DOCTORS HEALTH SYSTEM INC, S-1/A, 1997-12-24

DOCTORS HEALTH SYSTEM INC
S-1/A, 1997-12-24
MISC HEALTH & ALLIED SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-1926
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DOCTORS HEALTH, INC.
(Formerly Doctors Health System, Inc.)
(Exact name of Registrant as specified in its Charter)
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<TABLE>
<S><C>
DELAWARE 8099 52-1907421
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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10451 MILL RUN CIRCLE
OWINGS MILLS, MARYLAND 21117
(410) 654-5800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

PAUL A. SERINI, ESQ.
EXECUTIVE VICE PRESIDENT
AND DIRECTOR OF LEGAL AFFAIRS
10451 MILL RUN CIRCLE
OWINGS MILLS, MARYLAND 21117
(410) 654-5800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------

COPY TO:
ELIZABETH R. HUGHES, ESQ.
VENABLE, BAETJER AND HOWARD, LLP
1800 MERCANTILE BANK & TRUST BUILDING
TWO HOPKINS PLAZA
BALTIMORE, MARYLAND 21201
(410) 244-7608
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
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 effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.

SUBJECT TO COMPLETION, DATED DECEMBER 24, 1997

[Doctors Health Logo]

8,200,000 SHARES OF CLASS B COMMON STOCK
OPTIONS TO PURCHASE 2,000,000 SHARES OF CLASS B COMMON STOCK
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Doctors Health, Inc., a Delaware corporation (the "Company"), may offer and
issue from time to time in connection with the affiliation of medical practices
with the Company one or more of the following types of its securities: (i)
shares of its Class B common stock, par value $0.01 per share ("Class B Common
Stock"); or (ii) Options to purchase Class B Common Stock ("Options," and
collectively with the Class B Common Stock, the "Securities"). The Securities
offered pursuant to this Prospectus may be issued in amounts and at prices to be
determined at the time of the offering of such Securities. Securities may be
issued by the Company as consideration in one or a combination of the following
types of transactions: (x) network or participation agreements with individual
physicians, medical groups and independent practice associations ("IPA
Agreements"); (y) acquisitions of certain assets of medical practices; or (z)
various employment arrangements or agreements between physicians and Core
Medical Groups or between the Company and certain employees. Except in
connection with the exercise of the Options, the Company will not receive cash
proceeds in connection with the issuance of the Securities. In the case of the
acquisition of medical practices, the Company will receive substantially all of
certain assets of such medical practices (primarily enumerated tangible assets
of such practices and related contractual rights). In the case of IPA Agreements
or employment arrangements, the Company will receive the contractual
consideration specified in the relevant contract. See "Plan of
Distribution -- Acquisition of Certain Assets of Medical Practices," " -- IPA
Arrangements" and " -- Employment Agreements."

The terms of affiliation transactions are determined by negotiations
between the Company's representatives and physicians. In determining the amount
of consideration to be paid by the Company in such transactions, the Company
considers the established size, quality and reputation of the practice. With
respect to that portion of consideration paid by the Company in Securities, the
Company will determine the current value of the Class B Common Stock or Options
to be issued either at the time the terms of a transaction are tentatively
agreed upon, or at or about the time the transaction is closed, or during the
period or periods prior to delivery of the Securities. The value of the Class B
Common Stock and the exercise price of the Options will be determined by the
Company's Board of Directors based upon the Company's results of operations and
current financial condition, recent sales of the Company's securities or arms'
length negotiations with potential purchasers, estimates of the business
potential and prospects of the Company, the economics of the health care
industry in general, the general condition of the equity securities markets and
other relevant factors. It is not expected that underwriting discounts or
commissions will be paid by the Company. See "Plan of Distribution".

The Company will provide additional details as to specific offerings of
Securities in respect of which this Prospectus is being delivered in an
accompanying Prospectus Supplement (each, a "Prospectus Supplement"). Such
specific details will comprise, to the extent applicable: (1) the number of
Securities being offered; (2) the offering price of the Class B Common Stock or
the exercise price of Options; (3) certain federal income tax consequences; (4)
an explanation of the specific transaction; and (5) information with respect to
the particular medical practice involved in the transaction.

The resale or transfer of the Securities will be subject to certain
restrictions. See "Description of Capital Stock." Further, it is not currently
anticipated that any of the Securities will be listed on an exchange or other
public market. Accordingly, resales of the Securities will be severely limited.

This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement. The delivery in any jurisdiction of this
Prospectus together with a Prospectus Supplement relating to specific Securities
shall not constitute an offer in such jurisdiction of any other Securities
covered by this Prospectus but not described in such Prospectus Supplement.

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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THE DATE OF THIS PROSPECTUS IS JANUARY __, 1998

<PAGE>
AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1
(herein, together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the Securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to herein are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.

To the extent applicable, the Company will comply with the informational
requirements of the Securities Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith, will file reports and other information with the
Commission. Such reports and other information and the Registration Statement
and the exhibits and schedules thereto filed by the Company with the Commission
can be inspected and copied at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the public reference facilities maintained by the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such information with the Commission may also be obtained from
the web site maintained by the Commission. The Commission's web site address is
http://www.sec.gov.

The Company is not required to deliver annual reports to security holders.
However, the Company anticipates that it will deliver to its security holders
Annual Reports on Form 10-K which will include audited financial statements.

"Doctors Health -- It's the Sure Sign of Caring" is a service mark of
Doctors Health, Inc. This Prospectus also includes other service marks of
Doctors Health, Inc.

FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements with respect to
the financial condition, results of operations and business of the Company. The
words "estimate", "project", "intend", "expect" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward
looking-statements. For a discussion of certain of such risks and uncertainties,
see "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Investors are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SUBJECT TO, THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
CONTAINED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE DEFINED HEREIN,
CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS ASSIGNED TO
THEM IN THE GLOSSARY FOLLOWING THIS SUMMARY OR SET FORTH ELSEWHERE IN THIS
PROSPECTUS. POTENTIAL INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY IN ITS
ENTIRETY. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES THE EFFECT OF A TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A STOCK
DIVIDEND WITH RESPECT TO ALL OF THE COMPANY'S OUTSTANDING COMMON STOCK ON
SEPTEMBER 30, 1997. UNLESS OTHERWISE INDICATED, STOCK OWNERSHIP INFORMATION
SHOWN AS A PERCENTAGE OF THE COMPANY'S OUTSTANDING CAPITAL STOCK ASSUMES THE
CONVERSION OF ALL OUTSTANDING PREFERRED STOCK INTO SHARES OF COMMON STOCK AT THE
APPLICABLE CONVERSION RATIO FOR EACH SERIES OF PREFERRED STOCK.

Doctors Health, Inc., a Delaware corporation (the "Company") was
incorporated in June of 1994 and commenced operations in February of 1995. The
Company's executive offices are located at 10451 Mill Run Circle, 10th Floor,
Owings Mills, Maryland 21117, telephone (410) 654-5800.

The Company is a physician driven managed care and medical management
company which operates in conjunction with a comprehensive health care network
consisting of primary care physicians ("PCPs"), specialists, hospitals and other
health care providers (the "Network"). As of December 1, 1997, the Network
included approximately 9,500 physicians in Maryland, Washington, D.C. and
Virginia, including approximately 1,700 PCPs, and 7,800 specialists (including
obstetrician-gynecologists).

The Company's primary focus is managing the delivery of quality health care
services to Enrollees of health maintenance organizations and other prepaid
health insurance plans (collectively, "Payors"). The Company coordinates the
delivery of such services through a Network of health care providers pursuant to
various contractual arrangements and develops medical care strategies to promote
wellness, efficiency and patient satisfaction through medical care provided by
these health care providers. The Network includes certain medical groups,
physician networks, independent practice associations ("IPAs") and other health
care providers that have affiliated with the Company through a variety of
contractual relationships whereby such providers have designated the Company as
their agent for the purpose of negotiating Global Capitation Contracts and other
managed care contracts ("Doctors Health Providers"). The Company's Network also
includes physician networks affiliated with certain Payors with which the
Company has contracted to provide network management and health care services on
a capitated basis ("Payor Providers"). The Network is designed to provide Payors
with a single-source of well-managed health care providers and to give the
Company access to, and increase its bargaining power for, managed care
contracts.

The Company seeks to deliver health care at a cost which is less than the
revenues it receives under Global Capitation Contracts with Payors. The Global
Capitation Contracts obligate the Company to provide primary care, specialist,
hospital and other services to the Enrollees of the Payors' health plans
("Enrollees" or, in some cases, "capitated lives"). The Company emphasizes
preventive medical care services to reduce instances of high-cost, acute care
episodes and manages certain medical cases to ensure appropriate and efficient
treatment. The Company arranges for the cost-effective delivery of health care
services through managed care contracts with various health care providers. See
"Business -- Strategy" and "Business -- Operations."

As a medical management company, the Company coordinates the delivery of
medical care by the various health care providers in the Network. Through a care
management department consisting of physicians, nurses, social workers and other
staff, the Company seeks to promote the wellness of patients, control costs, and
maintain patient satisfaction. Such medical management services include case and
disease management, utilization review and quality management services.

The Company offers medical groups and independent physicians a variety of
methods of affiliating with the Company. The Company may either acquire the
medical practice assets or certain contracting rights for cash or for
Securities, or by execution of a variety of IPA Agreements. In cases where the
Company acquires assets of medical practices, the physicians selling such assets
typically join a Core Medical Group and enter into certain long-term management
agreements with the Core Medical Group and the Company ("PSO Agreements").
Pursuant to the PSO Agreements, the Company provides the Core Medical Groups
with care management, managed care contracting and related business management
services. Pursuant to the various IPA Agreements, physicians agree to conduct
either all (in the case of exclusive IPAs) or some (in the case of non-exclusive
IPAs) of their managed care contracting activity exclusively through the Company
and to accept as patients any capitated patients referred to such physician
pursuant to the Company's Global Capitation Contracts. The physicians retain
their clinical autonomy.
3

<PAGE>
GLOSSARY

DEFINED TERMS

The following terms are used herein with the special meanings assigned to
them:

Capitation Revenue -- Payments made by Payors to the Company pursuant to
Global Capitation Contracts and Gatekeeper Capitation Contracts.

Charter -- The Company's Amended and Restated Certificate of Incorporation
as filed with the Delaware Secretary of State on September 29, 1997.

Core Medical Group -- A group medical practice consisting primarily of
PCPs. The Core Medical Groups enter into PSO Agreements with the Company and are
clinically autonomous entities whose equity interests are owned by physicians.

Doctors Health Providers -- Physicians and certain other health care
providers who are affiliated with the Company through PSO Agreements, IPA
Agreements or other contractual arrangements whereby the Company is designated
as each such provider's agent with respect to managed care contracting and each
such provider agrees to accept as patients any Enrollee of each Payor with which
the Company has entered into a Global Capitation Contract.

Enrollee -- A patient who is covered for health benefits under an insurance
arrangement with a Payor. When used with respect to Enrollees of the Company,
such term refers to such patients for whom the Company is responsible for
arranging to meet the health care needs pursuant to a Global or Gatekeeper
Capitation Contract with such Payor.

Gatekeeper Capitation Contract -- A contract pursuant to which a Primary
Care Physician receives a fixed, prepaid monthly fee for each Enrollee in
exchange for providing only primary care medical services, regardless of the
costs of the actual services provided.

Global Capitation Contract -- A contract pursuant to which the Company is
paid a fixed amount per Enrollee to cover primary care, specialist, hospital and
other health care services and assumes all or part of the financial risk
associated with such services with or without certain carve-outs over a
specified period, regardless of the actual cost of the services provided.

HCFA -- The United States Health Care Financing Administration, an agency
under the United States Department of Health and Human Services, which
administers the Medicare program.

IPA -- Independent Practice Association. An organization of independently
practicing physicians which contracts with the Company, managed care plans or
others to provide the professional medical services required by Enrollees.

IPA Agreement -- An agreement between the Company and an IPA pursuant to
which the IPA agrees to provide the medical services required by the Company's
Enrollees and grants the Company the right to contract with Payors on its behalf
for compensation (capitation or otherwise) for the medical services provided to
Enrollees.

IPA Physicians -- Primary Care Physicians who enter into exclusive or
non-exclusive IPA Agreements with the Company.

IPO -- A firm commitment underwritten initial public offering of the
Company's Common Stock.

Network -- The Company's organization of affiliated PCPs, specialists,
hospitals and other health care providers that provide medical care to
Enrollees. Within the Network, there are various other smaller networks of
health care providers that are organized by geography or practice area. The
Network is made up of both Doctors Health Providers and Payor Providers.

Network PCP or Network Physician -- A PCP or other physician who
participates in the Company's Network through employment in a Core Medical
Group, through an exclusive or non-exclusive IPA Agreement, through a joint
contracting venture, through a Global Capitation Agreement between the Company
and a Payor with which each physician is affiliated, or through another
arrangement.

Option -- An option offered by this Prospectus to purchase Class B Common
Stock of the Company pursuant to the terms of an Option Agreement which shall be
entered into at the time the Option is granted and the material terms of which
will be described in a Prospectus Supplement delivered with this Prospectus at
the time such Option is offered.

Option Agreement -- An agreement between the Company and an Option holder
which sets forth all of the material terms and conditions applicable to the
exercise of such Option.

<PAGE>

Payor -- An organization, such as an insurance company, employer, HMO, or
HCFA, that pays or reimburses a health care provider or other entity for health
care services to be provided to a patient or health plan.

Payor Providers -- Health care providers that comprise part of the
Company's Network but are contractually affiliated with Payors with which the
Company has entered into Global Capitation Contracts. The Company does not have
a direct contractual relationship with such providers, but, as a result of the
Global Capitation Contract between the Company and such Payors, is responsible
for managing the delivery of care by such providers and has the right to require
such providers to comply with Company protocols and procedures.

PCP -- Primary Care Physician. A physician practicing as a general
practitioner or in the specialty of family practice, general internal medicine,
or general pediatrics.

Practice Participation Agreement -- An agreement entered into among the
Company, a Core Medical Group and each of the physicians who is a member of such
Core Medical Group, pursuant to which (1) each such physician sells to the
Company certain assets of his medical practice, (2) each physician enters into
an exclusive Employment Agreement with the Core Medical Group, (3) the Core
Medical Group and the Company enter into a PSO Agreement, and (4) each physician
enters into an Operating Agreement with each of the other member physicians of
the Core Medical Group which governs the operation of the Core Medical Group.

PSO Agreement -- Physician Services Organization Agreement. An agreement
entered into between the Company and each Core Medical Group, pursuant to which
the Core Medical Group appoints the Company to act as its exclusive agent to
provide all assets, facilities and non-medical services necessary for the Core
Medical Group's medical practice and to obtain managed care contracts with
Payors on behalf of the Network physicians who are members of the Core Medical
Group.

Qualified IPO -- An IPO resulting in at least $35,000,000 of net proceeds
to the Company after deducting underwriting discounts and commissions and
offering expenses and reflecting an aggregate market valuation for the
Corporation of at least $150,000,000.

Securities -- The Options and the Class B Common Stock offered by this
Prospectus.

ADDITIONAL TERMS

In addition to the defined terms set forth above, readers may be assisted
by the following definitions of terms that are generally used herein with the
meanings commonly assigned to them in the health-care industry:

carve-outs -- In connection with a Gatekeeper Capitation Contract, medical
services that are not included in a capitated arrangement. Examples of typical
carve-outs from Global Capitation Contracts include pharmacy, dental care, eye
care, organ transplants, home health, mental health, infusion care, durable
medical equipment, marketing and administration.

capitated life -- An Enrollee who is a member in a managed care plan that
pays a fixed amount to a provider pursuant to a capitation arrangement.

capitation -- A method of paying health care providers in which a fixed
amount is paid per Enrollee to cover a defined set of services over a specified
period, regardless of the cost of the actual services provided.

fee-for-service -- A method of reimbursing health care providers in which
payment is made for each unit of service rendered.

HMO -- Health maintenance organization. A managed care plan that integrates
financing and delivery of a comprehensive set of health care services to an
enrolled population.

managed care -- A payment or delivery arrangement used by a Payor to
control or coordinate use of health services with the goal of providing quality
care at a lower cost, including capitation arrangements.

managed care plan -- A health plan that uses managed care arrangements and
has a defined system of selected providers that contract with the plan. Under
managed care plans, Enrollees have a financial incentive to use participating
providers that agree to furnish a broad range of services, and providers may be
paid on a prenegotiated fee-for-service, capitated, per diem or salaried basis.

Medicaid -- A program of federal matching grants to the states to provide
health insurance for categories of the poor and medically indigent. States
determine eligibility, payments and benefits consistent with federal standards.

<PAGE>

Medicare -- A federal program under the Health Insurance for the Aged Act
to provide hospital and medical insurance for persons eligible for social
security or railroad retirement benefits under the Social Security Act and who
are over the age of 65 or disabled or other eligible individuals over the age of
65.

risk sharing arrangement -- An arrangement or contract, such as a Global
Capitation Agreement, pursuant to which the parties receive a fixed amount to
provide or pay for defined services (usually including, but not limited to,
hospital and other institutional services) regardless of the actual costs and
share the benefits or risks under the arrangement in the event that the costs of
such services are less than or exceed such fixed amount.

subcapitation -- An arrangement in which a health services provider
receiving capitated income pays subcontracting providers (for example, for
specialty services) on a capitated basis with the subcontracting providers
assuming the financial risk of providing all of the subcapitated medical
services, the payment representing subcapitation.

utilization -- The frequency, appropriateness and necessity with which a
medical benefit is used, a service is performed, or a referral is made.

utilization review -- The review of services delivered by a health care
provider to evaluate the frequency, appropriateness, necessity, and quality of
the prescribed services.

<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER THE FACTORS LISTED BELOW IN EVALUATING AN INVESTMENT
IN THE SECURITIES OFFERED HEREBY.

LIMITED OPERATING HISTORY; LOSSES

The Company was incorporated in June of 1994 and commenced operations in
February of 1995. Accordingly, the Company has a limited operating history. For
the years ended June 30, 1996 and June 30, 1997, the Company recorded a net loss
of approximately $6.6 million and $14.8 million, respectively. The Company is
likely to record a net loss for the year ending June 30, 1998. At June 30, 1997,
the Company had an accumulated deficit of approximately $25.2 million. There can
be no assurance that the Company will achieve profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."

DEPENDENCE ON MANAGED CARE CONTRACTS

The profitability of the Company depends on securing and maintaining
contractual relationships with Payors, retaining such Payors' Enrollees and
obtaining additional Enrollees, and successfully managing the expenses involved
in the provision of services under those contracts without sacrificing the
quality of medical care. The Company, as the party to the Global Capitation
Contracts, is the recipient of the capitation payments. The amount of medical
expenses for which the Company is liable under such contracts are difficult for
the Company to control due to uncertainties relating to the general health of
Enrollees and the costs of providing for their medical care. The Company has
entered into four Global Capitation Contracts with three Payors. The inability
of the Company to obtain and maintain such contracts and successfully manage
such expenses would have a material adverse effect on the operating results and
financial condition of the Company. In addition, there is a risk that the
payments from such Payors will decrease over time or that the number of
Enrollees could decrease, which events would also have a material adverse effect
on the operating results and financial condition of the Company. Finally, two of
the Company's contracts with Payors lapsed during fiscal year 1997 and the
parties have continued to conduct business under such contracts which may be
terminated upon notice. There can be no assurance that any of the Company's
managed care contracts will not be terminated or discontinued or that the
Company will be able to secure additional managed care contracts. The loss of
any Payors or the failure to retain such Payors' Enrollees or obtain additional
Enrollees could have a material adverse effect on the operating results and
financial condition of the Company.

RISKS ASSOCIATED WITH CAPITATION PAYMENTS FOR MEDICAL SERVICES

Under the Company's Global Capitation Contracts, the Company receives a
predetermined amount per Enrollee per month or a percentage of the monthly
insurance premium paid to the Payor with respect to such Enrollee ("capitation")
in exchange for the Company's agreement to arrange for certain covered services
under the Global Capitation Contract to each such Enrollee who has selected a
Network PCP. Such contracts pass much of the business risk of providing care,
such as overutilization, from the Payor to the Company. The Company seeks to
control the costs of medical care by providing preventive medical services,
managing the care patients receive and negotiating fees paid to various health
care providers. However, the Company may not be able to control the extent to
which Enrollees covered by such contracts require more frequent or extensive
care than is anticipated. As a result, the Company's costs may be greater than
expected, in which case anticipated earnings under such contracts may be reduced
or eliminated. Any such reduction or elimination of earnings could have a
material adverse effect on the Company's results of operations.

LIQUIDITY; RESTRICTIONS ON FINANCING

Until the Company and its Payors attract an adequate number of capitated
lives in the Company's Global Capitation Contracts, the Company expects to incur
operating losses and experience negative operating cash flows. The Company
believes that its cash and cash equivalents (including short-term investments)
of $22,214,525 as of November 30, 1997 and internally-generated cash will be
sufficient to fund the Company's operations through June 30, 1998. After June
30, 1998, the Company will require additional capital to fund operations,
potential acquisitions, capital expenditures and other commitments. At that
time, the Company will seek additional capital through internally generated
funds or outside sources, but there is no assurance that the Company will be
able to obtain such capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity, Cash Flow and
Capital Resources."

<PAGE>

Under certain circumstances, the Company's Series D Preferred Stockholder
has rights under the Company's Certificate of Incorporation and Shareholders and
Voting Agreement to approve the incurrence by the Company of indebtedness
(including both borrowed money and capitalized leases). In particular, the
Company may not incur debt in excess of $750,000 without the approval of the
holders of 51% of the outstanding shares of Series D Preferred Stock. In
addition, the Company's ability to conduct equity financings may be affected by
certain rights of consent of the holders of the Company's Series A, Series B,
Series C and Series D Preferred Stock. There can be no assurance that such
holders of Preferred Stock will grant their consent to the terms of any such
financings. Also, certain provisions of the Company's Certificate of
Incorporation may inhibit the Company's ability to attract additional financing
due to certain anti-dilution protection provisions, affecting the conversion
ratios of each series of Preferred Stock. Such anti-dilution provisions may be
triggered upon the issuance of additional capital stock on terms more favorable
than those on which the existing Preferred Stockholders obtained their stock.
See " -- Dilution," "Description of Capital Stock" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity, Cash
Flow and Capital Resources."

DILUTION

The Company's stockholders are subject to dilution in various
circumstances. The Company contemplates that it will continue to issue
securities in connection with affiliation transactions, recruiting, and employee
or contractor compensation. The Company may complete such transactions on terms
as may be negotiated by the Company if it believes, in the exercise of its
discretion, that such acquisitions or grants are beneficial, without any
requirement that the Company's stockholders approve such transactions. The
Company may also issue equity securities or securities convertible into equity
securities in connection with additional financing transactions which could
result in dilution to the then existing stockholders.

Upon issuance of such additional equity in the Company, the percentage
ownership interest of each then existing stockholder in the Company will be
reduced proportionately and, depending upon the valuation at which such
securities are issued, such issuances may be dilutive to the then existing
stockholders. The Company cannot estimate the number, if any, of new physicians,
IPAs or investors who will become stockholders of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."

Furthermore, shares of the various series of Preferred Stock are
convertible into shares of Class C Common Stock at conversion ratios that
increase upon the occurrence of certain events. Such adjustments to the
conversion ratios could result in dilution to the holders of Common Stock. See
"Description of Capital Stock." In particular, the conversion ratio with respect
to the Series D Preferred Stock will be subject to adjustment based upon the
medical expenses of Medicare patients and the number of Medicare patients in the
Company's Medicare Global Capitation Contracts. Pursuant to this adjustment
provision, the number of shares of Class C Common Stock into which the Series D
Preferred Stock may be converted (based on the current investment of
$20,000,000) could be increased to as much as 7,272,727, plus additional shares
that may be issued with respect to dividends paid on the Series D Preferred
Stock, by June 30, 1998. In such event, based upon the number of securities
outstanding as of December 1, 1997, the Series D Preferred Stockholder would
hold 37.9% of the outstanding capital stock of the Company on an as converted
basis. Subject to certain conditions, the Series D Preferred Stockholder has
agreed to purchase an additional 1,000,000 shares of Series D Preferred Stock
which would be subject to the same adjustment mechanism. See "Description of
Capital Stock."

VOTING LIMITATIONS

Each of the classes of Common and Preferred Stock is entitled to elect a
certain number of the Company's directors and has its own particular voting
requirements. The holders of the Class A Common Stock are entitled to elect six
of the Company's 20 directors (each a "Class A Director") by an affirmative vote
of a plurality of all votes cast at a meeting at which a quorum of Class A
Common Stock is present. The holders of the Class B Common Stock are entitled to
elect eight of the Company's 20 directors (each a "Class B Director") by an
affirmative vote of a plurality of all votes cast at a meeting at which a quorum
of Class B Common Stock is present. The holders of the Series A Preferred Stock
are entitled to elect one of the Company's 20 directors (each a "Series A
Preferred Director") by an affirmative vote of a plurality of all votes cast at
a meeting at which a quorum of Series A Preferred Stock is present. The holders
of the Series B Preferred Stock are entitled to elect one of the Company's 20
directors (each a "Series B Preferred Director") by an affirmative vote of a
plurality of all votes cast at a meeting at which a quorum of Series B Preferred
Stock is present. The holders of the Series C Preferred Stock are entitled to
elect two of the Company's 20 directors (each a "Series C Preferred Director")
by an affirmative vote of a plurality of all votes cast at a meeting at which a
quorum of Series C Preferred Stock is present. The holders of the Series D
Preferred Stock are entitled to elect two of the Company's 20 directors (each a
"Series D Preferred Director") by an affirmative vote of a plurality of all
votes cast at a meeting at which a quorum of Series D Preferred Stock is
present. Upon

<PAGE>

conversion of all of the Series A, Series B, Series C and Series D Preferred
Stock to Class C Common Stock, the holders of shares of Class C Common Stock
shall be entitled to elect six directors of the Company (each a "Class C Common
Director"). Further, the Company must obtain the consent of the holders of the
Company's Series D Preferred Stock in connection with a variety of significant
corporate activities. See "Description of Capital Stock."

CONCENTRATION OF STOCK OWNERSHIP

There is considerable concentration of ownership of the Company's capital
stock (including notes convertible into the Company's securities, options and
warrants, and assumes conversion of the Preferred Stock into Class C Common
Stock) in the executive officers, directors and Preferred Stockholders, and, to
a large extent, such stockholders control the business, policies and affairs of
the Company. See "Principal and Management Stockholders".

The executive officers and directors of the Company own 99.0% of the Class
A Common Stock of the Company (which as of December 1, 1997 represents
approximately 10.5% of the outstanding capital stock of the Company). The
holders of Class A Common Stock are entitled to elect six of the 20 members of
the Board of Directors.

The executive officers and directors of the Company own, either directly or
indirectly through their equity interests in Medical Holdings Limited
Partnership ("MHLP") approximately 16.5% of the Class B Common Stock (which as
of December 1, 1997 represents approximately 4.8% of the Company's outstanding
capital stock). Five directors of the Company own approximately 29 % of the
issued and outstanding capital stock of BMGGP, Inc., the general partner of
MHLP. MHLP owns 79.8% of the Company's issued and outstanding Class B Common
Stock (which as of December 1, 1997 represents approximately 23 % of the
outstanding capital stock of the Company). The holders of Class B Common Stock
are entitled to elect eight of the 20 members of the Board of Directors.

One director of the Company is an executive officer of St. Joseph Medical
Center, the holder of Series A Preferred Stock. The holder of Series A Preferred
Stock is entitled to elect one of the Company's directors. One director of the
Company is an officer of UniversityCare, LLC., the holder of Series B Preferred
Stock. The holder of Series B Preferred Stock is entitled to elect one of the
Company's directors. One of the directors of the Company is a director and an
executive officer of Genesis Health Ventures, Inc., the holder of Series C
Preferred Stock. The holder of Series C Preferred Stock is entitled to elect one
of the Company's directors. Two directors of the Company are partners of The
Beacon Group III -- Focus Value Fund, L.P., an affiliate of the Series D
Preferred Stockholder. The holder of the Series D Preferred Stock is entitled to
elect two of the Company's directors.

As of December 1, 1997, on an as converted basis, the holder of the Series
A Preferred Stock owns approximately 10.5% of the Company's outstanding capital
stock, the holder of the Series B Preferred Stock owns approximately 4.6% of the
Company's outstanding capital stock, the holder of the Series C Preferred Stock
owns approximately 11.3% of the Company's outstanding capital stock, and the
holder of the Series D Preferred Stock owns approximately 21.4% of the Company's
outstanding capital stock. As of December 1, 1997, assuming the conversion of
all of the outstanding shares of Preferred Stock into shares of Class C Common
Stock, the owners of such Class C Common Stock would together own approximately
47.7% of the Company's outstanding capital stock.

POSSIBLE CHANGE IN CONTROL OF THE BOARD OF DIRECTORS

The Series D Preferred Stockholder may exercise control over the Board of
Directors under certain circumstances. If the Company fails to record positive
net income and has incurred medical expenses with respect to Medicare Enrollees
equal to or greater than 90% of Medicare Capitation Revenue for two consecutive
quarters or three out of five quarters, then each of the two directors
designated by the Series D Preferred Stockholder will be entitled to ten votes
on all matters that come before the Board of Directors. Accordingly, in such
circumstances, the Series D Preferred Stockholder will be able to cast 52% of
the votes of the Board of Directors and will have the ability to control the
business, policies and affairs of the Company. See "Description of Capital
Stock."

UNCERTAINTY OF STRATEGY; ACQUISITION RISKS

The Company's strategy is based upon assumptions relating to the rate of
growth in the number of Enrollees under the Company's Global Capitation
Contracts, the growth rate of the Network, the likely referral and other
business practices of physicians and health care institutions in Maryland,
Washington, D.C., Virginia and surrounding regions and assumptions relating to
the rate and character of reimbursement for services provided through the
various arrangements negotiated by the Company, including the continued
willingness of Payors to enter into risk sharing arrangements. Certain of the
Company's assumptions may prove to be incorrect. The failure of the Company to
substantially increase the number of Enrollees under

<PAGE>

the Company's Global Capitation Contracts would have a material adverse effect
on the operating results and financial condition of the Company. Thus, no
assurance can be given that the Company's strategy will be successfully and
profitably implemented.

The Company's strategy depends, in part, on its ability to expand the size
of its Network. The process of identifying, proposing, negotiating and
implementing economically feasible transactions through which the Company
affiliates with additional physicians is lengthy and complex. The failure of the
Company to effectively recruit or otherwise obtain additional Network physicians
could have a material adverse effect on the Company's ability to implement its
strategy.

GOVERNMENTAL REGULATION

GENERAL. The health care business generally, the activities of the Company,
and the activities of PCPs and other health care providers in the Network are
subject to extensive and pervasive federal and state regulation. The Company
believes that its operations are in material compliance with applicable federal
and state laws and regulations, as currently interpreted and applied.
Nevertheless, federal and state laws and regulations, including the federal
"fraud and abuse" laws, "Stark" and state law restrictions on physician
self-referral, and the pervasive regulation of the activities of managed care
entities, tend to be broadly written and lack extensive judicial interpretation.
There can be no assurance that a review of the Company's operations and
structure by regulatory authorities or courts might not result in a
determination that could adversely affect the Company. Recent changes in the law
permit an entity to request an advisory opinion from the Office of Inspector
General ("OIG") of HCFA with respect to the anti-kickback and Stark statutes.
The Company has not sought such an advisory opinion. Moreover, the regulatory
environment in which the Company operates has changed materially in recent
years, and future changes are likely, some of which could restrict the Company's
existing structure or business relationships, limit its growth, or inhibit its
financial operations or opportunities for success.

INSURANCE. States heavily regulate the activities of insurance companies.
The Company is not licensed as an insurance company because the Company does not
believe its activities constitute the provision of insurance. The staff of the
Maryland Insurance Commission has published its view that certain of the
Company's (and similar managed care entities') proposed methods of payment to
physicians and other providers by compensating Network physicians through
capitation payment arrangements may require the Company and such other managed
care entities to subject themselves to regulation as insurance companies in the
future. The Company enters into Global Capitation Contracts or full risk
contracts only with licensed HMOs to the extent allowed by applicable state law.
In 1995, the National Association of Insurance Commissioners (the "NAIC") issued
a report opining that such risk-sharing arrangements might constitute the
business of insurance, to which state insurance licensing laws may apply. The
NAIC further opined that such state licensing laws would not apply if the
unlicensed entity, such as the Company, contracts to assume "downstream risk"
from a duly licensed health insurer or HMO for health care provided to that
insurance carrier's Enrollees. The NAIC's conclusions are not binding on the
states. Maryland's attorney general has opined, in writing, that the
arrangements with HMOs similar to the Company's are not subject to regulation as
an insurer under Maryland law. There can be no assurance that the Company's
efforts to structure the payment arrangements with HMOs to conduct itself in
such a manner so as not to subject itself to regulation will be successful, and
the imposition of such regulation could have a material adverse effect on the
Company. If the Company were to be regulated as an insurer because it accepts
capitation payments, the Company would be subject to substantial additional
costs to comply with state regulations, including the maintenance of reserves in
accordance with regulations, which could have a material adverse effect on the
Company. See "Business -- Regulation -- Insurance."

MEDICARE FRAUD AND ABUSE RULES. The Company has attempted to design its
business relationships to qualify for "safe harbor protection" under the
Medicare Fraud and Abuse Rules, where available, or for an exception under the
federal and state laws discussed in "Business -- Governmental Regulation,"
including federal and state laws which prohibit "physician self-referrals." Such
laws are broadly drafted, and their application to arrangements such as those
described herein is often uncertain. Since inquiries under such laws are highly
factual, it is not possible to predict with certainty how they may be applied to
the arrangements between the Company and its Network of health care providers.
For example, there is considerable uncertainty as to the applicability of the
federal legislation known as "Stark II". Stark II extends prohibitions against
physician self-referrals to a broad list of services payable under Medicare and
Medicaid. Although the Company believes that it is and will be in compliance
with these laws with respect to its own operations, including its contractual
relationships with Core Medical Groups, IPAs and other providers, there can be
no assurance that enforcement authorities will not assert that the Company, or
certain transactions into which the Company has or will have entered, has
violated or is violating such laws, or that if any such assertion were made,
that the Company would prevail, or that any sanction imposed would not have a
material adverse effect on the operations of the Company. Even the assertion of
a violation of such laws could have a material adverse effect on the operating
results and financial condition of the Company. See "Business -- Governmental

<PAGE>

Regulation -- Medicare and Medicaid Fraud and Abuse Limitations" and
" -- Governmental Regulation -- Federal and State Law Regarding Restrictions on
Physician Self-Referral."

TAXATION. The Company enters into contracts with physicians and other
health care providers, who are not employees of Core Medical Groups, as
independent contractors. In accordance with federal and state tax guidelines
pertaining to independent contractors, the Company does not withhold federal or
state income taxes, make federal or state unemployment tax payments or provide
workers' compensation insurance with respect to such independent contractors.
However, a determination by taxing authorities to the contrary with respect to
the classification of such physicians or other health care professionals as
independent contractors could have a material adverse effect on the operating
results and financial condition of the Company.

ENROLLMENT IN MEDICARE MANAGED CARE PLANS

The Company has entered and will enter into Global Capitation Contracts and
other full risk contracts with HMOs and other managed care plans covering
Medicare patients. The Company's profitability is highly dependent on its
ability to attract existing patients and new Medicare patients to enroll in the
Medicare managed care plans that have entered into Global Capitation Contracts
with the Company. See "Business -- Strategy -- Medicare Managed Care." The
Company's strategy depends on successful joint marketing efforts by such HMOs
and the Company and the willingness of Medicare patients to enroll in managed
care plans. There can be no assurance that the Company will be able to
successfully attract a sufficient number of Medicare patients into Medicare
managed care plans under contract with the Company or that such patients can be
converted or recruited in accordance with the Company's strategy. The failure of
the Company to attract a sufficient number of Medicare patients to Medicare
managed care plans could have a material adverse effect on the operating results
and financial condition of the Company.

RISKS OF CHANGES IN PAYMENT FOR MEDICAL SERVICES

The profitability of the Company may be adversely affected by Medicare and
Medicaid regulations, cost containment decisions of Payors and other payment
factors over which the Company has no control. The federal Medicare program has
undergone significant legislative and regulatory changes in the reimbursement
and fraud and abuse areas, including the adoption of the resource-based relative
value scale ("RBRVS") schedule for physician compensation under Medicare, which
may have a negative impact on the Company's revenue. Efforts to control the cost
of health care services are increasing. Future profitability in the changing
health care environment, with differing methods of payment for medical services,
is likely to be affected significantly by management of health care costs,
pricing of services and agreements with Payors. Because the Company derives its
revenues from the services provided by Network Physicians, further reductions in
payments to physicians generally or other changes in payment for health care
services could have a material adverse effect on the operating results and
financial condition of the Company. See "Business -- Government Regulation."

COMPETITION

The health care industry is highly competitive and is subject to continuing
changes in how services are provided and how health care providers are selected
and paid. Generally, the Company competes with any entity that contracts with
Payors for the provision of prepaid health services (including but not limited
to physician organizations affiliated with hospitals, IPAs and physician
practice management companies) and Payors which own or operate health care
delivery systems. The Company also competes with other companies, including
entities such as managed care organizations which provide managed care and other
services to health care providers, and companies that actually own all or some
portion of medical groups. Such competitors may include local, regional and
national entities.

Some of these competitors provide traditional management services to
primary care, multi-specialty and specialty physician groups, while other
companies provide claims processing, utilization review and other more focused
management services. Some competitors are significantly larger and better
capitalized than the Company and have access to greater resources, provide a
wider variety of services, have greater experience in providing health care
management services, have longer established relationships with buyers of such
services than does the Company, and, through actual employment of physicians or
ownership of medical groups, can exercise more pervasive control over the
clinical activities of the medical groups than does the Company. Such
competition could increase the cost of and complexity of recruiting physicians
to the Network. There can be no assurance that the Company will be able to
recruit a sufficient number of physicians and thereby compete favorably in
contracting with Payors or to expand or maintain the Network in existing or new
markets. Any of the foregoing could have a material adverse effect on the
operating results and financial condition of the Company.

<PAGE>

INTANGIBLE ASSETS

As a result of the Company's acquisitions since 1995, net intangible assets
increased from $23,104 as of June 30, 1995 to $6,475,925 as of June 30, 1997.
The Company's policy is to amortize intangibles over a 10 to 30 year period. The
intangible assets acquired during fiscal 1995, 1996 and 1997 are being amortized
over 20 years using the straight-line method in the Company's consolidated
financial statements. Such amortization is expected to significantly affect the
Company's profitability in the near term. In addition, the Company's future
acquisitions may generate additional intangible assets. As required under
generally accepted accounting principles, the Company reviews the carrying value
of intangible assets at each reporting period to determine if facts or
circumstances exist which suggest that intangible assets may be impaired. If
impairment is determined to have occurred, the value of such intangible assets
will be adjusted downward. There can be no assurance that impairment of the
Company's intangible assets will not occur. Such adjustment, if required, could
have a material adverse effect on the operating results and financial condition
of the Company. See Note 1 to Notes to Consolidated Financial Statements.

CONFLICTS OF INTEREST

Certain conflicts of interest are inherent in the structure of the Company
and its contractual and organizational relationships. For example, Scott M.
Rifkin, M.D., Alan L. Kimmel, M.D., who are Directors, officers and stockholders
of the Company, and Peter J. LoPresti, D.O., and J. David Nagel, M.D., currently
Directors of the Company, are also members of Baltimore Medical Group, LLC, and
are stockholders, officers and directors of BMGGP, Inc., the general partner of
Medical Holdings Limited Partnership ("MHLP"), which as of December 1, 1997 owns
approximately 83% of the Class B Common Stock. Further, D. Alexander Rocha,
M.D., William D. Lamm, M.D., and Robert Graw, Jr., M.D., Directors of the
Company, are also the respective Chairmen of Carroll Medical Group, LLC,
Cumberland Valley Medical Group, LLC and Anne Arundel Medical Group, LLC. Mark
Eig, M.D., a director of the Company, is a member of the Management Committee of
Doctors Health Montgomery, LLC. Such members of management of the Company from
time to time may find it necessary to take certain actions contrary to the
interests of the Core Medical Group physicians (which may include such members
of management), including decisions with respect to compensation of physicians
(including setting of reimbursement rates for physicians and bonus pools), and
reimbursement for inappropriate utilization of medical services. From time to
time, the interests of such persons may conflict with those of the Company due
to such relationships. See also the discussion in "Certain Transactions."

RESTRICTIONS ON TRANSFER OF SECURITIES AND POSSIBLE COMPELLED TRANSFER

Purchasers of Securities will also be subject to a Shareholders Letter
Agreement (the "Letter Agreement") which contains significant contractual
restrictions on the resale or transfer of such Securities and provides that the
Series D Preferred Stockholder may require after July 15, 1999 that all of the
Securities held by each such purchaser be transferred to an unrelated third
party in connection with a sale initiated by the Series D Preferred Stockholder
to such third party of all of the Company's outstanding securities. In the event
of such a required transfer, the holders of Class B Common Stock would receive
the same per share consideration as the Series D Preferred Stockholder, on an as
converted basis. All documents evidencing the Securities will carry a legend to
reflect such restrictions. See "Description of Capital Stock -- Shareholders and
Voting Agreement."

ABSENCE OF PUBLIC MARKET; PENNY STOCK RULES

It is not currently anticipated that any of the Securities described in
this Prospectus will be listed on an exchange or other public market or that a
trading market will develop for the Securities. Consequently, resale of the
Securities will be severely limited and prices of any Securities resold may be
subject to volatility. See "Risk Factors -- Voting Limitations";
" -- Restrictions on Transfer of Securities and Possible Compelled Transfer" and
"Description of Capital Stock."

As it is not expected that any of the Securities will be traded on an
exchange or quoted on Nasdaq, the Securities will be subject to Rule 15g-9 under
the Exchange Act, which, among other things, requires that broker-dealers
satisfy special sales practice requirements, including making individualized
written suitability determinations and receiving any purchaser's written consent
prior to any transaction. If the Securities are deemed "penny stocks" under the
Securities Enforcement and Penny Stock Reform Act of 1990, additional disclosure
would be required in connection with trades in the Securities, including the
delivery of a disclosure schedule explaining the nature and risks of the penny
stock market. Such requirements could additionally limit the liquidity of the
Securities and the ability of the purchasers in this offering to sell their
Securities in the secondary market.

<PAGE>

FEDERAL AND STATE REGISTRATION REQUIREMENTS; POSSIBLE INABILITY TO EXERCISE
OPTIONS

Holders of Options will have the right to exercise such Options only if
there is a current registration statement in effect with the Commission relating
to the shares of Class B Common Stock issuable upon exercise of the Options and
such shares are qualified with or approved for sale by various state securities
agencies, or if, in the opinion of counsel for the Company, there is an
applicable exemption from registration. The shares of Class B Common Stock
underlying the Options are presently registered; however, there can be no
assurance that the Company will be able to keep a registration statement
covering the shares underlying the Options effective. If a registration
statement covering such shares of Class B Common Stock is not kept current for
any reason, or if the shares underlying the Options are not registered in the
state in which a holder resides, the Options will not be exercisable and will be
deprived of any value. See "Description of Capital Stock -- Description of
Options."

KEY EMPLOYEES

The Company depends to a significant extent on key management, technical
and marketing personnel, and depends particularly on the efforts of Mr. Gold and
Drs. Rifkin and Kimmel. The Company's growth and future prospects will depend in
large part upon its ability to attract, motivate and retain highly qualified
personnel. The loss of any key personnel or the inability to hire or retain
qualified personnel could have a material adverse effect on the operating
results and financial condition of the Company. See "Management."

POTENTIAL EXPOSURE TO PROFESSIONAL LIABILITY; AVAILABILITY OF INSURANCE

In recent years, physicians, hospitals and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
medical malpractice and related legal theories. Many of these lawsuits involve
large claims and substantial defense costs. The Company does not engage in the
practice of medicine or provide medical services, nor does it control the
practice of medicine or the provision of health care services by physicians and
other providers within its provider networks or the compliance with regulatory
requirements directly applicable to such providers and the provider network
entities with whom they contract. Nonetheless, the Company maintains
professional malpractice and general liability insurance in amounts deemed
appropriate by management based on the nature and risks of the Company's
business. In addition, each physician and other provider is required to maintain
professional liability insurance coverage, and the Company generally is
indemnified under each of the PSO or IPA Agreements for liabilities resulting
from the negligent performance of services or other misconduct by such Network
Physicians. Although the Company currently is not a party to any material
litigation relating to the practice of medicine, there can be no assurance that
the Company will not become involved in such litigation in the future, that any
claim or claims arising from such litigation will not exceed the Company's
insurance coverage or that such coverage will continue to be available, any of
which could have a material adverse effect on the Company.

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the Company's Articles of Incorporation and Bylaws
and agreements to which the Company is a party could, together or separately,
discourage potential acquisition proposals or delay or prevent a change in
control of the Company, even when stockholders other than the Company's
principal stockholders consider such a transaction to be in their best interest.
For example, the Company's outstanding stock options to management and employees
will vest upon a change in control of the Company, thereby potentially diluting
the equity ownership of a purchaser of the Company's securities. The Company's
Certificate of Incorporation requires, in certain instances, the approval of the
holders of Series D Preferred Stock of the sale by the Corporation of all or
substantially all of its assets, of certain mergers, and certain public
offerings of the Company's common stock. Accordingly, such provisions may limit
the price that certain investors might be willing to pay in the future for
Securities and may discourage potential acquirers. See "Description of Capital
Stock", "Description of Capital Stock -- Shareholders' and Voting Agreement" and
"Principal and Management Stockholders."

ANTITRUST CONSIDERATIONS

The Company, its physicians and other entities with which the Company
contracts are subject to federal and state antitrust statutes as well as to the
interpretations of such statutes by the courts. Because the Company will be
contracting with Payors and with providers for the provision of health care
services by providers who could be deemed to compete with each other for the
provision of such services, and for other reasons, the Company, Network
physicians and other entities with which the Company contracts could be subject
to public and private investigations and enforcement actions under such

<PAGE>

statutes. The health care sector is undergoing significant change and is highly
competitive. See "Risk Factors -- Competition." The Company has consulted with
counsel concerning the appropriateness of its contracting activities under such
statutes and believes that all of its present and proposed activities are
consistent with such statutes and interpretive guidelines issued by the
Department of Justice, the Federal Trade Commission and other regulatory
agencies. There can, however, be no assurance that the Company will not be
challenged on these grounds.

USE OF PROCEEDS

Securities may be issued from time to time in connection with the
affiliation of medical practices by the Company and in certain related
circumstances described in "Plan of Distribution." In exchange for such
Securities (and other consideration), the Company expects to receive certain
enumerated assets of such practices or the consideration specified in the
relevant contract. The Company will issue Securities primarily in connection
with contractual affiliations with physicians and in such related circumstances
and will not, except in connection with the exercise of the Options, receive
cash proceeds in connection with the issuance of the Securities. See "Plan of
Distribution -- IPA Arrangements," " -- Acquisition of Certain Assets of Medical
Practices," and " -- Employment Arrangements."

<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below as of and for the
Company's period ended June 30, 1995 and the years ended June 30, 1996 and 1997
have been derived from the audited consolidated financial statements of the
Company. The selected financial data as of and for the three months ended
September 30, 1996 and 1997, have been derived from the unaudited consolidated
financial statements included herein which, in the opinion of the management of
the Company, include all adjustments consisting of only normal recurring
adjustments, necessary for a fair presentation of the results of operations and
the financial position at and for each of the interim periods presented.
Operating results for the three months ended September 30, 1997, are not
necessarily indicative of the results that may be obtained for the entire year
ending June 30, 1998. The data set forth below are qualified in their entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, the notes thereto and the other financial and
statistical information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
FEBRUARY 24, 1995 SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED YEAR ENDED ----------------------------
JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1997 1996 1997
----------------- ------------- ------------- ------------ ------------
<S><C>
(UNAUDITED)
STATEMENTS OF OPERATIONS:
Capitation Revenue......................... $ -- $ 689,068 $ 10,794,909 $ 1,267,613 $ 4,568,707
Net revenue................................ 850,665 5,428,561 12,037,188 2,194,511 3,397,694
----------------- ------------- ------------- ------------ ------------
Total revenues............................. 850,665 6,117,629 22,832,097 3,462,124 7,966,401

Medical services expense................... -- 969,677 11,188,450 1,195,501 3,908,010
Care center costs.......................... 776,865 5,287,348 11,635,163 2,103,519 3,293,743
General and administrative................. 1,877,735 6,082,902 12,760,687 2,670,080 3,166,519
Depreciation and amortization.............. 27,508 435,573 1,512,772 224,384 476,581
Interest and other income.................. (99,673) (272,666) (246,889) (69,038) (296,440)
Interest expense........................... 23,915 226,908 781,964 148,215 328,069
----------------- ------------- ------------- ------------ ------------
Loss before income taxes................... (1,755,685) (6,612,113) (14,800,050) (2,810,537) (2,910,081)
Income tax expense......................... -- -- -- -- --
----------------- ------------- ------------- ------------ ------------
Net loss................................... $(1,755,685) $ (6,612,113) $ (14,800,050) $ (2,810,537) $ (2,910,081)
----------------- ------------- ------------- ------------ ------------
----------------- ------------- ------------- ------------ ------------
LOSS APPLICABLE TO COMMON STOCK:
Net loss................................... $(1,755,685) $ (6,612,113) $ (14,800,050) $ (2,810,537) $ (2,910,081)
Less: preferred stock dividends
and accretion............................ 113,300 552,531 1,382,083 223,024 805,082
----------------- ------------- ------------- ------------ ------------
Loss applicable to common stock............ $(1,868,985) $ (7,164,644) $ (16,182,133) $ (3,033,561) $ (3,715,163)
----------------- ------------- ------------- ------------ ------------
----------------- ------------- ------------- ------------ ------------
Net loss per common share.................. $ (.31) $ (1.17) $ (2.42) $ (0.47) $ (0.54)
----------------- ------------- ------------- ------------ ------------
----------------- ------------- ------------- ------------ ------------
Dividends declared per common share........ -- -- -- -- --
Weighted average number of shares
outstanding(1)........................... 6,000,000 6,126,410 6,690,794 6,412,434 6,928,688
----------------- ------------- ------------- ------------ ------------
----------------- ------------- ------------- ------------ ------------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------------------------------ ----------------------------
1995 1996 1997 1996 1997
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S><C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 131,885 $ 1,419,295 $ 4,737,828 $ 6,620,516 $ 16,300,210
Working capital (deficit)...................... 73,314 882,132 (5,072,878) 5,345,956 10,473,223
Total assets................................... 1,510,171 11,154,138 23,807,580 17,999,178 38,705,351
Long term obligations.......................... 587,339 5,798,037 8,122,077 6,125,650 8,111,443
Redeemable convertible preferred stock......... 1,948,300 7,910,831 19,282,113 15,623,055 38,081,056
Redeemable Class A Common Stock................ 8,000 2,400,000 -- 5,600,000 --
Class A Common Stock........................... -- -- 8,100 -- 16,200
Total stockholders' deficit.................... (1,845,467) (9,077,851) (20,213,241) (15,017,412) (23,579,471)
</TABLE>

- ---------------
(1) All shares outstanding have been adjusted to reflect a 2-for-1 stock
split-up effected in the form of a dividend effective September 30, 1997.

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

GENERAL

The Company derives substantially all of its revenue from (i) payments made
by Payors to the Company pursuant to Global Capitation Contracts and Gatekeeper
Capitation Contracts ("Capitation Revenue") and (ii) the contractual management
and similar fees earned under its long-term PSO Agreements with Core Medical
Groups ("Net Revenues"). The Company's Net Revenues include the reimbursement of
all medical practice operating costs and the contractual management fees
pursuant to the PSO Agreements and other agreements. Net Revenue is recognized
when services are performed and collection of the related revenue is probable.

The Company expects that during fiscal 1998 the greatest contributor to
operating income will be Capitation Revenue. Raising the Company's level of
profitability associated with Capitation Revenue will depend on (i) increasing
the number of PCPs in the Company's Network and increasing the number of
networks the Company manages; (ii) attracting patients to enroll in benefit
plans of Payors that enter into Global Capitation Contracts with the Company
(principally Medicare beneficiaries); (iii) securing additional, Global
Capitation Contracts and maintaining existing Global Capitation Contracts with
adequate reimbursement rates; and (iv) assisting PCPs in managing the delivery
of high quality care at a cost less than the payments received under the Global
Capitation Contracts. In general, as the number of new Enrollees increased both
the Company's revenues and expenses significantly increased; however, many but
not all expense items have decreased as a percentage of total revenues. Assuming
that the number of Enrollees in Payor plans which have contracted with the
Company continues to increase, the Company expects this trend to continue. In
October 1997, the Company entered into a Global Capitation Contract with NYLCare
Health Plans of the Mid-Atlantic ("NYLCare"). The NYLCare contract increased the
number of physicians in the Network by approximately 1,400 PCPs and 5,700
specialists; and the number of the Company's Medicare Enrollees by approximately
9,900 and is expected to significantly increase Capitation Revenue, which
increase is expected to be offset by a corresponding increase in medical
services expense and general and administrative expenses.

The Company expects to continue expanding the Network with both Payor
Providers through additional Global Capitation Contracts and with Doctors Health
Providers through additional managed care contracting arrangements with PCPs in
individual and group physician practices, and, to a lesser extent than in the
past, with PCPs who sell their assets to the Company and become employed by a
Core Medical Group. Physicians who become Doctors Health Providers designate the
Company as their exclusive agent for managed care contracting with Payors with
which the Company has a Global Capitation Contract and they agree to provide
health care services to Enrollees under the Company's Global Capitation
Contracts. Physicians who become part of the Network as Payor Providers have not
designated the Company as their agent for managed care contracting.

SOURCES OF REVENUE

CAPITATION REVENUES. Under Global Capitation Contracts, the Company
receives Capitation Revenue in the form of a fixed fee or a percentage of
Enrollee premiums from a Payor in exchange for undertaking the obligation to
provide or arrange for the provision of substantially all of the health care
services required by the Enrollees (the majority of expenses associated with
such activities are reported as "Medical Services Expense"). These services are
provided by PCPs, specialists, hospitals and other health care providers which
are part of the Company's Network. The Company also receives revenues from
Gatekeeper Capitation Contracts pursuant to which the Payor compensates the
Company only for primary care medical services. The Company derives no earnings
from the Gatekeeper Capitation Contracts and will attempt to convert the managed
care lives in such commercial gatekeeper contracts to Global Capitation
Contracts when possible.

Due to the Company's focus on Global Capitation Contracts, the Company is
exposed to certain financial risks. The Company may influence, but does not
control the clinical decisions made by health care providers. To the extent that
Enrollees require more care than may be anticipated or require care that is not
reimbursed by the Payor, aggregate capitation payments received by the Company
may not be sufficient to cover the costs of treating the Enrollees. If the
Capitation Revenue is not sufficient to cover the costs, the Company's operating
income would be adversely affected.

Capitation Revenue is prepaid monthly based on the consolidated number of
Enrollees and is recognized as Capitation Revenue during the month the Company
becomes responsible for the care of such Enrollees. During the year ended June
30, 1996, approximately $382,000 and $307,000 were recorded as Capitation
Revenue from Global Capitation Contracts and Gatekeeper Capitation Contracts,
respectively, in the Company's consolidated financial statements. During the
year ended

<PAGE>

June 30, 1997, approximately $9,253,000 and $1,542,000 were recorded as
Capitation Revenue from Global Capitation Contracts and Gatekeeper Capitation
Contracts, respectively, in the Company's consolidated financial statements.
During the period ended June 30, 1995, the Company had no Global Capitation
Contracts or Gatekeeper Capitation Contracts. During the three months ended
September 30, 1997, approximately $4,275,000 and $294,000 were recorded as
Capitation Revenue from Global Capitation Contracts and Gatekeeper Capitation
Contracts, respectively.

Based upon the number of Medicare Enrollees participating on December 1,
1997 in the NYLCare contract and the terms and conditions of the contract, the
Company anticipates that it would receive monthly Capitation Revenue of between
$3,500,000 to $4,000,000. The Company commenced operations under the NYLCare
contract in October 1997 and generated revenue of approximately $3,750,000 and
$4,050,000 in October 1997 and November 1997, respectively. Actual Capitation
Revenue earned pursuant to the NYLCare contract may vary each month due to
fluctuations in the number of Medicare Enrollees.

In December 1997, the Company also executed a letter of intent with Genesis
Health Ventures, Inc. ("Genesis") whereby the Company would assume
responsibility for managing physician and institutional care, subject to certain
exclusions, delivered to approximately 7,000 Medicare Enrollees of an HMO
located on the Eastern Shore of Maryland in exchange for a capitation fee. The
Company anticipates that the agreement will commence on January 1, 1998 and have
a term of two years with annual renewals after the initial term has expired.
Based upon the number of Medicare Enrollees who currently participate in the HMO
and the terms and conditions of the contract, the Company anticipates that it
would receive monthly Capitation Revenue of approximately $2,500,000 from this
arrangement. Actual Capitation Revenue earned pursuant to the Genesis
arrangement may vary each month due to fluctuations in the number of Medicare
Enrollees.

The Company's commercial Global Capitation Contract provides that the
Company may earn incentive revenue or incur Medical Services Expense based upon
the Enrollees' utilization of hospital and other institutional services. Under
this contract, the Payor allocates a monthly capitation amount to an account as
an estimate of hospital and other institutional expenses that will be incurred.
Actual hospital and other institutional costs are charged against such account.
The Company and the Payor share equally any profit or loss arising from such
account caused by hospital and other institutional expenses that are less than,
or exceed the estimated amount allocated to the account pursuant to a settlement
following the applicable contract year. Included in Accrued Medical Services as
of June 30, 1996 and 1997 and September 30, 1997 is approximately $68,000,
$180,000 and $200,000 respectively, of estimated amounts due to the Payor under
this arrangement.

Under the Company's Medicare Global Capitation Contracts, the Company has
assumed responsibility for managing and paying for substantially all of the
medical care for the respective Payors' Enrollees. Consequently, the Company
does not perform a settlement with the Payors under the Medicare contracts.

The Company is responsible for the expenses of some or all of the medical
services provided by its PCPs, specialists and other providers to which it
refers Enrollees under Global Capitation Contracts. The cost of medical services
is recognized in the period in which they are provided and includes an estimate
of the cost of services which have been incurred but not yet reported. The
estimate for accrued medical services is calculated by pricing the open
authorizations for medical services from the Company's medical management system
as well as projecting the associated costs using historical studies of claims
paid and actuarial assistance. Estimates are continually monitored and reviewed
and, as settlements are made estimates are adjusted, and differences are
reflected in current operating results. As of June 30, 1996 and 1997 and
September 30, 1997, approximately $405,000, $4,975,000 and $5,752,000,
respectively, was recorded in Accrued Medical Services for incurred but not
reported services.

As of December 1, 1997, the Company believed there was not a sufficient
number of Enrollees under the Company's Global Capitation Contracts to realize
operating income in excess of the Company's operating costs. To the extent
Enrollees do not enroll in such benefit plans in adequate numbers, it will have
a material adverse effect on the operating results and financial condition of
the Company. The Company's ability to manage successfully the cost of care under
such contracts depends on the overall health of the Enrollees, its ability to
manage appropriate and timely utilization of medical resources in coordination
with the clinical decision-making authority of individual physicians and its
ability to maintain favorable agreements with other health care providers
(hospital and ancillary services). To the extent the Company is unable to
provide or arrange for the provision of substantially all of the health care
services required by its Enrollees at a cost less than the Capitation Revenue
received, it will have a material adverse effect on the operating results and
financial condition of the Company.

NET REVENUE. The Company currently derives a portion of its total revenues
from contractual management and similar fees earned pursuant to the PSO
Agreements with Core Medical Groups which employ physicians who have transferred

<PAGE>

medical practice assets to the Company. The Company intends to increase the
number of PCPs who are employees of the Core Medical Groups at a rate
substantially lower than in the past, and the Company expects Capitation Revenue
to grow at a faster rate than Net Revenue. Thus, Net Revenue as a percentage of
total revenues is expected to decrease over time. The Company provides the Core
Medical Groups with traditional practice management services (such as marketing,
advertising, budgeting, physician acquisition, information systems and
accounting services); billing and collection of patient care fees; office
personnel; equipment and office space; maintenance of patient records and other
medical practice management services. Under the PSO Agreements, the Core Medical
Groups agree to comply with the terms of various managed care contracts,
including the delivery of health care services, 24-hour coverage, coordination
with the Company's care managers, utilization review, quality assurance and peer
review programs and credentialing matters.

As consideration for the services, assets, and facilities provided by the
Company, most of the Core Medical Groups agree to pay the Company the cost of
services, assets and facilities provided by the Company to the Core Medical
Groups. Such amounts paid to the Company are reflected in the Company's
financial statements as Net Revenue.

In addition, pursuant to the PSO Agreements with most of the Core Medical
Groups, the Company is entitled to compensation from the Core Medical Groups for
reimbursement of all practice operating costs and the contractual management
fees due, as defined and stipulated in the PSO Agreements. For the years ended
June 30, 1996 and 1997, the Company recognized approximately $141,000 and
$402,000, respectively, in operating income pursuant to these provisions of the
PSO Agreements. During the three months ended September 30, 1997, the Company
recognized approximately $104,000 in operating income pursuant to these
provisions of the PSO Agreements.

RESULTS OF OPERATIONS

The Company's operating results are significantly affected by the number of
PCPs in the Network, the number of PCPs participating in Global Capitation
Contracts, the number of Global Capitation Contracts in which the Company
participates, and the number of Enrollees in benefit plans under Global
Capitation Contracts with the Company. The following table summarizes the
Company's history with respect to PCPs, executed Global Capitation Contracts and
Enrollees in benefit plans under Global Capitation Contracts with the Company:

<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- -------------
<S><C>
Number of PCPs in the Network................................ 24 59 197
Number of PCPs participating in Global Capitation
Contracts.................................................. 0 45* 110*
Number of Global Capitation Contracts........................ 0 3 3
Number of Global Capitation Contract Patients:
Commercial................................................. 0 2,039 4,943
Medicare................................................... 0 491 3,256

<CAPTION>
SEPTEMBER 30, 1997
------------------
<S><C>
Number of PCPs in the Network................................ 258
Number of PCPs participating in Global Capitation
Contracts.................................................. 109*
Number of Global Capitation Contracts........................ 3
Number of Global Capitation Contract Patients:
Commercial................................................. 5,561
Medicare................................................... 3,509
</TABLE>

- ---------------
* There is a lag between when physicians join the Network and when they become
eligible to participate in Global Capitation Contracts as a result of the
credentialing process and other internal Company controls.

The following table sets forth for the period ended June 30, 1995, the
years ended June 30, 1996 and 1997 and the three months ended September 30, 1996
and 1997 selected financial data expressed as a percentage of total revenues.
Because of the Company's limited operating history, the limited period in which
it has been assisting and managing PCPs, its limited experience with Global
Capitation arrangements and the growth of the Company's revenues, the Company
does not believe that the period to period comparisons, percentage relationships
within periods and apparent trends set forth below are necessarily indicative of
future operations.

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 24, 1995
(INCEPTION) TO YEAR ENDED YEAR ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1996 1997
----------------- ---------- ---------- ------------- -------------
<S><C>
Capitation Revenue................................ 0.0% 11.3% 47.3% 36.6% 57.3%
Net revenue....................................... 100.0% 88.7% 52.7% 63.4% 42.7%
-------- ---------- ---------- ------------- -------------
Total revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Medical services expense.......................... 0.0% 15.8% 49.0% 34.5% 49.1%
Care center costs................................. 91.3% 86.5% 51.0% 60.8% 41.3%
General and administrative........................ 220.7% 99.4% 55.9% 77.1% 39.7%
Depreciation and amortization..................... 3.3% 7.1% 6.6% 6.5% 6.0%
Interest and other income......................... (11.7%) (4.5%) (1.1%) (2.0%) (3.7%)
Interest expense.................................. 2.8% 3.7% 3.4% 4.3% 4.1%
Income tax expense................................ N/A N/A N/A N/A N/A
-------- ---------- ---------- ------------- -------------
Net loss.......................................... (206.4%) (108.0%) (64.8%) (81.2%) (36.5%)
-------- ---------- ---------- ------------- -------------
-------- ---------- ---------- ------------- -------------
</TABLE>

<PAGE>

COMPARISON OF THE YEARS ENDED JUNE 30, 1997, 1996 AND THE PERIOD ENDED JUNE 30,
1995.

The period ended June 30, 1995 is not comparable to the fiscal years ended
June 30, 1996 and 1997, as the period ended June 30, 1995 represents only
approximately four months of operations. Therefore, a comparison of increases
from June 30, 1995 to other periods is generally not meaningful.

TOTAL REVENUES. The Company's total revenues increased to $22,832,097 for
the year ended June 30, 1997 from $6,117,629 in 1996 and $850,665 in 1995.
Capitation Revenue increased to $10,794,909 ($9,252,877 due to Global Capitation
Contracts and $1,542,032 due to Gatekeeper Capitation Contracts) or 47.3% of
total revenues for the year ended June 30, 1997, compared to $689,068 ($382,068
due to Global Capitation Contracts and $307,000 due to Gatekeeper Capitation
Contracts) or 11.3% of total revenues in 1996. During the period ended June 30,
1995, the Company had no Global Capitation Contracts. This increase in
Capitation Revenue from 1996 to 1997 is primarily attributable to an increase in
the number of PCPs affiliated with the Company from 59 to 197, the increase in
the number of PCPs participating in Global Capitation Contracts from 45 to 110
and the increase in the number of Enrollees participating in the Company's
Global Capitation Contracts from 2,530 to 8,199. The Company expects the
Capitation Revenue to increase in total and as a percentage of total revenues
due to the increase in the number of Enrollees participating in the Company's
Global Capitation Contracts.

MEDICAL SERVICES EXPENSE. Medical services expense for the year ended June
30, 1997 was $11,188,450 or 49.0% of the total revenues compared to $969,677 or
15.8% of total revenues in 1996. During the period ended June 30, 1995, the
Company had no medical services expense. The increase in 1997 resulted from the
increase in the number of PCPs participating in Global Capitation Contracts from
45 to 110, and the increase in the number of Enrollees under Global Capitation
Contracts from 2,530 to 8,199. The Company expects these expenses to increase as
the number of PCPs participating in and the number of Enrollees under Global
Capitation Contracts with the Company grow.

CARE CENTER COSTS. Care center costs increased to $11,635,163 for the year
ended June 30, 1997 from $5,287,348 in 1996 and $776,865 in 1995. As a
percentage of total revenues, care center costs decreased for fiscal year 1997
to 51.0% from 86.5% in 1996 and 91.3% in 1995. The increase in care center costs
resulted from the increases in the number of physicians in the Core Medical
Groups from 88 to 97. While these expenses are expected to increase as the
Company continues adding physicians employed in Core Medical Groups, the Company
expects that these expenses will continue to decline as a percentage of total
revenues.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $12,760,687 for the year ended June 30, 1997 from $6,082,902 in
1996, and $1,877,735 in 1995. As a percentage of total revenues, general and
administrative expenses for fiscal year 1997 decreased to 55.9% from 99.4% in
1996 and 220.7% in 1995. The increase in dollar amount resulted primarily from
increased compensation expenses from expansion of the Company's corporate
management team, as well as its marketing, acquisitions, network development and
care management departments and additional operating costs incurred in adding
physicians to the Company's Network and attracting Enrollees in benefit plans
under Global Capitation Contracts. While these expenses are expected to increase
as the Company adds PCPs, the Company expects that these expenses will continue
to decline as a percentage of total revenues.

DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased to $1,512,772 for the year ended June 30, 1997 from $435,573
in 1996 and $27,508 in 1995. As a percentage of total revenues, these expenses
changed to 6.6% for fiscal year 1997 from 7.1% in 1996 and 3.3% in 1995. The
increase in dollar amount resulted primarily from intangible assets acquired in
connection with the purchase of certain medical practice assets from PCPs, as
well as the purchase of certain fixed assets.

INTEREST AND OTHER INCOME. Interest and other income was $246,889 or 1.1%
of the total revenues for the year ended June 30, 1997 compared to $272,666 or
4.5% of total revenues in 1996, and $99,673 or 11.7% of total revenues in 1995.
Changes in interest and other income were due to the variations in the Company's
balance of cash and cash equivalents during the respective periods.

INTEREST EXPENSE. Interest expense was $781,964 or 3.4% of total revenues
for the year ended June 30, 1997, compared to $226,908 or 3.7% of total revenues
in 1996, and $23,915 or 2.8% of total revenues in 1995. These dollar increases
resulted primarily from the increase in the level of the Company's borrowings.

INCOME TAX EXPENSE. In light of the Company's losses and its full valuation
allowance for deferred tax assets, for the years ended June 30, 1997 and 1996,
and the period ended June 30, 1995, the Company did not require a provision for
income taxes.

<PAGE>

NET LOSS. The Company had a net loss of $14,800,050 for the year ended June
30, 1997 compared to $6,612,113 in 1996 and $1,755,685 in 1995.

LOSS APPLICABLE TO COMMON STOCK. In arriving at loss applicable to common
stock, the Company's net loss is increased by dividends payable to the
Redeemable Convertible Preferred Stockholders and accretion. The net loss
applicable to common stock was $16,182,133 for the year ended June 30, 1997
compared to $7,164,644 in 1996 and $1,868,985 in 1995.

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996

TOTAL REVENUES. The Company's total revenues increased to $7,966,401 for
the three months ended September 30, 1997 from $3,462,124 for the three months
ended September 30, 1996. Capitation Revenue increased to $4,568,707 ($4,274,995
due to Global Capitation Contracts and $293,712 due to Gatekeeper Capitation
Contracts) or 57.3% of total revenues for the three months ended September 30,
1997, compared to $1,267,613 ($926,613 due to Global Capitation Contracts and
$341,000 due to Gatekeeper Capitation Contracts) or 36.6% of total revenues in
1996. This increase in Capitation Revenue from 1996 to 1997 is primarily
attributable to an increase in the number of PCPs affiliated with the Company
from 61 to 258, the increase in the number of PCPs participating in Global
Capitation Contracts from 3,139 to 9,070. The Company expects the Capitation
Revenue to increase in total and as a percentage of total revenues due to the
increase in the number of Enrollees participating in the Company's Global
Capitation Contracts and the new NYLCare contract, effective October 1, 1997, as
discussed above.

MEDICAL SERVICES EXPENSE. Medical services expense was $3,908,010 or 49.1%
of total revenue for the three months ended September 30, 1997 compared to
$1,195,501 or 34.5% of total revenue for the three months ended September 30,
1996. This increase resulted from the increase in the number of PCPs
participating in Global Capitation Contracts from 45 to 109, and the increase in
the number of Enrollees participating in the Company's Global Capitation
Contracts from 3,139 to 9,070. The Company expects these expenses to increase
due to the increase in the number of PCPs participating in Global Capitation
Contracts with the Company and the new NYLCare contract, effective October 1,
1997, as discussed above.

CARE CENTER COSTS. Care center costs increased to $3,293,743 or 41.3% of
total revenues for the three months ended September 30, 1997 from $2,103,519 or
60.8% of total revenues for the three months ended September 30, 1996. The
increase in the dollar amount of care center costs resulted from the increase in
the number of physicians in Core Medical Groups from 59 to 98. The Company
expects these expenses will continue to decline as a percentage of total
revenues because the Company anticipates that it will not add a significant
number of physicians to the Core Medical Groups in the future.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3,166,519 or 39.7% of total revenue for the three months ended
September 30, 1997 from $2,670,080 or 77.1% of total revenues for the three
months ended September 30, 1996. This increase in dollar amount resulted
primarily from increased compensation expenses from expansion of the Company's
corporate management team, as well as its marketing, acquisitions, network
development and care management departments and additional operating costs
incurred in adding physicians to the Company's Network and attracting patients
who enroll in benefit plans under Global Capitation Contracts. While these
expenses are expected to increase as the Company adds PCPs, the Company expects
that these expenses will continue to decline as a percentage of total revenues.

DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased to $476,581 or 6.0% of total revenues for the three months
ended September 30, 1997 from $224,384 or 6.5% of total revenues for the three
months ended September 30, 1996. The increase in dollar amount resulted
primarily from intangible assets acquired in connection with the purchase of
certain medical practice assets from PCPs, as well as the purchase of certain
fixed assets.

INTEREST AND OTHER INCOME. Interest and other income increased to $296,440
or 3.7% of total revenues for the three months ended September 30, 1997 from
$69,038 or 2.0% of total revenues for the three months ended September 30, 1996.
The increase in dollar amount resulted primarily from the increase in cash and
cash equivalents and short-term investments.

INTEREST EXPENSE. Interest expense increased to $328,069 or 4.1% of total
revenues for the three months ended September 30, 1997 from $148,215 or 4.3% of
total revenues for the three months ended September 30, 1996. These dollar
increases resulted primarily from the increase in the level of borrowings.

INCOME TAX EXPENSE. In light of the Company's loss and its full valuation
allowance for deferred tax assets, for the three months ended September 30, 1997
and 1996, the Company did not require a provision for income taxes.

<PAGE>

NET LOSS. The Company had a net loss of $2,910,081 for the three months
ended September 30, 1997 compared to $2,810,537 for the three months ended
September 30, 1996.

LOSS APPLICABLE TO COMMON STOCK. In arriving at loss applicable to common
stock, the Company's net loss is increased by dividends payable to the
Redeemable Convertible Preferred Stockholders and accretion. The net loss
applicable to common stock was $3,715,163 for the three months ended September
30, 1997 compared to $3,033,561 for the three months ended September 30, 1996.

LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

CASH FLOW. Net cash used in operating activities was $9,243,439 for the
year ended June 30, 1997, compared to $5,057,464 in 1996 and $1,292,824 in 1995.
The use of cash for operating activities for the year ended June 30, 1997
resulted primarily from (i) $14,800,050 in net losses, (ii) a $1,501,138
increase in prepaid expenses and other receivables offset by (iii) a $5,665,582
increase in accrued and other liabilities and (iv) depreciation and amortization
of $1,512,772. Net cash used in operating activities was $3,271,565 for the
three months ended September 30, 1997.

Net cash used in investing activities was $4,396,624 for the year ended
June 30, 1997, compared to $2,044,842 in 1996 and $410,489 in 1995. The Company
used $2,501,963, $2,129,464 and $238,926 of cash for the acquisition of certain
assets of medical practices and other fixed assets during the year ended June
30, 1997 and 1996 and the period ended June 30, 1995, respectively. Net cash
used in investing activities was $3,756,178 for the three months ended September
30, 1997.

Net cash provided by financing activities was $16,958,596 for the year
ended June 30, 1997, compared to $8,389,176 in 1996 and $1,835,198 in 1995. Net
cash provided by financing activities was $18,590,125 for the three months ended
September 30, 1997. See "Capital Resources."

LIQUIDITY. As of June 30, September 30, and November 30, 1997, the Company
had working capital (deficit) of $(5,072,878), $10,473,223 and $8,525,823,
respectively. In July 1997, the Company received net proceeds of approximately
$18,700,000 from the issuance of Series D Redeemable Convertible Preferred
Stock. See "Capital Resource -- Beacon Financing" below. Until the Company
attracts an adequate number of capitated lives in Global Capitation Contracts,
the Company expects to incur operating losses and experience negative operating
cash flows. The Company believes that its cash and cash equivalents (including
short-term investments) of $22,214,525 as of November 30, 1997 and
internally-generated cash will be sufficient to fund the Company's operations
through June 30, 1998. Subsequent to June 30, 1998, the Company will require
additional capital to fund operations, potential acquisitions, capital
expenditures and other commitments. At that time, the Company will seek
additional capital through internally-generated funds or outside sources, but
there is no assurance that the Company will be able to obtain such capital.
Certain provisions of the Company's Certificate of Incorporation may discourage
potential investors from providing additional capital to the Company due to
certain anti-dilution protection provisions, affecting the conversion ratios of
each series of Preferred Stock. Such anti-dilution provisions may be triggered
upon the issuance of additional capital stock on terms more favorable than those
on which the existing Preferred Stockholders obtained their stock. See "Risk
Factors -- Liquidity; Restrictions on Financing," " -- Dilution," and
"Description of Capital Stock."

The Company has assessed the impact of the year 2000 issue on its reporting
systems and operations. The year 2000 issue exists because many computer systems
and applications currently use two digit date fields to designate a year.
Management of the Company has reviewed the estimated costs to become year 2000
compliant and believes the costs will not have a material impact on the
Company's financial statements and future cash flows.

CAPITAL RESOURCES. The Company has entered into the following financing
transactions during the year ended June 30, 1997:

GENESIS FINANCING. On September 4, 1996 and January 2, 1997, the Company
sold an aggregate of 571,428 shares of Series C Preferred Stock to Genesis
Health Ventures, Inc. (the "Series C Preferred Stockholder") for $10,000,000 in
cash. The proceeds from such sales (the "Initial Genesis Funding") have been
used to fund corporate expenses in conjunction with the business strategy and
the acquisition of medical practices or managed care contracting rights.

<PAGE>

The Subordinated Debt Facility matures upon the earlier of January 31, 1999, a
change in control or an initial public offering of the Company's Common Stock.
The Subordinated Debt Facility may be converted at any time into 285,714 shares
of Series C Preferred Stock. See "Description of Capital Stock."

HBOC TRANSACTION. On May 14, 1997, the Company borrowed $2,000,000 from HBO
& Company ("HBOC"), the Company's current information system vendor, and issued
its subordinated promissory note to HBOC in the principal amount of $2,000,000.
The Note is payable in full on May 14, 1998. The Company is currently
negotiating to refinance this Note. See "Credit Facility Refinancing
Negotiations."

BEACON FINANCING. On July 7, 1997, the Company entered into a Preferred
Stock Purchase Agreement, which was amended on July 15, 1997 (the "Series D
Purchase Agreement"), with The Beacon Group III -- Focus Value Fund, L.P.
("Beacon") pursuant to which the Company agreed to sell to Beacon 3,000,000
shares of the Company's Series D Redeemable Convertible Preferred Stock (the
"Series D Preferred Stock") for an aggregate purchase price of $30,000,000. The
parties completed an initial purchase of 2,000,000 shares for $20,000,000 on
July 15, 1997. The Company incurred issuance costs of approximately $1,289,000
in connection with the Series D financing including financing and due diligence
fees. The $18,711,000 in net proceeds will be used to fund the expansion of the
Company and operating losses. Under the Series D Purchase Agreement, the Company
expects to complete a subsequent sale of 1,000,000 shares for $10,000,000 on or
before June 30, 1998, subject to certain conditions set forth in the Series D
Purchase Agreement. Such conditions include that no event or change shall have
caused any material adverse effect on the Company's business, assets,
liabilities, properties, condition, prospects, operations or results of
operations of the Company. See "Description of Capital Stock" and "Risk
Factors -- Liquidity; Restrictions on Financing," and " -- Dilution."

CHASE CREDIT FACILITY. The Company has established an $11,000,000 credit
facility ("Credit Facility") with Chase Manhattan Bank, N.A. ("Chase") for the
purpose of refinancing its NationsBank Credit Facility of $4,000,000, which was
repaid in November 1997. In addition, the Credit Facility will support a
$4,400,000 standby letter of credit which will be required under the Company's
new Global Capitation Contract with NYLCare. The maturity date of the
$11,000,000 Credit Facility will be November 1, 1998. The Credit Facility will
be collateralized by the Company's cash assets under management with Chase Asset
Management, Inc. and charge interest at an annual rate of approximately 6.5%.

BUSINESS

GENERAL

The Company is a physician driven managed care and medical management
company which operates in conjunction with a comprehensive network of primary
care physicians ("PCPs"), specialists, hospitals and other health care providers
(the "Network"). As of December 1, 1997, the Network included approximately
9,500 physicians in Maryland, Washington, D.C. and Virginia, including
approximately 1,700 PCPs, and 7,800 specialists (including
obstetrician-gynecologists). Within the Company's Network are various smaller
networks of physicians and other health care providers with various levels of
affiliation with each other and with the Company.

The Company's primary focus is managing the delivery of quality health care
services to Enrollees of health maintenance organizations and other prepaid
health insurance plans (collectively, "Payors"). A portion of the Company's
Network includes certain medical groups, physician networks, independent
practice associations ("IPAs") and other health care providers that have
affiliated with the Company through a variety of contractual relationships
whereby such providers have designated the Company as their agent for the
purpose of negotiating Global Capitation Contracts and other managed care
contracts ("Doctors Health Providers"). The Company's Network is designed to
provide Payors with a single-source of well-managed health care providers and to
give the Company access to, and increase its bargaining power for, managed care
contracts. The Company's Network also includes physician networks affiliated
with certain Payors with which the Company has contracted to provide management
services on a capitated basis ("Payor Providers").

Historically, physicians have provided medical care on a fee-for-service
basis delivered through a fragmented system of health care providers, including
individual or small groups of PCPs and specialists. The traditional system
provided few incentives for the efficient utilization of resources and has
contributed to increases in health care costs that are significantly higher than
historical inflation rates. Concerns over the accelerating cost of health care
have caused employers, individuals and the federal and state governments to turn
to HMOs and other forms of managed care in an attempt to manage health care
costs more effectively. The Company believes that overall enrollment in HMOs
will continue to increase due to the fact that

<PAGE>

HMOs generally offer lower overall premium costs than traditional health
insurance which reimburses physicians on a fee-for-service basis.

In an effort to manage their costs and minimize their risk, Payors are
shifting from fee-for-service payments for physicians and are increasingly
utilizing "capitation" arrangements. Under capitation arrangements, physicians
receive a fixed monthly fee per assigned patient and agree to provide certain
health care services required by such patient. Under these arrangements,
physicians or managed care companies such as the Company assume the risk that
they will be able to provide medical care at costs less than the capitation
payment. The Company believes that traditional PCPs and small group specialty
practices are at a disadvantage in a managed care environment because they have
high operating costs, little bargaining power with Payors and little or no
information or data regarding utilization of health care services or the total
health care costs of treating their patients, and therefore are unable to assess
the business risks of managed care. As a result of these trends, PCPs and
specialists have begun to abandon traditional practices in favor of affiliating
with larger organizations, such as the Company, to negotiate capitation rates
and incentive payments with Payors, and to provide management and other services
to physicians to manage the economic risk involved in providing health care.

The Company's overall strategy is to deliver health care at a cost which is
less than the revenues it receives under the capitation contracts it has with
Payors (the "Global Capitation Contracts"). The Global Capitation Contracts
obligate the Company to provide primary care, specialist, hospital and other
services to the Enrollees of Payors' health plans. To achieve its strategy, the
Company emphasizes preventive medical care services to reduce instances of
high-cost, acute care episodes and manages certain medical cases to ensure
proper and efficient treatment. The Company arranges for the cost-effective
delivery of health care services through managed care contracts with various
health care providers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

As a managed care company, the Company negotiates and enters into Global
Capitation Contracts with Payors. Under such contracts, Payors pay the Company a
fixed amount per month based on the number of Enrollees who have selected a PCP
in the Network and the Company provides for the health care needs of such
Enrollees (to the extent covered by the Global Capitation Contract). Through its
contractual arrangements with its Network providers, the Company pays the health
care costs of Enrollees. The Company also receives a management fee derived from
revenues earned by certain physician medical groups it has organized (the "Core
Medical Groups") pursuant to certain long-term management agreements between the
Core Medical Groups and the Company ("PSO Agreement"). The PCPs who have
affiliated with the Company designate the Company as their agent for the purpose
of negotiating Global Capitation Contracts and other managed care contracts.

As a medical management company, the Company coordinates the delivery of
medical care by the various health care providers in the Network. Through a care
management department consisting of physicians, nurses, social workers and other
staff, the Company seeks to promote the wellness of patients, control costs, and
encourage patient satisfaction through the delivery of medical management
services. Such medical management services include case and disease management,
utilization review and quality management services.

HISTORY OF THE COMPANY

FORMATION. The Company was incorporated in Maryland in June 1994, commenced
operations on February 24, 1995 and re-incorporated in Delaware in October 1997.
The Company and its concept of a primary-care driven integrated health care
network emerged from Baltimore Medical Group, P.A. ("BMGPA"), a professional
association of primary care doctors which was formed in the Spring of 1993. The
physicians of BMGPA planned the formation of one or more business entities to
provide the management, administrative, contracting, recruiting and marketing
services needed by the physicians. The Company was organized as a managed care
and medical management company to provide, or cause to be provided, all of the
business services that were required by BMGPA other than the provision of
medical care to patients. In February 1995, the Company commenced operations by
(i) reorganizing BMGPA and facilitating the transfer of its laboratory assets to
Baltimore Medical Group, LLC, the Company's first Core Medical Group, (ii)
assuming exclusive management responsibility and control over the practice
assets and employees of the 15 BMGPA physicians, and (iii) issuing Class B
Common Stock of the Company to Medical Holdings Limited Partnership ("MHLP"), a
Maryland limited partnership owned primarily by the 15 BMGPA physicians. Drs.
Scott Rifkin, Alan Kimmel, J. David Nagel, Peter LoPresti, and Richard Diamond,
five of the original members of Baltimore Medical Group, LLC, are currently
directors of the Company.

The Company received the BMGPA physicians' assets in a reorganization
through MHLP. In February 1995, at the time of the establishment of Baltimore
Medical Group, LLC, the BMGPA physicians transferred certain assets of their
medical practices, excluding laboratory and other ancillary assets, to MHLP in
exchange for an aggregate consideration of approximately $467,000, consisting of
(i) limited partnership interests in MHLP that are currently equal to
approximately a 22.5%

<PAGE>

interest in MHLP, (ii) approximately $19,000 in cash, and (iii) promissory notes
with an aggregate face value of approximately $443,000. In order to comply with
applicable regulatory requirements, the laboratory and other ancillary assets
were transferred directly to Baltimore Medical Group, LLC by BMGPA. MHLP
simultaneously conveyed substantially all of its assets to the Company, and the
Company issued to MHLP 4,400,000 shares of the Company's Class B Common Stock.
The physician owners of BMGPA became members and employees of Baltimore Medical
Group, LLC, and have continued the practice of medicine through Baltimore
Medical Group, LLC. Pursuant to the PSO Agreement between the Company and
Baltimore Medical Group, LLC, the Company (i) performs managed care contracting
and practice management services for Baltimore Medical Group, LLC; (ii) leases
the assets used by the Baltimore Medical Group, LLC physicians in their medical
practices; and (iii) provides non-medical employees to Baltimore Medical Group,
LLC. See "Business -- Operations -- Network Development."

Under the MHLP Partnership Agreement and other related documents, shares of
the Company's Class B Common Stock held by MHLP will be distributed to the
partners of MHLP upon a change in control of the Company, an underwritten public
offering of the Company's common stock, or certain events of liquidation of the
Company. The General Partner of MHLP is BMGGP, Inc., a Maryland corporation,
which owns a one percent (1%) interest in MHLP. The stockholders of BMGGP, Inc.,
are 17 of the initial members of Baltimore Medical Group, LLC, and the 17
initial limited partners of MHLP, including Drs. Rifkin, Kimmel, Nagel, Diamond
and LoPresti. Accordingly, the members of Baltimore Medical Group, LLC,
indirectly own shares of the Class B Common Stock through their limited
partnership interests in MHLP and, for the initial 17 members of Baltimore
Medical Group, LLC, as stockholders of BMGGP, Inc.

EXPANSION. Since the formation of Baltimore Medical Group, LLC and MHLP,
the Network has grown through various affiliations with physicians. Such
affiliations have included physicians who have contractually agreed to
participate in the Company's managed care contracts and physicians who have sold
certain assets of their medical practices and acquired limited partnership
interests in MHLP and membership interests in one of the Company's five Core
Medial Groups: Baltimore Medical Group, LLC, Carroll Medical Group, LLC,
Cumberland Valley Medical Group, LLC, Doctors Health Montgomery, LLC, or Anne
Arundel Medical Group, LLC. In some instances, physicians have received shares
of the Company's Class B Common Stock directly in lieu of partnership interests
in MHLP. See the Chart on page 25 for a diagram of the various contractual and
other relationships among the Company, Network providers and stockholders.

As of December 1, 1997 the Company had obtained the right to negotiate and
execute managed care contracts for 326 PCPs through agreements with individual
PCPs, independent IPAs and independent medical groups and through acquisitions
of assets of the medical practices of PCPs who became employees of a Core
Medical Group. The Company expects it will continue to expand its Network
through Global Capitation Contracts which bring Payor Providers into the Network
and through managed care contractual arrangements with individual physicians,
independent IPAs and existing practice groups in which such physicians agree to
serve managed care patients through the Company's Global Capitation Contracts.
In addition, the Company is pursuing acquisition and expansion opportunities in
the Baltimore and Washington metropolitan areas, other regions in the State of
Maryland, the Commonwealth of Virginia and surrounding regions. While the
Company also expects to add physicians to its Core Medical Groups by acquiring
their assets, such transactions are expected to play a smaller role in the
Company's expansion strategy.

In October 1997, the Company entered into a Medicare Global Capitation
Contract with NYLCare whereby the Company agreed to manage the delivery of
health care to NYLCare Medicare HMO Enrollees. The medical services under the
NYLCare contract will be provided substantially by Payor Providers within
NYLCare's own network. NYLCare Enrollees also have the option of selecting any
of the Company's Providers. The Company has also executed a letter of intent
with Genesis to enter into a similar arrangement whereby the Company would
assume responsibility for managing all physician and institutional care, subject
to certain exclusions, delivered to the Enrollees of a Medicare HMO program on
the Eastern Shore of Maryland. The addition of these two contracts extends the
geographic scope of the Company's operations into the Richmond metropolitan area
and other regions of Virginia and the Eastern Shore of Maryland. These contracts
represent the commencement by the Company of a different operational model of
providing medical management services by assisting Payors in managing their own
networks as opposed to the model whereby the Company managed its own Doctors
Health Provider network and negotiated contracts on behalf of the Doctors Health
Providers. The Company intends to continue to operate under both models;
however, it is presently anticipated that the greater contributor to revenue and
income in the near term is likely to result from managing the networks of
Payors.

<PAGE>

Set forth below is an organizational chart reflecting, as of December 1,
1997, the equity, contractual and other relationships among the Company, its
stockholders, and participants in the Company's Network.

[CHART]

<PAGE>

STRATEGY

The Company believes the evolution of managed care in the health care
industry has created an opportunity to provide health care more efficiently and
profitably than is possible under the traditional "fee-for-service" or "HMO
network" models. Through the Doctors Health Provider network and its medical
management services, the Company has enhanced its bargaining power to negotiate
favorable Global Capitation Contracts with Payors. The Company has also
capitalized on its expertise in managing the delivery of health care in an
efficient and cost-effective manner by entering into strategic partnerships with
Payors to manage the existing provider networks of such Payors. The key elements
of the Company's strategy are as follows:

NETWORK DEVELOPMENT. The Company has constructed its Network by entering
into various affiliation arrangements with PCPs, specialists, hospitals and
other health care providers in the Baltimore and Washington metropolitan areas,
Northern Virginia and surrounding regions to enable it to assume risk under
Global Capitation Contracts for certain health care services. With respect to
Doctors Health Providers, the Company obtains the right to negotiate and execute
managed care contracts on behalf of individual physicians, independent IPAs and
medical groups, and PCPs who have sold their practice assets to the Company and
become employed by a Core Medical Group. With respect to Payor Providers, the
Company obtains the right to manage the delivery of health care provided by the
health care professionals within the Payor's existing provider network.

EFFECTIVELY MANAGE THE DELIVERY OF MEDICAL CARE. The Company believes that
much of the high cost of health care and patient dissatisfaction is caused by
excessive utilization of high cost services and the lack of incentives in the
health care system to help patients avoid high-cost, episodic care. Accordingly,
the Company coordinates the delivery of health care services among the
physicians, hospitals, and other providers within the Network to (i) focus on
wellness and health promotion programs managed by the Company and individual
PCPs, (ii) reduce specialist and other provider costs through early and
effective care management services; and (iii) reduce medical costs, particularly
inpatient costs, through more efficient utilization of alternative medical care
strategies such as outpatient or home care, where medically appropriate. Through
these procedures, the Company believes that it can reduce the overall cost of
medical care to its Enrollees and increase patient satisfaction.

MEDICARE MANAGED CARE. An important element of the Company's strategy is
the enrollment of Medicare-eligible persons in the Medicare managed care plans
with which the Company contracts. Compensation rates for Medicare patients are
considerably higher than for non-Medicare patients, reflecting the greater
historical expense of providing care to Medicare patients. Accordingly, an
important component of the Company's strategy is to (i) obtain access to
significant numbers of Medicare patients through various contractual
arrangements with Payors and PCPs; (ii) work closely with managed care plans
with which the Company contracts to educate Medicare fee-for-service patients of
the PCPs about the advantages of Medicare managed care plans in order to
encourage those patients to enroll in a Medicare managed care plan; and (iii)
attract new Medicare patients to enroll in Medicare HMOs with whom the Company
contracts. Through application of its medical management procedures, the Company
believes that it can reduce the costs of delivering medical care to Medicare
Enrollees.

ATTRACTIVE TO PHYSICIANS. The Company seeks to be attractive to physicians,
particularly to PCPs. The Company is dedicated to the creation of professionally
managed networks that facilitate physicians focusing on the practice of medicine
using clinical protocols and procedures developed in cooperation with fellow
physicians and other sources. The Company also believes that it provides doctors
with the opportunity to benefit from the Company's greater bargaining power in
negotiating capitated managed care contracts as a result of the size and quality
of the Network. Further, the Company believes it affords affiliated physicians a
greater degree of clinical autonomy than is generally permitted in most managed
care contractual arrangements.

STRATEGIC PARTNERING WITH PAYORS. The Company has also increased the size
of its Network by entering into Global Capitation Contracts with Payors to
manage the delivery of health care by the providers in the existing network of
such Payors. Under such contracts, the Company is paid a monthly capitation
amount and assumes the risk for providing the health care required by the
Payors' Enrollees. The Company believes it can capitalize on its expertise in
managing the efficient delivery of health care so that the resulting cost of
delivering the health care is less than the capitation payment received under
such contracts.

OPERATIONS

The Company's operations consist of (i) negotiating Global Capitation
Contracts and other risk arrangements with Payors; (ii) providing and developing
medical management services to Enrollees and Payors, including physician
credentialing, care management, utilization review, referral management and
disease management; (iii) recruiting of physicians and

<PAGE>

other health care providers to further expand and develop the Network, including
the negotiation and execution of managed care contracting agreements with
individual physicians, independent groups and IPAs; (iv) providing traditional
practice management to PCPs who practice medicine through the Core Medical
Groups; and (v) marketing to recruit new Enrollees. For information regarding
the amounts of revenue derived from the various aspect of the Company's
business, see "Management's Discussion and Analysis and Results of
Operations -- Sources of Revenue" and " -- Results of Operations" and the
Company's Audited Consolidated Statements of Operations and Notes 1 and 3
thereto set forth in the "Financial Statements" section of this Prospectus.

MANAGED CARE CONTRACTING. The Company negotiates for and enters into Global
Capitation Contracts with Payors to arrange for health care services to be
provided to the Enrollees in the Payors' health insurance plans. As of November
30, 1997, the Company had 19,819 Enrollees covered by its Global Capitation
Contracts. Of these Enrollees, 5,976 participated in the Company's commercial
Global Capitation Contracts and 13,843 participated in the Company's Medicare
Global Capitation Contracts.

Global Capitation Contracts typically obligate the Company to provide and
pay for all physician services (except for negotiated carve-outs) and, in
certain contracts, hospital and ancillary services for a percentage of the
premium or a fixed capitation payment. The payment from a Payor to the Company
is typically calculated based on the number of Enrollees of the Payor who have
selected the Company's PCPs. Most of such Global Capitation Contracts have terms
of approximately one to three years and, after the initial term, are typically
renewable for one-year terms unless canceled by either party. In its Global
Capitation Contracts, the Company currently attempts to assume risk for all
services, except mental health and pharmacy. Eye care, home health and durable
medical equipment also may be carved out of the Company's risk due to more
competitive terms for these services being available to Payors based on their
existing national relationships. The Payor in each contract also retains a
percentage of the premium to perform marketing, enrollment and certain
administrative services.

The Company also is a party to certain capitation contracts pursuant to
which the Payor compensates the Company only for primary care medical services
("Gatekeeper Capitation Contracts"). The Company derives no earnings from the
Gatekeeper Capitation Contracts and will attempt to convert the managed care
lives in such commercial gatekeeper contracts to Global Capitation Contracts
when possible.

During fiscal 1997, the Company had Medicare Global Capitation Contracts
with Health Care Corporation of the Mid-Atlantic ("HCCMA") and Chesapeake Health
Plan, Inc., a subsidiary of United Health Care of the Mid-Atlantic
("Chesapeake"), resulting in revenue of $7,653,000. The Company's one commercial
Global Capitation Contract, with Free State Health Plan, Inc., a subsidiary of
Blue Cross-Blue Shield of Maryland ("Free State"), generated revenue of
$1,600,000 in fiscal 1997.

In October 1997, the Company entered into a Medicare Global Capitation
Contract with NYLCare which has an initial term of three years. Pursuant to the
NYLCare agreement, NYLCare has designated the Company as its "Network Manager"
responsible for managing the health care needs of approximately 9,900 NYLCare
Medicare managed care patients who reside in certain portions of Maryland,
Washington, D.C. and Virginia. Initially, substantially all of the health care
will be provided through NYLCare's existing network of approximately 1,400 PCPs
and 5,700 specialists. However, NYLCare Enrollees may select a PCP from the
Doctors Health Provider Network or utilize any of the other providers in the
Network. The Company will manage the delivery of health care provided by the
Payor Providers within NYLCare's network through the Company's care management
department.

Based upon the number of Medicare Enrollees participating in the NYLCare
contract on December 1, 1997, and the terms and conditions of the contract, the
Company anticipates that it would receive monthly Capitation Revenue of between
$3,500,000 and $4,000,000. The Company commenced operations under the NYLCare
contract in October 1997 and generated revenue of approximately $3,750,000 and
$4,050,000 in October 1997 and November 1997, respectively. Actual Capitation
Revenue earned pursuant to the NYLCare contract may vary each month due to
fluctuations in the number of Medicare Enrollees.

In December 1997, the Company executed a letter of intent with Genesis
whereby the Company would assume responsibility for managing the physician and
institutional care, subject to certain exclusions, delivered to approximately
7,000 Medicare Enrollees of an HMO located on the Eastern Shore of Maryland in
exchange for a capitation fee. The Company anticipates that the agreement will
commence on January 1, 1998 and have a term of two years with annual renewals
after the initial term has expired. Based upon the number of Medicare Enrollees
who currently participate in the HMO and the terms and conditions of the
contract, the Company anticipates that it would receive monthly Capitation
Revenue of approximately $2,500,000 from this arrangement. Actual Capitation
Revenue earned pursuant to the Genesis arrangement may vary each

<PAGE>

month due to fluctuations in the number of Enrollees. It is anticipated that, at
the outset, the Enrollees will be serviced primarily by Payor Providers. The
Company will manage the delivery of health care provided by the Payor Providers
within the HMO's network through the Company's care management department.

The initial terms of the Company's Medicare Global Capitation Contracts
with HCCMA and Chesapeake expired during fiscal year 1997. However, the terms of
the HCCMA contract provide for automatic renewal of the contract for a period
which ends December 31, 1997. The terms of the Chesapeake contract provide for
automatic renewal of the contract in one year increments, the current term of
which expires May 31, 1998. The Chesapeake contract may, however, be terminated
by either party for cause with 90 days notice and without cause with 120 days
notice. Similarly, the Company's commercial Global Capitation Contract with Free
State terminated during fiscal year 1997, but the Company and Free State have
orally agreed to continue to conduct business pursuant to such contract until
the parties complete negotiations for the terms of a new agreement. The initial
term of the NYLCare contract ends in October 2000. It is expected that the
arrangement with Genesis would commence on January 1, 1998 and have a term of
two years with annual renewals after the initial term has expired.

MEDICAL MANAGEMENT. The Company believes the most successful approach to
managing capitation risk and the costs associated with that risk is through the
care management process. Care management seeks to promote the wellness of
patients, control costs, encourage patient satisfaction and coordinate and
integrate the health care services provided by the Company's Network. The
Company's care management program consists of credentialing, utilization review,
referral management, case management, disease management and quality management.
These programs seek to improve and preserve the quality of health care services
provided by the Company's Network and control the cost of medical care. Under
two of the Company's Global Capitation Contracts, Payors have delegated to the
Company utilization review and care management. The Company employs 13 care
management personnel with experience in medical director, nursing, social work,
case management, and other patient care management. All of the Company's care
management staff are either physicians, registered nurses or licensed social
workers.

CREDENTIALING. All Doctors Health Providers must complete the Company's
credentialing process. In accordance with the Company's credentialing policies
and procedures, these physicians submit a comprehensive application to the
Company's credentialing staff. The application materials are reviewed by the
Company and submitted to an external credentialing verification organization,
which provides primary source verification of information submitted in the
application. The application is then submitted to the Company's physician
credentialing committee and Medical Director for approval. The Company believes
its credentialing process helps ensure the quality of the PCPs and specialists
in the Network and promotes the quality of care provided to patients.

REFERRAL AND UTILIZATION MANAGEMENT. The Company also performs referral and
utilization management. Referral and utilization management encourages PCPs in
the Network to provide cost-effective, quality care by emphasizing preventive
medicine and by eliminating unnecessary tests, procedures, surgeries,
hospitalizations and referrals to specialists. The Company's utilization
management staff reviews for medical appropriateness selected referrals by PCPs
in the Network under the Company's Global Capitation Contracts to other
providers for the use of ancillary services, and for inpatient hospital
admissions. The Company utilizes health care management guidelines that are
widely accepted in the health care industry to review referrals for clinical
appropriateness. The Company shares the guidelines with physicians and prepares
and provides other educational programs regarding utilization and referrals,
including comparative data, to the PCPs. The PCPs provide information regarding
referrals to the Company's utilization management staff which reviews referrals
for services not provided by such PCPs. The Company's utilization management
coordinator and Medical Directors perform a network assessment and
appropriateness review. Utilization and referral management is a critical
component of the Company's operations because it promotes the effective and
efficient use of medical resources, controls the cost of medical care, and
contributes to the Company's ability to negotiate and obtain favorable shared
risk arrangements with Payors.

DISEASE MANAGEMENT PROGRAM. The Company promotes wellness and seeks to
avoid hospitalizations, reduce length of in-patient stays, and otherwise reduce
costs associated with high-frequency and high-cost chronic patient conditions
through its disease management program. The Company's program is currently
focused on three of the most expensive and debilitating ailments suffered by
patients: congestive heart failure, diabetes and asthma. The disease management
process involves physicians and employees from many of the Company's
departments, including utilization management, case management, education
specialists, physician liaisons and contracting. The Company gathers data and
other information regarding these conditions, such as morbidity and mortality
statistics, length of stay and hospital admission rates, and other data related
to the cost of care associated with such conditions. The Company also identifies
patients participating in its Global Capitation Contracts that are at risk or
suffering from one or more of these conditions. Physicians design a recommended
disease-specific medical approach, and the Company's employees involved in
disease management, using the resources of many of

<PAGE>

the Company's departments, develop a plan to provide cost-effective, high
quality care to patients suffering from these chronic diseases. Specifically,
the Company establishes utilization and referral parameters, develops
specialized pharmaceutical and nutritional programs, provides education to
patients, monitors specific cases and provides patient support.

The Company develops its clinical protocols in consultation with physicians
and other sources. Physicians in the Company's Network remain free to diverge
from the protocols when they determine that it is medically appropriate to do
so. The Company's contracts with physicians and other health care providers
expressly state that the Company will not interfere with the physician's
relationship with and responsibility to the patient. While the clinical
protocols and procedures may assist the physician in providing cost-effective
and high quality care, the physician remains free and has the duty under all of
the Company's contracts to treat patients as he or she deems necessary, and not
to discriminate against patients covered by the Company's managed care plans.

CASE MANAGEMENT PROGRAM. The Company's case management program also focuses
on patient satisfaction and cost savings by identifying patients whose diagnoses
will require significant medical care. The Company's staff of case managers
coordinate all aspects of the care of such patients, including development of a
care plan in coordination with the patient's PCP. The care plan includes
evaluating whether a particular treatment is appropriate, whether there are
alternate sites to provide the treatment, and the availability of community
resources to meet treatment needs. Management believes effective case management
will assist PCPs and other health care professionals to slow the progression of
the disease, ensure patient compliance with the required treatment, reduce
hospital admissions and lengths of stay, as well as improve patient
satisfaction. The Company believes that integrated health care, with the PCP at
its core, is both less expensive and provides better health care for the vast
majority of patients.

QUALITY MANAGEMENT PROGRAM. In order to help ensure the quality of health
care services to patients and manage the costs of health care, the Company's
care management department administers a quality management program which
monitors patient satisfaction and the quality of medical records. The care
management department conducts reviews of random samples of cases to monitor
consistency with the Company's policies and procedures regarding referral
management, utilization management and case management. The Company's care
management department has developed and implemented its policies and procedures
in compliance with the standards as specified by certain national accreditation
organizations for the health care industry.

NETWORK DEVELOPMENT. Consistent with the Company's strategy to focus on
primary care providers, the Company has developed its Network by establishing
contractual arrangements with PCPs through (i) independent IPAs and independent
medical groups; (ii) consolidation of physicians in Core Medical Groups through
asset purchase and employment transactions; and (iii) Global Capitation
Contracts with Payors to manage such Payor's existing Payor networks. The
Company has also affiliated with various specialists, hospitals and other health
care providers through a variety of contractual arrangements.

INDEPENDENT PRACTICE ASSOCIATIONS. Historically, the Company has expanded
the Network by contracting with physicians in a variety of IPA arrangements in
which individual PCPs authorize the IPA to negotiate managed care contracts on
their behalf and the IPA then authorizes the Company to negotiate such contracts
on behalf of the IPA. In some cases, the Company contracts with or through an
existing IPA, while in other cases the Company assists physicians who may wish
to establish an IPA. The Company may contract with IPAs on (i) an exclusive
basis, pursuant to which a physician is obligated to conduct all managed care
contracting through the Company; (ii) a non-exclusive basis, pursuant to which a
physician may contract for managed care with others but agrees to take all
patients referred by the Company; or (iii) other contractual terms which may
involve a physician contracting for managed care through others or choosing to
accept or deny patients referred by the Company. As of December 1, 1997, the
Company had 229 PCPs in the Network pursuant to IPA arrangements.

CORE MEDICAL GROUPS. Since the Company's inception, sole proprietors or
small medical groups have organized to conduct group medical practices as Core
Medical Groups affiliated with the Company. Each Core Medical Group is comprised
of a group of physicians under common management and is designed to provide a
full and coordinated spectrum of medical services to patients and meet Payors'
needs. The Core Medical Groups have been formed in five geographic markets in
Maryland. As of December 1, 1997, 97 PCPs were participating in the Company's
Network as employees of five Core Medical Groups.

In typical Core Medical Group transactions, the Company purchases from a
PCP or medical group of PCPs certain medical practice assets as well as contract
rights under certain business contracts of the medical practice and assumes
specified liabilities or obligations. The PCP receives a combination of cash and
Class B Common Stock of the Company, the aggregate value of which is determined
by negotiation between such PCP and the Company.

<PAGE>

Such PCPs enter into Employment Agreements with the Core Medical Group with
a term of ten years. The Company provides managed care contracting and practice
management services to the Core Medical Groups (and indirectly to its
Physicians) pursuant to 30 year PSO Agreements (with automatic, renewable ten
year terms) entered into between the Company and each Core Medical Group. The
Company's structure and the clinical independence of the Core Medical Groups
enable the Core Medical Groups' member physicians to retain their autonomy and
control over clinical decisions through their ownership interests in the Core
Medical Groups.

MANAGING PAYOR NETWORKS. The Company has entered into Global Capitation
Contracts with certain Payors pursuant to which the Company is responsible for
managing the delivery of health care by the providers within an existing network
established by the Payor. The providers in such Payor networks are contractually
obligated to provide medical services to the Enrollees of each such Payor. By
virtue of the Company's Global Capitation Contract with the Payor, the Payor's
providers are obligated to accept as patients any Enrollee of the Company who
selects such provider and to follow, generally to the same extent required of
Doctors Health Providers, the procedures and protocols of the Company's care
management department. The addition of such physicians and other health care
providers in such Payor's networks has substantially increased the size of the
Company's overall Network. As of December 1, 1997, the Company had approximately
7,100 PCPs and specialists in the Network as Payor Providers as a result of such
Global Capitation Contracts involving the management of Payor networks.

CONTRACTING WITH SPECIALISTS. The Company contracts with specialist
physicians for the provision of services to the Company and its affiliated PCPs
in a variety of ways, typically consisting of contractual arrangements involving
discounted fee-for-service or sub-capitation compensation arrangements. As of
December 1, 1997, the Company had approximately 2,100 specialists (including
obstetrician-gynecologists but excluding Payor providers) in its Network
pursuant to various contractual arrangements.

CONTRACTING WITH HOSPITALS AND OTHER PROVIDERS. The Company contracts with
hospitals ("Participant Hospitals") to participate in the Network through
hospital managed care agreements ("Hospital Agreements") pursuant to which the
Company will agree to make the hospital the referral hospital of choice within a
specific service area for specified categories of managed care patients and
specified categories of service. Each Participant Hospital must meet cost and
quality standards and agree to cooperate with the Company in the implementation
of utilization review, to include pre-admission guidelines and processes,
patient care and cost tracking, information exchanges and management reporting
systems and the development of innovative pricing arrangements. Certain
arrangements with hospitals in Maryland require the approval of the Maryland
Health Services Cost Review Commission, which approval has been granted on a
case by case basis. The Company has entered into Hospital Agreements with the
University of Maryland Medical System, St. Joseph Medical Center, Inc., Suburban
Hospital, Doctors Hospital and Georgetown University Hospital. The Company also
enters into contracts with other health care providers to participate in the
Network.

PRACTICE MANAGEMENT SERVICES. Pursuant to the Company's PSO Agreements, the
Company's operations include the delivery of certain practice management
services to the PCPs who are members of the Core Medical Groups. Such services
include administrative, legal and accounting services, lease negotiations, and
financial, billing and collection services. The practice management services
provided by the Company also include maintaining the financial and business
books and records of the Core Medical Groups, providing legal support, providing
marketing and advertising, and paying for costs and expenses incurred in
connection with the operation and administration of the Core Medical Group's
practice of medicine.

The Company operates a billing center in White Marsh, Maryland which
generates and delivers bills to patients and Payors, and collects amounts owed.
As of December 1, 1997, the Company provided billing services for 97 PCPs and
two laboratories. The Company does not intend to increase significantly the
number of PCPs who receive these services.

MARKETING TO RECRUIT NEW ENROLLEES. The Company has developed and is
implementing a marketing program in conjunction with HCCMA, Chesapeake and
NYLCare to enroll Medicare-eligible patients in HCCMA's and Chesapeake's
Medicare HMOs, respectively. The Company may participate in similar marketing
programs with other Payors in the future.

<PAGE>
Set forth below is a chart depicting the Company's Network.

[CHART]

<PAGE>

GOVERNMENTAL REGULATION

The health care business generally, the activities of the Company, and the
activities of PCPs and other health care providers in the Network are subject to
extensive and pervasive federal and state regulation. The Company believes that
its operations are in material compliance with applicable federal and state laws
and regulations, as currently interpreted and applied. Nevertheless, federal and
state laws and regulations, including the federal "fraud and abuse" laws,
"Stark" and state law restrictions on physician self-referral, and the pervasive
regulation of the activities of managed care entities, tend to be broadly
written and lack extensive judicial interpretation. There can be no assurance
that a review of the Company's operations and structure by regulatory
authorities or courts might not result in a determination that could adversely
affect the Company. Moreover, the regulatory environment in which the Company
operates has changed materially in recent years, and future changes are likely,
some of which could restrict the Company's existing structure or business
relationships, limit its growth, or inhibit its financial operations or
opportunities for success.

MEDICARE AND MEDICAID FRAUD AND ABUSE LIMITATIONS. Under the Social
Security Act, it is a felony, punishable by imprisonment or fines or both, to
make false statements of material fact in Medicare or Medicaid billing, or
knowingly and willfully to offer, pay, solicit or receive, directly or
indirectly, any form of remuneration in exchange for referring any patients or
arranging or furnishing any item or service reimbursable by the Medicare or
Medicaid programs (the "fraud and abuse" or "anti-kickback" rules). Criminal
prosecutions are controlled by the Justice Department. The Department of Health
and Human Services ("DHHS"), through the Office of the Inspector General (the
"OIG"), may bring civil actions for monetary penalties and to exclude
individuals from participating in the Medicare or Medicaid programs for
violations of the fraud and abuse rules. The fraud and abuse rules are broadly
drafted, and have been broadly interpreted by courts. Read literally, the fraud
and abuse rules may prohibit not only kick-backs but many legitimate business
arrangements and joint venture activities. Many states have adopted rules
similar to the fraud and abuse rules. While the Company believes that its
activities do not violate the fraud and abuse rules, there can be no assurance
that federal or state regulators might not challenge some of the Company's
activities.

Concerned that legitimate business arrangements were being stifled by the
fraud and abuse rules, Congress directed DHHS to promulgate regulations which
establish "safe harbor" exceptions to the fraud and abuse rules. Initial safe
harbors were adopted in July 1991, and others have been proposed and adopted
from time to time. Some of these safe harbors are applicable to the activities
of the Core Medical Groups, its employee physicians, and the Company, including
provisions related to space and equipment leases, personal service and
management contracts, the sale of practices, bona fide employment relationships,
group practices, physician incentive plans and managed care contracting
activities. Basically, all lease and services agreements must be in writing,
describe all services to be provided, be on commercially reasonable terms, and
require payment consistent with fair market value in arms length transactions
which is not determined by taking into account the volume or value of referrals
of Medicare and Medicaid business. The Company believes that its lease and
management activities generally fall within the safe harbors. However, no
independent appraisal or fairness opinion concerning the fair market value of
such leases or services agreements or the reasonableness of the consideration
received by the Company therefor has been secured, and there can be no assurance
that federal or state regulators might not challenge some of the transactions or
practices of the Company. Failure to comply with a safe harbor exception or the
lack of a safe harbor with respect to a transaction does not itself result in,
or constitute a violation of, the fraud and abuse rules.

RECENT FEDERAL LEGISLATION. The Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") and the Balanced Budget Act of 1997 ("BBA")
created significant new fraud and abuse related provisions. One of the new
programs created was the opportunity to obtain an advisory opinion from the
Office of the Inspector General of the Department of Health and Human Services
("OIG") regarding whether proposed transactions would violate either the
anti-kickback statute or the physician self-referral statute ("Stark"). Written
advisory opinions bind all parties to the advisory opinion, and are to be issued
within a sixty-day time period. The Company has not requested an advisory
opinion with respect to any of its transactions.

In addition, HIPAA created a new safe harbor from the Medicare and Medicaid
fraud and abuse limitations for risk-sharing arrangements between providers and
managed care organizations. Regulations implementing this new safe harbor are
currently under development. However, the statutory provision appears to be
intended to expand the previously existing safe harbors for price reductions and
enrollee incentives between providers and managed care plans and offer
additional protection to organizations such as the Company which assume
capitation risk from Payors. Although regulations implementing this new safe
harbor are being developed, the Company believes that its contractual
relationships with Payors which enroll Medicare beneficiaries in managed care
plans fall within the safe harbor protections.

<PAGE>

The BBA also created a new Part C for the Medicare Program, which is
intended, among other things, to expand the managed care options open to
Medicare beneficiaries. The BBA also creates two new options for beneficiaries
who do not wish to participate in either a managed care program or traditional
Medicare programs. The BBA creates the opportunity for provider sponsored
organizations, or PSOs, to form and offer a Medicare managed care product for
Medicare beneficiaries only. In the past, Medicare required that all HMOs which
offered a Medicare product also offer a commercial HMO product. The BBA also
contains provisions which are intended to offer relief in some instances from
overly restrictive state insurance requirements imposed on PSOs. The Company
intends to closely monitor the development of these new and significant changes
to the Medicare program.

FEDERAL AND STATE LAW REGARDING RESTRICTIONS ON PHYSICIAN SELF-REFERRAL.
Federal law, generally referred to as the "Stark II" legislation, as well as the
physician self-referral laws of Maryland and Virginia and some other states in
which the Company may operate in the future, prohibit "physician
self-referrals," which may be defined generally as referrals to another provider
by a physician with a financial interest in the provider. If a physician has a
financial interest in the provider, including a direct or indirect ownership or
investment interest, or a compensation arrangement with a provider (including
the physician's own Core Medical Group), and no exception is applicable, the
physician may not refer to the provider, and neither the physician nor the
provider may bill for any service rendered pursuant to a prohibited
self-referral. The fundamental difference between the fraud and abuse rules and
Stark II is that the former require some form of intent to induce referrals to
support a finding of violation, while Stark II makes intent irrelevant. Under
Stark II, if a physician refers a Medicare or Medicaid patient or test to an
entity in which he or she has a financial interest, and if no exception applies,
a violation has occurred.

Stark II extended a prior ban on physician self-referral on laboratory
services ("Stark I") to a broad list of designated health services payable under
Medicare and Medicaid, including radiology and other diagnostic services,
radiation therapy services, physical and occupational therapy, durable medical
equipment, enteral and parenteral supplies, equipment, orthotics, outpatient
prescription drugs, home health services, and inpatient and outpatient hospital
services. If a prohibited self-referral occurs, and is not within an exception,
(i) neither the patient nor the Payor may be billed; (ii) Payors can recover all
amounts previously billed and paid in respect of non-excepted self-referrals;
and (iii) the referring physician and the provider are jointly and severally
liable to repay any amounts paid in respect of non-excepted self-referrals. Both
state and federal law also impose substantial monetary (up to $15,000 for each
prohibited referral and up to $100,000 for participating in a "circumvention
scheme") and other penalties for violations, including possible exclusion from
the Medicare and Medicaid programs.

The Maryland fraud and abuse law and Stark II have not been judicially
interpreted and there is considerable uncertainty concerning how they will be
interpreted, including specifically how broadly the exemptions and exceptions to
their application will be applied. Regulations have been promulgated which apply
to Stark I and some, but not all, of Stark II. Certain PCPs participating in the
Company's Network will have both an ownership interest in and a compensation
arrangement with the Company, and certain PCPs will have similar relationships
with the Core Medical Groups and with IPA entities. Certain PCPs will refer
patients among themselves within their practices and as part of the Network. The
Company believes that it is not an entity to which referrals can be made, and
that the referrals of patients by PCPs in the Network should fall within one or
more of the exceptions permitted by Stark II and the state self-referral laws.
Future regulations or statutes might require the Company to restructure its
relationships with its Network, and violation of Stark II by the Company or its
Core Medical Groups could result in significant fines and financial losses which
could adversely affect the Company.

The federal government has implemented regulations which provide a
physician incentive plan exception to the Stark II rules. These regulations
complement a safe harbor for arrangements between entities such as the Company
and Medicare HMOs which will be permitted although they might create incentives
for physicians to limit care to Enrollees of Medicare or Medicaid HMOs. The
Company has entered into arrangements with physicians which it believes fall
within the safe harbor for physician incentive plans.

CIVIL MONETARY PENALTIES, CORPORATE COMPLIANCE PROGRAM. The HIPAA and the
BBA created significant new civil monetary penalties for violations of the
Medicare and Medicaid prohibitions. The acts also created a new class of
violations intended to prohibit the offering of incentives by providers to
Medicare or Medicaid beneficiaries to induce such beneficiaries to use the
providers' services. These and other activities indicate that the federal
government is committed to expending significant resources to uncover and punish
actions which it believes violate the anti-kickback provisions, the Stark
provisions, and other provisions of the law intended to reduce improper or
fraudulent billing. The Company believes that its strategy, which is intended to
focus on and expand managed care business, is consistent with these new
initiatives and that the new federal initiatives do not pose a threat to the
Company's business. The Company endeavors to comply with all of the

<PAGE>

Medicare and Medicaid rules and regulations. However, in part due to the
complexity of the Medicare and Medicaid regulations, it is possible that the
Company might inadvertently bill for services which are determined not to be
reimbursable, or otherwise violate Medicare or Medicaid rules and regulations.
The Company has established a corporate compliance program which is intended to
oversee compliance with the various regulations in order to avoid inadvertent
violations.

ANTITRUST. PCPs who participate in the Network are separate legal entities
and may be deemed to be competitors subject to a range of antitrust laws which
prohibit anti-competitive behavior, including price fixing, division of markets,
and group boycotts and refusals to deal. The Federal Trade Commission has
published guidelines for the formation and activities of managed care
contracting networks, and the Company intends to comply with those guidelines in
developing networks. Nevertheless there is no assurance that review of the
Company's business by courts or state or federal regulatory authorities, or
private antitrust challenges by competitors, will not result in a determination
that could adversely affect the operation of the Company and its Network.

INSURANCE. States heavily regulate the activities of insurance companies
and HMOs. The Company is not registered as an insurance company or HMO with any
state, and does not believe that its activities constitute the business of
insurance, but there can be no assurance that state regulators might not
challenge some of the Company's present or future activities as falling within
the business of insurance, or that the Company might not be required to become a
licensed insurer at some time in the future. The Company can not, without an HMO
or insurance license, offer or sell to individuals or companies health insurance
or the opportunity to purchase health insurance from the Company or hold itself
out or advertise as an insurer or HMO.

On August 10, 1995, the National Association of Insurance Commissioners
("NAIC") issued a report opining that risk-transferring arrangements may
constitute the business of insurance to which state licensing laws apply. The
NAIC opined that such licensing laws would not apply to arrangements such as the
Company's Global Capitation Contracts or full risk contracts because the Company
assumes "downstream risk" from a duly licensed health insurer or HMO for health
care provided to that carrier's Enrollees. The NAIC's conclusions are not
binding on the states.

In Maryland, licensed HMOs are permitted to enter into capitation
arrangements with entities like the Company which assume the obligation to pay
providers directly as long as the HMO has obtained approval for the form of the
"administrative service provider contract" with the entity. In particular, an
administrative service provider is not required to be licensed as an HMO if such
provider accepts the risk of providing and paying for the medical services
required by Enrollees of an HMO. In connection with accepting such risk, the
Company organizes networks of physicians, provides administrative, care
management, utilization review, referral management and other services necessary
to profitably accept managed care risk. All of the Company's Global Capitation
Contracts are administrative service provider contracts with licensed HMOs.

The Attorney General of the State of Maryland has issued an advisory
opinion that calls into question the ability of an unlicensed entity to provide
health care services under Global Capitation Contracts in situations where a
licensed HMO was not the entity contracting with the insured. The Company has no
such arrangements and no present intention to enter into any such arrangements.
The Company has no present plans to become an HMO or insurance company licensed
to offer health insurance in Maryland and intends to continue to offer services
under Global Capitation Contracts only under administrative service provider
contracts.

Some states impose requirements on entities which contract with HMOs and
insurers, and such requirements might impose significant costs on the business
of the Company, which might adversely affect the business or operations of the
Company. The Company is required under its Global Capitation Contracts to either
post a letter of credit or create a segregated fund for the benefit of health
care providers which provide services to Enrollees under Global Capitation
Contracts to which the Company is a party. These added financial requirements
have not created any financial burden to date for the Company.

CORPORATE PRACTICE OF MEDICINE AND THE PROHIBITION AGAINST FEE SPLITTING.
Physicians must be licensed in order to practice medicine. Both Maryland law and
the ethical rules of the American Medical Association and Medical Chirurgical
Society of Maryland prohibit fee splitting, which is generally defined, as
relevant here as a physician soliciting professional patronage through an agent
or a person who profits from the act of the represented physician, or from
paying or agreeing to pay any sum to any person for bringing or referring a
patient. Similar language in other states, but not in Maryland, Virginia, nor
any of the other states contiguous to Maryland, has been coupled with the
corporate practice of medicine doctrine to question management agreements
pursuant to which non-physicians in a management company obtain substantial
financial benefits from a physician practice. The Company's management has no
evidence that Maryland or its neighboring states

<PAGE>

would choose to follow those states which have sought to prohibit management
agreements as fee splitting, and Maryland, in particular, expressly permits
entities organized as LLCs to engage in the practice of medicine.

The corporate practice of medicine doctrine is founded in state medical
licensure statutes which prohibit the practice of medicine without a license.
Corporations, which cannot be licensed, are therefore prohibited from practicing
medicine. The corporate practice doctrine was originally designed to protect the
public against commercial exploitation of medicine by middlemen intervening in
the doctor-patient relationship to make a profit. It is unlawful to practice
medicine in Maryland without a license. Practicing medicine with an unauthorized
person or aiding such person in the practice of medicine is grounds for
disciplinary action, including license revocation.

To permit physicians to practice medicine in a corporate form, Maryland and
each of the contiguous states, including the Commonwealth of Virginia, has
adopted a professional corporations ("PC") statute. Under Maryland's
Professional Service Corporations statute, a corporation that is eligible to be
a PC may not organize under any other corporate form. This precludes use of a
general corporation to render professional services. A PC may only render
professional services through individuals licensed or otherwise authorized to
provide them. The majority of the directors and officers of the PC must be
qualified persons. Moreover, a PC may only issue stock to a licensed individual,
general partnership comprised entirely of licensed members, or a PC organized to
perform the same professional service, and stock may only be transferred to a
qualified person. Consequently, a non-licensed individual could serve as a
director, but could not own stock or vote in the PC.

A Maryland limited liability company ("LLC") may render professional
services, including medical services. There is no requirement that all members
of an LLC organized to perform professional services be licensed. Each of the
Core Medical Groups is organized as an LLC in accordance with Maryland law. The
Company does not employ any physicians to provide medical services, and operates
in strict accord with Maryland law.

The Company will operate as management company on behalf of the Core
Medical Groups and will enter into managed care contracts with managed care
companies in which the Core Medical Groups and IPAs and other physician groups
participate. The management of the Company believes that, under the presently
applicable interpretations of Maryland law and ethical rules applicable to the
practice of medicine in Maryland, the activities of the Company under the PSO
Agreement are not in conflict with or violation of any applicable legal or
ethical requirements imposed on the practice of medicine or on fee splitting.
The Company charges a management fee for some services, but the physicians in
the Core Medical Groups do not share fees with members of other Core Medical
Groups or with the Company.

FUTURE REGULATION. The health care industry is subject to extensive
regulation and is in a state of change. A variety of legislative proposals to
substantially reform the payment for and delivery of health care services have
been presented at both the federal and state levels in the past several years.
Among issues addressed by such legislation have been means to control or reduce
public and private spending on health care, to reform the payment methodology
for health care goods and services by both the public (Medicare and Medicaid)
and private sectors, limitations on federal spending for health care benefits,
and universal access to health care. Reform proposals may continue to be
considered by the legislatures of both the federal and state level in the
future; however, it is uncertain what proposals may be made in the future or
whether any such proposals will be enacted as law. Elements of reform proposals,
if acted upon by federal, state or private Payors for health care goods and
services, may result in reduced or limited payment for health care services or
in controlled or limited access to certain health care services generally. There
can be no assurance what effect such reforms may have on the business of the
Company, and no assurance can be given that any such reforms would not have an
adverse effect on the Company's revenues and/or earnings. There can be no
assurance that future statutes or regulations, or future interpretations of
existing statutes or regulations, will not make it difficult or impossible for
the Company to conduct its business in the manner presently contemplated and
described herein. In any such event, the management of the Company will attempt
to restructure the business of the Company in order to comply with any such new
statutes, regulations or interpretations. There can be no assurance, however,
that the Company will be able to do so, or that such restructuring will not
adversely impact the business of the Company.

Future regulations, statutes or interpretations might require the Company
to restructure its relationships with the Network providers and the Core Medical
Groups, and a violation of Stark II by the Company or its Core Medical Groups
could result in significant fines and financial losses which could adversely
affect the Company.

COMPETITION

The Company's Network competes with other provider networks and medical
groups, including those established by hospitals, other individual physicians,
and IPAs in obtaining managed care contracts with Payors and for quality
physicians to

<PAGE>

participate in the Network. The Company believes that it can successfully
compete with other entities seeking managed care contracts with Payors because
of the Company's large number of PCPs and specialists, thereby providing Payors
and their Enrollees with access to a large number of health care providers under
the Company's medical management program. The Company also has an increasing
geographic coverage of PCPs and specialists with extensive coverage in the
Baltimore metropolitan area and surrounding regions. However, there are a large
number of physicians who could join other provider networks which compete for
managed care contracts.

The Company competes with certain HMOs, other Payors, other provider
networks, medical groups, and hospitals, some of which have greater resources
than the Company, to attract PCPs to participate in the Company's Network.
Further, large established traditional indemnity insurance companies also are
entering the managed care field and may compete with the Company for PCPs.
Certain of the Company's competitors (i) employ physicians, (ii) own such
physicians' medical practices, clinics or medical groups and (iii) exercise
broad control over clinical decisions of such physicians and their medical
practices. The Company competes for PCPs based upon the type and amount of
compensation offered to PCPs, the level of clinical autonomy afforded the
physician and the level and extent of care management services provided to the
physician. The Company believes it can effectively compete with other groups in
attracting PCPs and other physicians because the Company is driven by primary
care physicians and primary care strategies. Further, the Company believes that
it provides its affiliated PCPs with greater clinical autonomy than may be
offered by hospitals, HMOs or insurance companies.

EMPLOYEES

As of December 1, 1997, the Company had approximately 500 employees, of
which approximately 150 were full-time employees in its corporate headquarters
in Owings Mills, Maryland and operations center in White Marsh, Maryland, and
approximately 350 were assigned by the Company to work in physician offices. An
additional 130 physicians, medical staff and laboratory personnel were employed
by the Core Medical Groups.

PROPERTIES

The Company leases approximately 25,800 square feet in Owings Mills,
Maryland for its corporate headquarters. The term of the lease continues until
2001. The Company also has entered into a sublease through 1999 and a lease
through 2002 for approximately 18,770 square feet in White Marsh, Maryland for
its billing and claims processing operation. The Company also leases physician
offices of varying sizes, generally ranging from approximately 900 square feet
to more than 5,000 square feet. The Company anticipates that as it continues to
grow, expanded facilities will be required. The Company does not anticipate
significant difficulties in obtaining additional or new facilities. On July 1,
1997, the Company leased approximately 2,500 square feet of office space in
McLean, Virginia for use as the headquarters of the Company's operations in
Northern Virginia.

LEGAL PROCEEDINGS

The Company is not currently subject to any material legal proceedings.

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's Charter provides that there shall be 20 Directors, six of
which are to be elected by the holders of Class A Common Stock, eight of which
are to be elected by the holders of Class B Common Stock, one of which is to be
elected by the holders of Series A Preferred Stock, one of which is to be
elected by the holders of Series B Preferred Stock, two of which are to be
elected by the Series C Preferred Stock, and two of which are to be elected by
the holders of the Series D Preferred Stock. As of December 1, 1997, there were
only 18 Directors elected to the Board with two vacancies representing one
Director to be elected by the holders of each of the Class A Common Stock and
the Series C Preferred Stock, respectively. Pursuant to the Charter, the two
vacancies may be filled by vote of the remaining directors elected by the
holders of Class A Common Stock or the Series C Preferred Stock, respectively.
All of the Company's directors serve until the next annual meeting of the
Company.

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

NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S><C>
Scott M. Rifkin, M.D. ............ 38 Chairman, Director, Executive Vice President of Corporate
Development
Stewart B. Gold................... 56 President, Chief Executive Officer and Director
John R. Dwyer, Jr. ............... 41 Executive Vice President, Chief Financial Officer, Treasurer and
Director
Alan L. Kimmel, M.D. ............. 44 Executive Vice President for Medical Policy and Practice; Chief
Medical Officer and Director
Paul A. Serini.................... 38 Executive Vice President of Strategic Operations and Director of
Legal Affairs, Secretary and Director
Elizabeth A. Beale................ 43 Senior Vice President of Operations
Michael Cimerola.................. 41 Vice President of Network Development
James A. Gast..................... 35 Vice President of Administration and Assistant Secretary
Cindy E. Gates-Belz............... 34 Vice President of Care Management
Tracey Goessel, M.D. ............. 40 Vice President and Associate Medical Director
Elizabeth A. Hennessey............ 47 Vice President of Information Technology
Thomas F. Mapp.................... 41 Vice President and Corporate Counsel
Kyle R. Miller.................... 35 Vice President of Finance and Assistant Treasurer
John Mulholland, M.D. ............ 65 Vice President and Associate Medical Director
Theresa A. Spoleti................ 39 Vice President of Managed Care Products and Services
Robert A. Barish, M.D. ........... 44 Director
Richard L. Diamond, M.D. ......... 47 Director
Mark H. Eig, M.D. ................ 47 Assistant Medical Director and Director
John W. Ellis..................... 45 Director
Albert Herrera, M.D. ............. 39 Director
Robert G. Graw, Jr., M.D. ........ 56 Vice President of Physician Practice Operations; Director
Richard R. Howard................. 48 Director
William D. Lamm, M.D. ............ 45 Assistant Medical Director and Director
Peter J. LoPresti, D.O. .......... 35 Director
Thomas G. Mendell................. 51 Director
J. David Nagel, M.D. ............. 57 Director
D. Alexander Rocha, M.D. ......... 42 Director
Eric R. Wilkinson................. 42 Director
</TABLE>

Scott M. Rifkin, M.D. is the Chairman, Executive Vice President of
Corporate Development and a Director of the Company designated by the holders of
Class A Common Stock. Dr. Rifkin has been a Director of the Company since 1995.
Dr. Rifkin is a co-founder of Baltimore Medical Group, LLC and currently is its
President and a Management Committee member. Baltimore Medical Group, LLC was
founded in February 1995. Dr. Rifkin has also served as Medical Director of
Fairfield Nursing Center since 1989 and as Director of Pre-Admission
Consultation Service at Union Memorial Hospital since 1990. In addition, Dr.
Rifkin has been engaged in the private practice of medicine since 1988. Dr.
Rifkin is also an expert in long-term care issues and has advised the State of
Maryland on this subject.
37

<PAGE>

Stewart B. Gold is the Chief Executive Officer, President and a Director of
the Company designated by the holders of Class A Common Stock. He has been a
Director of the Company since 1995. Prior to joining the Company in 1994, Mr.
Gold was Chief Executive Officer and President of Veritus Services Inc., an arm
of Blue Cross of Western Pennsylvania from 1992 to 1993, where he was
responsible for the for-profit ventures in managed care, utilization and
information systems. From 1991 to 1992, Mr. Gold served as President and Chief
Executive Officer of Health Care Affiliated Services, Inc.

John R. Dwyer, Jr., is the Executive Vice President, Chief Financial
Officer, and Treasurer of the Company, and has been a Director of the Company
designated by the holders of Class A Common Stock since May 1996. Prior to
joining the Company in May 1996, he was a principal in the Washington,
D.C.-based private investment bank of Graham, Hamilton & Dwyer, Inc. Before
joining Graham, Hamilton & Dwyer, Inc. in October 1990, Mr. Dwyer was the
President of Dimetrics, Inc., a wholly-owned subsidiary of Talley Industries in
California, a position he held since August 1987. Before joining Dimetrics,
Inc., Mr. Dwyer was the President of Merrick East, Inc. from April 1985 to July
1987, an entity subsequently acquired by Dimetrics. Before joining Merrick East,
Inc., Mr. Dwyer practiced law with Arent, Fox, Kinter, Plotkin and Kahn in
Washington, D.C. from September 1981 to March 1985.

Alan L. Kimmel, M.D. has served as Chief Medical Officer since December
1997 and has served as the Executive Vice President for Medical Policy and
Practice, Medical Director, and Director of the Company designated by the
holders of Class A Common Stock since 1995. Dr. Kimmel is a co-founder of
Baltimore Medical Group, LLC and the Company, is the Chairman of Baltimore
Medical Group, LLC and has had an active clinical practice of Internal Medicine
in Baltimore since 1982. Dr. Kimmel's professional memberships include American
College of Physicians, American Society of Internal Medicine, Baltimore City
Medical Society and the Southern Medical Association.

Paul A. Serini is the Company's Executive Vice President of Strategic
Operations and Director of Legal Affairs, a position he has held since February
1995, and has been a Director of the Company designated by the holders of Class
A Common Stock since May 1996. From 1990 to 1995, Mr. Serini was a partner in
the Baltimore and Washington offices of the law firm of Venable, Baetjer and
Howard, LLP, where he headed the business transaction group's Health Care
Strategic Business Unit.

Elizabeth A. Beale has been the Company's Senior Vice President of
Operations since December 1997 and Vice President of Marketing and Physician
Recruiting from January 1996 to December 1997. Prior to joining the Company in
1995, from 1991 to 1995 Ms. Beale was employed as the Vice President/Management
Director of HRS Maine, Inc., a joint venture company owned by Blue Cross of
Western Pennsylvania and Blue Cross/Blue Shield of Maine. HRS Maine provides
health care and workers' compensation cost management services for 200,000
employees.

Michael Cimerola has been the Company's Vice President of Network
Development since December 1997 and Director of Network Development from October
1996 to December 1997. Prior to joining the Company in 1996, Mr. Cimerola served
Mercy Medical System as Director of Financial Services from 1991 to October 1996
and Director of Administrative Services from 1987 to 1991.

James A. Gast serves as Vice President of Administration. Prior to joining
the Company in February 1996, Mr. Gast served as Corporate Counsel at The Bank
of Baltimore from September 1991 until the bank was acquired by First Fidelity
Bancorporation. From 1988 to 1991, Mr. Gast served as Corporate Counsel at Hale
Intermodal Transport Co., an international shipping company.

Cindy E. Gates-Belz has been the Company's Vice President of Care
Management since December 1997 and Director of Care Management from October 1995
to December 1997. Prior to joining the Company in 1995, Ms. Gates-Belz served
CoreSource, Inc. as Vice President of Healthcare Management Policies and
Programs from February 1995 to October 1995 and Director of Healthcare
Management from December 1993 to February 1995. From October 1990 to December
1993, she was a Managed Care Specialist for Blue Cross and Blue Shield of
Maryland.

Tracey Goessel, M.D. serves as the Company's Vice President and Associate
Medical Director, a position she has held since March 1997. Prior to joining the
Company, Dr. Goessel was Medical Director and Vice President, Medical Affairs
for Health Cost Consultants from 1994 to 1997 and Vice President, Medical
Affairs for PHP HealthCare from 1996 to 1997. In 1993, Dr. Goessel served as
Acting Medical Director of Pacific Review Services. Prior to that, she was an
Assistant Professor in the Department of Surgery at the Johns Hopkins Hospital.

<PAGE>

Elizabeth A. Hennessey is the Company's Vice President of Information
Technology, a position she has held since August 1996. Ms. Hennessey joined the
Company in July 1995 as Director, Information Systems. Prior to joining the
Company, Ms. Hennessey served as Director, Information Systems for University of
Maryland's faculty practice, University Physicians, Inc. since 1989.

Thomas F. Mapp serves as Vice President and Corporate Counsel of the
Company. Prior to joining the Company in 1995, he was in the private practice of
law. From 1986 to 1994, Mr. Mapp practiced with the law firm of Venable, Baetjer
and Howard, LLP.

Kyle R. Miller, the Company's Vice President of Finance, joined the Company
in August 1996. From 1984 until he joined the Company, Mr. Miller was employed
by Arthur Andersen LLP, CPAs where he was a senior manager in the firm's health
care audit and business consulting division. Mr. Miller is a member of the
American Institute of Certified Public Accountants (AICPA).

Theresa A. Spoleti has been the Company's Vice President of Managed Care
Products and Services since January 1996. Prior to joining the Company in 1995,
Ms. Spoleti was Director of Management Services Organization, then Director of
Physician Alliances, at Greater Baltimore Medical Center, from 1992 to June of
1995. From 1987 to 1992, she was a principal in Management Consulting at Health
Care Systems Associates (HSA), Inc. in Potomac, Maryland.

Robert A. Barish, M.D. has served as a Director of the Company since July
1997 designated by the holders of the Series B Preferred Stock. Dr. Barish is
currently the Chief Executive Officer of UniversityCare, LLC, the Company's
Series B Preferred stockholder. Dr. Barish previously served as the Director of
Emergency Medical Services at the University of Maryland Medical Center and as a
Professor of Surgery and Medicine at the University of Maryland School of
Medicine.

Richard L. Diamond, M.D. is a Director of the Company designated by the
Class B stockholders, a position he has held since June 1997. Dr. Diamond has
been a physician in the private practice of adult medicine since 1981. Dr.
Diamond also is a director and the treasurer of BMGGP, Inc., the general partner
of Medical Holdings Limited Partnership and has served on the Management
Committee and as Treasurer of Baltimore Medical Group, LLC.

Mark H. Eig, M.D. has served as Director of the Company designated by the
holders of Class B Common Stock and Assistant Medical Director since May 1996.
Dr. Eig has practiced internal medicine and critical care medicine in Silver
Spring, Maryland since 1980 and is on the Management Committee of Doctors Health
Montgomery, LLC. Dr. Eig currently serves on the Board of Directors for the
Jewish Social Service Home Health Agency and as the Chairman for their
utilization review Committee and Professional Advisory Committee. Dr. Eig also
serves as the Chairman for Holy Cross Hospital Pharmacy and Therapeutics
Committee and Montgomery County Medical Society Emergency Medical Service
Committee.

John W. Ellis, CPA has served as a Director of the Company since 1995 as a
designee of the Series A Preferred Stockholder. Mr. Ellis is currently the Chief
Financial Officer and Treasurer of St. Joseph Medical Center. Inc. (the Series A
Preferred Stockholder), a position he has held since June 1992. Prior to joining
St. Joseph Medical Center, Mr. Ellis served as Vice President, Finance of
Maryland General Hospital from June 1989 to June 1992.

Albert Herrera, M.D. has been a Director of the Company designated by the
holders of Class B Common Stock since August 1997. Dr. Herrera has been in the
private practice of medicine in Alexandria, Virginia since 1989. Dr. Herrera
also serves on the Board of Directors and on the Medical Advisory Committee of
Doctors Health of Virginia, Inc.

Robert G. Graw, Jr., M.D. is a Director of the Company designated by the
holders of Class B Common Stock, a position he has held since May 1996. He has
been in the private practice of General Pediatrics and Pediatric Hematology and
Oncology since 1975 in Davidsonville, Maryland. From 1965 through 1975, Dr. Graw
held several positions with the National Institute of Health, where he performed
clinical medical research with the National Cancer Institute in childhood
malignancy and bone marrow transplantation. Since April 1996, Dr. Graw has
served as the Company's Vice President of Medical Practice Operations and is
chairman of Anne Arundel Medical Group, LLC and a member of the Management
Committee of Carroll Medical Group, LLC. Dr. Graw is currently President and
Managing Partner of the Pediatric Group, President of Nighttime Pediatrics, Inc.
and Nighttime Pediatrics North, and past Chief of Pediatrics at Anne Arundel
Medical Center in Annapolis, Maryland.

Richard R. Howard has served as a Director designated by the holders of
Series C Preferred Stock of the Company since September 1996. He has served as a
director of Genesis Health Ventures, Inc. since May 1985 and as Chief Operating
Officer of Genesis Health Ventures, Inc. since June 1986. He joined Genesis
Health Ventures, Inc. in September 1985 as Vice President of Development. Mr.
Howard's background in health care includes two years as the Chief Financial
Officer of HGCC.

<PAGE>

Mr. Howard's experience also includes over ten years with Fidelity Bank,
Philadelphia, Pennsylvania and one year with Equibank, Pittsburgh, Pennsylvania.

William D. Lamm, M.D. has served as a Director of the Company designated by
the holders of Class B Common Stock since May 1996 and has been in the private
practice of medicine since 1983. Dr. Lamm's professional memberships include The
American Medical Association, the American Academy of Family Practice and the
Medical and Chirurgical Faculty of Maryland. Dr. Lamm is President of the
Medical Staff at Memorial Hospital and is on the Board of Trustees with both
Memorial Hospital and Western Maryland Health System. Dr. Lamm has served as the
Chairman of Cumberland Valley Medical Group, LLC and Assistant Medical Director
of the Company since May 1996.

Peter J. LoPresti, D.O. has been a Director of the Company designated by
the holders of Class B Common Stock since February 1995. Dr. LoPresti has been a
physician in private practice since 1992. Dr. LoPresti is a co-founder of
Baltimore Medical Group, LLC and currently is a member of the Management
Committee of Baltimore Medical Group, LLC.

Thomas G. Mendell has been a Director of the Company designated by the
holders of Series D Preferred Stock since July 1997. In addition, Mr. Mendell
has been a Partner of The Beacon Group, an affiliate of the Series D Preferred
Stockholder, since its founding. Mr. Mendell also serves as a director of
Catalina Marketing Corporation (NYSE) and several private companies. From
November 1986 to December 1993, Mr. Mendell was a Partner of Goldman Sachs & Co.

John Mulholland, M.D. has served as Vice President and Associate Medical
Director of the Company since July 1995. Prior to joining Doctors Health, Dr.
Mulholland served as President of the Union Memorial Hospital Foundation in
Baltimore from 1992 to 1994, and as Associate Medical Director of Blue
Cross--Blue Shield of Maryland from 1994 to 1995. From 1972 to 1992, Dr.
Mulholland was Chief of Medicine at Union Memorial Hospital.

J. David Nagel, M.D. has served as a Director of the Company designated by
the holders of Class B Common Stock, and as Director of Legislative Affairs
since February 1995. Dr. Nagel has been in the private practice of medicine
since 1968 and is a past president of the Medical and Chirurgical Faculty of
Maryland. Dr. Nagel is a co-founder of Baltimore Medical Group, LLC and
currently is a member of Baltimore Medical Group, LLC.

D. Alexander Rocha, M.D. has served as a Director of the Company designated
by the holders of Class B Common Stock since May 1996 and is currently the
President of North Carroll Family Physicians, where he has served since November
1989. Dr. Rocha has been Chairman of Carroll Medical Group, LLC since December
1995.

Eric R. Wilkinson has been a Director of the Company designated by the
holders of Series D Preferred Stock since July 1997. In addition, since December
1995, Mr. Wilkinson has been a Partner of The Beacon Group, an affiliate of the
Series D Preferred Stockholder. From March 1994 to December 1995, Mr. Wilkinson
served as a Principal of The Beacon Group. Mr. Wilkinson also serves as a
director of several private companies. From March 1989 to March 1994, Mr.
Wilkinson served as a Partner and a director of Apax Partners, a $300 million
overseas private equity fund.

COMMITTEES OF THE BOARD OF DIRECTORS.

The Finance and Audit Committee has responsibility for reviewing and
supervising the financial controls of the Company. The Finance and Audit
Committee makes recommendations to the Board of Directors of the Company with
respect to the Company's financial statements and the appointment of independent
auditors, review significant audit and accounting policies and practices, meets
with the Company's independent public accountants concerning the scope of audits
and reports and reviews the performance of overall accounting and financial
controls of the Company. The Finance and Audit Committee consists of John Ellis,
Chairman, Stewart B. Gold, Scott M. Rifkin, M.D., John R. Dwyer, Jr., Paul A.
Serini, and Robert G. Graw, Jr., M.D. During fiscal year 1997, there were six
meetings of the Finance and Audit Committee.

The Employee Compensation Committee has the responsibility for reviewing
the performance of the executive officers of the Company and recommending to the
Board of Directors of the Company annual salary and bonus amounts for all
officers of the Company. The Employee Compensation Committee also administers
the Company's Omnibus Stock Plan. The Employee Compensation Committee consists
of Stewart B. Gold, Scott M. Rifkin, M.D., Alan L. Kimmel, M.D., Mark H. Eig,
M.D., and John Ellis. During fiscal year 1997, there were five meetings of the
Employee Compensation Committee.

To the extent permitted by law, the authority of the Board to act on all
matters is vested in and exercised by the Executive Committee. The Executive
Committee consists of Stewart B. Gold, Scott M. Rifkin, M.D., Alan L. Kimmel,
M.D., Richard R. Howard, Thomas G. Mendell and Eric R. Wilkinson. During fiscal
year 1997, there were four meetings of the Executive Committee and one written
consent of the committee in lieu of meeting.

<PAGE>

DIRECTOR COMPENSATION.

The Company does not currently pay the Directors any fees for serving on
the Board of Directors, although the Company may consider a change in this
policy in the future.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the
compensation of the Company's Chief Executive Officer and each of the other four
most highly compensated executive officers (the "Named Executive Officers")
during the fiscal years ended June 30, 1996 and 1997:

SUMMARY COMPENSATION TABLE (1)(2)
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING ALL OTHER
NAME YEAR SALARY ($)(3) OPTIONS # COMPENSATION (4)
- ---- ---- ------------- ---------- ----------------
<S><C>
Stewart B. Gold,
Chief Executive Officer.............................................. 1996 253,848 0 9,442
1997 300,777 0 12,407
Scott M. Rifkin, M.D.,
Chairman and Executive Vice President of Corporate Development....... 1996 126,923 200,000 9,211
1997 225,577 60,000 12,407
John R. Dwyer, Jr.,
Chief Financial Officer.............................................. 1996 32,250 140,000 772
1997 195,750 60,000 12,407
Paul A. Serini,
Executive Vice President of Strategic Operations..................... 1996 203,010 100,160 41,529(5)
1997 175,673 60,000 11,907
Alan L. Kimmel, M.D.,
Executive Vice President for Medical Policy and Practice
and Chief Medical Officer............................................ 1996 75,962 0 5,399
1997 160,385 60,000 6,887
</TABLE>

- ---------------
(1) In accordance with SEC rules, perquisites constituting less than the lesser
of $50,000 or 10% of the total salary and bonuses are not reported.
(2) See "Option Grants," "Option Exercises and Year-End Values" and "Omnibus
Stock Option Plan" for disclosure regarding outstanding stock options.
(3) Includes payments made in fiscal year 1998 with respect to services
performed by Mr. Gold and Drs. Rifkin and Kimmel through June 30, 1997 in
the amounts of $75,000, $75,000 and $60,000, respectively.
(4) Includes matching contributions under the Company's 401(k) Plan and
reimbursement for health, life and long-term disability insurance.
(5) Includes $37,500 paid in lieu of salary.

Options granted to the Named Executive Officers during the fiscal year
ended June 30, 1997 are set forth in the following table. For disclosure
regarding the terms of stock options, see " -- Omnibus Stock Option Plan." No
stock appreciation rights ("SARs") were granted during the fiscal year ended
June 30, 1997.

OPTION GRANTS DURING FISCAL YEAR 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF
# % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE OR APPRECIATION FOR
UNDERLYING GRANTED TO ALL BASE PRICE OPTION TERM(2)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 0% 5%
- ---- ---------- -------------- ----------- ---------- --------- ---------
<S><C>
Stewart B. Gold..................... -- -- -- -- -- --
Scott M. Rifkin, M.D. .............. 60,000 10.6% $7.50 11/6/06 $ 0 $ 0
John R. Dwyer, Jr. ................. 60,000 10.6% $.005 11/6/06 $ 209,700 $ 341,760
Paul A. Serini...................... 60,000 10.6% $.005 11/6/06 $ 209,700 $ 341,760
Alan L. Kimmel, M.D. ............... 60,000 10.6% $7.50 11/6/06 $ 0 $ 0

NAME 10%
- ---- ---------
<S><C>
Stewart B. Gold.....................
Scott M. Rifkin, M.D. .............. $ 94,680
John R. Dwyer, Jr. ................. $ 544,380
Paul A. Serini...................... $ 544,380
Alan L. Kimmel, M.D. ............... $ 94,680
</TABLE>

- ---------------
(1) Unless otherwise noted, these options vest on the fifth anniversary of the
grant date, but the vesting may be accelerated at the rate of 20% per year
in the event the Named Executive Officer satisfies certain performance
criteria during the Company's fiscal year.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of the term for the appreciated stock
price.

<PAGE>

No stock options were exercised by the Named Executive Officers during the
fiscal year ended June 30, 1997. There were no stock appreciation rights
outstanding during the fiscal year ended June 30, 1997. The following table sets
forth certain information regarding unexercised options held by each of the
Named Executive Officers as of June 30, 1997:

OPTION EXERCISES AND FISCAL YEAR-END VALUES DURING FISCAL YEAR 1997

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
FISCAL YEAR-END IN-THE-MONEY OPTIONS
(JUNE 30, 1997) AT JUNE 30, 1997($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S><C>
Stewart B. Gold.................................................. 0 0 N/A N/A
Scott M. Rifkin, M.D. ........................................... 0 260,000 0 $699,975
John R. Dwyer, Jr. .............................................. 28,000 172,000 0 $209,000
Paul A. Serini................................................... 100,160 60,000 $350,059 $209,700
Alan L. Kimmel, M.D. ............................................ 0 60,000 N/A 0
</TABLE>

- ---------------
(1) The value is calculated on the basis of the difference between (i) the
option exercise price and (ii) the estimated value of the common stock at
June 30, 1997 as determined by the Board of Directors of the Company,
multiplied by the numbers of shares of common stock underlying the option.

OMNIBUS STOCK OPTION PLAN.

On August 9, 1995, the Company adopted the Omnibus Stock Option Plan (the
"Omnibus Plan"). All employees, officers, directors and other key contributors
to the Company may participate in the Omnibus Plan. The aggregate number of
shares of Common Stock which may be issued under the Omnibus Plan is 6,175,000.
The Omnibus Plan authorizes the grant of options to purchase Common Stock
intended to qualify as incentive stock options or non-qualified options as well
as stock appreciation rights and restricted or unrestricted share awards. The
Omnibus Plan is administered by the Employee Compensation Committee of the Board
of Directors which, subject to the provisions of the Omnibus Plan, has full
authority (i) to select the individuals to participate in the Omnibus Plan, (ii)
grant awards provided under the Omnibus Plan, (iii) modify, renew or extend
outstanding grants in accordance with the Omnibus Plan, (iv) interpret the
Omnibus Plan, and (v) adopt, amend or rescind rules and regulations for carrying
out the Omnibus Plan.

The option exercise price for each option is determined by the Employee
Compensation Committee, but in the case of incentive stock options shall not be
less than 100% of the estimated fair market value of the shares on the grant
date and in the case of non- qualified stock options shall be as determined by
the Employee Compensation Committee. Incentive stock options may be granted only
to employees of the Company. The terms of each option may not exceed ten years
from the grant date.

Pursuant to the Omnibus Plan, the Company may award shares of Common Stock
to such participants and in such amounts and for such consideration, including
no consideration or such minimum consideration as may be required by law, as it
determines. Restricted shares may be issued pursuant to the Omnibus Plan,
subject to forfeiture if the restrictions do not lapse.

The Company may also grant to any participant who holds an outstanding
stock option the right to surrender such option (to the extent such option is
otherwise exercisable) and to receive from the Company an amount equal to the
excess, if any, of the fair market value of the Class A Common Stock with
respect to which such option is surrendered on the date of such surrender over
the exercise price of the surrendered option.

Unless earlier terminated, the Omnibus Plan will terminate in 2005.

EMPLOYMENT AGREEMENTS.

The Company has entered into employment agreements with Mr. Gold, Mr.
Dwyer, Dr. Rifkin, Mr. Serini and Dr. Kimmel.

Pursuant to the employment agreement with Mr. Gold, Mr. Gold's base salary
is $280,000 per annum and he is eligible to receive an annual bonus based on
performance as determined by the Employee Compensation Committee of the Board of
Directors. In 1994, pursuant to his original employment agreement, Mr. Gold
received 1,200,000 shares of Class A Common Stock in exchange for $6,000 in cash
and services rendered to the Company, which shares vested over a two-year
period.

<PAGE>

During fiscal year 1997, Mr. Gold earned $100,000 ($75,000 of which was paid in
fiscal year 1998) in deferred compensation. Such deferred compensation was for
services performed for the Company from November 1994 to June 30, 1997 and in
consideration of his agreement to remove certain bonus pool provisions from his
employment agreement. In July 1997, Mr. Gold received an option to purchase
800,000 shares of Class A Common Stock at an exercise price of $5.00 per share.
The option, which was also granted in consideration for changes in his
employment agreement, vests ratably annually over five years. In connection with
the sale of Series D Preferred Stock in July, 1997, Mr. Gold agreed to adjust
the exercise price of certain options granted in July 1997 in the event the
exercise price of the warrant held by Genesis was not increased from $5.00 per
share to $7.00 per share. Mr. Gold's options would be adjusted to provide for
the purchase of 500,000 shares of Class A Common Stock at an exercise price of
$6.00 per share and 300,000 shares of Class A Common Stock at an exercise price
of $5.00 per share. The employment agreement with Mr. Gold terminates in April
2000 and, unless notice of termination is given will be automatically extended
for succeeding 12-month periods. In the event that Mr. Gold is terminated by the
Company other than for "cause," including as a result of a change in control of
the Company, he will be entitled to 50% of his base salary which would have been
due through the remainder of the term at the time such payments would otherwise
be made in accordance with the terms of his employment agreement.

Pursuant to the employment agreement with Dr. Rifkin, Dr. Rifkin receives a
base salary of $187,500 per year representing 75% of his working time. Pursuant
to the employment agreement, Dr. Rifkin received 200,000 shares of Class A
Common Stock in 1994 in exchange for $1,000 in cash and services rendered to the
Company and was also granted an option to purchase an additional 200,000 shares
of the Company's Class A Common Stock that will be exercisable upon the earlier
to occur of (i) a change in control of the Company, (ii) termination of his
employment without cause or under circumstances constituting "constructive
termination," or (iii) December 9, 1997. The options become vested and
nonforfeitable on December 9, 1997 and have an aggregate exercise price of
$12.50. In July 1997, Dr. Rifkin received options to purchase up to 100,000,
20,000 and 20,000 shares of Class A Common Stock at exercise prices of $5.00,
$10.00 and $15.00, respectively. The 1997 options were granted in consideration
of Dr. Rifkin's agreement to remove certain provisions from his employment
agreement. Each 1997 option vests ratably annually over five years. The
employment agreement with Dr. Rifkin terminates in April 2000 and, unless notice
of termination is given, it will be automatically extended for succeeding
12-month periods on the same terms as previously in effect. In the event that
Dr. Rifkin's employment is terminated by the Company other than for "cause,"
including as a result of a change in control of the Company, he will be entitled
to all or a portion of his base salary and bonus in accordance with the terms of
his employment agreement. In the event Dr. Rifkin is unable to perform in his
duties under the employment agreement for three consecutive months or periods
aggregating three months in a 12-month period, the Company is required to pay
Dr. Rifkin his base salary until one year after the end of the term of the
employment agreement. The Company may either terminate the employment agreement
or continue his employment following a disability, but is nevertheless required
to continue the payment of his base salary.

Pursuant to the employment agreement with Mr. Dwyer, Mr. Dwyer receives a
base salary of $195,000 per annum. Pursuant to a stock option agreement issued
in connection with his employment, Mr. Dwyer received an option to purchase
140,000 shares of Class A Common Stock at an exercise price of $5.50. In
addition, in November 1996, Mr. Dwyer received an option to purchase 60,000
shares of Class A Common Stock at an exercise price of $.005 per share. The
employment agreement with Mr. Dwyer terminates in April 2000 and, unless notice
of termination is given by either party it will be automatically extended for
the succeeding 12-month periods. In the event that Mr. Dwyer is terminated by
the Company other than for "cause," including as a result of a change in control
of the Company, he will be entitled to all or a portion of his base salary and
bonus in accordance with the terms of his employment agreement.

Pursuant to the employment agreement with Mr. Serini, Mr. Serini receives a
base salary of $175,000 per annum. Mr. Serini will be entitled to participate in
the Bonus Pool to the extent determined by the Chief Executive Officer, and the
standards by which such bonus will be determined for each applicable year will
be established upon agreement between Mr. Serini and the Chief Executive
Officer. Pursuant to the employment agreement, Mr. Serini received options to
purchase 100,160 shares of Class A Common Stock which are currently exercisable
at an exercise price of $.005. In addition, in November 1996, Mr. Serini
received an option to purchase 60,000 shares of Class A Common Stock at an
exercise price of $.005 per share. The employment agreement with Mr. Serini
terminates in April of 2000 and, unless notice of termination is given by either
party, it will be automatically extended for succeeding 12-month periods. In the
event that Mr. Serini is terminated by the Company other than for "cause," he
will be entitled to all or a portion of his base salary and bonus in accordance
with the terms of his employment agreement.

Pursuant to the employment agreement with Dr. Kimmel, Dr. Kimmel receives a
base salary of $150,000 representing 50% of his working time. Pursuant to the
employment agreement, in 1994, Dr. Kimmel received 200,000 shares of Class A
Common Stock in exchange for $1,000 in cash and services rendered to the
Company. In July 1997, Dr. Kimmel received

<PAGE>

options to purchase 100,000, 70,000 and 70,000 shares of Class A Common Stock at
exercise prices of $5.00, $10.00 and $12.50, respectively. The 1997 options were
granted to Dr. Kimmel in consideration for his agreement to remove certain
provisions from his employment agreement. The 1997 options vest ratably annually
over five years. The employment agreement with Dr. Kimmel terminates in April
2000 and, unless notice of termination is given, it will be automatically
extended for succeeding 12-month periods on the same terms as previously in
effect. In the event that Dr. Kimmel's employment is terminated by the Company
other than "for cause," he will be entitled to 50% of his base salary which
would have been due through the remainder of the term at the time such payments
would otherwise be made, in accordance with the terms of his employment
agreement.

In addition to the employment agreements summarized above, the Company and
each of the named executive officers are parties to the Shareholders Agreement
which includes certain provisions for the repurchase by either the Company or
other parties to the Shareholders Agreement upon the occurrence of certain
events including the termination of such executive officer's employment. See
"Description of Capital Stock -- Shareholders' and Voting Agreement."

KEY MAN LIFE INSURANCE.

The Company maintains and is the beneficiary of key man life insurance on
Mr. Gold and Drs. Rifkin and Kimmel in the face amounts of $6,000,000,
$3,000,000 and $3,000,000, respectively. The Company maintains disability
insurance on Mr. Gold and Dr. Kimmel in the face amounts of $6,000,000 and
$1,000,000, respectively. Substantially all of the proceeds of these policies
will be utilized to repurchase shares of Class A Common Stock pursuant to the
provisions of the employment agreements with Mr. Gold and Drs. Rifkin and
Kimmel.

EMPLOYEE BENEFIT PLAN.

Effective January 1, 1996, the Company adopted a 401(k) Plan covering all
its officers and employees. Subject to certain limitations, participants may
elect to defer a portion of their compensation as contributions to the Plan. The
Company will make matching contributions of 50% of each participant's
contribution up to six percent of the participant's salary. Participants vest in
the Company's contributions at the rate of 20% per year beginning in fiscal
1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.

Mr. Gold, the Company's President and Chief Executive Officer, and Dr.
Rifkin, the Company's Chairman, and Dr. Kimmel, the Company's Executive Vice
President and Chief Medical Officer, are the only officers or directors of the
Company who presently serve on the Employee Compensation Committee. During
fiscal year 1997, the members of the Employee Compensation Committee were
Messrs. Gold and Ellis, Ms. Linda Dembiec and Drs. Rifkin and Eig. Ms. Dembiec
resigned form the Board of Directors and from the Employee Compensation
Committee in November 1996. No director was named as her replacement. See
" -- Employment Agreements" and "Certain Transactions."

CERTAIN TRANSACTIONS

In connection with the various transactions resulting in the organization
of the Company in 1994 and early 1995, the physicians of BMGPA received
consideration in exchange for certain assets of their practices. The Company
received the BMGPA physicians' assets in a reorganization through Medical
Holdings Limited Partnership, a Maryland limited partnership ("MHLP"), a
significant stockholder of the Company. The BMGPA physicians transferred certain
assets of their medical practices to MHLP in exchange for an aggregate
consideration of approximately $467,000, consisting of (i) limited partnership
interests in MHLP that are currently equal to approximately a 22.5% interest in
MHLP, (ii) approximately $19,000 in cash, and (iii) promissory notes with an
aggregate face value of approximately $443,000. MHLP simultaneously conveyed
substantially all of its assets to the Company, and the Company issued to MHLP
4,400,000 shares of the Company's Class B Common Stock. The physician owners of
BMGPA became members and employees of Baltimore Medical Group, LLC, and have
continued the practice of medicine through Baltimore Medical Group, LLC. The
General Partner of MHLP is BMGGP, Inc., a Maryland corporation, which owns a one
percent (1%) interest in MHLP. The stockholders of BMGGP, Inc., are 17 of the
initial members of Baltimore Medical Group, LLC, and the 17 initial limited
partners of MHLP, including Drs. Rifkin, Kimmel, Nagel, Diamond, and LoPresti.
Accordingly, the members of Baltimore Medical Group, LLC, indirectly own shares
of Class B Common Stock through their limited partnership interests in MHLP and,
for the initial 17 members of Baltimore Medical Group, LLC, as stockholders of
BMGGP, Inc.

<PAGE>

Also in connection with the formation of the Company, Mr. Gold, and Drs.
Rifkin and Kimmel, as founders and promoters of the Company received 1,200,000,
200,000 and 200,000 shares of Class A Common Stock, respectively, in exchange
for $6,000, $1,000 and $1,000, respectively, in cash and services. See
"Management -- Executive Compensation."

Two of the Company's executive officers and nine directors are practicing
physicians with Core Medical Groups affiliated with the Company. Drs. Rifkin and
Kimmel, who are directors, officers and stockholders of the Company, and Drs.
Nagel, LoPresti and Diamond, who are directors of the Company, are members of
the Management Committee, officers and employees of Baltimore Medical Group,
LLC. Dr. Lamm is the Chairman and an employee of Cumberland Valley Medical
Group, LLC, and an employee and director of the Company. Dr. Rocha is the
Chairman and an employee of Carroll Medical Group, LLC and is a Director of the
Company. Dr. Eig is an employee and member of the Management Committee of
Doctors Health Montgomery, LLC and is a Director of the Company. Dr. Graw is a
director of the Company and the chairman of Anne Arundel Medical Group, LLC and
a member of the management committee of Anne Arundel Medical Group, LLC.

The Company and each of the Core Medical Groups have entered into a PSO
Agreement pursuant to which the Company compensates the Core Medical Groups for
the medical services rendered to Enrollees and the Company receives certain
management fees. During the period ended June 30, 1995 and the fiscal years
ended June 30, 1996 and 1997, the Company received management fees from
Baltimore Medical Group pursuant to its PSO Agreement in the amount of
approximately $74,000, $141,000 and $402,000, respectively. Pursuant to PSO
Agreements with the Core Medical Groups, the Company has received compensation
for providing certain facilities and employees. See "Business -- Operations."

Mr. Dwyer, who is Executive Vice President, Chief Financial Officer,
Treasurer and a Director of the Company was previously a principal of Graham,
Hamilton & Dwyer ("GHD"), which provided financial advisory services to the
Company until April 30, 1996. In 1995, GHD received $100,000 for such services,
and in December 1995, the three principals of GHD each received warrants to
purchase 16,000 shares of Class A Common Stock. Until April 30, 1996, Mr. Dwyer
was a principal at GHD and provided investment advice to the Company.

Mr. Serini, who is an Executive Vice President and a director of the
Company, was previously a partner with the firm of Venable, Baetjer and Howard,
LLP, which has provided legal services to the Company since its inception.

During the year ended June 30, 1997, the Company paid approximately
$296,000 to Med Mutual for professional liability insurance on behalf of the
Core Medical Groups in connection with the PSO Agreements.

Pursuant to a Stock Purchase Agreement dated September 4, 1996 (the "Stock
Purchase Agreement"), the Company agreed that it would (i) advise Genesis, of
all substantive discussions and plans with respect to the delivery of long term
care, pharmacy services, durable medical equipment and home health care services
(the "Services") for the Company, (ii) provide Genesis with all information
needed by Genesis to submit a proposal to provide the Services and (iii) provide
Genesis with an opportunity to provide the Services on commercially reasonable
terms. In addition, the Company has agreed that it will not enter into exclusive
arrangements with third parties that would preclude Genesis from competing to
provide Services to the Company. Genesis and the Company have agreed that
commitments regarding the Services shall not prevent the Company from purchasing
the Services from third parties other than Genesis.

In January 1997, the Company issued its Convertible Subordinated 11%
Promissory Note to Genesis with principal amount up to $5,000,000 due January
31, 1999. Interest accrues in shares of Series C Preferred Stock based upon a
per share value of $17.50. The principal is convertible into shares of Series C
Preferred Stock based upon a per share value of $17.50.

In January, 1997, the Company entered into an Agreement and Plan of Merger
with Medicap, Inc. ("Medicap"), Medicap Newco, Inc., ("Newco") and Noah
Investments, LLC ("Noah"), pursuant to which Medicap was merged with and into
Newco, a wholly-owned subsidiary of the Company. Medicap was engaged in the
business of seeking business opportunities to place Medicare patients in nursing
homes and similar long term care facilities in Global Capitation Contracts. Noah
was the sole stockholder of Medicap, and the owners of Noah are Alan Rifkin and
certain other persons. Alan Rifkin is the brother of Scott Rifkin, M.D., the
Chairman, an executive officer, and a stockholder of the Company. Pursuant to
the Merger Agreement, Noah received 20,000 shares of the Company's Class A
Common Stock and the separate existence of Medicap ceased. In connection with
the merger, the Company also entered into a Consulting Agreement with Alan
Rifkin pursuant to which Mr. Rifkin will advise the Company with respect to the
development of business opportunities for the management of global capitation of
Medicare patients in nursing homes or similar long term facilities and introduce
the Company to potential sources of equity financing and joint venture partners.
Pursuant to the Consulting Agreement, Alan Rifkin received an option to purchase
20,000 shares of the Company's Class A Common Stock under the Company's Omnibus
Plan. Alan Rifkin is a Vice President of Newco.

<PAGE>

Effective April, 1997 (as amended on July 1, 1997), the company entered
into a Hospital Agreement with St. Joseph Medical Center, Inc. ("St. Joseph"),
the sole owner of the Company's Series A Preferred Stock, which agreement
provides that the Company and St. Joseph will engage in a variety of cooperative
transactions to deliver quality medical care to Enrollees who require certain
hospital services.

Effective July 1, 1997, the Company entered into a Hospital Agreement with
University of Maryland Medical System, Inc. ("UMMS"), which provides that the
Company and UMMS will engage in a variety of cooperative transactions to deliver
quality medical care to Enrollees who require certain hospital services. In
addition, the Company has entered into managed care contracting agreements with
University Care, LLC and University Physicians, Inc., which are affiliates of
UMMS, pursuant to which these entities have agreed to exclusively participate in
the Company's Medicare Global Capitation Contracts. These agreements have a term
of 10 years. University Care is the Company's Series B Preferred Stockholder.

On July 15, 1997, the "Management Stockholders" (consisting of Mr. Gold and
Drs. Rifkin and Kimmel), Medical Holdings Limited Partnership ("MHLP"), St.
Joseph Medical Center ("SJMC"), University Care, LLC ("UCare"), Genesis Health
Ventures, Inc. ("Genesis") and The Beacon Group III-Focus Value Fund, L.P.
("Beacon") executed a Shareholders' and Voting Agreement (the "Shareholders
Agreement"). The Shareholders Agreement includes certain provisions regarding
corporate governance, restrictions on transfer of Common Stock or securities
convertible into Common Stock, and a provision granting Beacon a right to
require cooperation with respect to certain transfers of the Company's
securities. See "Description of Capital Stock -- Shareholders and Voting
Agreement."

In December 1997, the Company executed a letter of intent with Genesis
pursuant to which the Company expects to manage all physician and institutional
care, subject to certain exclusions, delivered to approximately 7,000 Medicare
Enrollees of an HMO located on the Eastern Shore of Maryland in exchange for a
capitation fee. See "Management's Discussion and Analysis and Results of
Operation -- Sources of Revenue" and "Business -- Operations."

The Company has entered into the acquisition transactions set forth below
with certain of its directors who are physicians. These transactions were
entered into on commercially reasonable terms, substantially similar to the
terms of its acquisition transactions with other PCPs, and the consideration
paid in connection with such acquisitions was based on the fair market value of
the medical practice assets or services acquired.

In September, 1996, the Company purchased certain assets of the medical
practice of Dr. Eig, a director of the Company. Dr. Eig was elected to the Board
of Directors in May 1996 and as Chairman of Doctors Health Montgomery, LLC in
September 1996. Dr. Eig received 32,000 shares of Class B Common Stock and
options to acquire 2,000 shares of Class B Common Stock, valued at $3.50 per
share, cash in the amount of $5,000 and a promissory note with a face value of
approximately $38,000 as consideration for the acquisition.

In December, 1996, the Company purchased certain assets of the medical
practice of Dr. Graw, a director of the Company since May 1996. In connection
with the acquisition, Dr. Graw's limited liability partnership, which he owns
with other physicians, received a limited partnership interest in MHLP
equivalent to up to 148,000 shares of Class B Common Stock, an option to acquire
a limited partnership interest equivalent to 40,000 shares of Class B Common
Stock, exercisable at $7.50 per share, and cash for the practice's collectable
accounts receivable, which will not exceed $625,000. The Company estimates that
the collected accounts receivable will be approximately $425,000 and that
$200,000 will constitute a loan payable to the Company upon repayment terms and
conditions to be determined. The Company has delegated to Dr. Graw's practice,
and the practice will perform, certain practice management business functions,
which the Company ordinarily performs for its physicians at its headquarters.
The Company reimburses Dr. Graw's practice for the expenses it incurs in
performing the business management services.

In the ordinary course of business during fiscal year 1997, the Company
advanced funds on behalf of certain Core Medical Groups to certain physician
medical practices. The Company and the Core Medical Groups anticipate that such
advances will be repaid in future periods, although such repayment schedules
have not been determined. As of November 30, 1997, the Company had advanced the
following amounts to the medical practices of certain directors of the Company:
Dr. LoPresti, $227,000, Dr. Lamm, $156,000, Dr. Rocha, $63,000, Dr. Graw,
$153,000.

PRINCIPAL AND MANAGEMENT STOCKHOLDERS

The following tables set forth as of December 1, 1997, certain information
with respect to the beneficial ownership of each class of voting stock by: (i)
each person known to the Company to beneficially own more than 5% of each such
class; (ii) each director of the Company; (iii) each of the Named Executive
Officers of the Company; and (iv) all directors and

<PAGE>

executive officers of the Company as a group. The Company believes that the
beneficial owners of the classes of stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares, except as noted below. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and includes
voting or investment power with respect to the shares. Shares of stock subject
to options currently exercisable or exercisable within 60 days of December 1,
1997 ("Current Options") are deemed outstanding for computing the percentage of
the person holding such option, but are not deemed outstanding for computing the
percentage of any other person.

CLASS A COMMON STOCK
<TABLE>
<CAPTION>

NAME NUMBER PERCENT OF CLASS
- ---- --------- ----------------
<S><C>
Stewart B. Gold.............................................................................. 1,200,000 74.1%
Scott M. Rifkin, M.D. ....................................................................... 400,000(1) 22.0%
John R. Dwyer, Jr. .......................................................................... 44,000(2) 2.6%
Paul A. Serini............................................................................... 100,160(3) 5.8%
Alan L. Kimmel, M.D. ........................................................................ 200,000 12.3%
Genesis Health Ventures, Inc. ............................................................... 500,000(4) 23.6%
Directors and Executive Officers as a group (28 Persons)(6).................................. 2,004,160(5) 99.0%
</TABLE>

- ---------------
(1) Includes 200,000 shares in respect of Current Options.
(2) Consists of 28,000 shares in respect of Current Options and 16,000 shares in
respect of a presently exercisable Warrant.
(3) Consists of shares in respect of Current Options.
(4) Consists of shares in respect of a presently exercisable Warrant.
(5) Includes 404,160 shares in respect of Current Options and 16,000 shares in
respect of presently exercisable Warrants.
(6) Certain management stockholders of Class A and Class B Common Stock and the
holders of all shares of Preferred Stock are parties to a Shareholders' and
Voting Agreement (the "Shareholders Agreement"). The Shareholders Agreement
contains provisions that significantly control matters concerning corporate
governance and restrictions on transfer of such shares. The holders of
1,600,000 shares of Class A Common Stock and the holder of an option to
purchase 200,000 shares of Class A Common Stock are subject to the
Shareholders Agreement.

CLASS B COMMON STOCK

NAME NUMBER PERCENT OF CLASS
- ---- --------- ----------------
<S><C>
Medical Holdings Limited Partnership........................................................ 4,400,000(1) 79.8%
Mark H. Eig, M.D. .......................................................................... 34,000(2) .6%
Albert Herrera, M.D. ....................................................................... 4,558(3) .1%
Directors and executive officers as a group (28 persons).................................... 912,558(3)(4) 16.5%
</TABLE>

- ---------------
(1) Drs. Rifkin, Kimmel, Nagel, LoPresti and Diamond are Directors of the
Company and are officers or directors of the managing general partner of
Medical Holdings Limited Partnership ("MHLP"). The address of Medical
Holdings Limited Partnership is 10451 Mill Run Circle, 10th Floor, Owings
Mills, Maryland 21117. The beneficial ownership of Class B Common Stock of
Drs. Rifkin, Kimmel, Nagel, Lopresti, Lamm and Diamond through equity
interests in MHLP is 66,000 shares each. The beneficial ownership of Class B
Common Stock of Dr. Rocha through MHLP is 330,000 shares. The beneficial
ownership of Class B Common Stock of Dr. Graw is up to 148,000 shares. MHLP
is a party to the Shareholders' and Voting Agreement (the "Shareholders
Agreement") which contains provisions that significantly control matters
concerning corporate governance and restrictions on transfer of such shares.
See "Description of Capital Stock -- Shareholders' and Voting Agreement."
(2) Includes 2,000 shares in respect of Current Options.
(3) Includes 112 shares owned by Mount Vernon Internal Medicine of which Dr.
Herrera has a controlling interest.
(4) Include 2,000 shares in respect of Current Options.

SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

NAME NUMBER PERCENT OF CLASS
- ---- --------- ----------------
<S><C>
St. Joseph Medical Center (1)................................................................ 1,000,000(2) 100%
Directors and Executive Officers as a Group (28 persons)..................................... 0 0
</TABLE>

- ---------------
(1) St. Joseph's Medical Center, Inc. is entitled to designate one Director of
the Company. Its address is 7520 York Road, Towson, Maryland 21204. St.
Joseph's Medical Center, Inc. is a party to a Shareholders' and Voting
Agreement (the "Shareholders Agreement"). The Shareholders Agreement
contains provisions that significantly control matters concerning corporate
governance and restrictions on transfer of such shares. See "Description of
Capital Stock -- Shareholders' and Voting Agreement."
(2) Convertible into 2,000,000 shares of Class C Common Stock, which, assuming
conversion of all currently outstanding Preferred Stock, will equal
approximately 22.0% of the maximum outstanding Class C Common Stock.

<PAGE>

SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>

NAME NUMBER PERCENT OF CLASS
- ---- --------- ----------------
<S><C>
UniversityCare, LLC (1)........................................................................ 438,068(2) 100%
Directors and Executive Officers as a Group (28 persons)....................................... 0 0
</TABLE>

- ---------------
(1) Mr. Barish, Director of the Company, is President of UniversityCare, LLC.
UniversityCare, LLC's address is University Physicians Professional
Building, 419 W. Redwood Street, Baltimore, Maryland 21201. UniversityCare,
LLC is a party to a Shareholders' and Voting Agreement (the "Shareholders
Agreement"). The Shareholders Agreement contains provisions that
significantly control matters concerning corporate governance and
restrictions on transfer of such shares. See "Description of Capital
Stock -- Shareholders' and Voting Agreement."
(2) Convertible into 876,136 shares of Class C Common Stock, which, assuming
conversion of all currently outstanding Preferred Stock, will equal
approximately 9.6% of the maximum outstanding Class C Common Stock.

SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK

NAME NUMBER PERCENT OF CLASS
- ---- --------- ----------------
<S><C>
Genesis Health Ventures, Inc. (1)............................................................. 857,142(2)(3) 100%
Directors and Executive Officers as a group (28 persons)...................................... 0 0
</TABLE>

- ---------------
(1) Mr. Richard Howard, a Director of the Company, is President and Chief
Executive Officer of Genesis Health Ventures, Inc. for which the address is
148 West State Street, Kennett Square, Pennsylvania 19348. Genesis Health
Ventures, Inc. is a party to a Shareholders' and Voting Agreement (the
"Shareholders Agreement"). The Shareholders Agreement contains provisions
that significantly control matters concerning corporate governance and
restrictions on transfer of such shares. See "Description of Capital
Stock -- Shareholders' and Voting Agreement."
(2) Includes 285,714 shares issuable upon conversion of a Note in the principal
amount of $5,000,000 convertible at a price of $17.50 per share.
(3) Convertible into 2,142,855 shares of Class C Common Stock, which assuming
conversion of all currently outstanding Preferred Stock, will equal
approximately 23.6% of the maximum outstanding Class C Common Stock.

SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK

NAME NUMBER PERCENT OF CLASS
- ---- --------- ----------------
<S><C>
The Beacon Group III -- Focus Value Fund, L.P. (1)........................................... 2,034,666(2) 100%
Directors and Officers as a Group (28 Persons)............................................... 0 0
</TABLE>

- ---------------
(1) Messrs. Mendell and Wilkinson, Directors of the Company, are partners of The
Beacon Group and affiliates of The Beacon Group III -- Focus Value Fund,
L.P. for which the address is 399 Park Avenue, New York, NY 10022. The
Beacon Group III -- Focus Value Fund, L.P. is a party to a Shareholders' and
Voting Agreement (the "Shareholders Agreement"). The Shareholders Agreement
contains provisions that significantly control matters concerning corporate
governance and restrictions on transfer of such shares. See "Description of
Capital Stock -- Shareholders' and Voting Agreement."
(2) Convertible into 4,069,332 shares of Class C Common Stock, subject to
adjustment as described in Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Beacon Financing" and "Description of Capital Stock -- Series
A, Series B, Series C and Series D Preferred Stock, which, assuming
conversion of all currently outstanding Preferred Stock, will equal
approximately 44.8% of the maximum outstanding Class C Common Stock.

<PAGE>

The following tables set forth certain information as of December 1, 1997
with respect to the percentage Common Stock ownership of the Company assuming
conversion of the Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible
Preferred Stock into Class C Common Stock. The following tables do not assume
conversion of any outstanding notes, options or warrants.

STOCKHOLDERS OF DOCTORS HEALTH, INC.
CLASS A STOCKHOLDERS
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME SHARES OWNERSHIP
- ---- ---------- -------------
<S><C>
Stewart B. Gold.................................................................................. 1,200,000 7.8%
Alan L. Kimmel, M.D. ............................................................................ 200,000 1.3%
Scott M. Rifkin, M.D. ........................................................................... 200,000 1.3%
Noah Investments, LLC............................................................................ 20,000 .1%
Total.......................................................................................... 1,620,000 10.5%
</TABLE>

CLASS B STOCKHOLDERS

<TABLE>
<S><C>
Medical Holdings Limited Partnership............................................................. 4,400,000 28.6%
Other Primary Care Physicians.................................................................... 977,290 6.4%
Total.......................................................................................... 5,377,290 35.0%
</TABLE>

CLASS C STOCKHOLDERS(1)
<TABLE>
<S><C>
St. Joseph Medical Center, Inc. ................................................................. 2,000,000 13.0%
UniversityCare, LLC.............................................................................. 876,136 5.7%
Genesis Health Ventures, Inc. ................................................................... 1,428,570 9.3%
The Beacon Group III -- Focus Value Fund, L.P. .................................................. 4,069,332 26.5%
Total Class C Stock............................................................................ 8,374,038 54.5%
Total Class A, B and C Stock................................................................... 15,371,328 100.0%
</TABLE>

- ---------------
(1) Assumes conversion of the Series A, B, C and D Preferred Stock.

PHYSICIAN AND NON-PHYSICIAN OWNERSHIP OF
DOCTORS HEALTH, INC.
<TABLE>
<CAPTION>

NAME NUMBER PERCENT OF CLASS
- ---------------------------------------------------------------------------------------------- ----------- ----------------
<S><C>
Physicians (Class A and Class B Stockholders)................................................. 5,777,290 37.6%
Other Class A Stockholders.................................................................... 1,220,000 7.9%
Investor Stockholders (St. Joseph Medical Center, Inc., UniversityCare, LLC, Genesis Health
Ventures, Inc., The Beacon Group III-Focus Value Fund, L.P.)................................ 8,374,038 54.5%
Total.................................................................................... 15,371,328 100.0%
</TABLE>

CHANGES IN CONTROL

The Shareholders Agreement and the Company's Charter contain certain
provisions which could result in a change in control of the Company at a future
date. The Company's Charter provides that if for either two consecutive fiscal
quarters or three fiscal quarters out of five consecutive quarters the Company
fails to record positive net income as reflected on the Company's financial
statements and has incurred medical expenses with respect to Medicare Enrollees
equal to or greater than 90% of Total Capitation Revenue, then each of the two
directors designated by the Series D Preferred Stockholder will be entitled to
ten votes on all matters that come before the Board of Directors. In such
circumstances, the Series D Preferred Stockholder will control 52% of the votes
of the Board of Directors and will have the ability to control the business,
policies and affairs of the Company.

The Shareholders Agreement and the Letter Agreement require the parties to
such agreements, in certain circumstances, to transfer all of their shares of
Common Stock and securities convertible into Common Stock upon notice from the
Series D Preferred Stockholder of its intent to transfer all of the Company's
issued and outstanding shares of Common Stock and securities convertible into
Common Stock to an unrelated third party. See "Description of Common
Stock -- Shareholders' and Voting Agreement."

<PAGE>

DESCRIPTION OF CAPITAL STOCK
GENERAL

The Company may offer under this Prospectus one or more of the following
categories of its Securities: (i) shares of its Class B Common Stock, par value
$0.01 per share; (ii) Options to purchase Class B Common Stock; and (iii) any
combination of the foregoing, either individually or as units consisting of one
or more of the types of Securities described in clauses (i) and (ii). The terms
of any specific offering of Securities, including the terms of any units
offered, will be set forth in a Prospectus Supplement relating to such offering.
As of December 1, 1997, the Company has issued 191,290 shares of Class B Common
Stock and Options exercisable for 96,000 shares of Class B Common Stock pursuant
to the Registration Statement of which this Prospectus is a part.

Pursuant to the Company's Certificate of Incorporation filed in the State
of Delaware in October, 1997, the Company is authorized to issue 50,000,000
shares of Common Stock, par value $0.01, per share ("Post-Conversion Common
Stock"), 20,700,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock"), 10,000,000 shares of Class B Common Stock, par
value $0.01 per share (the "Class B Common Stock"), 29,050,000 shares of Class C
Common Stock, par value $0.01 per share (the "Class C Common Stock") (the Class
A Common Stock, the Class B Common Stock and the Class C Common Stock are
hereinafter collectively referred to as the "Common Stock"), 1,000,000 shares of
Series A Convertible Preferred Stock, par value $5.00 per share (the "Series A
Preferred Stock"), 438,068 shares of Series B Convertible Preferred Stock, par
value $11.25 per share (the "Series B Preferred Stock"), 1,500,000 shares of
Series C Convertible Preferred Stock, par value $17.50 per share (the "Series C
Preferred Stock"), 5,750,000 shares of Series D Preferred Stock, par value
$10.00 per share (the "Series D Preferred Stock") (the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock are hereinafter collectively referred to as the "Preferred
Stock"). Shares of the Preferred Stock are convertible into shares of Class C
Common Stock.

As of December 1, 1997, 1,620,000 shares of Class A Common Stock are issued
and outstanding and held by four holders of record, 5,377,290 shares of Class B
Common Stock are issued and outstanding and held by approximately 262 holders of
record, 1,000,000 shares of Series A Preferred Stock are issued and outstanding
and held by one holder of record, 438,068 shares of Series B Preferred Stock are
issued and outstanding and held by one holder of record, 571,428 shares of
Series C Preferred Stock are issued and outstanding and held by one holder of
record, and 2,034,666 shares of Series D Preferred Stock are issued and
outstanding and held by one holder of record.

The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Company's Articles of Amendment
and Restatement (the "Charter"), Bylaws, Shareholders and Voting Agreement (the
"Shareholders' Agreement") and the Shareholders Letter Agreement (the "Letter
Agreement"), copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. Subject to the rights, privileges and
restrictions described below, each issued and outstanding share of the Common
Stock entitles the holder thereof to one vote on all matters to be voted on by
the stockholders of the Company. Each share of issued and outstanding Preferred
Stock entitles the holder thereof to one vote for each share of Common Stock
into which such share of Preferred Stock is convertible. There are no preemptive
rights or sinking fund provisions with respect to any of the Company's capital
stock.

All shares of the Company's capital stock are subject to significant
restrictions on transfer and all certificates for such shares carry a legend to
reflect such restrictions. The Securities may be transferred only as permitted
by the Shareholders' and Voting Agreement and the Shareholders Letter Agreement
and the Charter.

The Shareholders' Agreement contemplates that the Company may redeem shares
of its stock upon an "Involuntary Transfer" resulting generally from the
insolvency of a stockholder or upon divorce of an individual stockholder.
Voluntary transfers are permitted only after a stockholder offers its stock,
upon the same terms and conditions contained in the offer it wishes to accept,
to certain principal and management stockholders on the terms set out in the
Shareholders Agreement. See "Description of Capital Stock -- Shareholders' and
Voting Agreement." Individual Stockholders may in certain circumstances make
estate planning transfers for the benefit of themselves or family members
subject to certain conditions.

COMMON STOCK

Except as otherwise provided in the Charter, holders of Common Stock are
entitled to one vote per share with respect to all matters submitted to a vote
of stockholders and do not have cumulative voting rights. Subject to preferences
that may be applicable to any outstanding shares of Preferred Stock, holders of
Common Stock are entitled to receive dividends when, and if declared by the
Board of Directors, out of funds legally available therefor. Upon liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in assets available for distribution after payment of all debts
and other liabilities and subject to the prior rights of any holders of any
Preferred Stock then outstanding. The Company has not declared any cash
dividends with respect to any of its outstanding Common Stock since its
inception and
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<PAGE>

does not anticipate declaring any such dividends in the foreseeable future. The
Company's Charter restricts its ability to declare and pay cash dividends on its
Common Stock until such time as all outstanding shares of Preferred Stock have
been redeemed or converted and all accrued dividends and interest payable with
respect to such shares of Preferred Stock have been paid.

In general, the rights corresponding to each class of the Company's Common
Stock may be altered by an amendment to the Company's Certificate of
Incorporation which requires the affirmative vote of a majority of the votes
attributable to all of the outstanding Common and Preferred Stock.

CLASS A COMMON STOCK.

The holders of the Class A Common Stock, voting separately as a class, are
entitled to elect six of the 20 directors of the Company (each a "Class A
Director"). The affirmative vote of a majority of the stock of Class A Common
Stock represented at a meeting at which a quorum is present is sufficient to
approve any matter with respect to which such holders are entitled to vote;
provided, that the affirmative vote of a plurality of all votes cast shall be
sufficient to elect a Class A Director. The holders of Class A Common Stock, at
any annual meeting or upon a special meeting called by the holders of not less
than 25% of the shares of Class A Common Stock then outstanding may remove any
Class A Director by the affirmative vote of 80% of all of the votes entitled to
be cast for such Class A Director.

CLASS B COMMON STOCK.

The holders of the Class B Common Stock, voting separately as a class, are
entitled to elect eight of the 20 directors of the Company (each a "Class B
Director"). The affirmative vote of a majority of the stock of Class B Common
Stock represented at a meeting at which a quorum is present is sufficient to
approve any matter with respect to which such holders are entitled to vote;
provided, that the affirmative vote of a plurality of all votes cast shall be
sufficient to elect a Class B Director. The holders of Class B Common Stock, at
any annual meeting or upon a special meeting called by the holders of not less
than 25% of the shares of Class B Common Stock then outstanding may remove any
Class B Director by the affirmative vote of at least a majority of all of the
votes entitled to be cast for such Class B Director. Upon issuance in accordance
with the terms of this Prospectus, the shares of Class B Common Stock being
offered hereby will be fully paid and non-assessable.

CLASS C COMMON STOCK.

Upon the conversion of all of the Series A Preferred Stock then outstanding
into shares of Class C Common Stock, the holders of such Class C Common Stock
into which such Series A Preferred Stock has been converted, voting as a single
sub-class ("Class C Series A Common Stock"), shall be entitled to elect one of
the 20 directors of the Company (a "Class C Series A Director"). Upon the
conversion of all of the Series B Preferred Stock then outstanding into shares
of Class C Common Stock, the holders of such Class C Common Stock into which
such Series B Preferred Stock has been converted, voting as a single sub-class
("Class C Series B Common Stock"), shall be entitled to elect one of the 20
directors of the Company (a "Class C Series B Director"). Upon the conversion of
all of the Series C Preferred Stock then outstanding into shares of Class C
Common Stock, the holders of such Class C Common Stock into which such Series C
Preferred Stock has been converted, voting as a single sub-class ("Class C
Series C Common Stock"), shall be entitled to elect two of the 20 directors of
the Company (each a "Class C Series C Director"). Upon the conversion of all of
the Series D Preferred Stock then outstanding into shares of Class C Common
Stock, the holders of such Class C Common Stock into which such Series D
Preferred Stock has been converted, voting as a single sub-class ("Class C
Series D Common Stock"), shall be entitled to elect two of the 20 directors of
the Company (each a "Class C Series D Director"). Except with respect to the
election of Directors, the affirmative vote of a majority of the stock of Class
C Common Stock represented at a meeting at which a quorum is present is
sufficient to approve any matter with respect to which such holders are entitled
to vote; provided, that the affirmative vote of a plurality of all votes cast by
the holders of shares of such Class C Series A Common Stock, Class C Series B
Common Stock, Class C Series C Common Stock, or Class C Series D Common Stock,
as the case may be, shall be sufficient to elect a Class C Series A Director,
Class C Series B Director, Class C Series C Director, or Class C Series D
Director, respectively. The Class C Series A Common Stock, Class C Series B
Common Stock, Class C Series C Common Stock, or Class C Series D Common Stock,
as the case may be, at any annual meeting or upon a special meeting called by
the holders of not less than 25% of the shares of such subclass outstanding may
remove the Class C Series A, Class C Series B, Class C Series C, or Class C
Series D Director, respectively, by the affirmative vote of 80% of all of the
votes entitled to be cast for such Director.

<PAGE>

The Charter of the Company includes a provision pursuant to which, upon
completion of a firm commitment underwritten initial public offering, each share
of the Company's Class A Common Stock, Class B Common Stock, and Class C Common
Stock shall be converted, without any action on the part of the stockholder or
the Company, into an identical share of the Company's Post-Conversion Common
Stock, and all special rights granted to the holders of Class A, Class B, and
Class C Common Stock and to all holders of Series A, Series B, Series C, and
Series D Preferred Stock shall cease and terminate.

SERIES A, SERIES B, SERIES C AND SERIES D PREFERRED STOCK

VOTING RIGHTS. Except with respect to the election and removal of
directors, every holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, and Series D Preferred Stock shall be entitled to cast
that number of votes equal to the full number of shares of Class C Common Stock
into which such holder's Preferred Stock is then convertible.

SERIES A. The holders of Series A Preferred Stock voting as a single class,
are entitled to elect one director (a "Series A Director"). The affirmative vote
of a majority of the shares of Series A Preferred Stock represented at a meeting
at which a quorum is present is sufficient to approve any matter with respect to
which such holders are entitled to vote as a class; provided, that the
affirmative vote of a plurality of all votes cast shall be sufficient to elect
the Series A Director. The holders of Series A Preferred Stock, at any annual
meeting or upon a special meeting called by the holders of not less than 25% of
the shares of Series A Preferred Stock then outstanding, may remove the Series A
Director by the affirmative vote of at least 80% of all of the votes entitled to
be cast for such Series A Director.

SERIES B. The holders of Series B Preferred Stock, voting as a single
class, are entitled to elect one director (a "Series B Director"). The
affirmative vote of a majority of the shares of Series B Preferred Stock
represented at a meeting at which a quorum is present is sufficient to approve
any matter with respect to which such holders are entitled to vote as a class;
provided, that the affirmative vote of a plurality of all votes cast shall be
sufficient to elect the Series B Director. The holders of Series B Preferred
Stock, at any annual meeting or upon a special meeting called by the holders of
not less than 25% of the shares of Series B Preferred Stock then outstanding,
may remove any Series B Director by the affirmative vote of at least 80% of all
of the votes entitled to be cast for such Series B Director.

SERIES C. The holders of Series C Preferred Stock, voting as a single
class, are entitled to elect two directors (each, a "Series C Director"). The
affirmative vote of a majority of the shares of Series C Preferred Stock
represented at a meeting at which a quorum is present is sufficient to approve
any matter with respect to which such holders are entitled to vote as a class;
provided, that the affirmative vote of a plurality of all votes cast shall be
sufficient to elect Series C Directors. The holders of Series C Preferred Stock,
at any annual meeting or upon a special meeting called by the holders of not
less than 25% of the shares of Series C Preferred Stock then outstanding, may
remove any Series C Director by the affirmative vote of at least 80% of all of
the votes entitled to be cast for such Series C Director.

SERIES D. The holders of Series D Preferred Stock, voting as a single
class, are entitled to elect two directors (each, a "Series D Director"). The
affirmative vote of a majority of the shares of Series D Preferred Stock
represented at a meeting at which a quorum is present is sufficient to approve
any matter with respect to which such holders are entitled to vote as a class,
including the election of a Series D Preferred Director. The holders of Series D
Preferred Stock, at any annual meeting or upon a special meeting called by the
holders of not less than 25% of the shares of Series D Preferred Stock then
outstanding, may remove any Series D Director by the affirmative vote of at
least 80% of all of the votes entitled to be cast for such Series D Director.

SPECIAL DIRECTOR APPROVAL REQUIREMENT. No dividends may be declared or paid
upon, nor shall any other distribution be made with respect to, any shares of
any other class or series of stock of the Company without the consent of each of
the directors elected by the holders of Preferred Stock senior in rank, with
respect to dividends, to such stock on which such dividend or other distribution
would be paid.

SPECIAL PREFERRED STOCKHOLDER APPROVAL REQUIREMENT. So long as any shares
of a series of Preferred Stock are outstanding, the Company may not effect any
of the following actions without first obtaining the approval of the holders of
at least a majority of the then outstanding shares of such series of Preferred
Stock: (i) alter or change the powers, preferences or rights of the shares of
such series of Preferred Stock or otherwise amend the Charter so as to affect
adversely the rights of such series of Preferred Stock; (ii) increase the
authorized number of shares of such series of Preferred Stock; or (iii)
authorize the issuance of, issue, or sell any additional shares of such series
of Preferred Stock.

In the event that the Company fails to meet an obligation under its Charter
to redeem any shares of Preferred Stock, then the Company may not incur any
additional indebtedness without first obtaining the prior written consent of the
holders of the
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<PAGE>

Preferred Stock to be redeemed, voting as a separate class, unless the proceeds
of such indebtedness are used to pay all overdue redemption payments in respect
of Preferred Stock, including payments of accrued but unpaid dividends or
interest. Furthermore, with certain exceptions, no shares of any class of stock
of the Company may be redeemed or otherwise acquired by the Corporation without
the consent of the holders of a majority of the then outstanding shares of each
series of Preferred Stock, voting as a separate class, that, at the time of such
redemption or acquisition, is senior in rank with respect to Redemptions, to the
stock to be redeemed or acquired.

The Company is generally prohibited from taking certain actions without the
separate affirmative vote of at least 51% of the outstanding shares of the
Series D Preferred Stock, including any of the following: (1) amend or repeal
any provision of, or add any provision to, the Certificate of Incorporation or
Corporate Bylaws; (2) effect a merger, consolidation or sale of substantially
all of the Company's assets in any manner which transfers more than 33 1/3% of
the Company's voting securities; (3) increase the number of Directors above
twenty; (4) voluntarily liquidate, dissolve or wind up the Company; (5)
authorize or issue any new series or class of securities or issue additional
shares of Common or Preferred Stock; (6) declare or distribute any dividend or
distribution on any shares of its capital stock except for accruals required by
the terms of any series of Preferred Stock; (7) effect certain transactions
involving consideration from the Company in excess of $750,000; (8) adopt or
approve the annual budget or business plan of the Company; (9) incur
indebtedness in excess of $750,000; and (10) effect certain redemptions of
capital stock.

SPECIAL PREFERRED STOCKHOLDER NOTICE PROVISIONS. The Company shall provide
at least 30 days prior written notice to each holder of Preferred Stock of any
liquidation, dissolution or winding up of the affairs of the Company which will
give rise to the liquidation rights of each series of Preferred Stock (described
below). Unless waived by the affirmative vote of the holders of at least a
majority of each series of Preferred Stock, the sale, lease or exchange of all
or substantially all the property and assets of the Company or the merger or
consolidation of the Company into or with any other corporation shall be deemed
to be a dissolution, liquidation or winding-up. In addition, the Company must
provide 15 days written notice to the holders of shares of each series of
Preferred Stock prior to the occurrence of any of the following events: (i) the
declaration of a dividend or other distribution on any of the Company's
securities that are junior or PARI PASSU in rank to such series of Preferred
Stock; (ii) the authorization of the issuance to the holders of its Common Stock
of securities or rights exercisable, convertible or exchangeable into shares of
Common Stock; or (iii) the authorization of any reorganization, reclassification
or recapitalization of any of the Company's securities that are junior or pari
passu in rank to such series of Preferred Stock; (iv) the authorization of the
consolidation or merger of the Company with or into any other person, the sale
or transfer of a substantial portion of its capital stock, business or assets to
another person, or any other similar business combination or transaction; or (v)
the authorization of the dissolution, liquidation or winding up of the Company.

REDEMPTION. Upon its own initiative and with proper notice, the Company may
redeem all, but not less than all, of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock at any time commencing on the fifth
anniversary of the Issue Date of the Series D Preferred Stock. Each of the above
series of Preferred Stock may be redeemed for a price equal to the sum of the
issue price of such series of Preferred Stock plus all accumulated accrued but
unpaid dividends thereon, including accrued but unpaid interest on such
dividends. The Company may not initiate a redemption of the Series D Preferred
Stock.

The original holder of Series A Preferred Stock may initiate redemption of
its shares upon the occurrence of a "Special Redemption Event," as defined in
the Financing Transaction Agreement between said holder and the Company. Upon
the Company's issuance of securities adverse to Series A Preferred Stock, all
outstanding Series A Preferred Stock shall be entitled to redemption upon
written notice to the Company within 90 days after the issuance of the adverse
securities. In addition, a holder of at least 50% of the outstanding Series A
Preferred Stock, may, at any time from and after the fifth anniversary of the
Issue Date of the Series D Preferred Stock, require the Company to redeem all
outstanding Series A Preferred Stock. The redemption price paid to holders
varies depending upon the triggering event.

The holders of Series B Preferred Stock may initiate redemption of their
shares as long as UniversityCare, LLC, the University of Maryland Medical
System, Inc., or any of their affiliates is a holder of record in the event of
the adoption or interpretation of any law or regulation under the IRC of 1986,
as amended, that reasonably may be construed as prohibiting or otherwise
materially adversely affecting the tax exempt status of the University of
Maryland Medical System, Inc. or University Physicians, Inc. due to the
continued ownership of the Series B Preferred Stock by UniversityCare, LLC. In
such event, the holders, upon meeting certain prerequisites must first attempt
to sell, through commercially reasonable efforts, such shares to a third party.
In the event that the holder is unable to find a purchaser, the Company's
redemption shall become effective. Upon the Company's issuance of securities
adverse to Series B Preferred Stock, the holders of all then

<PAGE>

outstanding Series B Preferred Stock shall be entitled to redemption upon 90
days written notice. The redemption price paid to holders varies depending upon
the triggering event.

The holders of at least 50% of the outstanding shares of Series C Preferred
Stock may initiate the Company's redemption of all of the outstanding shares of
Series C Preferred Stock at any time from and after the fifth anniversary of the
Issue Date of the Series D Preferred Stock. The redemption price shall be the
greater of the then Fair Market Value of the redeemed Series C Preferred Stock
and an amount per share equal to the weighted average price paid by a holder of
Series C Preferred Stock plus accrued but unpaid dividends thereon.

The holders of at least 66 2/3% of the outstanding shares of Series D
Preferred Stock may initiate the Company's redemption of all of the outstanding
shares of Series D Preferred Stock at any time from and after the fifth
anniversary of the Issue Date of the Series D Preferred Stock. The holders of at
least 66 2/3% of the outstanding shares of Series D Preferred Stock may also
initiate the Company's redemption of all of the outstanding shares of Series D
Preferred Stock if prior to a qualified underwritten initial public offering
("qualified IPO"), any action taken by the Executive Committee is negated by the
Board of Directors or if the Board of Directors elects not to conduct the
management of the Company in accordance with the Charter (specifically Article
V, Section 2). Upon receiving notice from holders of Series D Preferred Stock of
an intent to exercise such right of redemption, the Board shall have ten
business days to rescind or negate its action, thus avoiding any obligation of
the Company to redeem the Series D Preferred Stock. The redemption price paid to
holders varies depending upon the triggering event.

No redemption of any series of Preferred Stock may occur until the Company
has redeemed all of the Preferred Stock senior to that series of Preferred Stock
sought to be redeemed.

CONVERSION. Upon the consummation of a firm commitment underwritten initial
public offering (an "IPO"), each share of Series A Preferred Stock, Series B
Preferred Stock, and Series C Preferred Stock shall automatically be converted
into shares of Post Conversion Common Stock, at the then effective Conversion
Ratio applicable to such series. Upon the consummation of a Qualified IPO, each
share of Series D Preferred Stock shall automatically be converted into shares
of Class C Common Stock at the then effective Series D Conversion Ratio. Upon
written notice to the Company prior to the consummation of an IPO, holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall have the right at any time to convert any and all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock owned by such holder into Class C Common
Stock at the then effective Conversion Ratio applicable to such series.

As of December 1, 1997, the conversion ratio for Series A, B and D of the
Preferred Stock is two shares of Class C Common Stock for each share of Series
A, B and D Preferred Stock held. The conversion ratio for the Series C Preferred
Stock is 1.25 shares of Class C Common Stock for each share of Series C
Preferred Stock held. The conversion ratio for each series of Preferred Stock is
subject to adjustment from time to time upon the occurrence of certain events
including a stock dividend, a stock split, a reverse stock split, or a similar
restructuring of the Company's capital stock. In each such event, the conversion
ratio for each series will be adjusted so that the holder of any shares of such
series thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock that such holder would have owned or have been
entitled to receive after the happening of any of such events, had such shares
of such series been surrendered for conversion immediately prior to the
happening of such event or the record date therefor, whichever is earlier.

In the event that the Company is a party to any other transactions such as
a merger, consolidation, sale of all or substantially all of the Company's
assets where, as a result of such transaction, shares of Common Stock are
converted into the right to receive stock, securities or other property, each
share of Preferred Stock shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Company deliverable upon conversion of such
Preferred Stock would have been entitled upon such transaction and appropriate
adjustments shall be made to the applicable conversion ratio to the end that the
provisions set forth above shall thereafter be applicable, as nearly as may be
reasonably possible, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of Preferred Stock.

In addition, the applicable conversion ratio for each series of Preferred
Stock shall be subject to adjustment in the event that the Company issues shares
of Common Stock or other securities convertible into or exchangeable or
exercisable for shares of Common Stock or other securities convertible into
Common Stock (such convertible securities may be referred to as "Common Stock
Equivalents") at a price per share (including any exercise or exchange price)
that is less than $2.50 per share and less than the price at which (in general)
such series of Preferred Stock was originally issued (as adjusted for any stock
split or dividend). The applicable conversion ratio will be adjusted by
multiplying (x) the applicable conversion ratio in

<PAGE>

effect prior to the triggering event by (y) one plus a fraction the numerator of
which is the difference between $2.50 and the issue price of the newly issued
shares and the denominator of which is $2.50. Such adjustment shall not be made
in the case of certain securities issued by the Company pursuant to its Amended
and Restated Omnibus Stock Plan or similar plan, shares of Common Stock issuable
upon conversion, exercise or exchange of any Common Stock Equivalents
outstanding prior to the date such series of Preferred Stock were issued, and
shares of Series D Preferred Stock issued to Beacon and any stock dividends
issued with respect thereto (such securities are referred to as "Excluded
Securities").

The conversion ratio for the Series C Preferred Stock is also subject to
adjustment in the event that the Company issues shares of Common Stock or Common
Stock Equivalents at a price per share (including exercise, conversion or
exchange prices) that is equal to or greater than the issue price for the Series
D Preferred Stock but less than the issue price for the Series C Preferred Stock
(such issue prices are subject to adjustment in the event of stock splits,
dividends, etc.). The Series C Preferred Stock conversion ratio will be adjusted
after such event by multiplying (x) the conversion ratio in effect for the
Series C Preferred Stock on the day immediately prior to such date by (y) a
fraction, the numerator of which shall be the sum of (1) the number of shares of
Common stock outstanding on such date and (2) the number of additional shares of
Common Stock issued or for which the Common Stock Equivalents may convert or be
exercised or exchanged, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding on such date and (B) the number of
shares of Common Stock which the aggregate consideration receivable by the
Company for the total number of shares of Common Stock issued or for which the
Common Stock Equivalents may convert or be exercised or exchanged would purchase
at the Series C Preferred Stock issue price on such date. The above adjustment
is also not applicable with respect to Excluded Securities.

The conversion ratio applicable to shares of Series D Preferred Stock shall
be adjusted in certain other cases involving distributions by the Company on its
outstanding Common Stock (including, without limitation, any distribution of
stock or other securities or property or rights or warrants to subscribe for
securities of the Company by way of dividend or spin-off). In such event or
events, an adjustment will be made to the conversion ratio applicable to shares
of Series D Preferred Stock to prevent dilution to the holders of the Series D
Preferred Stock.

The conversion ratio applicable to shares of Series D Preferred Stock will
also be adjusted up or down based on the ability of the Company to achieve
certain performance benchmarks with respect to the number of the Company's
Medicare Enrollees and Medical Loss Ratio as such terms are defined in a letter
agreement between the Company and Beacon. Pursuant to this adjustment provision,
the number of shares issuable to holders of Series D Preferred Stock (based upon
the current investment of $20,000,000) could be reduced to 3,636,364 shares of
Class C Common Stock or increased to 7,272,727 shares of Class C Common Stock,
and additional shares of Series D Preferred Stock may be issued with respect to
the payment of dividends on the Series D Preferred Stock.

The Company has also entered into a separate agreement with Beacon which
provides that if the 105th U.S. Congress makes certain changes in the Medicare
program resulting in reduced payments to health maintenance organizations and
medical management companies such as the Company, the adjustment to the
conversion ratio will be such that the number of shares issuable upon conversion
of the Series D Preferred Stock (based upon the current investment of
$20,000,000) could be reduced to 3,636,364 shares of Class C Common Stock or
increased to 10,000,000 shares of Class C Common Stock. The Company believes,
based upon the legislation thus far adopted and proposed by the 105th Congress,
that such changes are not likely to occur. The Series D Preferred Stockholder
has agreed to purchase an additional 1,000,000 shares of Series D Preferred
Stock which would be subject to the same adjustment mechanism described above.

Furthermore, in the event that the Company consummates an IPO of its Common
Stock prior to June 30, 1998 at a price per share less than $13.00, the
conversion ratio for the Series D Preferred Stock will be adjusted upward but
not downward by multiplying (x) the conversion ratio in effect just prior to the
IPO by (y) a fraction the numerator of which is $13.00 and the denominator of
which shall be the IPO price.

The special voting and approval rights of the holders of the Preferred
Stock and their rights to require the redemption of the Preferred Stock or to
convert such Preferred Stock into Class C Common Stock may prevent the Company
from consummating one or more transactions, including equity and debt financings
that could be beneficial to the Company's stockholders. The special voting
rights of the Preferred Stockholders could also prevent the Company from
entering into various transactions such as mergers, consolidations, or transfers
of all or substantially all of the assets of the Company which might result in a
change in control of the Company.

DIVIDENDS. Prior to April 1, 2000, cash dividends at the rate of $0.325 per
share per annum accrue on the Series A Preferred Stock. Such dividends are
cumulative and will accrue, whether or not earned or declared or payment is
legally
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<PAGE>

available, from and after the 24th day of February, 1995 and bear interest on
accrued but unpaid amounts at the rate of 6.5% per annum, compounded quarterly.
Such accrued dividends and interest are payable only upon the liquidation of the
Company or the redemption of the Series A Preferred Stock and if not paid prior
to April 1, 2000, the amount of such accrued but unpaid dividends and interest
payments will become an unsecured obligation of the Company. On or after April
1, 2000, holders of the Series A Preferred Stock are entitled to receive, when
legally available, cash dividends at the per annum rate of 100 basis points over
the Wall Street Journal Prime Rate as of the last business day prior to April 1,
2000 based on the original issue price of the Series A Preferred Stock. So long
as any shares of Series A Preferred Stock are issued and outstanding, no
dividends may be declared and no other distribution may be made, with the
exception of dividends declared and paid to with respect to the Series D
Preferred Stock, with respect to any other class or series of stock or equity
interest of the Company without the consent of each director elected by the
holders of the Series A Preferred Stock.

Prior to April 1, 2000, cash dividends at the rate of $0.90 per share per
annum accrue on the Series B Preferred Stock. Such dividends are cumulative and
will accrue, whether or not earned or declared or payment is legally available,
in equal quarterly installments, commencing on the first day of January, 1996
and bear interest on accrued but unpaid amounts at the rate of 8.0% per annum,
compounded quarterly. Such dividends and interest are payable only after all
dividends and interest accrued on or with respect to all other series of
Preferred Stock have been paid and only upon the liquidation of the Company or
the redemption or conversion of the Series B Preferred Stock and if not paid
prior to April 1, 2000, the amount of such accrued but unpaid dividends and
interest payments will become an unsecured obligation of the Company. On and
after April 1, 2000, dividends shall accrue on shares of Series B Preferred
Stock and, when legally available shall be paid, at the per annum rate equal to
100 basis points over the Wall Street Journal Prime Rate as of the last business
day prior to April 1, 2000 of the original issue price of the Series B Preferred
Stock. Such dividends and interest are payable only after all dividends and
interest accrued on or with respect to all other series of Preferred Stock have
been paid.

Prior to April 1, 2000 cash dividends shall accrue on shares of Series C
Preferred Stock at the rate of $1.40 per share on the original issue price of
each share. Such dividends are cumulative and will accrue, whether or not earned
or declared or payment is legally available, from and after the date of issuance
of such shares and bear interest on accrued but unpaid amounts at the rate of
8.0% per annum, compounded quarterly. Such accrued dividends and interest are
payable only upon the liquidation of the Company or the redemption or conversion
of the Series C Preferred Stock and if not paid prior to April 1, 2000, the
amount of such accrued but unpaid dividends and interest payments will become an
unsecured obligation of the Company. On and after April 1, 2000, dividends shall
accrue on shares of Series C Preferred Stock and shall be paid when legally
available, at the per annum rate equal to 100 basis points over the Wall Street
Journal Prime Rate as of the last business day prior to April 1, 2000 of the
original issue price of the Series C Preferred Stock.

Cumulative dividends shall be payable on shares of Series D Preferred Stock
at an annual rate of $.80 per share, payable in quarterly installments to the
holder of the shares upon the record date. Dividends to the Series D Preferred
Stock holders are payable at the option of the Company, either as additional
shares of Series D Preferred Stock, granting .08 shares of Series D Preferred
Stock per annum for each share held, or in cash legally available therefor. In
any year in which a distribution is declared by the Board of Directors to be
paid on Common Stock, an additional dividend shall be paid at the same time to
the holders of Series D Preferred Stock at a rate equal to the product of such
per share dividend paid on the Common Stock multiplied by the number of shares
of Common Stock into which each Series D Preferred Stock is then convertible. No
dividends may be declared, nor may shares be redeemed upon shares junior to
Series D Preferred Stock unless full cumulative dividends have been paid or set
aside for payment on the Series D Preferred Stock. When the holder of such
Series D Preferred Stock dividends reasonably believes that liquidation of the
dividends is necessary to pay taxes with respect to such stock dividends, the
recipients of Series D Preferred Stock dividends shall have the right to require
the Company to redeem up to 50% of the shares of Series D Preferred Stock
received as a dividend at a price per share equal to $10.00 plus an amount equal
to all accumulated and unpaid dividends thereon.

LIQUIDATION RIGHTS. Upon liquidation of the Company, holders of Series D
Preferred Stock shall be entitled to receive out of the assets available for
distribution to stockholders, prior to distribution on any junior securities
(including Series A, B and C Preferred Stock), an amount equal to the greater of
(i) the Fair Market Value per share of Series D Preferred Stock plus accrued but
unpaid dividends thereon or (ii) $10.00 per share of Series D Preferred Stock
plus an amount equal to accrued but unpaid dividends on such shares. Series D
Preferred Stock shall also be entitled to share in any liquidation amounts
distributed to holders of Common Stock as though the Series D Preferred Stock
had been converted to Common Stock immediately prior to liquidation.

After payment of such preferential amounts to the holders of Series D
Preferred Stock, the holders of the Series A Preferred Stock and Series C
Preferred Stock are entitled to receive a liquidation distribution. Series A
Preferred Stock shall

<PAGE>

receive the greater of (i) the Fair Market Value per share of Series A Preferred
Stock or (ii) the sum of $5.00 plus an amount equal to all accrued but unpaid
dividends thereon. Upon liquidation, Series C Preferred Stock shall be entitled
to receive a distribution in an amount equal to $17.50 per share, plus an amount
equal to all accrued but unpaid dividends thereon.

After payment to the holders of Series D Preferred Stock, Series A
Preferred Stock and Series C Preferred Stock, the holders of Series B Preferred
Stock shall be entitled to receive a liquidation distribution out of the assets
available. Series B Preferred Stock shall be entitled to receive the greater of
(i) the Fair Market Value per share of Series B Preferred Stock or (ii) the sum
of $11.25 plus an amount equal to all accrued but unpaid dividends thereon.

For each series of Preferred Stock, no liquidation distribution shall be
available unless and until any obligation to a series with preferential rights
has been satisfied. After payment of the preferred liquidation amounts to the
holders of Preferred Stock, the holders of each such series of Preferred Stock
shall have no right or claim to any of the remaining assets of the Company.

SPECIAL SERIES D DIRECTORS VOTING RIGHTS. If for either two consecutive
fiscal quarters or three quarters out of five consecutive quarters, the Company
(a) fails to record positive net income as reflected on the Company's financial
statements, and has a Medicare Medical Loss Ratio (as defined in a letter
agreement between the Company and the Series D Preferred Stockholder) with
respect to the Company's Medicare Enrollees of at least 90%, then each Series D
Preferred Director shall thereafter have ten votes with respect to all matters
requiring Board or Executive Committee approval or action. In such
circumstances, the Series D Preferred Stockholders will be able to control 52%
of the votes cast at any meeting of the Board of Directors and will have the
ability to control the business, policies and affairs of the Company.

OPTIONS TO PURCHASE CLASS B COMMON STOCK

GENERAL.

The Company may issue Options for the purchase up to 2,000,000 shares of
Class B Common Stock pursuant to this Prospectus. Options may be issued
independently or together with shares of Class B Common Stock also offered by
this Prospectus. With respect to each offering of Options, a separate agreement
(each, an "Option Agreement") will be entered into between the Company and the
holder of such Options. Except with respect to the number and exercise price of
Options to be issued in any particular offering, the terms of the Options as set
forth in this Prospectus will not vary from offering to offering.

The applicable Prospectus Supplement will describe certain details as to
each offering of such Options, including the following where applicable: (i) the
offering price; (ii) the number of shares into which each such Option offered
may be exercised; (iii) the term or expiration of each such Option; and (iv)
certain federal income tax consequences. The following discussion of the
material terms and provisions of the Options is qualified in its entirety by
reference to the detailed provisions of the Option Agreement, a form of which
has been filed as an exhibit to the Registration Statement on Form S-1 of which
this Prospectus forms a part. Each Option will entitle the holder to purchase,
at any time until the expiration of such Option, a specified number of shares of
Class B Common Stock at an exercise price set forth in the Option Agreement.
Each Option may exercised in whole or in part.

For a holder to exercise Options, there must be a current registration
statement in effect with the Commission and qualification with or approval from
various state securities agencies with respect to the shares of Class B Common
Stock underlying the Options, or an opinion of counsel for the Company that
there is an effective exemption from registration. The Options and the Class B
Common Stock underlying the Options are presently registered pursuant to the
Registration Statement on Form S-1 of which this Prospectus is a part. As long
as the Options remain outstanding and exercisable, the Company will use its
reasonable efforts to maintain the effectiveness of such Registration Statement.
There can be no assurance, however, that the effectiveness of such Registration
Statement can be maintained. If a registration statement covering such shares of
Class B Common Stock is not kept current for any reason, or if the shares
underlying the Options are not registered in the state in which a holder
resides, the Options will not be exercisable unless there is an exemption from
applicable registration requirements. See "Risk Factors -- Federal and State
Registration Requirements; Possible Inability to Exercise Options."

EXERCISE OF OPTIONS.

Each Option will entitle the holder thereof to purchase such number of
shares of Class B Common Stock at such exercise price as shall in each case be
set forth in, or calculable from, the Prospectus Supplement relating to the
offered Options.
57

<PAGE>

After the close of business on the expiration date, unexercised Options will
become void. In most cases, Options will expire upon termination of the holder's
employment or affiliation with the Company or the death of the holder.

Options may be exercised by delivering to the Company payment, as provided
in the applicable Option Agreement, of the amount required to purchase the Class
B Common Stock purchasable upon such exercise together with certain information
set forth in the option exercise notice form attached to each Option Agreement.
Upon receipt of such payment and the necessary notice properly completed and
duly executed, the Company will, as soon as practicable, issue and deliver the
Class B Common Stock to be acquired by such exercise. If fewer than all of the
Options represented by such Option Agreement are exercised, a new Option
Agreement will be executed for the remaining amount of Options.

AMENDMENTS AND SUPPLEMENTS TO OPTION AGREEMENTS.

Each Option Agreement may be amended or supplemented, without the consent
of the holders of the Options issued thereunder, to effect changes that do not
adversely affect the interests of the holders of the Options. Other changes to
outstanding Options may be made only with the consent of the holders thereof.

OPTION ADJUSTMENTS.

The exercise price of, and the number of shares of Class B Common Stock
covered by, an Option are subject to adjustment in certain events, including:
(i) in the event that any change is made to the Class B Common Stock (whether by
reason of a recapitalization or stock dividend, stock split or other change in
capital structure); or (ii) in the event of a merger or other business
combination; or (iii) the distribution to all holders of Common Stock of
evidences of indebtedness or assets of the Company.

NO RIGHTS AS STOCKHOLDERS.

Holders of Options will not be entitled by virtue of being such holders, to
vote, to consent, to receive dividends, to receive notice as stockholders with
respect to any meeting of stockholders for the election of directors of the
Company of any other matter, or to exercise any rights whatsoever as
stockholders of the Company.

SHAREHOLDERS' AND VOTING AGREEMENT

In July 1997, the Company, Beacon, and each of MHLP, Scott Rifkin, M.D.,
Stewart B. Gold, Alan Kimmel, M.D., Noah Investment, LLC, St. Joseph Medical
Center, Inc., Genesis Health Ventures, Inc. and University Care, LLC
("Shareholders") entered in to a Shareholders' and Voting Agreement (the
"Agreement"), which governs certain aspects of the Company's governance,
management plans and operations and replaces in its entirety the previously
executed Amended and Restated Shareholders Agreement dated as of January 31,
1997.

CORPORATE GOVERNANCE.

The Agreement requires that the Board of Directors (the "Board") be
composed of directors designated by each class in substantially the same manner
as provided by the Charter. See "Description of Capital Stock." In addition, the
Agreement provides that after an initial public offering pursuant to which the
Company registers securities under Section 12 of the Securities Exchange Act of
1934 (an "IPO") and for so long as Beacon holds 5% or more of the Common Stock
then outstanding (on an as converted basis), the Company shall, upon request by
Beacon, include one designated representative of Beacon in the slate of
directors recommended by the Board to shareholders for election as directors.
The Company and Shareholders shall use their best efforts to elect the designee
of Beacon and maintain his membership on the Board.

In general, the authority of the Board, except for matters non-delegable
under applicable law, shall be vested in and exercised by an Executive
Committee. For those matters reserved to the full Board, action shall only be
taken after receiving, and consistent with, the recommendation of the Executive
Committee. The Executive Committee shall have seven members including: (i) the
two directors designated by the holders of Series D Preferred Stock; (ii) the
Chief Executive Officer; (iii) two of the eight directors designated by the
holders of Class B Common Stock, selected by majority vote of all such directors
and both of whom shall be physicians; (iv) one of the two directors designated
by the holders of Series C Preferred Stock, selected by agreement of both such
directors; and (v) one physician nominated by the Chief Executive Officer and
approved by a majority of the Class B Directors.

<PAGE>

So long as Beacon owns at least 51% or more of the number of shares of
Series D Preferred Stock purchased by Beacon pursuant to the July 15, 1997
Preferred Stock Purchase Agreement or 5% or more of the Common Stock (assuming
conversion of all outstanding Preferred Stock) (the "ownership threshold"), the
Company shall take all actions necessary to cause at least one Beacon Director
or Designee to be appointed to each committee of the Board and to each of the
boards of directors or other similar managing bodies of each of the subsidiaries
of the Company, to the extent requested by Beacon. Further, so long as Beacon
meets the ownership threshold, Beacon shall be entitled to have up to two
non-voting observers present at all meetings of the Board or its committees.
Each observer shall have the same access to information concerning the business
and operations of the Company at the same time as directors of the Company and
shall be entitled to participate in discussions, make proposals and furnish
advice.

In the event that any Shareholder fails to use best efforts to effectuate
the provisions of the Agreement, each Shareholder has irrevocably appointed
Beacon as his or her or its true and lawful proxy and attorney-in-fact, with
full power of substitution, to vote all of his shares for each Beacon director
and each Beacon designee and take all such other actions as necessary to enforce
the rights detailed above.

DIRECTORS INDEMNIFICATION.

The Shareholders Agreement requires the Company to maintain directors and
officers insurance coverage for each member of the Board, each Beacon designee,
and each Beacon non-voting observer in an amount of at least $3 million per
occurrence and $5 million in the aggregate.

TRANSFER RESTRICTIONS.

EMPLOYMENT TERMINATION. No Shareholder shall transfer or sell any stock,
whether owned as of the date of the Agreement or acquired thereafter, without
complying with the transfer provisions of the Agreement. Transfers that fail to
comply with the Agreement shall be void. Management Shareholders may not
transfer in excess of 5% of outstanding stock held by such Management
Shareholder as of the date of the Agreement except (i) in connection with a
qualified IPO (generally, an IPO in which the Company receives at least $35
million in net proceeds), (ii) in connection with the bona fide merger of the
Company or sale of all, or substantially all assets, or (iii) in connection with
an involuntary transfer or termination. Management Shareholders include Stewart
B. Gold, Scott Rifkin, M.D., Alan Kimmel, M.D., any person holding the office of
Vice President or above and any other individual identified by the Executive
Committee as a member of the executive management team and to whom stock has
been issued. Beacon may, however, without additional restrictions, transfer up
to 500,000 of its shares of stock to any affiliate or business associate of
Beacon so long as the transferee executes an agreement to be bound by the terms
of this Agreement as a Shareholder.

In any case where a Management Shareholder's stock in the Company becomes
the subject of any bankruptcy, insolvency, attachment, assignment for the
benefit of creditors, or similar type of proceedings, or divorce decree (each,
an "involuntary transfer"), the Company shall have the option for 30 days to
purchase such stock and such Shareholder shall be obligated to sell all but not
less than all shares registered in his name. If the Company chooses not to
exercise its option, written notice shall be provided to all other Management
Shareholders who, for a period of 30 days after notice, shall have the option to
purchase such stock, and the involuntary transfer Shareholder shall be obligated
to sell to the extent that such option is exercised. The purchase price shall be
determined by mutual agreement or fair market value determined in accordance
with the Agreement.

If employment with the Company of a Management Shareholder, other than Drs.
Rifkin or Kimmel, is terminated without "cause," for any reason constituting
"constructive termination," or as a result of death or disability, then the
remaining Management Shareholders shall have the option for a period of 60 days
to purchase the shares of the terminated Shareholder. The purchase shall be in
such proportions agreed to by Management Shareholders or in proportion to their
ownership of outstanding Common Stock other than the stock of the terminated
Management Shareholder. The terminated Management Shareholder may, but shall not
be obligated to sell all stock held at a price determined by mutual agreement or
fair market value determined in accordance with the Agreement. In the event that
all of such terminated Management Shareholder's stock is not sold to the other
Management Shareholders, and the terminated Management Shareholder so desires,
the Company shall buy such additional stock as the terminated Management
Shareholder desires to sell. If such terminated Management Shareholder sells his
stock, and within twelve months of termination there occurs a change in control
of the Company, the Company shall pay, in addition to the purchase price
discussed above, any consideration that would have been payable to the
shareholder upon, and as a result of, the change in control.

<PAGE>

If employment with the Company of a Management Shareholder, other than Drs.
Rifkin or Kimmel, is terminated for "cause," then the Company may, but is not
obligated to, purchase his shares within 90 days of termination and the
Management Shareholder is required to sell upon the Company's exercise of its
option at a price equal to the lesser of the Management Shareholder's
acquisition cost for his stock or $1.00 per share. If such Management
Shareholder is terminated due to the expiration of an employment agreement, then
the Company may, but is not obligated to, purchase all of such Shareholder's
stock at a price determined by mutual agreement or at fair market value as
determined in accordance with the Agreement.

With respect to Drs. Rifkin and Kimmel, if employment with the Company is
terminated for "good cause," or for any reason not constituting "constructive
termination" as defined in each such Shareholders' employment agreement, the
Company may, but shall not be obligated to, purchase within 90 days of
termination the shares of these individuals. The terminated Shareholder is
required to sell upon the Company's exercise of its option. The price paid shall
be the lesser of the shareholder's acquisition cost for such stock or $1.00 per
share. None of the above provisions, however, shall apply to shares of capital
stock of the Company held by the above individuals on January 31, 1997 or
received as a distribution on or in respect of such shares after January 31,
1997 as the result of any recapitalization, stock split or similar event.

Upon the death or disability of either of Drs. Rifkin or Kimmel, for a
period of 60 days from disability or the appointment of a personal
representative, the disabled Shareholder or his representative may offer to the
other Management Shareholders the option to purchase all of the shares of stock
then held. The purchase shall be in such proportions agreed to by Management
Shareholders or in proportion to their ownership of outstanding Common Stock
other than the stock of the terminated Management Shareholder. In the event that
all of the shares are not purchased within the 60 day period, that Shareholder
may, upon written notice, require that the Company purchase all or a portion of
said shares at a price determined by mutual agreement between the parties or
fair market value determined in accordance with the Agreement.

If employment with the Company of either of Drs. Rifkin or Kimmel is
terminated without "good cause" or for reasons constituting "constructive
termination" under his employment agreement, then the Company shall purchase,
and shareholder shall sell, within 90 days of termination, any stock acquired
after January 31, 1997 other than stock acquired pursuant to a distribution,
recapitalization, stock split or similar event on or in respect of stock held on
January 31, 1997. The purchase price shall be determined by mutual agreement or
fair market value determined in accordance with the Agreement. If either of Drs.
Rifkin or Kimmel is terminated due to the expiration of an employment agreement,
the Company shall have the option, but not the obligation to purchase all of his
shares for a period of 90 days from termination. Upon exercise of the Company's
option, the above Shareholders shall sell at the purchase price determined by
mutual agreement or fair market value determined in accordance with the
Agreement.

ARM'S LENGTH TRANSFER RESTRICTIONS. Prior to any transfer of stock
("Offered Stock") in an arm's length transaction, the transferring Shareholder
must first deliver written notice detailing the price and any material terms of
the proposed transfer to the Company, the Management Stockholders and each
holder of at least 5% of the Common Stock on an as converted basis ("Offered
Shareholders"). Upon such notice, the Offered Shareholders have the first right
and option for 20 days to acquire, all or any part of the Offered Stock upon the
terms reached by the transferring Shareholder and third party. If the Offered
Shareholders do not accept such option within 20 days, the Company shall then
have the right and option to acquire all or any part of the Offered Stock within
20 days. The proposed transfer may only be extended to a third party when
effective acceptance is not received within the time frame granted to each of
the above parties and such transfer may not be on terms more favorable to the
purchaser than those disclosed in the written notice.

In addition, prior to the transfer by a Shareholder to an outside third
party discussed above, and after the periods for rights of first offer have
expired, the transferring Shareholder must provide not less than 20 days prior
written notice of such intended transfer to the Company and to holders of
Preferred Stock. Within ten days of delivery of notice, each holder of Preferred
Stock shall have the opportunity and right to sell a proportional amount of
shares to the transferee, upon the same terms as the transferring Shareholder.
These arm's length transfer restrictions shall not apply to (i) any transfer by
a Shareholder to affiliates of such Shareholder, (ii) any transfer pursuant to
the management termination provisions above, the right of first offer discussed
above or Beacon's "Right to Drag-Along" (discussed below) or (iii) any public
sale.

SPECIAL BEACON RIGHTS.

RIGHT TO DRAG-ALONG. After July 15, 1999 and as long as Beacon's holdings
meet the ownership threshold, Beacon may determine to transfer or exchange all
of its shares to an unrelated and unaffiliated third party. Upon 30 days written
notice disclosing the required terms of the transfer, each Shareholder shall be
obligated to sell to the transferee all of his shares at

<PAGE>

the closing (Beacon's "Right to Drag-Along"). Consideration paid in such
transaction shall first be applied to pay the liquidation value of all
outstanding Preferred Stock in accordance with the terms thereof and then pro
rata among all holders of stock on an as converted basis. If, however, the
Company commits in writing, either (i) to use its best efforts to complete a
qualified IPO or (ii) to purchase all of the shares of Beacon and demonstrates
to Beacon its ability to purchase for the value of the consideration offered by
the third party, then the closing shall be suspended for 120 days. If the
Company fails to meet its commitments within the specified 120 day time frame,
Beacon shall have the right to compel the Shareholders to consummate its
proposed "drag along" transaction. The provisions above shall not apply to (i)
any transfer prior to July 15, 1999, (ii) any public sale or (iii) any transfer
by Beacon to an affiliate.

RIGHT TO PARTICIPATE IN ISSUANCES. With certain exceptions, the Company may
not issue any shares of any stock, without first providing written notice to
Beacon disclosing, as required, terms of the issuance and offering to Beacon,
for a period of 30 days, the option to acquire all or any part of the issuance
upon the same price and terms as proposed. If Beacon does not accept or exercise
the option, the Company may issue such stock only on terms no more favorable to
the purchaser than those disclosed in the written notice to Beacon.

RIGHT TO APPROVE CERTAIN CORPORATE ACTIONS. Provided that Beacon meets the
ownership threshold, the Company and its subsidiaries shall not, without the
prior written consent of Beacon, take nor permit to be taken, prior to the
consummation of a qualified IPO, any of the following actions: (i) consolidate
or merge with any entity or effect any similar transaction in which more than
33 1/3% of the Company's voting securities are transferred to another person
(except transactions involving a wholly owned subsidiary); (ii) amend, add or
repeal any provision of the Charter or By-Laws which alters the rights,
privileges or powers of the Series D Preferred Stock; (iii) authorize or issue
any new series or class of securities, increase the authorized number of shares
or issue any securities or authorize or issue any additional shares of Common or
Preferred Stock (with certain exceptions); (iv) increase the number of
authorized directors above twenty; (v) voluntarily liquidate, dissolve or wind
up the Company; (vi) pay, declare, or set aside any sums for payment of, any
dividend or make any distributions other than as required by the terms of the
Preferred Stock and the Convertible Subordinated Note dated January 31, 1997;
(vii) redeem, purchase or acquire capital stock or other equity securities
except for those required by an agreement in connection with the acquisition of
a physician practice or the Charter; (viii) purchase or acquire any stock or
interest in another entity in excess of $750,000; (ix) invest as part of any
joint venture or partnership an amount in excess of $750,000; (x) sell, lease,
transfer or dispose of any asset or assets with an aggregate amount in excess of
$750,000; (xi) incur or assume any indebtedness in excess of $750,000 (including
capitalized lease obligations and guarantees or other contingent obligations for
indebtedness for borrowed money); (xii) mortgage, encumber or incur liens on
assets in excess of $750,000; (xiii) amend, modify or waive any provision of any
employment or non-competition agreement; (xiv) adopt or approve the annual
budget or business plan; or (xv) agree or otherwise commit to take any action
set forth in (i) through (xiv).

The rights and obligations of a Shareholder under this Agreement shall
terminate when the Shareholder no longer holds beneficial ownership of any
shares of stock. The Agreement shall terminate upon the consummation of a
qualified IPO except for certain provisions with respect to matters such as
corporate governance, Shareholders cooperation with the governance provisions,
and other provisions which by their respective terms survive until they are no
longer operative. No modification, amendment or waiver of any provision of the
Agreement shall be effective unless approved in writing by the Company, the
Shareholders holding at least a majority of the shares of Common Stock, and by
Beacon (so long as it holds the ownership threshold). Any amendment to the
provisions concerning rights of first offer and restrictions on transfers
require written approval by the Company, Shareholders holding at least 66 2/3%
of the outstanding Common Stock and Beacon. The Agreement shall bind successors
and assigns of the Company and each Shareholder so long as they hold stock in
the Company.

SHAREHOLDERS LETTER AGREEMENT

Persons acquiring Class B Common Stock or securities convertible into Class
B Common Stock will be required to execute and deliver to the Company a
Shareholders' Letter Agreement (the "Letter Agreement"). The Letter Agreement
restricts the rights of shareholders to sell, transfer, assign, distribute,
pledge, encumber or otherwise dispose of, either voluntarily or involuntarily,
any shares Class B Common Stock or any interest therein, except under certain
express conditions. Shareholders of Class B Common Stock may transfer their
shares by will or intestacy to their immediate family or to any custodian or
trustee for the account of the shareholder or shareholder's immediate family.
Further, any corporate shareholder may transfer any or all of its Shares to any
or all of its stockholders. Shares held by a general or limited partnership are
transferable to any or all its partners or former partners.

After July 15, 1999 and so long as Beacon holds the ownership threshold, if
Beacon determines to transfer or exchange to an unaffiliated third party all
shares of Common Stock, as well as securities convertible into Common Stock
owned by
61

<PAGE>

Beacon, then under the Letter Agreement, upon 30 days prior written notice from
Beacon disclosing the terms of the proposed transaction, the shareholder shall
be obligated to sell and transfer all of his or her shares to such third party
in the same transaction. The shareholder shall receive the same consideration
per share on an as-converted basis in such a transaction as is received by
Beacon. These obligations shall not apply to (i) any transfer prior to July 15,
1999 (two years after the date of the Letter Agreement), (ii) any transfer
pursuant to a bona fide underwritten public offering pursuant to a registration
statement filed under the Securities Act of 1933, as amended, or (iii) any
transfer by Beacon, to an affiliate of Beacon. The Company may require that a
legend be placed on certificates evidencing shares of stock, including, without
limitation, a legend stating that such shares are subject to the terms of the
Letter Agreement.

The terms of the Letter Agreement shall apply to and bind the successors
and assigns of the shareholders so long as they hold shares. No modification,
amendment or waiver of any provision of the Letter Agreement shall be effective
unless approved in writing by the Company and the shareholder. The rights and
obligations of the Letter Agreement shall terminate at such time as such
shareholder no longer retains beneficial ownership of any shares or upon the
consummation of an IPO.

PLAN OF DISTRIBUTION

The Securities offered pursuant to this Prospectus may be issued from time
to time in connection with the affiliation of medical practices with the
Company. Except in connection with the exercise of the Options, the Company will
not receive cash proceeds from the issuance of the Securities. The Securities
offered pursuant to this Prospectus may be issued in amounts and at prices to be
determined at the time of the offering of such Securities. Securities may be
issued by the Company as consideration in one or a combination of the following
types of affiliation transactions: (i) participation agreements with individual
physicians, medical groups and IPAs; (ii) acquisitions of certain assets of
medical practices; or (iii) various employment arrangements or agreements
between physicians and Core Medical Groups or between the Company and certain
employees.

A Prospectus Supplement will set forth specific details with respect to
each offering of the Securities. Such details will include, to the extent
applicable, (1) the amount of Securities being offered; (2) the offering price
of the Class B Common Stock or the exercise price of Options; and (3) certain
Federal income tax consequences. With respect to offerings of Securities in
connection with the acquisition of certain assets of medical practices, the
Prospectus Supplement will provide information about the specific transaction
and the particular medical practice involved in the transaction. The terms of
the Securities as set forth in this Prospectus will not change. It is not
expected that underwriting discounts or commissions will be paid by the Company.
In general, all expenses relating to the registration, offer and sale of the
Securities will be borne by the Company.

The value of the Class B Common Stock will be determined by the Company's
management and Board of Directors based upon the Company's results of operations
and current financial condition, recent sales of the Company's securities and
arms' length negotiations with potential purchasers, estimates of the business
potential and prospects of the Company, the economics of the health care
industry in general, the condition of the equity securities market in general
and other relevant factors.

The Securities issued hereunder will be new issues of securities with no
established trading market. The Company does not currently intend to apply for
the listing of any Securities on any national securities exchange or market. As
such, resales of the Securities will be severely limited. In addition, the
Securities offered hereby will be subject to certain contractual restrictions on
resale, including the Stockholders Agreement. See "Description of Capital
Stock", "Risk Factors -- Voting Limitations; Restrictions on Resale of
Securities" and "Risk Factors -- Absence of Public Market; Penny Stock Rules."

IPA ARRANGEMENTS

It is anticipated that the entry by the Company into IPA arrangements will
involve the agreement by a medical practice to authorize the Company to
negotiate service contracts on its behalf. See
"Business -- Operations -- Network Development -- Independent Practice
Associations." The terms of an IPA arrangement are determined by negotiations
between the Company's representatives and physicians. Factors taken into account
in such transactions with respect to the consideration to be paid by the Company
in such transactions include the commercial terms of the particular IPA
arrangement, and the established size, quality and reputation of the practices.
It is anticipated that shares of Class B Common Stock issued, or underlying
Options granted, in any such IPA arrangements will, in most cases, be valued at
a price reasonably related to the current value of the Class B Common Stock, at
the time that the terms of the IPA arrangements are tentatively agreed upon, at
or about the time the transactions are closed, or during the period or periods
prior to delivery of the Securities.

<PAGE>

ACQUISITION OF CERTAIN ASSETS OF MEDICAL PRACTICES

It is anticipated that the acquisitions of the medical practices will
involve the receipt by the Company of substantially all of the assets of such
medical practices (primarily enumerated tangible assets of such practices and
related contractual rights). The terms of an acquisition of a medical practice
are determined by negotiations between the Company's representatives and
physicians. Factors taken into account in such transactions with respect to the
consideration to be paid by the Company in such transactions include the
established size, quality and reputation of the practices. It is anticipated
that shares of Class B Common Stock issued, or underlying Options granted, in
any such acquisitions will, in most cases, be valued at a price reasonably
related to the current value of the Class B Common Stock, at the time that the
terms of the affiliation agreements are tentatively agreed upon, at or about the
time the transactions are closed, or during the period or periods prior to
delivery of the Securities.

EMPLOYMENT ARRANGEMENTS

It is anticipated that the entry by the Core Medical Groups into employment
arrangements with physicians will involve the agreement by the physician to
furnish services to a Core Medical Group including the provision of medical
services pursuant to the Company's managed care contracts. See
"Business -- Network Development -- Core Medical Groups." Pursuant to the
Company's management of the Core Medical Groups under the PSO Agreements, the
terms of an employment arrangement are determined by negotiations between the
Company's representatives and physicians. Factors taken into account in such
transactions with respect to the consideration to be paid by the Company in such
transactions include the commercial terms of the particular employment
arrangements and the established size, quality and reputation of the practices
of the employees. It is anticipated that shares of Class B Common Stock issued,
or underlying Options granted, in any such employment arrangements will, in most
cases, be valued at a price reasonably related to the current value of the Class
B Common Stock, at the time that the terms of the employment arrangements are
tentatively agreed upon, at or about the time the transactions are closed, or
during the period or periods prior to delivery of the shares.

It is anticipated that the entry by the Company into employment
arrangements with employees will involve the agreement by the employee to
furnish services to the Company including with respect to the recruitment of
physicians to enter into contractual relationships with the Company. The terms
of such transactions will be based upon the commercial aspects of the particular
employment arrangements. It is anticipated that shares of Class B Common Stock
issued, or underlying any Options granted, in any such employment arrangement
will be valued at a price reasonably related to the current value of the Class B
Common Stock, at the time that the terms of the employment arrangements are
tentatively agreed upon, at the time the transaction is closed or during the
period or periods prior to delivery of the shares.

SHARES ELIGIBLE FOR RESALE

Although there is no public market for the Securities and it is not
anticipated that a public market will develop in the near future, sales of a
substantial number of shares of the Company's capital stock could adversely
affect the price at which the Securities could be resold and could impair the
Company's future ability to raise capital through an offering of its equity
securities.

All of the Class B Common Stock issued pursuant to this Prospectus or
issued upon exercise of Options granted pursuant to this Prospectus will be
subject to significant restrictions on transfer pursuant to the Letter Agreement
to which each person acquiring shares will be a party. Additionally, the Options
will be non-transferable except in the case of death. Without such contractual
restrictions, however, such Securities would be freely transferable without
restriction or registration under the Securities Act, except for any shares
purchased by an existing "affiliate" of the Company as that term is defined
under the Securities Act (an "Affiliate"), which Securities would be subject to
the resale limitations of Rule 144 adopted under the Securities Act.

As of December 1, 1997, there were 1,620,000 shares of Class A Common Stock
and 5,377,290 shares of Class B Common Stock issued and outstanding. In
addition, up to 2,812,660 shares of Class A Common Stock, 138,000 shares of
Class B Common Stock and 8,374,038 shares of Class C Common Stock are issuable
upon exercise or conversion of outstanding options, warrants or Preferred Stock
(or Preferred Stock issuable upon conversion of an outstanding convertible
note). Securities issued prior January 1991 were issued by the Company in
private transactions not involving a public offering and are "restricted
securities" for purposes of Rule 144 adopted under the Securities Act. In
addition to the contractual limitations set forth in the Shareholders Agreement
and the Letter Agreement, such securities may not be resold in a public
distribution, except in compliance with the registration requirements of the
Securities Act, pursuant to a valid exemption therefrom or pursuant to Rule 144.
Approximately 191,290 shares of Class B Common Stock and Options covering 96,000

<PAGE>

shares of Class B Common Stock were issued pursuant to this Registration
Statement and are therefore not "restricted securities" for purposes of Rule 144
and generally may be resold (subject to the various contractual restrictions
discussed above) without further restriction.

In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement, a person (or persons whose
shares are aggregated) who has beneficially owned Securities which are
restricted securities for at least one year (including the holding period of any
prior owner except an affiliate of the Company) would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) one percent of the number of Securities then outstanding; or (ii) the
average weekly trading volume of the Securities during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an Affiliate at any time during the 90 days immediately
preceding a sale, and who has beneficially owned the Securities proposed to be
sold for at least two years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such Securities without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. Persons deemed to be Affiliates desiring to sell shares to the
public generally must always sell pursuant to the conditions of Rule 144, even
after the applicable holding periods have been satisfied.

As of December 1, 1997, 1,600,000 shares of Class A Common Stock, 5,172,000
shares of Class B Common Stock, 1,428,857 shares of Preferred Stock (or the
shares of Class C Common Stock to be acquired upon conversion of those shares)
were available for resale pursuant to all of the conditions of Rule 144. The
remaining 20,000 shares of outstanding Class A Common Stock will be available
for resale in January 1998 pursuant to all of the conditions of Rule 144. In
January, July and October 1998, 142,857, 2,438,068 and 34,666 shares,
respectively, of Preferred Stock (or the shares of Class C Common Stock acquired
upon conversion of those shares) will be available for resale pursuant to all of
the conditions of Rule 144.

In addition to its outstanding securities, as of December 1, 1997 the
Company had issued options to acquire 2,264,660 shares of Class A Common Stock
and 138,000 shares of Class B Common Stock; warrants to acquire 548,000 shares
of Class A Common Stock; and a note convertible into 285,714 shares of Series C
Preferred Stock (convertible into 714,285 shares of Class C Common Stock).

The 548,000 shares of Class A Common Stock issuable upon exercise of
outstanding warrants will also be deemed restricted securities. Depending on the
method of exercise, 48,000 of such shares may be available for resale either
presently or one year from the date of exercise, subject to all of the
conditions of Rule 144. The remaining 500,000 shares of Class A Common Sstock
issuable upon exercise of an outstanding warrant may be available for resale in
July 1998 or one year from the date of exercise, depending on the method of
exercise, subject to all of the conditions of Rule 144.

Subject to certain limitations, Rule 701 promulgated under the Securities
Act modifies the conditions of Rule 144 with respect to the resale of securities
originally purchased from the Company by its employees, directors, officers,
consultants or advisors prior to the date the issuer becomes subject to the
reporting requirements of the Exchange Act pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons.
The Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of such options
(including exercises after the date of this Prospectus). Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions of the Shareholders and Letter Agreements, may be resold 90 days
after the effective date of the Registration Statement by persons other than
Affiliates subject only to the manner of sale provisions of Rule 144 and by
Affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.

Prior to January 1997, the Company issued options to purchase approximately
1,046,660 shares of Class A Common Stock pursuant to Rule 701, of which options
to purchase approximately 237,560 shares were vested and exercisable as of
December 1, 1997. An option to acquire 200,000 shares of Class A Common Stock
will vest in December 1997. Options to acquire 141,600 shares of Class A Common
Stock will vest in equal portions over the next four years Of the remaining
outstanding options, options to acquire approximately 21,500, 436,000, and
10,000 shares of Class A Common Stock are exercisable in 2000, 2001 and 2003,
respectively. Shares of Common Stock to be issued upon exercise of Class A
options granted pursuant to Rule 701 may be resold by persons other than
Affiliates subject only to the manner of sale provisions of Rule 144 and by
Affiliates without compliance with its one-year minimum holding period
requirements.

Options to acquire 1,210,000 shares of Class A Common Stock were issued
during 1997 pursuant to private transactions. Of such options, options to
acquire 30,000 shares of Class A Common Stock vested and exercisable as of
December 1,
64

<PAGE>

1997. The remaining options will vest equally over the next five years. Shares
acquired upon exercise of such options may be resold one year from the date of
exercise, subject to all of the conditions of Rule 144.

The convertible note, or the 285,714 shares of Series C Preferred Stock
into which it is convertible, may be resold in January 1998 pursuant to all of
the conditions of Rule 144.

Options to acquire 96,000 shares of Class B Common Stock was issued
pursuant to this Registration Statement and, accordingly, may be freely
transferred subject to applicable contractual restrictions.

LEGAL MATTERS

The validity of the Securities offered hereby will be passed upon for the
Company by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.

EXPERTS

The Company's consolidated financial statements and schedules as of June
30, 1997 and for the year then ended, included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

The Company's consolidated financial statements as of June 30, 1996 and
1995 and for the year and period then ended, respectively, included in this
Prospectus have been so included in reliance on the report of Grant Thornton
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

INDEMNIFICATION

The Company's Certificate of Incorporation and the Shareholders Agreement
generally provide that the directors and officers of the Company shall be
indemnified to the fullest extent permitted by law against reasonable
out-of-pocket damages, settlements, expenses and other costs associated with any
action, suit or proceeding to which such person is made a party by reason of the
fact that such person is an officer or director of the Company, provided that
such officer or director acted in good faith and in a manner he reasonably
believed to be in the best interests of the Company. The Company has purchased
insurance on behalf of each director and certain executive officers against any
such indemnified liabilities.

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

<PAGE>
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
DOCTORS HEALTH, INC.
JUNE 30, 1995, 1996 AND 1997
AND
SEPTEMBER 30, 1996
AND 1997 (UNAUDITED)

<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
-----
<S> <C>
DOCTORS HEALTH, INC.
Reports of Independent Certified Public Accountants................................................................... F-2
Consolidated Financial Statements
Balance Sheets...................................................................................................... F-4
Statements of Operations............................................................................................ F-5
Statements of Cash Flows............................................................................................ F-6
Statements of Stockholders' Equity (Deficit)........................................................................ F-7
Notes to Consolidated Financial Statements............................................................................ F-8
Schedule II--Valuation and Qualifying Accounts........................................................................ F-30
</TABLE>

F-1

<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS OF
DOCTORS HEALTH, INC. AND SUBSIDIARIES:

We have audited the accompanying consolidated balance sheet of Doctors
Health, Inc. (formerly Doctors Health System, Inc.) and Subsidiaries as of June
30, 1997, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Doctors Health, Inc. and
Subsidiaries as of June 30, 1997 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II-Valuation and Qualifying
Accounts is presented for the purposes of complying with the Securities and
Exchange Commission's reporting requirements and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Baltimore, Maryland
August 18, 1997
(except with respect to the matters
discussed in Notes 20 and 21,
as to which
the date is December 1, 1997)

F-2

<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

BOARD OF DIRECTORS AND STOCKHOLDERS
DOCTORS HEALTH, INC. AND SUBSIDIARIES:

We have audited the accompanying consolidated balance sheets of Doctors
Health, Inc. (formerly Doctors Health System, Inc.) and Subsidiaries, as of June
30, 1996 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the year ended June 30, 1996 and for the
period February 24, 1995 (date of inception) to June 30, 1995. These 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 audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Doctors Health,
Inc. and Subsidiaries as of June 30, 1996 and the consolidated results of its
operations and its cash flows for the year ended June 30, 1996 and for the
period February 24, 1995 (date of inception) to June 30, 1995, in conformity
with generally accepted accounting principles.

We have also audited Schedule II--Valuation and Qualifying Accounts for the
year ended June 30, 1996. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.

GRANT THORNTON LLP

Baltimore, Maryland
October 3, 1996
(except for Note 20,
which is now incorporated
into the second paragraph
of Note 11, the date of
which is January 13, 1997)

F-3

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 1996 AND 1997 AND SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 9)............................................... $ 1,419,295 $ 4,737,828
Restricted cash (Note 1)................................................................ -- 680,000
Short-term investments.................................................................. -- --
Accounts receivable (net of allowance for doubtful accounts of $324,521, $270,521 and
$193,706 at June 30, 1996 and 1997 and September 30, 1997, respectively) (Notes 1 and
2).................................................................................... 1,303,941 2,722,891
Accounts receivable-affiliates (Note 1)................................................. 1,208,685 1,115,885
Other receivables (Note 4).............................................................. 64,251 1,170,504
Prepaid expenses........................................................................ 117,096 190,987
Due from affiliates (Note 18)........................................................... 891,985 925,658
------------ ------------
Total Current Assets.................................................................. 5,005,253 11,543,753
------------ ------------
PROPERTY AND EQUIPMENT, net (Notes 1,2 and 7)............................................ 2,485,547 4,205,532
OTHER ASSETS
Intangibles (net of accumulated amortization of $65,170, $445,148 and $611,823 at June
30, 1996 and 1997 and September 30, 1997, respectively) (Notes 1 and 2)............... 2,448,030 6,475,925
Deferred charges (net of accumulated amortization of $147,475, $304,537 and $410,029 at
June 30, 1996 and 1997 and September 30, 1997, respectively) (Note 1)................. 636,772 924,334
Note receivable (Note 6)................................................................ 300,000 --
Accrued interest receivable............................................................. 253,976 374,970
Other receivable........................................................................ -- 200,000
Deposits................................................................................ 24,560 83,066
------------ ------------
Total Other Assets.................................................................... 3,663,338 8,058,295
------------ ------------
TOTAL ASSETS.......................................................................... $ 11,154,138 $ 23,807,580
------------ ------------
------------ ------------
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of notes payable (Note 8)............................................ $ 303,915 $ 6,007,589
Current maturities of capital lease obligations (Note 8)................................ 101,985 --
Accounts payable........................................................................ 330,647 1,108,499
Accrued medical services (Note 1)....................................................... 550,520 5,301,384
Other accrued expenses (Note 5)......................................................... 2,069,579 3,233,955
Due to affiliates (Note 18)............................................................. 766,475 965,204
------------ ------------
Total Current Liabilities............................................................. 4,123,121 16,616,631
------------ ------------
LONG-TERM OBLIGATIONS
Note payable (Note 8)................................................................... 3,400,000 5,462,621
Notes payable and purchase obligations-related parties (Notes 8 and 14)................. 2,077,364 2,659,456
Capital lease obligations, less current maturities (Note 8)............................. 320,673 --
------------ ------------
Total Long-term Obligations........................................................... 5,798,037 8,122,077
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
REDEEMABLE CONVERTIBLE PREFERRED STOCK (Notes 8,10,13 and 14)
6.5% cumulative, Series A, $5 par value, authorized and issued 1,000,000 shares
(Liquidation value $3,500,000 plus unpaid dividends)................................... 5,273,305 5,651,472
Less subscription receivable............................................................ (1,500,000) (1,500,000)
------------ ------------
3,773,305 4,151,472
9.75% cumulative, Series B, $11.25 par value, authorized and issued 355,556 shares at
June 30, 1996 and 1997 (liquidation value $4,000,000, plus unpaid dividends); 8.00%
cumulative, Series B, $11.25 par value, authorized and issued 438,068 shares at
September 30, 1997 (liquidation value 4,928,265, plus unpaid dividends)............... 4,137,526 4,548,945
8% cumulative, Series C, $17.50 par value, authorized 1,071,428 shares; issued and
outstanding 571,428 shares (Liquidation value $10,000,000 plus unpaid dividends)...... -- 10,581,696
8% Series D, dividends payable in-kind, $10.00 par value, authorized 5,750,000 shares;
issued and outstanding 2,000,000 shares at September 30, 1997 (Liquidation value
$20,000,000 plus unpaid dividends).................................................... -- --
REDEEMABLE CLASS A COMMON STOCK (Note 11)
$.01 par value, authorized, issued and outstanding 800,000 shares at June 30, 1996...... 2,400,000 --
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 11,12,13 and 19)
Preferred Stock, $.01 par value; authorized 1,000,000 shares, no shares issued.......... -- --
Common Stock (Note 20)
Class A, $.01 par value; authorized 20,700,000 shares, issued and outstanding 810,000
and 1,620,000 shares at June 30, and September 30, 1997, respectively............... -- 8,100
Class B, $.01 par value; authorized 10,000,000 shares; issued and outstanding
2,398,000, 2,645,167 and 5,328,020 shares at June 30, 1996 and 1997 and September
30, 1997, respectively.............................................................. 23,980 26,452
Class C, $.01 par value; authorized 29,050,000 shares; no shares issued............... -- --
Additional paid-in capital.............................................................. 2,323,600 5,880,477
Deferred compensation................................................................... -- (912,508)
Accumulated deficit..................................................................... (11,425,431) (25,215,762)
------------ ------------
Total Stockholders' Equity (Deficit)................................................ (9,077,851) (20,213,241)
------------ ------------
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)................................ $ 11,154,138 $ 23,807,580
------------ ------------
------------ ------------

<CAPTION>
SEPTEMBER 30,
1997
-------------
(Unaudited)
(Note 22)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 9)............................................... $ 16,300,210
Restricted cash (Note 1)................................................................ 680,000
Short-term investments.................................................................. 3,000,000
Accounts receivable (net of allowance for doubtful accounts of $324,521, $270,521 and
$193,706 at June 30, 1996 and 1997 and September 30, 1997, respectively) (Notes 1 and
2).................................................................................... 2,513,493
Accounts receivable-affiliates (Note 1)................................................. 1,071,818
Other receivables (Note 4).............................................................. 1,712,977
Prepaid expenses........................................................................ 391,821
Due from affiliates (Note 18)........................................................... 895,227
-------------
Total Current Assets.................................................................. 26,565,546
-------------
PROPERTY AND EQUIPMENT, net (Notes 1,2 and 7)............................................ 4,221,241
OTHER ASSETS
Intangibles (net of accumulated amortization of $65,170, $445,148 and $611,823 at June
30, 1996 and 1997 and September 30, 1997, respectively) (Notes 1 and 2)............... 7,022,205
Deferred charges (net of accumulated amortization of $147,475, $304,537 and $410,029 at
June 30, 1996 and 1997 and September 30, 1997, respectively) (Note 1)................. 266,341
Note receivable (Note 6)................................................................ --
Accrued interest receivable............................................................. 391,953
Other receivable........................................................................ 153,000
Deposits................................................................................ 85,065
-------------
Total Other Assets.................................................................... 7,918,564
-------------
TOTAL ASSETS.......................................................................... $ 38,705,351
-------------
-------------
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of notes payable (Note 8)............................................ $ 6,119,121
Current maturities of capital lease obligations (Note 8)................................ --
Accounts payable........................................................................ 184,464
Accrued medical services (Note 1)....................................................... 6,077,168
Other accrued expenses (Note 5)......................................................... 2,831,282
Due to affiliates (Note 18)............................................................. 880,288
-------------
Total Current Liabilities............................................................. 16,092,323
-------------
LONG-TERM OBLIGATIONS
Note payable (Note 8)................................................................... 5,400,408
Notes payable and purchase obligations-related parties (Notes 8 and 14)................. 2,711,035
Capital lease obligations, less current maturities (Note 8)............................. --
-------------
Total Long-term Obligations........................................................... 8,111,443
-------------
COMMITMENTS AND CONTINGENCIES (Note 9)
REDEEMABLE CONVERTIBLE PREFERRED STOCK (Notes 8,10,13 and 14)
6.5% cumulative, Series A, $5 par value, authorized and issued 1,000,000 shares
(Liquidation value $3,500,000 plus unpaid dividends)................................... 5,738,222
Less subscription receivable............................................................ (1,500,000)
-------------
4,238,222
9.75% cumulative, Series B, $11.25 par value, authorized and issued 355,556 shares at
June 30, 1996 and 1997 (liquidation value $4,000,000, plus unpaid dividends); 8.00%
cumulative, Series B, $11.25 par value, authorized and issued 438,068 shares at
September 30, 1997 (liquidation value 4,928,265, plus unpaid dividends)............... 4,449,303
8% cumulative, Series C, $17.50 par value, authorized 1,071,428 shares; issued and
outstanding 571,428 shares (Liquidation value $10,000,000 plus unpaid dividends)...... 10,782,152
8% Series D, dividends payable in-kind, $10.00 par value, authorized 5,750,000 shares;
issued and outstanding 2,000,000 shares at September 30, 1997 (Liquidation value
$20,000,000 plus unpaid dividends).................................................... 18,611,379
REDEEMABLE CLASS A COMMON STOCK (Note 11)
$.01 par value, authorized, issued and outstanding 800,000 shares at June 30, 1996...... --
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 11,12,13 and 19)
Preferred Stock, $.01 par value; authorized 1,000,000 shares, no shares issued.......... --
Common Stock (Note 20)
Class A, $.01 par value; authorized 20,700,000 shares, issued and outstanding 810,000
and 1,620,000 shares at June 30, and September 30, 1997, respectively............... 16,200
Class B, $.01 par value; authorized 10,000,000 shares; issued and outstanding
2,398,000, 2,645,167 and 5,328,020 shares at June 30, 1996 and 1997 and September
30, 1997, respectively.............................................................. 53,280
Class C, $.01 par value; authorized 29,050,000 shares; no shares issued............... --
Additional paid-in capital.............................................................. 6,177,190
Deferred compensation................................................................... (860,476)
Accumulated deficit..................................................................... (28,965,665)
-------------
Total Stockholders' Equity (Deficit)................................................ (23,579,471)
-------------
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)................................ $ 38,705,351
-------------
-------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.

F-4

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

OTHER INCOME (EXPENSE)
Interest and other income................. 99,673 272,666 246,889 69,038 296,440
Interest expense.......................... (23,915) (226,908) (781,964) (148,215) (328,069)
----------------- ----------- ------------ ------------- -------------
75,758 45,758 (535,075) (79,177) (31,629)
----------------- ----------- ------------ ------------- -------------
Loss before income taxes............... (1,755,685) (6,612,113) (14,800,050) (2,810,537) (2,910,081)
Income taxes (Note 15).................... -- -- -- -- --
----------------- ----------- ------------ ------------- -------------
NET LOSS............................. $(1,755,685) $(6,612,113) $(14,800,050) $(2,810,537) $(2,910,081)
----------------- ----------- ------------ ------------- -------------
----------------- ----------- ------------ ------------- -------------
Loss applicable to common stock
Net loss............................... $(1,755,685) $(6,612,113) $(14,800,050) $(2,810,537) $(2,910,081)
Preferred stock dividends and
accretion............................ 113,300 552,531 1,382,083 223,024 805,082
----------------- ----------- ------------ ------------- -------------
Loss applicable to common stock........ $(1,868,985) $(7,164,644) $(16,182,133) $(3,033,561) $(3,715,163)
----------------- ----------- ------------ ------------- -------------
----------------- ----------- ------------ ------------- -------------
Net loss per share (Notes 16 and 20)........ $(0.31) $(1.17) $(2.42) $(0.47) $(0.54)
------- ----------- ------------ ------------- -------------
------- ----------- ------------ ------------- -------------
Weighted average number of common shares
outstanding
(Notes 16 and 20)......................... 6,000,000 6,126,410 6,690,794 6,412,434 6,928,688
----------------- ----------- ------------ ------------- -------------
----------------- ----------- ------------ ------------- -------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-5

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM FEBRUARY 24, 1995 (INCEPTION)
TO JUNE 30, 1995 AND THE YEARS ENDED
JUNE 30, 1996 AND 1997 AND THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM FEBRUARY 24,
1995 (INCEPTION) YEAR ENDED YEAR ENDED THREE MONTHS ENDED
TO JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1996 1997
----------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
(NOTE 22)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss..................................... $(1,755,685) $(6,612,113) $(14,800,050) $(2,810,537) $(2,910,081)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 27,508 435,573 1,512,772 224,384 476,581
Deferred compensation...................... -- -- 128,125 -- 52,032
Changes in operating assets and
liabilities, net of effects of
medical practice receivables acquired
Restricted cash.......................... -- -- (680,000) -- --
Accounts receivable...................... 83,984 (245,801) (544,974) (331,386) 209,398
Accounts receivable--affiliates.......... (31,931) (327,386) 138,462 99,607 44,067
Prepaid expenses and other receivables... (219,436) (178,583) (1,501,138) (131,513) (760,290)
Due from/to affiliates................... 307,843 (433,353) 165,056 139,343 (54,485)
Accounts payable......................... 76,420 231,649 777,852 63,716 (924,035)
Accrued and other liabilities............ 364,473 2,340,798 5,665,582 185,212 595,248
Organizational costs and deferred
charges............................... (146,000) (268,248) (105,126) (226,122) --
----------------- ----------- ------------ ------------- -------------
Net cash used in operating
activities.......................... (1,292,824) (5,057,464) (9,243,439) (2,787,296) (3,271,565)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........... (238,926) (2,129,464) (2,501,963) (371,222) (211,903)
Purchase of short-term investments........... -- -- -- -- (3,000,000)
Payments for acquisitions.................... (22,000) (42,773) (1,836,155) (92,986) (542,276)
Deposits..................................... (149,563) 127,395 (58,506) (26,668) (1,999)
----------------- ----------- ------------ ------------- -------------
Net cash used in investing
activities.......................... (410,489) (2,044,842) (4,396,624) (490,876) (3,756,178)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of redeemable
convertible preferred stock................ 1,835,000 5,410,000 9,989,199 7,489,200 18,711,361
Net proceeds from issuance of common stock... 198 -- -- -- --
Class B common stock direct registration
costs...................................... -- -- (671,062) -- --
Borrowings under notes payable............... -- 3,400,000 8,911,566 1,183,017 --
Principal payments on capital lease
obligations................................ -- (79,157) (245,836) (24,709) --
Issuance of note receivable.................. -- (300,000) -- -- --
Payments on notes payable.................... -- (41,127) (1,025,271) (168,115) (121,236)
----------------- ----------- ------------ ------------- -------------
Net cash provided by financing
activities.......................... 1,835,198 8,389,716 16,958,596 8,479,393 18,590,125

Net increase in cash and cash
equivalents......................... 131,885 1,287,410 3,318,533 5,201,221 11,562,382
Cash and cash equivalents, at beginning of
period....................................... -- 131,885 1,419,295 1,419,295 4,737,828
----------------- ----------- ------------ ------------- -------------
Cash and cash equivalents, at end of period.... $ 131,885 $ 1,419,295 $ 4,737,828 $ 6,620,516 $16,300,210
----------------- ----------- ------------ ------------- -------------
----------------- ----------- ------------ ------------- -------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-6

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM FEBRUARY 24, 1995 (INCEPTION)
TO JUNE 30, 1995 AND THE YEARS ENDED
JUNE 30, 1996 AND 1997 AND THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK-- COMMON STOCK-- RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS/
--------------------- --------------------- PAID-IN DEFERRED (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT)
---------- ------- ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 24, 1995........ -- $ -- -- $ -- $ 198 $ -- $ --
Net loss........................... -- -- -- -- -- -- (1,755,685)
Issuance of Class B Common Stock... -- -- 2,200,000 22,000 -- -- --
Series A Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (113,300)
Capital related to MHLP
transactions..................... -- -- -- -- 1,320 -- --
---------- ------- ---------- ------- ----------- ------------ -------------
BALANCE AT JUNE 30, 1995............ -- -- 2,200,000 22,000 1,518 -- (1,868,985)
Net loss........................... -- -- -- -- -- -- (6,612,113)
Issuance of common stock purchase
warrants for services (Note
13).............................. -- -- -- -- 370,000 -- --
Issuance of Class B Common Stock... -- -- 198,000 1,980 592,020 -- --
Series A Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (325,005)
Series B Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (227,526)
Capital related to MHLP
transactions..................... -- -- -- -- 1,360,260 -- --
Increase in value of Redeemable
Class A Common Stock (Note 11)... -- -- -- -- (198) -- (2,391,802)
---------- ------- ---------- ------- ----------- ------------ -------------
BALANCE AT JUNE 30, 1996............ -- -- 2,398,000 23,980 2,323,600 -- (11,425,431)
Net loss........................... -- -- -- -- -- -- (14,800,050)
Series A Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (325,000)
Series B Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (390,044)
Series C Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (590,976)
Preferred stock accretion.......... -- -- -- -- -- -- (76,063)
Issuance of Class A Common Stock... 10,000 100 -- -- 69,900 -- --
Issuance of Class B Common Stock... -- -- 247,167 2,472 1,727,698 -- --
Class B common stock direct
registration costs............... -- -- -- -- (671,062) -- --
Capital related to MHLP
transactions..................... -- -- -- -- 717,010 -- --
Increase in value of Redeemable
Class A Common Stock (Note 11)... -- -- -- -- -- -- (3,200,000)
Effect of obtaining insurance for
the Redeemable Class A Common
Stock............................ 800,000 8,000 -- -- 198 -- 5,591,802
Issuance of common stock purchase
warrants for services (Note
13).............................. -- -- -- -- 672,500 -- --
Issuance of common stock options
(Note 12)........................ -- -- -- -- 1,040,633 (1,040,633) --
Amortization of deferred
compensation (Note 12)........... -- -- -- -- -- 128,125 --
---------- ------- ---------- ------- ----------- ------------ -------------
BALANCE AT JUNE 30, 1997............ 810,000 8,100 2,645,167 26,452 5,880,477 (912,508) (25,215,762)
Net loss........................... -- -- -- -- -- -- (2,910,081)
Series A Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (81,250)
Series B Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (98,036)
Series C Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (200,000)
Series D Preferred Stock dividend
accretion........................ -- -- -- -- -- -- (333,333)
Preferred stock accretion.......... -- -- -- -- -- -- (92,463)
Issuance of common stock purchase
warrants......................... -- -- -- -- 165,000 -- --
Issuance of Class B Common Stock... -- -- 18,843 188 131,713 -- --
Class A Common Stock Split-up (Note
20).............................. 810,000 8,100 -- -- -- -- (8,100)
Class B Common Stock Split-up (Note
20).............................. -- -- 2,664,010 26,640 -- -- (26,640)
Amortization of deferred
compensation..................... -- -- -- -- -- 52,032 --
---------- ------- ---------- ------- ----------- ------------ -------------
BALANCE AT SEPTEMBER 30, 1997
(UNAUDITED-NOTE 22)................ 1,620,000 $16,200 5,328,020 $53,280 $ 6,177,190 $ (860,476) $(28,965,665)
---------- ------- ---------- ------- ----------- ------------ -------------
---------- ------- ---------- ------- ----------- ------------ -------------

TOTAL
------------
<S> <C>
BALANCE AT FEBRUARY 24, 1995........ $ 198
Net loss........................... (1,755,685)
Issuance of Class B Common Stock... 22,000
Series A Preferred Stock dividend
accretion........................ (113,300)
Capital related to MHLP
transactions..................... 1,320
------------
BALANCE AT JUNE 30, 1995............ (1,845,467)
Net loss........................... (6,612,113)
Issuance of common stock purchase
warrants for services (Note
13).............................. 370,000
Issuance of Class B Common Stock... 594,000
Series A Preferred Stock dividend
accretion........................ (325,005)
Series B Preferred Stock dividend
accretion........................ (227,526)
Capital related to MHLP
transactions..................... 1,360,260
Increase in value of Redeemable
Class A Common Stock (Note 11)... (2,392,000)
------------
BALANCE AT JUNE 30, 1996............ (9,077,851)
Net loss........................... (14,800,050)
Series A Preferred Stock dividend
accretion........................ (325,000)
Series B Preferred Stock dividend
accretion........................ (390,044)
Series C Preferred Stock dividend
accretion........................ (590,976)
Preferred stock accretion.......... (76,063)
Issuance of Class A Common Stock... 70,000
Issuance of Class B Common Stock... 1,730,170
Class B common stock direct
registration costs............... (671,062)
Capital related to MHLP
transactions..................... 717,010
Increase in value of Redeemable
Class A Common Stock (Note 11)... (3,200,000)
Effect of obtaining insurance for
the Redeemable Class A Common
Stock............................ 5,600,000
Issuance of common stock purchase
warrants for services (Note
13).............................. 672,500
Issuance of common stock options
(Note 12)........................ --
Amortization of deferred
compensation (Note 12)........... 128,125
------------
BALANCE AT JUNE 30, 1997............ (20,213,241)
Net loss........................... (2,910,081)
Series A Preferred Stock dividend
accretion........................ (81,250)
Series B Preferred Stock dividend
accretion........................ (98,036)
Series C Preferred Stock dividend
accretion........................ (200,000)
Series D Preferred Stock dividend
accretion........................ (333,333)
Preferred stock accretion.......... (92,463)
Issuance of common stock purchase
warrants......................... 165,000
Issuance of Class B Common Stock... 131,901
Class A Common Stock Split-up (Note
20).............................. --
Class B Common Stock Split-up (Note
20).............................. --
Amortization of deferred
compensation..................... 52,032
------------
BALANCE AT SEPTEMBER 30, 1997
(UNAUDITED-NOTE 22)................ $(23,579,471)
------------
------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-7

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1995, 1996 AND 1997

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Doctors Health, Inc., a Maryland corporation, and its subsidiaries
(collectively "the Company") is a managed care and medical management company
which conducts its business through a network consisting of primary care
physicians ("PCPs"), specialist physicians, hospitals and other providers of
medical care (the "Network"). The Company was incorporated in June 1994 and
commenced operations on February 24, 1995. Effective July 15, 1997 the Company
changed its name from Doctors Health System, Inc. to Doctors Health, Inc. (See
Note 19). As a managed care company, the Company negotiates and enters into
global capitation contracts, pursuant to which (i) payors pay the Company a
fixed amount per month based on the number of enrollees who have selected a PCP
in the Network and (ii) the Company pays the health care providers within the
Network, or those having other contractual arrangements with the Company for
providing the required medical care. In addition, the Company, directly and
through wholly-owned subsidiaries, acquires certain assets of and operates
physician practices under long-term physician service agreements ("PSO
Agreements") with affiliated core medical groups ("CMGs") that practice
exclusively through such physician practices.

The Company provides administrative and technical support for professional
services rendered by the CMGs under service agreements. Under the PSO
Agreements, the Company is reimbursed for all care center expenses, as defined
in the agreement, and participates at varying levels in the excess of net
physician revenue over care center expenses.

The Company conducts its operations through the following wholly-owned and
majority owned subsidiaries and CMGs under long-term PSO Agreements:

<TABLE>
<CAPTION>
SUBSIDIARIES PERCENTAGE OWNED
- ----------------------------------------------------------------------------------- ----------------
<S> <C>
Doctors Health Primary Care IPA, Inc.
(inactive during 1995 and 1996).................................................. 100.0%
Doctors Health--Medalie Equipment
Corporation (incorporated in 1996)............................................... 100.0%
Mishner Newco, Inc. (incorporated in January 1996)................................. 100.0%
Williams Newco, Inc. (incorporated in May 1996).................................... 100.0%
WomanCare IPA, Inc. (incorporated in March 1997)................................... 99.0%
PCPA Newco, Inc. (incorporated in February 1996)................................... 100.0%
Doctors Health of Virginia, Inc. (incorporated November 1996 in Va.)............... 100.0%
Montgomery Newco, Inc. (incorporated September 1996)............................... 100.0%
Medicap, Inc. (incorporated January 1997).......................................... 100.0%

AFFILIATES
- -----------------------------------------------------------------------------------
</TABLE>

Anne Arundel Medical Group, LLC (Anne Arundel Medical, formed in December 1996)

Baltimore Medical Group, LLC (Baltimore Medical, formed in February 1995)

Carroll Medical Group, LLC (Carroll Medical, formed in November 1995)

Cumberland Valley Medical Group, LLC (Cumberland Valley Medical, formed in May
1996)

Doctors Health Montgomery, LLC (Doctors Health Montgomery, formed September
1996)

A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.

BASIS OF PRESENTATION/PRINCIPLES OF CONSOLIDATION

The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in the consolidation.

F-8

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
NET REVENUE RECOGNITION

The Company's net revenues represent contractual management and similar
fees earned under its long-term PSO Agreements with CMGs. Under the PSO
Agreements, the Company is contractually responsible and at risk for the
operating costs of the CMGs, with the exception of amounts retained by
physicians. The Company's net revenues include the reimbursement of all medical
practice operating costs and the contractual management fees due as defined and
stipulated in the PSO Agreements. Contractual fees are recognized when
collection is probable (see Note 3). During the period ended June 30, 1995 and
the years ended June 30, 1996 and 1997, the Company recorded contractual
management fees of $73,800, $141,213 and $402,025, respectively.

CAPITATION REVENUE AND MEDICAL SERVICES EXPENSE RECOGNITION

As of June 30, 1997, the Company has three global capitation contracts and
five gatekeeper capitation contracts with seven health maintenance organizations
(HMOs). Under the contracts, the Company receives monthly capitation fees based
on the number of enrollees electing any one of the Company's affiliated PCPs.
The capitation revenue under these contracts is prepaid monthly based on the
number of enrollees and is recognized as capitation revenue during the month
services are provided to the enrollees. During the year ended June 30, 1996,
approximately $382,000 and $307,000, were recorded as global capitation and
gatekeeper capitation revenue, respectively, in the Company's consolidated
financial statements. During the year ended June 30, 1997, approximately
$9,253,000 and $1,542,000, were recorded as global capitation and gatekeeper
capitation revenue, respectively, in the Company's consolidated financial
statements. During the period ended June 30, 1995, the Company had no global or
gatekeeper capitation contracts. The gatekeeper capitation contracts represent
PCP capitation and the Company records no profit margin on these contracts.

The Company's commercial capitation contract also includes a provision
whereby the Company can earn incentive revenue or incur medical services
expenses based upon the enrollees' utilization of hospital services. Estimated
amounts receivable or payable from the HMO are recorded based upon actual
hospital and other institutional utilization and associated costs incurred by
assigned HMO enrollees, compared to the portion of the commercial capitation
fees allocated for institutional care. Differences between actual contract
settlements and estimated receivables or payables relating to the arrangement
are recorded in the year of settlement. Included in accrued medical services as
of June 30, 1996 and 1997 is approximately $68,000 and $180,000, respectively,
of estimated amounts due to the HMO under this arrangement. Also, as of June 30,
1996 and 1997, the Company has included in accrued medical services a provision
of approximately $77,000 and $146,000 which represents an estimate of the loss
to be incurred over the remaining term of the commercial capitation contract.

Under the Company's two Medicare global capitation contracts, the Company
has assumed responsibility for managing and paying for substantially all of the
medical care for the respective payors' enrollees. Consequently, the Company
does not perform an institutional incentive settlement with the HMO's under the
two Medicare contracts.

The Company is responsible for some or all of the medical services provided
by its affiliated physicians and other providers to which it refers patients who
are covered under global capitated contracts. The cost of medical services is
recognized in the period in which the care is provided and includes an estimate
of the cost of services which have been incurred but not yet reported. The
estimate for accrued medical services is calculated by pricing the open
authorizations for medical services from the Company's medical management system
as well as projecting the associated costs using historical studies of claims
paid and actuarial assistance. Estimates are continually monitored and reviewed
and, as settlements are made or estimates are adjusted, differences are
reflected in current operations. As of June 30, 1996 and 1997, approximately
$405,000 and $4,975,000, respectively, was recorded as accrued medical services
for incurred but not reported services.

The Company purchases reinsurance from independent insurance companies
which limits the amount of risk it ultimately bears by providing reimbursement
payments once medical services provided to an individual enrollee exceed an
agreed-upon amount. Under the commercial capitation contract, the Company is
insured for 90% of all medical services expense over $5,000 per enrollee per
year. Under the Medicare global capitation contracts, the Company is insured for
90% of all physician and hospital medical services expense over $5,000 and
$75,000, respectively, per enrollee per year. During

F-9

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

the years ended June 30, 1996 and 1997, the Company recorded approximately
$23,000 and $173,000, respectively, as reinsurance recoveries. Estimates of
reinsurance receivables as of June 30, 1996 and 1997 under these arrangements
were approximately $23,000 and $102,000, respectively.

SIGNIFICANT SOURCES OF CAPITATION REVENUE

During the year ended June 30, 1997, the Company obtained 52.0% and 48.0%
of the $9,253,000 of global capitation revenue from two private insurers under
the three global capitation contracts ($7,653,000 related to Medicare enrollees
and $1,600,000 related to commercial enrollees). During the year ended June 30,
1996, the Company obtained 100% of the $382,000 of global capitation revenue
from one private insurer.

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. As of
June 30, 1997, $680,000 of cash and cash equivalents were restricted for the
payment of medical claims under contractual obligations included in the
Company's managed care contracts. As of June 30, 1996, there were no restricted
cash and cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable principally represent receivables from third party
payors and patients for patient medical services provided by affiliated CMGs.
The accounts receivable have been assigned to the Company under the terms of the
PSO agreements. Such amounts are recorded net of contractual allowances and
estimated bad debts.

ACCOUNTS RECEIVABLE--AFFILIATES

Accounts receivable--affiliates include amounts due from the CMGs for
Medicare and Medicaid services provided in respect of which the Company has
legal rights to the proceeds.

MEDICAL SUPPLIES

The Company expenses the cost of routine medical and laboratory supplies
when purchased.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives, ranging from three to ten
years. Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter. The
straight-line method of depreciation is followed for substantially all assets
for financial reporting purposes and accelerated methods are used for tax
purposes.

DEFERRED CHARGES AND INTANGIBLE ASSETS

Deferred charges include deferred loan acquisition costs and organization
costs. These costs are being amortized to operations using the straight-line
basis over the term of the loan (25 months) and five years, respectively.

As a result of the Company's acquisitions of certain practice assets and
affiliations with CMGs, the Company acquires and reports intangible assets.
These assets consist principally of long-term management agreements between the
Company and the CMGs. The Company evaluates on an ongoing basis the period of
amortization of the intangibles and determines if the value of the underlying
assets has been impaired (see Note 14). Since events and circumstances
surrounding the acquisition will change over time, there can be no assurance
that the value of the intangibles will be realized by the Company. At June 30,
1996 and 1997, the recorded intangibles acquired were not considered to be
impaired. The Company's policy is to amortize the intangibles over a 10 to 30
year period. The existing agreements are being amortized over 20 years.
Amortization expense for the period ended June 30, 1995 and the years ended June
30, 1996 and 1997 was $9,949, $202,697 and $745,604, respectively.

F-10

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

INCOME TAXES

The Company is a corporation subject to federal and state income taxes. The
Company's year-end for tax reporting purposes is December 31. Deferred income
taxes result from the future tax consequences associated with temporary
differences between the amount of assets and liabilities recorded for financial
accounting and income tax purposes. Currently, these temporary differences
relate primarily to net operating loss carryforwards, the accrued medical
services liability, and depreciation differences. Future use of the net
operating loss carryforwards by the Company may be limited due to certain
changes in control as provided for in the Internal Revenue Code. Valuation
allowances are provided on deferred tax assets when management believes it is
not more likely than not that the deferred tax assets will be realized.

USE OF ESTIMATES

In preparing financial statements in accordance with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.

OPERATING LOSSES AND LIQUIDITY

The business description in Note 1 discusses the current nature of the
Company's operations. Until there are an adequate number of capitated patients
in the Company's global capitated contracts, the Company expects to incur
operating losses and experience negative operating cash flows. The Company
believes that its cash on hand at June 30, 1997, and the $18,913,000 received on
July 15, 1997 as outlined in Note 19, will be sufficient to meet the Company's
working capital needs through June 30, 1998. However, in the event that the
Company has not attracted an adequate number of capitated patients in global
capitated contracts in order to offset operating expenses or maintained
favorable terms under such contracts, the Company's operations and liquidity
would be adversely affected.

COMMON STOCK

All common stock, number of shares and per share values disclosed in the
accompanying footnotes have been adjusted to reflect the stock split-up
discussed in Note 20.

STOCK OPTIONS AND WARRANTS

The Company uses the Black-Scholes model to value all warrants and options
issued (see Note 12).

NEWLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "EARNINGS PER
SHARE" ("SFAS 128"), which requires that entities with complex capital
structures, such as the Company, disclose both basic and diluted earnings per
share. The Company is required to adopt this standard during the quarter ended
December 31, 1997. Due to the Company's operating losses, implementation of the
standard will not have a material impact on the Company's earnings per share
disclosed in the accompanying consolidated financial statements.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which is effective for fiscal years beginning after
December 15, 1997. The statement establishes standards for reporting and display
of comprehensive income and its components. The Company plans to adopt SFAS 130
in the fiscal year beginning July 1, 1998 and has not determined the impact of
adoption.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"), which is effective for
fiscal years beginning after December 15, 1997. The statement establishes
revised standards under which an entity must report business segment information
in its financial statements. The Company plans to adopt SFAS 131 in the fiscal
year beginning July 1, 1998 and has not determined the impact of adoption.

F-11

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

The Emerging Issues Task Force of the FASB is currently evaluating certain
matters relating to the physician practice management industry, which the
Company expects will include a review of the consolidation of professional
corporation revenues and the accounting for business combinations. Based upon
the preliminary results of this review, the Company does not believe that the
review will have a material impact on the Company's accounting methods.

NOTE 2--ACQUISITIONS OF CERTAIN ASSETS OF PHYSICIAN GROUPS

During the years ended June 30, 1996 and 1997, the Company acquired certain
operating assets and assumed certain operating liabilities of physician groups
located in Maryland and Virginia. The purchase price has been allocated to the
assets acquired based on the estimated fair values at the dates of acquisition
and the consideration related to long-term management agreements.

The estimated fair value of assets acquired, liabilities assumed and
consideration paid are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
ASSETS ACQUIRED, NET: 1996 1997
- -------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Accounts receivable, net...................................... $1,384,200 $ 919,638
Property and equipment, net................................... 138,188 167,442
Management service agreements................................. 2,447,107 4,398,005
Other assets.................................................. 6,892 --
---------- ----------
$3,976,387 $5,485,085
---------- ----------
---------- ----------

CONSIDERATION:
- --------------------------------------------------------------
<S> <C> <C>
Cash.......................................................... $ 289,581 $1,836,155
Notes payable and liabilities assumed......................... 1,732,546 1,131,750
Fair value of common stock interests issued................... 1,954,260 2,517,180
---------- ----------
$3,976,387 $5,485,085
---------- ----------
---------- ----------
</TABLE>

On February 24, 1995 the Company issued 4,400,000 shares of Class B Common
Stock to MHLP (Medical Holdings Limited Partnership--a Maryland limited
partnership formed to hold the stock). These shares were in consideration of
current and future affiliations of physicians to the CMGs and an expansion of
the physician base encompassed by the PSO Agreements. The affiliation of
physicians and the purchase of their accounts receivable and fixed assets occur
when the practice assets are sold to MHLP in exchange for a limited partnership
interest and the assets are then conveyed to the Company. Simultaneously, the
physicians enter into an employment agreement with one of the affiliated CMGs.
Management believes that the underlying fair value of the PSO Agreement acquired
is equal to the value of the underlying stock held by MHLP at the time of the
acquisition. The percentage of limited partnership interests in MHLP that are
issued are adjusted to reflect the estimated fair value of the Company's stock
at the time the transaction occurs.

Generally the contracts with individual physicians provide for a nine to
twelve month period during which the parties may cancel the contract. If this
option is exercised, the Company and the physician would be restored to their
respective positions before the acquisition. Expenses and fees incurred for
professional services in connection with acquisitions are considered part of the
acquisition cost and are capitalized in the financial statements as intangibles.
During 1996 and 1997, the Company capitalized costs of approximately $43,000 and
$148,000 respectively, as part of the acquisitions. In the event that a
physician exercises his option to leave or retire, the Company charges any
unamortized intangibles associated with the acquisition to operations in the
period when notice of withdrawal is received. Subsequent to June 30, 1997, all
reaquisition rights had expired, except that one medical practice consisting of
three physicians exercised its reaquisition rights during August 1997. The
August reaquisition was deemed to have an immaterial impact on the Company.

F-12

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 3--NET REVENUE

Revenue for all CMGs is recorded at established rates reduced by allowances
for doubtful accounts and contractual adjustments and amounts retained by
physician groups.

The following represent amounts included in the determination of net
revenue:

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 24
THROUGH YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Gross physician revenue......................................................... $ 1,760,503 $13,613,426 $ 31,354,983
Less: Provision for contractual and other adjustments......................... (562,024) (5,206,105) (12,170,819)
Gatekeeper capitated income..................................................... 146,983 1,345,207 3,384,331
----------- ----------- ------------
Net physician revenue........................................................... 1,345,462 9,752,528 22,568,495
Amounts retained by affiliated core medical groups:
Physicians.................................................................... 374,761 4,016,712 9,941,388
Ancillary employees and expenses.............................................. 120,036 307,255 589,919
----------- ----------- ------------
Net revenue..................................................................... $ 850,665 $ 5,428,561 $ 12,037,188
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

The Company derives its net revenue from five affiliated CMGs with which it
has PSO agreements. For the years ended June 30, 1996 and 1997, one of these
CMGs comprised approximately 93% and 50% respectively, of the Company's net
revenue.

NOTE 4--OTHER RECEIVABLES

As of June 30, 1996 and 1997, other receivables consist of the following:

<TABLE>
<CAPTION>
1996 1997
------- ----------
<S> <C> <C>
Due from HMO's under global capitation contracts.............. $ -- $ 950,218
Reinsurance receivables....................................... 23,040 101,602
Other......................................................... 41,211 118,684
------- ----------
$64,251 $1,170,504
------- ----------
------- ----------
</TABLE>

NOTE 5--OTHER ACCRUED EXPENSES

As of June 30, 1996 and 1997, other accrued expenses consist of the
following:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Payroll and benefits.......................................... $ 765,637 $1,179,534
Professional services......................................... 645,235 570,669
Other......................................................... 658,707 1,483,752
---------- ----------
$2,069,579 $3,233,955
---------- ----------
---------- ----------
</TABLE>

NOTE 6--NOTE RECEIVABLE

As of June 30, 1996, the Company had a note receivable that resulted from
an advance to a medical practice from which the Company had a binding letter of
intent to acquire certain assets for the approximate value of a portion of the
practice's net realizable accounts receivable. The note was issued by the
medical practice to the Company to secure the Company's right to repayment of
such advance in the event that the Company did not complete the acquisition of
certain assets of the medical practice. Interest on the note was calculated
based on the prime rate (8.25% as of June 30, 1996). The transaction was
consummated on December 4, 1996, the note receivable was canceled and the
advance plus accrued interest was treated as part of the consideration paid.

F-13

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 7--PROPERTY AND EQUIPMENT

Property and equipment, at cost, as of June 30, 1996 and 1997 is summarized
as follows:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Furniture and fixtures........................................ $ 976,430 $1,662,412
Computer equipment............................................ 1,156,829 1,680,674
Computer software............................................. 265,259 1,080,754
Medical equipment............................................. 57,507 195,888
Leasehold improvements........................................ 279,957 601,355
---------- ----------
2,735,982 5,221,083
Less accumulated depreciation and amortization................ 250,435 1,015,551
---------- ----------
Property and equipment, net................................... $2,485,547 $4,205,532
---------- ----------
---------- ----------
</TABLE>

Depreciation expense for the period ended June 30, 1995, and the years
ended June 30, 1996 and 1997 was $17,559, $232,876 and $767,168, respectively.

NOTE 8--NOTES PAYABLE AND LONG-TERM OBLIGATIONS

Notes payable at June 30, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Notes payable................................................ $3,703,915 $11,470,210
Notes payable and purchase obligations--related parties...... 2,077,364 2,659,456
Capital lease obligations.................................... 422,658 --
---------- -----------
6,203,937 14,129,666
Less: Current maturities of notes payable.................... 303,915 6,007,589
Current maturities of capital lease obligations......... 101,985 --
---------- -----------
$5,798,037 $ 8,122,077
---------- -----------
---------- -----------
</TABLE>

As of June 30, 1997, future principal payments of notes payable and
long-term obligations are as follows:

<TABLE>
<S> <C>
1998....................................................................... $ 6,007,589
1999....................................................................... 5,436,193
2000....................................................................... 53,163
2001....................................................................... 14,066
2002....................................................................... 706,611
2003 and thereafter........................................................ 1,912,044
------------
$ 14,129,666
------------
------------
</TABLE>

In December 1995, the Company entered into a loan agreement with
NationsBank, N.A. (the "NationsBank Credit Facility"), under which the Company
may request advances up to a maximum of $4 million. Interest on advances is
payable monthly and is calculated based on the bank's prime rate, unless the
Company designates a portion of the advances to be subject to the Eurodollar
rate plus .75% (effective rate of 6.20% and 6.56% at June 30, 1996 and 1997).
All advances are due at December 31, 1997. The Company has outstanding advances
under this agreement of $3,400,000 and $4,000,000 at June 30, 1996 and 1997,
respectively. The bank has the right to offset the Company's demand deposit
accounts with the bank against any past due amounts, which expires on December
31, 1997. While it is the Company's intent to refinance this note payable on or
before December 31, 1997, as of June 30, 1997 the $4,000,000 has been presented
as a current liability.

The NationsBank Credit Facility is guaranteed by the holder of the
Company's Series B Preferred Stock (see Note 19). The guarantee, which expires
on December 31, 1997, is collateralized by a security interest in all
receivables and the PSO Agreements between the Company and all the CMG's. The
guarantee agreement also provides for certain restrictions on the Company,
including limitations on incurring additional debt and reduction of amounts due
from the Series A Preferred

F-14

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 8--NOTES PAYABLE AND LONG-TERM OBLIGATIONS--CONTINUED

Stockholder. As consideration for the guarantee, the Company issued warrants
valued at $370,000 for the purchase of its common stock (see Note 13). As of
June 30, 1997, the Company was in compliance with the guarantee agreement.

On August 15, 1996, the Company borrowed approximately $983,000 under a
bridge loan facility (the "Bridge Loan Facility") with First National Bank of
Maryland, N.A. The Bridge Loan Facility was repaid on January 13, 1997.

On May 14, 1997, the Company borrowed $2,000,000 from HBO & Company
("HBOC"), the Company's current information system vendor, and issued a
subordinated promissory note to HBOC in the principal amount of $2,000,000 (the
"Note"). The Note is payable in full on May 14, 1998 and is included in current
portion of notes payable. In connection with this transaction, the Company
issued warrants to purchase 120,000 shares of the Company's common stock at
$7.50 per share. Utilizing a fair market value of the Company's common stock of
$3.50 per share the value of the warrants was recorded as a $120,000 discount on
the note payable which will approximate an interest rate of 6% over the 1 year
term of the loan.

On January 31, 1997, the Company and the Series C Preferred Stockholder
entered into a Note Purchase Agreement pursuant to which the Series C Preferred
Stockholder established a $5,000,000 credit facility for the Company. The
Company issued a Convertible Subordinated 11% Promissory Note ("Subordinated
Debt Facility") to the Series C Preferred Stockholder. On January 31, 1997, the
Series C Preferred Stockholder advanced the sum of $2,800,000 pursuant to the
Subordinated Debt Facility. On April 23, 1997 and June 30, 1997, the Company
received additional advances of $525,000 and $1,675,000, respectively. As of
June 30, 1997, the entire $5,000,000 is outstanding in long-term notes payable.
Interest shall be payable at maturity in shares of Series C Preferred Stock at
the rate of $17.50 per share. The Subordinated Debt Facility matures on January
31, 1999 or upon the earlier of a change in control or initial public offering.
The Subordinated Debt Facility is now convertible into shares of Convertible
Series C Preferred Stock.

On January 31, 1997, the Company issued to the Series C Preferred
Stockholder warrants to purchase 500,000 shares of Class A Common stock at $7.00
per share in consideration of the Series C Preferred Stockholder's efforts to
assist the Company in securing additional financing for the Company. The value
of the warrant was recorded as a $552,000 deferred cost at June 30, 1997.
Subsequent to June 30, 1997, the Company reclassified this amount as a reduction
of the Series D Redeemable Convertible Preferred Stock (see Note 19).

In connection with the acquisitions of certain assets of medical practices
and other transactions, the Company is obligated on short-term notes payable to
physicians and others aggregating approximately $304,000 and $320,000 at June
30, 1996 and 1997, respectively.

The Company is also obligated on notes payable to various physicians, who
are members of either Baltimore Medical, Carroll Medical, Cumberland Valley
Medical, or Doctors Health Montgomery in connection with the original purchase
of the accounts receivable from the physicians' former practices. The notes bear
interest at rates ranging from 6.25% to 10.00% and the notes mature at the
earlier of seven years from the date of closing or any of the following events:
(i) termination of the respective Professional Services Employment Agreements,
(ii) a liquidating distribution to the stockholders of the Company, (iii)
combination, consolidation or merger where the Company is not the survivor, (iv)
disposal of substantially all of the Company' assets, or (v) a public offering
with a certain cash issuance amount to the Company. The notes may be reduced or
adjusted based on receivable collections and may be prepaid without penalty. The
Company does not expect to conclude any of the events (i) through (v) above
before June 30, 1998. Accordingly, these notes have been classified as long-term
obligations.

NOTE 9--COMMITMENTS AND CONTINGENCIES

LEGAL

The Company is party to certain legal actions arising in the ordinary
course of business. In the opinion of the Company's management, liability, if
any, under these claims will not have a material effect on the Company's
financial position or results of operations.

F-15

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 9--COMMITMENTS AND CONTINGENCIES--CONTINUED

MALPRACTICE COVERAGE

The Company and its affiliated CMGs have purchased a claims-made policy
with coverage limits of $1,000,000 per medical professional per incident and
$3,000,000 annual aggregate per medical professional. This policy expires on
January 1, 1998 and it is management's intention to obtain renewal coverage. The
Company has obtained retroactive coverage for affiliated physicians that were
not previously covered by the current carrier (prior to the physician's
affiliation with the Company). Management believes that losses and costs related
to unknown incidents not provided for, if any, would not be material to the
financial position, liquidity or results of operations of the Company.

Pursuant to an agreement dated December 1, 1995, the prior written approval
of the Series B Preferred Stockholder is required in connection with decisions
regarding medical malpractice coverage for the Company, participating physicians
and affiliated entities. Such decisions include, but are not limited to, the
selection of the underwriter, the form of the insurance policy and the premium
payment provisions. The Company must make certain payments to the Series B
Preferred Stockholder if the required approval is not obtained: the Series B
Preferred Stockholder could require the Company to pay it $400,000 and to redeem
all or a portion of the Series B Preferred Stock at the price equal to the
greater of the fair market value per share or the sum of the issue price per
share and all accumulated and unpaid interest and dividends. The Series B
Preferred Stockholder agrees to provide medical malpractice coverage to the
Company for premiums consistent with its rates as approved by the Maryland
Insurance Administration. In addition, the Series B Preferred Stockholder will
consider alternative insurance programs to meet the Company's special needs and
will request the necessary approvals for such alternative programs from the
Maryland Insurance Administration. This agreement terminates upon the earlier of
a change in control of the Company or termination of the loan guarantee provided
by the Series B Preferred Stockholder.

EMPLOYEE BENEFIT PLANS

Effective January 1, 1996, the Company adopted a 401(k) Plan (the "Plan")
covering all its employees. Subject to certain limitations, participants may
elect to defer a portion of their compensation as contributions to the Plan. The
Company will make matching contributions of 50% of each participant's
contribution up to six percent of the participant's salary. Participants vest in
the Company's contributions at the rate of 20% per year beginning in fiscal
1997. Company matching contributions of approximately $110,000 and $244,000,
were expensed in fiscal 1996 and 1997, respectively.

Effective February 1, 1996, the Company adopted a Flexible Benefits Plan
covering all full-time employees. Subject to certain limitations, the Company
may make "non-elective contributions" on behalf of employees and employees may
elect to defer a portion of their compensation as "flexible pay contributions"
to pay for certain covered expenses.

OPERATING LEASES

The Company conducts its operations at leased facilities and leases office
equipment under noncancelable operating leases. Certain of the leased facilities
are owned by physicians who have membership interests in affiliates. Amounts
paid to the related parties approximated $8,700, $14,500, and $317,000 in 1995,
1996 and 1997, respectively. The operating leases have initial terms that expire
at various times through 2008 and, generally, provide for renewal for various
periods at stipulated rates. Some of the operating leases provide that the
Company pay taxes, maintenance, insurance and other occupancy costs applicable
to leased premises. Total rent expense for all operating leases approximated
$74,000, $454,000 and $2,224,000 for 1995, 1996 and 1997, respectively. Minimum
rental commitments, excluding sublease income, under operating leases as of June
30, 1997, with existing or renewable terms greater than one year are as follows
(the Company has approximately $371,000 of minimum rental commitments due in
1998 to related parties):

<TABLE>
<S> <C>
1998........................................................................ $ 1,301,168
1999........................................................................ 1,288,620
2000........................................................................ 1,090,650
2001........................................................................ 940,930
2002........................................................................ 445,155
2003 and thereafter......................................................... 1,146,674
-----------
$ 6,213,197
-----------
-----------
</TABLE>

F-16

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 9--COMMITMENTS AND CONTINGENCIES--CONTINUED

CASH AND CASH EQUIVALENTS

The Company maintains its cash balances in three financial institutions in
Maryland. At times the cash balances may exceed the federally insured limits.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain of its
management employees, which include, among other terms, noncompetition
provisions and salary and benefits continuation.

COMMITMENTS TO AFFILIATED CMGS

Under the terms of certain of its PSO agreements, the Company is committed
to provide minimum guarantees of certain affiliated physician salaries based on
a defined formula.

LOAN GUARANTEE

In connection with the purchase of certain assets of a physician's
practice, the Company has agreed to guarantee a loan, beginning in October 1997,
that has an outstanding balance of approximately $1,100,000 as of June 30, 1997.
The underlying loan matures during August 2001. Management does not believe it
is probable that the Company will have to fund the guarantee.

NOTE 10--REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company is authorized to issue 6.50% cumulative Series A shares, 9.75%
cumulative Series B shares and 8.00% cumulative Series C shares of redeemable
convertible preferred stock at June 30, 1997.

PREFERRED STOCK CONVERSION AND REDEMPTION RIGHTS

Series A and B Redeemable Convertible Preferred Stock ("Series A and Series
B Preferred Stock") are convertible to Class C Common on a share for share basis
at the holder's option, at any time before February 25, 2000. Series C
Redeemable Convertible Preferred Stock ("Series C Preferred Stock") is
convertible to Class C Common on a share for share basis at the holder's option,
at any time. In addition, the Preferred Stock is automatically converted to
Class C Common Stock on a share for share basis upon the occurrence of certain
events, including a public offering of the Company's stock. Only the fully-paid
shares are subject to conversion.

Between March 1 and June 1, 2000, the Series A and Series B Preferred
Stockholders have the right to require the Company to redeem all of their shares
at the greater of fair value (as determined by an independent appraiser selected
jointly by the parties) or the issuance price plus unpaid dividends and interest
thereon. Upon expiration of these rights, and if the shares are not otherwise
converted to Class C Common Stock, the Company has the right to redeem the
outstanding shares of Series A Preferred Stock at the issuance price plus unpaid
dividends and interest thereon. It may also redeem the Series B Preferred Stock
on the same terms that the holders could require the Company to pay on a
requested redemption by the holders.

In addition, upon the occurrence of certain events, the Series A, Series B
and Series C Preferred Stockholders have the right to require the Company, and
the Company has the right, to redeem all of the respective preferred shares then
held. In the event of any non-compliance (as defined), the Preferred Stock is
mandatorily redeemable. If the Company decides to take certain actions without
the approval of the Series A, Series B, and Series C Preferred Stockholders then
the Preferred Stockholders have the right to require the Company to redeem all
of their outstanding shares. In the foregoing instances, the redemption price is
the greater of fair value or the issuance price plus unpaid dividends and
interest thereon. If the Company elects to enforce certain non-competition
covenants with the Series B Preferred Stockholder, then the holder may require
the Company to redeem the shares held for the greater of $4,800,000 million or
par value plus unpaid dividends and interest thereon. If the Company issues
Series A Junior Stock or Series B Junior Stock to holders deemed to have
interests adverse to the respective Preferred Stockholder, then the holder may
require the Company to redeem their shares at the greater of: (i) the

F-17

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 10--REDEEMABLE CONVERTIBLE PREFERRED STOCK--CONTINUED

purchase price of the adverse junior stock on a fully diluted basis, (ii) fair
value, or (iii) one and one-half (1 1/2) times the liquidation preference.

SERIES A PREFERRED STOCK SUBSCRIPTION RECEIVABLE

As partial consideration for the issuance of Series A Preferred Stock, the
Company received a note in the original amount of $3,000,000 ($3,000,000 balance
outstanding at June 30, 1995 and $1,500,000 outstanding at June 30, 1996 and
1997). The note bears interest at 6.5% per annum, compounded quarterly, and
interest is payable only to the extent that the Company pays dividends on the
Series A Preferred Stock. The parties have the right to offset like amounts of
dividends and interest.

Scheduled note payments are subject to deferral at the option of the
Company until February 14, 1998, but interest continues to accrue on any unpaid
balance. As of June 30, 1997 the Company elected to defer payments of
$1,500,000. Upon redemption or conversion of Series A Preferred Stock, any
unpaid principal on the note is to be canceled in an amount equal to five
dollars times the number of shares converted or redeemed. The Company has the
option to require payment of any outstanding principal and interest on February
14, 1998, or the Company may elect to redeem the outstanding Series A Preferred
Stock and cancel the remaining principal and interest.

PREFERRED STOCK DIVIDENDS

Series A Redeemable Convertible Preferred Stock accrues dividends quarterly
at the rate of thirty-two and one half cents ($0.325) per share per annum
beginning on February 24, 1995. Unpaid dividends accrue interest at the rate of
6.5% per annum, compounded quarterly, and may be offset by the Company against
any unpaid interest that is owed by the holders of the Series A Redeemable
Convertible Preferred Stock under the related note receivable.

Series B Redeemable Convertible Preferred Stock accrues dividends quarterly
at the rate of one dollar and nine and seven tenths cents ($1.097) per share per
annum beginning December 1, 1995. Unpaid dividends accrue interest at the rate
of 9.75% per annum, compounded quarterly.

Series C Redeemable Convertible Preferred Stock accrues dividends quarterly
at the rate of one dollar and forty cents ($1.40) per share per annum beginning
September 4, 1996 with respect to 428,751 shares and beginning January 2, 1997
with respect to 142,857 shares. Unpaid dividends accrue interest at the rate of
8% per annum, compounded quarterly.

Until April 1, 2000, payment of dividends on Series A Preferred Stock and
Series B Preferred Stock are only permitted in the event of redemption,
conversion or liquidation, and, in any event, dividends on Series B Preferred
Stock may only be paid after all dividends and interest on the Series A
Preferred Stock have been satisfied. Beginning April 1, 2000, dividends on
Series A Preferred Stock and Series B Preferred Stock will accrue at a rate
equal to the prime rate plus 100 basis points.

Payment of dividends on Series C Preferred Stock is permitted only in the
event of redemption, conversion or liquidation and, in any event, dividends on
Series C Preferred Stock may only be paid after dividends and interest on the
Series A and Series B Preferred Stock. If not paid when due, such dividends on
Series C Preferred Stock accrue interest at a rate equal to the prime rate plus
100 basis points.

Cumulative Series A, B and C Redeemable Convertible Preferred Stock accrued
and undeclared dividends at June 30, 1995, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Series A........................................... $113,300 $438,305 $ 763,305
Series B........................................... -- 227,526 617,570
Series C........................................... -- -- 590,976
-------- -------- ----------
$113,300 $665,831 $1,971,851
-------- -------- ----------
-------- -------- ----------
</TABLE>

Accrued dividends are reflected as an accretion in the value of the
preferred stock with a corresponding reduction in stockholders' equity to
reflect redemption value.

F-18

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 10--REDEEMABLE CONVERTIBLE PREFERRED STOCK--CONTINUED

PREFERRED STOCK LIQUIDATION PREFERENCES

Upon liquidation or dissolution of the Company, the Series A, Series B, and
Series C Preferred Stockholders are entitled to receive a liquidating
distribution in an amount equal to the greater of: (i) the fair value (as
defined) per share of the respective series of preferred stock or (ii) the
original purchase price per share of the respective stock. The distribution will
be weighted taking into account all unpaid cumulative dividends and accrued
interest thereon; however, the total distributable amount due to each preferred
stockholder is limited to the amount of cash paid to the Company for the
purchase of the respective shares. No distribution will be paid to the Series B
Preferred Stockholder until all amounts due to the Series A Preferred
Stockholder have been fully paid. Also, no distribution will be paid to the
Series C Preferred Stockholder until all amounts due to the Series A and Series
B Preferred Stockholders have been fully paid. Subsequent to June 30, 1997 (see
Note 19), the liquidation preferences carried by the Series A, Series B and
Series C Preferred Stock were revised.

NOTE 11--STOCKHOLDERS' EQUITY

Substantially all of the Company stockholders are parties to an agreement
dated September 4, 1996 that restricts transfer of the Company's Common stock.
The agreement terminates upon occurrence of certain specified events, including
a public offering of the Company's Common stock. Under the terms of the
Stockholders' Agreement, the Company may be required to purchase shares of the
Company's capital stock in certain circumstances, such as: (i) Class A Common
Stock owned by management stockholders, in the event of their death or
disability if other management stockholders do not exercise their rights to
acquire the shares offered, in which case the Company is required to purchase
all of the offered shares at fair value (as agreed to by the parties or as
determined by an independent appraisal); (ii) Class A Common Stock purchased by
certain stockholders after December 1, 1995, if their employment is terminated,
in which case the Company is required to purchase these shares at fair value (as
agreed to by the parties or as determined by an independent appraisal); (iii)
Class A Common Stock owned by other management stockholders if their employment
is terminated and the remaining management stockholders do not exercise their
rights to acquire the shares offered. In this case if termination is without
cause, the purchase price is based on fair value (as agreed to by the parties or
as determined by an independent appraisal). If termination is with cause, then
the purchase price is the lesser of $1.00 per share or the original issuance
cost of the shares. At June 30, 1996 and 1997, 1,600,000 shares of Class A
Common Stock were subject to such repurchase requirement. Based on the current
fair value of the Company's stock, the repurchase obligation for 1,600,000
shares in the event of death or disability to all three Class A Common
Stockholders would be approximately $5,600,000 at June 30, 1997. If the Company
is required to purchase shares of the management stockholder under the foregoing
circumstances, then all accrued dividends due to Series A, B and C Preferred
Stockholders must first be paid; (iv) All classes of capital stock--upon the
occurrence of an involuntary transfer involving any of its outstanding capital
stock, the Company has the right of first refusal to purchase the offered shares
at fair value (as agreed to by the parties or as determined by an independent
appraisal).

As noted above, under the terms of the Stockholders' Agreement with three
founding stockholders (who are also officers and directors of the Company), the
Company may be required to purchase shares of the Company's Class A Common Stock
in certain circumstances including death or disability. As of June 30, 1996, the
Company had obtained insurance to cover the purchase of the capital stock in the
event of death. On December 20, 1996, the Company obtained insurance to cover
the purchase of the capital stock in the event of a disability. By agreement
dated February 1, 1997, one of the founding shareholders agreed to waive the
repurchase requirement with respect to any disability not covered by insurance.
As of February 17, 1997, the disability portion of the insurance lapsed with
respect to the founding shareholder who had waived the repurchase requirement.
Under each of the above policies, the Company has obtained insurance that is in
excess of the estimated fair value of its Class A Common Stock. The Company has
presented the common stock that is redeemable based on events outside the
Company's control (i.e. a disability) as Redeemable Class A Common Stock in the
accompanying Balance Sheet as of June 30, 1996. As a result of the coverage
provided by the life and disability policies described above and the waiver of
certain stock repurchase rights described above, as of June 30, 1997 there are
no circumstances in which a redemption event would result in a decrease in the
Company's stockholders' equity. Accordingly, the Company has presented the Class
A Common Stock as stockholders' equity as of June 30, 1997. The Company intends
to maintain insurance at levels sufficient to finance its redemption
obligations. The terms of the stock purchase agreement terminate in the event of
an initial public offering or a change in control of the Company as defined in
the Stockholders' Agreement.

F-19

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 11--STOCKHOLDERS' EQUITY--CONTINUED

During the year ended June 30, 1997, the Company issued 20,000 shares of
Class A common stock to Noah Investments in connection with the acquisition of a
long-term care management company, which had no operations during the year ended
June 30, 1997.

All classes of Common Stock have the same preferences, rights and voting
powers. A portion of the Class A Common Stock is reserved for issuance upon
exercise of warrants, and a portion of the Class C Common Stock is reserved for
issuance to the holders of Series A, B and C Preferred Stock upon conversion of
those shares of stock.

NOTE 12--STOCK OPTIONS

The Company has an Omnibus Stock Plan which is accounted for under
Accounting Principles Board Opinion No. 25 ("APB No. 25") and related
Interpretations (as allowed by SFAS No. 123) with respect to employee
transactions. Transactions with non-employees are accounted for at fair value at
the date of grant. The Omnibus Stock Plan permits the Company to grant incentive
and non-qualified stock options, stock appreciation rights ("SARs") and
restricted or unrestricted share awards to directors, officers, employees and
other key contributors to the Company. SARs entitle the optionee to surrender
unexercised stock options for cash or stock equal to the excess of the fair
value of the surrendered shares over the option value of such shares. The
Omnibus Stock Plan is administered by a committee (the "Committee") appointed by
the Company's Board of Directors. Subject to adjustment as provided in the
Omnibus Stock Plan, the aggregate number of shares of the Company Common Stock
which may be awarded is limited to 6,175,000. Shares under any grants that
expire unexercised are available for future grant.

The exercise price and exercise period for stock options is determined by
the Committee, provided that the exercise period may not exceed ten years from
the grant date and the exercise price for incentive stock options may not be
less than 100% of the fair value of the shares on the date the option is
granted. Incentive stock options are granted only to employees of the Company.

During the year ended June 30, 1996, the Company granted incentive stock
options, to purchase Class A Common Stock, to eleven employees for a total of
436,760 shares at the exercise price of $0.005 per share, the estimated fair
value of the shares at the date of grant based on the financial position and
liquidity of the Company and the limited marketability of the shares. The
options become exercisable on various dates ranging from April 1, 1996 through
April 1, 2000. Upon exercise, 137,664 shares will be fully vested and
nonforfeitable; the remainder vest ratably over four years. Options may expire
or become exercisable, and shares issued may be fully vested, at earlier dates
upon occurrence of certain specified events, including a change in control of
the Company or the employee's death, disability, retirement, or termination
without cause. Also, in May 1996, the Company granted incentive stock options to
purchase Class A Common Stock for 140,000 shares with an exercise price of $5.50
per share to an employee.

During the year ended June 30, 1997, the Company granted incentive stock
options to purchase Class A Common Stock to employees for a total of 310,500
shares at the exercise price of $7.50 per share, which was deemed to be in
excess of management's estimate of the fair value of the Company's Common Stock
at the date of grant. The options become exercisable on various dates ranging
from October 1, 1997 through November 7, 2001. The options vest over a five-year
period from the date of issuance. During 1996 and 1997, employees forfeited
40,100 and 20,000 Class A Common Stock options, respectively.

During the year ended June 30, 1996, the Company granted non-qualified
stock options to purchase Class A Common Stock to three employees for a total of
25,000 shares at the exercise price of $0.005 per share. The options became
exercisable on December 21, 1996. Upon exercise, 10,000 shares issued will be
fully vested and nonforfeitable; the remainder vest ratably over four years.
Options may expire or become exercisable, and shares issued may be fully vested,
at earlier dates upon occurrence of certain specified events, including a change
in control of the Company or the employee's death, disability, retirement, or
termination without cause. The Company is recognizing compensation expense as
the shares vest based upon the option price and the fair value of the Company's
Common Stock at the date of grant. The fair value of the common stock at the
time of grant in December 1995, $1.50 per share, was based in part on a
discounted value of the per share price of the Company's Series B Redeemable
Convertible Preferred Stock.

F-20

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 12--STOCK OPTIONS--CONTINUED

During the year ended June 30, 1997, the Company granted non-qualified
stock options to purchase Class A Common Stock to employees for a total of
236,500 shares at the exercise price of $.005 per share. The options become
exercisable on various dates ranging from October 1, 1997 through November 7,
2001. The options vest on the fifth anniversary of the issuance date or over a
five-year period from the date of issuance. The Company is recognizing
compensation expense as the options vest based upon the option price and the
fair value of the Company's Common Stock at the date of grant. The fair value of
the common stock at the time of the grants was $1.50 and $3.50 per share. The
fair value was based in part on a discounted value of the per share price of the
Company's Series B and C Redeemable Convertible Preferred Stock. The Company
also granted stock options to a non-employee for a total of 20,000 shares at the
exercise price of $9.375 per share. The fair value of the options was deemed
immaterial by management at the date of grant.

During the year ended June 30, 1996, the Company granted a non-qualified
stock option to purchase 10,000 shares of Class B Common Stock to a physician at
an exercise price of $0.005 per share, the estimated fair value of the stock at
the date of grant.

During the year ended June 30, 1997, the Company granted non-qualified
stock options to purchase Class B Common Stock to physicians in connection with
acquisitions for a total of 44,000 shares at the exercise price of $7.50 per
share. The options are fully vested. The options are exercisable on various
dates ranging from June 12, 1997 through April 1, 2000. In addition, the Company
granted non-qualified options to purchase Class B Common Stock to a physician in
connection with his employment for a total of 66,000 shares at the exercise
price of $.005 per share. The options vest fully on March 25, 2002. The Company
is recognizing compensation expense as the shares vest based upon the option
price and the fair value of the Company's Common Stock at the date of grant
which was $3.50 per share. Also, during the year ended June 30, 1997, the
Company granted a non-qualified stock option to purchase 6,000 shares of Class B
Common Stock to a physician at an exercise price of $.005 per share.

During the year ended June 30, 1997, the Company recorded $1,040,633 as
additional paid-in capital related to the issuance of common stock options at a
price less than the fair value of the common stock at the date of grant. A
corresponding amount was recorded as a reduction to stockholders equity. The
deferred compensation will be amortized as expense over the five year vesting
period of the options. During the year ended June 30, 1997, the company
recognized $128,125 as deferred compensation expense in the consolidated
statement of operations. The Company recognized no compensation expense related
to the issuance of stock options during the year ended June 30, 1996.

Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B EXERCISE PRICE
OPTIONS OPTIONS PER SHARE
--------- ------- --------------
<S> <C> <C> <C>
Balance at February 24, 1995..................................... -- -- --
Granted........................................................ -- -- --
Exercised...................................................... -- -- --
Forfeited...................................................... -- -- --
--------- -------
Balance at June 30, 1995......................................... -- -- --
Granted........................................................ 601,760 10,000 $.005-$5.50
Exercised...................................................... -- -- --
Forfeited...................................................... (40,100) -- $.005
--------- -------
Balance at June 30, 1996......................................... 561,660 10,000 $.005-$5.50
Granted........................................................ 567,000 116,000 $.005-$9.375
Exercised...................................................... -- -- --
Forfeited...................................................... (20,000) -- $.005-$7.50
--------- -------
Balance at June 30, 1997......................................... 1,108,660 126,000 $.005-$9.375
--------- -------
--------- -------
</TABLE>

At June 30, 1997, the weighted-average remaining contractual life of
outstanding options was 8.8 years. The per share weighted-average fair value of
stock options granted during the years ended June 30, 1996 and 1997 was $.13 and
$2.05.

F-21

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 12--STOCK OPTIONS--CONTINUED

During 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). which defines a fair value based method of
accounting for an employee stock option or similar equity instrument. This
statement allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by the APB No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
in APB No. 25 must make pro forma footnote disclosures of net income and
earnings per share, as if the fair value based method of accounting defined in
this Statement had been applied.

The Company has elected to account for its stock-based compensation plans
in accordance with APB No. 25, under which $128,125 of compensation expense has
been recognized during 1997. The Company has computed for pro forma disclosure
purposes the value of all compensatory options granted during 1996 and 1997,
using the Black-Scholes option pricing model as prescribed by SFAS No. 123. The
following assumptions were used for grants:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Risk-free interest rate (range)........................ 5.48%-6.38% 5.91%-6.66%
Expected dividend yield................................ 0.0% 0.0%
Expected lives......................................... 5 years 5 years
Expected volatility.................................... 50.0% 50.0%
</TABLE>

Options were assumed to be exercised upon vesting for the purposes of this
calculation. Adjustments are made for options forfeited prior to vesting. Had
compensation costs for compensatory options been determined consistent with SFAS
No. 123, the Company's net loss applicable to common stock and net loss per
share information reflected on the accompanying consolidated statements of
operations would have been increased to the following proforma amounts:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1996 1997
----------- ------------
<S> <C> <C>
Loss Applicable to Common Stock:
As reported in financial statements.......................................................... $(7,164,644) $(16,182,133)
Proforma..................................................................................... $(7,166,464) $(16,219,681)

Net Loss per Share:
As reported in financial statements.......................................................... $ (1.17) $ (2.42)
Proforma..................................................................................... $ (1.17) $ (2.42)
</TABLE>

The Company's stock did not actively trade during 1996 and 1997.

Under SFAS No. 123, proforma net loss applicable to common stock reflects
only options granted during the years ended June 30, 1996 and 1997. The Company
granted no options prior to July 1, 1995.

NOTE 13--COMMON STOCK PURCHASE WARRANTS

In consideration for the guarantee of a loan agreement, the Company issued
on December 1, 1995 warrants to its Series B Preferred Stockholder for the
purchase of 177,778 shares of the Company Class A Common Stock at $2.8125 per
share. The warrants expire on December 1, 2005 and are exercisable (i) if the
holder does not receive notice of a change in control within thirty days after
the change is effective or (ii) ninety days prior to the filing of a
registration statement for a public offering that includes shares held by
management stockholders. The warrants were valued at the present value of the
difference between the estimated fair value of the common stock subject to the
warrants and the aggregate strike price, discounted at the interest savings rate
(the difference between the rate obtained on the loan agreement and the rate of
interest that management believes would have been available without the
guarantee). At June 30, 1996, this amount ($370,000) is reflected as additional
paid-in capital and a deferred charge, which is being amortized on the interest
method over 25 months (the length of the guarantee).

On December 1, 1995, in consideration for certain consulting services, the
Company issued warrants for the purchase of 48,000 shares of the Company's
common stock at $5.625 per share (a price greater than management's estimate of
fair value

F-22

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 13--COMMON STOCK PURCHASE WARRANTS--CONTINUED

at the date of grant). A value was not attributed to these warrants at the time
of issue. These warrants expire December 1, 2005, and are exercisable if there
is a change in control of the Company.

On January 31, 1997, the Company issued warrants for the purchase of
500,000 shares of the Company's common stock at $5.00 per share to the Series C
Preferred Stockholder in consideration for its efforts to assist in securing up
to $30,000,000 in financing for the Company. Utilizing a fair market value of
the Company's common stock of $3.50 per share, the Company valued the warrants
at $552,000.

As stated in Note 8, on May 14, 1997, the Company issued warrants for the
purchase of 120,000 shares of the Company's common stock at $7.50 per share to
HBOC in lieu of interest on a $2,000,000 note payable.

NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments included in current assets
and current liabilities approximate fair values because of the short maturity of
those instruments. The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate that value:

REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SERIES A PREFERRED STOCK
SUBSCRIPTION RECEIVABLE

The Series A, B and C Preferred Stock are carried at issue price plus
accrued dividends, and have features unique to these securities including, but
not limited to, the right to appoint directors and the right to approve certain
significant activities of the Company. There is no quoted market price for the
Series A, B and C Preferred Stock. The estimated fair value of all Series of
Redeemable Convertible Preferred Stock at June 30, 1996 and 1997, is
approximately $6,447,000 and $16,271,000, respectively.

The carrying value of the Series A Preferred Stock subscription receivable
is based on the issue price of the related Series A Preferred Stock. In
December, 1995, the Company issued Series B Preferred Stock with the same rights
and privileges as the Series A Preferred Stock, other than the dividend rate and
related interest rate, for consideration greater than the per share value
received for the Series A Preferred Stock. Since both classes of Preferred Stock
are convertible to Class C Common Stock, it is not practical to determine if the
related stock subscription will be realized in cash, included in the conversion
to Common Stock or offset against the issued Series A Preferred Stock, thereby
reducing the number of shares outstanding. Furthermore, the Company has the
right to defer or cancel payment of the stock subscription receivable.

LONG-TERM OBLIGATIONS

Long-term obligations-related parties were incurred by the Company when
individual physicians joined the affiliated CMGs. These notes are payable upon
an initial public offering of the Company's stock or a change in control as
defined in the stockholders' agreement. In addition, the Company incurred a
long-term obligation to the Series C Preferred Stockholder during 1997 to fund
the working capital needs of the Company. The fair value of these obligations is
assumed to approximate recorded value because there have not been any
significant changes in circumstances since the obligations were recorded.

NOTE 15--INCOME TAXES

The Company has accumulated net operating losses (NOL's) of approximately
$18,205,000. Significant temporary differences between the determination of this
loss for financial reporting and income tax purposes include depreciation, the
allowance for uncollectible receivables, and certain accrued liabilities. These
losses may be carried forward for 15 years and expire at various dates through
2011. Under federal tax law, certain changes in ownership of the Company, which
may not be within the Company's control, may operate to limit future utilization
of these carryforwards. As of June 30, 1997, based on the available information,
management does not believe that it is more likely than not that the net
deferred tax assets will be realized. As a result, the net deferred tax assets
have been fully reserved at June 30, 1996 and 1997. Deferred tax assets
(liabilities) at June 30, 1996 and 1997, consist of the following:

F-23

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 15--INCOME TAXES--CONTINUED

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Tax benefit of NOL carryforward............................. $ 2,876,000 $ 7,282,000
Depreciation and amortization............................... (360,000) (700,000)
Allowance for uncollectable receivables..................... 130,000 108,000
Accrued medical services.................................... 236,000 1,268,000
Other accrued liabilities................................... 40,000 168,000
----------- -----------
2,922,000 8,126,000
Less: valuation allowance................................... (2,922,000) (8,126,000)
----------- -----------
Net deferred tax asset.................................... $ -- $ --
----------- -----------
----------- -----------
</TABLE>

NOTE 16--EARNINGS PER SHARE

The weighted average common shares outstanding presented for the period
ended June 30, 1995, and the years ended June 30, 1996 and 1997, taking into
account the stock split-up discussed in Note 20, were 6,000,000, 6,126,410 and
6,690,794, respectively. Stock options and warrants have been excluded in fiscal
1995, 1996 and 1997 since their exercise would be anti-dilutive. The weighted
average common shares in fiscal 1995 have been restated to reflect the
two-for-one stock split in fiscal 1995. The net loss for purposes of the
calculation of loss per share has been adjusted for the accretion of redeemable
preferred stock dividends and issuance costs.

NOTE 17--SUPPLEMENTARY CASH FLOW INFORMATION

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 24
(INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid for interest.............................................................. $ 11,825 $ 176,169 $ 345,759
Cash paid for income taxes.......................................................... -- -- --

SIGNIFICANT SUPPLEMENTARY NONCASH INVESTING AND FINANCING INFORMATION:

Liabilities assumed in connection with the purchase of medical practice assets...... 184,322 1,732,546 1,131,750
Accounts receivable and other assets assumed in connection with the purchase of
medical practice assets........................................................... 167,153 1,391,092 919,638
Cancellation of note receivable..................................................... -- -- 300,000
Assets acquired under capital leases................................................ -- 600,290 --
Issuance of common stock purchase warrants for services............................. -- 370,000 672,500
Issuance of common stock options.................................................... -- -- 1,040,633
Common stock issued in connection with purchase of medical practice assets.......... -- 1,954,260 2,517,180
Renegotiation of capital lease...................................................... -- -- 176,822
</TABLE>

NOTE 18--RELATED PARTIES

Amounts due under the terms of the PSO agreements between the Company and
the affiliated medical groups are reflected in the due to/from Affiliates on the
consolidated balance sheet. The amounts due from the affiliates represents
working capital advances, amounts due for management fees from BMG LLC related
to the management of the laboratory and management fees due under the PSO
agreement. The amounts due to the affiliates represent amounts due to the
physicians related to the collection of accounts receivable.

Because of the nature of the Company's arrangements with Affiliated CMGs,
substantially all transactions included in Net Revenues, Medical Services
Expense and Care Center Costs in the accompanying financial statements are
viewed as related party transactions.

F-24

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 18--RELATED PARTIES--CONTINUED

MHLP (See Note 2) was formed on February 24, 1995 to hold the Class B
Common Stock that was issued by the Company and intended to be used for the
acquisition of PSO agreements by the Company. MHLP has no assets other than the
Class B Common Stock of the Company and has no liabilities or operations.

Two of the Company's executive management members and nine directors are
practicing physicians with CMGs affiliated with the Company.

During the years ended June 30, 1996 and 1997, the Company paid
approximately $98,000 and $296,000 to the Series B Redeemable Convertible
Preferred Stockholder for professional liability insurance on behalf of the
affiliated CMGs in connection with the PSO agreement.

The Company has entered into acquisition transactions with certain of its
directors who are physicians. These transactions were entered into on
commercially reasonable terms, substantially similar to the terms of its
acquisition transactions with other affiliated physicians, and the consideration
paid in connection with such acquisitions was based on the fair market value of
the medical practice assets or services acquired:

(a) During the year ended June 30, 1996, the Company purchased certain
assets of a director of the Company, and four physician partners of the
physician. The physician and his four partners received a limited partnership
interest in MHLP equivalent to 334,000 shares of Class B Common Stock, valued at
$1.50 per share, and a promissory note with a face value of approximately
$158,000 as consideration for the acquisition. As of June 30, 1997, the
physician has outstanding advances from the Company of approximately $53,000.

(b) During the year ended June 30, 1996, the Company purchased certain
assets of a director of the Company. In addition, the physician received a
limited partnership interest in MHLP equivalent to 66,000 shares of Class B
Common Stock, valued at $1.50 per share, approximately $34,000 in cash and a
promissory note with a face value of approximately $45,000 as consideration for
the acquisition. As of June 30, 1997, the physician has outstanding advances
from the Company of approximately $146,000.

(c) During the year ended June 30, 1997, the Company purchased certain
assets of a director of the Company. The physician received 32,000 shares of
Class B Common Stock and 2,000 options to acquire Class B Common Stock, valued
at $3.50 per share, cash in the amount of $5,000 and a promissory note with a
face value of approximately $38,000 as consideration for the acquisition.

(d) During the year ended June 30, 1997, the Company purchased certain
assets of a director of the Company. In connection with the acquisition, the
physician's limited liability partnership, which he owns with five other
physicians, received a limited partnership interest in MHLP equivalent to
126,860 shares of Class B Common Stock, an option to acquire a limited
partnership interest equivalent to 40,000 shares of Class B Common Stock,
exercisable at $7.50 per share, and cash for the practice's collectable accounts
receivable, which will not exceed $625,000. As of June 30, 1997, the Company has
recorded approximately $200,000 as a non-current receivable from the physician
in connection with the purchase transaction. This amount is payable at the rate
of $5,000 per month beginning in July 1998. During the year ended June 30, 1996,
the Company advanced $300,000 to the physician and the practice for the purchase
of the practice's accounts receivable and received a promissory note from the
physician evidencing such advance. The promissory note was canceled at the
closing of the acquisition. See Note 9 regarding the loan guarantee related to
this practice acquisition. The Company has delegated to the physician's
practice, and the practice will perform, certain practice management business
functions, which the Company ordinarily performs for its physicians at its
headquarters. The Company reimburses the physician's practice up to
$50,000/month for the expenses it incurs in performing the business management
services. The amount reimbursed for the year ended June 30, 1996 and 1997 was
$100,000 and $486,000, respectively.

As of June 30, 1997, the Company has also advanced to a physician director
a total of approximately $223,000.

During the year ended June 30, 1997, the Company acquired a long-term care
management company from an entity which is partially owned by the brother of a
director of the Company in exchange for 20,000 shares of Class A common stock
valued at $3.50 per share.

F-25

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 19--SUBSEQUENT EVENTS

SERIES D PREFERRED STOCK ISSUE AND AMENDED ARTICLES OF INCORPORATION

The Company amended and restated its charter on July 15, 1997. The amended
and restated articles authorize the Company to issue 68,438,068 shares of
capital stock as follows:

<TABLE>
<CAPTION>
SHARES PAR
AUTHORIZED VALUE
---------- ------
<S> <C> <C>
Redeemable Convertible Preferred Series A......................................... 1,000,000 $ 5.00
Redeemable Convertible Preferred Series B......................................... 438,068 11.25
Redeemable Convertible Preferred Series C......................................... 1,500,000 17.50
Redeemable Convertible Preferred Series D......................................... 5,750,000 10.00
Class A Common.................................................................... 20,700,000 0.01
Class B Common.................................................................... 10,000,000 0.01
Class C Common.................................................................... 29,050,000 0.01
----------
68,438,068
----------
----------
</TABLE>

On July 7, 1997, the Company entered into a Preferred Stock Purchase
Agreement, as amended on July 15, 1997 (the "Preferred Stock Purchase
Agreement") with the Series D Preferred Stockholder pursuant to which the
Company agreed to sell and the Series D Preferred Stockholder agreed to purchase
three million (3,000,000) shares of the Company's Series D Redeemable
Convertible Preferred Stock ("Series D Preferred Stock") for a purchase price of
$30 million, subject to the terms and conditions thereof. The Company closed the
transaction on July 15, 1997, with an initial sale of two million (2,000,000)
shares for $20 million. The Company incurred issuance costs of approximately
$1,289,000 in connection with the Series D financing including financing and due
diligence fees. The $18,711,000 in net proceeds will be used to fund the
expansion of the Company and operating losses. A subsequent sale is expected to
take place on or before June 30, 1998 of an additional one million (1,000,000)
shares for $10 million subject to the satisfaction of certain contingencies or
conditions precedent by such date as provided in the Preferred Stock Purchase
Agreement, some of which are outside of the control of the Company.

Upon the issuance of the full 3,000,000 shares of Series D Preferred Stock
to the Series D Preferred Stockholder, the Series D Preferred Stockholder will
own 100% of the Company's issued and outstanding Series D Preferred Stock and
approximately 30.0% of the issued and outstanding capital stock of the Company,
on a fully diluted basis.

In connection with the issuance of its Series D Preferred Stock to the
Series D Preferred Stockholder pursuant to the Preferred Stock Purchase
Agreement, the Company amended its Amended and Restated Articles of
Incorporation (the "Restated Articles") to, among other things, (a) authorize
5,750,000 shares of a new class of stock designated as Series D Convertible
Preferred Stock, (b) amend or revise certain of the terms and conditions of its
currently authorized and issued Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, and Series C Convertible Preferred Stock, (c)
increase the size of its Board of Directors from nineteen to twenty members, (d)
elect two of the Series D Preferred Stockholder's designees to the Company's
Board of Directors and Executive Committee, (e) modify the composition and
authority of the Company's Executive Committee, and (f) change the name of the
Company from "Doctors Health System, Inc." to "Doctors Health, Inc." The Company
also agreed to use its best efforts to change its state of incorporation from
Maryland to Delaware within sixty days of the closing of the initial purchase
transaction, subject to the approval of the Company's Board of Directors and
stockholders.

The Series D Preferred Stock issued to the Series D Preferred Stockholder
is senior to all other classes of the Company's capital stock with respect to
payment of dividends and distributions and liquidation rights. The Series D
Preferred Stock also is subject to redemption by the Company at the election of
the holder of the Series D Preferred Stock at $10.00 per share, plus accrued but
unpaid dividends, after five years from the issuance date of the Series D
Preferred Stock and is convertible at an adjustable rate into the Company's
Class C Common Stock at the option of the holder of the Series D Preferred Stock
and automatically upon a qualifying initial public offering of the Company. The
Series D Redeemable Convertible Preferred Stock accrues dividends quarterly at
the rate of eighty cents ($0.80) per share per annum beginning on July 15, 1997.

F-26

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 19--SUBSEQUENT EVENTS--CONTINUED

The number of shares of Class C Common Stock issuable upon conversion of
the Series D Preferred Stock is subject to adjustment pursuant to two stock
adjustment agreements between the Company and the Series D Preferred
Stockholder. The first stock adjustment agreement provides for an upward or
downward adjustment in the number of shares issuable to the Series D Preferred
Stockholder based upon the Medicare Medical Loss Ratio and the number of
Medicare enrollees in the Company's Medicare global risk service agreements with
health maintenance organizations and other payors. Pursuant to the first
agreement, the number of shares issuable to the Series D Preferred Stockholder
(assuming an investment of $30,000,000) could be reduced to 5,454,544 shares of
Class C Common Stock or increased to 10,909,090 shares of Class C Common Stock.
The second stock adjustment agreement provides that it will supersede the first
stock adjustment agreement if the 105th U.S. Congress makes certain changes in
the Medicare program to reduce payments to health maintenance organizations and
medical management companies such as the Company. Pursuant to the second stock
adjustment agreement, the number of shares issuable to the Series D Preferred
Stockholder (assuming an investment of $30,000,000) could be reduced to
5,454,544 shares of Class C Common Stock or increased to 15,000,000 shares of
Class C Common Stock.

On July 9, 1997, the Company entered into a Stock Purchase Agreement, as
amended on July 15, 1997 (the "Stock Purchase Agreement") by and among
UniversityCare, L.L.C. ("UniversityCare"), Genesis Health Ventures, Inc.
("Genesis"), and Med-Lantic Management Services, Inc. ("Med-Lantic"), and on
July 15, 1997 closed the transactions contemplated by the Stock Purchase
Agreement. Pursuant to the Stock Purchase Agreement and related transactions,
(i) Genesis, the holder of the Company's Series C Preferred Stock, assigned and
delegated to UniversityCare all of Genesis' rights and obligations under that
certain Purchase Agreement dated May 2, 1997, which provided for the purchase by
Genesis from Med-Lantic of all 355,556 shares of the Company's Series B
Preferred Stock held by Med-Lantic (the "Med-Lantic Shares"); (ii)
UniversityCare purchased from Med-Lantic the Med-Lantic Shares at a purchase
price of $11.25 per share; (iii) the Company issued and delivered to Med-Lantic
60,290 shares of the Company's Series B Preferred Stock, which constituted the
accrued and unpaid dividends, and interest, on the Med-Lantic Shares (the
"Dividend Shares") and the Company issued and delivered 22,222 shares of the
Company's Series B Preferred Stock to a private investment banker as
reimbursement for certain investment advisory services and related expenses (the
"Expense Shares"); and (iv) the Dividend Shares and the Expense Shares were
transferred to UniversityCare for a purchase price of $11.25 per share. As a
result of these transactions, UniversityCare is the holder of 438,068 shares of
the Company's Series B Preferred Stock, which constitute all of the issued and
outstanding shares of Series B Preferred Stock of the Company. In connection
with the transaction, the dividend rate on the Series B Preferred Stock was
changed to 8%.

Also, in connection with the above agreement the conversion price on the
500,000 warrants issued to the Series C Preferred Stockholder on January 31,
1997 was changed from $7.00 per share to $5.00 per share. The Company recorded
an additional $165,000 related to the valuation of the warrants at $5.00 per
share. In addition, the conversion rate of the Series C Preferred Stock into
Class C Common Stock at the time of an initial public offering was adjusted from
an equal conversion to 1.25 shares of Class C Common for each share of Series C
Preferred Stock.

NOTE 20--STOCK SPLIT-UP

Effective September 30, 1997, the Company's outstanding common stock was
split-up 2 for 1 effected in the form of a dividend (the "Stock Split-up"). The
net loss per share and number of common shares outstanding for all periods
presented have been restated to reflect the Stock Split-up. As a result of
certain adjustment provisions in the Company's Restated Articles and in
applicable option, and warrant agreements, the number of shares of common stock
into which each then outstanding share of Preferred Stock, option or warrant is
convertible, exerciseable or exchangeable, as the case may be, was automatically
increased by a ratio of two to one on the effective date of the Stock Split-up.

NOTE 21--NEW CAPITATION AGREEMENTS

On September 10, 1997, the Company entered into an agreement with an HMO on
a new global capitation contract for Medicare enrollees. Under the agreement,
effective October 1, 1997, the Company assumed responsibility for managing all
physician and institutional care, subject to certain exclusions, delivered to
approximately 9,900 enrollees in exchange for a capitation fee. The term of the
agreement is for three years with annual renewals after the initial term has
expired. Based

F-27

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 21--NEW CAPITATION AGREEMENTS--CONTINUED

upon the estimated number of enrollees participating in the contract and the
terms and conditions of the contract, the Company expects to realize monthly
capitation revenue of between $3,500,000 and $4,000,000 from this new agreement.

On December 1, 1997, the Company entered into a letter of intent with the
Series C Preferred Stockholder whereby the Company would assume responsibility
for managing all physician and institutional care, subject to certain
exclusions, delivered to approximately 7,000 Medicare enrollees of an HMO in
exchange for a capitation fee. This arrangement is expected to commence in
January 1998. The Company anticipates that the term of the arrangement would be
two years with annual renewals after the initial term has expired. Based upon
the estimated number of enrollees participating in the arrangement and the terms
and conditions of the arrangement, the Company expects to realize monthly
capitation revenue of approximately $2,500,000 from this new arrangement.

Actual capitation revenue earned pursuant to the above arrangements may
vary each month due to fluctuations in the number of Medicare enrollees covered
under each arrangement.

NOTE 22--NOTES TO UNAUDITED SEPTEMBER 30, 1996 AND 1997 CONSOLIDATED FINANCIAL
STATEMENTS

The accompanying unaudited financial statements as of September 30, 1997
and for the three months ended September 30, 1996 and 1997 have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting.

In the opinion of management, the unaudited interim financial statements
contained in this report reflect all adjustments, consisting of only normal
recurring accruals which are necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented. The
results of operations for any interim period are not necessarily indicative of
results for the full year.

The unaudited interim financial statements, footnote disclosures and other
information should be read in conjunction with the financial statements and the
notes thereto for the period ended June 30, 1995 and the years ended June 30,
1996 and 1997 included elsewhere herein.

CAPITATION REVENUE AND MEDICAL SERVICES EXPENSE RECOGNITION

As of September 30, 1997, the Company has three Global Capitation Contracts
(two Medicare and one commercial) and five gatekeeper capitation contracts with
seven health maintenance organizations (HMOs). Under the contracts, the Company
receives monthly capitation fees based on the number of enrollees electing any
one of the Company's affiliated PCPs. The capitation revenue under these
contracts is prepaid monthly based on the number of enrollees and is recognized
as capitation revenue during the month services are provided to the enrollees.
During the three months ended September 30, 1996, approximately $927,000 and
$341,000, were recorded as global capitation and gatekeeper capitation revenue,
respectively, in the Company's consolidated financial statements. During the
three months ended September 30, 1997, approximately $4,275,000 and $294,000,
were recorded as global capitation and gatekeeper capitation revenue,
respectively, in the Company's consolidated financial statements.

The cost of medical services is recognized in the period in which the care
is provided and includes an estimate of the cost of services which have been
incurred but not yet reported. Estimates are continually monitored and reviewed
and, as settlements are made or estimates are adjusted, differences are
reflected in current operations. As of September 30, 1997, approximately
$5,752,000 was recorded as accrued medical services for incurred but not
reported services.

F-28

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED

NOTE 22--NOTES TO UNAUDITED SEPTEMBER 30, 1996 AND 1997 CONSOLIDATED FINANCIAL
STATEMENTS--CONTINUED

NET REVENUE

The following represents amounts included in the determination of net
revenue:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Gross physician revenue...................................................................... $ 5,883,910 $ 9,028,182
Less: Provision for contractual and other adjustments...................................... (2,307,886) (3,620,607)
Gatekeeper capitated income.................................................................. 617,441 1,202,413
------------- -------------
Net physician revenue........................................................................ 4,193,465 6,609,988
Amount retained by affiliated core medical groups:
Physicians................................................................................. 1,834,717 2,907,261
Ancillary employees and expenses........................................................... 164,237 305,033
------------- -------------
Net revenue.................................................................................. $ 2,194,511 $ 3,397,694
------------- -------------
------------- -------------
</TABLE>

For the three months ended September 30, 1996 and 1997, one of these CMGs
comprised approximately 76% and 40%, respectively, of the Company's net revenue.

NOTES PAYABLE

Notes Payable as of September 30, 1997 are as follows:

<TABLE>
<CAPTION>
DATE OF
DESCRIPTION MATURITY AMOUNT
- ---------------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
NationsBank Credit Facility............................................................. December 31, 1997 $ 4,000,000
HBO & Company Note Payable.............................................................. May 14, 1998 2,000,000
Note Payable to Series C Preferred Stockholder.......................................... January 31, 1999 5,283,036
Other Notes Payable..................................................................... Various 236,493
-----------
Total Notes Payable....................................................................................... 11,519,529
Less: Current Maturities of notes payable................................................................. 6,119,121
-----------
Long-Term Notes Payable................................................................................ $ 5,400,408
-----------
-----------
</TABLE>

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity, Cash Flow and Capital Resources" for
discussion regarding the Company's refinancing of the NationsBank Credit
Facility subsequent to September 30, 1997.

F-29

<PAGE>
DOCTORS HEALTH, INC. AND SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER DEDUCTIONS AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS (WRITEOFFS) OF PERIOD
- ---------------------------------------------------------- ------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Allowance for doubtful receivables...................... $ 43,425 $ 281,096 $-- $ -- $ 324,521
Valuation allowances on deferred tax assets............. 770,000 2,152,000 -- -- 2,922,000
YEAR ENDED JUNE 30, 1997
Allowance for doubtful receivables...................... $ 324,521 $ 70,000 $-- $(124,000) $ 270,521
Valuation allowances on deferred tax assets............. 2,922,000 5,204,000 -- -- 8,126,000
</TABLE>

F-30

<PAGE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE [Doctors Health Logo]
----
<S> <C>
Available Information.......................... 2
Forward-Looking Statements..................... 2
Prospectus Summary............................. 3
Glossary....................................... 4
Risk Factors................................... 7
Use of Proceeds................................ 14
Selected Consolidated Financial Data........... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 22
Management..................................... 37
Certain Transactions........................... 44
Principal and Management Stockholders.......... 46
Description of Capital Stock................... 50
Plan of Distribution........................... 62
Shares Eligible for Resale..................... 63
Legal Matters.................................. 65
Experts........................................ 65
Indemnification................................ 65
Financial Statements........................... F-1
</TABLE>

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

<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth a statement of all expenses payable by the
Registrant in connection with the registration, issuance and distribution of the
Securities offered hereby, other than the underwriting discount. With the
exception of the registration fee, all amounts shown are estimates.

<TABLE>
<S> <C>
SEC Registration Fee............................................................................................ $ 27,440
Accounting Fees and Expenses.................................................................................... 625,000
Legal Fees and Expenses......................................................................................... 322,000
Printing and Engraving Expenses................................................................................. 135,000
Blue Sky Fees and Expenses...................................................................................... 5,000
Miscellaneous Fees and Expenses................................................................................. 20,000
----------
Total...................................................................................................... $1,134,440
----------
----------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

In accordance with Delaware law, the Company's Certificate of
Incorporation, By-Laws and the Shareholders Agreement generally provide that the
directors and officers of the Company shall be indemnified to the fullest extent
permitted by law against reasonable out-of-pocket damages, settlements, expenses
and other costs associated with any action, suit or proceeding to which such
person is made a party by reason of the fact that such person is an officer or
director of the Company, provided that such officer or director acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Company. The Company has purchased insurance on behalf of each director and
certain executive officers against any such indemnified liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The numbers with respect to share amounts and option exercise prices set
forth below have been adjusted, where appropriate, to reflect a two-for-one
stock split effective as of September 30, 1997.
In December 1994, the Company issued 1,200,000 shares of its Class A Common
Stock to Stewart B. Gold. Additionally, the Company issued to Scott Rifkin and
Alan Kimmel 200,000 shares each of Class A Common Stock. The shares were issued
for $200 in cash and in consideration for services performed for the Company as
founders of the Company.
In February 1995, the Company issued 4,400,000 shares of its Class B Common
Stock to Medical Holdings Limited Partnership in consideration of the transfer
of receivables, equipment, and other assets of medical practices from MHLP to
the Company with an aggregate value of approximately $492,000.
In February 1995, the Company issued to St. Joseph Medical Center, Inc., a
Maryland non-profit, non-stock corporation, 1,000,000 shares of Series A
Preferred Stock (convertible into 2,000,000 shares of Class C Common Stock as of
December 1, 1997) for $2 million in cash and a note in the principal amount of
$3 million.
In December 1995, the Company issued to Med-Lantic Management Services,
Inc. 355,556 shares of the Company's Series B Preferred Stock (convertible into
710,712 shares of Class C Common Stock as of December 1, 1997) and Warrants to
Medical Mutual Liability Insurance Society of Maryland to purchase shares of
Class A Common Stock in consideration of $4 million in cash and a loan guarantee
in the amount of $4 million. The Warrants were canceled on July 15, 1997.
In 1995 and 1996 (August 10, 1995, October 18, 1995, December 21, 1995, May
1, 1996, July 1, 1996 and December 7, 1996), the Company issued options to
purchase a total of 1,138,7600 shares of Class A Common Stock and authorized the
issuance of options to purchase an additional 10,000 shares of Class A Common
Stock to certain employees who joined the Company at the early stages of its
development, and issued options to purchase 16,000 shares of Class B Common
Stock to physicians in connection with their employment with Baltimore Medical
Group, LLC. The options were issued at exercise prices ranging from $0.005 per
share to $15.00 per share. None of the options have been exercised as of the
date of this Registration Statement. The options were issued in consideration of
services performed and to be performed for the Company or its Core Medical
Groups.
II-1

<PAGE>
In December 1995, the Company paid $40,000 in cash and issued warrants to
purchase a total of 48,000 shares of Class A Common Stock in the aggregate to
Stephen Graham, Andrew Hamilton and John Dwyer as compensation for investment
advice rendered to the Company.
In January 1996, the Company issued 66,000 shares of its Class B Common
Stock to a primary care physician, and in February 1996, issued an aggregate of
264,000 shares of its Class B Common Stock to four primary care physicians, in
connection with the mergers of their medical practices into wholly-owned
subsidiaries of the Company. The aggregate amount of consideration transferred
to the Company for the issuance of the shares was approximately $495,000.
In May 1996, the Company issued 66,000 shares of Class B Common Stock to a
primary care physician, in connection with the merger of his medical practice
into a wholly-owned subsidiary of the Company. The amount of consideration
transferred to the Company for the issuance of the shares was approximately
$99,000.
In September 1996, the Company issued 428,571 shares of Series C Preferred
Stock (convertible into 1,071,428 shares of Class C Common Stock as of December
1, 1997) to Genesis Health Ventures, Inc. for $7.5 million in cash.
In September 1996, the Company issued to Dr. Mark Eig, a director of the
Company, 32,000 shares and 2,000 options to purchase shares of the Company's
Class B Common Stock in consideration of the merger of his medical practice into
a wholly-owned subsidiary of the Company and the physician's employment with
Doctors Health Montgomery. The amount of consideration transferred to the
Company for the issuance of the shares was approximately $112,000.
In September 1996, the Company issued an aggregate of 52,000 shares and
4,000 options to purchase shares of the Company's Class B Common Stock to two
primary care physicians in consideration of the merger of their medical
practices into wholly-owned subsidiaries of the Company and the physicians'
employment with Doctors Health Montgomery. The aggregate amount of consideration
transferred to the Company for the issuance of the shares was approximately
$182,000.
In October 1996, the Company issued an aggregate of 128,000 shares and
8,000 shares to purchase shares of the Company's Class B Common Stock to four
primary care physicians in consideration of the merger of their medical
practices into a wholly owned subsidiary of the Company and the physicians'
employment with Doctors Health Montgomery. The amount of consideration
transferred to the Company for the issuance of the shares was approximately
$448,000.
In October and November 1996, the Company issued an aggregate of 6,000
shares to three primary care physicians in consideration of their employment
with Doctors Health Montgomery.
In November 1996, the Company issued an aggregate of 96,000 shares and
6,000 options to purchase shares of the Company's Class B Common Stock to three
primary care physicians in consideration of the merger of their medical
practices into a wholly-owned subsidiary of the Company and their employment
with Doctors Health Montgomery. The amount of consideration transferred to the
Company for the issuance of the shares was approximately $336,000.
In January 1997, the Company issued 142,857 shares of Series C Preferred
Stock (convertible into 357,142 shares of Class C Common Stock as December 1,
1997) to Genesis Health Ventures, Inc. for $2,500,000.
In January 1997, the Company issued an aggregate of 82,000 shares and
options to purchase 1,800 shares of the Company's Class B Common Stock to three
primary care physicians in consideration of the merger of their medical
practices into a wholly-owned subsidiary of the Company and their employment
with Doctors Health Montgomery. The amount of consideration transferred to the
Company for the issuance of the shares was approximately $287,000.
In January 1997, the Company issued 20,000 shares of Class A Common Stock
to Noah Investments, LLC in consideration of the merger of Medicap, Inc. into a
wholly-owned subsidiary of the Company and issued options to purchase 20,000
Class A Common Stock to Alan Rifkin in consideration of consulting services
performed and to be performed for the Company.
In January 1997, the Company issued its Convertible Subordinated 11%
Promissory Note to Genesis Health Ventures, Inc. with principal amount up to
$5,000,000 due January 3, 1999. Interest accrues in shares of Series C Preferred
Stock based upon a per share value of $17.50. The principal is convertible into
shares of Series C Preferred Stock based upon a per share value of $17.50.
In January 1997, the Company issued to the Series C Preferred Stockholder a
warrant to purchase 500,000 shares of Class A Common Stock at $5.00 per share in
consideration of the Series C Preferred Stockholder's efforts to assist the
Company in securing additional financing for the Company.
II-2

<PAGE>
In May 1997, in connection with a loan of $2,000,000 by HBO and Company
("HBOC") to the Company, the Company issued to HBOC warrants to purchase 120,000
shares of the Company's Common Stock at $7.50 per share.
In July 1997, the Company sold 2,000,000 shares of Series D Preferred Stock
(convertible as of December 1, 1997 into 4,000,000 shares of Class C Common
Stock) for $20,000,000, pursuant to the Series D Purchase Agreement with The
Beacon Group III -- Focus Value Fund, L.P. ("Beacon"). In connection with a
series of transactions including the above sale of the Series D Preferred Stock,
the Company issued and delivered 22,222 shares of the Company's Series B
Preferred Stock (convertible into 44,444 shares of Class C Common Stock) to a
private investment banker as reimbursement for certain investment advisory
services and related expenses. In October 1997, also pursuant to the Series D
Purchase Agreement, the Company issued an additional 34,666 shares of Series D
Preferred Stock (convertible into 69,332 shares of Class C Common Stock) to
Beacon as a stock dividend.
In July 1997, the Company issued 60,290 shares of Series B Preferred Stock
(convertible into 120,580 shares of Class C Common Stock as of December 1, 1997)
to Med-Lantic Management Services, Inc. ("Med-Lantic") representing all accrued
unpaid dividends and interest on the outstanding Series B Preferred Stock
through July 15, 1997.
In July 1997, the Company issued options to purchase an aggregate of
1,190,000 shares of Class A Common Stock to certain executives of the Company in
connection with their employment agreements.
The sale and issuance of the stock, warrants and options to purchase Class
B Common Stock listed above were exempt from registration under the Securities
Act by virtue of Sections 4(2) of the Securities Act and the options to purchase
Class A Common Stock listed above were exempt from registration in reliance on
Rule 701 promulgated under Section 3(b) of the Securities Act. The recipients of
the above-described securities represented their intention to acquire the
securities for investment only and not with a view to distribution thereof.
Appropriate restrictive legends were affixed to stock certificates and options
issued in such transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S><C>
3.1 (a) Articles of Amendment and Restatement of the Registrant, dated December 8, 1995.*
(b) Articles of Amendment and Restatement of the Registrant, dated September 4, 1996.*
(c) Articles of Amendment and Restatement of the Registrant, dated September 29, 1997 (incorporated herein by
reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on July 21, 1997).
3.2 (a) Amended Bylaws of the Registrant.*
(b) Amended Bylaws of the Registrant, as of September 4, 1996.*
(c) Amended and Restated Bylaws of the Registrant effective July 15, 1997 (incorporated herein by reference to Exhibit
3.4 filed with the Company's Current Report on Form 8-K filed July 21, 1997).
4.1 Form of Option Agreement.*
4.2 Amended Form of Option Agreement (filed herewith)
5.1 Legal Opinion of Venable, Baetjer & Howard, LLP.*
5.2 Legal Opinion of Venable, Baetjer and Howard, LLP, dated June 2, 1997, with respect to securities to be issued
pursuant to Prospectus Supplement No. 8 (filed herewith)
5.3 Legal Opinions of Venable, Baetjer and Howard, LLP, dated May 6, 1997, with respect to securities to be issued
pursuant to Prospectus Supplement No. 3 (filed herewith).
8 Tax Opinion of Kaufman & Canoles *
10.1 (a) Stockholders Agreement dated December 1, 1995, by and among the Registrant, Stewart Gold, Scott Rifkin, Alan
Kimmel, Medical Holdings Limited Partnership, St. Joseph Medical Center, Inc., Medical Mutual Liability
Insurance Society of Maryland, and Med-Lantic Management Services, Inc.*
(b) Amended Stockholders Agreement, dated September 4, 1996.*
(c) Shareholders and Voting Agreement, dated July 15, 1997 (incorporated herein by reference to Exhibit 10.4 filed
with the company's Current Report on Form 8-K filed on July 21, 1997).
(d) Form of Shareholders Letter Agreement (incorporated herein by reference to the Prospectus Supplement to the
Registration Statement filed on August 29, 1997.)
10.2 Registration Rights Agreement dated December 1, 1995 , by and among the Registrant, Medical Mutual Liability
Insurance Society of Maryland and Med-Lantic Management Services, Inc.*
10.3 Securities Purchase Agreement dated December 1, 1995 by and between the Registrant and Medical Mutual Liability
Insurance Society of Maryland.*
10.4 Registration Rights Agreement dated February 24, 1995 by and between the Registrant and St. Joseph Medical Center,
Inc. and amendment thereto dated December 1, 1995.*
10.5 Baltimore Medical Group, LLC Operating Agreement dated February 24, 1995.*
</TABLE>
II-3

<PAGE>

EXHIBIT DESCRIPTION
- ------- -----------
<S><C>
10.6 Agreement of Limited Partnership of Medical Holdings Limited Partnership dated February 24, 1995.*
10.7 Stockholders Agreement between BMGGP, Inc. and Stockholders dated as of February 24, 1995.*
10.8 Financing Transaction Agreement dated as of February 24, 1995 by and among the Registrant and Baltimore Medical
Group, LLC, BMG Limited Partnership, BMGGP, Inc., and St. Joseph Medical Center, Inc.*
10.9 Form of Exclusive Physician Participation Agreement.*
10.10 Form of non-exclusive Physician Participation Agreement.*
10.11 Amended and Restated Physician Services Organization Agreement of Baltimore Medical Group, LLC.*
10.12 Form of Practice Participation Agreement.*
10.13 Form of Professional Services Employment Agreement.*
10.14 Form of Specialist Physician Employment Agreement.*
10.15 Form of Medical Director Employment Agreement.*
10.16 Form of Specialist Physician Network Agreement.*
10.17 Major Decision Agreement dated December 1, 1995 by and between the Registrant and Medical Mutual Liability
Insurance Society of Maryland.*
10.18 Promissory Note dated as of December 1, 1995 by and between the Registrant and Medical Mutual Liability Insurance
Society of Maryland.*
10.19 Non-negotiable, non-transferable Promissory Note dated February 24, 1995 by and between the Registrant and St.
Joseph Medical Center, Inc.*
10.20 Loan Agreement dated as of December 1, 1995, by and between the Registrant and NationsBank, N.A.*
10.21 Guaranty Agreement dated December 1, 1995 by and between Medical Mutual Liability Insurance Society of Maryland
and NationsBank, N.A.*
10.22(a) Employment Agreement dated as of July 1, 1994 by and between the Registrant and Stewart B. Gold.*
(b) Amended and Restated Employment Agreement by and between the Registrant and Stewart B. Gold dated July 15, 1997
(incorporated herein by reference to Exhibit 10.52 filed with the Registrant's Annual Report on Form 10-K).
10.23(a) Employment Agreement dated as of July 1, 1994 by and between the Registrant and Scott M. Rifkin, M.D.*
(b) Amended and Restated Employment Agreement dated as of July 1, 1994 by and between the Registrant and Scott M.
Rifkin, M.D.*
(c) Amended and Restated Employment Agreement dated July 15, 1997 by and between the Registrant and Scott M. Rifkin,
M.D. (incorporated herein by reference to Exhibit 10.50 filed with the Registrant's Annual Report on Form 10-K).
10.24 Employment Agreement dated as of April 1, 1995 by and between the Registrant and Paul A. Serini and amendment
thereto dated January 1, 1996.*
10.25 Employment Agreement dated as of March 20, 1995 by and between the Registrant and Allan C. Sanders, CPA.*
10.26 Employment Agreement between the Registrant and Theresa A. Spoleti.*
10.27 Form of Employment Agreement.*
10.28 Form of Practice Transfer Agreement.*
10.29(a) Form of Offer Letter.*
(b) Amended Form of Offer Letter.*
10.30 Free State Health Plan, Inc., IPA Service Agreement (subject to confidentiality request for certain portions of
the exhibit).*
10.31 Binding Letter of Intent with Health Care Corporation of the Mid-Atlantic for Medicare Risk Service Agreement
(subject to confidentiality request for certain portions of the exhibit).*
10.32 Binding Letter of Intent with Chesapeake Health Plan for Medicare Risk Service Agreement (subject to
confidentiality request for certain portions of the exhibit).*
10.33 Form of Reacquisition Agreement.*
10.34 Amended and Restated Physician Services Organization Agreement of Carroll Medical Group, LLC.*
10.35 Amended and Restated Physician Services Organization Agreement of Cumberland Valley Medical Group, LLC.*
10.36 Physician Services Organization Agreement of Doctors Health Montgomery, LLC.*
10.37 Stock Purchase Agreement between the Registrant and Genesis Health Ventures, Inc., dated September 4, 1996.*
10.38 Registration Rights Agreement between the Registrant and Genesis Health Ventures, Inc., dated September 4, 1996.*
10.39 Option Agreement between the Registrant and Genesis Health Ventures, Inc., dated September 4, 1996.*
10.40 IPA Percentage of Premium Service Agreement with Chesapeake Health Plan, dated as of June 1, 1996 (subject to
confidentiality request for certain portions of the exhibit).*
10.41 $1,500,000 Promissory Note to First National Bank.*
</TABLE>
II-4

<PAGE>

EXHIBIT DESCRIPTION
- ------- -----------
<S><C>
10.42 Credit Enhancement Letter dated August 15, 1996 between the Registrant and St. Joseph Medical Center.*
10.43 Employment Agreement dated as of May 1, 1996 between the Registrant and John R. Dwyer, Jr.*
10.44 Primary Care Limited Participation Agreement.*
10.45 Medicare HMO -- Primary Care Limited Participation Agreement.*
10.46 Agreement and Plan of Merger between Medtrust Medical Group, Inc. and the Registrant.*
10.47 Management Services Agreement between Medtrust Medical Group, Inc. and the Registrant.*
10.48 Amendment to Agreement and Plan of Merger between Medtrust Medical Group, Inc. and the Registrant.*
10.49 Second Amendment to Agreement and Plan of Merger between Medtrust Medical Group, Inc. and the Registrant.*
10.50 Amended and Restated Employment Agreement by and between Alan Kimmel and the Registrant dated July 15, 1997
(incorporated herein by reference to Exhibit 10.51 filed with the Registrant's Annual Report on Form 10-K).
10.51 Amended and Restated Preferred Stock Purchase Agreement dated as of July 15, 1997 by and between the Registrant
and The Beacon Group III -- Focus Value Fund, L.P. (incorporated herein by reference to Exhibit 10.2 filed with
the Registrant's Current Report on Form 8-K filed on July 21, 1997).
10.52 Amended and Restated Stock Purchase Agreement dated July 9, 1997 as amended July 15, 1997 by and among the
Registrant, UniversityCare LLC, Genesis Health Ventures, Inc., and Med-Lantic Management Services, Inc.
(incorporated herein by reference to Exhibit 10.4 filed with the Registrant's Current Report on Form 8-K filed
on July 21, 1997).
10.53 Promissory Note dated May 14, 1997 issued to HBO & Company of Georgia (incorporated herein by reference to Exhibit
10.8 filed with the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997).
10.54 No Exhibit
10.55 Medicare Network Management Agreement by and between NYLCare Health Plans of the Mid-Atlantic, Inc. and the
Registrant effective October 1, 1997 (incorporated herein by reference to Exhibit 10.55 of the Registrant's
Current Report on Form 8-K filed on October 14, 1997)(subject to a request for confidential treatment).
10.56 Administrative Service Provider Contract for Medicare Global Risk Services by and between NYLCare Health Plans of
the Mid-Atlantic, Inc. and the Registrant effective September 30, 1997 (incorporated herein by reference to
Exhibit 10.56 of the Registrant's Current Report on Form 8-K filed on October 14, 1997)(subject to a request for
confidential treatment).
10.57 Letter of Intent between Genesis Health Ventures, Inc. and the Registrant dated December 1, 1997 (filed herewith)
(subject to a request for confidential treatment for certain portions of the exhibit).
10.58 Note Purchase Agreement dated January 31, 1997 among the Registrant, Genesis Health Ventures, Inc. and Genesis
Holding (incorporated herein by reference to Exhibit 10.1 filed with the Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1996).
10.59 Convertible Subordinated 11% Note dated January 31, 1997 issued by Registrant to Genesis Health Ventures, Inc.
(incorporated herein by reference to Exhibit 10.02 filed with the Registrant's Quarterly Report on Form 10-Q for
the period ended December 31, 1996).
10.60 Amended and Restated Option Agreement by and between Doctors Health System, Inc. and Genesis Health Ventures,
Inc., dated January 31, 1997 (incorporated herein by reference to Exhibit 10.3 filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1996).
10.61 Amendment No. 1 to Note Purchase Agreement dated January 31, 1997 among the Registrant, Genesis Health Ventures,
Inc. and Genesis Holdings, Inc. (filed herewith).
10.62 Grid Time Promissory Note from the Registrant to Chase Manhattan Bank dated October 31, 1997 (filed herewith).
11 Computation of Earnings Per Common and Common Equivalent Share (with respect to fiscal year 1997 data, filed
herewith and, with respect to data as of September 30, 1997, incorporated herein by reference to Exhibit 11
filed with the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997).
23.1 Consent of Grant Thornton LLP (filed herewith).
23.2 Consent of Venable, Baetjer and Howard, LLP. (included in Exhibit 5 filed herewith)
23.3 Consent of Arthur Andersen, LLP (filed herewith).
24.1 Power of Attorney with respect to Scott M. Rifkin, M.D., Alan L. Kimmel, M.D., J. David Nagel, M.D. and Peter J.
LoPresti, D.O.*
24.2 Power of Attorney of Mark H. Eig, M.D.*
24.3 Power of Attorney of Robert G. Graw, Jr., M.D.*
24.4 Power of Attorney of William Lamm, M.D.*
24.5 Power of Attorney of Alexander Rocha, M.D.*
24.6 Power of Attorney of Richard R. Howard.*
</TABLE>

- ---------------
* Previously filed.
II-5

<PAGE>

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represents no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Baltimore, State of
Maryland, on December 24, 1997.
DOCTORS HEALTH, INC.

/s/ STEWART B. GOLD
_____________________
Name: Stewart B. Gold
Title: President and Chief Executive
Officer

Pursuant to 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 indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ STEWART B. GOLD Chief Executive Officer; President; December 24, 1997
- ------------------------------------------------------ Director (Principal Executive Officer)
STEWART B. GOLD

/s/ * Chairman December 24, 1997
- ------------------------------------------------------
SCOTT M. RIFKIN, M.D.

/s/ JOHN R. DWYER, JR. Chief Financial Officer; Treasurer and December 24, 1997
- ------------------------------------------------------ Director (Principal Financial Officer)
JOHN R. DWYER, JR.

/s/ PAUL A. SERINI Director; Executive Vice President of December 24, 1997
- ------------------------------------------------------ Strategic Operations and Director of
PAUL A. SERINI Legal Affairs

/s/ KYLE R. MILLER Vice President of Finance (Principal December 24, 1997
- ------------------------------------------------------ Accounting Officer)
KYLE R. MILLER

/s/ * Executive Vice President for Medical Policy December 24, 1997
- ------------------------------------------------------ and Practice; Director
ALAN L. KIMMEL, M.D.

/s/ * Director December 24, 1997
- ------------------------------------------------------
JOHN W. ELLIS

/s/ * Director December 24, 1997
- ------------------------------------------------------
J. DAVID NAGEL, M.D.

/s/ * Director December 24, 1997
- ------------------------------------------------------
PETER J. LOPRESTI, D.O.

Director December 24, 1997
- ------------------------------------------------------
RICHARD L. DIAMOND, M.D.
</TABLE>
II-7

<PAGE>

SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>

/s/ Director December 24, 1997
- ------------------------------------------------------
ROBERT A. BARISH, M.D.

/s/ * Director December 24, 1997
- ------------------------------------------------------
WILLIAM D. LAMM, M.D.

/s/ * Director December 24, 1997
- ------------------------------------------------------
D. ALEXANDER ROCHA, M.D.

/s/ * Director December 24, 1997
- ------------------------------------------------------
MARK H. EIG, M.D.

/s/ * Director December 24, 1997
- ------------------------------------------------------
ROBERT G. GRAW, JR., M.D.

Director December 24, 1997
- ------------------------------------------------------
ALBERT HERRERA, M.D.

/s/ * Director December 24, 1997
- ---------------------------------------------------
RICHARD HOWARD

/s/ Director December 24, 1997
- ------------------------------------------------------
THOMAS G. MENDELL

/s/ Director December 24, 1997
- ------------------------------------------------------
ERIC R. WILKINSON

*By: /s/ STEWART B. GOLD December 24, 1997
_________________________________________________
ATTORNEY-IN-FACT

</TABLE>
II-8

<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT DESCRIPTION
- ------- -----------
<S><C>
3.1 (a) Articles of Amendment and Restatement of the Registrant, dated December 8, 1995.*
(b) Articles of Amendment and Restatement of the Registrant, dated September 4, 1996.*
(c) Articles of Amendment and Restatement of the Registrant, dated September 29, 1997 (incorporated herein by
reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed on July 21, 1997).
3.2 (a) Amended Bylaws of the Registrant.*
(b) Amended Bylaws of the Registrant, as of September 4, 1996.*
(c) Amended and Restated Bylaws of the Registrant effective July 15, 1997 (incorporated herein by reference to Exhibit
3.4 filed with the Company's Current Report on Form 8-K filed July 21, 1997).
4.1 Form of Option Agreement.*
4.2 Amended Form of Option Agreement (filed herewith)
5.1 Legal Opinion of Venable, Baetjer & Howard, LLP. *
5.2 Legal Opinion of Venable, Baetjer and Howard, LLP, dated June 2, 1997, with respect to securities to be issued
pursuant to Prospectus Supplement No. 8 (filed herewith)
5.3 Legal Opinions of Venable, Baetjer and Howard, LLP, dated May 6, 1997, with respect to securities to be issued
pursuant to Prospectus Supplement No. 3 (filed herewith).
8 Tax Opinion of Kaufman & Canoles *
10.1 (a) Stockholders Agreement dated December 1, 1995, by and among the Registrant, Stewart Gold, Scott Rifkin, Alan
Kimmel, Medical Holdings Limited Partnership, St. Joseph Medical Center, Inc., Medical Mutual Liability
Insurance Society of Maryland, and Med-Lantic Management Services, Inc.*
(b) Amended Stockholders Agreement, dated September 4, 1996.*
(c) Shareholders and Voting Agreement, dated July 15, 1997 (incorporated herein by reference to Exhibit 10.4 filed
with the company's Current Report on Form 8-K filed on July 21, 1997).
(d) Form of Shareholders Letter Agreement (incorporated herein by reference to the Prospectus Supplement to the
Registration Statement filed on August 29, 1997).
10.2 Registration Rights Agreement dated December 1, 1995 , by and among the Registrant, Medical Mutual Liability
Insurance Society of Maryland and Med-Lantic Management Services, Inc.*
10.3 Securities Purchase Agreement dated December 1, 1995 by and between the Registrant and Medical Mutual Liability
Insurance Society of Maryland.*
10.4 Registration Rights Agreement dated February 24, 1995 by and between the Registrant and St. Joseph Medical Center,
Inc. and amendment thereto dated December 1, 1995.*
10.5 Baltimore Medical Group, LLC Operating Agreement dated February 24, 1995.*
10.6 Agreement of Limited Partnership of Medical Holdings Limited Partnership dated February 24, 1995.*
10.7 Stockholders Agreement between BMGGP, Inc. and Stockholders dated as of February 24, 1995.*
10.8 Financing Transaction Agreement dated as of February 24, 1995 by and among the Registrant and Baltimore Medical
Group, LLC, BMG Limited Partnership, BMGGP, Inc., and St. Joseph Medical Center, Inc.*
10.9 Form of Exclusive Physician Participation Agreement.*
10.10 Form of non-exclusive Physician Participation Agreement.*
10.11 Amended and Restated Physician Services Organization Agreement of Baltimore Medical Group, LLC.*
10.12 Form of Practice Participation Agreement.*
10.13 Form of Professional Services Employment Agreement.*
10.14 Form of Specialist Physician Employment Agreement.*
10.15 Form of Medical Director Employment Agreement.*
10.16 Form of Specialist Physician Network Agreement.*
10.17 Major Decision Agreement dated December 1, 1995 by and between the Registrant and Medical Mutual Liability
Insurance Society of Maryland.*
10.18 Promissory Note dated as of December 1, 1995 by and between the Registrant and Medical Mutual Liability Insurance
Society of Maryland.*
10.19 Non-negotiable, non-transferable Promissory Note dated February 24, 1995 by and between the Registrant and St.
Joseph Medical Center, Inc.*
10.20 Loan Agreement dated as of December 1, 1995, by and between the Registrant and NationsBank, N.A.*
10.21 Guaranty Agreement dated December 1, 1995 by and between Medical Mutual Liability Insurance Society of Maryland
and NationsBank, N.A.*
10.22(a) Employment Agreement dated as of July 1, 1994 by and between the Registrant and Stewart B. Gold.*
(b) Amended and Restated Employment Agreement by and between the Registrant and Stewart B. Gold dated July 15, 1997
(incorporated herein by reference to Exhibit 10.52 filed with the Registrant's Annual Report on Form 10-K).
</TABLE>
II-9

<PAGE>

EXHIBIT DESCRIPTION
- ------- -----------
<S><C>
10.23(a) Employment Agreement dated as of July 1, 1994 by and between the Registrant and Scott M. Rifkin, M.D.*
(b) Amended and Restated Employment Agreement dated as of July 1, 1994 by and between the Registrant and Scott M.
Rifkin, M.D.*
(c) Amended and Restated Employment Agreement dated July 15, 1997 by and between the Registrant and Scott M. Rifkin,
M.D. (incorporated herein by reference to Exhibit 10.50 filed with the Registrant's Annual Report on Form 10-K).
10.24 Employment Agreement dated as of April 1, 1995 by and between the Registrant and Paul A. Serini and amendment
thereto dated January 1, 1996.*
10.25 Employment Agreement dated as of March 20, 1995 by and between the Registrant and Allan C. Sanders, CPA.*
10.26 Employment Agreement between the Registrant and Theresa A. Spoleti.*
10.27 Form of Employment Agreement.*
10.28 Form of Practice Transfer Agreement.*
10.29(a) Form of Offer Letter.*
(b) Amended Form of Offer Letter.*
10.30 Free State Health Plan, Inc., IPA Service Agreement (subject to confidentiality request for certain portions of
the exhibit).*
10.31 Binding Letter of Intent with Health Care Corporation of the Mid-Atlantic for Medicare Risk Service Agreement
(subject to confidentiality request for certain portions of the exhibit).*
10.32 Binding Letter of Intent with Chesapeake Health Plan for Medicare Risk Service Agreement (subject to
confidentiality request for certain portions of the exhibit).*
10.33 Form of Reacquisition Agreement.*
10.34 Amended and Restated Physician Services Organization Agreement of Carroll Medical Group, LLC.*
10.35 Amended and Restated Physician Services Organization Agreement of Cumberland Valley Medical Group, LLC.*
10.36 Physician Services Organization Agreement of Doctors Health Montgomery, LLC.*
10.37 Stock Purchase Agreement between the Registrant and Genesis Health Ventures, Inc., dated September 4, 1996.*
10.38 Registration Rights Agreement between the Registrant and Genesis Health Ventures, Inc., dated September 4, 1996.*
10.39 Option Agreement between the Registrant and Genesis Health Ventures, Inc., dated September 4, 1996.*
10.40 IPA Percentage of Premium Service Agreement with Chesapeake Health Plan, dated as of June 1, 1996 (subject to
confidentiality request for certain portions of the exhibit).*
10.41 $1,500,000 Promissory Note to First National Bank.*
10.42 Credit Enhancement Letter dated August 15, 1996 between the Registrant and St. Joseph Medical Center.*
10.43 Employment Agreement dated as of May 1, 1996 between the Registrant and John R. Dwyer, Jr.*
10.44 Primary Care Limited Participation Agreement.*
10.45 Medicare HMO -- Primary Care Limited Participation Agreement.*
10.46 Agreement and Plan of Merger between Medtrust Medical Group, Inc. and the Registrant.*
10.47 Management Services Agreement between Medtrust Medical Group, Inc. and the Registrant.*
10.48 Amendment to Agreement and Plan of Merger between Medtrust Medical Group, Inc. and the Registrant.*
10.49 Second Amendment to Agreement and Plan of Merger between Medtrust Medical Group, Inc. and the Registrant.*
10.50 Amended and Restated Employment Agreement by and between Alan Kimmel and the Registrant dated July 15, 1997
(incorporated herein by reference to Exhibit 10.51 filed with the Registrant's Annual Report on Form 10-K).
10.51 Amended and Restated Preferred Stock Purchase Agreement dated as of July 15, 1997 by and between the Registrant
and The Beacon Group III -- Focus Value Fund, L.P. (incorporated herein by reference to Exhibit 10.2 filed with
the Registrant's Current Report on Form 8-K filed on July 21, 1997).
10.52 Amended and Restated Stock Purchase Agreement dated July 9, 1997 as amended July 15, 1997 by and among the
Registrant, UniversityCare LLC, Genesis Health Ventures, Inc., and Med-Lantic Management Services, Inc.
(incorporated herein by reference to Exhibit 10.4 filed with the Registrant's Current Report on Form 8-K filed
on July 21, 1997).
10.53 Promissory Note dated May 14, 1997 issued to HBO & Company of Georgia (incorporated herein by reference to Exhibit
10.8 filed with the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997).
10.54 No Exhibit.
</TABLE>
II-10

<PAGE>

EXHIBIT DESCRIPTION
- ------- -----------
<S><C>
10.55 Medicare Network Management Agreement by and between NYLCare Health Plans of the Mid-Atlantic, Inc. and the
Registrant effective October 1, 1997 (incorporated herein by reference to Exhibit 10.55 of the Registrant's
Current Report on Form 8-K filed on October 14, 1997)(subject to a request for confidential treatment).
10.56 Administrative Service Provider Contract for Medicare Global Risk Services by and between NYLCare Health Plans of
the Mid-Atlantic, Inc. and the Registrant effective September 30, 1997 (incorporated herein by reference to
Exhibit 10.56 of the Registrant's Current Report on Form 8-K filed on October 14, 1997)(subject to a request for
confidential treatment).
10.57 Letter of Intent between Genesis Health Ventures, Inc. and the Registrant dated December 1, 1997 (filed herewith)
(subject to a request for confidential treatment for certain portions of the exhibit).
10.58 Note Purchase Agreement dated January 31, 1997 among the Registrant, Genesis Health Ventures, Inc. and Genesis
Holding (incorporated herein by reference to Exhibit 10.1 filed with the Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1996).
10.59 Convertible Subordinated 11% Note dated January 31, 1997 issued by Registrant to Genesis Health Ventures, Inc.
(incorporated herein by reference to Exhibit 10.02 filed with the Registrant's Quarterly Report on Form 10-Q for
the period ended December 31, 1996).
10.60 Amended and Restated Option Agreement by and between Doctors Health System, Inc. and Genesis Health Ventures,
Inc., dated January 31, 1997 (incorporated herein by reference to Exhibit 10.3 filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1996).
10.61 Amendment No. 1 to Note Purchase Agreement dated January 31, 1997 among the Registrant, Genesis Health Ventures,
Inc. and Genesis Holdings, Inc. (filed herewith).
10.62 Grid Time Promissory Note from the Registrant to Chase Manhattan Bank dated October 31, 1997 (filed herewith).
11 Computation of Earnings Per Common and Common Equivalent Share (with respect to fiscal year 1997 data, filed
herewith and, with respect to data as of September 30, 1997, incorporated herein by reference to Exhibit 11
filed with the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997).
23.1 Consent of Grant Thornton LLP (filed herewith).
23.2 Consent of Venable, Baetjer and Howard, LLP. (included in Exhibit 5 filed herewith)
23.3 Consent of Arthur Andersen, LLP (filed herewith).
24.1 Power of Attorney with respect to Scott M. Rifkin, M.D., Alan L. Kimmel, M.D., J. David Nagel, M.D. and Peter J.
LoPresti, D.O.*
24.2 Power of Attorney of Mark H. Eig, M.D.*
24.3 Power of Attorney of Robert G. Graw, Jr., M.D.*
24.4 Power of Attorney of William Lamm, M.D.*
24.5 Power of Attorney of Alexander Rocha, M.D.*
24.6 Power of Attorney of Richard R. Howard.*
</TABLE>

- ---------------
* Previously filed.
II-11

Exhibit 4.2

DOCTORS HEALTH, INC. OPTION AGREEMENT

This Option Agreement (the "Option Agreement") is entered into
this ____ day of ______________, 199_, by and between Doctors Health, Inc., a
Delaware corporation ("DH"), and ("Optionee").

RECITALS:

1. DH has registered certain shares of its Class B Common
Stock, par value $.01 per share ("Class B Common Stock") and options to acquire
Class B Common Stock ("Options") with the Securities and Exchange Commission
("SEC") and with certain applicable states.

2. Pursuant to such registration, DH is offering some or all
of such registered securities (the "Offering") the terms of which are set forth
in a Prospectus and one or more Prospectus Supplements (together referred to
herein as the "Prospectus") that are part of the registration statement on Form
S-1 filed with the SEC (the "Registration Statement").

3. Optionee desires to acquire the securities offered pursuant
to the terms of the Offering and, in connection therewith, has executed a [Sale
Agreement/Independent Practice Association Agreement/Employment Agreement](the
"Main Agreement[s]"). Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to them in the Main Agreement[s]".

4. Pursuant to the Offering and the Main Agreement[s], the
Company has agreed to grant Optionee an Option to acquire _____ shares of Class
B Common Stock.

AGREEMENTS:

In consideration of the foregoing and of the mutual agreements
herein contained and set forth in the Main Agreement[s], the parties hereto
agree as follows:

ARTICLE 1
DEFINITIONS

For purposes of this Option Agreement, the definitions set
forth in Sections 1.1 through 1.11 shall be applicable.

Section 1.1 Affiliate. "Affiliate" shall mean: (i)
any corporation in which DH owns, directly or indirectly, fifty percent
(50%) or more of the total combined voting power of all classes of stock of
such corporation; and (ii) any Core Medical Group which is affiliated with DH.

<PAGE>

Section 1.2 Class B Common Stock. "Class B Common Stock"
shall mean shares of DH's authorized but unissued Class B Common Stock, par
value of one cent ($0.01) per share.

Section 1.3 Exercise Date. "Exercise Date" shall mean
the date on which the Committee receives the written notice required under
Section 3.2 of this Option Agreement that Optionee has exercised the Option.

Section 1.4 Grant Date. "Grant Date" shall mean the
date on which DH issues an Option to Optionee pursuant to this Option Agreement.

Section 1.5 Offering. "Offering" shall mean the
offering of securities by DH pursuant to which Optionee is acquiring the
Options, the terms of which are set forth in the Prospectus.

Section 1.6 Option. "Option" shall mean the Option to
acquire that number of shares of Class B Common Stock of DH granted to Optionee
pursuant to this Option Agreement, and the terms set forth in the Prospectus and
the Main Agreement[s].

Section 1.7 Fair Market Value. "Fair Market Value" of a
share of Class B Common Stock on the Grant Date or Exercise Date, as the case
may be, shall mean the last reported sale price per share of Class B Common
Stock, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on a national securities exchange or
included for quotation on the NASDAQ-National Market, or if the Class B Common
Stock is not so listed or admitted to trading or included for quotation, the
last quoted price, or if the Class B Common Stock is not so quoted, the average
of the high bid and low asked prices, regular way, in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or, if such system is no longer in use, the principal
other automated quotations system that may then be in use or, if the Class B
Common Stock is not quoted by any such organization, the average of the closing
bid and asked prices, regular way, as furnished by a professional market maker
making a market in the Class B Common Stock as selected in good faith by the
Company or by such other source or sources as shall be selected in good faith by
the Company. In the event that there is no external market for the Class B
Common Stock, the Fair Market Value of shares of Class B Common Stock shall be
determined by the Company in such other manner as it may deem appropriate. If,
as the case may be, the relevant date is not a trading day, the determination
shall be made as of the next preceding trading day. As used herein, the term
"trading day" shall mean a day on which public trading of securities occurs and
is reported in the principal consolidated reporting system referred to above, or
if the Class B Common Stock is not listed or admitted to trading on a national
securities exchange or included for quotation on the NASDAQ-National Market, any
day other than a Saturday, a Sunday or a day in which banking institutions in
the State of Maryland are closed.

-2-

<PAGE>

Section 1.8 Option Price. "Option Price" shall mean
the price per share of Common Stock at which the Option may be exercised.
"Aggregate Option Price" shall mean the Option Price multiplied by the
number of shares of Class B Common Stock to be exercised pursuant to a notice of
exercise.

Section 1.9 Prospectus. "Prospectus" shall mean the
Prospectus and Prospectus Supplement that are part of the Registration
Statement filed on Form S-1 by DH and which set forth the terms of the Offering.

Section 1.10 Main Agreement[s]. "Main Agreement[s]" shall
mean the [sale/independent practice association/employment] agreement between DH
and Optionee pursuant to which Optionee agreed to the terms of the Offering and
pursuant to which Optionee is entitled to receive the Options.

Section 1.11 Registration Statement. "Registration
Statement" shall mean the registration statement filed by DH with the SEC with
respect to the registration of the securities of DH, some or all of which are
the subject of the Offering.

ARTICLE 2
ISSUANCE OF OPTIONS

Section 2.1 Issuance of Options. DH hereby grants to
Optionee, as of the date hereof (the "Grant Date") an Option to purchase
________ (_______) shares of Class B Common Stock at an Option Price of
____________________ ($________) per share, (the "Option Price") or such
adjusted number of shares of Class B Common Stock at such adjusted Option Price
as may be established from time to time pursuant to the provisions of Article V
hereof.

Section 2.2 Term of Option. The Option granted pursuant
to Section 2.1 shall expire on the day prior to the tenth anniversary of the
Grant Date, unless such Option terminates earlier pursuant to other provisions
of this Option Agreement.

ARTICLE 3
EXERCISE OF OPTIONS

Section 3.1 Exercisability of Option. The Option shall
be exercisable, in whole or in part, at any time on or after ____________,
199___ or, if earlier, upon Optionee's death, unless the Option has earlier
terminated pursuant to the provisions of this Option Agreement. Notwithstanding
anything to the contrary herein, the Option may not be exercised unless the
shares of Class B Common Stock issuable upon exercise of such Option are then
subject to a currently effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), and unless such other action or
consent as may be required by federal or state law relating to the issuance or
distribution of securities shall have been taken or obtained.

-3-

<PAGE>

Section 3.2 Manner of Exercise. The Option may be
exercised, in whole or in part, by delivering written notice of exercise to DH
in such form as DH may require from time to time. Such notice shall specify the
number of shares of Class B Common Stock for which the Option is to be
exercised, and shall be accompanied by full payment of the Aggregate Option
Price. In addition, such notice shall be accompanied by (i) a written
acknowledgment of the restrictions on the transferability of the shares of Class
B Common Stock executed in the form of the letter attached hereto and marked
Exhibit A and (ii) a signed copy of a Letter Agreement (as described in the
Prospectus) in such form as DH may prescribe. Notwithstanding anything herein to
the contrary, all Class B Common Stock issued pursuant to the Option shall be
subject to the terms and conditions of said Letter Agreement. Payment of the
Aggregate Option Price may be made (i) in cash, (ii) in a number of shares of
Class B Common Stock (including shares of Class B Common Stock acquired upon the
exercise of an option) having a total Fair Market Value on the Exercise Date
equal to the Aggregate Option Price, or (iii) by a combination of the foregoing.
The Options may be exercised only in multiples of whole shares of Class B Common
Stock and no partial shares shall be issued.

Section 3.3 Issuance of Shares and Payment of Cash upon
Exercise. Upon exercise of the Option, in whole or in part, in accordance with
the terms of this Agreement and upon payment of the Aggregate Option Price, DH
shall issue to Optionee the number of shares of Class B Common Stock designated
by Optionee in the notice of exercise and for which payment was received. Such
shares to be so issued shall be fully paid and non-assessable.

Section 3.4 Reservation of Shares. DH shall at all times
reserve and keep available for issuance upon the exercise of the Option a number
of its authorized but unissued shares of Class B Common Stock that will be
sufficient to permit the exercise in full of the Option.

[Section 3.5 is applicable only to Options granted in
connection with acquisitions of medical practices.]

Section 3.5 Reacquisition Rights. As a condition to
exercising the Option, Optionee shall waive any rights which Optionee then has
to the reacquisition of such Optionee's practice. Upon such waiver, DH and
Optionee agree that such reacquisition rights shall be terminated and shall be
null and void and of no further force and effect.

ARTICLE 4
TERMINATION OF OPTION

Section 4.1 Upon Optionee's Death. Unless the Option is
earlier terminated pursuant to the provisions of this Option Agreement, upon
Optionee's death Optionee's executor, personal representative or the person to
whom the Option shall have been transferred by will or the laws of descent and
distribution, as the case may be, may exercise all or any part of the Option not
previously exercised, provided such exercise

-4-

<PAGE>

occurs within twelve (12) months after the date Optionee dies, but not later
than the end of the stated term of the Option and, provided further, that such
person executes a Letter Agreement in such form as DH may prescribe.

[Sections 4.2 and 4.3 are applicable only to Options granted in
connection with employment agreements.]

Section 4.2 Termination of Employment For Reason Other
Than Death, Disability, Retirement or Wrongful Termination. Unless earlier
terminated pursuant to the provisions of this Option Agreement, The Option shall
terminate, with respect to those shares of Class B Common Stock for which the
Option has not been exercised, as of the date Optionee is no longer employed by
either DH or an Affiliate for any reason other than Optionee's death,
Disability, Retirement or Wrongful Termination (as such terms are defined in the
Employment Agreement).

Section 4.3 Termination of Employment By Reason of
Disability, Retirement or Wrongful Termination. Unless the Options have earlier
terminated pursuant to the provisions of this Option Agreement, in the event
that Optionee ceases to be an employee of DH or an Affiliate by reason of
Disability, Retirement or Wrongful Termination, the Option, with respect to any
shares that have not yet been exercised, may be exercised in whole or in part at
any time on or after the date of Disability, Retirement or Wrongful Termination,
but not later than the end of the stated term of the Option or as otherwise
provided by the provisions of Section 4.1 of this Option Agreement.

ARTICLE 5
ADJUSTMENTS

Section 5.1 Adjustment of Number of Shares; Option
Price. Subject to the provisions of this Article 5, the Number of Shares and
Option Price of the Class B. Common Stock Subject to the Option shall be
adjusted as follows:

(a) In the event any change is made to the Class B Common
Stock (whether by reason of (i) a merger, consolidation, reorganization or
recapitalization or (ii) a stock dividend, stock split, combination of shares,
exchange of shares or other change in capital structure effected without receipt
of consideration), then, appropriate adjustments shall be made to the number of
shares and Option Price of the Class B Common Stock subject to the Option.

(b) If DH is the surviving entity in any merger or other
business combination then, the Option immediately after such merger or other
business combination, the Option shall be appropriately adjusted to apply and
pertain to the number and class of securities that would be issuable to the
Optionee in the consummation of such merger or business combination if the
Option were exercised immediately prior to such merger or business combination,
and appropriate adjustments shall also be made to the Option Price.

-5-

<PAGE>

ARTICLE 6
MISCELLANEOUS

Section 6.1 No Rights of Stockholder. Optionee shall not
have any of the rights of a stockholder with respect to the shares of Class B
Common Stock that may be issued upon the exercise of the Option until such
shares of Class B Common Stock have been issued to Optionee upon due exercise of
the Option.

Section 6.2 Nontransferability of Option. The Option shall
be nontransferable otherwise than by will or the laws of descent and
distribution. During the lifetime of Optionee, the Option may be exercised only
by Optionee or, during the period Optionee is under a legal disability, by
Optionee's guardian or legal representative.

[Sections 6.3 and 6.4 to be included if Optionee is entering
into Employment Agreement]

Section 6.3 Non-Guarantee of Employment. Nothing in the
Offering, the Main Agreement[s] or this Option Agreement shall be construed as a
contract of employment between DH (or an Affiliate) and Optionee, or as a
contractual right of Optionee to continue in the employ of DH or an Affiliate,
or as a limitation of the right of DH or an Affiliate to discharge Optionee at
any time.

Section 6.4 Withholding Taxes. DH or any Affiliate shall
have the right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Class B Common Stock) due
Optionee the amount of any federal, state or local taxes required by law to be
withheld as the result of the exercise of the Option or the disposition of
shares of Class B Common Stock acquired pursuant to the exercise of the Option.
In lieu of such deduction, DH may require Optionee to make a cash payment to DH
or an Affiliate equal to the amount required to be withheld. If Optionee does
not make such payment when requested, DH may refuse to issue any Class B Common
Stock certificate until arrangements satisfactory to the Company for such
payment have been made.

Section 6.5 Agreement Subject to Charter and By-Laws. This
Agreement is subject to the Charter and By-Laws of DH, and any applicable
federal or state laws, rules or regulations.

Section 6.6 Headings. The headings in this Option Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Option Agreement.

Section 6.7 Notices. All notices and other communications
made or given pursuant to this Option Agreement shall be in writing and shall be
sufficiently made or given if hand delivered or mailed by certified mail,
addressed to Optionee at the address contained in the records of DH or an
Affiliate, or to DH for the attention of its Secretary at its principal office.

-6-

<PAGE>

ARTICLE 7
MISCELLANEOUS

Section 7.1 Entire Agreement; Modification. This Option
Agreement and the Main Agreement[s] contain the entire agreement between the
parties with respect to the subject matter contained herein and may not be
modified, except in a written document signed by each of the parties hereto.

Section 7.2 Counterparts. This Option Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed to be an original and all of which together shall constitute one and the
same instrument.

Section 7.3 Governing Law. This Option Agreement shall be
governed by and construed under the laws of the State of Delaware without regard
to conflicts of law.

Section 7.4 Counterparts. This Option Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Option
Agreement as of the date first above written.

DOCTORS HEALTH, INC.

By:
---------------------------------

OPTIONEE

------------------------------------
[Signature]

------------------------------------
[Type or Print Name of Optionee]

-7-

<PAGE>

EXHIBIT A

Doctors Health, Inc.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117

Gentlemen:

I hereby exercise the Option granted to me on
____________________, 199____ (the "Grant Date"), by Doctors Health, Inc. (the
"Company"), subject to all the terms and provisions set forth in the Option
Agreement executed by me on the Grant Date, and notify you of my desire to
purchase ____________ shares of Class B Common Stock of DH at a price of
$___________ per share pursuant to the exercise of said Option. This will
confirm my understanding with respect to the shares to be issued to me by reason
of this exercise of the Option (the shares to be issued pursuant hereto shall be
collectively referred to hereinafter as the "Shares") as follows:

I am a party to a Letter Agreement with DH (or will be upon
DH's execution of the Letter Agreement executed by me and attached hereto)
pursuant to which I have agreed to certain restrictions on the transferability
of the shares of Class B Common Stock and other matters relating thereto, and
the certificates for the Shares to be issued to me shall contain a legend to
that effect.

Total Amount Enclosed: $__________

Date:________________________ ____________________________________
(Optionee)

Received by Doctors Health, Inc. on

________________________________, 19______

By:_______________________________________

VENABLE, BAETJER AND HOWARD, LLP
Including professional corporations OFFICES IN

1800 Mercantile Bank & Trust Building MARYLAND
Two Hopkins Plaza WASHINGTON, D.C.
Baltimore, Maryland 21201-2978 VIRGINIA
(410) 244-7400, Fax (410) 244-7742

June 2, 1997

Doctors Health System, Inc.
10451 Mill Run Circle
Owings Mills, Maryland 21117

Re: Registration Statement on Form S-1; Prospectus Supplement
No. 8 Dated April 18, 1997 Reg. No. 333-1926)

Ladies and Gentlemen:

We have acted as counsel to Doctors Health System, Inc., a
Maryland corporation (the "Company"), in connection with its offering of 11,048
shares of Class B Common Stock of the Company (the "Shares") pursuant to a
proposed merger of the Lawrence D. Marcus, M.D., P.A. with and into the Company
and to a Registration Statement filed on Form S-1 (Registration No. 333-1926)
("Registration Statement"). On April 18, 1997 the Company filed a prospectus
supplement (the "Prospectus Supplement") to the Prospectus dated January 24,
1997 ("Prospectus") with the Securities and Exchange Commission with respect to
the proposed merger and offering of the Shares.

In that connection, we have examined originals or copies of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion including the Articles of
Incorporation, as amended and the Bylaws of the Company, as amended. We have
assumed without independent verification the genuineness of signatures, the
authenticity of documents, and the conformity with originals of copies.

Based on the foregoing, we are of the opinion that the Shares
being offered by the Company, when issued and sold in accordance with the terms
of the Agreement and Plan of Merger in substantially the same form as is
attached to the Prospectus Supplement, will be validly issued, fully paid and
non-assessable.

We are members of the Bar of the State of Maryland and the
opinions expressed herein are limited to the corporate laws of the State of
Maryland pertaining to matters such as the issuances of stock, but not including
the "securities" or "Blue Sky" law of the State.

<PAGE>

You may rely on this opinion in connection with the sale of
the Shares pursuant to the Registration Statement and related prospectuses. No
other person may rely on this opinion without our prior written consent.

Very truly yours,

/s/ Venable, Baetjer and Howard, LLP

VENABLE, BAETJER AND HOWARD, LLP
Including professional corporations OFFICES IN

1800 Mercantile Bank & Trust Building MARYLAND
Two Hopkins Plaza WASHINGTON, D.C.
Baltimore, Maryland 21201-2978 VIRGINIA
(410) 244-7400, Fax (410) 244-7742

May 6, 1997

Doctors Health System, Inc.
10451 Mill Run Circle
Owings Mills, Maryland 21117

Re: Registration Statement on Form S-1; Prospectus Supplement No. 3,
Dated March 26, 1997; Reg. No. 333-1926)

Ladies and Gentlemen:

We have acted as counsel to Doctors Health System, Inc., a
Maryland corporation (the "Company"), in connection with its offering of 663
shares of Class B Common Stock of the Company (the "Shares") pursuant to a
proposed acquisition of the practice of Dr. Stuart Henochowicz and to a
Registration Statement filed on Form S-1 (Registration No. 333-1926)
("Registration Statement"). On March 26, 1997 the Company filed a prospectus
supplement (the "Prospectus Supplement") to the Prospectus dated January 24,
1997 ("Prospectus") with the Securities and Exchange Commission with respect to
the proposed acquisition and offering of the Shares.

In that connection, we have examined originals or copies of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion including the Articles of
Incorporation, as amended, and the Bylaws, as amended, of the Company. We have
assumed without independent verification the genuineness of signatures, the
authenticity of documents, and the conformity with originals of copies.

Based on the foregoing, we are of the opinion that the Shares
being offered by the Company, when issued in accordance with the terms of the
Primary Care Participation Agreement in substantially the same form as is
attached to the Prospectus Supplement, will be validly issued, fully paid and
non-assessable.

We are members of the Bar of the State of Maryland and the
opinions expressed herein are limited to the corporate laws of the State of
Maryland and the federal laws of the United States of America.

<PAGE>

Very truly yours,

/s/ Venable, Baetjer and Howard, LLP

[Portions of this exhibit are subject to a request for confidential treatment]

Genesis Health Ventures, Inc./Doctors Health, Inc.
Letter of Intent Regarding Blue Cross Eastern Shore

December 1, 1997

Mr. Richard R. Howard
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, PA 19348

Dear Rick:

This letter is intended to provide Genesis Health Ventures, Inc.
("GENESIS") and Doctors Health, Inc. ("DOCTORS HEALTH"), and each of our
respective owners and employees, with a description of our current agreements
regarding Doctors Health's possible participation with Genesis and its
affiliates in Blue Cross Blue Shield of Maryland's Medicare HMO product on the
Eastern Shore.

While this letter summarizes some general agreements that have been
reached regarding this matter to date, we all recognize any transaction that we
might ultimately consummate must be based upon further due diligence, the final
written consent of Blue Cross and more detailed structuring and the advice and
review of our outside advisors. Indeed, we all recognize that final board and
possibly other internal approval of any final transaction will need to be
obtained by each of Genesis and Doctors Health, and that, except for the
obligations regarding good faith negotiations described below, it is not our
intention by signing this letter to create any contractual or other legal
obligations to one another or to any of our physician partners and employees.

We have been working together on a transaction that attempts to: (1)
provide Doctors Health with a new stream of Medicare risk revenues for the next
two or three years; (2) ensure that Doctors Health has a realistic opportunity
to manage such risk revenues at profitable levels; (3) enable Doctors Health to
expand its physician presence on Maryland's Eastern Shore; (4) ensure that
Genesis will be a contractual provider to the Medicare enrollees in any such
Medicare risk products; (5) provide Genesis with an opportunity to expand its
physician presence on the Eastern Shore and; (6) enable Doctors Health to report
the results of the Eastern Shore contract on a consolidated basis on its
financial statements.

We understand that Genesis currently has agreed to accept and manage
all financial and clinical risk for all Blue Cross Medicare risk enrollees
residing on Maryland's Eastern Shore (estimated to be 7,000 enrollees). Under
the contract, Genesis would, in effect, be named as the Medicare network manager
for Blue Cross' entire Eastern Shore Medicare risk enrollees, with full
responsibility to control utilization and referral patterns and to bear all of
the associated financial risks and rewards associated therewith. [Confidential
Treatment Requested].

<PAGE>

The contract will expire on December 31, 1999. Under the proposed
agreement with Blue Cross, Genesis would agree to provide all "required"
services in return for a monthly global premium (before carve outs) of:

[Confidential Treatment Requested]% of AAPCC through 12/31/97
[Confidential Treatment Requested]% of AAPCC, plus a premium,
through 12/31/98
[Confidential Treatment Requested]% of AAPCC, plus a premium,
through 12/31/99

We are assuming that these contracts will contain the [Confidential
Treatment Requested] "carve outs" for [Confidential Treatment Requested].

Genesis wishes to remove or reduce much of the risk associated with
this contract by assigning the contract to a third party and/or engaging the
assistance of a more experienced Medicare risk manager. To this end, Genesis has
agreed to sub-contract the new Medicare Risk Contract/Medicare Management
Agreement in its entirety to Doctors Health, and to have Doctors Health
designated as the Medicare Network Manager for the Blue Cross Medicare product
on the Eastern Shore. We understand that the terms of these assignments and
delegations have been discussed with and approved of in principal by Blue Cross.

As part of the assignment and delegation, Doctors Health would, for
administrative purposes, establish a global "medical budget" in an amount equal
to the amount of the capitation payment made by Genesis to Doctors Health, less
a management fee of [Confidential Treatment Requested]% of premium retained by
Doctors Health for managed care services. The variance in the management fee, as
well as surplus and loss sharing, would be a function of the contract's
profitability (see below).

Doctors Health would retain the role of, and be designated by, Genesis
and Blue Cross as, the exclusive Medicare network manager for the Eastern Shore.
All Blue Cross Medicare risk patients on the Eastern Shore will be covered under
this designation. All physicians, hospitals and other providers on the Eastern
Shore wishing to participate in the Blue Cross Medicare program would agree to
abide by all Doctors Health network management decisions with respect to
utilization, network inclusion, referrals and care and medical management.

The BCBS Assignment Agreement between Doctors Health and Genesis, would
also, among other things:

o obligate Doctors Health to provide managed care contracting,
credentialing, stop loss, and medical and care management services to
the network;

o arrange for a FUNDING OF [Confidential Treatment Requested] BY GENESIS,
until such time as the contract is demonstrating sustained profitability
(see below);

o arrange for a sharing of "surplus" (that amount remaining after payment of
all medical expenses and the [Confidential Treatment Requested]% management
fee), between Doctors Health, and, after sustained profitability, Genesis
(see below);

o designate Doctors Health as "network manager", to create the managed
care provider network and establish all UR and Care management
protocols for the network;

o have Genesis guarantee a combined capitation and premium payment to Doctors
Health in 1998 and 1999 of not less than $[Confidential Treatment Requested]
PMPM (prior to any age/sex adjustments);

o require Genesis and Doctors Health to use reasonable efforts to recruit
Eastern Shore PCPs into Doctors Health on a 3 or 5 year "exclusive"
basis, where possible; and

o be terminable only for good cause.

<PAGE>

Doctors Health's base "management fee" would be at least [Confidential
Treatment Requested]% of the total premium dollars managed. Until Doctors Health
achieves sustained profitability for the entire network (i.e., so long as the
contract remains a loss contract), all losses would be absorbed by Genesis. Once
Doctors Health achieves sustained profitability for the entire network (i.e.,
once the contract becomes profitable), all surplus and all losses (after payment
of all medical expenses, management fees and physician bonuses) would be
[Confidential Treatment Requested]% Genesis and [Confidential Treatment
Requested]% Doctors Health.

Doctors Health and Genesis each agree to use their respective good
faith best efforts to complete due diligence, negotiate final documents, obtain
all board, shareholder and other internal and external approvals (including Blue
Cross), and to consummate the transactions by the end of the year. To this end,
Genesis agrees that during such period it will not solicit offers, negotiate or
enter into any discussions regarding the management of the Blue Cross Medicare
network on the Eastern Shore or the affiliation of any of its controlled
physicians with another person or entity other than Doctors Health.

We thank you for bringing this opportunity to Doctors Health and look
forward to moving ahead quickly. If this letter is acceptable to you and
accurately summarizes the Blue Cross relationship and our discussions to date,
please sign both copies in the space below and return the original to my
attention. Once received, we will initiate our final due diligence and commence
drafting all of the legal documents.

Thank you again, Rick, for your continued guidance, support and
encouragement.

-------------------------------------
Stewart B. Gold
Chief Executive Officer
Doctors Health, Inc.

Accepted and agreed,

- -----------------------------------
Genesis Health Ventures, Inc.

Exhibit 10.61

AMENDMENT NO. 1
TO
NOTE PURCHASE AGREEMENT

THIS AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT (this "Amendment No. 1")
is entered into as of July 15, 1997, by and among Doctors Health System, Inc., a
Maryland corporation (the "Company"), Genesis Holdings, Inc., a Delaware
Corporation (the "Investor"), and Genesis Health Ventures, Inc., a Pennsylvania
corporation ("GHV").

WHEREAS, the Company has entered into a Preferred Stock Purchase
Agreement dated of even date herewith pursuant to which The Beacon Group III -
Focus Value Fund, L.P. will purchase and the Company will sell in the aggregate
3,000,000 shares of a newly created Series D Convertible Preferred Stock for an
aggregate purchase price of $30,000,000 (the "Transaction").

WHEREAS, in connection with the Transaction, the Company, Investor and
GHV desire to amend the Note Purchase Agreement dated as of January 31, 1997
(the "Note Purchase Agreement") to modify, among other things, (i) the
definition of the term "Maturity Date" set forth in the Note Purchase Agreement
and (ii) the method of calculating the Conversion Price (as defined in the Note
Purchase Agreement) under Section 2.5.4 of the Note Purchase Agreement.

NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, Investor and GHV hereby agree as follows:

1. Defined Terms. For purposes of this Amendment No. 1, capitalized
terms not otherwise defined herein shall have the respective meanings set forth
in the Note Purchase Agreement (as amended hereby).

2. Interest. Section 2.3 of the Note Purchase Agreement is hereby
amended and restated in its entirety to read as follows:

"The aggregate unpaid principal amount of each Advance from time to
time outstanding shall bear interest from the date of such Advance
until paid in full, at an annual rate of interest equal to 11%.
Payment of all accrued interest shall be made by the Company on the
Maturity Date by issuing to the Investor the number of shares of
Series C Preferred derived by dividing (x) the aggregate dollar
amount of all such accrued interest by (y) 17.5. The issue price of
such shares of Series C Preferred shall be $17.50 per share."

3. Maturity Date. Section 2.4.1 of the Note Purchase Agreement is
hereby amended and restated in its entirety to read as follows:

"The entire outstanding principal amount of all Advances (the
"Outstanding Principal Amount") shall become absolutely due and
payable by the Company to the Investor on January 31, 1999, unless
Investor exercises its right to convert the Outstanding Principal
Amount into Series C Preferred in accordance with the terms hereof."

4. Conversion Price. Section 2.5.4 of the Note Purchase Agreement is
hereby amended and restated in its entirety to read as follows:

"For purposes hereof, the Conversion Price shall be the purchase
price per share for each issuance of Series C Preferred upon any
conversion pursuant to this Section 2.5 which results in a weighted
average price of all issued and outstanding shares of Series C
Preferred, including the shares issued in such conversion, of $17.50
per share.

5. Actions Prompting Redemption. Section 6.3 of the Note Purchase
Agreement is hereby deleted in its entirety from the Note Purchase Agreement.

6. Use of Proceeds. Section 6.4 of the Note Purchase Agreement is
hereby renumbered Section 6.3 and the second sentence of such renumbered Section
6.4 is hereby amended and restated in its entirety to read as follows:

"Without the approval of the Investor, the Company shall not use the
proceeds of any Advance (i) to redeem the Company's Series A
Preferred Stock, Series B Preferred Stock, Series D Preferred Stock
or any securities of the Company with dividend, redemption or
liquidation rights senior to the dividend, redemption or liquidation
rights of the Series C Preferred or (ii) to pay any dividends or
interest thereon."

7. Acquisition of Specialist Groups. Section 6.5 of the Note Purchase
Agreement is hereby deleted in its entirety from the Note Purchase Agreement.

8. No Material Change to Business Plan. Section 6.6 of the Note
Purchase Agreement is hereby deleted in its entirety from the Note Purchase
Agreement.

9. Reservation of Shares. Section 6.7 of the Note Purchase Agreement is
hereby renumbered Section 6.4

10. Definition of Series D Preferred Stock. The following new definition
of Series D Preferred Stock is hereby added to Exhibit A to the Note Purchase
Agreement:

"Series D Preferred Stock" means the Series D Preferred Stock of the
Company."

11. Execution in Counterparts. This Amendment No. 1 may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all of which taken together shall constitute one and the same instrument.

12. Other Terms Unchanged. The Note Purchase Agreement, as amended by
this Amendment No. 1, shall remain and continue in full force and effect, shall
continue to be binding on the Company, Investor, and GHV and is in all respects
ratified and confirmed hereby.

IN WITNESS WHEREOF, the Company, Investor and GHV have caused this
Amendment No. 1 to Note Purchase Agreement to be duly executed and delivered in
its name and on its behalf as of the date first written above.

COMPANY

DOCTORS HEALTH SYSTEM, INC.

By: /s/ Stewart B. Gold
-------------------------------------
Name: Stewart B. Gold
Title: President

INVESTOR

GENESIS HOLDINGS, INC.

By: /s/ Ira C. Gubernick
-------------------------------------
Name: Ira C. Gubernick
Title: General Counsel-Corporate
& Corporate Secretary

GHV

GENESIS HEALTH VENTURES, INC.

By: /s/ John F. DePodesta
-------------------------------------
Name: John F. DePodesta
Title: Senior Vice President-
Law and Public Policy

Exhibit 10.62

GRID TIME PROMISSORY NOTE
(EURODOLLAR/PRIME RATE)

$11,000,000 October 31, 1997

For value received, Doctors Health, Inc. (the "Borrower") hereby promises to pay
to the order of The Chase Manhattan Bank (the "Bank") at its office at 1211
Avenue of the Americas, New York, New York 10036 for the account of the lending
office of the Bank set forth on the signature page hereof (the "Lending
Office"), the principal amount of Eleven Million Dollars ($11,000,000.00) or, if
less, the principal amount of each loan made by the Bank to the Borrower, on the
maturity date of such Loan which shall be (i) one calendar month after the date
of such Loan, in the case of a Eurodollar Loan, or (ii) the date recorded by the
Bank on its books, in the case of a Prime Loan; each, a "Maturity Date"). In no
event shall any loan hereunder have a maturity date later than October 31, 1998,
such date being the Final Maturity Date of this note. Excepting receipt by the
Bank of notice from the Borrower indicating an alternate selection, the one
month Eurodollar rate shall be utilized.

The Borrower promises to pay interest on the unpaid balance of the principal
amount of each such Loan from and including the date of such Loan to such
Maturity Date at either (i) a floating rate per annum equal to the Prime Rate
(such Loan a "Prime Loan"); or (ii) a fixed rate per annum equal to the Adjusted
Eurodollar Rate applicable to such Loan plus .50% (such Loan a "Eurodollar
Loan"). Any principal not paid when due shall bear interest from and including
the date due until paid in full at a rate per annum equal to the Default Rate.
Interest shall be payable on the relevant Interest Payment Date. Interest shall
be calculated on the basis of a year of 365 or 366 days (in the case of Prime
Loans) and 360 days (in the case of Eurodollar Loans) for the actual number of
days elapsed.

All payments hereunder shall be made in lawful money of the United States and in
immediately available funds. Any extension of time for the payment of the
principal of this Note resulting from the due date falling on a non-Banking Day
shall be included in the computation of interest. The date, amount, type and
Maturity Date of, and the interest rate with respect to, each Loan evidenced
hereby and all payments of principal thereof shall be recorded by the Bank on
its books and, prior to any transfer of this Note (or, at the discretion of the
Bank, at any other time), endorsed by the Bank on Schedule A attached to this
Note. The Bank may (but shall not be obligated to) debit the amount of any
payment under this Note that is not made when due to any deposit account of the
Borrower with the Bank.

The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Note.

1
<PAGE>

1. Definitions. The terms listed below shall be defined as follows:

"Adjusted Eurodollar Rate" shall mean the Eurodollar Rate for such Loan divided
by one minus the Reserve Requirement.

"Banking Day" shall mean any day on which commercial banks are not authorized
or required to close in New York City and whenever such day relates to a
Eurodollar Loan or notice with respect to any Eurodollar Loan, a day on which
dealings in U.S. dollar deposits are also carried out in the London interbank
market.

"Collateral Agreement" shall mean the Collateral Agreement (Direct) dated
October __, 1997, executed by the Borrower in favor of the Bank.

"Default Rate" means, in respect of any amount not paid when due, a rate per
annum during the period commencing on the due date until such amount is paid in
full equal to: (a) if a Prime Loan, a floating rate of 2% above the rate of
interest thereon (including any margin); (b) if such Loan is a Eurodollar Loan,
a fixed rate of 2% above the rate of interest in effect thereon (including any
margin) at the time of default until the Maturity Date thereof and, thereafter,
a floating rate of 2% above the rate of interest for a Prime Loan (including any
margin).

"Eurodollar Rate" shall mean the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) quoted by the Bank at approximately 11:00 a.m. London
time (or as soon thereafter as practicable) two Banking Days prior to the first
day of such Loan for the offering by the Bank to leading banks in the London
interbank market of U.S. dollar deposits having a term comparable to such Loan
and in an amount comparable to the principal amount of such Loan.

"Facility Documents" shall mean this Note, the Collateral Agreement, the line
of credit offer letter dated October 17, 1997 and any updates or renewals
thereof, and any other documents, instruments, or agreements delivered in
connection with this Note or the Collateral Agreement whether by the Borrower or
a Third Party.

"Head Office" shall mean the head office of the Bank, currently located at 270
Park Avenue, New York NY 10017

"Interest Payment Date" shall mean (i) for any Prime Loan hereunder, the last
Banking Day of each calendar month; and (ii) for any Eurodollar Loan, the
Maturity Date of such loan; and (iii) for any Prime Loan or Eurodollar Loan, on
any payment of principal.

"Loan Value" shall mean the advance rate, as determined by the Bank from time to
time, assigned to each type of collateral that the Bank accepts as eligible
collateral.

2
<PAGE>

"Prime Rate" shall mean that rate of interest from time to time announced by the
Bank at the Head Office as its prime commercial lending rate.

"Regulation D" shall mean Regulation D of the Board of Governors of the Federal
Reserve System.

"Regulatory Change" shall mean any change after the date of this Note in United
States federal, state or municipal laws or any foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks, including
the Bank, of or under any United States federal, state or municipal laws or any
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.

"Reserve Requirement" shall mean, for any Eurodollar Loan, the average maximum
rate at which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during the term of such Loan under
Regulation D by member banks of the Federal Reserve System in New York City with
deposits exceeding one billion U.S. dollars against "Eurocurrency liabilities"
(as such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by such member banks by reason of any Regulatory Change against
(x) any category of liabilities which includes deposits by reference to which
the Eurodollar Rate is to be determined or (y) any category of extensions of
credit or other assets which include Eurodollar Loans.

"Third Party" shall mean any party liable with respect to, or otherwise granting
support for, this Note, whether by guaranty, subordination, grant of security or
otherwise.

2. Borrowings; and Prepayments. The Borrower shall give the Bank notice of each
borrowing by 12:00 noon New York City time three (3) days prior to each
requested borrowing of a Eurodollar Loan and by 12:00 noon New York City time on
the date of such borrowing of a Prime Loan; provided that no Eurodollar Loan
shall be in a minimum amount equal to less than $250,000.00. The Borrower shall
have the right to make prepayments of principal at any time or from time to
time; provided that: (a) the Borrower shall give the Bank notice of each
prepayment by 12:00 noon New York City time two (2) days prior to prepayment of
a Eurodollar Loan and by 12:00 noon New York City time on the date of prepayment
of a Prime Loan; (b) Eurodollar Loans may be prepaid prior to their Maturity
Date only if accompanied by payment of the additional compensation calculated in
accordance with paragraph 5 below; (c) prepayments shall be applied to the
installments of principal in the inverse order of their maturities; and (d)
prepayments for Eurodollar Loans shall be in a minimum amount equal to the
lesser of $250,000 or the unpaid principal amount of such Loan.

3
<PAGE>

3. Additional Costs. (a) If as a result of any Regulatory Change which (i)
changes the basis of taxation of any amounts payable to the Bank under the Note
(other than taxes imposed on the overall net income of the Bank or the Lending
Office by the jurisdictions in which the Head Office of the Bank or the Lending
Office are located) or (ii) imposes or modifies any reserve, special deposit,
deposit insurance or assessments, minimum capital, capital ratios or similar
requirements relating to any extension of credit or other assets of, or any
deposits with or other liabilities of the Bank, or (iii) imposes any other
condition affecting this Note, the Bank determines (which determination shall be
conclusive) that the cost to it of making or maintaining a Eurodollar Loan is
increased or any amount received or receivable by the Bank under this Note is
reduced, then the Borrower will pay to the Bank on demand an additional amount
that the Bank determines will compensate it for the increased cost or reduction
in amount.

(b) Without limiting the effect of the foregoing provisions of this Section 3
(but without duplication), the Borrower shall pay to the Bank from time to time
on request such amounts as the Bank may determine to be necessary to compensate
the Bank for any costs which it determines are attributable to the maintenance
by it or any of its affiliates pursuant to any law or regulation of any
jurisdiction or any interpretation, directive or request (whether or not having
the force of law and whether in effect on the date of this Note or thereafter)
of any court or governmental or monetary authority of capital in respect of the
Loans hereunder (such compensation to include, without limitation, an amount
equal to any reduction in return on assets or equity of the Bank to a level
below that which it could have achieved but for such law, regulation,
interpretation, directive or request).

4. Unavailability, Inadequacy or Illegality of Eurodollar Rate. Anything herein
to the contrary notwithstanding, if the Bank determines (which determination
shall be conclusive) that:

(a) quotations of interest rates for the relevant deposits referred to in the
definition of Eurodollar Rate are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining the rate of interest for
the Loan; or

(b) the definition of Eurodollar Rate does not adequately cover the cost to the
Bank of making or maintaining the Eurodollar Loan; or

(c) as a result of any Regulatory Change (or any change in the interpretation
thereof) adopted after the date hereof, the Head Office of the Bank or the
Lending Office is subject to any taxes, reserves, limitations, or other charges,
requirements or restrictions on any claims of such office on non-United States
residents (including, without limitation, claims on non-United States offices or
affiliates of the Bank) or in respect of the excess above a specified level of
such claims; or

(d) it is unlawful for the Bank or the Lending Office to maintain the
Eurodollar Loan at the Eurodollar Rate;

THEN, the Bank shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the existing Eurodollar Loan shall bear
interest as a Prime Loan until the Maturity Date of such Loan and the Bank shall
make no Eurodollar Loans.

4
<PAGE>

5. Certain Compensation. If for any reason there is a principal payment of a
Eurodollar Loan on a date other than its Maturity Date (whether by prepayment,
acceleration or otherwise), the Borrower will pay to the Bank such amount or
amounts as shall be sufficient (in the reasonable opinion of the Bank) to
compensate the Bank for any loss, cost or expense which the Bank determines is
attributable to such payment.

Without limiting the generality of the preceding paragraph, such compensation
shall include an amount equal to the excess, if any of (i) the amount of
interest which otherwise would have accrued on the principal amount so paid for
the period from the date of such payment to the Maturity Date at a rate per
annum equal to the sum of the then applicable Eurodollar Rate (plus any margin)
over (ii) the interest component of the amount the Bank would have bid in the
Eurodollar interbank market for deposits in U.S. dollars of leading banks in
amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by the Bank).

6. Representations. The Borrower represents and warrants that:

(a) none of the proceeds of the Loans shall be used to "purchase" or "carry"
"margin stock" as defined by Regulation U of the Federal Reserve Board;

(b) it is duly organized, validly existing and good standing under the laws of
the jurisdiction of its incorporation or organization, and has all requisite
power and authority to execute, deliver and perform its obligations under the
Facility Documents;

(c) the Facility Documents have been duly executed and delivered by the Borrower
and constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their terms, except as
enforcement hereof and thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
subject to the applicability of general principals of equity;

(d) the execution, delivery and performance by the Borrower of the Facility
Documents and all other documents contemplated hereby or thereby, do not and
will not (i) conflict with or constitute a breach of, or default under, the
articles of incorporation or bylaws, or other organizational documents, of the
Borrower; or (ii) conflict with or constitute a breach of, or default under, or
require any consent under, or result in the creation of any lien, charge or
encumbrance upon the property or assets of the Borrower pursuant to any other
agreement or instrument (other than the pledge of and security interest granted
in the collateral) to which the Borrower is a party or is bound or by which its
properties may be bound or affected; or (iii) violate any provision of any law,
rule, regulation (including, without limitation, Regulation U of the Federal
Reserve Board), order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to the Borrower;

(e) no consent, approval or authorization of, or registration, declaration or
filing with any governmental authority or other person or entity is required as
a condition to or in connection with the due and valid execution, delivery and
performance by Borrower of any Facility Document; and

5
<PAGE>

(f) there are no actions, suits, investigations or proceedings pending or
threatened at law, in equity, in arbitration or by or before any other authority
involving or affecting: (i) the Borrower that, if adversely determined, are
likely to have a material adverse effect on the prospects or condition of
Borrower; (ii) any part of the collateral or any material part of the other
assets or properties of Borrower; or (iii) any of the transactions contemplated
in the Facility Documents. Borrower is not in default with respect to any
judgment, writ, injunction, order, decree or consent of any court or other
judicial authority, which default is likely to have or has had a material
adverse effect on the prospects or condition of Borrower.

Each borrowing request by the Borrower under this Note shall constitute a
representation and warranty that the statements above are true and correct both
on the date of such request and on the date of the borrowing. Each borrowing
request shall also constitute a representation that no event of default under
this Note has occurred and is continuing or would result from such borrowing.

7. Events of Default. If any of the following events of default shall occur and
be continuing:

(a) the Borrower shall fail to pay the principal of, or interest on, this Note,
or any other amount payable under this Note, as and when due and payable;

(b) any representation or warranty made or deemed made by the Borrower in this
Note or by the Borrower in any Facility Document to which it is a party, or in
any certificate, document, opinion or financial or other statement furnished
under or in connection with a Facility Document, shall prove to have been
incorrect in any material respect on or after the date hereof;

(c) the Borrower shall fail to perform or observe any term, covenant or
agreement contained in any Facility Document on its part to be performed or
observed;

(d) the Borrower shall fail to pay when due any of its indebtedness (including,
but not limited to, indebtedness for borrowed money) or any interest or premium
thereon when due (whether by scheduled maturity, acceleration, demand or
otherwise);

(e) the Borrower: (i) shall generally not, or be unable to, or shall admit in
writing its inability to pay its debts as its debts become due; (ii) shall make
an assignment for the benefit of creditors, or petition or apply to any tribunal
for the appointment of a custodian, receiver or trustee for its or a substantial
part of its assets; (iii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation;
(iv) shall have had any such petition filed, or any such proceeding shall have
been commenced against it, in which an adjudication is made or order for relief
is entered or which remains undismissed for a period of 30 days; (v) shall have
had a receiver, custodian or trustee appointed for all or a substantial part of
its property; or (vi) takes any action effectuating, approving or consenting to
any of the events described in clauses (i) through (v);

(f) the Borrower shall become insolvent, dissolve or for any reason cease to be
in existence, or shall merge or consolidate;

(g) the Borrower is involved in a proceeding relating to, or which may result
in, a forfeiture of part or all of the Borrower's or any general or limited
partner's assets:

(h) there is, in the opinion of the Bank, a material adverse change in the
business, prospects or financial condition of the Borrower;

6
<PAGE>

(i) the sum of the Loans outstanding hereunder is at any time greater than the
aggregate Loan Value of the collateral pledged to secure the Loans;

(j) while this Note is in effect, the Borrower fails to furnish audited annual
financial statements of the Borrower including balance sheet, income statement
and statement of cash flow to the Bank within 60 days after the end of the each
fiscal year of the Borrower;

(k) while this Note is in effect, the Borrower fails to furnish interim
statements of the Borrower including balance sheet, income statement, and
statement of cash flow, covering the previous fiscal quarter and year-to-date
results to be furnished to the Bank within 30 days of each fiscal quarter any
Facility Document granting a security interest at any time and for any reason
shall cease to create a valid and perfected first priority security interest in
and to the property purported to be subject to the Facility Document or ceases
to be in full force and effect or is declared null and void, or the validity or
enforceability of any Facility Document is contested by any party to the
Facility Document, or such signatory to the Facility Document denies it has any
further liability or obligation under the Facility Document;

(l) any Facility Document granting a security interest at any time and for any
reason shall cease to create a valid and perfected first priority security
interest in and to the property purported to be subject to the Facility Document
or ceases to be in full force and effect or is declared null and void, or the
validity or enforceability of any Facility Document is contested by any party to
the Facility Document, or such signatory to the Facility Document denies it has
any further liability or obligation under the Facility Document;

THEN, the Bank may, by notice to the Borrower, declare the unpaid principal
amount of this Note, accrued interest thereon and all other amounts payable
under this Note due and payable whereupon the same shall become and be forthwith
due and payable without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower, provided that in
the case of an event of default described in clause (e) above, the unpaid
principal amount of this Note, accrued interest and other amounts payable under
this Note shall be immediately due and payable.

8. Expenses. The Borrower agrees to reimburse the Bank on demand for all costs,
expenses and charges (including, without limitation, fees and charges of
external counsel and costs allocated by internal legal counsel) in connection
with the preparation or modification of the Facility Documents, performance or
enforcement of the Facility Documents, filing and recordation fees, or the
defense or prosecution of any rights of the Bank pursuant to any Facility
Documents.

9. Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of
any New York state or United States federal court sitting in New York City over
any action or proceeding arising out of this Note, and the Borrower hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be held and determined in such New York state or federal court. The Borrower
hereby further irrevocably consents to the service of process in any such action
or proceeding in either of said courts by mailing thereof by the Bank by
registered or certified mail, postage prepaid, to the Borrower at its address
specified on the signature page hereof, or at the Borrower's most recent mailing
address as set forth in the records of the Bank.

7
<PAGE>

The Borrower agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in any other jurisdiction by suit or
proceeding in such state on the basis of an inconvenient forum. Nothing herein
shall affect the right of the Bank to serve legal process in any other manner
permitted by law or affect the right of the Bank to bring any action or
proceeding against the Borrower or its property in the courts of any other
jurisdiction.

10. Waiver of July Trial.

THE BORROWER AND THE BANK WAIVE ANY RIGHT TO JURY TRIAL.

11. Assignments; Participation. The Bank may at any time and from time to time
sell, assign, transfer or otherwise dispose of all of any portion of this Note
or of the Bank's interest herein. The Bank may furnish any information
concerning the Borrower in the possession of the Bank from time to time to
assignees (including prospective assignees). The Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Bank. Notwithstanding any other language in this Note, the Bank may at
any time assign all or any portion of its rights under this Note to a Federal
Reserve Bank as collateral in accordance with Regulation A of the Board of
Governors of the Federal Reserve System and the applicable operating circular of
such Federal Reserve Bank.

12. Miscellaneous. (a) The provisions of this Note are intended to be severable.
If for any reason any provisions of this Note shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions thereof in any
jurisdiction.

(b) No amendment, modification, supplement or waiver of any provision of this
Note nor consent to departure by the Borrower therefrom shall be effective
unless the same shall be in writing and signed by the Borrower and the Bank, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.

(c) No failure on the part of the Bank to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof or preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

(d) As used herein, the term Borrower shall include all signatories hereto, if
more than one. In such event, the obligations, representations and warranties of
the Borrower hereunder shall be joint and several. This Note shall be binding on
the Borrower and its successors and assigns and shall inure to the benefit of
the Bank and its successors and assigns, except that the Borrower may not
delegate any of its obligations hereunder without the prior written consent of
the Bank.

8
<PAGE>

(e) Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Note shall be subject to the limitation that payments of
interest shall not be required to the extent that receipt thereof would be
contrary to provisions of law applicable to the Bank limiting rates of interest
which may be charged or collected by the Bank.

(f) Unless otherwise agreed in writing, notices shall be given to the Bank and
the Borrower at their respective addresses set forth in the signature page of
this Note, or such other address communicated in writing by either such party to
the other. Notices to the Bank shall be effective upon receipt.

(g) The obligations of the Borrower under Sections 3, 5, 8, 9 and 10 hereof
shall survive the repayment of the Loans.

13. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York, provided that such choice of law is not
intended to limit the maximum rate of interest which may be charged or collected
by the Bank hereunder if the Bank may, under the laws applicable to it, charge
or collect interest at a higher rate than is permissible under the laws of said
state.

Lending Office for the Loans: Address for notices to the Bank:
The Chase Manhattan Bank The Chase Manhattan Bank
One Chase Manhattan Plaza 1211 Avenue of the Americas
New York, New York 10081 New York, New York 10036
Attn: John Ferrante

/s/ Stewart B. Gold Address for notices:
- ---------------------------- 10451 Mill Run Circle
Doctors Health, Inc. 10th Floor
By: Stewart B. Gold Owings Mills, Maryland 21117
------------------------
Its CEO

EXHIBIT 11

COMPUTATION OF (LOSS) EARNINGS PER COMMON SHARE

<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
<S><C>
Weighted average of common shares outstanding during the period
(adjusted to reflect two-for-one stock split effective
September 30, 1997) 6,690,794 6,126,410 6,000,000
Net (loss) earnings $(14,800,050) $(6,612,113) $(1,755,685)
Dividends and issuance costs on Series A, B and C Redeemable, 1,382,083 552,531 113,300
Convertible Preferred
Net (loss) earnings as adjusted (16,182,133) (7,164,644) (1,868,985)
Net (loss) earnings per common share $(2.42) $(1.17) $(.31)
</TABLE>

All outstanding options and warrants as of June 30, 1997, 1996 and 1995 have
been excluded as they are anti-dilutive.

Exhibit 23.1

CONSENT
-------

We have issued our reports dated October 3, 1996, except for Note 20, which is
now incorporated into the second paragraph of Note 11, the date of which is
January 13, 1997, accompanying the financial statements and schedules of Doctors
Health, Inc. (formerly Doctors Health System, Inc.) contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."

/s/ Grant Thornton LLP
- ----------------------

Baltimore, Maryland
December 24, 1997

ARTHUR ANDERSEN LLP

Exhibit 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement.

/s/ Arthur Andersen LLP
- -----------------------

Baltimore, Maryland
December 24, 1997

<ARTICLE> 5
<RESTATED>
<CIK> 0001010005
<NAME> Doctors Health, Inc.

<FN>
EPS--Primary and Diluted have been adjusted to reflect a
two-for-one stock split effective September 30, 1997.
</FN>

</TABLE>

<ARTICLE> 5
<RESTATED>
<CIK> 0001010005
<NAME> Doctors Health, Inc.

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,300,210
<SECURITIES> 3,000,000
<RECEIVABLES> 5,491,994
<ALLOWANCES> 193,706
<INVENTORY> 0
<CURRENT-ASSETS> 26,565,546
<PP&E> 5,441,206
<DEPRECIATION> 1,219,965
<TOTAL-ASSETS> 38,705,351
<CURRENT-LIABILITIES> 16,092,323
<BONDS> 0
<COMMON> 69,480
38,081,056
0
<OTHER-SE> (23,648,951)
<TOTAL-LIABILITY-AND-EQUITY> 38,705,351
<SALES> 7,966,401
<TOTAL-REVENUES> 8,262,841
<CGS> 0
<TOTAL-COSTS> 7,201,753
<OTHER-EXPENSES> 3,643,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328,069
<INCOME-PRETAX> (2,910,081)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,910,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,910,081)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)

</TABLE>