Other Annual Compensation for Sue D. Birman for fiscal 1996 was $9,834 in
auto allowance and $2,000 in 401(k) matching contributions; for fiscal 1995,
$11,000 in auto allowance and $968 in 401(k) matching contributions; and for
fiscal 1994, $11,279 in auto allowance.

(4) During fiscal year 1996, Mr. Ross, currently a consultant to the Company,
served as Vice-Chairman and a director of the Company. See "Certain
Transactions." Other Annual Compensation for Richard M. Ross for fiscal 1996
was $4,783 in medical insurance, and $12,805 in officer's life insurance
premiums; for fiscal 1995, $2,039 in medical insurance and $47,674 in
consulting fees paid to Mr. Ross prior to being employed by the Company; and
for fiscal 1994, $27,095 in consulting fees paid to Mr. Ross prior to being
employed by the Company.

(5) Other Annual Compensation for Robert D. Arkin for fiscal 1996 was $985 in
medical insurance premiums and $246,900 in legal fees paid to Mr. Arkin
prior to being employed by the Company.

EXECUTIVE BONUS PLAN

The Company has adopted an Executive Bonus Plan (the "Executive Bonus
Plan") pursuant to which officers of the Company are eligible to receive cash
bonuses after the close of each fiscal year of the Company. The Executive Bonus
Plan is administered by the Compensation Committee of the Board of Directors.
Bonuses are determined on the basis of (i) the operating profit of the Company,
(ii) net revenue growth of the Company achieved as a percentage of the goal
established by the Company at the beginning of the fiscal year, and (iii) the
officer's individual performance and contribution to the Company. An officer's
bonus for any fiscal year may not exceed such officer's annual base salary
multiplied by the Target Bonus Percentage as defined in the Executive Bonus Plan
in such fiscal year.

STOCK OPTION PLANS

1995 Stock Option Plan

The Company has adopted the 1995 Stock Option Plan (the "1995 Option Plan")
pursuant to which, key employees, including officers and directors who are
employees, and consultants of the Company are eligible to receive incentive
stock options as well as non-qualified stock options and stock appreciation
rights ("SARs"). The Plan, which expires in October 2005, is administered by the
Compensation Committee of the Board of Directors. Incentive stock options
granted under the Plan are exercisable for a period of up to 10 years from the
date of grant at an exercise price which is not less than the fair market value
of the Common Stock on the date of the grant, except that the term of an
incentive stock option granted under the Plan to a stockholder owning more than
10% of the outstanding Common Stock may not exceed five years and the exercise
price of an incentive stock option granted to such a stockholder may not be less
than 110% of the fair market value of the Common Stock on the date of the grant.
Non-qualified stock options may be granted on terms determined by the
Compensation Committee of the Board of Directors. SARs, which give the holder
the privilege of surrendering such rights for an amount of stock equal to the
appreciation in the Common Stock between the time of grant and the surrender,
may be granted on any terms determined by the Compensation Committee of the
Board of Directors. The Plan also permits the grant of new stock options to
participants who tender shares of the Company's Common Stock as payment of the
exercise price of stock options or the payment of withholding tax ("Reload
Options"). The Reload Options will be granted at the fair market value of a
share of Common Stock on the date of the grant and will be exercisable six
months following the date of the grant. The Plan also includes limited option
valuation rights upon a change of control of the Company. As of June 30, 1996,
options for the exercise of 1,006,566 shares have been granted under the 1995
Option Plan at the exercise price of $1.37 per share. A total of 1,458,780
shares of Common Stock are reserved for issuance under the 1995 Option Plan.

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<PAGE> 43

1996 Directors' Option Plan

On September 9, 1996, the Company adopted the 1996 Non-Employee Directors'
Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total of 100,000
shares of Common Stock are reserved for issuance under the 1996 Directors' Plan.
Under this plan, upon initial election to the Board of Directors, non-employee
directors are awarded options to purchase 6,000 shares of Common Stock. Upon
each subsequent election to the Board of Directors, non-employee directors
receive option awards to purchase 3,000 shares of Common Stock. These options,
which have an exercise price equal to the fair market value of the shares of
Common Stock as of the date of grant, vest at the rate of 33.33% per year. All
options awarded under the 1996 Directors' Plan expire on the first to occur of
(i) 10 years after the date of grant, or (ii) 90 days after the date the
director is no longer serving in such capacity for reasons other than death or
disability. On September 9, 1996, each of Messrs. Rhodes and Von Soosten were
granted options to purchase 6,000 shares of Common Stock under this plan at an
exercise price of $6.25 per share.

FISCAL 1996 OPTION GRANTS

The following table sets forth certain information concerning individual
grants of incentive stock options during the fiscal year ended June 30, 1996:

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED PRICE PER
NAME OF DIRECTOR OR OFFICER GRANTED UNDER PLAN SHARE
--------------------------------------------------- --------- ------------- ---------
<S> <C> <C> <C>
D. Bradley Seitzinger, M.D......................... 145,879 14.5% $1.37
William F. Barenkamp, II........................... 72,940 7.2% $1.37
Paul Dickson, M.D.................................. 18,235 1.8% $1.37
Douglas A. Lessard................................. 72,940 7.2% $1.37
Vincent W. Wong.................................... 218,819 21.7% $1.37
Mark C. Wade....................................... 145,879 14.5% $1.37
Jamie R. Hughes, R.N............................... 40,117 4.0% $1.37
Robert D. Arkin.................................... 291,757 29.0% $1.37
</TABLE>

EMPLOYMENT AGREEMENTS

The Company has employment agreements with each of the current executive
officers identified in the Summary Compensation Table. The employment agreements
provide for annual salaries that generally are subject to annual adjustments for
increases in the Consumer Price Index; participation in employee deferred
compensation plans, stock options and retirement and insurance plans; and
include customary noncompetition, nondisclosure, and severance provisions. Set
forth below is a summary of other principal provisions of those employment
agreements:

In March 1996, the Company entered into an employment agreement with David
N. Birman, M.D. for a term expiring June 30, 2001, pursuant to which Dr. Birman
serves as Chief Executive Officer of the Company. The employment agreement
provides for an initial base salary of $350,000 per annum, participation in the
Executive Bonus Plan, and other compensation not to exceed $60,000 per annum.
The employment agreement provides for severance benefits upon death, for
"cause," by mutual agreement, and as a result of disability. If Dr. Birman's
employment is terminated for reasons other than death, "cause," mutual
agreement, or disability, he shall be entitled to receive his base salary (as
most recently adjusted) for the remainder of the initial term or the applicable
renewal term and all unvested stock options granted to him under 1995 Option
Plan shall accelerate and become vested. If Dr. Birman's employment is not
renewed following expiration of the initial term or the applicable renewal term,
he shall be entitled to receive, as severance, his base salary (as last
adjusted) payable over the 12 month period following the severance of his
employment.

In March 1996, the Company entered into an employment agreement with Sue D.
Birman for a term expiring June 30, 2001, pursuant to which Ms. Birman serves as
Executive Vice President of the Company.

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<PAGE> 44

The employment agreement provides for an initial base salary of $150,000 per
annum, participation in the Executive Bonus Plan, and other compensation not to
exceed $10,000 per annum. The employment agreement provides for severance
benefits upon death, for "cause," by mutual agreement, and as a result of
disability. If Ms. Birman's employment is terminated for reasons other than
death, "cause," mutual agreement, or disability, she shall be entitled to
receive her base salary (as most recently adjusted) for the remainder of the
initial term or the applicable renewal term and all unvested stock options
granted to her under 1995 Option Plan shall accelerate and become vested. If Ms.
Birman's employment is not renewed following expiration of the initial term or
the applicable renewal term, she shall be entitled to receive, as severance, her
base salary (as last adjusted) payable over the 12 month period following the
severance of her employment.

In March 1996, the Company entered into an employment agreement with Robert
D. Arkin for a term expiring June 30, 2001, pursuant to which Mr. Arkin serves
as Chief Operating Officer, Secretary, and General Counsel of the Company. The
employment agreement provides for an initial base salary of $206,250 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$9,000 per annum. The employment agreement provides for severance benefits upon
death, for "cause," by mutual agreement, and as a result of disability. If Mr.
Arkin's employment is terminated for reasons other than death, "cause," mutual
agreement, or disability, he shall be entitled to receive his base salary (as
most recently adjusted) for the remainder of the initial term or the applicable
renewal term and all unvested stock options granted to him under 1995 Option
Plan shall accelerate and become vested. If Mr. Arkin's employment is not
renewed following expiration of the initial term or the applicable renewal term,
he shall be entitled to receive, as severance, his base salary (as last
adjusted) payable over the 12 month period following the severance of his
employment.

In March 1996, the Company entered into an employment agreement with
Douglas A. Lessard for a term expiring June 30, 2001, pursuant to which Mr.
Lessard serves as Chief Financial Officer of the Company. The employment
agreement provides for an initial base salary of $120,000 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$9,000 per annum. The employment agreement provides for severance benefits upon
death, for "cause," by mutual agreement, and as a result of disability. If Mr.
Lessard's employment is terminated for reasons other than death, "cause," mutual
agreement or disability, he shall be entitled to receive his base salary (as
most recently adjusted) for the remainder of the initial term or the applicable
renewal term and all unvested stock options granted under the 1995 Option Plan
shall accelerate and become vested. If Mr. Lessard's employment is not renewed
following expiration of the initial term or the applicable renewal term, he
shall be entitled to receive, as severance, his base salary (as last adjusted)
payable over the 12 month period following his severance of employment.

In March 1996, the Company entered into an employment agreement with
Vincent W. Wong for a term expiring on January 31, 1999, pursuant to which Mr.
Wong serves as President and Chief Executive Officer of BMC Health Plans, Inc.
The employment agreement provides for an initial base salary to Mr. Wong of
$180,000 per annum. The employment agreement also provides Mr. Wong with the
opportunity to earn up to an additional $180,000 per annum based upon the number
of enrollees in health plans developed, managed, or operated by the Company and
health plan net earnings. The employment agreement provides for severance
benefits upon death, for "cause," by mutual agreement, and as a result of
disability. If Mr. Wong's employment is terminated for reasons other than death,
"cause," mutual agreement or disability, he shall be entitled to receive his
base monthly salary (as most recently adjusted) payable over the six month
period following the severance of his employment, and all unvested stock options
granted to him under the 1995 Option Plan shall accelerate and become vested.

In July 1995, the Company entered into an employment agreement with Mark C.
Wade for a term expiring on September 1, 1998, pursuant to which Mr. Wade serves
as Executive Vice President -- Sales and Marketing of BMC Health Plans, Inc. The
employment agreement provides for a base salary of $165,000 per annum with the
opportunity for Mr. Wade to earn up to an additional $85,000 per annum based
upon the number of enrollees in health plans developed, managed, or operated by
the Company. Mr. Wade's employment agreement does not contain a severance
provision.

43
<PAGE> 45

The Company has entered into an employment agreement with D. Bradley
Seitzinger, M.D. pursuant to which Dr. Seitzinger provides supervisory and other
services to the Company on a full-time basis. The employment agreement is
terminable by either party upon 14 days' prior written notice. The employment
agreement provides for the review of Dr. Seitzinger's salary from time to time
and authorizes the payment of additional compensation, by way of salary, bonus,
or otherwise, at the discretion of the Company. Dr. Seitzinger currently
receives a base salary of $208,000 per annum. Dr. Seitzinger's employment
agreement does not contain a severance provision.

In November 1993, the Company entered into an employment agreement with
William F. Barenkamp, II pursuant to which Mr. Barenkamp provides supervisory
and other services to the Company on a full-time basis. The employment agreement
is terminable by either party without prior notice upon a material breach of the
terms thereof. The employment agreement provides for the review of Mr.
Barenkamp's salary from time to time and authorizes the payment of additional
compensation, by way of salary, bonus, or otherwise, at the discretion of the
Company. Pursuant to the employment agreement, Mr. Barenkamp currently receives
a base salary of $100,000 per annum. Mr. Barenkamp's employment agreement does
not contain a severance provision.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation limits, to the maximum extent
permitted by the Delaware GCL, the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors other than for
liabilities arising from (i) any breach of the directors' duty of loyalty to the
Company and its stockholders; (ii) acts or omissions that involve intentional
misconduct, fraud, or knowing violations of law; (iii) the payment of
distributions in violation of the Delaware GLC; or (iv) transactions in which
the director received an improper personal benefit. The Company's Bylaws require
the Company to indemnify directors and officers for all costs reasonably
incurred in connection with any action, suit, or proceeding in which such
director or officer is made a party by virtue of his being a director or officer
of the Company except where such director or officer is finally adjudged to have
been derelict in the performance of his duties as such director or officer.

The Company has entered into indemnification agreements with its directors
and executive officers, which contain provisions which are in some respects
broader than the specific indemnification provisions contained in the Company's
Certificate of Incorporation and Bylaws. The indemnification agreements require
the Company, among other things, to indemnify such directors and officers
against certain liabilities that may arise by reason of their status as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to carry directors' and
officers' insurance, if available on reasonable terms. The Company believes
these indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. It is the opinion of the staff of the
Securities and Exchange Commission that indemnification provisions such as those
that will be contained in these indemnification agreements have no effect on a
director's or officer's liability under the federal securities laws.

Except for the legal action described under "Business -- Legal
Proceedings," there is no pending litigation or proceeding involving any
director, officer, employee, or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or other proceeding, which may result in a claim for such indemnification.

CERTAIN TRANSACTIONS

Prior to June 30, 1995, the Company operated, as a division, a livestock
breeding farm on property owned by David N. Birman, M.D. and Sue D. Birman, his
spouse. At that time, Dr. Birman was the sole stockholder, President, and a
director of the Company, and Mrs. Birman was an Executive Vice President, the
Chief Financial Officer, and a director of the Company. Prior to June 30, 1994,
the Company lent to Dr. and Mrs. Birman, approximately $482,000, which was used
primarily to improve their farm property and residence. During fiscal 1995, Dr.
and Mrs. Birman repaid $442,000 of such loan and also received additional
advances of

44
<PAGE> 46

approximately $270,000, resulting in an outstanding principal balance of
$310,000 at June 30, 1995. As of June 30, 1995, the Company contributed all of
its farm assets, subject to the related liabilities, to a new corporation,
Birman Farms, Inc., and distributed all of the outstanding shares of capital
stock of Birman Farms, Inc. to Dr. Birman. This dividend distribution of
property was valued by the Company at $230,000. Subsequent to the distribution,
the Company authorized additional advances to Dr. Birman through September 1996
of approximately $465,000 to defray the operating and ownership costs of the
farm. Accordingly, as of September 9, 1996, Dr. Birman owed a total of $775,000
to the Company. All amounts owed to the Company by Dr. Birman accrued interest
at a rate of 7% per annum through August 31, 1996 and will accrue interest at
the prime rate of American National Bank and Trust Company of Chicago from and
after September 1, 1996. Interest is payable annually, in arrears. The
outstanding principal balance of the loan plus all unpaid accrued interest is
due and payable in full on August 31, 1999. Dr. Birman has the option to tender
shares of Common Stock owned by him in repayment of the loan at any time on or
prior to January 31, 1997 at a per share price equal to the initial offering
price of the Units or after January 31, 1997 at a price per share equal to 92%
of the average closing bid price of the Common Stock as reported over the
previous 20 consecutive trading days. No additional loans will be made by the
Company to any member of management without the approval of the non-employee
members of the Board of Directors of the Company. Dr. Birman may sell shares of
Common Stock in private transactions to provide the funds necessary to retire
his indebtedness and to satisfy income tax obligations associated with the
satisfaction of indebtedness transactions.

Richard M. Ross served as Vice-Chairman and as a director of the Company
from February 1994 to August 1996. Effective September 1, 1996, Mr. Ross retired
as Vice-Chairman and a newly formed company controlled by Mr. Ross was engaged
as a consultant to the Company pursuant to a Consulting Agreement. While serving
as Vice-Chairman of the Company, Mr. Ross was actively involved in policy-making
matters relating to day-to-day operations of the Company and corporate finance.
As a consultant, Mr. Ross will undertake special assignments designated by Dr.
Birman and the Board of Directors including, among other things, developing
business plans for acquired companies and evaluating acquisition candidates. The
Consulting Agreement provides for Mr. Ross to serve as the provider of
consulting services thereunder, provides for a fee to be paid to the consultant
firm of $186,000 per annum payable in equal monthly installments over the 12-
month term of the agreement, and provides for termination of the Consulting
Agreement by mutual agreement, upon the occurrence of an uncured material
breach, upon the death of Mr. Ross, or 10 days after receipt of notice of
termination from the consultant. Except as otherwise provided or as otherwise
agreed to by the parties, the Consulting Agreement will be renewed annually by
the Company for up to an additional five consecutive years. The Company also
paid Mr. Ross a $26,000 severance fee and has transferred to Mr. Ross personal
computer equipment used by Mr. Ross in rendering services to the Company and
having a value of less than $1,000. In addition, Dr. Birman has agreed to sell
Mr. Ross 175,000 shares of Company Common Stock in consideration for a $175,000
principal amount promissory note.

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of August 31, 1996 and as
adjusted to reflect the sale of Units offered hereby, based on information
obtained from the persons named below, with respect to the beneficial ownership
of shares of Common Stock by (i) each person (or group of affiliated persons)
who is known by the Company to own beneficially more than 5% of the Common
Stock; (ii) each of the Named Executive Officers; (iii) each of the directors;
and (iv) all directors and executive officers of the Company as a group.

45
<PAGE> 47

<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------- ------------ ------- ---------- -------
<S> <C> <C> <C> <C>
David N. Birman, M.D.(1)(4).................... 5,256,408(2) 75.62% 5,256,408 61.83%
Sue D. Birman(1)............................... 5,256,408(2) 75.62% 5,256,408 61.83%
D. Bradley Seitzinger, M.D.(3)................. 36,470 * 36,470 *
Robert D. Arkin(3)............................. 0 0 0 0
Richard M. Ross(4)............................. 0 0 0 0
James J. Rhodes(3)............................. 0 0 0 0
Diedrich Von Soosten(3)........................ 0 0 0 0
Directors and officers as a group(7 persons)... 5,292,878 76.2% 5,292,878 62.3%
</TABLE>

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

* Less than 1%

(1) The address of Dr. and Mrs. Birman is c/o the Company at 502 Gould Drive,
Cookesville, Tennessee 38506.

(2) David N. Birman, M.D. disclaims beneficial ownership as to 547,047 shares
beneficially owned by Sue D. Birman individually. Sue D. Birman disclaims
beneficial ownership as to 4,344,663 shares beneficially owned by David N.
Birman, M.D. individually.

(3) Does not include options to purchase shares of Common Stock scheduled to
first become exercisable more than 60 days after the date of this
Prospectus. See "Management -- Stock Option Plans" and "Management -- Fiscal
1996 Option Grants."

(4) Does not give effect to an anticipated sale of 175,000 shares of Common
Stock by Dr. Birman to Mr. Ross.

DESCRIPTION OF SECURITIES

GENERAL

The Company is incorporated in the State of Delaware. The Company is
authorized to issue 25,000,000 shares of Common Stock, $.001 par value per
share, and 5,000,000 shares of Preferred Stock, $.001 par value per share.

UNITS

Each Unit being offered hereby consists of one share of Common Stock, $.001
par value per share, and one redeemable Warrant to purchase one share of Common
Stock. The Common Stock and Warrants comprising each Unit will be separately
transferable upon issuance.

PREFERRED STOCK

There are no shares of Preferred Stock issued and outstanding. The Board of
Directors is authorized, subject to any limitations prescribed by law, without
further action of the stockholders of the Company, to issue from time to time
such shares of Preferred Stock in one or more classes or series, to establish
the number of shares to be included in each such class or series, to fix or
alter the designations, preferences, limitations and relative, participating,
optional or other special rights and qualifications or restrictions of the
shares of each such class or series, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences, and the
number of shares constituting any class or series or the designations of such
class or series. The issuance of Preferred Stock could adversely affect, among
other things, the rights of existing stockholders or could delay or prevent a
change in control of the Company without further action by the stockholders. The
issuance of

46
<PAGE> 48

Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock. In addition, any such issuance could
have the effect of delaying, deferring, or preventing a change in control of the
Company and could make the removal of the present management of the Company more
difficult.

COMMON STOCK

As of September 9, 1996, there were 6,931,082 shares of Common Stock issued
and outstanding, held of record by 38 stockholders. All of the issued and
outstanding shares of Common Stock are fully paid and non-assessable and all of
the shares of Common Stock issued in this Offering and issued upon proper
exercise of the Warrants will be fully paid and non-assessable. Holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, subject to the dividend
preferences of the Preferred Stock, if any. Upon the liquidation, dissolution,
or winding up of the affairs of the Company, whether voluntary or involuntary,
the holders of Common Stock are entitled to share ratably in all assets of the
Company available for distribution after payment of all liabilities and
liquidation preferences of the Preferred Stock, if any. Holders of Common Stock
have no preemptive rights, no cumulative voting rights, and no rights to convert
their Common Stock into any other securities.

WARRANTS

General. The following is a brief summary of the material provisions of
the Warrants included in the Units offered hereby. The summary does not purport
to be complete and is qualified in all respects by reference to the actual text
of the Warrant Agreement between the Company and American Stock Transfer and
Trust Company (the "Transfer and Warrant Agent"). A copy of the Warrant
Agreement is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."

Exercise Price and Terms. Each Warrant entitles the holder thereof to
purchase one share of Common Stock at a price of $ (130% of the initial
public offering price of the Units), subject to adjustment in accordance with
the anti-dilution and other provisions referred to below, at any time until 36
months from the date of this Prospectus. The holder of any Warrant may exercise
such Warrant by surrendering the certificate representing the Warrant to the
Transfer and Warrant Agent, with the subscription form on the reverse side of
such certificate properly completed and executed, together with payment of the
exercise price. The Warrants may be exercised at any time in whole or in part at
the applicable exercise price until expiration or redemption of the Warrants. No
fractional shares will be issued upon exercise of the Warrants.

The exercise price of the Warrants bear no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the Common Stock.

Adjustments. The exercise price and number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations and reclassification of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock at
a price below the then applicable exercise price of the Warrants. Additionally,
an adjustment would be made in the case of a capital reorganization,
reclassification or exchange of the Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation), or sale of all or
substantially all of the assets of the Company in order to enable warrantholders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by the holder of the number of shares of
Common Stock that might otherwise have been purchased upon the exercise of the
Warrant. No adjustment will be made until the cumulative adjustments in the
exercise price per share amount to $.05 or more. No adjustment to the number of
shares and exercise price of the shares subject to the Warrants will be made for
dividends (other than stock dividends), if any, paid on the Common Stock or for
securities issued pursuant to the 1995 Option Plan, the 1996 Directors' Plan, or
other employee benefit plans of the Company, or upon exercise of the Warrants,
the Representative's Warrants, or any other option or warrant outstanding as of
the date of this Prospectus.

47
<PAGE> 49

Redemption Provisions. Commencing 90 days from the date of this
Prospectus, the Warrants will be subject to redemption at $.01 per Warrant on 30
days' prior notice mailed to the warrantholders within 15 days after the closing
bid price of the Common Stock as reported by Nasdaq equals or exceeds $
(110% of the exercise price) for a period of 20 consecutive trading days. In the
event that the Company exercises the right to redeem the Warrants, such Warrants
will be exercisable until the close of business on the date for redemption fixed
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and its holder will be entitled only to
the redemption price. Since it is the Company's present intention to exercise
such right, warrantholders should presume that the Company would call the
Warrants for redemption if such criteria are met.

Transfer, Exchange, and Exercise. The Warrants are in registered form and
may be presented to the Transfer and Warrant Agent for transfer, exchange, or
exercise at any time on or prior to their expiration or redemption date three
years from the date of this Prospectus, at which time the Warrants become wholly
void and of no value. If a market for the Warrants develops, the holder may sell
the Warrants instead of exercising them. There can be no assurance, however,
that a market for the Warrants will develop or continue.

Warrantholder not a Stockholder. The Warrants, as such, do not confer upon
holders any voting, dividend, or other rights as stockholders of the Company.

Modification of Warrant. The Company and the Transfer and Warrant Agent
may make such modifications to the Warrants as they deem necessary and desirable
that do not adversely affect the interests of the warrantholders. No other
modifications may be made to the Warrants without the consent of the majority of
the warrantholders. Modification of the number of securities purchasable upon
the exercise of any Warrant, the exercise price and the expiration date with
respect to any Warrant requires the consent of the holder of such Warrant.

Certain Federal Income Tax Considerations. No gain or loss will be
recognized by a holder upon the exercise of a Warrant. The sale of a Warrant by
a holder or the redemption of a Warrant from a holder will result in the
recognition of gain or loss in an amount equal to the difference between the
amount realized by the holder and the Warrant's adjusted basis in the hands of
the holder. Provided that the holder is not a dealer in the Warrants and that
the Common Stock would have been a capital asset in the hands of the holder had
the Warrant been exercised, gain or loss from the sale or redemption of the
Warrant will be a long-term or short-term capital gain or loss to the holder
depending on whether the Warrant had been held for more than a year. Upon the
expiration of a Warrant, loss equal to the Warrant's adjusted basis in the hands
of the holder will be a long-term or short-term capital loss, depending on
whether the Warrant has been held for more than a year.

Previously Issued Warrants. The Company has previously issued warrants to
purchase shares of Common Stock to two persons who have helped the Company with
their consulting services. The warrants are exercisable at any time after
January 1, 1997 and on or before December 31, 2001 at a weighted average
exercise price of $1.39 per share.

See "Underwriting" for a description of the Representative's Warrants to be
issued pursuant to the terms of the Underwriting Agreement.

SECTION 203 OF THE DELAWARE LAW

Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date, the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales, and other transactions resulting in a financial
benefit to the stockholder. An "interested

48
<PAGE> 50

stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.

The Company's Certificate of Incorporation and By-Laws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "antitakeover"
effect in that such provisions may delay, defer, or prevent a change of control
of the Company. These provisions include (a) the requirement that not less than
60% of the voting power present and entitled to vote approve any proposal for
(1) the merger of the Company with any other corporation, (2) the sale, lease,
transfer, or other disposition of all or any substantial part of the Company's
assets, or (3) the issuance of any of the Company's voting securities in
exchange or payment for any securities or other property of any corporation or
other entity; (b) the requirement that certain business combinations with a
control person be approved by the affirmative vote of not less than 66 2/3% of
the votes entitled to be cast generally by the outstanding Common Stock or be
unanimously approved by the Company's Board of Directors; and (c) the authority
of the Board of Directors to issue series of Preferred Stock with such voting
rights and other powers as the Board of Directors may determine.

REGISTRATION RIGHTS

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 holders
of Company securities, NBR, as the holder of 291,756 shares of Common Stock, and
its permitted transferees are entitled to notice of such registration and are
entitled to include their shares of Common Stock therein, provided, among other
conditions, that the underwriters of such offering will have the right to limit
the number of such shares of Common Stock included in the registration. The
foregoing piggy back registration rights do not apply to the registration of
securities for issuance in merger or acquisition transactions or pursuant to
employee compensation programs. The piggy back registration rights expire at the
time as NBR may resell its shares of Common Stock pursuant to Rule 144(k) under
the Securities Act. NBR has waived its rights with respect to this offering.

TRANSFER AND WARRANT AGENT

The Company's Transfer and Warrant Agent is American Stock Transfer and
Trust Company, 40 Wall Street, New York, New York 10005.

49
<PAGE> 51

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
8,481,082 shares of Common Stock assuming no exercise of (i) the Underwriters'
over-allotment option; (ii) the Warrants included in the Units; (iii) the
Representative's Warrants; or (iv) other outstanding options and warrants. All
shares acquired in this offering, other than shares that may be acquired by
"affiliates" of the Company as defined by Rule 144 under the Securities Act,
will be freely transferable without restriction or further registration under
the Securities Act.

All 6,931,082 shares of Common Stock issued by the Company prior to this
offering are deemed "restricted securities," as that term is defined under Rule
144 promulgated under the Securities Act, in that such shares were issued and
sold by the Company in private transactions not involving a public offering. Of
the total outstanding 6,931,082 shares of Common Stock, approximately 292,000
shares are eligible for sale pursuant to Rule 144 commencing 90 days from the
date of this Prospectus. NBR, as the holder of 291,756 shares of Common Stock,
and its permitted transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights."

In general, under Rule 144 as currently in effect, subject to satisfaction
of certain other conditions, a person (or persons whose shares are required to
be aggregated), including any affiliate of the Company, who beneficially owns
"restricted shares" for a period of at least two years, is entitled to sell
within any three-month period, a number of shares that does not exceed the
greater of 1% (approximately 84,811 shares after this offering) of the
then-outstanding shares of Common Stock, or if the Common Stock is quoted on
Nasdaq, the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of the required notice of sale with the
Securities and Exchange Commission. The seller also must comply with the notice
and manner of sale requirements of Rule 144, and there must be current public
information available about the Company. In addition, any person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least three years and is not an affiliate of the Company can sell such shares
under Rule 144 without regard to any of the limitations described above.

The Company intends to file a registration statement under the Securities
Act to register 1,558,780 shares of Common Stock reserved for issuance upon the
exercise of options which have been or may be granted pursuant to the 1995
Option Plan and the 1996 Directors' Plan. Such registration statement is
expected to be filed not earlier than 180 days after the date of this Prospectus
and is anticipated to become effective upon its filing. See "Management -- Stock
Option Plans." After the effective date of such registration statement, shares
acquired upon the exercise of such options may generally be sold without
restriction in the public market, subject to Rule 144 notice requirements and
volume limitations for stockholders who are affiliates of the Company.

Each holder of Common Stock who is an officer, director, or key employee of
the Company has entered into a "lock-up" agreement providing that such persons
will not offer, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of the Company's Common
Stock for a period of 24 months after the date of this Prospectus without the
prior written consent of the Representative.

Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made of the effect, if any, that
future sales of restricted shares or the availability of restricted shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the restricted shares of Common Stock in the
public market could adversely affect the then prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.

50
<PAGE> 52
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through the Representative, W.B. McKee Securities,
Inc., have severally agreed to purchase from the Company the numbers of Units
set forth opposite their names at the initial public offering price less the
underwriting discount and commissions set forth on the cover page of this
Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
---------------------------------------------------- ---------
<S> <C>
W.B. McKee Securities, Inc..........................

Total.....................................
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all Units offered hereby, if any of the Units hereby
are purchased. The Company has been advised by the Representative that the
Underwriters propose to offer the Units purchased directly to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at a price that represents a concession not in excess of $ per
Unit, or % per Unit. After the initial public offering of the Units, the
offering price and the selling terms may be changed by the Representative.

The Company has granted the Underwriters the option to purchase up to
232,500 Units solely for the purpose of covering any over-allotments, at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. The over-allotment option is exercisable
for a period of 45 days from the date of this Prospectus. To the extent that the
Underwriters exercise such option, the Underwriters will have a firm commitment
to purchase the number of Units specified in the Underwriters' notice of
exercise, and the Company will be obligated, pursuant to the option, to sell
such Units to the Underwriters. If purchased, the Underwriters will offer for
sale such additional Units on the same terms as those on which the 1,550,000
Units are being offered. For a period of twenty-four months following the date
of this Prospectus, the Representative will have a right of first refusal to
underwrite any other Securities offerings that may be made by the Company.

The Company has agreed to pay the Representative a non-accountable expense
allowance in the amount of 3% of the gross proceeds received from the sale of
the Units. Any expenses in excess of such expense allowance will be borne by the
Underwriters. To date, the Company has advanced the Representative $25,000 with
respect to such non-accountable expenses.

At the closing of this offering, the Company will issue to the
Representative, for $1,550, the Representative's Warrants to purchase 155,000
Units (10% of the number of Units sold pursuant to the initial public offering).
The Representative's Warrants will be exercisable for a four-year period
commencing one year from the date of this Prospectus at an exercise price equal
to $ per Unit. The Warrants underlying the Representative's Warrant
will not be redeemable by the Company. The Representative's Warrants will
contain anti-dilution provisions providing for appropriate adjustments in the
event of any recapitalization, reclassification, stock dividend, stock split or
similar transaction by the Company. The Representative's Warrants do not entitle
the Representative to any rights as a stockholder of the Company until such
warrant is exercised. The Representative's Warrants may not be transferred for
one year from the date of this Prospectus except to officers of the
Representative.

For the period during which the Representative's Warrants are exercisable,
the holders will have the opportunity to profit from a rise in the market value
of the Common Stock, with a resulting dilution in the

51
<PAGE> 53

interests of the other stockholders of the Company. Any profit realized by the
Representative upon the sale of the Representative's Warrants or the securities
issuable thereunder may be deemed to be additional underwriting compensation.
The holders of the Representative's Warrants can be expected to exercise them at
a time when the Company in all likelihood would be able to obtain any needed
capital from an offering of its unissued Common Stock on terms more favorable to
the Company than those provided for in the Representative's Warrants. Such facts
may adversely affect the terms on which the Company can obtain additional
financing.

The Company must file all necessary undertakings required by the Securities
and Exchange Commission in connection with the registration of the shares of
Common Stock and Warrants issuable upon exercise of the Representative's
Warrants. Upon the Representative's demand, the Company will file one
registration statement so as to permit the Representative to sell publicly the
Common Stock and Warrants issued on the exercise of the Representative's
Warrants. In addition, subject to certain limitations, in the event the Company
proposes to register any of its securities under the Securities Act during the
four-year period commencing one year from the date of this Prospectus, the
holders of the Representative's Warrants and the underlying Common Stock and
Warrants will be entitled to notice of such registration and may elect to
include the Common Stock and Warrants underlying the Representative's Warrants
held by them in such registration. Expenses associated with any registration
initiated upon the request of the holders of the Representative's Warrants or
the holders of Common Stock and Warrants issued or issuable upon exercise of the
Underwriters' Warrants will be paid by the Company. The registration of
securities pursuant to the registration rights applicable to the
Representative's Warrants may impede future financing.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain liabilities in connection with the
Registration Statement, including liabilities under the Securities Act.

The Underwriters have advised the Company that the Underwriters do not
intend to confirm sales to any account over which it exercises discretionary
authority.

For a period of five years following the closing of this offering, the
Underwriter will have the right to nominate one member of the Board of
Directors.

The foregoing is a brief summary of the material provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A copy of the Underwriting Agreement is on file with the
Securities and Exchange Commission as an exhibit to the Registration Statement
of which this Prospectus is a part. See "Available Information."

Prior to this offering, there has been no public market for any securities
of the Company. Consequently, the initial public offering price for the Units
was determined by negotiation between the Company and the Representative. Among
the factors considered in such negotiations was prevailing market conditions,
the results of operations of the Company in recent periods, the price-earnings
ratios of publicly traded companies that the Company and the Representative
believe to be comparable to the Company, the revenue and earnings of the
Company, estimates of the business potential of the Company, the present state
of the Company's development, and other factors deemed relevant. The offering
price does not necessarily bear any direct relation to asset value or net book
value of the Company.

The Representative has indicated its intention to make a market in the
Company's Common Stock and Warrants after the offering made hereby. In
connection with that activity, the Representative may but shall not be required
to effect transactions which stabilize or maintain the market price of the
Common Stock and Warrants at a level above that which might otherwise prevail in
the open market. Such stabilizing, if commenced, may be discontinued at any
time.

LEGAL OPINIONS

The validity of the shares of Common Stock and Warrants will be passed upon
for the Company by Rudnick & Wolfe, 203 North LaSalle Street, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears, a professional association, One
East Camelback Road, Phoenix, Arizona.

52
<PAGE> 54

EXPERTS

The financial statements of the Company and of Canton for the fiscal year
ended June 30, 1996 included in this Prospectus have been audited by BDO Seidman
LLP, independent certified public accountants. The financial statements of the
Company and Canton for the fiscal year ended June 30, 1995 included in this
Prospectus have been audited by Semple & Cooper, P.L.C., independent certified
public accountants, for the period indicated in their report thereof. Such
financial statements have been included herein in reliance upon
the reports of such firms given upon their authority as experts in accounting
and auditing.

On , 1996 the Company, with the approval of the Board of
Directors, advised Semple & Cooper that it was dismissing such accounting firm
and was retaining the accounting firm of BDO Siedman LLP as independent public
accountants for the Company and its subsidiaries for the fiscal year ended June
30, 1996. The decision to retain BDO Siedman, LLP was made because of that
firm's extensive experience in representing public companies and was not
motivated by any disagreements between the Company and Semple & Cooper
concerning any accounting matter. Semple & Cooper had been retained since 1994
and during the entire period of their engagement with the Company relative to
accounting principles or practices, financial statement disclosure, auditing
scope of procedures, there were no disagreements which, if not resolved to
Semple & Cooper's satisfaction, would have resulted in a reference to the
subject matters of the disagreement in connection with its report. The Semple &
Cooper reports on the Company's financial statements have not contained an
adverse opinion or a disclaimer of opinion, nor were the opinions qualified or
modified as to uncertainty, audit scope, or accounting principles, nor were
there any events of the type requiring disclosure under item 304(a)(1)(iv) of
Regulation S-B. During the two-year period prior to July 24, 1996, the Company
did not consult BDO Seidman, LLP concerning any matter or the type of opinion
that might be rendered.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Units, the Common Stock, and the Warrants
offered hereby. This Prospectus constitutes a part of the Registration Statement
and does not contain all of the information set forth therein and in the
exhibits thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Units, the Common Stock, and the Warrants offered
hereby, reference is hereby made to such Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any document are
not necessarily complete and in each instance are qualified in their entirety by
reference to the copy of the appropriate document filed with the Commission. The
Registration Statement, including the exhibits thereto, may be examined without
charge at the Commission's public reference facility at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. In addition, copies of all
or any part of the Registration Statement, including such exhibits thereto, may
be obtained from the Commission at its principal office in Washington, D.C.,
upon payment of the fees prescribed by the Commission.

The Registration Statement and the reports and other information to be
filed by the Company following this offering in accordance with the Securities
and Exchange Act of 1934, as amended, can be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, NY 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Il 60601. Copies of
such material may be obtained from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington D.C.
20549, upon payment of the fees prescribed by the Commission. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding registrants, such as the
Company, that file electronically with the Commission.

The Company intends to provide its stockholders with annual reports
containing financial statements audited by independent auditors and quarterly
reports for the first three fiscal quarters of each year containing unaudited
summary consolidated financial information.

53
<PAGE> 55

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
Reports of Independent Certified Public Accountants............................ F-2 & F-3
Consolidated Balance Sheet as of June 30, 1996................................. F-4
Consolidated Statements of Operations for the years ended June 30, 1995 and
1996......................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
June 30, 1995 and 1996....................................................... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1995 and
1996......................................................................... F-7
Notes to Consolidated Financial Statements..................................... F-8
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES PROFORMA FINANCIAL STATEMENTS
Introduction to Proforma Condensed Consolidated Financial Statements
(Unaudited).................................................................. F-17
Proforma Condensed Consolidated Balance Sheet as of June 30, 1996
(Unaudited).................................................................. F-18
Proforma Condensed Statement of Operations for the year ended June 30, 1996
(Unaudited).................................................................. F-19
Notes to Proforma Condensed Consolidated Financial Statements (Unaudited)...... F-20
CANTON MANAGEMENT GROUP, INC., DBA PROGRESSIVE HEALTH MANAGEMENT, INC. (A
DEVELOPMENT STAGE COMPANY)
Reports of Independent Certified Public Accountants............................ F-22 & F-23
Balance Sheet as of June 30, 1996.............................................. F-24
Statements of Operations for the years ended June 30, 1995 and 1996 and for the
period from the date of inception, October 3, 1993 to June 30, 1996.......... F-25
Statements of Changes in Stockholder's Equity for the period from October 3,
1993 through June 30, 1996................................................... F-26
Statements of Cash Flows for the years ended June 30, 1995 and 1996 and for the
period from the date of inception, October 3, 1993 to June 30, 1996.......... F-27
Notes to Financial Statements.................................................. F-28
</TABLE>

F-1
<PAGE> 56

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Birman Managed Care, Inc. and Subsidiaries
Cookeville, Tennessee

We have audited the accompanying consolidated balance sheet of Birman
Managed Care, Inc. and Subsidiaries (the "Company") as of June 30, 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Birman
Managed Care, Inc. and Subsidiaries at June 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Los Angeles, California
August 2, 1996, except for
Notes 7 and 16, which are as
of September 9, 1996

F-2
<PAGE> 57

INDEPENDENT AUDITORS' REPORT

To The Stockholders and Board of Directors of
Birman Managed Care, Inc. and Subsidiaries

We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity, and cash flows of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations, changes in
stockholders' equity, and cash flows of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1995, in conformity with generally
accepted accounting principles.

SEMPLE & COOPER, P.L.C.

Certified Public Accountants

Phoenix, Arizona
July 19, 1996

F-3
<PAGE> 58

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
JUNE 30, 1996

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 1 and 2).............................. $1,872,343
Accounts receivable, net of allowance for doubtful accounts of $44,159
(Notes 1, 2, and 16)................................................ 1,043,771
Prepaid expenses and other............................................. 9,903
Notes receivable -- related party (Note 3)............................. 653,496
Deferred tax asset (Notes 1 and 8)..................................... 95,549
----------
Total current assets........................................... 3,675,062
----------
Property and equipment, net of accumulated depreciation (Notes 1, 4, 5
and 6)................................................................. 293,684
Deferred offering costs (Note 1)......................................... 25,000
Goodwill (Note 1)........................................................ 16,145
----------
Total assets................................................... $4,009,891
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable (Note 5)............................... $ 2,435
Current portion of capital lease obligations (Note 6).................. 1,540
Accounts payable....................................................... 117,025
Accrued expenses....................................................... 2,050
Income taxes payable (Notes 1 and 8)................................... 635,205
----------
Total current liabilities...................................... 758,255
Note payable, less current portion (Note 5).............................. 5,028
Capital lease obligations, less current portion (Note 6)................. 2,009
Deferred income taxes payable (Notes 1 and 8)............................ 55,620
----------
Total liabilities.............................................. 820,912
----------
Commitments and contingencies (Notes 3 and 7)............................ --
Stockholders' equity: (Note 11)
Preferred stock, $.001 par value, 5,000,000 shares authorized, none
issued or outstanding............................................... --
Common stock, $.001 par value, 25,000,000 shares authorized, 6,931,082
issued and outstanding.............................................. 6,931
Additional paid-in capital............................................. 1,780,612
Retained earnings...................................................... 1,401,436
----------
Total stockholders' equity..................................... 3,188,979
----------
Total liabilities and stockholders' equity..................... $4,009,891
==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

F-4
<PAGE> 59

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenue............................................................. $4,817,572 $8,416,946
Cost of revenue..................................................... 2,381,023 2,278,932
---------- ----------
Gross margin........................................................ 2,436,549 6,138,014
Selling, general and administrative expenses........................ 3,113,660 4,236,607
---------- ----------
Income (loss) from operations....................................... (677,111) 1,901,407
---------- ----------
Other income (expense):
Interest expense.................................................. (57,857) (44,835)
Interest income................................................... 28,758 47,257
Loss on sale of assets............................................ (1,464) (5,065)
---------- ----------
(30,563) (2,643)
---------- ----------
Income (loss) before provision for income taxes..................... (707,674) 1,898,764
Provision for income tax (expense) benefit (Note 8)................. 224,331 (726,983)
---------- ----------
Income (loss) from continuing operations............................ (483,343) 1,171,781
Discontinued operations: (Note 10)
Loss from discontinued operations (net of income tax benefit of
$143,700 in 1995).............................................. (215,550) --
---------- ----------
Net income (loss)................................................... $ (698,893) $1,171,781
========== ==========
Primary and fully diluted income (loss) per common stock share:
(Note 1)
Income (loss) from continuing operations.......................... $ (.06) $ .15
Loss from discontinued operations................................. (.03) --
---------- ----------
Net income (loss) per share....................................... $ (.09) $ .15
---------- ----------
Weighted average common shares outstanding (Note 1)................. 7,725,434 7,725,434
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

F-5
<PAGE> 60

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
PREFERRED ------------------ PAID-IN RETAINED STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994......... $ -- 5,470,467 $5,471 $ 2,029 $1,158,548 $ 1,166,048
Dividend distribution (Note
10)............................ -- -- -- -- (230,000) (230,000)
Net loss......................... -- -- -- -- (698,893) (698,893)
------- --------- ------ ---------- ---------- -----------
Balance at June 30, 1995......... -- 5,470,467 5,471 2,029 229,655 237,155
Stock sales (Note 11)............ -- 1,332,970 1,333 1,603,710 -- 1,605,043
Issuance of stock for debt....... -- 127,645 127 174,873 -- 175,000
Net income....................... -- -- -- -- 1,171,781 1,171,781
------- --------- ------ ---------- ---------- -----------
Balance at June 30, 1996......... $ -- 6,931,082 $6,931 $1,780,612 $1,401,436 $ 3,188,979
======= ========= ====== ========== ========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

F-6
<PAGE> 61

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) from continuing operations...................... $ (483,343) $ 1,171,781
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation.................................................... 83,981 73,814
Loss on sale of assets.......................................... 1,464 5,065
Interest income debited to note receivable...................... (28,427) (28,011)
Receivable converted to note receivable......................... (5,500) --
Loss from discontinued operations............................... (215,550) --
Interest expense credited to note payable....................... 1,900 --
Changes in operating assets and liabilities:
Accounts receivable.......................................... 241,193 (547,706)
Prepaid expenses and other................................... -- (9,903)
Deferred tax asset........................................... (308,970) 27,372
Deferred offering costs...................................... -- (25,000)
Goodwill..................................................... -- (16,145)
Accounts payable -- trade.................................... 8,439 (264,953)
Accrued expenses............................................. 8,771 (6,721)
Income taxes payable
-- current................................................. (35,260) 596,138
-- deferred................................................ (98,128) 213,421
----------- -----------
(346,087) 17,371
----------- -----------
Net cash provided by (used in) operating activities............... (829,430) 1,189,152
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.............................. (65,527) (107,035)
Collection of notes receivable -- related parties............... 441,784 --
Advances for notes receivable -- related party.................. (269,930) (343,579)
Proceeds from sale of assets.................................... 144,299 2,325
----------- -----------
Net cash provided by (used in) investing activities.......... 250,626 (448,289)
----------- -----------
Cash flows from financing activities:
Proceeds from debt.............................................. 1,091,000 81,548
Payments on debt................................................ (548,070) (565,444)
Proceeds from sale of stock..................................... -- 1,605,043
----------- -----------
Net cash provided by financing activities.................... 542,930 1,121,147
----------- -----------
Net increase (decrease) in cash and cash equivalents.............. (35,874) 1,862,010
Cash and cash equivalents at beginning of year.................... 46,207 10,333
----------- -----------
Cash and cash equivalents at end of year.......................... $ 10,333 $ 1,872,343
=========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

F-7
<PAGE> 62

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS SUMMARY:

The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. In pursuing these goals,
the Company currently provides its proprietary "Quality Management Program" to
hospitals and their attending physicians. In addition, the Company is developing
and will operate various health plans in association with physician networks,
hospitals, and other health care providers.

The Company was organized in 1994 and reincorporated in Delaware in 1996 to
serve as the holding company of Birman & Associates, Inc., and BMC Health Plans,
Inc. The Company acquired a third subsidiary on June 14, 1996, through an asset
purchase of Hughes & Associates, Inc. The operations of Hughes & Associates,
Inc. are immaterial. This represents a change in the legal entity, but not in
the operations of the Company. As such, the accompanying consolidated financial
statements are presented on a continuing basis. In addition, effective June 30,
1995, the Company adopted a June 30 fiscal year end.

Birman Farms -- Discontinued Operation:

The Company held and operated Birman Farms, a livestock breeding operation,
which utilizes farm land owned personally by David N. Birman, M.D. and Sue
Birman, the principal stockholders and officers and directors of the Company.
Effective June 30, 1995, the Company separately incorporated Birman Farms and
distributed the shares of stock as a dividend to David N. Birman, M.D.

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of
Birman Managed Care, Inc. and its wholly owned subsidiaries: Birman &
Associates, Inc., BMC Health Plans, Inc. and Hughes & Associates, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

Cash and Cash Equivalents:

Cash and cash equivalents include all highly liquid investments purchased
with an initial maturity of three months or less.

Accounts Receivable:

Accounts receivable represent amounts earned but not collected in
connection with consulting services performed by the Company.

The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as a
percentage of accounts receivable, based on a review of the individual accounts
outstanding and the Company's prior history of uncollectible accounts
receivable.

Property and Equipment:

Property and equipment are stated at cost. Depreciation is provided for on
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs that neither materially add to the value of the

F-8
<PAGE> 63

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred. The estimated useful
lives for asset classifications, are as follows:

<TABLE>
<S> <C>
Computer equipment................................................. 5 years
Office equipment and motor vehicles................................ 5 years
Furniture and fixtures............................................. 5 years
Leasehold improvements............................................. 10 years
</TABLE>

Deferred Offering Costs:

Deferred offering costs represent costs incurred in connection with the
Company's proposed initial public offering of common stock. Deferred offering
costs will be netted against the net proceeds from the proposed public offering,
or expensed should the offering not be completed.

Goodwill:

Goodwill represents the excess of the cost of acquiring the assets of
Hughes & Associates, Inc. over the fair value of their net assets at the date of
acquisition, June 14, 1996, and is being amortized on the straight-line method
over five years. No amortization expense was recorded for the year ended June
30, 1996. The carrying value of goodwill will be periodically reviewed by the
Company and impairments, if any, will be recognized when expected future
operating cash flows derived from goodwill are less than their carrying value.

Income Taxes:

For tax reporting purposes, the Company currently reports revenue and
expenses based on the accrual basis method of accounting for the fiscal year
ended June 30, 1996. Previously, the Company used the cash basis method for the
six-month period ended June 30, 1995.

The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis and the utilization of the net operating loss
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

Accounting 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.

Earnings Per Share:

Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years. All weighted average shares
outstanding give retroactive effect to the 1,000 for 1 stock split in October
1995 and the 72.939 for 100 exchange of shares of Common Stock in connection
with the reincorporation of the Company in Delaware in September 1996 (Note 11).
The Company is planning an initial public offering of its Common Stock. Pursuant
to Securities and Exchange Commission rules, Common Stock options and warrants
issued for consideration below the anticipated offering price per share during
the

F-9
<PAGE> 64

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12-month period prior to filing of the registration statement has been included
in the calculation of common share equivalent shares, using the treasury stock
method, as if they had been outstanding for all periods presented. In addition,
shares of Common Stock that are subject to options and warrants having exercise
prices that are below the anticipated offering price per share, whether or not
exercisable, have been included in the earnings per share calculation, using the
treasury stock method.

New Accounting Pronouncements:

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board is effective
for financial statements for fiscal years beginning after December 15, 1995. The
new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company does not expect adoption to have a material effect on its
financial position or results of operations.

Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board is effective for specific transactions entered into after
December 15, 1995, while the disclosures requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock-based compensation or only provide the
required financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown. The Company
does not expect adoption to have a material effect on its financial position or
results of operations.

2. CONCENTRATION OF CREDIT RISK:

The Company maintains cash and cash equivalents at three financial
institutions. Deposits not to exceed $100,000 at each financial institution are
insured by the Federal Deposit Insurance Corporation. At June 30, 1996, the
Company has uninsured cash and cash equivalents in the approximate amount of
$1,790,463.

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company's accounts receivable primarily result from its consulting services with
rural hospitals in the southeastern, central and south central portion of the
United States. The receivables are primarily billed monthly and are unsecured.
Ongoing credit evaluation and account monitoring procedures are utilized to
minimize the risk of loss.

3. RELATED PARTY TRANSACTIONS:

Notes Receivable:

Included in notes receivable at June 30, 1996 are the following related
party notes and interest receivable:

<TABLE>
<S> <C>
7% notes receivable from David N. Birman, M.D., due on demand............. $556,586
Interest receivable -- David N. Birman, M.D............................... 74,587
--------
$631,173
========
</TABLE>

For the year ended June 30, 1996, the Company advanced approximately
$343,000 to David N. Birman, M.D. In addition, the Company has committed to
advance an additional $143,827 to Dr. Birman through September 30, 1998.

F-10
<PAGE> 65

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

At June 30, 1996, property and equipment consist of the following:

<TABLE>
<S> <C>
Computer and office equipment..................................... $303,000
Furniture and fixtures............................................ 125,286
Motor vehicles.................................................... 44,306
Leasehold improvements............................................ 2,544
--------
475,136
Less accumulated depreciation and amortization.................... 181,452
--------
$293,684
========
</TABLE>

For the years ended June 30, 1995 and 1996, depreciation expense was
$83,981 and $73,814, respectively.

5. NOTES PAYABLE:

At June 30, 1995 and 1996, notes payable consist of the following:

<TABLE>
<CAPTION>
JUNE
JUNE 30, 30,
1995 1996
--------- -------
<S> <C> <C>
Line of credit with First American Bank. The line of credit is
due in September 1996, with an interest rate of prime plus
.75%; collateralized by accounts receivable and was repaid in
June 1996.................................................... $ 396,000 $ --
Note payable to First American Bank. The note is due in July
1995, with an interest rate of 9.5%; collateralized by
accounts receivable.......................................... 80,000 --
Notes payable due to unrelated parties, non-interest bearing,
due on demand; unsecured. The notes were repaid through the
issuance of common stock in July 1995........................ 175,000 --
Note payable to Toyota Motor Credit Corp. The note is due and
payable in March 1999, with an interest rate of 12.5%;
collateralized by a vehicle.................................. -- 7,463
--------- -------
651,000 7,463
Less current portion of long-term notes payable................ (651,000) (2,435)
--------- -------
$ -- $ 5,028
========= =======
</TABLE>

6. CAPITAL LEASE OBLIGATIONS:

The Company is the lessee of a telephone system, with an aggregate cost of
$4,410, under a capital lease agreement which expires in April 1998. As of June
30, 1996, minimum future lease payments due under the capital lease agreement
for the next two years, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, AMOUNT
------------------------------------------------------------------- -------
<S> <C>
1997............................................................... $ 2,684
1998............................................................... 2,440
-------
Total minimum lease payments....................................... 5,124
Less amount representing interest.................................. (1,575)
-------
Present value of net minimum lease payments........................ 3,549
Less current portion............................................... (1,540)
-------
Long-term maturities of capital lease obligations.................. $ 2,009
=======
</TABLE>

F-11
<PAGE> 66

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The interest rate is imputed based on the lessor's implicit rate of return
at the inception of the lease.

7. COMMITMENTS AND CONTINGENCIES:

Operating Leases:

The Company is currently leasing vehicles under various non-cancellable
operating lease agreements, expiring in April 1998. The terms of the lease
agreements provide for monthly payments ranging from $138 to $940. At June 30,
1996, a schedule of future minimum lease payments due under the non-cancellable
operating lease agreements is as follows:

Rent expense under the foregoing operating lease agreements for the years
ended June 30, 1995 and 1996 was $56,040 and $62,053, respectively. The Company
occupies office premises in Cookeville, Tennessee and Phoenix, Arizona on a
month-to-month basis. Rent under these facility leases for the years ended June
30, 1995 and 1996 was $49,117 and $63,258, respectively.

Employment Contracts:

The Company has entered into employment contracts with eight key employees,
including David N. Birman, M.D. and Sue D. Birman, through June 2001, which
provide for minimum annual salary, adjusted for cost-of-living changes, and
incentives based on the Company's attainment of specified levels of sales and
earnings. At June 30, 1996, the total commitment, excluding incentives, was $5.1
million over the next five years.

Other Commitments:

Effective September 1, 1996, the Company entered into a consulting
agreement with Richard M. Ross, a former officer and director. Under the terms
of the agreement the Company will pay a fee of $186,000 per annum, payable in
equal monthly installments. The contract is renewable annually for up to six
consecutive years.

8. INCOME TAXES AND DEFERRED INCOME TAXES:

The provision (benefit) for income taxes consists of the following for the
years ended June 30:

<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Federal (net of benefit of net operating loss
carryforward of $136,000)...................... $(174,531) $565,183
State............................................. (49,800) 161,800
--------- --------
$(224,331) $726,983
========= ========
</TABLE>

The provision (benefit) for income taxes based on income from continuing
operations differs from the amount obtained by applying the statutory federal
income tax rate to income before taxes due to differences between expenses
allowed for income tax purposes and financial purposes.

F-12
<PAGE> 67

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The temporary differences that give rise to the deferred tax asset
(liability) at June 30, 1996, are presented below:

Deferred tax asset -- current:

<TABLE>
<S> <C>
Allowance for doubtful accounts......................................... $ 18,990
Adjustment due to change from the cash method of reporting income for
income taxes to the accrual method.................................... 76,559
--------
$ 95,549
========
Deferred tax liability -- long-term:
Excess of depreciation for income tax reporting purposes over
depreciation for financial reporting purposes..................... $(55,620)
========
</TABLE>

No valuation allowance has been recorded since it is more likely than not
that the net deferred tax asset will be realized.

9. STATEMENTS OF CASH FLOWS:

During the years ended June 30, 1995 and 1996, the Company recognized
investing and financing activities that affected assets and liabilities but did
not result in cash receipts or payments.

For the year ended June 30, 1995, these non-cash activities are as follows:

The Company reclassified $5,500 from accounts receivable to a note
receivable.

The Company accrued and added $28,427 of interest to notes receivable.

The Company declared and distributed as a dividend all of the farm
assets in the net amount of $230,000.

The Company made payments for interest in the amount of $555,957. Payments
were made for income taxes in the amount of $74,327.

For the year ended June 30, 1996, these non-cash activities are as follows:

The Company accrued and added $28,011 of interest to notes receivable
from David N. Birman, M.D.

The Company financed the purchase of an automobile in the amount of
$8,007.

The Company retired debt in the amount of $175,000 through the
issuance of Common Stock.

The Company made payments for interest in the amount of $46,735. A refund
was received for income taxes in the amount of $76,530.

10. DISCONTINUED OPERATIONS:

Birman & Associates, Inc. disposed of Birman Farms as of June 30, 1995. The
assets disposed of were primarily comprised of farm equipment and livestock. The
farm operation had previously been reported as an operating segment of Birman &
Associates, Inc. Birman Farms was placed under a separate corporation and shares
were distributed as a dividend in the amount of $230,000, which approximates
fair market value, to Dr. Birman.

Net revenues of Birman Farms for 1995 were $23,076. This amount is not
included in net sales in the accompanying consolidated statement of operations.

11. STOCKHOLDERS' EQUITY:

On October 31, 1995, the Company declared a 1,000-for-1 stock split of the
Company's Common Stock. On September 9, 1996, the Company was reincorporated in
Delaware by means of a merger in which shareholders received 72.939 shares of
Common Stock for each 100 shares of Common Stock then

F-13
<PAGE> 68

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding. The accompanying consolidated financial statements give retroactive
effect to the aforementioned transactions.

During June of 1996, the Company issued 1,332,970 shares of Common Stock in
a private placement. The shares of Common Stock were sold at $1.37 per share.
The net proceeds of $1,605,043 were net of offering expenses of $222,457.

12. STOCK OPTION PLAN:

On October 31, 1995, the Company approved the 1995 Stock Option Plan (the
"Plan"). The aggregate of Common Stock that may be issued pursuant to the Plan
will not exceed 1,458,780 shares. Pursuant to the Plan, the Company has issued
stock options to various key employees. The table below summarizes the Company's
stock option transactions:

<TABLE>
<CAPTION>
NUMBER EXERCISE AGGREGATE
OF SHARES PRICE VALUE
---------- -------- ----------
<S> <C> <C> <C>
Balance at June 30, 1995........................... -- $ -- $ --
Options granted.................................... 1,006,566 1.37 1,380,000
---------- ----------
Balance at June 30, 1996........................... 1,006,566 $1,380,000
======== =========
</TABLE>

The above options are granted at fair market value at the date of grant,
become exercisable over a three-year period, or as determined by the Board of
Directors, and expire over periods not exceeding five years.

As of June 30, 1996, none of these options have been exercised and there
have been no options forfeited.

13. STOCK WARRANTS:

At June 30, 1996, the Company had outstanding warrants to purchase 21,335
and 36,470 shares of Common Stock at $1.43 and $1.37 per share, respectively.
The warrants become exercisable in January 1997 and expire at various dates
through December 2001.

14. EMPLOYEE BENEFIT PLAN:

Effective January 1, 1994, the Company implemented a profit sharing plan
covering all full-time employees. The plan is designed as a Code Section 401(k)
plan. Employees are permitted to make voluntary contributions to the plan, for
which the Company is required to make a matching contribution up to certain
limitations. For the years ended June 30, 1995 and 1996, the Company made
contributions to the plan in the amounts of $11,766 and $9,482, respectively.

15. SIGNIFICANT CUSTOMER:

The Company has provided Quality Management Program services to various
hospitals owned and managed by Quorum Health Care, Inc. ("Quorum") since 1991.
Hospitals owned and managed by Quorum represented approximately 53% and 42% of
the Company's Quality Management Program revenue in fiscal 1995 and 1996,
respectively.

16. SUBSEQUENT EVENTS:

Pending Acquisition

On July 16, 1996, the Company submitted a letter of intent to acquire most
of the issued and outstanding common stock of Canton Management Group, Inc., a
Mississippi corporation ("Canton").

F-14
<PAGE> 69

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the terms of the agreement, the Company will acquire 1,000,000 shares
of newly issued preferred stock of Canton for $1.00 per share, payable $700,000
in cash and $300,000 by a promissory note. The promissory note bears interest at
a rate of 2% per annum and is payable in varying annual installments over two
years. In addition, the Company will acquire approximately 33% of the
outstanding common stock of Canton for a $500,000 promissory note which bears
interest at a rate of 2% per annum and is payable in varying annual installments
over four years.

Canton will purchase and retire approximately 65% of the outstanding common
stock held by persons other than the Company for $1,000,000, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years.

Line of Credit

In August 1996, the Company arranged a $1,000,000 maximum principal amount
working capital revolving line of credit facility ("facility") with American
National Bank and Trust Company of Chicago. The facility has an initial maturity
date of October 31, 1997. The facility provides for the accrual of interest at a
floating annual rate equal to the lender's prime rate on the unpaid principal
balance. The facility is secured by the accounts receivable of the Quality
Management Program and Hughes & Associates, Inc.

Reincorporation

On September 9, 1996, the Company was reincorporated in Delaware by means
of a merger in which shareholders of the Company received 72.939 shares of
Common Stock for each 100 shares of Common Stock then outstanding.

Initial Public Offering

In September 1996, the Company anticipates filing a registration statement
for an initial public offering ("IPO") of 1,550,000 units ("Units"), each Unit
consisting of one share of Common Stock of the Company and one redeemable Common
Stock Purchase Warrant ("Warrant"). Each Warrant constitutes an option to
purchase one share of Common Stock of the Company at a price equal to 130% of
the IPO price of the Units, subject to adjustment in certain circumstances,
exercisable at any time until 36 months from the date of the Prospectus relating
to the IPO. The anticipated IPO price to the public is expected to range between
$5.75 and $6.75 per Unit.

Directors' Option Plan

On September 9, 1996, the Company adopted the 1996 Non-Employee Directors
Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total of 100,000
shares of Common Stock are reserved for issuance under the 1996 Directors' Plan.
Under this plan, upon initial election to the Board of Directors, all
non-employee directors are awarded options to purchase 6,000 shares of Common
Stock. Upon each subsequent election to the Board of Directors, non-employee
Directors receive option awards to purchase 3,000 shares of Common Stock. These
options, which have an exercise price equal to the fair market value of the
shares of Common Stock as of the date of grant, vest at the rate of 33.33% per
year. All options awarded under the 1996 Directors' Plan expire on the first to
occur of (i) 10 years after the date of grant or (ii) 90 days after the date the
director is no longer serving in such capacity for reasons other than death or
disability.

Executive Bonus Plan

F-15
<PAGE> 70

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Executive Bonus Plan is administered by the Compensation Committee of the
Board of Directors. Bonuses are determined on the basis of (i) the operating
profit of the Company, (ii) net revenue growth of the Company achieved as a
percentage of the goal established by the Company at the beginning of the fiscal
year, and (iii) the officer's individual performance and contribution to the
Company. An officer's bonus for any fiscal year may not exceed such officer's
annual base salary multiplied by the Target Bonus Percentage as defined by the
Executive Bonus Plan in such fiscal year.

F-16
<PAGE> 71

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

INTRODUCTION TO
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following unaudited Proforma Condensed Consolidated Balance Sheet as of
June 30, 1996, and the unaudited Proforma Condensed Consolidated Statement of
Operations for the year ended June 30, 1996 give effect to the acquisition by
Birman Managed Care, Inc. of Canton Management Group, Inc. pursuant to the
Acquisition Agreement pending between the parties, and are based on the
estimates and assumptions set forth herein and in the notes to such statements.
This proforma information has been prepared utilizing the historical financial
statements and notes thereto, which are incorporated by reference herein. The
unaudited Proforma Condensed Consolidated Financial Statements do not purport to
be indicative of the results which actually would have been obtained had the
purchase been effected on the dates indicated or of the results which may be
obtained in the future.

The unaudited Proforma Condensed Consolidated Financial Statements is based
on the purchase method of accounting for the acquisition of Canton Management
Group, Inc. The proforma entries are described in the accompanying footnotes to
the unaudited Proforma Condensed Consolidated Financial Statements.

The unaudited Proforma Condensed Consolidated Balance Sheet and the
unaudited Proforma Condensed Consolidated Statement of Operations and the
related notes should be read in conjunction with Birman Managed Care, Inc.'s
audited consolidated financial statements contained elsewhere in this
Prospectus. In management's opinion, all adjustments necessary to reflect the
acquisition have been made.

F-17
<PAGE> 72

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
CANTON
MANAGEMENT
HISTORICAL GROUP, INC.
BIRMAN (A DEVELOPMENT PROFORMA
CONSOLIDATED STAGE COMPANY) PROFORMA ENTRIES CONSOLIDATED
------------ -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Cash................................... $ 1,872,343 $ 2,143 $ (700,000)(1) $ 1,174,486
Accounts receivable.................... 1,043,771 998 1,044,769
Prepaid expenses....................... 9,903 -- 9,903
Notes receivable....................... 653,496 -- 653,496
Deferred tax asset..................... 95,549 -- 95,549
Property, plant and equipment.......... 293,684 2,641 296,325
Deferred taxes, long-term.............. -- 24,000 (24,000)(2) --
License and goodwill................... 16,145 -- 1,109,390(1) 1,125,535
Other assets........................... 25,000 132,425 157,425
Restricted certificates of deposit..... -- 500,000 500,000
----------- -------- -----------
Total Assets................. 4,009,891 662,207 5,057,488
=========== ======== ===========
Current portion -- long-term debt...... 2,435 -- 200,000(1) 202,435
Current portion of capital lease....... 1,540 -- 1,540
Accounts payable....................... 117,025 11,190 128,215
Accrued expenses....................... 2,050 -- 2,050
Income taxes payable................... 635,205 -- 635,205
Long-term debt......................... 7,037 -- 600,000(1) 607,037
Deferred income taxes.................. 55,620 -- (24,000)(2) 31,620
Minority interest...................... -- -- 260,407(1) 260,407
Preferred stock........................ -- -- --
Common stock........................... 6,931 -- 6,931
Additional paid-in capital............. 1,780,612 707,227 (707,227_)(1) 1,780,612
Retained earnings (deficit)............ 1,401,436 (56,210) 56,210(1) 1,401,436
----------- -------- -----------
$ 4,009,891 $662,207 $ 5,057,488
=========== ======== ===========
</TABLE>

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

(1) To record the purchase of Canton Management Group, Inc. pursuant to the
acquisition agreement between the parties, and record the minority
interest.

(2) To reclassify long-term deferred income taxes.

See accompanying notes to proforma condensed consolidated financial statements
(as adjusted).

F-18
<PAGE> 73

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
CANTON
MANAGEMENT
HISTORICAL GROUP, INC.
BIRMAN (A DEVELOPMENT PROFORMA PROFORMA
CONSOLIDATED STAGE COMPANY) ENTRIES CONSOLIDATED
------------ -------------- -------- ------------
<S> <C> <C> <C> <C>
Revenue......................................... $ 8,416,946 $ -- $ 8,416,946
Cost of revenues................................ 2,278,932 -- 2,278,932
----------- -------- -----------
Gross profit.................................... 6,138,014 -- 6,138,014
General and administrative expenses............. 4,236,607 71,961 (1) 4,308,568
----------- -------- -----------
Income from operations.......................... 1,901,407 (71,961) 1,829,446
Other income (expense).......................... (2,643) 12,211 (2) 9,568
----------- -------- -----------
Income before provision for income taxes........ 1,898,764 (59,750) 1,839,014
Income taxes.................................... (726,983) 17,900 (709,083)
----------- -------- -----------
Net income (loss)............................... $ 1,171,781 $(41,850) $ 1,129,931
=========== ======== ===========
Net income (loss) per share..................... $ .15 $ (.42) $ .12
=========== ======== ===========
Weighted average number of shares outstanding... 7,725,434 100,000 9,275,434
=========== ======== ===========
</TABLE>

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

(1) Amortization of the licenses recorded in connection with the purchase of
Canton Management Group, Inc. will be reported on a straight-line basis over
35 years, commencing when operations begin.

(2) Does not include the effects of additional interest expense on notes payable
as amount is immaterial.

See accompanying notes to proforma condensed consolidated financial statements
(as adjusted).

F-19
<PAGE> 74

BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES

NOTES TO PROFORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (AS ADJUSTED)
(UNAUDITED)

1. PENDING ACQUISITION

On July 16, 1996, the Company submitted a letter of intent to acquire most
of the issued and outstanding common stock of Canton Management Group, Inc., a
Mississippi corporation ("Canton").

Under the terms of the agreement, the Company will acquire 1,000,000 shares
of newly issued preferred stock of Canton for $1 per share, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years. In addition, the Company will acquire approximately 33% of the
outstanding Common Stock of Canton for a $500,000 promissory note, which bears
interest at a rate of 2% per annum and is payable in varying annual installments
over four years.

Canton will purchase and retire approximately 65% of the outstanding Common
Stock held by persons other than the Company for $1,000,000, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years.

2. EFFECT OF PENDING ACQUISITION

The adjustments to the Proforma Condensed Consolidated Balance Sheet as of
June 30, 1996 reflect the pending acquisition as if it occurred on June 30,
1996. The Proforma Condensed Consolidated Statement of Operations for the year
ended June 30, 1996 reflects the pending acquisition as if it occurred on the
first day of the period presented.

F-20
<PAGE> 75

CANTON MANAGEMENT GROUP, INC.,
DBA PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

FINANCIAL STATEMENTS

JUNE 30, 1996

F-21
<PAGE> 76

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi

We have audited the accompanying balance sheet of Canton Management, Inc.
DBA Progressive Health Management, Inc. (A Development Stage Company) (the
"Company") as of June 30, 1996, and the related statements of operations,
changes in stockholders' equity, and cash flows for the year then ended. We have
also audited the statements of operations, changes in stockholders' equity, and
cash flows for the period from October 3, 1993 (Inception) to June 30, 1996,
except that we did not audit the financial statements for the period from
October 3, 1993 to June 30, 1995; those statements were audited by other
auditors whose report was dated August 7, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Canton Management Group, Inc. DBA Progressive Health
Management, Inc. (A Development Stage Company) at June 30, 1996, and the results
of their operations and their cash flows for the year then ended, and for the
period from October 3, 1993 (Inception) to June 30, 1996, in conformity with
generally accepted accounting principles.

BDO Seidman, LLP
Los Angeles, California
August 7, 1996

F-22
<PAGE> 77

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi

We have audited the accompanying statements of operations, changes in
stockholders' equity, and cash flows for the year ended June 30, 1995 of Canton
Management, Inc. DBA Progressive Health Management, Inc. (A Development Stage
Company) (the "Company"). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Canton
Management Group, Inc. DBA Progressive Health Management, Inc. (A Development
Stage Company) at June 30, 1995 in conformity with generally accepted accounting
principles.

Semple & Cooper, P.L.C.
Phoenix, Arizona
August 7, 1996

F-23
<PAGE> 78

CANTON MANAGEMENT GROUP, INC., DBA

PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEET
JUNE 30, 1996

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)...................................... $ 2,143
Interest income receivable.............................................. 998
--------
Total current assets............................................ 3,141
--------
Office equipment, Net (Note 4)............................................ 2,641
--------
Other assets:
Restricted certificates of deposit (Notes 1 and 2)...................... 500,000
Organization and license costs (Note 1)................................. 132,425
Deferred tax asset (Notes 1 and 3)...................................... 24,000
--------
Total other assets.............................................. 656,425
--------
Total assets.................................................... $662,207
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................ $ 11,190
--------
Stockholder's equity: (Note 5)
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding................................................ --
Class A voting common stock, no par value, 100,000 shares authorized;
100,000 shares issued and outstanding................................ --
Class B non-voting common stock, no par value, 100,000 shares
authorized; no shares issued or outstanding.......................... --
Paid-in capital......................................................... 100,000
Contributed capital..................................................... 607,227
Accumulated deficit, during development stage........................... (56,210)
--------
Total stockholder's equity...................................... 651,017
--------
Total liabilities and stockholder's equity...................... $662,207
========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-24
<PAGE> 79

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE PERIOD FROM
OCTOBER 3, 1993 (INCEPTION) TO JUNE 30, 1996

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
OCTOBER 3,
YEAR ENDED YEAR ENDED 1993 (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1996
---------- ---------- ----------------
<S> <C> <C> <C>
Revenue:
Donated services.................................... $ -- $ -- $132,425
Interest income..................................... 9,724 12,211 23,489
-------- -------- --------
Total revenue............................... 9,724 12,211 155,914
-------- -------- --------
Expenses:
Advertising......................................... 788 -- 2,395
Consulting.......................................... 67,800 41,500 148,525
Depreciation........................................ 1,056 1,056 2,641
Donations........................................... -- 1,000 1,000
Dues................................................ 5,000 1,100 11,354
Fees and licenses................................... 25 25 1,450
Legal and accounting................................ 7,659 8,194 10,729
Office.............................................. 3,554 3,021 15,514
Printing............................................ 213 244 1,027
Rent................................................ 12,000 12,000 25,000
Telephone........................................... 4,746 2,527 6,288
Travel and entertainment............................ 5,587 1,294 10,201
-------- -------- --------
Total expenses.............................. 108,428 71,961 236,124
-------- -------- --------
Loss before income tax benefit........................ (98,704) (59,750) (80,210)
Income tax benefit.................................... 29,600 17,900 24,000
-------- -------- --------
Net loss.............................................. $(69,104) $(41,850) $(56,210)
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-25
<PAGE> 80

CANTON MANAGEMENT GROUP, INC., DBA

PROGRESSIVE HEALTH MANAGEMENT, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE PERIODS FROM OCTOBER 3, 1993 (INCEPTION) THROUGH JUNE 30, 1996

<TABLE>
<CAPTION>
CLASS CLASS
A B RETAINED
PREFERRED COMMON COMMON PAID-IN CONTRIBUTED EARNINGS
STOCK STOCK STOCK CAPITAL CAPITAL (DEFICIT)
--------- ------ ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 3, 1993
(Inception)........................ $-- $-- $-- $ -- $ -- $ --
Contributions........................ -- -- -- -- 322,359 --
Net Income........................... -- -- -- -- -- 54,744
--- --- --- -------- -------- --------
Balance at June 30, 1994............. -- -- -- -- 322,359 54,744
Contributions........................ -- -- -- -- 93,920 --
Net Loss............................. -- -- -- -- -- (69,104)
--- --- --- -------- -------- --------
Balance at June 30, 1995............. -- -- -- -- 416,279 (14,360)
Contributions........................ -- -- -- -- 190,948 --
Paid-in capital...................... -- -- -- 100,000 -- --
Net Loss............................. -- -- -- -- -- (41,850)
--- --- --- -------- -------- --------
Balance at June 30, 1996............. $-- $-- $-- $100,000 $ 607,227 $ (56,210)
=== === === ======== ======== ========
</TABLE>

F-26
<PAGE> 81

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE PERIOD FROM
OCTOBER 3, 1993 (INCEPTION) TO JUNE 30, 1996

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
OCTOBER 3,
1993
YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1996
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (69,104) $ (41,850) $ (56,210)
Reconciliation of net loss to cash used by operating
activities:
Donated services...................................... -- -- (132,425)
Depreciation.......................................... 1,056 1,056 2,641
Changes in operating assets and liabilities:
Investment income receivable.......................... -- (998) (998)
Deferred income taxes................................. (29,600) (17,900) (24,000)
Accounts payable...................................... 2,663 4,566 11,190
---------- ---------- ----------
Net cash used by operating activities.............. (94,985) (55,126) (199,802)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of office equipment.......................... -- -- (5,282)
Purchase of restricted certificate of deposit......... (250,000) (250,000) (500,000)
---------- ---------- ----------
Net cash used by investing activities.............. (250,000) (250,000) (505,282)
---------- ---------- ----------
Cash flows from financing activities:
Paid-in capital....................................... -- 100,000 100,000
Contributed capital................................... 93,920 190,948 607,227
---------- ---------- ----------
Net cash provided by financing activities.......... 93,920 290,948 707,227
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.... (251,065) (14,178) 2,143
Cash and cash equivalents, beginning of period.......... 267,386 16,321 --
---------- ---------- ----------
Cash and cash equivalents, end of period................ $ 16,321 $ 2,143 $ 2,143
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements

F-27
<PAGE> 82

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and Operations:

Progressive Health Management, Inc. was incorporated in Mississippi on
October 3, 1993 for the purpose of providing health care services to Mississippi
Medicaid enrollees on a capitated fee basis contracted with the State of
Mississippi. Progressive Health Management, Inc. was licensed by the State of
Mississippi as a Health Maintenance Organization (HMO) on February 15, 1994.

Progressive Health Management, Inc. was merged with and into Canton
Management Group, Inc. (the "Company") on May 6, 1994.

The Company has been approved by the Mississippi State Department of Health
to provide HMO coverage in the counties of Madison, Attala, Carroll, Grenada,
Holmes, Humphreys, Leaks, Leflore, Montgomery and Yazoo.

As of June 30, 1996, the Company had no contracts in effect with the State
of Mississippi to provide any services for enrollees. The Company expects these
contracts to be negotiated before December 31, 1996, at which time the Company
will officially commence operations as an HMO.

Accounting Estimates:

Cash and Cash Equivalents:

The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.

Minimum Net Worth Requirements:

The Company was required by the State of Mississippi to provide a minimum
cash insolvency reserve of $500,000 as of June 30, 1996.

Office Equipment:

Office equipment is stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method based on the estimated
useful lives of the assets. The estimated useful lives are five years.

Organization and License Costs:

Costs associated with the organization of the Company and license costs
have been capitalized and will be amortized over a five year period and
thirty-five year period once operations commence.

Donated Services:

The Company has recognized services donated by physicians, attorneys and
consultants in the amount of $132,425. These services have been recorded as
donated services in the period received.

F-28
<PAGE> 83

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes:

The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109 deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period, plus or minus the changes during the period in
deferred tax assets and liabilities.

2. RESTRICTED CERTIFICATES OF DEPOSIT:

As of June 30, 1996, the Company held two $250,000 certificates of deposit
bearing interest rates of 4.8% and 3.8%, respectively, and having a maturity
date of September 20, 1996. The certificates of deposit are restricted for use
as insolvency reserves to meet the minimum net worth requirements of the State
of Mississippi.

3. INCOME TAXES:

Deferred tax assets as of June 30, 1996 consist solely of net operating
loss carryforwards as follows:

<TABLE>
<S> <C>
Deferred tax asset-net operating loss.............................. $24,000
Less: Valuation allowance.......................................... 0
$24,000
</TABLE>

The Company has unused net operating losses available for carryforward to
offset future taxable income and tax liabilities for income tax reporting
purposes, which expire as follows:

<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
------------------------------------------------------------------- -------
<S> <C>
2009............................................................ $46,108
2010............................................................ 44,029
-------
$90,137
=======
</TABLE>

The Tax Reform Act of 1986 contains provisions which limit the federal net
operating loss carryforwards available that can be used in any given year in the
event of certain occurrences, which include significant ownership changes.

4. OFFICE EQUIPMENT:

At June 30, 1996, office equipment consists of the following:

<TABLE>
<S> <C>
Office equipment................................................... $ 5,282
Less accumulated depreciation...................................... (2,641)
-------
Office equipment, net.............................................. $ 2,641
=======
</TABLE>

F-29
<PAGE> 84

CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. CONTRIBUTED CAPITAL:

The shareholders of the Company have made various unrestricted cash
contributions of $607,227 for the period from October 3, 1993 (inception)
through June 30, 1996.

6. STATEMENTS OF CASH FLOWS:

Non-Cash Investing and Financing Activities:

During the period from the date of inception, October 3, 1993 through June
30, 1996, the Company recognized investing and financing activities that
affected its assets and liabilities, but did not result in cash receipts or
payments. These non-cash activities are as follows:

Organization costs in the amount of $132,425 were donated to the Company.

No payments were made for income taxes or interest.

7. PENDING LEGISLATIVE MATTERS:

In April 1996, the Mississippi legislature approved a pilot capitation
project for Medicaid recipients. The pilot capitation project was approved in
only three counties in which the Company is approved to provide HMO coverage.
Those counties are Humphreys, Leflore and Yazoo. Although not approved
presently, the Company may apply for approval to provide HMO coverage in other
counties included in the pilot project. The scope of the counties included in
the pilot project is not expected to change until the 1997 session of the
Mississippi legislature convenes. The Company has not negotiated any Medicaid
capitation contracts or enrolled any participants as of June 30, 1996.

F-30
<PAGE> 85
======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Selected Historical and Pro Forma
Consolidated Financial Data......... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 38
Certain Transactions.................. 44
Principal Stockholders................ 46
Description of Securities............. 46
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Opinions........................ 52
Experts............................... 53
Additional Information................ 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

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

LOGO

1,550,000 UNITS
EACH UNIT CONSISTING
OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE
COMMON STOCK PURCHASE
WARRANT

------------------------
PROSPECTUS
------------------------

W.B. MCKEE
SECURITIES, INC.
, 1996

======================================================
<PAGE> 86

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses incurred in connection with the issuance and distribution of
the securities being registered hereby are as follows:

<TABLE>
<CAPTION>
AMOUNT*
-----------
<S> <C>
S.E.C. Registration Fee................................................. $ 10,448.33
NASD Filing Fee......................................................... 46,452.71
Qualification Under State Securities Laws (including legal fees)........ 8,035
Printing................................................................ 148,000
Legal Fees and Expenses................................................. 205,000
Accounting Fees......................................................... 125,000
Transfer Agent and Registrar Fees and Expenses.......................... 3,500
Miscellaneous........................................................... 15,000
----------
Total......................................................... $561,436.04
==========
</TABLE>

- ---------------
* All fees and expenses are estimates except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee. All fees and expenses of this offering are to be
paid by the Company.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The Common Stock share numbers and per share purchase prices presented
below have been adjusted to take into account the exchange of 1.370998138 shares
of Birman Managed Care, Inc., a Tennessee corporation, for one share of the
Company in connection with the merger of the Tennessee corporation into the
Company on September 9, 1996, and a 1000-for-one stock split effected by the
Tennessee corporation on October 31, 1995. No registration was required under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
either the exchange or the stock splits as they did not involve the "sale" of
securities within the meaning of the Securities Act. For purposes hereof, the
Company and the predecessor Tennessee corporation are hereinafter referred to as
the Company.

On January 1, 1995, the Company issued an aggregate of 3,500,000 shares of
Common Stock to its President and Chief Executive Officer in exchange for all of
the issued and outstanding capital stock of BMC Health Plans, Inc. The Common
Stock in this transaction was issued in reliance on the exemption provided by
Section 4(2) of the Securities Act.

On June 30, 1995, the Company issued an aggregate of 4,000,000 shares of
Common Stock to its President and Chief Executive Officer in exchange for all of
the issued and outstanding capital stock of Birman & Associates, Inc. The Common
Stock in this transaction was issued in reliance on the exemption provided by
Section 4(2) of the Securities Act. Dr. Birman represented to the Company that
he was a sophisticated (and accredited) investor, knowledgeable about the
Company.

Between July 2, 1995 and November 30, 1995, the Company sold a total of
359,227 shares of Common Stock to 14 investors for an aggregate consideration of
$492,500 or $1.37 per share. The Common Stock in this transaction was issued in
reliance on the exemption provided by Section 4(2) of the Securities Act. All 14
investors were close personal friends or family members of the President and
Chief Executive Officer or highly compensated employees of, or consultants to,
the Company. The offers and sales were made directly by the President and Chief
Executive Officer in separate, isolated transactions, not as part of a
coordinated offering of securities. Each of the investors represented to the
Company that he was a sophisticated investor, or relied upon the advice of a
financial advisor before making his investment.

II-1
<PAGE> 87

Between January 10, 1996 and June 30, 1996, the Company sold 1,101,398
shares of Common Stock to 23 investors for an aggregate consideration of
$1,510,000 or $1.37 per share. Each investor represented to the Company that he
was an accredited investor as such term is defined in Regulation D promulgated
under the Securities Act ("Regulation D"). The Common Stock in these
transactions was issued in reliance on Rule 505 of Regulation D.

During the three years ended June 30, 1996, the Company granted to eight of
its officers and key employees, in reliance upon the exemption provided by Rule
701 and Section 4(2) of the Securities Act, incentive stock options pursuant to
the Company's 1995 Stock Option Plan to purchase a total of 1,006,566 shares of
Common Stock at an exercise price of $1.37 per share.

On January 1, 1996, the Company issued to one person who is a consultant to
the Company a warrant to purchase 36,470 shares of Common Stock, at an exercise
price of $1.37 per share expiring December 31, 2001. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act in issuing this
warrant.

On July 1, 1996, the Company issued to one person who acted as a finder of
prospective investors in the Company's Regulation D offering a warrant to
purchase 21,335 shares of Common Stock, at an exercise price of $1.43 per share
expiring June 30, 2001. The Company relied upon the exemption provided by
Section 4(2) of the Securities Act in issuing this warrant.

On September 9, 1996, the Company issued to two non-employee directors
options to purchase a total of 12,000 shares of Common Stock at an exercise
price of $6.25 per share in reliance upon Rule 701. The options were granted
under the Company's 1996 Non-Employee Directors' Non-Qualified Stock Option
Plan.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation of Birman Managed Care, Inc.
3.2 By-laws of Birman Managed Care, Inc.
3.3 Certificate of Merger dated September 9, 1996 by and between Birman Managed Care,
Inc. -- Delaware and Birman Managed Care, Inc.
4.1 Reference is made to Exhibits 3.1 through 3.3.
*4.2 Specimen Common Stock Certificate.
*4.3 Form of Warrant Agreement.
*4.4 Specimen Warrant Certificate.
4.5 Form of Representative's Warrant Agreement.
4.6 Form of Representative's Warrant.
*5.1 Form of Opinion of Rudnick & Wolfe.
10.1 Employment Agreement by and between Birman Managed Care, Inc. and David N. Birman,
M.D. entered into on March 1, 1996.
10.2 Employment Agreement by and between Birman Managed Care, Inc. and Sue D. Birman
entered into on March 1, 1996.
10.3 Employment Agreement by and between Birman Managed Care, Inc. and Robert D. Arkin
entered into on March 1, 1996; Amendment No. 1 by and between Birman Managed Care,
Inc. and Robert D. Arkin entered into on March 1, 1996.
10.4 Employment Agreement by and between Birman Managed Care, Inc., BMC Health Plans,
Inc. and Vincent W. Wong entered into on March 1, 1996.
</TABLE>

II-2
<PAGE> 88

<TABLE>
<S> <C>
*10.5 Employment Agreement by and between Birman Managed Care, Inc. and Douglas A. Lessard
entered into on March 1, 1996; Amendment No. 1 by and between Birman Managed Care,
Inc. and Douglas A. Lessard entered into on March 1, 1996; Amendment No. 2 by and
between Birman Managed Care, Inc. and Douglas A. Lessard entered into on September
1, 1996.
*10.6 Employment Agreement by and between Birman Managed Care, Inc. and Mark C. Wade
entered into on July 1, 1995; Amendment No. 1 by and between Birman Managed Care,
Inc., BMC Health Plans, Inc. and Mark C. Wade entered into on October 30, 1995;
Amendment No. 2 by and between Birman Managed Care, Inc. and Mark C. Wade entered
into on September 1, 1996.
10.7 Employment Agreement by and between Birman Managed Care, Inc. and Brad Seitzinger,
M.D. entered into on August 26, 1991.
10.8 Employment Agreement by and between Birman Managed Care, Inc. and Bill Barenkamp
entered into on November 9, 1993.
10.9 Consulting Agreement by and between Richard M. Ross, RRCG, L.L.C., and Birman
Managed Care, Inc. entered into as of September 1, 1996.
10.10 1995 Stock Option Plan for Birman Managed Care, Inc. dated October 31, 1995.
10.11 1996 Non-Employee Directors' Non-Qualified Stock Option Plan of Birman Managed Care,
Inc.
10.12 Stock Purchase Agreement by and between Birman Managed Care, Inc., Canton Management
Group, Inc. and Wesley Prater, M.D., Larry Cooper, M.D., Kelvin Ramsey, M.D., L.C.
Tennin, M.D., Louis Saddler, M.D., James Goodman, Ph.D, Vic Caracci, Michael T.
Caracci, Robert T. Teague, M.S.W., Vincent Caracci, Charlie Hills, Harold Wheeler,
M.D., Stephanie Tucker, Winifred Fulgham and Joyce Johnson entered into on September
6, 1996.
10.13 Promissory Note by David N. Birman, M.D. and payable to the Company.
10.14 Loan and Security Agreement dated August 21, 1996 by and between American National
Bank
and Trust Company of Chicago and Birman & Associates, Inc.
10.15 Loan and Security Agreement dated August 21, 1996 by and between Hughes &
Associates, Inc.
10.16 Promissory Note (Secured) dated August 21, 1995 in the stated principal amount of
$1,000,000 payable to American National Bank & Trust Company of Chicago by Birman &
Associates and Hughes & Associates, Inc.
10.17 Form of Indemnification Agreement for Birman Managed Care, Inc.
10.18 Executive Bonus Plan.
10.19 Agreement by and between National Benefit Resources, Inc. and Birman Managed Care,
Inc. entered into on April 16, 1996.
*10.20 Agreement dated September 17, 1996 by and between Birman Managed Care, Inc. and
Community Medical Center.
11.1 Calculation of Income (Loss) Per Share.
*16.1 Letter from Semple & Cooper, P.L.C. Re: Changing public accountants.
21.1 List of Subsidiaries.
*23.1 Consent of BDO Seidman, LLP. Re: Birman Managed Care, Inc.
*23.2 Consent of BDO Seidman, LLP Re: Canton Management Group, Inc.
*23.3 Consent of Semple & Cooper, P.L.C. Re: Birman Managed Care, Inc.
*23.4 Consent of Semple & Cooper, P.L.C. Re: Canton Management Group, Inc.
*23.5 Consent of Rudnick & Wolfe (included in the Opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney of Certain Officers and Directors.
*27 Financial Data Schedule.
</TABLE>

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

* Filed with this amendment.

All other exhibits previously filed.

II-3
<PAGE> 89
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes the registration
statement to be signed on its behalf by the undersigned, in the City of
Cookeville, State of Tennessee, on October 30, 1996.

BIRMAN MANAGED CARE, INC.

By: /s/ DAVID N. BIRMAN
------------------------------------
David N. Birman, M.D., President

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------------------- -----------------
<S> <C> <C>
/s/ DAVID N. BIRMAN Chairman of the Board, President and October 30, 1996
- ----------------------------------- Chief Executive Officer
David N. Birman

/s/ SUE D. BIRMAN Executive Vice President, Director October 30, 1996
- -----------------------------------
Sue D. Birman

/s/ ROBERT D. ARKIN Executive Vice President, Chief October 30, 1996
- ----------------------------------- Operating Officer, Secretary, and
Robert D. Arkin Director

/s/ DOUGLAS A. LESSARD Vice President, Treasurer and Chief October 30, 1996
- ----------------------------------- Financial Officer
Douglas A. Lessard
Director October 30, 1996
- -----------------------------------
Diedrich Von Soosten

/s/ JAMES J. RHODES* Director October 30, 1996
- -----------------------------------
James J. Rhodes
</TABLE>

* By Power of Attorney

II-4
<PAGE> 90
APPENDIX A

Description of Graphic and Image Material

1. Location: Inside Front Cover Page of Prospectus
Caption: Birman Quality Management Program
Subcaption: 80 Client Hospital Implementations in 13 States
Description: This illustration depicts the implementation of the Company's
Quality Management Program using three pictures. At the top of
the page is a picture of two physicians conferring over a
medical record, captioned "Birman physicians consult with
attending physicians." An arrow leads to a second picture
depicting one of the physicians in the first picture attending
to a patient, captioned "Attending physicians apply Quality
Management Programs." An arrow leads from the second picture to
the third picture that depicts a hand writing on a medical
record, captioned "Client hospitals optimize reimbursements and
utilization." To depict the continuity of the flow of
information, an arrow leads from the third picture back to the
first picture. In the background of the illustration is a map
of the United States running from the east coast to the
Mississippi River depicting by state the locations of past and
present hospital-clients of the Company's Quality Management
Program.

2. Location: Inside Back Cover Page of Prospectus
Caption: Birman Health Plans Target Underserved Rural Markets
Description: This illustration depicts the Company's health plan strategy.
At the top of the page is a picture of a family, captioned
"Point of Service -- Patient Chooses Treatment Option At Each
Visit." An arrow points from the family to an arc having three
points of reference labelled HMO, PPO, and Traditional
Indemnity, respectively. Below the arc is a map of the
Southeastern and Southcentral United States showing, by state,
the penetration of HMOs based upon the 1995 HMO-PPO Digest
published by Hoechst Marion Roussel, Inc., captioned "Current
Penetration of HMO Patients by State." The percentages of the
population of the states that are enrollees in HMOs reflected
in the illustration are as follows:

Southeast Southcentral
- --------------------------- -------------------------------
State Percentage State Percentage
- ----- ---------- ----- ----------
<S> <C> <C> <C>
Delaware 25.6% Kentucky 12.4%
Maryland 29.7% Tennessee 9.0%
West Virginia 3.2% Arkansas 6.4%
Virginia 14.1% Mississippi 0.8%
North Carolina 8.7% Alabama 7.6%
South Carolina 5.4% Louisiana 7.4%
Georgia 10.9%
Florida 18.0%
</TABLE>

<PAGE> 1
EXHIBIT 4.2

(FACE COPY)

COMMON STOCK COMMON STOCK

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

CUSIP

SEE REVERSE FOR
CERTAIN DEFINITIONS

PAR VALUE $.001 This Certifies that is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

Birman Managed Care, Inc. (hereinafter referred to as the "Corporation")
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation, as amended, of the Corporation (a copy of which certificate is on
file with the Transfer Agent), to all of which the holder, by acceptance hereof,
assents. This certificate is not valid until countersigned by the Transfer Agent
and registered by the Registrar.

Witness the facsimile seal of the Corporation and facsimile signatures of its
authorized officers.

Dated:

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

/s/ ROBERT D. ARKIN /s/ DAVID N. BIRMAN, MD
___________________ _______________________
SECRETARY PRESIDENT
<PAGE> 2
(BACK COPY)

The Corporation shall furnish without charge to each stockholder who so requests
a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common

UNIF GIFT MIN ACT -- __________________ Custodian __________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)

UNIF TRF MIN ACT -- _________ Custodian (until age _________)
(Cust)

____________________________ under Uniform Transfers
(Minor)

to Minors Act _________________________
(State)

FOR VALUE RECEIVED, _________________ hereby sell(s), assign(s) and
transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE_________________________________________

_______________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated___________________________
X_______________________________
X_______________________________

NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By______________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY ELIGIBLE GUARANTOR INSTITUTION SUCH AS A
SECURITIES BROKER/DEALER, COMMERCIAL BANK, TRUST COMPANY, SAVINGS ASSOCIATION OR
A CREDIT UNION PARTICIPATING IN A MEDALLION PROGRAM

<PAGE> 1
EXHIBIT 4.3

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

BIRMAN MANAGED CARE, INC.

AND

AMERICAN STOCK TRANSFER AND TRUST COMPANY

WARRANT AGENT

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

WARRANT AGREEMENT

DATED AS OF , 1996

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

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

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. Appointment of Warrant Agent.......................................................................... 1

SECTION 2. Form of Warrant Certificates.......................................................................... 1

SECTION 3. Issuance of Warrant Certificates; Countersignature and Registration................................... 1

SECTION 4. Transfer, Split Up, Combination, and Exchange of Warrant Certificates; Mutilated, Destroyed,
Lost, or Stolen Warrant Certificates.................................................................. 2

SECTION 5. Subsequent Issue of Warrant Certificates.............................................................. 2

SECTION 6. Exercise of Warrants; Exercise Price; Expiration Date of Warrants..................................... 2

SECTION 7. Cancellation and Destruction of Warrant Certificates.................................................. 3

SECTION 8. Reservation and Availability of Shares of Common Stock................................................ 4

SECTION 9. Transfer Taxes........................................................................................ 4

SECTION 10. Common Stock Record Date.............................................................................. 4

SECTION 11. Adjustment of Exercise Price, Number of Shares, or Number of Warrants................................. 5

SECTION 12. Notices to Warrantholders............................................................................. 7

SECTION 13. Obtaining of Governmental Approvals................................................................... 8

SECTION 14. Fractional Warrants and Fractional Shares............................................................. 8

SECTION 15. Rights of Action...................................................................................... 8

SECTION 16. Agreement of Warrant Certificate Holders.............................................................. 8

SECTION 17. The Warrant Agent..................................................................................... 9

SECTION 18. Change of Warrant Agent............................................................................... 10

SECTION 19. Maintenance of Office................................................................................. 10

SECTION 20. Issuance of New Warrant Certificates.................................................................. 10

SECTION 21. Notices............................................................................................... 10

SECTION 22. Supplements and Amendments............................................................................ 11

SECTION 23. Successors............................................................................................ 11
</TABLE>

<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 24. Benefits of this Agreement............................................................................ 11

SECTION 25. California Contract................................................................................... 11

SECTION 26. Counterparts.......................................................................................... 11

SECTION 27. Descriptive Headings.................................................................................. 11

EXHIBIT

Exhibit A..................................................................................... Form of Warrant Certificate

</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT

THIS AGREEMENT, dated as of___________, 1996 is between Birman Managed
Care, Inc., a Delaware corporation (the "Company"), and American Stock Transfer
and Trust Company, a New York banking corporation (the "Warrant Agent").

WITNESSETH:

WHEREAS, the Company proposes to issue Warrants, as hereinafter
described (the "Warrants"), to purchase up to an aggregate of 1,782,500 of its
Shares of common stock, par value $.001 per share (the "Common Stock"), in
connection with a public offering of units (the "Units"), each Unit consisting
of one share of Common Stock and one Warrant evidencing the right to purchase
one share of Common Stock; and W.B. McKee Securities, Inc. has agreed to act as
the representative (the "Representative") of certain underwriters (the
"Underwriters") in the offering of the Units; and

WHEREAS, the Company proposes to issue to the Representative warrants
(the "Representative's Warrants") to purchase up to an aggregate of 155,000
additional Units (the "Representative's Units"), each Representative's Unit
consisting of one share of Common Stock and one Warrant evidencing the right to
purchase one share of Common Stock; and

WHEREAS, to provide for the appointment of a Warrant Agent, to provide
for countersignature of the Warrants by the Warrant Agent, and to establish the
terms and conditions of the Warrants, the Company in and by resolution of its
Board of Directors has duly authorized the execution and delivery of this
Warrant Agreement and the execution, issuance, and delivery of the Warrant
Certificates (as hereinafter defined).

NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:

SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions hereinafter in this Agreement set forth and the Warrant
Agent hereby accepts such appointment. The Company may from time to time, upon
providing written notice to the Warrant Agent, appoint such additional
substitute Warrant Agents as it may deem necessary or desirable.

SECTION 2. Form of Warrant Certificates. The certificates
evidencing the Warrants (and the form of election to purchase shares of Common
Stock and the form of assignment to be printed on the reverse thereof) (the
"Warrant Certificates") to be delivered pursuant to this Agreement shall be in
registered form only, shall be substantially in the form set forth in Exhibit A
hereto, and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements, printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Warrant Agreement, or as may be
required to comply with any applicable law or any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
inter-dealer quotation system on which the Warrant Certificates may from time to
time be listed, or to conform to usage. Each Warrant Certificate shall be dated
as of the date of issuance thereof by the Warrant Agent issuing such Warrant
Certificate, either upon initial issuance or upon transfer or exchange, and on
its face initially shall entitle the registered holder thereof to purchase one
share of Common Stock for each Warrant evidenced by such Warrant Certificate at
the price per share set forth therein, but the number of such shares and such
price per share shall be subject to adjustments as provided herein.

The Warrant Certificate shall be exercisable and separately
transferable upon issuance. Without limitation, any exercise shall comply with
the provisions of Subsection 6(b) hereof.

SECTION 3. Issuance of Warrant Certificates; Countersignature and
Registration. No fractional Warrants will be issued to the purchaser of
Warrants, and no such purchaser will be entitled to any cash payment or other
compensation in respect of a fractional Warrant that would otherwise have been
issued, except pursuant to the terms of Subsection 14(a).

The Warrant Certificates shall be executed on behalf of the Company by
its President or any Vice President, by facsimile signature and have affixed
thereto a facsimile of the Company's seal which shall be attested

1
<PAGE> 5

by the Secretary or an Assistant Secretary of the Company by facsimile
signature. The Warrant Certificates shall be manually countersigned by the
Warrant Agent (or by any successor as a Warrant Agent hereunder) and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any Warrant Certificate shall cease to be such
officer of the Company before countersignature by a Warrant Agent and issuance
and delivery thereof, such Warrant Certificate, nevertheless, may be
countersigned by the Warrant Agent and issued and delivered with the same
force and effect as though the person who signed such Warrant Certificate had
not ceased to be such officer of the Company; and any Warrant Certificate may
be signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Warrant Agreement any such person was not such an officer. Upon
countersignature by the Warrant Agent and delivery, the Warrant Certificate
shall be valid and binding upon the Company and the holder thereof shall be
entitled to all the benefits of this Agreement.

The Warrant Agent will keep or cause to be kept at its principal
corporate trust office in New York, New York, or elsewhere, books for
registration and registration of transfer of the Warrant Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Warrant Certificates, the number of Warrants evidenced on its
face by each of the Warrant Certificates, and the date of each of the Warrant
Certificates.

SECTION 4. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost, or Stolen Warrant Certificates.
Subject to the provisions of Section 14 hereof, any Warrant Certificate, with
or without other Warrant Certificates, may be transferred, split up, combined,
or exchanged for another Warrant Certificate or Warrant Certificates
representing in the aggregate a like number of Warrants. Subject to any
restriction on transferability that may appear on a Warrant Certificate in
accordance with the terms hereof, any registered holder desiring to register
the transfer of, or to split up, combine, or exchange, any Warrant Certificate
or Warrant Certificates shall make such request in writing delivered to the
Warrant Agent and shall surrender such Warrant Certificate or Warrant
Certificates to the Warrant Agent at its offices maintained for that purpose in
New York, New York or elsewhere. Thereupon the Warrant Agent shall countersign
and deliver to the person entitled thereto a Warrant Certificate or Warrant
Certificates, as the case may be, as soon as required. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination, or exchange of
Warrant Certificates.

Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction, or mutilation
of a Warrant Certificate, and, in case of loss, theft, or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to the
Company and the Warrant Agent of all reasonable expenses incidental thereto,
and upon surrender and cancellation of the Warrant Certificate if mutilated,
the Company will direct the Warrant Agent to make a new Warrant Certificate of
like tenor for the same number of Warrants and deliver such new Warrant
Certificate to the registered owner in lieu of the Warrant Certificate so lost,
stolen, destroyed or mutilated.

SECTION 5. Subsequent Issue of Warrant Certificates. Subsequent to
their original issuance, no Warrant Certificates shall be issued except (a)
Warrant Certificates issued upon any transfer, combination, split up, or
exchange of Warrants pursuant to Section 4 hereof, (b) Warrant Certificates
issued in replacement of mutilated, destroyed, lost, or stolen Warrant
Certificates pursuant to Section 4 hereof, (c) Warrant Certificates issued
pursuant to Section 6 hereof upon the partial exercise of any Warrant
Certificate to evidence the unexercised portion of such Warrant Certificate, and
(c) Warrant Certificates issued pursuant to Subsection 11(g) or Section 20
hereof.

SECTION 6. Exercise of Warrants; Exercise Price; Expiration Date of
Warrants.

(a) Each Warrant may be exercised on any business day
through the close of business on the date three years after the date of the
Prospectus (the "Prospectus Date") that is a part of the Registration Statement
relating to the Warrants; provided, however, that this termination date shall be
subject to acceleration pursuant to the redemption provisions of Section 7
hereof (such date, as it may be accelerated, is herein called the "Expiration
Date"). Each Warrant not exercised on or before the close of business on the
Expiration Date shall automatically become void at 5:00 P.M., New York City
Time

2
<PAGE> 6
(which time shall be deemed the "close of business" for purposes of this
Agreement, the Warrants and the Warrant Certificates), on the Expiration Date;
each holder thereof shall thereafter have no further rights with respect
thereto and the Company and the Warrant Agent shall thereafter have no further
obligations with respect thereto.

(b) Subject to the provisions of this Agreement, including
Sections 12, 14 and 15, the holder of each Warrant shall have the right to
purchase from the Company (and the Company shall issue and sell to such
holder(s) of a Warrant) one fully paid and non-assessable share of Common Stock
at the exercise price per share set forth in the form of Warrant Certificate
included herein, as such price may be adjusted in accordance with the provisions
hereof (such price, as so adjusted, being herein called the "Exercise Price"),
upon surrender to the Warrant Agent, at its offices maintained for that purpose
in New York, New York, or elsewhere, of the Warrant Certificate evidencing such
Warrant, with the form of election to purchase on the reverse thereof duly
completed and signed, and upon payment of the Exercise Price. Payment of the
Exercise Price and any amounts described in Subsection 6(c) shall be: (i) in
cash in United States dollars; or (ii) by certified or official bank check
payable in United States dollars to the order of the Company.

(c) Upon receipt of a Warrant Certificate, with the form of
election to purchase duly executed, accompanied by payment of the Exercise
Price for the shares of Common Stock to be purchased and an amount (if required
by Section 10 hereof) equal to any applicable transfer tax, the Warrant Agent
shall thereupon promptly (i) requisition from any transfer agent for the shares
of Common Stock certificates evidencing ownership of the number of shares of
Common Stock to be purchased, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
of Common Stock or Warrants, and (iii) promptly after receipt of such
certificates cause the same to be delivered to or upon the order of the
registered holder of such Warrant Certificate, registered in such name or names
as may be designated by such holder, and, when appropriate after receipt
promptly deliver such cash to or upon the order of the registered holder of
such Warrant Certificate.

(d) In case the registered holder of any Warrant
Certificate shall exercise fewer than all of the Warrants evidenced thereby, a
new Warrant Certificate evidencing Warrants equivalent to the Warrants
remaining unexercised shall be issued by the Warrant Agent to the registered
holder of such Warrant Certificate or to his or her duly authorized assignee,
subject to the provisions of Section 15 hereof.

(e) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently deliver to the Company all
monies or checks for the purchase of shares of Common Stock.

SECTION 7. Redemption of Warrants.

(a) Commencing ninety days from the Prospectus Date, the
Company may redeem all, but not less than all, of the Warrants other than the
Representative's Warrants and any Warrant that has been reissued upon the
transfer or exchange of the Representative's Warrants (the "Redeemable
Warrants") at a price equal to $0.01 per Warrant (the "Redemption Price"), on
not less than 30 days prior written notice; provided, that the Closing Price (as
defined below) per share of Common Stock for 20 consecutive trading days, ending
not more than 15 calendar days prior to the date of the redemption notice,
averages in excess of $____ (subject to adjustment for any stock splits or
dividends or recapitalizations). Notice of redemption shall be mailed by the
Warrant Agent to all registered holders of Warrant Certificates for Redeemable
Warrants on a date designated by the Company, but in no event shall such
designated date be earlier than the fifth business day after the date on which
the Warrant Agent received notice of redemption from the Company. The notice of
redemption also shall be given by publishing it at least once in The Wall Street
Journal (national edition). [RIDER 3 TO COME]

(b) The notice of redemption shall (i) contain a
certification by the Company that the conditions for redemption set forth in
subsection 7(a) have been satisfied, (ii) state the redemption price per
Redeemable Warrant, (iii) state the date fixed for redemption, (iv) include
the name and address of the Warrant Agent where the Warrant Certificates shall
be presented for redemption, and (v) state that the right to exercise the
Redeemable Warrant shall expire at 5:00 p.m. (New York City Time) on the
business day immediately preceding the date fixed for redemption.

(c) As used in this Agreement, the term "Closing Price" of
the shares of Common Stock for a day or days shall mean (a) if the
shares of Common Stock are listed or admitted for trading on a
national securities exchange, the last reported sales price as reported in The
Wall Street Journal (or similar publication), or, in case no such reported
sale takes place on such day or days, the reported highest closing bid price,
in either case on the principal national securities exchange on which the
shares of Common Stock are listed or admitted for trading or (b) if
the shares of Common Stock are not listed or admitted for trading
on a national securities exchange, (i) the last closing bid price of the shares
of Common Stock on The Nasdaq Stock Market, Inc.

3
<PAGE> 7

National Market or Small-Cap Market, or (ii) if the shares of Common Stock or
Warrants are not quoted on The Nasdaq National Market, Inc. or Small-Cap
Market, the highest closing bid price of the shares of Common Stock or Warrants
in the over-the-counter market, as reported by a generally accepted reporting
service.

(d) All outstanding Redeemable Warrants must be redeemed if
any are redeemed, and any right to exercise an outstanding Redeemable Warrant
shall terminate at 5:00 p.m. (New York City Time) on the business day
immediately preceding the date fixed for redemption. From and after the
redemption date, all rights of the holders of the Redeemable Warrants (except
the right to receive the Redemption Price) shall terminate, but only if no
later than one day prior to the redemption date the Company shall have
irrevocably deposited with the Warrant Agent, as paying agent, a sufficient
amount to pay on the redemption date the Redemption Price for all Redeemable
Warrants. The Warrant Agent shall pay to the holders of record of redeemed
Redeemable Warrants all monies received by the Warrant Agent for the
redemption of Warrants to which the holders of record of such redeemed Warrants
who shall have surrendered their Redeemable Warrants are entitled. Any amounts
deposited with the Warrant Agent that are not required for redemption of
Warrants may be withdrawn by the Company. Any amounts deposited with the
Warrant Agent that shall be unclaimed after six months after the redemption
date may be withdrawn by the Company, and thereafter the holders of the
Redeemable Warrants called for redemption for which such funds were deposited
shall look solely to the Company for payment. The Company shall be entitled to
the interest, if any, on funds deposited with the Warrant Agent and the holders
of redeemed Redeemable Warrants shall have no right to any such interest.

SECTION 8. Cancellation and Destruction of Warrant Certificates. All
Warrant Certificates surrendered for the purpose of exercise, conversion,
exchange, substitution, or registration of transfer shall, if surrendered to
the Company or to any of its agents, be delivered to the Warrant Agent for
cancellation or in canceled form, or if surrendered to the Warrant Agent shall
be canceled by it. The Company shall deliver to the Warrant Agent for
cancellation and retirement and the Warrant Agent shall so cancel and retire,
any other Warrant Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof. The Warrant Agent shall deliver all canceled
Warrant Certificates to the Company, or shall, at the written request of the
Company, destroy such canceled Warrant Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

SECTION 9. Reservation and Availability of Shares of Common Stock.
The Company will at all times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued shares of Common
Stock, for the purpose of enabling it to satisfy any obligation to issue shares
of Common Stock upon exercise or conversion of Warrants, the full number of
shares of Common Stock deliverable upon the exercise or conversion of all
outstanding Warrants.

Before taking any action which would cause an adjustment pursuant to
Section 12 reducing the Exercise Price, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
Common Stock at the Exercise Price as so adjusted.

The Company covenants that all shares of Common Stock which may be
issued upon exercise of Warrants will upon issue be fully paid and
non-assessable and free from all taxes, liens, charges and security interests
with respect to the issue thereof.

The Warrant Agent is hereby authorized to requisition from time to time
from any transfer agent for the shares of Common Stock, and any subsequent
transfer agent of any of the Company's securities issuable upon the exercise of
the Warrants, share certificates required to honor outstanding Warrants. The
Company hereby authorizes and instructs its present and any future transfer
agent to comply with all such requests. The Company will supply such transfer
agent with duly executed share certificates for such purpose and will itself
provide or otherwise make available any cash which may be payable as provided in
Section 15. The Company will keep a copy of this Agreement on file with the
transfer agent for the Common Stock and with every subsequent transfer agent
for any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Warrants.

If and for so long as the outstanding shares of Common Stock may be
listed on any securities exchange or inter-dealer quotation system in the
United States, the Company shall cause all shares reserved for issuance or
conversion upon the exercise or conversion of Warrants to be listed on each
such exchange or quotation system upon official notice of issuance upon such
exercise or conversion.

SECTION 10. Transfer Taxes. The Company further covenants and agrees
that it will pay when due and payable any and all federal and state transfer
taxes and charges which may be payable in respect of the issuance or delivery of
the Warrant Certificates or of any shares of Common Stock upon the exercise or
conversion of Warrants. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer involved in the
transfer or delivery of Warrant Certificates or the issuance or conversion or
delivery of certificates for shares of Common Stock in a name other than that of
the registered holder of the Warrant Certificate evidencing Warrants surrendered
for exercise or to issue or deliver any certificates for shares of Common Stock
upon the exercise or conversion of any Warrants until any such tax shall have
been paid (any such tax being payable by the holder of such Warrant Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.

SECTION 11. Common Stock Record Date. Each person in whose name any
certificate for shares of Common Stock is issued upon the exercise of Warrants
shall for all purposes be deemed to have become the

4
<PAGE> 8
holder of record of the shares of Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes) was made. Prior to the exercise of the
Warrants evidenced thereby, the holder of a Warrant Certificate shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Warrants shall be exercisable, including, without limitation, the
rights to vote, to receive dividends or other distributions (except as
expressly set forth herein), or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as expressly provided herein.

SECTION 12. Adjustment of Exercise Price, Number of Shares, or
Number of Warrants. The Exercise Price, the number and kind of securities
purchasable upon the exercise of each Warrant, and the number of Warrants
outstanding shall be subject to adjustment from time to time upon the happening
of the events enumerated in this Section 12.

(a) In case the Company shall at any time after the
date of this Agreement (i) pay a dividend in shares of Common Stock or other
stock of the Company or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, (iii) combine the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its shares of Common Stock other securities of the
Company (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing corporation), the number and
kind of shares purchasable upon exercise of each Warrant outstanding
immediately prior thereto shall be adjusted so that the holder of each Warrant
shall be entitled to receive at the same aggregate Warrant Exercise Price the
kind and number of shares of Common Stock or other securities of the Company
which the holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Warrant been exercised
in full immediately prior to the earlier of the happening of such event or any
record date with respect thereto. In the event of any adjustment of the total
number of shares of Common Stock purchasable upon the exercise of the then
outstanding Warrants pursuant to this Subsection 12(a), the Exercise Price
shall be adjusted to be the amount resulting from dividing the number of shares
of Common Stock (including fractional shares of Common Stock) covered by such
Warrant immediately after such adjustment into the total amount payable upon
exercise of such Warrant in full immediately prior to such adjustment. An
adjustment made pursuant to this Subsection 12(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. Such adjustment shall be made successively
whenever any event listed above shall occur.

(b) In case the Company shall issue rights,
options, warrants (other than the Warrants) or convertible securities to all
holders of its Common Stock, without any charge to such holders, entitling them
to subscribe for or purchase Common Stock at a price per share which, at the
record date for such issuance, is less than the then current Market Price (as
defined in Subsection 12(e) below), then the Exercise Price shall be adjusted
by multiplying the Exercise Price in effect immediately prior to the record
date for the determination of stockholders entitled to receive such rights,
options, warrants or convertible securities by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such rights, options, warrants or convertible
securities plus the number of shares which the aggregate offering price of the
total number of shares offered would purchase at such current Market Price, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible securities plus the number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall be made whenever
such rights, options, warrants or convertible securities are issued, and shall
become effective immediately and retroactive to the record date for the
determination of stockholders entitled to receive such rights, options,
warrants or convertible securities.

(c) In case the Company shall distribute to all
holders of its shares of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the surviving
corporation) evidences of its indebtedness or assets (other than cash dividends
and distributions payable out of retained earnings in accordance with Delaware
law and dividends or distributions payable in shares of stock described in
Subsection 11(a) above) or rights, options, or warrants or exchangeable or
convertible securities containing the right to subscribe for or purchase shares
of Common Stock, then the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be the current Market Price per share of
Common Stock (as defined in Subsection 12(e) below) on such record date, less
the fair market value (as determined by the Board of Directors of the Company,
whose determination shall be conclusive and described in a statement filed with
the Warrant Agent) of the portion of the evidences of indebtedness or assets so
to be distributed or of such rights, options or warrants applicable to one
share of Common Stock and the denominator of which shall be such current Market
Price per share of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.

(d) To the extent not covered by Subsections 12(b)
or (c) hereof, in case the Company shall sell or issue Common Stock or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase shares of Common Stock at a price per share (determined, in the
case of such rights, options, warrants or convertible securities, by dividing
(i) the total amount received or receivable by the Company in consideration of
the sale or issuance of such rights, options, warrants or convertible
securities, plus the total consideration payable to the Company upon exercise or
conversion thereof, by (ii) the total number of shares covered by such rights,
options, warrants or convertible securities) lower than the current Market Price
(as defined in Subsection 11(e) below) of the Common Stock on the day
immediately prior to such sale or issuance, then the Exercise Price shall be
adjusted to a 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 sale
or issuance multiplied by the then existing Exercise Price, plus (B) the
consideration received by the Company upon such sale or issuance, by (II) the
total number of shares of Common Stock outstanding immediately after such sale
or issuance. For the purposes of such adjustments, the Common Stock which the
holders of any such rights, options, warrants or convertible Securities shall be
entitled to subscribe for or purchase shall be deemed issued and outstanding as
of the date of such sale or issuance and the consideration received by the
Company therefor shall be deemed to be the consideration received by the Company
for such rights, options, warrants or convertible securities, plus the
consideration or premiums stated in such rights, options, warrants or
convertible securities to be paid for the Common Stock covered thereby. In case
the Company shall sell or issue Common Stock or rights, options, warrants or
convertible securities containing the right to subscribe for or purchase Common
Stock for a consideration consisting, in whole or in part, of property other
than cash or its equivalent, then, in determining the "price per share" of
Common Stock and the "consideration received by the Company" for purposes of the
first sentence of this Subsection 12(e), the Board of Directors shall determine
the fair value of said property, and such determination, if reasonable and based
upon the Board of Directors' good faith business judgment, shall be binding upon
the registered holders. In determining the "price per share" of Common Stock,
any underwriting discounts or commissions shall not be deducted from the price
received by the Company for sales of securities registered under the Act. There
shall be no adjustment of the Exercise Price pursuant to this Subsection 12(e)
if the amount of such adjustment would be less than $.05 per share of Common
Stock; provided, however, that any adjustment which by reason of this provision
is not required to be made immediately shall be carried forward and taken into
account in any subsequent adjustments.

(e) For the purpose of any computation under
Subsections 12(b), (c), or (d), the current Market Price per share of Common
Stock at any date shall be deemed to be the average daily Closing Prices of
the shares of Common Stock for the 20 consecutive trading days commencing 25
trading days before the day in question.

<PAGE> 9

(f) No adjustment will be made until the cumulative
adjustments in the exercise price per share amount to $0.05 or more; provided,
however, that any adjustments which by reason of this Subsection 12(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 12 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.

(g) Unless the Company shall have exercised its election as
provided in Subsection 7(a), upon each adjustment of the Exercise Price as a
result of the calculations made in Subsections 12(b), (c), or (d), each
Warrant outstanding prior to the making of the adjustment in the Exercise Price
shall thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of shares of Common Stock (calculated to the nearest hundredth)
obtained by (i) multiplying the number of shares of Common Stock purchasable
upon exercise of a Warrant prior to adjustment of the number of shares of Common
Stock by the Exercise Price in effect prior to adjustment of the Exercise Price
and (ii) dividing the product so obtained by the Exercise Price in effect after
such adjustment of the Exercise Price.

(h) The Company may elect on or after the date of any
adjustment of the Exercise Price to adjust the number of Warrants, in
substitution for any adjustment in the number of shares of Common Stock
purchasable upon the exercise of a Warrant as provided in Subsection 12(f). Each
of the Warrants outstanding after such adjustment of the number of Warrants
shall be exercisable for one share of Common Stock. Each Warrant held of record
prior to such adjustment of the number of Warrants shall become that number of
Warrants (calculated to the nearest hundredth) obtained by dividing the Exercise
Price in effect prior to adjustment of the Exercise Price by the Exercise Price
in effect after adjustment of the Exercise Price. The Company shall send to each
holder of record of Warrant Certificates an announcement of its election to
adjust the number of Warrants, indicating the record date for the readjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Exercise Price is adjusted or any day
thereafter, but shall be at least ten days later than the date such announcement
is sent to each holder of record of Warrant Certificates. Upon each adjustment
of the number of Warrants pursuant to this Subsection 12(h), the Company shall,
as promptly as practicable, cause to be distributed to holders of record of
Warrant Certificates on such record date Warrant Certificates evidencing,
subject to Section 15, the additional Warrants to which such holders shall be
entitled as a result of such adjustment, or at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Warrant Certificates held by such holders prior to the date
of adjustment and upon surrender thereof if required by the Company, new Warrant
Certificates evidencing all the Warrants to which such holders shall be entitled
after such adjustment. Warrant Certificates so to be distributed shall be
issued, executed, and countersigned in the manner specified in Section 3 (but
shall bear, at the option of the Company, the adjusted Exercise Price) and shall
be registered in the names of the holders of record of Warrant Certificates on
the record date specified in the announcement sent to each holder of Warrant
Certificates.

(i) In case of any capital reorganization of the Company,
or of any reclassification or exchange of the shares of Common Stock (other
than a reclassification of the shares of Common Stock referred to in Subsection
12(a)), or in case of the consolidation of the Company with, or the merger of
the Company with, or the merger of the Company into, any other corporation or
entity (other than a reclassification of the shares of Common Stock referred to
in Subsection 12(a) or a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock) or of the
sale of the properties and assets of the Company as, or substantially as, an
entirety to any other corporation or entity, each Warrant shall after such
capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, or sale be exercisable, upon the terms and conditions
specified in this Agreement, for the number of shares or other securities,
assets, or cash to which a holder of the number of shares of Common Stock
purchasable (at the time of such capital reorganization, reclassification of
shares of Common Stock, consolidation, merger, or sale) upon exercise of such
Warrant would have been entitled upon such capital reorganization,
reclassification of shares of Common Stock, consolidation, merger, or sale; and
in any such case, if necessary, the provisions set forth in this Section 12 with
respect to the rights and interests thereafter of the holders of the Warrants
shall be appropriately adjusted so as to

6
<PAGE> 10

be applicable, as nearly as shall be reasonable, to any shares or other
securities, assets, or cash thereafter deliverable on the exercise of the
Warrants. The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares shall not be deemed to be
a reclassification of the shares of Common Stock for the purposes of this
Subsection 12(i) and shall be dealt with as provided in Subsection 11(a) above.
The Company shall not effect any such consolidation, merger, or sale unless
prior to or simultaneously with the consummation thereof the successor
corporation or entity (if other than the Company) resulting from such a
consolidation or merger or the corporation or entity purchasing such assets or
another appropriate corporation or entity shall assume, by written instrument
executed and delivered to, and in a form acceptable to, the Warrant Agent, the
obligation to deliver to the holder of each Warrant such shares, securities,
assets or cash as, in accordance with the foregoing provisions, such holders
may be entitled to purchase, as well as the other obligations of the Company
under this Warrant Agreement.

(j) In the event that at any time, as a result of an
adjustment made pursuant to this Section 12, the holders of Warrants shall
become entitled to purchase any shares or securities of the Company other than
the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the Exercise Price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on such terms as nearly equivalent as practicable to the
provisions with respect to shares of Common Stock contained in Subsections
11(a) through 11(i), inclusive, above, and the provisions of Sections 6, 9,
10, 11 and 15, inclusive, with respect to shares of Common Stock shall apply on
like terms to any such other shares or securities.

(k) In any case in which this Section 12 shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event issuing to the holder of any Warrant exercised after
such record date the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Warrant Agent shall deliver as soon as practicable to such
holder a due bill or other appropriate instrument, provided by the Company and
in a form acceptable to the Warrant Agent, evidencing such holder's right to
receive such additional shares of Common Stock upon the occurrence of the event
requiring such adjustment.

(l) Before taking any action pursuant to this
Section 11 that would cause an adjustment reducing the Exercise Price required
to purchase one share of Common Stock below the then par value (if any) of a
share of such Common Stock, the Company will use its best efforts to take any
corporate action which, in the opinion of its counsel, may be necessary in
order that the Company may validly and legally issue fully paid and
non-assessable shares of such Common Stock.

(m) For the purpose of this Section 12, the term
"Common Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value. In the event that at any time, as a result
of an adjustment made pursuant to this Section 12, a registered holder shall
become entitled to purchase any securities of the Company other than Common
Stock, (i) if the registered holder's right to purchase is on any other basis
than that available to all holders of the Company's Common Stock, the Company
shall obtain an opinion of an investment banking firm valuing such other
securities and (ii) thereafter the number of such other securities so
purchasable upon exercise of a Warrant and the Exercise Price of such
securities shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section 12.

(n) Upon the expiration of any rights, options,
warrants or conversion privileges, if such shall not have been exercised, the
Exercise Price and the number of shares of Common Stock purchasable upon
exercise of a Warrant, to the extent a Warrant has not then been exercised,
shall, upon such expiration, be readjusted and shall thereafter be such as they
would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (i) the fact
that the only shares of Common Stock so issued were the shares of Common Stock,
if any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion privileges, and (ii) the fact that such shares of Common
Stock, if any, were issued or sold for the consideration actually received by
the Company upon such exercise plus the consideration, if any, actually
received by the Company for the issuance, sale of grant of all such privileges,
options, warrants or conversion privileges whether or not exercised; provided,
however, that no such readjustment shall have the affect of increasing the
Exercise Price by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrant
or conversion privileges.

(o) No adjustments shall be made pursuant to this
Section 12 in connection with the issuance of the Units or the shares of Common
Stock and Warrants included therein or the Representative's Warrants or any of
the securities underlying the Representative's Warrants. No adjustments shall
be made pursuant to this Section 12 in connection with the grant or exercise of
presently authorized or outstanding options to purchase Common Stock under the
Company's existing stock option plans or the exercise of presently outstanding
warrants to purchase Common Stock.

SECTION 13. Notices to Warrantholders. Upon any adjustment of the
Exercise Price pursuant to Section 12, the Company within 20 days thereafter
shall (i) cause to be filed with the Warrant Agent a certificate of a firm of
independent public accountants of recognized standing (who may be the regular
auditors of the Company) selected by the Board of Directors of the Company
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based and setting forth the number of Warrants to be issued
under Subsection 11(f) hereof, or the number of shares of Common Stock (or
portion thereof) purchasable upon exercise of a Warrant after such adjustment
in the Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein, and (ii) cause to be given to
each of the holders of record of Warrant Certificates at their respective
addresses appearing on the Warrant register written notice of such adjustment
by first-class mail, postage prepaid. Where appropriate, such notice may be
given in advance and included as a part of the notice required to be mailed
under the other provisions of this Section 13.

In the event of any of the following:

(a) the Company shall authorize the issuance to all
holders of shares of its Common Stock of rights or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights or
warrants; or

(b) the Company shall authorize the distribution to
all holders of shares of its Common Stock of evidences of its indebtedness or
assets (other than cash dividends not exceeding $1.00 per share of Common Stock
payable during any 12-month period or distributions or dividends payable in
shares of Common Stock); or

<PAGE> 11
approval of any shareholders of the Company is required, or of the conveyance
or transfer of the properties and assets of the Company as, or substantially
as, an entirety, or of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination); or

(d) the voluntary or involuntary dissolution, liquidation,
or winding up of the Company; or

(e) the Company proposes to take any action (other than
actions of the character described in Subsection 12(a) except as required under
Subsection 13(c) above) which would require an adjustment of the Exercise Price
pursuant to Section 12;

then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the holders of record of the Warrant Certificates at
their respective addresses appearing on the Warrant register, at least 20 days
(or ten days in any case specified in clause (a) or (b) above) prior to the
applicable record date hereinafter specified, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such rights,
warrants, or distribution are to be determined, or (ii) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation, or
winding up is expected to become effective, and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation, or winding up. The failure to give the
notice required by this Section 13 or any defect therein shall not affect the
legality or validity of any distribution, right, warrant, consolidation,
merger, conveyance, transfer, dissolution, liquidation, or winding up, or the
vote upon any such action.

SECTION 14. Obtaining of Governmental Approvals. The Company will
use its reasonable efforts to take such action which may be necessary from time
to time to obtain and keep effective any and all permits, consents, and
approvals of governmental agencies and authorities and to make all filings
under federal and state securities laws which may be or become requisite in
connection with the issuance, sale, transfer and delivery of the Warrant
Certificates, the exercise of the Warrants, and the issuance, sale, transfer
and delivery of the shares of Common Stock issuable upon exercise of the
Warrants. In furtherance of the foregoing, so long as any unexpired Warrants
remain outstanding, the Company will file such post-effective amendments to the
Registration Statement or supplements to the Prospectus filed pursuant to the
Securities Act of 1933, as amended (the "Act"), with respect to the offering of
the Units and Representative's Units, or such other registration statements or
post-effective amendments or supplements as may be necessary to permit trading
in the Warrants and to permit the Company to deliver to each person exercising
a Warrant a prospectus meeting the requirements of Section 10(a)(3) of the Act,
and otherwise complying therewith; and the Company will, from time to time,
furnish the Warrant Agent with such prospectuses in sufficient quantity to
permit the Warrant Agent to deliver such a prospectus to each holder of a
Warrant upon the exercise thereof.

The Company will give written notice of the issuance of shares of
Common Stock pursuant to the exercise of Warrants, at such times and in such
detail as may be required, to each stock exchange and inter-dealer quotation
system on which the shares of Common Stock are listed.

Notwithstanding any other provision of this Agreement or of the
Warrants to the contrary, (1) the Warrants shall not be exercisable by the
holder of any Warrant Certificate resident in a jurisdiction under the
securities or blue sky laws of which the shares of Common Stock issuable upon
exercise of such Warrant Certificate are not registered or qualified or exempt
from registration or qualification or in which a current prospectus meeting the
requirements of the laws of such jurisdiction cannot be lawfully delivered by
or on behalf of the Company, and (2) the Warrants shall not be exercisable by
the holder of any Warrant Certificate if the shares of Common Stock issuable
upon exercise of such Warrant Certificate are not the subject of a current
registration statement filed with and declared effective by the Securities and
Exchange Commission or exempt from such registration.

SECTION 15. Fractional Warrants and Fractional Shares

(a) The Company shall not be required to issue
fractions of Warrants or to distribute Warrant Certificates which evidence
fractional Warrants. In lieu of such fractional Warrants, there shall be paid
to the registered holders of Warrant Certificates with regard to which such
fractional Warrants would otherwise be issuable an amount in cash in United
States dollars equal to the same fraction of the current market value of a
whole Warrant. For purposes of this Subsection 15(a), the current market value
of a Warrant shall be the Closing Price of the Warrant for the trading day
immediately prior to the date on which such fractional Warrant would have been
otherwise issuable.

<PAGE> 12

(b) The Company shall not be required to issue fractions of
shares of Common Stock upon exercise of the Warrants or to distribute share
certificates which evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, there shall be paid to the registered
holders of Warrant Certificates at the time such Warrants are exercised as
herein provided an amount in cash in United States dollars equal to the same
fraction of the current market value of a share of Common Stock. For purposes
of this Subsection 15(b), the current market value of a share of Common Stock
shall be the Closing Price of a share of Common Stock for the trading day
immediately prior to the date of such exercise.

(c) The holder of a Warrant, by the acceptance of the
Warrant, expressly waives the holder's right to receive any fractional Warrant
or any fractional share of Common Stock upon exercise of a Warrant.

SECTION 16. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Warrant
Certificates; and any registered holder of any Warrant Certificate, without the
consent of the Warrant Agent or of the holder of any other Warrant Certificate,
may, in such holder's own behalf and for such holder's own benefit, enforce,
and may institute and maintain any suit, action, or proceeding against the
Company to enforce, or otherwise act in respect of, such holder's right to
exercise the Warrants evidenced by such Warrant Certificate in the manner
provided in such Warrant Certificate and in this Agreement.

SECTION 17. Agreement of Warrant Certificate Holders. Every holder
of a Warrant Certificate by accepting the same consents and agrees with the
Company and the Warrant Agent and with every other holder of a Warrant
Certificate that:

(a) transfer of the Warrant Certificates shall be
registered on the Warrant register only if surrendered at the principal
corporate trust office or agency of the Warrant Agent as set forth in Section 4
hereof, duly endorsed or accompanied by a proper instrument of transfer; and

(b) prior to due presentment for registration of transfer,
the Company and the Warrant Agent may deem and treat the person in whose name
the Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company or
the Warrant Agent) for all purposes whatsoever, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.

SECTION 18. The Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:

(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.

(b) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the Company.

(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken in accordance with the
opinion or the advice of such counsel, provided the Warrant Agent shall have
exercised reasonable care in the selection and continued employment of such
counsel.

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<PAGE> 13
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document, or instrument believed by it to be
genuine and to have been signed, sent, or presented by the proper party or
parties.

(e) The Company agrees to pay to the Warrant Agent
compensation, in such amounts as previously agreed upon, for the services
rendered by the Warrant Agent in the performance of this Agreement, to
reimburse the Warrant Agent for all expenses, taxes and governmental charges
and other charges of any kind and nature incurred by the Warrant Agent in the
performance of this Agreement, and to indemnify the Warrant Agent and hold it
harmless against any and all liabilities, including judgments, expenses, and
counsel fees, for anything done or omitted by the Warrant Agent in the
performance of this Agreement except as a result of the Warrant Agent's
negligence or bad faith.

(f) Except as otherwise provided by law, the Warrant Agent
and any shareholder, director, officer, or employee of the Warrant Agent may
buy, sell, or deal in any of the Warrants or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not a Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.

(g) The Warrant Agent shall act hereunder solely as agent
for the Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own
negligence or bad faith; provided, however, the Warrant Agent shall have no
liability hereunder for failing to take any action which it is not specifically
directed to take by the terms of this Agreement.

(h) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from the President or any Vice President or the Treasurer or Chief Financial
Officer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.

SECTION 19. Change of Warrant Agent. The Warrant Agent may resign
or be discharged from its duties under this Agreement by giving to the Company
notice in writing, and by giving notice in writing by first class mail, postage
prepaid, to the registered holders of Warrant Certificates at their respective
addresses appearing in the Warrant register, specifying a date when such
resignation shall take effect, which notice shall be sent at least 30 days
prior to the date so specified. The Company may remove the Warrant Agent or any
successor warrant agent upon 30 days' notice in writing, mailed to the Warrant
Agent or any successor warrant agent and to each transfer agent of the shares
of Common Stock by registered or certified mail, and to the registered holders
of Warrant Certificates at their respective addresses appearing in the Warrant
register. If the Warrant Agent shall resign or shall otherwise become incapable
of acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the registered holder of a
Warrant Certificate, then the registered holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor to the Warrant Agent,
either by the Company or by such a court, the duties of the Warrant Agent shall
be carried out by the Company. Any warrant agent that is to be the successor of
the Warrant Agent or any of its successors, whether appointed by the Company or
by such a court, shall be a bank or trust company in good standing,
incorporated under the laws of the State of New York or of any other state in
the United States of America, and having its principal office in New York, New
York, or elsewhere, and having at the time of its appointment as warrant agent
a combined capital and surplus of at least Ten Million Dollars
($10,000,000.00). After appointment, any successor warrant agent shall be
vested with the same powers, rights, duties, and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor warrant

10
<PAGE> 14

agent any property at the time held by it hereunder and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
give any notice provided for in this Section 19, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor warrant agent, as the case may
be.

SECTION 20. MAINTENANCE OF OFFICE. As long as any of the Warrant
Certificates remain unexercised or unconverted, the Company will maintain an
office or agency in New York where the Warrant Certificates may be presented
for registration, transfer, exchange, or exercise pursuant to the terms of this
Agreement, and where notices and demands to or upon the Company in respect of
the Warrants, Warrant Certificates, or this Agreement may be served. The
principal corporate trust office of the Warrant Agent in the City of New York
shall be the office or agency for such purposes, which at the date hereof is:

American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Michael Karfunkel, President

SECTION 21. ISSUANCE OF NEW WARRANT CERTIFICATES. Irrespective of any
adjustments in the Exercise Price or the number of securities issuable upon
exercise of the Warrants, Warrant certificates theretofore or thereafter issued
may continue to express the same price and number of securities as are stated
in the similar Warrant certificates initially issuable pursuant to this
Agreement. Notwithstanding any of the provisions of this Agreement or of the
Warrants or Warrant Certificates to the contrary, the Company may, at its
option, issue new Warrant Certificates evidencing Warrants in such form as may
be approved by its Board of Directors to reflect any adjustment or change in
the Exercise Price and the number or kind or class of shares of stock or other
securities or property purchasable under the several Warrant Certificates made
in accordance with the provisions of this Agreement.

SECTION 22. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Warrant Agent or by the holder of any Warrant
Certificate to or on the Company shall be sufficiently given or made if sent
by first class mail, postage prepaid, addressed (until another address is
filed in writing with the Warrant Agent) as follows:

Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506
Attention: David N. Birman, M.D.

Subject to the provisions of Section 19, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made,
except as otherwise provided in this Agreement with respect to a particular
Section or Subsection, if sent by first class mail, postage prepaid, addressed
(until another address is filed in writing with the Company) as follows:

American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Michael Karfunkel, President

Notice or demands authorized by this Agreement to be given or made by the
Company or the Warrant Agent to the holder of any Warrant Certificate shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the Warrant
register and published at least once in THE WALL STREET JOURNAL (national
edition).

SECTION 23. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Warrant Certificates in order to cure any ambiguity, to correct
or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising

11
<PAGE> 15

hereunder which the Company and the Warrant Agent may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates. Other than as provided in the preceding sentence, no
supplement or amendment to this Agreement shall be made without the affirmative
vote or written consent of each of the Company, the Warrant Agent and the
holders of a majority of the Warrants then outstanding.

SECTION 24. Successors. All of the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

SECTION 25. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or entity other than the Company, the
Warrant Agent, and the registered holders of the Warrant Certificates any legal
or equitable right, remedy, or claim under this Agreement, but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent,
and the registered holders of the Warrant Certificates.

SECTION 26. New York Contract. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made by residents of and to be performed entirely within such state.

SECTION 27. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

SECTION 28. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed and attested, all as of the day and year first above written.

The Company:

BIRMAN MANAGED CARE, INC.,
a Delaware Corporation

By:
--------------------------------
ATTEST: David N. Birman, M.D., President

- -----------------------------------
Robert D. Arkin, Secretary

The Warrant Agent:

AMERICAN STOCK TRANSFER AND TRUST
COMPANY

By:
--------------------------------
Michael Karfunkel, President

ATTEST:

- -----------------------------------
Secretary

<PAGE> 1
EXHIBIT 4.4

[FORM OF WARRANT CERTIFICATE]

[FACE]

EXERCISABLE ON OR AFTER THE PROSPECTUS DATE AND ON OR BEFORE THE DATE

THREE YEARS AFTER THE PROSPECTUS DATE

UNLESS EARLIER REDEEMED

BY ACCEPTING A CERTIFICATE BEARING THIS ENDORSEMENT, EACH HOLDER OF THIS
CERTIFICATE SHALL BE BOUND BY ALL THE TERMS AND PROVISIONS OF THE WARRANT
AGREEMENT WITH RESPECT HERETO ORIGINALLY DATED AS OF ____________, 1996 BETWEEN
THE COMPANY AND AMERICAN STOCK TRANSFER AND TRUST COMPANY AS "WARRANT AGENT" (A
COPY OF WHICH IS AVAILABLE UPON REQUEST TO THE COMPANY OR THE WARRANT AGENT) AS
FULLY AND EFFECTIVELY AS IF SUCH HOLDER HAD SIGNED THE SAME.

______ Warrants

CUSIP NO. ________

WARRANT CERTIFICATE
BIRMAN MANAGED CARE, INC.

This Warrant Certificate certifies that _________________________, or
registered assigns, is the registered holder of _________________ Warrants (the
"Warrants") to purchase Common Stock, *.001 par value per share, (the "Common
Stock") of Birman Managed Care, Inc., a Delaware corporation (the "Company").
Each Warrant entitles the holder to purchase from the Company at any time on or
before 5:00 p.m., New York City Time, on the date that is three (3) years after
the date of the Prospectus that is a part of the Registration Statement relating
to the Warrants (the "Prospectus Date"), (subject to redemption as described
below) (the "Expiration Date"), one fully paid and non-assessable share of
Common Stock of the Company at the initial exercise price per full share (the
"Exercise Price") of $_______ upon surrender of this Warrant Certificate and
payment of the Exercise Price at the principal corporate trust office of the
Warrant Agent in New York, New York, but only subject to the conditions set
forth herein and in the Warrant Agreement. Payment of the Exercise Price shall
be made in cash in United States dollars or by certified or official bank check
payable in United States dollars to the order of the Company. As used herein,
"Shares" refers to the Common Stock of the Company and, where appropriate, to
the other securities or property issuable upon exercise of a Warrant as provided
for in the Warrant Agreement upon the happening of certain events. The Exercise
Price and the number of Shares purchasable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in the
Warrant Agreement. No fractional Shares shall be issued upon exercise of any
Warrant, but the persons entitled to such fractional Share will be paid, as
provided in the Warrant Agreement, an amount in cash equal to the current market
value of such fractional Share.

No Warrant may be exercised after 5:00 p.m. New York time on the
Expiration Date. The Company may redeem all or a portion of the Warrants prior
to the Expiration Date at $0.01 per Warrant, commencing ninety (90) days after
the Prospectus Date, on not less than 30 days prior written notice, provided
that the Closing Price (as defined in the Warrant Agreement) for 20 consecutive
trading days, ending not more than 15 calendar days prior to the date of the
redemption notice, averages in excess of $________ (subject to equitable
adjustment).

Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.

<PAGE> 2

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.

Dated:

ATTEST: BIRMAN MANAGED CARE, INC.,
a Delaware corporation

______________________________ By: ________________________________
Robert D. Arkin, Secretary David W. Birman, M.D., President

Countersigned:

AMERICAN STOCK TRANSFER
AND TRUST COMPANY, a
California corporation
as Warrant Agent

By: _________________________
Authorized Signature

THIS WARRANT CERTIFICATE SHALL NOT BE VALID UNLESS
MANUALLY COUNTERSIGNED BY THE ABOVE-NAMED
WARRANT AGENT

2
<PAGE> 3
[FORM OF WARRANT CERTIFICATE]

[REVERSE]

BIRMAN MANAGED CARE, INC.

The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to a Warrant Agreement dated as of
___________, 1996 (the "Warrant Agreement"), duly executed and delivered by the
Company to American Stock Transfer and Trust Company (the "Warrant Agent"),
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties, and immunities thereunder of the
Warrant Agent, the Company, and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants.

Warrants may be exercised to purchase Shares from the Company on or
before the Expiration Date at the Exercise Price set forth on the face hereof,
subject to adjustment as hereinafter referred to. The holder of Warrants
evidenced by this Warrant Certificate may exercise them by surrendering the
Warrant Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the Exercise Price
and any applicable transfer taxes at the principal corporate trust office of
the Warrant Agent in New York, New York. In the event that upon any exercise of
Warrants evidenced by this Warrant Certificate the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall
be issued to the holder hereof or the holder's assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any dividends on any Shares issuable upon exercise of this Warrant.

The Warrant Agreement provides that, upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to
certain conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that, at the election of the Company, either (i) the number
of Shares purchasable upon the exercise of each Warrant shall be adjusted or
(ii) each outstanding Warrant shall be adjusted to become a different number of
Warrants. In the case of (ii), the Company will cause to the distributed to
registered holders of Warrant Certificates either Warrant Certificates
representing the additional Warrants issuable pursuant to the adjustment or
substitute Warrant Certificates to replace all outstanding Warrant
Certificates. No fractions of a Warrant will be issued upon any such adjustment
but the persons entitled to such fractional interest will be paid, as provided
in the Warrant Agreement, an amount in cash equal to the current market value
of such fractional Warrant.

Warrant Certificates, when surrendered at the principal corporate trust
office of the Warrant Agent in New York, New York by the registered holder
thereof in person or by a legal representative duly authorized in writing, may
be exchanged, in the manner and subject to the limitations provided in the
Warrant Agreement but without payment of any service charge, for another
Warrant Certificate or Warrant Certificates or like tenor evidencing in the
aggregate a like number of Warrants.

Upon due presentment for registration of transfer of this Warrant
Certificate at the principal corporate trust office of the Warrant Agent in New
York, New York, a new Warrant Certificate or Warrant Certificates of like tenor
and evidencing in the aggregate a like number of Warrants shall be issued to the
transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided in the Warrant Agreement, without charge except for any
tax or other governmental charge imposed in connection therewith.

The Company and the Warrant Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, and of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.

3
<PAGE> 4
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.

4
<PAGE> 5
[FORM OF ELECTION TO PURCHASE]

(To be executed upon any exercise of the Warrant)

The undersigned hereby irrevocably elects to exercise the rights
represented by this Warrant Certificate to purchase __________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable to the order of Birman Manage Care, Inc. in accordance with the
terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ________________________________, whose address is
__________________________________________________________ and that such
certificate shall be delivered to _____________________________, whose address
is __________________________________________________.

If said number of Shares is less than all of the Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the right to purchase the remaining balance of the Shares be registered in the
name of _____________________________ whose address is________________________
_____________________________ and that such certificate shall be delivered to
_________________________________, whose address is ____________________________
_______________________.

Dated: ____________________________

___________________________
___________________________
(Insert Social Security or
Other Identifying Number of
Holder)

Medallion Signature Guarantee: (required if Signature
an assignment of Shares acquired on exercise, ____________________________
or an assignment of Warrants remaining after (Signature must conform in
exercise, is made upon exercise): all respects to name of
holder as specified on the
_______________________________________ face of the Warrant.)

5
<PAGE> 6

[FORM OF ASSIGNMENT]

(To be executed by the registered holder if such holder
desired to transfer the Warrant Certificate.)

FOR VALUE RECEIVED ____________________hereby sells, assigns, and
transfer unto

(Please print name and address of transferee)

this Warrant Certificate, together with all right, title, and interest therein,
and does hereby irrevocably constitute and appoint

Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.

Dated: ____ ________________________

_______________________ _______
______________________________
(Insert Social Security or
Other Identifying Number of
Holder)

Signature Guarantee: S i g n a t u r e

Medallion

+
________________________ ___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant.)

<PAGE> 1

EXHIBIT 5.1

November , 1996 312/368-4000

The Board of Directors
Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506

Dear Sirs:

We have examined the registration statement filed with the Securities
and Exchange Commission on September 13, 1996 (Registration Statement No.
333-11957) and all amendments thereto filed on or before the date of this
opinion for registration under the Securities Act of 1933, as amended, of
1,550,000 units ("Units"), each consisting of one share of common stock, $.001
par value per share ("Common Stock"), and one redeemable common stock purchase
warrant ("Warrant") of Birman Managed Care, Inc., a Delaware Corporation (the
"Company"), Common Stock reserved for issuance under the Warrants, warrants to
purchase 1,550,000 Units to be issued to W.B. McKee Securities, Inc.
("Representative's Warrants"), Common Stock issuable upon exercise of
Representative's Warrants, Warrants issuable upon exercise of Representative's
Warrants, and Common Stock issuable upon exercise of Warrants issuable upon
exercise of Representative's Warrants. We have examined pertinent corporate
documents and records of the Company, including its Certificate of
Incorporation and its By-Laws, and we are familiar with the corporate
proceedings had and contemplated in connection with the issuance of the Common
Stock, Warrants, and Representative's Warrants by the Company. We have also
made such other examinations as we have deemed necessary or appropriate as a
basis for the opinion hereinafter expressed.

On the basis of the foregoing, we are of the opinion that the 1,550,000
shares of Common Stock and 1,550,000 Warrants, the Common Stock issuable upon
the proper exercise of the Warrants, the Representative's Warrants, the Common
Stock issuable upon the proper exercise of the Representative's Warrants, the
Warrants issuable upon the proper exercise of the Representative's Warrants,
and the Common Stock issuable upon the proper exercise of Warrants issuable
upon the proper exercise of the Representative's Warrants have been duly
authorized, and, when issued and paid for on the basis referred to in the
aforementioned registration statement, such shares and warrants will be legally
issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the reference to our firm in the prospectus under
the caption "Legal Matters."

Very truly yours,

RUDNICK & WOLFE

<PAGE> 1
EXHIBIT 10.5

AMENDMENT NO. 1

THIS INSTRUMENT, dated as of June 1, 1996, by and between Birman
Managed Care, Inc., a Tennessee corporation (the "Company"), and Douglas A.
Lessard ("Executive"), constitutes a first amendment to that certain Employment
Agreement by and between Executive and the Company dated as of March 1, 1996
(the "Agreement"). The Company and Executive are hereinafter referred to as the
"Parties."

RECITALS:

WHEREAS, the Parties desire to amend the Agreement;

NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged by each of the parties, intending to be legally bound,
agree as follows:

1. The preamble and Section 1 of the Agreement are hereby amended by
deleting "Comptroller/Director of Finance" and by inserting in lieu thereof
"Chief Financial Officer."

2. Section 4.1 is hereby amended by deleting "eighty-five thousand and
no/100 dollars ($85,000) per annum" and by inserting in lieu thereof "ninety
thousand and no/100 dollars ($90,000)."

The Agreement, as above amended, shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.

BIRMAN MANAGED CARE, INC.

By:______________________________________
David N. Birman, M.D.,
President and Chief Executive Officer

EXECUTIVE:

_________________________________________
Douglas A. Lessard

<PAGE> 2
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and between BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), and DOUGLAS A. LESSARD, a Tennessee
resident ("Executive").

WITNESSETH:

WHEREAS, the Company and Executive mutually desire that Executive be
employed in accordance with the terms and conditions hereof as the Company's
Comptroller/Director of Finance;

NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:

1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company as Comptroller/Director of Finance.
Executive shall perform services for the Company for the period and upon the
terms and conditions set forth in the Agreement and shall hold such other
positions with the Company or any Affiliate as the Company may specify from time
to time. "Affiliate" means a person that, directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified.

2. TERM. Subject to the provisions for termination set forth herein,
the term of Executive's employment under the Agreement shall commence as of the
date hereof and shall continue up to and including June 30, 2001 (the "Initial
Term"). Following the expiration of the Initial Term, the Company may extend the
Agreement for an additional term of five (5) years.

3. POSITION AND DUTIES.

3.1 SERVICES. During the term of the Agreement, Executive
shall perform such duties as are customary to Executive's office and as
are designated by the Chief Executive Officer or the Board of Directors
from time to time. Executive also shall serve, for any period for which
Executive is elected, as a member of the Board of Directors of the
Company and/or any of its Affiliates without additional compensation.

<PAGE> 3
3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company
faithfully and to the best of Executive's ability and devote such time,
attention, skill and effort as is required to effectively discharge
Executive's duties hereunder. Executive shall provide services to the
Company on an exclusive basis and shall not be employed or otherwise
provide services to any other entity without the prior written consent
of the Company, which consent shall not be unreasonably withheld.

4. COMPENSATION; BENEFITS.

4.1 BASE SALARY. During the Initial Term and any renewal
thereof, the Company shall pay to Executive as compensation for all
personal services to be rendered by Executive under the Agreement, a
base salary ("Base Salary"), in accordance with the Company's customary
payroll practices, reduced by applicable federal, state and local
withholding taxes, of eighty-five thousand and no/100 dollars ($85,000
per annum, subject to the following adjustment (the "Base Salary
Adjustment"): Beginning on July 1, 1997 and each July 1 thereafter
during the term of the Agreement, the Base Salary shall be increased by
the product of (i) a fraction, the numerator of which is the Extension
CPI Index, and the denominator of which is the Beginning CPI Index,
times (ii) the Base Salary. "Beginning CPI Index means the U.S.
Consumer Price Index for all Urban Consumers, U.S. City Average (Base
year 1982-84=100), published most immediately preceding July 1, 1996 by
the U.S. Department of Labor, Bureau of Labor Statistics. Extension CPI
Index" means the CPI Index published most immediately preceding the
July 1, 1997 and each successive July 1st thereafter during the term
hereof. In the event the CPI Index is changed or discontinued, the most
nearly comparable price index of the U.S. government for computing the
foregoing calculation of the Base Salary Adjustment, after converting
said new index so that the same shall correspond with the changed or
discontinued CPI Index. In addition, in reviewing and setting
Executive's Base Salary, the Board or Compensation Committee, as the
case may be, shall consider results of operations, financial condition,
prospects, salary levels for similarly sized companies in the Company's
industry for comparable executive positions, Executive's performance
and other criteria deemed relevant by the Company in assessing
Executive's compensation.

4.2 EXECUTIVE BONUS PLAN AND OTHER COMPENSATION. In addition
to the Base Salary described in Section 4.1, Executive shall be
entitled to participate in the Company's Executive Bonus Plan according
to the terms and conditions thereof, and receive incentive compensation
thereunder ("Incentive Compensation").

4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION
PLANS. Executive shall be entitled to participate in all employee
qualified and non-qualified deferred compensation plans or supplemental
income plans or programs maintained by the Company, including any
Section 401(k) plan adopted by the Company, according to

2
<PAGE> 4
the terms and conditions thereof. Executive shall also be entitled to
participate in Birman's 1995 Stock Option Plan, according to the terms
and conditions of said plan.

4.4 OTHER INSURANCE PLANS. Executive shall be entitled to
participate in any and all plans, arrangements or distributions
maintained by the Company pertaining to or in connection with any
pension, life, health insurance, disability insurance or similar
benefits provided by the Company to its employees, as determined by the
Board of Directors pursuant to the governing instruments which
establish and determine eligibility and other rights of the
participants and beneficiaries under such plans or other benefit
programs. To the extent permitted under any applicable group or
individual disability policy, the premium payable by the Company for
Executive's benefit shall be reported as income to Executive on Forms
W-2 or 1099.

4.5 VACATION AND SICK LEAVE. Executive will be entitled to
participate in the vacation and sick leave benefit program of the
Company to the extent that Executive's position, title, salary and
other qualifications make him eligible to participate. Vacation time
and sick leave may not be accumulated after the end of any year and, to
the extent unused, shall have no economic value to Executive.
Executive's use of vacation time shall be subject to the prior approval
of the Company.

4.6 EXPENSES. The Company will pay or reimburse Executive for
all reasonable and necessary travel and other out-of-pocket expenses
incurred by Executive in the performance of duties under the Agreement,
subject to the presentment of appropriate vouchers in accordance with
the Company's policies and procedures as adopted from time to time.

5. CONFIDENTIALITY; RETURN OF MATERIALS.

5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges
that (i) Executive's services to the Company and its Affiliates will be
of a special, unique, extraordinary and intellectual character, (ii)
Executive's position with the Company or its Affiliates will place
Executive in a position of confidence, responsibility and trust with
respect to the operations of the Company and its Affiliates, and (iii)
in reliance on Executive's ethical responsibility and loyalty, the
Company and its Affiliates have entrusted and expect to entrust
Executive with highly sensitive, confidential, restricted and
proprietary information involving Trade Secret Information (as
hereinafter defined). Executive acknowledges that Executive is legally
and ethically responsible for protecting and preserving the proprietary
rights of the Company and its Affiliates for use only for the benefit
of the Company and its Affiliates, and these responsibilities may
impose limitations on Executive's ability to pursue some kinds of
business opportunities that might interest Executive after the
termination of Executive's employment.

3
<PAGE> 5
5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of
the Agreement, "Trade Secret Information" means information, whether or
not in written or tangible form, in the possession of the Company or
its Affiliates and considered by the Company or its Affiliates to be
proprietary, valuable and confidential, from which the Company or any
of its Affiliates derives economic value, actual or potential, by such
information not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. Trade
Secret Information includes, without limitation, (a) any data or
information acquired by Executive during Executive's employment by the
Company or its Affiliates relating to the products, services, business
methods, customer accounts or operations of the Company or any
Affiliate or any customer or business partner of the Company or its
Affiliates, and (b) the techniques and business methods for (i)
applying scientific literature to merge resources and clinical language
used in defining medical payments for purposes of quality management,
(ii) utilizing concurrent case review activity to merge resources and
clinical language used in defining medical payments for the purpose of
quality management, (iii) developing and managing health care provider
organizations and providing services thereto, (iv) developing
reimbursement and at-risk systems under capitation, prepayment,
indemnity and other forms of compensatory arrangements, and (v)
managing the delivery, reporting and financing of health care services
in managed care and managed cost settings, including the systems,
techniques, strategies and methods used to compete successfully in
these lines of business and the Managed Care Business generally.

5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET
INFORMATION. Except as authorized by the Company or any Affiliate,
Executive shall not, during the term of the Agreement and for so long
after the termination of employment as the information or data remains
Trade Secret Information, directly or indirectly divulge, furnish or
make accessible to anyone or use in any way (other than in the ordinary
course of business of the Company or its Affiliates) the Trade Secret
Information.

5.4 RETURN OF MATERIALS. Upon the request of the Company or
any Affiliate and, in any event, upon the termination of Executive's
employment, Executive shall return to the Company and leave at the
disposal of the Company all copies of memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes and
other documents or media, in Executive's possession or control,
pertaining in any way to the business, practices or techniques of the
Company or its Affiliates.

5.5 DURATION. The restrictions contained in this Section 5
shall inure to the benefit of the Company and each of its Affiliates
and shall survive the termination of the Agreement.

4
<PAGE> 6
6. RESTRICTIONS ON COMPETITION.

6.1 PREMISES. The Company has invested prior to the date hereof
and expects to continue to invest considerable time, effort, and
capital in developing the business of the Company and its Affiliates
and enhancing the value and desirability of the skills of its
executives and technical personnel. This investment, together with the
compensation payable to Executive pursuant to Article 4, reflect the
Company's expectation of receiving a considerable return from the
exclusive use of Executive's services and know-how in the future, free
from any risk that the Company's competitors may attempt to induce
Executive to leave the Company and wrongfully gain the benefit of the
Company's investment. The partial restraint set forth in Section 6.2
hereof does not, and cannot, provide complete protection for the
Company's investment, but the Company and Executive believe that, in
combination with the other provisions of the Agreement, it is a fair
and reasonable measure permitted under applicable law to protect the
Company's interests, giving due regard to both the interests of
Executive and the interests of the Company. Executive hereby (i) agrees
that the restrictions contained within Section 6 are reasonable and
necessary for the protection of the goodwill of the business of the
Company during the term of the Agreement and thereafter and that the
limitations as to period of time and geographic area contained in
Section 6.2 are reasonable and necessary for the protection of the
Company's business; and (ii) acknowledges that the Company would not
have entered into the Agreement but for these restrictions. For
purposes of this Section 6, "Company" means the Company and its
subsidiaries and affiliates.

6.2 COVENANT NOT TO COMPETE; SOLICIT. Subject to receipt by
Executive of the compensation payable pursuant to Article 4 and Section
8.5, during the term of the Agreement and for a period equal to two (2)
years from the earlier of the date of expiration or termination of the
Agreement (at any time for any reason), Executive shall not:

(a) directly or indirectly, for himself, as an owner,
partner, principal, shareholder, officer, director, employee, or
independent contractor engage in the development, management or
operation of any Managed Care Plan (i) within two hundred (200)
miles from any city, town where the Company has established a
Managed Care Plan or (ii) in any state in which a Managed Care
Plan established by the Company has contracted with state Medicaid
agencies for the delivery of health care services within such
state; or

(b) attempt, directly or indirectly, to solicit or entice
(i) any employee or consultant of the Company to terminate his or
her employment or consultancy with the Company or to become
employed by or associated with any person, firm or corporation
other than the Company, or approach any such employee or associate
of any of the foregoing purposes or authorize or assist in the
taking of

5
<PAGE> 7
any such action by any third party; (ii) any existing customer,
business partner or client of the Company to terminate or reduce
its relationship with the Company; or (iii) any prospective
customer, business partner or client of the Company to refrain
from doing business with the Company.

6.3 INTERPRETATION. If Executive violates the restrictive
covenant in Section 6.2 and the Company brings legal action for
injunctive or other relief, the Company shall not, as a result of the
time involved in obtaining the relief, be deprived of the benefit of
the full period of the restrictive covenant. Accordingly, unless
Executive contests the alleged violation in a court of law and is the
prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the two-year
post-employment duration specified in Section 6.2 hereof computed from
the date the relief is granted but reduced by the period when the
restriction began to run and the date of the first violation by
Executive. Notwithstanding the foregoing, however, to the extent this
provision is invalid or unenforceable under the laws of any applicable
jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an
absolute nullity.

6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges
and agrees that a violation of any of the provisions contained in
Section 6.2 will cause irreparable damage to the Company, the exact
amount of which may be impossible to ascertain and that, for such
reason, among others, the Company shall be entitled to injunctive
relief, both pendente lite and permanently, against Executive to
restrain any further violation of such provisions, and Executive hereby
(i) consents to any initiation by the Company in a court of competent
jurisdiction of any action to enjoin immediately any breach of the
Agreement, and (ii) hereby releases the Company from the requirement of
posting any bond in connection with temporary or interlocutory
injunctive relief, to the extent permitted by law. This provision with
respect to injunctive relief shall not, however, diminish the right of
the Company to pursue any other rights and remedies the Company may
have against Executive, including, but not limited to, the recovery of
damages.

6.5 DURATION. The restrictions contained in this Section 6
shall inure to the benefit of the Company and each of its Affiliates
and shall survive the termination of the Agreement.

7. TERMINATION OF EMPLOYMENT. The Agreement shall terminate prior to
its expiration upon the earliest to occur of any of the following events:

7.1 FOR CAUSE. Upon written notice by the Company to Executive,
which shall specify the "cause" for termination. For purposes hereof,
"cause" shall include, without limitation: Conviction of a felony;
habitual drunkenness; and/or material breach

6
<PAGE> 8
of the Agreement. If thirty (30) days after receipt by Executive of
written notice thereof from the Company, to correct, cease, or
otherwise alter any material breach of the Agreement, or other willful
action that recklessly affects the Company's business, Executive has
not reasonably corrected the alleged "cause," the Agreement may be
terminated. If Executive disputes that "cause" exists for the
termination of Executive's employment, the decision with respect to the
existence of "cause" for termination shall be made by an arbitrator
selected in accordance with the rules of the American Arbitration
Association.

7.2 DEATH. Upon Executive's death;

7.3 DISABILITY. Upon the Company's written notice, at the
Company's sole option, upon Executive's disability. "Disability" shall
have the definition ascribed in the Company's group disability policy
if coverage under the policy is conditioned on using such definition.
If no such policy exists or if coverage is not conditioned on using
such definition, then, for purposes of the Agreement, "Disability"
means the inability of Executive to perform Executive's duties with
reasonable accommodation by the Company for ninety (90) days in any one
hundred eighty (180) consecutive day period.

8. SEVERANCE.

8.1 DEATH. If Executive's employment is terminated pursuant to
Section 7.2 as a result of Executive's death, the following provisions
shall apply:

(a) The Company shall pay to Executive's personal
representative the Base Salary (as adjusted) through the end of
the calendar month in which Executive's death occurs.

(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation
for the calculation period ended prior to the date of Executive's
death and (ii) a pro rata share (based on the number of days in
the period during which Executive was alive) of Executive's
Incentive Compensation for the calculation period in which
Executive died provided that more than three (3) months of such
calculation period has elapsed as of Executive's death. Such
amounts shall be payable in accordance with the Executive Bonus
Plan. If Executive's death occurs during the first three (3)
months of an Incentive Compensation calculation period, no
Incentive Compensation shall be payable with respect to such
period.

8.2 DISABILITY. If Executive's employment is terminated pursuant
to Section 7.3 as a result of Executive's Disability, the following
provisions shall apply:

7
<PAGE> 9
(a) The Company shall maintain any health insurance
coverage provided to Executive hereunder until the expiration of
the Initial Term or any applicable renewal term for Executive and
Executive's dependents, or, if the Company's benefit insurer does
not permit such continuation, pay to Executive the amount of the
health insurance premium the Company would have paid to provide
such insurance to Executive and Executive's dependents. Nothing
herein shall affect any rights to continuation coverage of
Executive or Executive's dependents with respect to any insurance
coverage as provided by law.

(b) The Company shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's
beneficiaries until the expiration of the Initial Term or any
applicable renewal term.

(c) The Company shall pay to Executive the Base Salary (as
adjusted) through the end of the calendar month immediately prior
to the initiation of periodic payments under the Company's group
disability policy.

(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended
prior to the date of employment termination and (ii) a pro rata
share (based on the number of days in the period during which
Executive not disabled) of Executive's Incentive Compensation for
the calculation period in which Executive was terminated from
employment provided that more than three (3) months of such
calculation period has elapsed as of the date of termination. Such
amounts shall be payable in accordance with the Executive Bonus
Plan. If Executive's employment termination occurs during the
first three (3) months of an Incentive Compensation calculation
period, no Incentive Compensation shall be payable with respect to
such period.

8.3 TERMINATION FOR CAUSE. If Executive's employment is
terminated for "cause" pursuant to Section 7.1, the following
provisions shall apply:

(a) The Company shall pay to Executive the Base Salary (as
adjusted) through the date of termination.

(b) Executive shall forfeit all accrued but unpaid Incentive
Compensation and all unvested options under the Company's 1995
Stock Option Plan. The foregoing sentence is not a penalty, but is
intended to constitute liquidated damages to compensate the
Company for damages, which may be difficult to measure, suffered
by the Company as a result of Executive's conduct. Nothing
contained in this Section 8.3 shall be deemed to limit the
Company's ability to obtain equitable relief.

8
<PAGE> 10
(c) Health insurance coverage provided to Executive
hereunder for Executive and Executive's dependents and any life
insurance coverage provided to Executive hereunder on Executive's
life, payable to Executive or, as designated by Executive,
Executive's beneficiaries shall terminate as of the last day of
the month in which Executive's employment terminates. Nothing
herein shall affect any rights to continuation coverage of
Executive or Executive's dependents with respect to any insurance
coverage as provided by law.

8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment
is terminated by mutual agreement, the parties hereto shall structure a
mutually acceptable severance benefits program which shall be
documented in a Termination Agreement to be executed by the parties
immediately prior to Executive's resignation from employment.

8.5 OTHER. If Executive's employment is terminated for reasons
other than death, "cause," mutual agreement or Disability, Executive
shall be entitled to receive the Base Salary, as adjusted by the Base
Salary Adjustment, for the remainder of the Initial Term or the
applicable renewal term and all unvested stock options granted pursuant
to the Company's 1995 Stock Option Plan shall accelerate and become
vested. If Executive's employment is not renewed following expiration
of the Initial Term or the applicable renewal term, Executive shall be
entitled to receive, as severance, the Base Salary, as last adjusted by
the Base Salary Adjustment, for the twelve (12) month period following
Executive's severance of employment.

9. MISCELLANEOUS.

9.1 GOVERNING LAW. The Agreement shall be deemed to have been
executed in the State of Tennessee and shall be governed and construed
as to both substantive and procedural matters in accordance with the
laws of the State of Tennessee, but excepting (i) any State of
Tennessee rule which would result in judicial failure to enforce the
arbitration provisions of Section 9.4 hereof or any portion thereof and
(ii) any State of Tennessee rule which would result in the application
of the law of a jurisdiction other than the State of Tennessee.

9.2 PRIOR AGREEMENTS. The Agreement, together with any Option
Award Agreement and Executive Bonus Plan, contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all
prior agreements and understandings with respect to such subject
matter, and the parties hereto have made no agreements, representations
or warranties relating to the subject matter of the Agreement which are
not set forth herein.

9
<PAGE> 11
9.3 AMENDMENT. The Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived,
except by written instrument executed by the parties hereto or, in the
case of a waiver, by the party to be charged with such waiver.

9.4 ARBITRATION. Any controversy or claim arising out of or
relating to the Agreement, or the breach hereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, in the county in which the principal
office of the Company is located, and judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction over
the parties hereto. The dispute shall be resolved by a panel of three
arbitrators if the dollar amount in question that is being arbitrated
exceeds fifty thousand dollars ($50,000). The parties hereto shall have
full rights to pursue equitable remedies in furtherance of enforcing
the Agreement without interference from any arbitration proceedings.

9.5 SEVERABILITY. To the extent any provision of the Agreement
shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of the Agreement shall
be unaffected and not in limitation of business activities covered by,
any provision of the Agreement be in excess of that which is valid and
enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that
the Agreement be given the construction which renders its provisions
valid and enforceable to the maximum extent possible under applicable
law.

9.6 ASSIGNMENT. The Agreement shall not be assignable, in
whole or in part, by either party without the written consent of the
other party, except that the Company may, without the consent of
Executive, assign its rights and obligations under the Agreement to any
corporation, firm or other business entity with or into which the
Company may merge or consolidate, or to which the Company may sell or
transfer all or substantially all of its assets, or of which fifty
(50%) percent or more of the equity investment and of the voting
control is owned, directly or indirectly, by, or is under common
ownership with the Company. After any such assignment by the Company,
the Company shall be discharged from all further liability hereunder,
and such assignee shall thereafter be deemed to be the Company for the
purposes of all provisions of the Agreement including this Section 9.

10
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.

BIRMAN MANAGED CARE, INC.,
a Tennessee corporation

By:______________________________________
David N. Birman, M.D.
Chairman and Chief Executive Officer

[CORPORATE SEAL]

EXECUTIVE:

___________________________________(SEAL)
DOUGLAS A. LESSARD

11
<PAGE> 13

AMENDMENT NO. 2
---------------

THIS INSTRUMENT, dated as of September 1, 1996, by and between Birman
Managed Care, Inc., a Tennessee corporation (the "Company"), and Douglas A.
Lessard ("Executive"), constitutes a second amendment to that certain
Employment Agreement by and between Executive and the Company dated as of March
1, 1996 (the "Agreement"). The Company and Executive are hereinafter referred
to as the "Parties."

R E C I T A L S:
----------------

WHEREAS, the Parties desire to amend the Agreement;

NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged by each of the parties, intending to be legally bound,
agree as follows:

1. The preamble and Section 1 of the Agreement are hereby amended by
deleting "Comptroller/Director of Finance" and by inserting in lieu thereof
"Chief Financial Officer and Vice President."

2. Section 4.01 is hereby amended by deleting "ninety thousand and
no/100 dollars ($90,000) per annum" and by inserting in lieu thereof "one
hundred twenty thousand and no/100 dollars ($120,000)."

3. Section 4.02 is hereby amended by adding at the foot thereof the
following new sentence: "In addition, the Company shall provide to Executive an
automobile allowance of $750 per month."

The Agreement, as above amended, shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.

BIRMAN MANAGED CARE, INC.

By: /s/ David N. Birman, M.D.
--------------------------
David N. Birman, M.D.,
President and Chief Executive
Officer

EXECUTIVE:

/s/ Douglas A. Lessard
----------------------
Douglas A. Lessard

<PAGE> 1
EXHIBIT 10.6

AMENDMENT NO. 1

THIS INSTRUMENT, dated as of October 30, 1995, by and among Birman
Managed Care, Inc., a Tennessee corporation (the "Company"), BMC Health Plans,
Inc., a Tennessee corporation ("Birman"), and Mark C. Wade, an Arizona resident
("Executive"), constitutes a first amendment to that certain Employment
Agreement by and among the Company, Birman and Executive dated as of July 1,
1995 (the "Agreement"). The Company, Birman and Executive are hereinafter
referred to as the "Parties."

RECITALS:

WHEREAS, the Parties desire to amend the Agreement;

1. Section 4.04 of the Agreement is hereby amended by striking the
whole thereof and by substituting in lieu thereof the following:

4.04 PARTICIPATION IN BENEFIT PLAN. Executive shall be entitled to
participate in all employee qualified and non-qualified deferred
compensation plans or supplemental income plans or programs maintained
by the Company or Birman, including any Section 401(k) plan adopted by
the Company or Birman, according to the terms and conditions thereof.
Executive shall also be entitled to participate in Birman's 1995 Stock
Option Plan, according to the terms and conditions of said plan and the
Stock Option Award Agreement attached hereto and shall be granted the
option to purchase five hundred thousand (500,000) shares of the $.001
par value common stock of Birman at a price of one dollar ($1.00) per
share, representing the fair market value of such shares on the date of
grant, exercisable in accordance with the terms of the Stock Option
Award Agreement attached hereto (the "Options").

2. Article 5 of the Agreement is hereby amended by striking Sections
5.01, 5.02 and 5.03 thereof and by substituting in lieu thereof the following:

5. ASSET PURCHASE; SHAREHOLDER AGREEMENT.

5.01 ASSET PURCHASE. The Company shall purchase from Executive,
and Executive shall sell, assign, transfer and deliver to the Company,
all furniture, office equipment, computer hardware systems and computer
software

<PAGE> 2
programs physically located as of the date hereof on the premises of
the Executive's offices at 7550 East McDonald, Suite G, Scottsdale,
Arizona as described at Exhibit A hereto (the "Assets"). The purchase
price for the Assets is fifteen thousand and no/100 dollars
($15,000.00). By execution hereof, Executive acknowledges receipt of
such consideration.

3. Section 5.04 of the Agreement is hereby amended by striking any
references to Class A Stock and by renumbering Section 5.04 as Section 5.02.

4. Article 7 of the Agreement is hereby amended by striking any
references to Class A Stock.

5. The amendments delineated above constitute the sole amendments to
the Agreement. The Agreement and the above amendments contain the entire
agreement of the Parties relating to the subject matter hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed as of the date first above written.

BIRMAN MANAGED CARE, INC.

By:______________________________________
David N. Birman, M.D.
President and Chief Executive Officer

BMC HEALTH PLANS, INC.

By:______________________________________
David N. Birman, M.D.
Chairman

_________________________________________
MARK C. WADE

<PAGE> 3
EXHIBIT A

2 Brown, Particle Board Desks

2 Grey, Particle Board Desks

1 Grey, Particle Board Desk with Right Return

5 Grey Desk Chairs on Rollers

2 Black, 4 drawers, Legal File Cabinets

1 Black, Particle Board Shelves (36 x 28 x 15)

1 Brown, Particle Board Microwave Cart on Wheels

4 Black, Trash Cans

1 Texas Instruments Travelmate 4000 portable with mouse 486 DX2 50MHZ with
case

1 Hewlett Packard, Laser Jet 4L, Printer

1 Hawlett Packard, Fax -- 900, Fax Machine

Miscellaneous Office Supplies

A-1
<PAGE> 4
BAW, INC.
BIRMAN MANAGED CARE, INC.

EMPLOYMENT AGREEMENT

WITH

MARK C. WADE

DATED AS OF JULY 1, 1995

PREPARED BY:

ROBERT D. ARKIN, ESQ.
SUITE 1800, TOWER PLACE
3340 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
404-848-7767
404-848-7768 (FACSIMILE)
<PAGE> 5
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 1st day of July, 1995, by and among BAW, INC., a Tennessee corporation (the
"Company"), BA-FORUM HEALTH CARE, INC. D/B/A BIRMAN MANAGED CARE, INC., a
Tennessee corporation ("Birman") and MARK C. WADE, an Arizona resident
("Executive").

W I T N E S S E T H:

WHEREAS, Executive is currently employed by the Company as a marketing
specialist;

and

WHEREAS, the Company and Executive desire that Executive be employed in
accordance with the terms and conditions hereof (i) as President of BA-Forum
Health Care, a division of the Company established to market the Company's
products and services, and (ii) as the Company's Executive Vice President -
Sales and Marketing; and

WHEREAS, the Company is a wholly-owned subsidiary of Birman;

1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company (i) as President of BA-Forum Health
Care ("BAForum"), and (ii) as the Company's Executive Vice President - Sales and
Marketing. Executive shall perform services for the Company for the period and
upon the terms and conditions set forth in this Agreement and shall hold such
other positions with the Company or its Affiliate (as hereinafter defined) as
may be mutually agreed upon, from time to time. Executive acknowledges receipt
of the separate consideration of four thousand and no/100 dollars ($4,000.00),
the sufficiency of which is hereby acknowledged, for entering into this
Agreement.

2. TERM. Subject to the provisions for termination set forth herein,
the term of Executive's employment under this Agreement shall commence as of the
date hereof and shall continue up to and including June 30, 2001 (the "Initial
Term"). Thereafter, as of July 1 of each year beginning July 1, 2001, the term
of this Agreement shall be extended for an additional one (1) year.
<PAGE> 6
3. POSITION AND DUTIES.

3.1 SERVICE WITH THE COMPANY. During the term of this Agreement,
Executive shall perform such duties as are customarily performed by one holding
such position in the same business as the Company shall, from time to time,
reasonably request. Executive also shall serve, for any period for which he is
elected, as a member of the Company's Board of Directors without additional
compensation.

3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company faithfully
and to the best of his ability devote his full time, attention, skill and effort
exclusively to performing services for the Company pursuant to this Agreement
and shall not be employed or otherwise provide services to any other entity
without the prior written consent of the Company. Executive shall undertake such
reasonable travel to the corporate headquarters of the Company in Cookeville,
Tennessee and to such other locations in which the Company does, or proposes to
do, business as shall be necessary to perform Executive's duties hereunder.
Executive shall receive reimbursement for travel expenses in accordance with
Section 4.7.

4. COMPENSATION; BENEFITS.

4.1 BASE SALARY. The Company shall pay to Executive as compensation for
all services to be rendered by Executive under this Agreement a base salary
("Base Salary"), in accordance with the Company's customary payroll practices,
reduced by applicable federal, state and local withholding taxes, as a draw
against Incentive Compensation. From the date hereof up to and including
December 31, 1995, the Executive's Base Salary shall be one hundred sixty-five
thousand and no/100 dollars ($165,000) per annum. In subsequent years, the Base
Salary payable to Executive shall be reviewed by the Company's Board of
Directors, or the Compensation Committee thereof, at least annually. In
reviewing and setting Executive's Base Salary, the Board or Compensation
Committee, as the case may be, shall consider cost of living, results of
operations, financial condition, prospects, salary levels for similarly sized
companies in the Company's industry for comparable executive positions,
Executive's performance and other criteria deemed relevant by the Company in
assessing Executive's compensation.

4.2 INCENTIVE COMPENSATION. In addition to the Base Salary described in
Section 4.1, the Company shall pay Executive an annual performance-based bonus
("Incentive Compensation"), payable to Executive in cash not later than ninety
(90) days after the audit of the books of the Company for such annual period has
been completed by the Company's independent accountants, determined in
accordance with the following:

(a) On all Adjusted Gross Revenue from Managed Care Business
in Mississippi in the annual fiscal period for which the Incentive
Compensation is being calculated:

2
<PAGE> 7

<TABLE>
<CAPTION>
=============================================================================================================================
ANNUAL
ANNUAL ANNUAL INCENTIVE
INCENTIVE INCENTIVE COMPENSATION
ANNUAL ADJUSTED COMPENSATION COMPENSATION YEAR 3 AND
GROSS REVENUE YEAR 1 YEAR 2 THEREAFTER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$800,000 to $2,000,000 7% 3.5% 1.75%
- -----------------------------------------------------------------------------------------------------------------------------
On the next $1,000,000 6% 3% 1.5%
- -----------------------------------------------------------------------------------------------------------------------------
On the next $1,000,000 5% 2.5% 1.25%
- -----------------------------------------------------------------------------------------------------------------------------
Above $4,000,000 4% 2% 1%
=============================================================================================================================
</TABLE>

(b) On all Adjusted Gross Revenue from Managed Care Business
(excluding Mississippi Managed Care Business) generated by a New Client
in the initial annual fiscal period for which the Incentive
Compensation is being calculated, Incentive Compensation equal to three
percent (3%) thereof; and

(c) On all Adjusted Gross Revenue from Managed Care Business
(excluding Mississippi Managed Care Business) generated by a Renewal
Client in the following subsequent fiscal periods for which the
Incentive Compensation is being calculated:

<TABLE>
<CAPTION>
==========================================================================================================================
ANNUAL INCENTIVE ANNUAL INCENTIVE
ANNUAL ADJUSTED COMPENSATION COMPENSATION
GROSS REVENUE YEAR 2 YEAR 3 AND THEREAFTER
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 and Above 1.5% .75%
==========================================================================================================================
</TABLE>

Notwithstanding the foregoing, the Incentive Compensation payable in accordance
with Sections 4.2(b) and (c) shall not exceed the aggregate amount of two
hundred fifty thousand and no/100 dollars ($250,000) per annum. For purposes
hereof, "Adjusted Gross Revenue" means all management fee revenue actually
received and booked as a receipt by the Company from the management, sponsorship
or operation of Managed Care Plans less (i) a corporate expense allocation for
Birman general and administrative expenses attributable to the Company of six
percent (6%) of the Company's gross revenue and (ii) any adjustments, credits,
rebates or returns. "Affiliate" means a person that, directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified. "Managed Care Business" means
arrangements among health care providers, third-party payors and patients
developed and managed by the Company or an Affiliate that through capitated
payment arrangements or other financial incentives or disincentives and case
management endeavor to eliminate inefficiencies in health care delivery and
reduce unnecessary utilization of services while maintaining or improving
quality of care. "Managed Care Plan"

3
<PAGE> 8
means a health plan offered to plan participants for which the health care
services provided thereunder are paid for in whole or in part by third-party
payors, including commercial insurers, Medicaid, Medicare and self-funded
employers. "New Client" means a Managed Care Plan that has not previously paid
management fees to the Company or its Affiliate for operation and management
services. "Renewal Client" means a Managed Care Plan that has paid management
fees to the Company or its Affiliate for operation and management services
rendered during the previous twelve (12) month period.

4.3 PARTICIPATION IN EXECUTIVE BONUS POOL. Executive shall be entitled
to participate in an executive bonus pool established by the Company ("Executive
Bonus Pool"), to which up to ten percent (10%) of the net pretax profits of the
Company derived from the Managed Care Business is allocable, in such amounts and
under such circumstances as determined from time to time by the Board or the
Compensation Committee thereof, as the case may be.

4.4 PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled to
participate in all employee qualified and non-qualified deferred compensation
plans or supplemental income plans or programs maintained by the Company or
Birman, including any Section 401(k) plan adopted by the Company or Birman,
according to the terms and conditions thereof. Executive shall also be entitled
to participate in Birman's 1995 Stock Option Plan, according to the terms and
conditions of said plan, and shall be granted the option to purchase one hundred
thousand (100,000) shares of the $.001 par value common stock of Birman at a
price of one dollar ($1.00) per share, representing the fair market value of
such shares on the date of grant, exercisable sequentially at the rate of twenty
percent (20%) per year commencing on June 30, 1997 (the "Options").

4.5 BENEFIT PLANS. Executive shall be entitled to participate in any
and all plans, arrangements or distributions maintained by the Company
pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by the Company to its
employees, as determined by the Company's Board of Directors pursuant to the
governing instruments which establish and determine eligibility and other rights
of the participants and beneficiaries under such plans or other benefit
programs.

4.6 VACATION AND SICK LEAVE. Executive will be entitled to participate
in the vacation and sick leave benefit program of the Company to the extent that
his position, title, salary and other qualifications make him eligible to
participate, but not less than twenty-one (21) days per year. Vacation time and
sick leave may not be accumulated after the end of any year and, to the extent
unused, shall have no economic value to Executive. Executive's use of vacation
time shall be subject to the prior approval of the Company.

4.7 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of

4
<PAGE> 9
duties under this Agreement, subject to the presentment of appropriate vouchers
in accordance with the Company's policies and procedures as adopted from time to
time.

4.8 OFFICE FACILITIES. The Company shall provide Executive with a
furnished office, together with such staff, equipment and materials as may be
reasonably necessary for Executive to fulfill his duties under this Agreement.

5. PURCHASE AND SALE OF BIRMAN STOCK; SUBSTANTIAL RISKS OF FORFEITURE;
VESTING.

5.1 PURCHASE AND SALE OF STOCK; VESTING. Pursuant to a Proposal and
Stock Subscription submitted to Birman by Executive of even date herewith,
Birman shall sell to Executive, and Executive shall purchase from Birman, four
hundred thousand (400,000) shares of Birman's Class A convertible preferred
stock, $.001 par value, described in the Certificate of Designation attached
hereto (the "Class A Stock"), at a purchase price of $.01 per share (the
"Purchase Price") for a total purchase price of four thousand and no/100 dollars
($4,000.00); provided, however, that Executive's right, title and interest in
and to the Class A Stock shall vest only in the following circumstances:

(a) As to the first increment of one hundred thousand
(100,000) shares, only following recognition by the Company of two
million dollars ($2,000,000) of Adjusted Gross Revenue earned by
BA-Forum;

(b) As to the second increment of one hundred thousand
(100,000) shares, only following (i) June 30, 1997 and (ii) recognition
by the Company in any annual fiscal period of three million dollars
($3,000,000) of Adjusted Gross Revenue earned by BAForum;

(c) As to the third increment of one hundred thousand
(100,000) shares, only following (i) June 30, 1998 and (ii) recognition
by the Company in any annual fiscal period of four million dollars
($4,000,000) of Adjusted Gross Revenue earned by BAForum; and

(d) As to the fourth increment of one hundred thousand
(100,000) shares, only following (i) June 30, 1999 and (ii) recognition
by the Company in any annual fiscal period of five million dollars
($5,000,000) of Adjusted Gross Revenue earned by BAForum.

5.2 SUBSTANTIAL RISK OF FORFEITURE. Any unvested shares of Class A
Stock held by Executive shall automatically revert, and be reconveyed, to the
Company in the following circumstances: If the Company tenders to Executive the
Purchase Price therefor (i) at any time during the 90-day period following the
cessation of Executive's employment with the Company for any reason; or (ii) at
any time during the 90-day period commencing July 1, 2000.

5
<PAGE> 10
5.3 SECTION 83(b) ELECTION. The Company will assist Executive in making
an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended. Executive understands that the purpose of this election is to enable
Executive to avoid taxation on any appreciation in the value of the Class A
Stock that occurs between the date of purchase and sale and the dates the Class
A Stock fully vests.

5.4 SHAREHOLDER AGREEMENT. The Class A Stock and any common stock of
the Company issued to Executive upon exercise of the Options (the "Option
Stock") shall be subject to a Shareholder Agreement which includes provisions
customary to agreements of this type and, after June 30, 2000 if the Company is
not a reporting company under the Securities Exchange Act of 1934, as amended,
permits Executive to put the whole of his vested Class A Stock to the Company
and the Company to call the vested Class A Stock held by Executive at a price
per share based upon (i) the most recent independent valuation of the Company's
then extant qualified Employee Stock Ownership Plan (if available) or (ii) the
fair market value of the Class A Stock and the Option Stock.

6. CONFIDENTIALITY; RETURN OF MATERIALS.

6.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges that (i)
Executive's services to the Company will be of a special, unique, extraordinary
and intellectual character, (ii) Executive's position with the Company will
place Executive in a position of confidence, responsibility and trust with
respect to the operations of the Company, and (iii) in reliance on Executive's
ethical responsibility and loyalty, the Company expects to entrust Executive
with highly sensitive, confidential, restricted and proprietary information
involving Trade Secret Information (as hereinafter defined). Executive
acknowledges that Executive is legally and ethically responsible for protecting
and preserving the Company's proprietary rights for use only for the Company's
benefit, and these responsibilities may impose limitations on Executive's
ability to pursue some kinds of business opportunities that might interest
Executive after Executive's employment.

6.2 DEFINITION OF "TRADE SECRET INFORMATION". It is acknowledged and
agreed that the Executive is experienced in the managed care industry and
possesses significant knowledge and information about the industry. Such
existing knowledge and information is not, for purposes of this Agreement,
"Trade Secret Information." For purposes of this Agreement, "Trade Secret
Information" means information, whether or not in written or tangible form, in
the possession of the Company and considered by the Company to be proprietary,
valuable and confidential, from which the Company derives economic value, actual
or potential, by such information not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Trade Secret
Information includes, without limitation, (a) any data or information acquired
by Executive during his employment by the Company relating to the products,
services, business methods,

6
<PAGE> 11
customer accounts or operations of the Company, its Affiliates or its customers,
and (b) the techniques and business methods for (i) applying scientific
literature to merge resources and clinical language used in defining medical
payments for purposes of Medicare diagnostic related group ("DRG") optimization,
(ii) utilizing concurrent case review activity to merge resources and clinical
language used in defining medical payments for the purpose of DRG optimization,
(iii) developing and managing health care provider organizations and providing
services thereto, (iv) developing reimbursement and at-risk systems under
capitation, prepayment, indemnity and other forms of compensatory arrangements,
and (v) managing the delivery, reporting and financing of health care services
in managed care and managed cost settings, including the systems, techniques,
strategies and methods used to compete successfully in these lines of business.

6.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET INFORMATION.
Except as authorized by the Company, Executive shall not, during the term of
this Agreement and for so long after the termination of employment as the
information or data remains Trade Secret Information, directly or indirectly
divulge, furnish or make accessible to anyone or use in any way (other than in
the ordinary course of business of the Company) the Trade Secret Information.

6.4 RETURN OF MATERIALS. Upon the request of the Company and, in any
event, upon the termination of Executive's employment, Executive shall return to
the Company and leave at its disposal all copies of memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes and other
documents or media, in Executive's possession or control, pertaining in any way
to the business, practices or techniques of the Company.

7. RESTRICTIONS ON COMPETITION.

7.1 PREMISES. The Company has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of the Company and enhancing the value and desirability
of the skills of its executives and technical personnel. This investment,
together with the Base Salary and Incentive Compensation payable to Executive,
Executive's entitlement to participate in the Executive Bonus Pool, the issuance
to Executive of the Class A Stock and the grant to Executive of the Options,
reflect the Company's expectation of receiving a considerable return from the
exclusive use of Executive's services and know-how in the future, free from any
risk that the Company's competitors may attempt to induce Executive to leave the
Company and wrongfully gain the benefit of the Company's investment. The partial
restraint set forth in Section 7.2 hereof does not, and cannot, provide complete
protection for the Company's investment, but the Company and Executive believe
that, in combination with the other provisions of this Agreement, it is a fair
and reasonable measure permitted under applicable law to protect the Company's
interests, giving due regard to both the interests of Executive and the
interests of the Company. Executive hereby (i) agrees that the restrictions
contained within Section 7 are reasonable and necessary

7
<PAGE> 12
for the protection of the goodwill of the business of the Company during the
term of this Agreement and thereafter and that the limitations as to period of
time and geographic area contained in Section 7.2 are reasonable and necessary
for the protection of the Company's business; and (ii) acknowledges that the
Company would not have entered into this Agreement but for these restrictions.

7.2 COVENANT NOT TO COMPETE; SOLICIT. In consideration of Executive's
employment hereunder and the issuance to Executive of the Class A Stock and the
grant to Executive of the Options, during the term of this Agreement and for a
period of three (3) years from the date of expiration or termination of this
Agreement (at any time for any reason) Executive shall not:

(a) directly or indirectly, for himself, as an owner, partner,
principal, shareholder, officer, director, employee, or independent
contractor engage in the development, management or operation of (i)
independent practice associations ("IPAs"), physician-hospital
organizations ("PHOs"), management services organizations ("MSOs"),
preferred provider organizations ("PPOs"), integrated delivery systems
("IDS"), health maintenance organizations ("HMOs"), point of service
("POS") plans, long-term plans or other types of managed care
organizations ("MCOs") that contract with commercial third-party
payors, self-insured employers, health care purchasing cooperatives or
Medicare fiscal intermediaries for the delivery of health care services
within one hundred (100) miles from any city, town where the Company
has established such an IPA, PHO, MSO, PPO, IDS, HMO, POS plan or MCO;
or (ii) IPAs, PHOs, MSOs, PPOs, IDS, HMOs, POS plans, long-term plans
or other MCOs that contract with state Medicaid agencies for the
delivery of health care services within any state in which the Company
has established such an IPA, PHO, MSO, PPO, IDS, HMO, POS plans or MCO;
or

(b) attempt, directly or indirectly, to solicit or entice (i)
any employee of the Company to terminate his or her employment or to
become employed by any person, firm or corporation other than the
Company, or approach any such employee for any of the foregoing
purposes or authorize or assist in the taking of any such action by any
third party; (ii) any existing customer or client of the Company to
terminate or reduce its relationship with the Company; or (iii) any
prospective customer or client of the Company to refrain from doing
business with the Company.

7.3 DURATION. If Employee violates the restrictive covenant in Section
7.2 and the Company brings legal action for injunctive or other relief, the
Company shall not, as a result of the time involved in obtaining the relief, be
deprived of the benefit of the full period of the restrictive covenant.
Accordingly, unless Executive contests the alleged violation in a court of law
and is the prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the three-year post-employment
duration specified in Section 7.2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the

8
<PAGE> 13
foregoing, however, to the extent this provision is invalid or unenforceable
under the laws of any applicable jurisdiction, the remainder of Section 7 shall
be interpreted, status quo ante, as if Section 7.3 had never been included
herein and was an absolute nullity.

7.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and agrees
that a violation of any of the provisions contained in Section 7.2 will cause
irreparable damage to the Company, the exact amount of which may be impossible
to ascertain and that, for such reason, among others, the Company shall be
entitled to injunctive relief, both pendente lite and permanently, against
Executive to restrain any further violation of such provisions, and Executive
hereby (i) consents to any initiation by the Company in a court of competent
jurisdiction of any action to enjoin immediately any breach of this Agreement,
and (ii) hereby releases the Company from the requirement of posting any bond in
connection with temporary or interlocutory injunctive relief, to the extent
permitted by law. This provision with respect to injunctive relief shall not,
however, diminish the right of the Company to pursue any other rights and
remedies the Company may have against Executive, including, but not limited to,
the recovery of damages.

7.5 ATTORNEYS' FEES. Executive hereby agrees to reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with successfully seeking injunctive relief or other rights and remedies
pursuant to Section 7.4 by reason of Executive's violation of Section 7.2, in a
court of competent jurisdiction. In the event the Executive is found, in a court
of competent jurisdiction, not to have violated Section 7.2, then the Company
shall reimburse Executive's reasonable legal costs or other expenses incurred in
defense thereof.

7.6 SURVIVAL. The restrictions contained in this Section 7 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of this Agreement.

8. TERMINATION OF EMPLOYMENT. This Agreement shall terminate prior to
its expiration upon the earliest to occur of any of the following events:

8.1 FOR CAUSE. Upon written notice by the Company to Executive
For Cause. "For Cause" means (i) any conduct which constitutes a felony
or another criminal act which involves moral turpitude; (ii) the
commission or participation of Executive in acts of personal
dishonesty; (iii) material breach by Executive of his obligations under
this Agreement, which breach is not cured within fifteen (15) days
after receipt of a notice of the breach; (iv) Executive (a) being
adjudicated as bankrupt or insolvent, (b) filing a voluntary petition
in bankruptcy or a petition or answer seeking a reorganization,
arrangement, composition, readjustment or other relief under any
provision of any insolvency law, (c) making an assignment for the
benefit of creditors, or (d) filing a petition for or consenting to the
appointment of any trustee, receiver or liquidator; (v) the engaging by
Executive in willful misconduct which is injurious to the Company;

9
<PAGE> 14
(vi) dependence by Executive upon alcohol, prescription drugs or any
illegal substance; (vii) the failure of Executive to abide by the
Company's policies, procedures or protocols; or (viii) the failure of
Executive to carry out any lawful orders given to him by any officer or
by the Board of Directors of the Company;

8.2 OTHER CIRCUMSTANCES. Upon written notice by the Company to
Executive in the following circumstances: (i) the decision of the Board
of Directors of the Company within sixty (60) days following expiration
of the probationary period imposed upon Executive in connection with
the delivery to Executive of a written performance appraisal; (ii)
after March 31, 1996, the failure of the Company to generate at least
sixty thousand dollars ($60,000) in monthly Adjusted Gross Revenue in
the immediately preceding monthly fiscal period; (iii) after June 30,
1996, the failure of the Company to generate at least seven hundred
fifty thousand dollars ($750,000) of annual Adjusted Gross Revenue in
the immediately preceding twelve (12) month period; (iv) after June 30,
1997, the failure of the Company to generate at least three million
dollars ($3,000,000) of annual Adjusted Gross Revenue in the
immediately preceding twelve (12) month period; (v) after June 30,
1998, the failure of the Company to generate at least four million
dollars ($4,000,000) of annual Adjusted Gross Revenue in the
immediately preceding twelve (12) month period; and (vi) after June 30,
1999, the failure of the Company to generate at least five million
dollars ($5,000,000) of annual Adjusted Gross Revenue in the
immediately preceding twelve (12) month period;

8.3 DEATH. Upon Executive's death;

8.4 DISABILITY. Upon the Company's written notice, at the
Company's sole option, upon Executive's disability. "Disability" shall
have the definition ascribed in Executive's individual disability
policy if coverage under the policy is conditioned on using such
definition. If no such policy exists or if coverage is not conditioned
on using such definition, then, for purposes of this Agreement,
"Disability" means the inability of Executive to perform his duties
with reasonable accommodation by the Company for ninety (90) days in
any one hundred eighty (180) consecutive day period.

9. SEVERANCE.

9.1 DEATH. If Executive's employment is terminated pursuant to Section
8.3 as a result of Executive's death, the following provisions shall apply:

(a) The Company shall pay to Executive's personal
representative the Base Salary through the end of the calendar month in
which Executive's death occurs.

(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation for the
calculation period ended prior to the

10
<PAGE> 15
date of Executive's death and (ii) a pro rata share (based on the
number of days in the period during which Executive was alive) of
Executive's Incentive Compensation for the calculation period in which
Executive died provided that more than three (3) months of such
calculation period have elapsed as of Executive's death. Such amounts
shall be payable in accordance with Section 4.2. If Executive's death
occurs during the first three (3) months of an Incentive Compensation
calculation period, no Incentive Compensation shall be payable with
respect to such period.

9.2 DISABILITY. If Executive's employment is terminated pursuant to
Section 8.4 as a result of Executive's Disability, the following provisions
shall apply:

(a) The Company shall maintain any health insurance coverage
provided to Executive hereunder until the expiration of the Initial
Term for Executive and Executive's dependents, or, if the Company's
benefit insurer does not permit such continuation, pay to Executive the
amount of the health insurance premium the Company would have paid to
provide such insurance to Executive and Executive's dependents. Nothing
herein shall affect any rights to continuation coverage of Executive or
Executive's dependents with respect to any insurance coverage as
provided by law.

(b) The Company shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term.

(c) The Company shall pay to Executive the Base Salary through
the end of the calendar month in which the employment termination
occurs.

(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended prior to
the date of employment termination and (ii) a pro rata share (based on
the number of days in the period during which Executive was not
disabled) of Executive's Incentive Compensation for the calculation
period in which Executive was terminated from employment provided that
more than three (3) months of such calculation period has elapsed as of
the date of termination. Such amounts shall be payable in accordance
with Section 4.2. If Executive's employment termination occurs during
the first three (3) months of an Incentive Compensation calculation
period, no Incentive Compensation shall be payable with respect to such
period.

9.3 TERMINATION FOR CAUSE. If Executive's employment is terminated For
Cause pursuant to Section 8.1, the following provisions shall apply:

(a) The Company shall pay to Executive the Base Salary through
the date of termination.

11
<PAGE> 16
(b) Executive shall forfeit all accrued but unpaid Incentive
Compensation and all unexercised Options. The foregoing sentence is not
a penalty, but is intended to constitute liquidated damages to
compensate the Company for damages, which may be difficult to measure,
suffered by the Company as a result of Executive's conduct. Nothing
contained in this Section 9.3 shall be deemed to limit the Company's
ability to obtain equitable relief.

(c) Health insurance coverage provided to Executive hereunder
for Executive and Executive's dependents and any life insurance
coverage provided to Executive hereunder on Executive's life, payable
to Executive or, as designated by Executive, Executive's beneficiaries
shall terminate as of the last day of the month in which Executive's
employment terminates. Nothing herein shall affect any rights to
continuation coverage of Executive or Executive's dependents with
respect to any insurance coverage as provided by law.

9.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.

10. MISCELLANEOUS.

10.1 GOVERNING LAW. This Agreement shall be deemed to have been
executed in the State of Tennessee and shall be governed and construed as to
both substantive and procedural matters in accordance with the laws of the State
of Tennessee, but excepting (i) any State of Tennessee rule which would result
in judicial failure to enforce the arbitration provisions of Section 10.4 hereof
or any portion thereof and (ii) any State of Tennessee rule which would result
in the application of the law of a jurisdiction other than the State of
Tennessee.

10.2 PRIOR AGREEMENTS. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, including,
but not limited to, the Employment Agreement dated as of March 1, 1995, between
BAW, Inc. and Executive and the Management Agreement, dated as of March 1, 1995,
between BA-Forum, Inc. and Forum Health Care, Inc. and the parties hereto have
made no agreements, representations or warranties relating to the subject matter
of this Agreement which are not set forth herein.

10.3 AMENDMENT. This Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by
written instrument executed by the parties hereto or, in the case of a waiver,
by the party to be charged with such waiver.

12
<PAGE> 17
10.4 ARBITRATION. Any controversy or claim arising out of or relating
to the Agreement, or the breach hereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of the Company is
located, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction over the parties hereto. The dispute shall be
resolved by a panel of three arbitrators if the dollar amount in question that
is being arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto
shall have full rights to pursue equitable remedies in furtherance of enforcing
this Agreement without interference from any arbitration proceedings.

10.5 SEVERABILITY. To the extent any provision of this Agreement shall
be invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of this Agreement shall be unaffected and not in
limitation of business activities covered by, any provision of this Agreement be
in excess of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which may validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that this
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent possible under applicable law.

10.6 SURVIVAL. The covenants contained in this Agreement shall survive
Executive's termination of employment, regardless of who causes the termination
and under what circumstances.

10.7 ATTORNEYS' FEES. If either party hereto shall be required to
retain the services of an attorney to enforce any of his or its rights
hereunder, the prevailing party shall be entitled to receive from the other
party all costs and expenses including, but not limited to, court costs and
attorneys' or experts' fees (whether in a court of original jurisdiction or one
or more courts of appellate jurisdiction) incurred by him or it in connection
therewith.

10.8 ASSIGNMENT. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
fifty percent (50%) or more of the equity investment and of the voting control
is owned, directly or indirectly, by, or is under common ownership with, the
Company. After any such assignment by the Company, the Company and Birman shall
be discharged from all further liability hereunder, and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of
this Agreement including this Section 10.

13
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

THE COMPANY:

BAW, INC., a Tennessee corporation

By:
- ----------------------------- --------------------------------
Unofficial Witness David N. Birman, M.D.
Chairman

Attest:
--------------------------------
Sue D. Birman
Secretary

[CORPORATE SEAL]

BIRMAN:

BA-FORUM HEALTH CARE, INC.,
D/B/A BIRMAN MANAGED CARE,
INC., a Tennessee corporation

By:
- ----------------------------- --------------------------------
Unofficial Witness David N. Birman, M.D.
Chairman

Attest:
--------------------------------
Sue D. Birman
Secretary

[CORPORATE SEAL]

14
<PAGE> 19
EXECUTIVE:

(SEAL)
- ----------------------------- ------------------------------
Unofficial Witness MARK C. WADE

For purposes of Section 10.2 only:

FORUM HEALTH CARE, INC., an

Arizona corporation

By:
- ----------------------------- ------------------------------
Unofficial Witness Mark C. Wade
President

Attest:
------------------------------
Secretary

[CORPORATE SEAL]

<PAGE> 20
AMENDMENT NO. 2
---------------

THIS INSTRUMENT, dated as of September 1, 1996, by and among Birman
Managed Care, Inc., a Tennessee corporation ("Birman"), BMC Health Plans, Inc.,
a Tennessee corporation (the "Company"), and Mark C. Wade, an Arizona resident
("Executive"), constitutes a second amendment to that certain Employment
Agreement by and between Executive and the Company dated as of July 1, 1995
(the "Agreement"). The Company, Birman and Executive are hereinafter referred
to as the "Parties."

R E C I T A L S:
- - - - - - - -

WHEREAS, the Parties desire to amend the Agreement;

NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged by each of the Parties, the Parties, intending to be
legally bound, hereby agree as follows:

1. The second preamble of the Agreement is hereby amended by
deleting the whole thereof and by inserting in lieu thereof the following:

WHEREAS, the Company and Executive desire that Executive be employed in
accordance with the terms and conditions hereof as the Company's
Executive Vice President - Sales and Marketing; and

2. The first sentence of Section 1 of the Agreement is hereby
amended by deleting the whole thereof and by inserting in lieu thereof the
following:

The Company hereby employs Executive, and Executive hereby accepts
employment from the Company as the Company's Executive Vice President -
Sales and Marketing.

3. Section 2 of the Agreement is hereby amended by deleting the
date, "June 30, 2001," and by inserting in lieu thereof the date, "August 31,
1998."

4. Section 4.1 of the Agreement is hereby amended by deleting the
whole thereof and by inserting in lieu thereof the following:

During the Initial Term and any renewal thereof, the Company shall pay
to Executive as compensation for all personal services to be rendered by
Executive under this Agreement a base salary ("Base Salary"), in
accordance with the Company's customary payroll practices, reduced by
applicable federal, state and local withholding taxes, of one hundred
sixty-five thousand and no/100 dollars ($165,000) per annum.
<PAGE> 21
5. Section 4.2 of the Agreement is hereby amended by deleting the
whole thereof and by inserting in lieu thereof the following:

In addition to the Base Salary described in Section 4.1, the Company
shall pay Executive an annual performance-based bonus ("Incentive
Compensation") in cash not later than ninety (90) days after the audit
of the books of the Company for such annual period has been completed
by the Company's independent accountants based upon the cumulative
total enrollment in Care3 Health Plan of Mississippi, Inc. and Care3
Health Plan of Tennessee, Inc. at the completion of the annual fiscal
period for which the Incentive Compensation is being calculated, as
follows (not to exceed $85,000):

Number of Members Incentive Compensation
- ----------------- ----------------------
<S> <C>
Less than 5,000 0
5,001 to 10,000 $20,000
10,001 to 15,000 $30,000
15,001 to 20,000 $35,000
Total: $85,000
</TABLE>

6. Section 4.3 is hereby amended by deleting the whole thereof in its
entirety.

7. Section 4.4 is hereby amended by deleting the phrase, "five hundred
thousands (500,000) shares" and by inserting in lieu thereof the phrase, "two
hundred thousand (200,000) shares."

8. Section 8.2 is hereby amended by deleting the whole thereof in its
entirety.

9. A new Section 8.5 is hereby inserted and providing as follows:

Other. If Executive's employment is terminated for reasons other than
death, For Cause, mutual agreement or Disability, Executive shall be
entitled to receive as severance, the Base Salary for the six (6)
month period following Executive's severance of employment, all
accrued but unpaid Incentive Compensation for the calculation period
in which Executive was terminated from employment provided more than
three (3) months of such calculation period has elapsed as of the date
of termination, and all vested stock options granted pursuant to the
Company's 1995 Stock Option Plan.

2
<PAGE> 22
10. The amendments delineated above, together with the Agreement and
Amendment No. 1 thereto constitute the sole amendment to the Agreement. The
Agreement and the above amendments contain the entire agreement of the Parties
relating to the subject matter hereof.

The Agreement, as above amended, shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.

BIRMAN MANAGED CARE, INC.

By: __________________________________
David N. Birman, M.D.,
President and Chief Executive Officer

BMC HEALTH PLANS, INC.

By: __________________________________
Vincent W. Wong,
President and Chief Executive Officer

EXECUTIVE:

_______________________________________
MARK C. WADE

<PAGE> 1
AGREEMENT

THIS AGREEMENT is made by and between Birman & Associates, Inc., a
Tennessee corporation (the "Contractor"), and Community Medical Center (the
"Hospital") located in Toms River, NJ.

WITNESSETH:

WHEREAS, the Contractor is engaged in the business of providing Quality
Management Review (as defined below) and other related education, managed care,
and quality improvement services for hospitals and other medical service
providers; and

WHEREAS, the Hospital desires to engage the Contractor to provide its
education and quality improvement services, including Quality Management Review
services and physician and staff training for the Hospital, and Contractor is
willing and able to provide such services and training, all in accordance with
the terms, covenants and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants set forth herein, the parties agree as follows:

1. Engagement. Subject to the terms and conditions hereinafter
contained, Hospital hereby engages the contractor and the Contractor hereby
accepts the engagement to provide Quality Management review services at and for
the Hospital. For purposes of this Agreement, "Quality Management Review" means
a system of monitoring patient admission, treatment, and medical records to
ensure that adequate and acceptable documentation is maintained to meet
admitting and Medicare Diagnostic Related Group ("DRG") payment criteria, and
that the patient records properly support and document the admitting diagnosis,
patient treatment plan, the medical care provided, the results achieved,
discharge criteria and status, and the discharge summary for the patient.

2. Term. The term of this Agreement shall begin on October 1, 1996
and shall continue for a period of two and one-half (2-1/2) years (the "Initial
Term"), and shall automatically renew for successive one (1) year terms unless
Hospital provides written notice of termination sixty (60) days prior to the
renewal date of April 1, 1999 and each April 1 thereafter. Notwithstanding the
foregoing, the actual start date may change due to personnel availability and,
in such an event, all dates herein shall be changed correspondingly.

3. Compensation. During the Initial Term, the Hospital shall pay
the Contractor a fee (the "Fee") of $225,000.00 per month (subject to adjustment
as described in the following sentence), payable monthly in arrears not later
than the fifteenth day of each month commencing November 15, 1996 by delivery of
such amount to Contractor's address as specified in Paragraph 12 below.
Notwithstanding the foregoing, the Fee shall be subject to adjustment as
follows:
<PAGE> 2
(a) If the Hospital fails to experience an average Case Mix Index (CMI)
increase for the three-month period (the "First Three-Month Period") ended
December 31, 1996 of greater than 0.1499 (based upon the calculation described
at Section 3(f) below), the Fee payable to Contractor during the three-month
period beginning January 1, 1997 shall be decreased by $50,000.00 per month to
$175,000.00 per month.

(b) If the Fee payable to Contractor has been reduced in accordance
with Paragraph 3(a) above, but for the subsequent three-month period beginning
January 1, 1997 the Hospital experiences a CMI increase of greater than 0.1499,
the Fee payable to Contractor during the subsequent three-month period beginning
April 1, 1997 shall be increased by $50,000.00 per month to $225,000.00 per
month.

(c) Thereafter during the Initial Term and any applicable renewal term,
if in any subsequent three-month period (the "Subsequent Three Month Period"),
the Hospital's CMI increase falls below 0.1499, the Fee payable to Contractor in
the immediately following three-month period shall equal $175,000.00 per month.
Conversely, if in a subsequent three-month period, the Hospital's CMI increase
is greater than 0.1499, the Fee payable to Contractor in the immediately
following three-month period shall equal $225,000.00 per month.

(d) If the Hospital experiences an average CMI of less than 1.3269 for
any Three Month Period, the Fee payable to Contractor during the next following
Subsequent Three Month Period shall be reduced to $150,000.00 per month.

(e) If the Fee payable to Contractor has been reduced in accordance
with Paragraph 3(d) above, but in the immediately following Subsequent Three
Month Period the Hospital experiences an average CMI of more than 1.3269, the
Fee payable to Contractor shall be increased by the sum of (i) $25,000.00 per
month, plus (ii) any increase due under Paragraph 3(b) above.

(f) For purposes of determining whether the Hospital experiences a CMI
increase of greater than 0.1499 as described above, the parties hereto shall
assume that (i) the Hospital is experiencing a base CMI of 1.3269 as of the
commencement of the Initial Term (with the CMI being derived from the Hospital's
Medicare Case Mix Report for the period July 1, 1995 to June 30, 1996), (ii) the
Hospital and the Contractor agree upon the DRG assignments, and (iii) the PRO
ultimately approves the DRG assignments. In the event a DRG selection is
adjusted by the PRO, the affected Three Month Period will be recalculated and
the Fee due to Contractor adjusted upwards or downwards as the case may be. All
such adjustments will be credited or debited in the Three Month Period during
which the PRO adjustment occurred. Notwithstanding the foregoing, if the
Hospital adds additional services or procedures or obtains the services, on a
half-time basis or greater, of a physician who did not provide services to the
Hospital in the immediately preceding year, the incremental increase to the base
CMI derived from the addition of the new service or procedure or the inclusion
of the new physician will be considered by the Contractor and the Hospital and,
if mutually agreed upon, the base CMI will be adjusted. The reverse of the
above also applies if the Hospital terminates a service or procedure or loses

2
<PAGE> 3
the services of a physician, resulting in an incremental decrease in the
calculation of the base CMI.

4. Obligations of Contractor. Contractor shall devote such time
and efforts as are reasonably necessary to perform the services required under
the terms of this Agreement, including but not limited to assigning a Physician
Field Manager and Health Information Manager selected by the Contractor in its
discretion to provide the services at the Hospital, visit the Hospital on a
periodic basis, review charts and consult with the medical staff and other
Hospital personnel and perform other services required hereunder. If either of
the parties in its reasonable discretion is dissatisfied with the performance of
the Physician Field manager or Health Information Manager the Contractor will
effectuate a suitable reassignment. In the performance of its services,
Contractor shall at all times operate in compliance with all applicable laws,
regulations, and rules established by any federal, state or other governmental
agency.

For a period of 18 months following termination of this Agreement,
Contractor shall be available to provide reasonable assistance in connection
with any DRG adjustment or denial of admission for a medical record that was
reviewed by Contractor during the term of this Agreement at no additional cost
to the Hospital.

5. Obligations of the Hospital. The Hospital shall provide such
space, equipment, and supplies as are reasonably required by the Contractor in
the performance of services required under this Agreement, and shall make
appropriate medical staff and other Hospital personnel available to interface
with the Contractor's representatives on a reasonable basis. The Hospital shall
make reasonable efforts to process and bill patient accounts in a timely manner.

6. Relationship of Parties. In the performance of this Agreement,
the parties acknowledge that Contractor is acting as an independent contractor
and neither party shall be considered or deemed to be an agent, employee, joint
venturer, or partner of the other. Neither party shall have authority to
contract for or bind the other party in any manner or represent itself as an
agent of the other party.

7. Maintenance and Access to Files and Records. Both parties shall
keep accurate and complete records of the services, patients, discharges and
billings relative to this Agreement in accordance with the usual and customary
practice of maintaining such records. During the term of this Agreement and for
as long as the cost reporting periods remain open and until final resolution of
any administrative or judicial proceeding arising out of relating to the subject
matter of this Agreement, both parties shall make available for inspection by
the other party during normal business hours such records and information as the
other party may reasonably request pertaining to the performance of services
under this Agreement, including time keeping and billing records, monthly
Medicare log summaries and remittance advice reports, together with detail
listings of all Medicare accounts. In addition, Contractor agrees to maintain a
copy of this Agreement and all books, documents and records necessary to certify
the nature and extent of compensation paid to the Contractor pursuant to this

3
<PAGE> 4
Agreement for four (4) years, or such time as maybe required by stature and
regulation, and to perform all obligations specified for sub-contracts and
sub-contractors under the Social Security Act, Section 1861 (v) (1) (1), and the
implementing regulations.

8. Non-Solicitation. The Hospital acknowledges that Contractor's
Physician Field Manager and Health Information Manager assigned from time to
time to provide services to the Hospital are contractually bound by certain
restrictive covenants regarding prohibited competition, use of confidential
information, proprietary business methods, and related matters. The Hospital
covenants that it will not, at any time during the term of this Agreement and
for a period of two (2) years thereafter,, engage, employ or solicit for
engagement or employment, or advise or recommend to any other person or entity
that they engage, employ or solicit for employment or engagement, any person who
is employed or engaged by Contractor at any time during the term of this
Agreement.

9. Non-Disclosure. Both parties covenant that they will not, at
any time during the term of this Agreement and for so long as such information
remains confidential under applicable law, directly or indirectly disclose to
any third party any Confidential Information of the other party without first
obtaining such party's prior consent, and except as compelled by law.
"Confidential Information" means without limitation information relating to the
Hospital's patients and medical care, Contractor's services, or any other
information or material which derives economic value, actual or potential, from
not being generally known to other persons or is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy or confidentiality.

10. Termination. This Agreement may be terminated at anytime by
written notice to the non-terminating party if the non-terminating party
defaults in the performance of any of its material obligations under this
agreement and fails to correct such default within ninety (90) days after
receipt of such notice, except for failure to pay, as to which the period for
cure shall be ten (10) days. Notwithstanding the foregoing, the Hospital in its
sole discretion may terminate this Agreement without cause by giving written
notice of termination to the Contractor at any time between April 1, 1997 and
April 30, 1997, which termination shall become effective upon receipt thereof;
and, after May 1, 1997, either party may terminate this Agreement without cause
by giving written notice of termination to the non-terminating party, which
termination shall become effective one hundred and twenty (120) days after
receipt of such notice.

11. Notices. Any notice, election, request or demand required or
permitted under this Agreement shall be in writing and shall be delivered
personally or sent by certified mail, return receipt requested, postage prepaid,
and addressed to the party at the address listed below.

4
<PAGE> 5
To the Hospital:

Community Medical Center
99 Highway 37 West
Toms River, NJ 08755
Attn: John Forsman, Senior Vice President

To the Contractor:

Birman & Associates, Inc.
502 Gould Drive
Cookeville, Tennessee 38501
Attn: David N. Birman, M.D., President & CEO

12. Agreement to Comply with Law. It is the parties' desire that
this agreement and all actions taken hereunder comply in all respects to
applicable federal and state laws and regulations, particularly those relating
to Medicare and Medicaid reimbursement and to the duly authorized, written
policies and procedures of the Hospital. Therefore, all actions taken
hereunder shall comply with such laws, regulations, policies and procedures.
The parties shall negotiate in good faith to modify this Agreement in any
matter necessary to ensure such compliance. The Contractor shall comply with
all applicable requirements of the New Jersey Workers Compensation Law or in
the alternative shall provide Hospital with proof of Workers Compensation
Insurance acceptable to the Hospital.

13. Miscellaneous

(a) Assignment. This Agreement shall be binding upon the parties
hereto and upon their respective successors and assigns. Any waiver by a party
of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of the same or any other
provision.

(b) Entire Agreement. This Agreement embodies the entire agreement
of the parties as to the subject matter hereof and supersedes any previous
understandings, either oral or written, between the parties, and may not be
amended except in writing signed by both parties to this Agreement.

(c) Severability. If any provision of this Agreement is held
invalid by a court of competent jurisdiction, such invalidity shall not affect
the enforceability of any other provisions contained in this Agreement, and the
remaining portions shall continue in full force and effect.

5
<PAGE> 6
(d) Attorney's Fees. If either party asserts a claim in any
proceeding for the enforcement of this Agreement, the prevailing party shall be
entitled to reimbursements of its costs and expenses, including reasonable
attorney's fees.

(e) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey, without
regard to the conflicts of laws of such state jurisdiction and venue or any
litigation hereunder shall be in Ocean County, New Jersey or as to any federal
litigation in the federal district court of New Jersey.

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the 17th day of
September, 1996.

HOSPITAL

Community Medical Center-Toms River, NJ

By:____________________________

Title:_________________________

CONTRACTOR

BIRMAN & ASSOCIATES, INC.

By:____________________________
David N. Birman, M.D.
Title: President & CEO

<PAGE> 1
EXHIBIT 16.1

[LETTERHEAD OF SEMPLE & COOPER, P.L.C.]

United States Securities and Exchange Commission
Washington, DC 20549

Re: Birman Managed Care, Inc.

Dear Sirs:

We have read the statements contained under Experts in the Form SB-2
registration statement of Birman Managed Cared, Inc. and concur with same.

/s/ SEMPLE & COOPER, P.L.C.

Semple & Cooper, P.L.C.
Phoenix, Arizona
October 30, 1996

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Birman Managed Care, Inc. and Subsidiaries
Cookeville, Tennessee

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 2, 1996, relating
to the consolidated financial statements of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1996 which is contained in that
Prospectus.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

BDO Seidman, LLP

Los Angeles, California

October 30, 1996

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 7, 1996, relating
to the financial statements of Canton Management Group, Inc. DBA Progressive
Health Management, Inc. (A Development Stage Company) for the year ended June
30, 1996 which is contained in that Prospectus.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

BDO Seidman, LLP

Los Angeles, California

October 30, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

As independent certified public accountants, we hereby consent to the
inclusion of our report dated July 19, 1996, on the consolidated financial
statements of Birman Managed Care, Inc. and Subsidiaries for the year ended June
30, 1995, in the Company's Form SB-2 Registration Statement for the year then
ended, and to the reference to us under the caption "Experts" contained in the
Prospectus.

/s/ SEMPLE & COOPER, P.L.C.

--------------------------------------
Semple & Cooper, P.L.C.

Certified Public Accountants
Phoenix, Arizona

October 30, 1996

<PAGE> 1

EXHIBIT 23.4

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

Semple & Cooper, P.L.C.

Phoenix, Arizona

October 30, 1996

<ARTICLE> 5

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