PROMEDCO MANAGEMENT CO, S-3/A, 1998-05-07

PROMEDCO MANAGEMENT CO
S-3/A, 1998-05-07
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998

REGISTRATION NO. 333-50105
================================================================================

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

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------

PROMEDCO MANAGEMENT COMPANY

<TABLE>
<S> <C>
DELAWARE 75-2529809
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

------------------
801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(817) 335-5035
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------

H. WAYNE POSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROMEDCO MANAGEMENT COMPANY
801 CHERRY STREET, SUITE 1450
FORT WORTH, TEXAS 76102
(817) 335-5035
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
MICHAEL JOSEPH, ESQ. JEFFREY A. CHAPMAN, ESQ.
DYER ELLIS & JOSEPH VINSON & ELKINS L.L.P.
600 NEW HAMPSHIRE AVE., N.W. 3700 TRAMMELL CROW CENTER
SUITE 1100 2001 ROSS AVENUE
WASHINGTON, DC 20037 DALLAS, TEXAS 75201
(202) 944-3000 (214) 220-7700
</TABLE>

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

If the only securities being registered on this form are being offered
pursuant to dividend or reinvestment plans, please check the following box. [ ]

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

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

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

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

SUBJECT TO COMPLETION, DATED MAY 7, 1998

PROSPECTUS
dated , 1998

6,400,000 SHARES

#ProMedCo logo#

COMMON STOCK

Of the 6,400,000 shares of Common Stock offered hereby, 6,000,000 are being
issued and sold by ProMedCo Management Company ("ProMedCo" or the "Company") and
400,000 are being offered by a stockholder of the Company (the "Selling
Stockholder"). See "Principal and Selling Stockholders."

The Common Stock is traded on the Nasdaq National Market under the symbol
"PMCO." On April 21, 1998, the last reported sale price of the Common Stock was
$14.25 per share. See "Price Range of Common Stock and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS 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.

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

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Per Share........................ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $ $
</TABLE>

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

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

(2) Before deducting expenses payable by the Company estimated at $350,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 960,000 shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less the Underwriting
Discount. If all such shares are purchased, the total Price to Public,
Underwriting Discount, and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting."

The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as, and if delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that
certificates for such shares will be available for delivery at the offices of
Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1998.

PIPER JAFFRAY INC.
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
<PAGE> 3

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used herein, the terms "ProMedCo" and the
"Company" refer to ProMedCo Management Company and its consolidated
subsidiaries. Except as otherwise indicated, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.

THE COMPANY

ProMedCo is a physician practice management company that consolidates its
affiliated physician groups into primary-care-driven multi-specialty networks.
The Company focuses on pre-managed-care secondary markets located principally
outside or adjacent to large metropolitan areas. The Company believes that the
primary care physician increasingly will be the principal point of access to the
healthcare delivery system and will, directly or indirectly, control a growing
percentage of healthcare expenditures, and it therefore affiliates with
physician groups having a primary care orientation. ProMedCo assists in
expanding and integrating the affiliated groups into comprehensive
multi-specialty networks to increase their market presence. The groups expand
through affiliations with additional primary care physicians and specialists and
selective additions of ancillary services. The groups are thus well positioned
to become the physician component of locally developing managed care delivery
systems. In addition to providing operating and expansion capital, the Company
provides its affiliated groups with a broad range of strategic and management
expertise and services.

The Company currently is affiliated with multi-specialty physician groups
in 11 states, comprised of 435 physicians and 115 mid-level providers (primarily
physician assistants and nurse practitioners), and is associated with 540
physicians in independent practice association ("IPA") networks. This includes
Berkshire Physicians & Surgeons, P.C. ("Berkshire"), a multi-specialty physician
group comprised of 79 physicians, 15 mid-level providers and 14 IPA physicians
with which the Company affiliated in April 1998. Since the Company's March 1997
initial public offering, the total number of ProMedCo's providers has grown to
1,090 from 192, its annual physician groups revenue has grown to $265 million
from $65 million (each on a pro forma basis), and the number of states in which
it operates has increased nearly threefold.

The Company has also significantly augmented its managed care contracting,
information systems, and clinical expertise through its December 1997
acquisition of Health Plans, Inc., since renamed PMC Medical Management, Inc.
("PMC"). PMC is a provider of medical management services to capitated physician
networks. Utilizing state-of-the-art information systems, PMC provides a full
range of managed care services to capitated providers, including clinical
quality assessment, credentialing, claims processing and payment, referral and
utilization management, and case management. PMC is currently providing such
services to the Company's associated IPAs and to those of its affiliated groups
that have entered into capitation arrangements, together covering over 100,000
managed care capitated lives. The Company believes that PMC's information
systems and physician network managed care expertise will enable the Company to
effectively manage the medical risk undertaken by the Company and its affiliated
groups under risk-sharing contracts.

When affiliating with a physician group, the Company generally purchases
the group's non-real estate operating assets and enters into a long-term service
agreement with the group in exchange for a combination of Common Stock, cash,
other securities of the Company, and/or assumption of liabilities. Under the
service agreement, the Company receives a fixed percentage (typically 15-20%) of
the physician group's operating income (as defined) and shares between 25% and
50% of the group's surplus or deficit under risk-sharing arrangements pursuant
to capitated managed care contracts. Although the group's physicians retain full
control over the practice of medicine, ProMedCo manages all day-to-day
operations other than the provision of medical services.

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<PAGE> 5

The key elements of the Company's strategy are to (i) continue to penetrate
pre-managed-care markets; (ii) affiliate with primary-care-oriented
multi-specialty groups; (iii) expand its affiliated groups' market presence
through the addition of physicians and selected ancillary services; (iv)
optimize managed care opportunities for its groups; and (v) align the Company's
economic interests with those of its physician partners.

The Company was incorporated in Texas in 1993 and reincorporated in
Delaware in January 1997. Its executive offices are located at 801 Cherry
Street, Suite 1450, Fort Worth, Texas 76102, and its telephone number is (817)
335-5035.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company......................... 6,000,000 shares
Common Stock offered by the Selling Stockholder............. 400,000 shares
Common Stock to be outstanding after the Offering........... 18,906,893 shares(1)
Use of proceeds to the Company.............................. Repayment of debt, acquisitions
and working capital
Nasdaq National Market symbol............................... PMCO
</TABLE>

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

(1) Based upon the number of shares outstanding as of December 31, 1997, as
adjusted to reflect the subsequent issuance of 2,220,126 shares in
connection with prior physician group affiliations. Does not include (i)
654,947 shares to be issued during 1998 in connection with prior physician
group affiliations and the acquisition of PMC, (ii) an estimated 394,444
shares to be issued in 1999 in connection with the Berkshire affiliation (as
defined herein), (iii) 4,366,074 shares reserved for issuance upon exercise
of outstanding options and warrants with a weighted average exercise price
of $3.50 per share, and (iv) an estimated 738,000 shares to be issued upon
conversion of convertible subordinated notes and exercise of options to be
issued in payment of interest on certain notes.

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<PAGE> 6

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
PRO FORMA
AS ADJUSTED
1995 1996 1997 1997(1)(2)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue, net............. $13,188,405 $47,036,801 $127,716,775 $264,851,063
Less: amounts retained by physician
groups.................................. 5,344,688 20,791,605 47,075,240 83,559,854
----------- ----------- ------------ ------------
Management fee revenue.................... 7,843,717 26,245,196 80,641,535 181,291,209
Net income (loss)......................... $(1,251,514) $(1,570,853) $ 5,473,184 $ 8,619,152
=========== =========== ============ ============
Net earnings (loss) per share:
Basic................................ $ (0.16) $ (0.20) $ 0.48 $ 0.46
Diluted.............................. $ (0.16) $ (0.20) $ 0.38 $ 0.40
Weighted average number of common shares
outstanding:
Basic................................ 7,871,746 7,870,908 11,375,662 18,595,099
Diluted.............................. 7,871,746 7,870,908 14,224,198 21,443,635
OTHER DATA (AT END OF PERIOD)(3):
Affiliated physicians..................... 51 146 354 435
Mid-level providers....................... 17 46 100 115
IPA physicians............................ -- -- 528 540
----------- ----------- ------------ ------------
Total providers........................... 68 192 982 1,090
=========== =========== ============ ============
Number of states.......................... 2 4 10 11
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(4) ADJUSTED(5)
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 15,760,920 $ 16,945,962 $ 50,207,962
Working capital.................................. 20,516,672 20,294,852 53,556,852
Total assets..................................... 162,966,150 199,665,255 232,927,255
Long-term debt, less current maturities.......... 49,845,795 73,488,313 24,450,313
Total stockholders' equity....................... 80,618,737 86,468,737 168,768,737
</TABLE>

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

(1) Gives effect to the 1997 Affiliations (as defined herein), the Christie
affiliation (as defined herein) and the Berkshire affiliation as if they had
been completed on January 1, 1997. See "Pro Forma Consolidated Financial
Statements."

(2) Adjusted to give effect to the sale of 6,000,000 shares of Common Stock
offered by the Company hereby, at an assumed offering price of $14.50 per
share, and the application of the estimated net proceeds therefrom, assuming
the Offering was completed on January 1, 1997. See "Use of Proceeds."

(3) Other data for 1995 and 1996 include one group which was acquired in 1997
and was accounted for as a pooling of interests.

(4) Gives effect to the Berkshire affiliation as if it had been completed on
December 31, 1997.

(5) Adjusted to give effect to the sale of 6,000,000 shares of Common Stock
offered by the Company hereby, at an assumed offering price of $14.50 per
share, and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."

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<PAGE> 7

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following should be considered carefully in evaluating an investment in the
Common Stock offered hereby.

RISKS ASSOCIATED WITH GROWTH STRATEGY

The Company's strategy involves growth through affiliation with physician
groups and the expansion of their practices. The Company is subject to various
risks associated with this strategy, including the risks that the Company will
be unable to identify and recruit suitable affiliation candidates, successfully
expand and manage the practices of the groups with which it affiliates, or
successfully integrate such groups into its existing operations, including its
management information systems. The Company's growth is dependent on its ability
to affiliate with physicians, to manage and control costs, and to realize
economies of scale. There can be no assurance that the Company will be able to
achieve and manage its planned growth or that suitable physician groups will
continue to be available for affiliation upon terms satisfactory to the Company,
if at all. In addition, there can be no assurance that the Company will be able
to continue to attract and retain a sufficient number of qualified physicians
and other healthcare professionals to continue to expand its operations or
otherwise to maintain an adequate infrastructure to support continued growth.
See "Business."

LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING

Implementation of the Company's growth strategy requires substantial
capital resources. Such resources will be needed to acquire the assets of
additional physician groups and for the effective integration, operation, and
expansion of affiliated groups. The Company expects that its capital
requirements over the next several years will substantially exceed capital
generated from operations, the net proceeds of this offering (the "Offering"),
and borrowings available under its current credit facility. To finance its
capital requirements, the Company intends from time to time to issue additional
equity securities and incur additional debt. A greater amount of debt or
additional equity financing could be required to the extent that the Company's
Common Stock fails to maintain a market value sufficient to warrant its use in
future affiliations or to the extent that physician groups are unwilling to
accept Common Stock in exchange for their operating assets. There can be no
assurance that the Company will be able to obtain additional required capital on
satisfactory terms. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

CONCENTRATION OF REVENUE

The Company's management fee revenue for the year ended December 31, 1997
was derived from 13 physician groups, of which four accounted for 10% or more of
such revenue. While the Company's service agreements are for terms of 40 years
and may be terminated only for cause, a termination or significant deterioration
of the Company's relationship with one or more of its affiliated physician
groups could have a material adverse effect upon the Company. In addition, each
of the Company's affiliated physician groups operates within a limited
geographic area, and a deterioration of economic or other conditions within such
area could have a material adverse effect upon the group. Such a result, as well
as any other deterioration in the financial condition of any of the affiliated
physician groups, could also have a material adverse effect on the Company. See
"Business."

GOVERNMENT REGULATION

Federal and state laws regulate the healthcare industry and the
relationships among physicians and other providers of healthcare services.

Medicare and Medicaid Fraud and Abuse. The fraud and abuse provisions of
the Medicare and Medicaid statutes prohibit the payment or receipt of any
remuneration for the referral of Medicare or Medicaid patients or for
recommendations, leasing, arranging, ordering, or purchasing of Medicare- or
Medicaid-covered services and impose significant penalties for false or improper
billing for physician services. In addition, these laws impose restrictions on
physicians' referrals for certain designated health services to
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entities with which they have financial relationships. Violations of these laws
may result in substantial civil or criminal penalties to individuals or
entities, including exclusion from participation in the Medicare and Medicaid
programs. Such exclusion or penalties, if applied to the Company's affiliated
physicians, could have a material adverse effect upon the Company. See
"Business -- Government Regulation."

State Regulation. The laws of many states, including those in which most
of the Company's affiliated physician groups are located, prohibit non-physician
entities from practicing medicine. In addition to prohibiting the practice of
medicine, numerous states limit the ability of non-physicians to receive
physician practice revenues. In most states, such so-called "fee-splitting" laws
provide that the laws are violated only if a physician shares fees with a
referral source. The Florida Board of Medicine, however, has recently
interpreted the Florida fee-splitting law very broadly so as arguably to include
the payment of any percentage-based management fee, even to a management company
that does not refer patients to the managed group. If not reversed, this
decision could require modification of the service agreements covering the
Company's affiliated groups in Florida. Although the Company believes its
operations as currently conducted are in material compliance with existing
applicable laws, there can be no assurance that the Company's contractual
arrangements with affiliated physicians will not be successfully challenged as
constituting fee splitting or the unlicensed practice of medicine or that the
enforceability of such arrangements will not be limited. There can be no
assurance that review of the business of the Company and its affiliates by
courts or regulatory authorities will not result in a determination that could
adversely affect their operations or that changes in the healthcare regulatory
environment will not restrict the Company's existing operations or expansion. In
the event that any legislature, regulatory authority or court limits or
prohibits the Company from carrying on its business or from expanding the
operations of the Company to certain jurisdictions, structural and
organizational modifications of the Company's arrangements may be required,
which could have a material adverse effect on the Company. See
"Business -- Government Regulation."

Reform Initiatives. There have been numerous initiatives at the federal
and state levels for comprehensive reforms affecting the availability of and
payment for healthcare. The Company believes that such initiatives will continue
during the foreseeable future. Certain reforms previously proposed could, if
adopted, have a material adverse effect on the Company. See
"Business -- Government Regulation."

RELIANCE ON MEDICAL SERVICE PROVIDERS

Each of the Company's affiliated physician groups enters into employment
agreements with its physicians. Such agreements generally are for an initial
term of five years. Although the Company, in conjunction with the affiliated
physician groups, will endeavor to extend such contracts, in the event a
significant number of physicians terminate their relationships with the
Company's affiliated physician groups at the expiration of their employment
agreements or otherwise, the Company could be adversely affected. See
"Business -- Affiliation Structure."

CHANGES IN BASIS OF PAYMENT FOR HEALTHCARE SERVICES

The Company derives most of its revenue from its affiliated physician
groups. Substantially all of the revenue of the affiliated groups is derived
from third-party payors. The Company estimates that approximately 25% of the net
physician groups revenue is currently derived from government-sponsored
healthcare programs (principally the Medicare and Medicaid programs). The
healthcare industry is experiencing a trend toward cost containment, as
government and other third-party payors seek to impose lower reimbursement and
utilization rates upon providers and negotiate reduced payment schedules with
them. The Company believes that this trend will continue to result in a
reduction in per-patient revenue from historical levels. Further reductions in
payments to physicians or other changes in reimbursement for healthcare services
could have a material adverse effect on the Company. See "Business -- Government
Regulation."

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS

A significant part of the Company's growth strategy involves assisting its
affiliated physician groups in obtaining capitated managed care contracts and
managing the medical risk associated with such contracts. In
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<PAGE> 9

some instances the Company itself enters into such contracts. Such capitated
managed care contracts typically are with health maintenance organizations
("HMOs"). Under such contracts the physician group or the Company accepts a
pre-determined amount per member per month, referred to as a "capitation"
payment, in exchange for providing all necessary covered services to the members
covered by the contract, thus shifting much of the risk of providing care from
the payor to the physician group or the Company. Such an arrangement results in
a greater predictability of revenue, but exposes the physician group or the
Company to the risk of fluctuations in the costs of providing the services. To
the extent that patients covered by such contracts require more frequent or
extensive care than is anticipated, operating margins may be reduced and the
revenue derived from such contracts may be insufficient to cover the costs of
the services provided. Because the distribution to the Company is increased or
decreased by a percentage of the groups' surplus or deficit under risk-sharing
arrangements pursuant to capitated managed care contracts, the Company assumes
some of the groups' risks under such contracts entered into by the groups.
Accordingly, any reduction of operating margins or incurrence of losses from
capitated managed care contracts could have a material adverse effect on the
Company. Although the Company maintains stop-loss insurance with respect to its
and its affiliated groups' risk-sharing contracts, there can be no assurance
that such insurance will cover all of the Company's risk under these contracts.

Recently, many providers have experienced pricing pressures in negotiating
with HMOs. In addition, employer groups are becoming increasingly successful in
negotiating reductions in the growth of premiums paid for their employees'
health insurance, which tends to depress the reimbursement for healthcare
services. At the same time, employer groups are demanding higher accountability
from payors and providers of healthcare services with respect to accessibility,
quality and service. If these trends continue, the cost of providing physician
services could increase while the level of reimbursement could grow at a lower
rate or even decrease. Although the Company has demonstrated experience in
negotiating managed care contracts and managing medical risk assumed under such
contracts, there can be no assurance that the Company will be able to negotiate
satisfactory risk-sharing or capitated arrangements or be able to manage such
medical risk successfully. See "Business."

RISK OF APPLICABILITY OF INSURANCE REGULATIONS

The Company and its affiliated groups intend to continue to enter into
contracts with managed care organizations ("MCOs"), such as HMOs, whereby the
Company and its affiliated groups assume risk in connection with providing
healthcare services under capitation arrangements. If the Company or its
affiliated groups are considered to be in the business of insurance as a result
of entering into such risk-sharing arrangements, they could become subject to a
variety of regulatory and licensing requirements applicable to insurance
companies or HMOs, which could have a material adverse effect upon the Company.

LIMITED HISTORY OF PROFITABILITY

The Company has operated only since December 1994. It has grown principally
through acquisitions and is pursuing a strategy of growth. For the years ended
December 31, 1995 and 1996, the Company incurred net losses of $1.3 million and
$1.6 million, respectively. Although it reported net income of $5.5 million for
the year ended December 31, 1997, there can be no assurance that the Company
will continue to be profitable. In addition, the Company may experience
significant quarter-to-quarter variations in operating results. The Company's
management fee revenue is dependent upon the physician groups' net medical
revenues less certain contractually agreed-upon clinic expenses, including
non-physician clinic salaries and benefits, rent, insurance, interest, and other
direct clinic expenses. In addition, the distribution to the Company is
increased or decreased by a percentage of the physician groups' surplus or
deficit under risk-sharing arrangements pursuant to capitated managed care
contracts. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

POSSIBLE EXPOSURE TO PROFESSIONAL LIABILITY

In recent years, physicians, hospitals, and other participants in the
healthcare industry have become subject to an increasing number of lawsuits
alleging medical malpractice and related legal theories. Many of
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<PAGE> 10

these lawsuits involve large claims and substantial defense costs. In addition,
through its employment of non-physician healthcare personnel, the Company could
be named in actions involving care provided by the affiliated physician groups
assisted by such personnel. The Company maintains professional malpractice and
general liability insurance. In addition, the Company's service agreements
require affiliated physicians to maintain professional liability insurance
coverage of the practice and of each employee and agent of the practice. The
Company generally is a named insured under such policies and is indemnified
under each of the service agreements by the physician groups for liabilities
resulting from the performance of medical services. Certain types of risks and
liabilities are not covered by insurance, however, and there can be no assurance
that coverage will continue to be available upon terms satisfactory to the
Company or that the coverage will be adequate to cover losses. Malpractice
insurance, moreover, can be expensive and varies from state to state. Successful
malpractice claims asserted against the physician groups or the Company could
have a material adverse effect on the Company. See "Business -- Insurance."

RISKS RELATED TO INTANGIBLE ASSETS

As a result of the Company's various acquisition transactions, intangible
assets (net of accumulated amortization) of approximately $77.2 million have
been recorded on the Company's balance sheet at December 31, 1997 ($105.6
million on a pro forma basis at December 31, 1997). Using a composite average
life of 30 years for the service agreements, amortization expense will be
approximately $1.7 million per year ($2.7 million per year on a pro forma
basis). Acquisitions that result in the recognition of intangible assets will
cause amortization expense further to increase. A substantial portion of the
amortization generated by these intangible assets is not deductible for tax
purposes. Although the Company's net unamortized balance of intangible assets
acquired and anticipated to be acquired was not considered to be impaired as of
December 31, 1997, any future determination that a significant impairment has
occurred would require the write-off of the impaired portion of unamortized
intangible assets, which could have a material adverse effect on the Company's
results of operations. See Note 2 of Notes to Consolidated Financial Statements.

COMPETITION

The physician practice management industry is highly competitive. The
Company is subject to significant competition both in affiliating with physician
groups and in seeking managed care contracts on behalf of its affiliated groups.
Its competitors include hospitals, MCOs and other physician practice management
companies. In comparison with the Company, many of its competitors are larger
and have substantially greater resources, provide a wider variety of services
and have longer established relationships with purchasers of such services.
There can be no assurance that the Company will be able to compete effectively,
that additional competitors will not enter the market, or that such competition
will not make it more difficult to enter into affiliations with physician groups
on terms beneficial to the Company.

The Company also experiences competition in the recruitment and retention
of qualified physicians and other healthcare professionals on behalf of its
affiliated physician groups. There can be no assurance that the Company will be
able to recruit or retain a sufficient number of qualified physicians and other
healthcare professionals to continue to expand its operations.

POSSIBLE VOLATILITY OF PRICE

The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, material announcements by the Company, governmental
regulatory action, general conditions in the healthcare industry, or other
events or factors, many of which are beyond the Company's control. In addition,
the stock market has experienced extreme price and volume fluctuations, which
have particularly affected the market prices of many healthcare services
companies and which have often been unrelated to the operating performance of
such companies. The Company's operating results in future quarters may be below
the expectations of securities analysts and investors. In such event, the price
of the Common Stock would likely decline, perhaps substantially. See
"Underwriting."

9
<PAGE> 11

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and
certain provisions of the Delaware General Corporation Law may make it difficult
to change control of the Company and replace incumbent management. For example,
the Certificate of Incorporation provides for a staggered Board of Directors and
permits the Board of Directors, without stockholder approval, to issue
additional shares of Common Stock or establish one or more classes or series of
Preferred Stock having such number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as the Board of Directors may determine. In addition, the Company
has a stockholder rights plan that could further discourage attempts to acquire
control of the Company. See "Management."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock and could impair the future
ability of the Company to raise capital through the sale of its equity
securities. The Company is unable to predict the effect, if any, that future
sales of Common Stock or the availability of Common Stock for sale may have on
the market price of the Common Stock prevailing from time to time. Certain
existing stockholders have the right to require the Company to register their
Common Stock from time to time. See "Shares Eligible for Future Sale."

DIVIDENDS

The Company has never paid cash dividends on its Common Stock and does not
currently intend to pay cash dividends. It is not likely that any cash dividends
will be paid in the foreseeable future. See "Price Range of Common Stock and
Dividend Policy."

IMPACT OF YEAR 2000

The Company continues to assess the impact of the Year 2000 issue on its
information systems and operations. With disparate systems in place at the
Company's various affiliated groups, the assessment process also extends to each
new affiliation. Noncompliant practice management systems could be acquired in a
new affiliation, which would require system remediation or replacement. Given
these issues, the Company is unable to estimate the costs of the remediation or
replacements that may be required. With its current strategy of replacing
inadequate practice management systems, however, the Company does not believe
that Year 2000 issues will cause a conversion to be more difficult than a
typical system conversion. If the issues prove more significant than
anticipated, or if noncompliant third-party systems "reinfect" the Company's
Year 2000 compliant systems, there could be a material adverse impact on the
Company.

FORWARD-LOOKING STATEMENTS

This Prospectus includes certain forward-looking statements about
anticipated results, including statements as to operating results, liquidity and
capital resources, and negotiations with and acquisitions of additional
physician groups. Such forward-looking statements are based upon internal
estimates, which are subject to change because they reflect preliminary
information and management assumptions, and a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the forward-looking
statements. The factors that could cause actual results or outcomes to differ
from such expectations include the extent of the Company's success in (i)
consummating affiliations with additional physician groups, (ii) negotiating
managed care contracts and managing the medical risk assumed thereunder, (iii)
obtaining additional financing upon terms acceptable to the Company, and (iv)
negotiating favorable reimbursement rates with third-party payors, along with
the uncertainties and other factors described herein and in the Company's public
filings and reports.

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting expenses
payable by the Company and assuming an offering price of $14.50 per share, will
be approximately $82.3 million ($95.5 million if the Underwriters'
over-allotment option is exercised). The Company intends to use approximately
$55.0 million of such proceeds to repay indebtedness under its revolving credit
agreement (the "Credit Facility") and the balance to finance future affiliations
with physician groups, for working capital and for other general corporate
purposes. Pending application of the net proceeds, the Company intends to invest
the net proceeds in short-term, interest-bearing securities. For information
concerning the terms of the Credit Facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

While the Company is continually seeking additional physician groups with
which to affiliate and is currently engaged in negotiations with several such
groups, it currently has no agreement or understanding to affiliate with any
group. There can be no assurance that these negotiations will culminate in
binding agreements or that these or any other such affiliations will occur. See
"Risk Factors -- Risks Associated with Growth Strategy."

The Company will not receive any of the proceeds of the shares being sold
by the Selling Stockholder.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Since March 12, 1997, the Common Stock has been traded on the Nasdaq
National Market under the symbol "PMCO." The following table sets forth the high
and low sale prices per share of the Common Stock as reported by the Nasdaq
National Market for each calendar quarter since the commencement of trading.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
First Quarter (commencing March 12)....................... $ 9.25 $ 9.00
Second Quarter............................................ 9.25 6.00
Third Quarter............................................. 11.00 6.75
Fourth Quarter............................................ 11.63 8.00
1998
First Quarter............................................. 16.25 8.75
Second Quarter (through April 21)......................... 15.88 13.50
</TABLE>

The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings to finance the growth and development
of its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements, and earnings of the Company, as well
as other factors the Board of Directors may deem relevant. In addition, the
Company is currently restricted under the terms of its Credit Facility from
paying any dividends to stockholders without the prior written consent of the
lenders. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

11
<PAGE> 13

CAPITALIZATION

The following table sets forth the capitalization of the Company at
December 31, 1997 (i) on a pro forma basis to give effect to the Berkshire
affiliation and (ii) as further adjusted to reflect the sale by the Company of
the Common Stock offered hereby, assuming a public offering price of $14.50 per
share and after deducting the applicable underwriting discount and estimated
expenses payable by the Company, and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." See "Pro Forma
Consolidated Financial Information."

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Current maturities of long-term debt(1).......... $ 9,551,669 $ 9,551,669 $ 9,551,669
============ ============ ============
Long-term debt, net of current maturities(1)..... $ 49,845,795 $ 73,488,313 $ 24,450,313
Stockholders' equity:
Preferred Stock, $0.01 par value; 20,000,000
shares authorized; no shares issued and
outstanding................................. -- -- --
Common Stock, $0.01 par value; 50,000,000
shares authorized; 10,686,767 shares issued
and outstanding; 11,081,211 shares issued
and outstanding pro forma and 17,081,211
shares issued and outstanding pro forma as
adjusted(2)................................. 106,868 110,812 170,812
Additional paid-in-capital..................... 58,946,838 64,792,894 147,032,894
Common Stock to be issued; 2,875,073 shares.... 20,121,059 20,121,059 20,121,059
Stockholder notes receivable................... (369,665) (369,665) (369,665)
Retained earnings.............................. 1,813,637 1,813,637 1,813,637
------------ ------------ ------------
Total stockholders' equity............. 80,618,737 86,468,737 168,768,737
------------ ------------ ------------
Total capitalization................... $130,464,532 $159,957,050 $193,219,050
============ ============ ============
</TABLE>

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

(1) See Note 7 to Consolidated Financial Statements for information concerning
long-term debt and capital lease obligations.

(2) Excludes 4,366,074 shares reserved for issuance upon exercise of outstanding
options and warrants, at a weighted average exercise price of $3.50 per
share, and an estimated 738,000 shares to be issued upon conversion of
convertible subordinated notes and exercise of options to be issued in
payment of interest on certain notes.

12
<PAGE> 14

SELECTED FINANCIAL DATA

The selected financial data presented below should be read in conjunction
with the consolidated financial statements and the notes thereto of the Company
and, the financial statements and notes thereto of Southwest Clinic Practices,
IMG, Inc., Health Plans, Inc., Berkshire Physicians & Surgeons, P.C., Pro Forma
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus or incorporated herein by reference. The selected unaudited pro forma
as adjusted statement of operations data for the year ended December 31, 1997
give effect to the affiliations with Naples Medical Center, Abilene Diagnostic
Clinic, Intercoastal Medical Group, Beacon Medical Group, Cowley Medical
Associates, Thomas-Spann Clinic, Healthstar, Inc. and Health Plans, Inc.
completed between March and December 1997 (the "1997 Affiliations"), the
affiliation with Christie Clinic Association (the "Christie affiliation"), the
affiliation with Berkshire Physicians & Surgeons, P.C. (the "Berkshire
affiliation") and the Offering as if they had been completed on January 1, 1997.
The selected unaudited pro forma balance sheet data as of December 31, 1997 give
effect to the Berkshire affiliation, and the selected unaudited pro forma as
adjusted balance sheet data as of December 31, 1997 give further effect to the
Offering, as if they had been completed on December 31, 1997. Such pro forma
data are presented for illustrative purposes only and do not purport to
represent what the Company's results would have been if such events had occurred
at the dates indicated, nor do such data purport to project the financial
position or results of operations for any future period or as of any future
date.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JULY 1, 1994 ------------------------------------------------------------
(INCEPTION) TO PRO FORMA
DECEMBER 31, AS ADJUSTED(1)(2)
1994 1995 1996 1997 1997
-------------- ----------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue, net..................... $4,040,924 $13,188,405 $47,036,801 $127,716,775 $264,851,063
Less: amounts retained by physician groups........ 1,781,775 5,344,688 20,791,605 47,075,240 83,559,854
---------- ----------- ----------- ------------ ------------
Management fee revenue............................ 2,259,149 7,843,717 26,245,196 80,641,535 181,291,209
Operating expenses:
Clinic salaries and benefits.................. 1,689,007 4,249,813 11,694,973 29,859,718 62,020,240
Clinic rent and lease expense................. 242,235 708,020 2,670,138 7,016,261 13,763,194
Clinic supplies............................... 261,811 624,370 3,213,443 9,667,085 19,625,269
Purchased medical services.................... 170,909 781,000 969,650 7,946,989 43,325,896
Other clinic costs............................ 183,158 1,759,013 5,018,876 10,883,588 19,905,051
General corporate expenses.................... 172,462 802,980 2,633,585 3,793,552 3,793,552
Depreciation and amortization................. 64,170 203,482 723,641 2,942,604 5,768,832
Interest expense.............................. 6,659 20,958 209,474 456,175 (812,684)
Merger costs.................................. -- -- 682,269 -- --
---------- ----------- ----------- ------------ ------------
2,790,411 9,149,636 27,816,049 72,565,972 167,389,350
---------- ----------- ----------- ------------ ------------
Income (loss) before provision for income taxes... (531,262) (1,305,919) (1,570,853) 8,075,563 13,901,859
Provision for income taxes........................ 12,566 (54,405) -- 2,602,379 5,282,707
---------- ----------- ----------- ------------ ------------
Net income (loss)................................. $ (543,828) $(1,251,514) $(1,570,853) $ 5,473,184 $ 8,619,152
========== =========== =========== ============ ============
Net earnings (loss) per share:
Basic......................................... $ (0.07) $ (0.16) $ (0.20) $ 0.48 $ 0.46
========== =========== =========== ============ ============
Diluted....................................... $ (0.07) $ (0.16) $ (0.20) $ 0.38 $ 0.40
========== =========== =========== ============ ============
Weighted average number of common shares
outstanding:
Basic......................................... 7,871,746 7,871,746 7,870,908 11,375,662 18,595,099
========== =========== =========== ============ ============
Diluted....................................... 7,871,746 7,871,746 7,870,908 14,224,198 21,443,635
========== =========== =========== ============ ============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(4)
------------ ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 15,760,920 $ 16,945,962 $ 50,207,962
Working capital............................................. 20,516,672 20,294,852 53,556,852
Total assets................................................ 162,966,150 199,665,255 232,927,255
Long-term debt, less current maturities..................... 49,845,795 73,488,313 24,450,313
Total stockholders' equity.................................. 80,618,737 86,468,737 168,768,737
</TABLE>

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

(1) Gives effect to the 1997 Affiliations, the Christie affiliation and the
Berkshire affiliation as if they had been completed on January 1, 1997.

(2) Adjusted to give effect to the sale of 6,000,000 shares of Common Stock
offered hereby, at an assumed offering price of $14.50 per share, and the
application of the estimated net proceeds therefrom, assuming the Offering
was completed on January 1, 1997. See "Use of Proceeds."

(3) Gives effect to the Berkshire affiliation as if it had been completed on
December 31, 1997.

(4) Adjusted to give effect to the sale of 6,000,000 shares of Common Stock
offered hereby, at an assumed offering price of $14.50 per share, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."

13
<PAGE> 15

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

OVERVIEW

ProMedCo is a physician practice management company that consolidates its
affiliated physician groups into primary-care-driven multi-specialty networks.
ProMedCo commenced operations in December 1994 and affiliated with its initial
physician group in June 1995. The Company's rapid growth during 1996 and 1997
has resulted primarily from its affiliation with additional physician groups.
The Company also contracts with HMOs and other third-party payors to arrange for
the provision of comprehensive health services to their members on a capitation
basis.

When affiliating with a physician group, the Company generally acquires at
fair market value the group's non-real estate operating assets and enters into a
40-year service agreement with the group in exchange for a combination of Common
Stock, cash, other securities of the Company, and/or the assumption of certain
liabilities. The Company is continually seeking additional physician groups with
which to affiliate and at any time is typically engaged in negotiations with
several such groups.

Physician groups revenue represents the revenue of the physician groups,
reported at the estimated realizable amounts from patients, third-party payors
and others for services rendered, net of contractual and other adjustments, and
under capitated managed care contracts. Management fee revenue represents
physician groups revenue less amounts retained by physician groups. The amounts
retained by physician groups (typically 80-85% of the physician group operating
income) represent amounts paid to the physicians pursuant to the service
agreements between the Company and the physician groups. Under the service
agreements, the Company provides each physician group with the facilities and
equipment used in its medical practice, assumes responsibility for the
management of the non-medical operations of the practice, and employs
substantially all of the non-physician personnel utilized by the group. The
Company's management fee revenue is dependent upon the operating income of the
physician groups. Physician group operating income is defined in the service
agreements as the physician group's net medical revenues less certain
contractually agreed-upon clinic expenses, including non-physician clinic
salaries and benefits, rent, insurance, interest, and other direct clinic
expenses. The amount of the physician groups' revenue retained and paid to the
physician groups primarily consists of the cost of the affiliated physicians'
services. The remaining amount of the physician group operating income
(typically 15-20%) and an amount equal to 100% of the clinic expenses are
reflected as management fee revenue earned by the Company. The distribution to
the Company is increased or decreased by a percentage (typically ranging from
25% to 50%) of the groups' surplus or deficit under capitated managed care
contracts.

Operating expenses consist of the expenses incurred by the Company in
fulfilling its obligations under the service agreements. These expenses are the
same as the operating costs and expenses that would have been incurred by the
affiliated groups, including non-physician salaries, employee benefits, medical
supplies, purchased medical services, building rent, equipment leases,
malpractice insurance premiums, management information systems, and other
expenses related to clinic operations.

Because of the significance of individual group affiliations and the level
of capitation and other revenues, clinic cost expense ratios and operating
margins will vary with each new affiliation. The mix of physician specialties
and ancillary services affects the level of clinic salaries and benefits and
clinic supplies, and the margins on capitated revenues generally are lower than
those on fee-for-service revenues (although capitated revenues can provide
incremental profit with little or no additional capital investment). Generally,
primary care and office-based physician practices require a higher number of
support staff than specialty care or hospital-based practices. Clinic rent and
lease expense as a percentage of physician groups revenue will vary based on the
size of each affiliated group's offices and the current market rental rate for
medical office space in the particular geographic markets. Capitation
arrangements may require the purchase of medical services that are not provided
by the group accepting capitation. These purchased medical services may include
hospitalization, emergency room care and other technical or specialty services.
The ratio of purchased medical services to associated capitation revenues will
vary depending upon the terms of the individual contracts and
14
<PAGE> 16

the amount of services that can be provided by the particular group. Other
clinic costs will vary as a percentage of physician groups revenue based on
regional cost differences and the Company's ability to implement operational
efficiencies and negotiate more favorable purchasing arrangements.

In addition to the clinic expenses discussed above, the Company incurs
personnel and administrative expenses in connection with maintaining a corporate
office function that provides management, administrative, marketing and
acquisition services to the affiliated groups. The Company's profitability
depends on, among other things, increasing market share, expanding healthcare
services, enhancing operating efficiencies, and developing favorable contractual
relationships with payors.

For the year ended December 31, 1997, four of the Company's affiliated
physician groups each contributed 10% or more of the Company's management fee
revenue. Clinics in Champaign, Illinois; Temple, Texas; Naples, Florida; and
Abilene, Texas represented approximately 18%, 16%, 14%, and 11% of management
fee revenue, respectively.

In addition to managing its affiliated physician groups, the Company,
through PMC, manages an IPA in Maine and New Hampshire. Revenues from this IPA
consist of capitation and risk pool payments under managed care contracts with
HMOs. Such revenues are currently included in physician groups revenue. Related
operating expenses consist of the cost of providing the medical services
required by the HMO members covered by the contracts, and are reflected
primarily as purchased medical services.

RESULTS OF OPERATIONS

The Company commenced operations in December 1994 and affiliated with its
first physician group in June 1995 and its second group in December 1995. The
Company entered into affiliations with five additional groups during 1996 and
seven additional groups during 1997. Changes in results of operations were
caused primarily by affiliations with these additional physician groups.

The following table sets forth the percentages of physician groups revenue
represented by certain items reflected in the Company's consolidated statements
of operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Physician groups revenue, net............................... 100.0% 100.0% 100.0%
Less: amount retained by physician groups................... 40.5 44.2 36.9
----- ----- -----
Management fee revenue...................................... 59.5 55.8 63.1
Operating expenses:
Clinic salaries and benefits........................... 32.3 24.8 23.3
Clinic rent and lease expense.......................... 5.4 5.7 5.5
Clinic supplies........................................ 4.7 6.8 7.6
Purchased medical services............................. 5.9 2.1 6.2
Other clinic costs..................................... 13.3 10.7 8.5
General corporate expenses............................. 6.1 5.6 3.0
Depreciation and amortization.......................... 1.5 1.5 2.3
Interest expense (revenue)............................. 0.2 0.4 0.4
Merger costs........................................... 0.0 1.5 0.0
----- ----- -----
69.4% 59.1% 56.8%
----- ----- -----
Income (loss) before provision for income taxes............. (9.9) (3.3) 6.3
Provision for income taxes.................................. (0.4) 0.0 2.0
----- ----- -----
Net income (loss)........................................... (9.5)% (3.3)% 4.3%
===== ===== =====
</TABLE>

15
<PAGE> 17

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

Physician groups revenue increased by 172% to $127.7 million for the year
ended December 31, 1997 from $47.0 million for the year ended December 31, 1996.
New affiliations in 1997 produced $48.8 million of this increase, including
$10.4 million of revenues from full professional and global capitation
contracts, with $27.2 million resulting growth in revenues from affiliations
completed prior to 1996 and from a full year of revenue production from
affiliations completed in 1996. Another $4.7 million of other revenues from
consulting and transitional services contributed to this increase in 1997.

Amounts retained by physician groups increased by 126% to $47.1 million for
the year ended December 31, 1997 from $20.8 million for the year ended December
31, 1996. This increase resulted primarily from new affiliations in 1997 and a
full year of operations from affiliations completed in 1996. As a percentage of
physician groups revenue, amounts retained by physician groups declined to 36.9%
for the year ended December 31, 1997, compared to 44.2% for the year ended
December 31, 1996. This decline resulted primarily from an increase in revenues
from capitation contracts, which generate more aggregate dollars to the
affiliated physician groups, but less as a percentage of physician groups
revenue, and from the increase in other revenues noted above.

Overall clinic costs, including purchased medical services, as a percentage
of physician groups revenue increased to 51.1% for the year ended December 31,
1997, compared to 50.1% for the year ended December 31, 1996. Purchased medical
services created the largest increase as a percentage of physician groups
revenue, increasing to 6.2% in 1997 compared to 2.1% in 1996. This increase is
directly related to the increase in full professional and global capitation
revenues.

General corporate expenses as a percentage of physician groups revenue
declined to 3.0% for the year ended December 31, 1997, compared to 5.6% for the
year ended December 31, 1996. While these costs declined as a percentage of
physician groups revenue, the amount of general corporate expenses increased 44%
to $3.8 million for the year ended December 31, 1997 from $2.6 million for the
year ended December 31, 1996. This increase in expenses was expected as the
Company continued to add management and technology infrastructure. While
management expects these increases in amounts to continue as the Company
increases the number of affiliated physician groups, it believes that these
expenses will continue to decline as a percentage of physician groups revenue.

Depreciation and amortization as a percentage of physician groups revenue
increased to 2.3% for the year ended December 31, 1997, compared to 1.5% for the
year ended December 31, 1996. This increase resulted primarily from increased
amortization of service agreement rights obtained in the new affiliations in
1997, as well as differences in the mix of assets acquired in connection with
these affiliations.

Net interest expense as a percentage of physician groups revenue remained
consistent at 0.4% for both the years ended December 31, 1997 and 1996. Although
long term debt levels increased in the latter part of 1997, the resulting
interest expense was offset by interest income earned in the earlier part of
1997 on unused proceeds from the Company's initial public offering.

Provision for income taxes reflects an effective rate of 32.2%. This
effective rate is lower than the expected Federal statutory rate due to the
realization of net operating loss carryforwards, which had been previously
reserved. At December 31, 1997, all net operating loss carryforwards had been
utilized and recognized.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Physician groups revenue increased to $47.0 million for the year ended
December 31, 1996 from $13.2 million for the year ended December 31, 1995. The
increase in physician groups revenue resulted primarily from the various
affiliations with physician groups in 1996.

Amounts retained by physician groups as a percentage of physician groups
revenue increased to 44.2% for the year ended December 31, 1996, compared with
40.5% for the year ended December 31, 1995. Overall clinic costs as a percentage
of physician groups revenue declined to 50.1% for the year ended December 31,
16
<PAGE> 18

1996, compared with 61.6% for the year ended December 31, 1995. The mix of
physician specialties and ancillary services affects the cost of affiliated
physician services, clinic salaries and benefits and clinic supplies. Because of
the significance of individual group affiliations and the level of other revenue
to the Company as a whole, these expense ratios will vary with each new
acquisition. Generally, primary care and office-based physician practices
require a higher number of support staff than specialty care or hospital-based
practices. Clinic rent and lease expense as percentage of physician groups
revenue will vary based on the size of each of the affiliated group's offices
and the current market rental rate for medical office space in the particular
geographic markets. Other clinic costs will vary as a percentage of physician
groups revenue based on regional cost differences and the Company's ability to
implement operational efficiencies and negotiate more favorable purchasing
arrangements.

General corporate expenses as a percentage of physician groups revenue
declined to 5.6% for the year ended December 31, 1996, compared with 6.1% for
the year ended December 31, 1995. The amount of these expenses increased during
1996, as the Company continued to add to its management infrastructure. While
the Company expects that these expenses will continue to increase as the Company
increases the number of affiliated physician groups, it believes that these
expenses will continue to decline as a percentage of physician groups revenue.

Depreciation and amortization as a percentage of physician groups revenue
remained constant at 1.5% for the year ended December 31, 1996, compared with
the year ended December 31, 1995.

Net interest expense as a percentage of physician groups revenue increased
to 0.4% for the year ended December 31, 1996, compared with net interest income
of 0.2% for the year ended December 31, 1995, primarily due to increased debt
associated with the acquisition of physician practices.

Provision for income taxes reflects no income tax expense for the year
ended December 31, 1996. This resulted from fully reserving for the tax effects
of the net operating loss generated during the year.

17
<PAGE> 19

SUMMARY OF OPERATIONS BY QUARTER

The following table presents unaudited quarterly operating results for the
preceding eight quarters. The Company believes that all necessary adjustments,
consisting only of normal, recurring adjustments, have been included in the
amounts stated below to present fairly the quarterly results when read in
conjunction with the Company's consolidated financial statements and notes
thereto included elsewhere in this Prospectus. Future quarterly results may
fluctuate depending on, among other things, the timing and number of
affiliations with physician groups. Results of operations for any particular
quarter are not necessarily indicative of results of operations for a full year
or for future periods.

<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------------------- -------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
---------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue,
net......................... $7,091,429 $10,041,414 $12,672,590 $17,231,368 $20,725,577 $25,732,048
Less: amounts retained by
physician groups............ 3,428,089 4,712,459 5,332,128 7,318,929 9,008,171 10,532,177
---------- ----------- ----------- ----------- ----------- -----------
Management fee revenue....... 3,663,340 5,328,955 7,340,462 9,912,439 11,717,406 15,199,871
Operating expenses:
Clinic salaries and
benefits.................. 1,741,516 2,483,746 3,301,399 4,168,312 4,639,895 5,926,457
Clinic rent and lease
expense................... 411,372 549,656 727,252 981,858 1,079,862 1,429,063
Clinic supplies............. 404,298 639,858 972,824 1,196,463 1,513,716 1,962,366
Purchased medical
services.................. 134,815 157,306 289,116 388,413 685,158 780,510
Other clinic costs.......... 801,206 1,196,244 1,342,318 1,679,108 1,778,472 2,154,875
General corporate
expenses.................. 581,596 676,099 643,704 732,186 818,772 823,533
Depreciation and
amortization.............. 51,564 67,068 204,369 400,640 435,875 602,552
Interest expense
(revenue)................. (19,625) 33,071 59,024 137,004 115,949 1,148
Merger costs................ -- -- 139,501 542,768 -- --
---------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for income
taxes....................... (443,402) (474,093) (339,045) (314,313) 649,707 1,519,367
Provision for income
taxes..................... -- -- -- -- 194,912 412,429
---------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............ $ (443,402) $ (474,093) $ (339,045) $ (314,313) $ 454,795 $ 1,106,938
========== =========== =========== =========== =========== ===========
NET EARNINGS (LOSS) PER
SHARE:
Basic....................... $ (0.06) $ (0.06) $ (0.04) $ (0.04) $ 0.05 $ 0.09
========== =========== =========== =========== =========== ===========
Diluted..................... $ (0.06) $ (0.06) $ (0.04) $ (0.04) $ 0.04 $ 0.07
========== =========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic....................... 7,871,406 7,870,746 7,870,746 7,870,746 8,669,343 12,031,726
========== =========== =========== =========== =========== ===========
Diluted..................... 7,871,406 7,870,746 7,870,746 7,870,746 11,617,229 14,904,451
========== =========== =========== =========== =========== ===========
OTHER DATA (AT END OF
PERIOD):
Affiliated physicians........ 51 72 118 146 180 186
Mid-level providers.......... 9 16 27 46 53 52
IPA physicians............... -- -- -- -- -- --
---------- ----------- ----------- ----------- ----------- -----------
Total providers.............. 60 88 145 192 233 238
========== =========== =========== =========== =========== ===========
Number of states............. 2 3 3 4 5 5

<CAPTION>
THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Physician groups revenue,
net......................... $29,302,573 $51,956,577
Less: amounts retained by
physician groups............ 11,496,972 16,037,920
----------- -----------
Management fee revenue....... 17,805,601 35,918,657
Operating expenses:
Clinic salaries and
benefits.................. 6,795,818 12,497,548
Clinic rent and lease
expense................... 1,620,677 2,886,659
Clinic supplies............. 2,034,422 4,156,581
Purchased medical
services.................. 725,486 5,755,835
Other clinic costs.......... 2,100,817 4,849,424
General corporate
expenses.................. 1,113,978 1,037,269
Depreciation and
amortization.............. 923,093 981,084
Interest expense
(revenue)................. 110,468 228,610
Merger costs................ -- --
----------- -----------
Income (loss) before
provision for income
taxes....................... 2,380,842 3,525,647
Provision for income
taxes..................... 778,494 1,216,544
----------- -----------
Net income (loss)............ $ 1,602,348 $ 2,309,103
=========== ===========
NET EARNINGS (LOSS) PER
SHARE:
Basic....................... $ 0.13 $ 0.18
=========== ===========
Diluted..................... $ 0.11 $ 0.15
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic....................... 12,042,769 12,507,883
=========== ===========
Diluted..................... 15,260,449 15,355,033
=========== ===========
OTHER DATA (AT END OF
PERIOD):
Affiliated physicians........ 224 354
Mid-level providers.......... 56 100
IPA physicians............... -- 528
----------- -----------
Total providers.............. 280 982
=========== ===========
Number of states............. 6 10
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, the Company had working capital of $20.5 million,
compared to $2.3 million at December 31, 1996. This increase resulted primarily
from the acquisition of current assets (primarily accounts receivable) in excess
of current liabilities assumed in new affiliations. Although each new
affiliation will have its own specific structure, the Company typically acquires
current assets well in excess of the current liabilities it assumes.

Cash from operations for the year ended December 31, 1997 amounted to $1.3
million. Net income, combined with depreciation and amortization, deferred
taxes, and increases in accounts payable and amounts

18
<PAGE> 20

payable to affiliated physician groups provided $16.4 million in cash flows.
This was offset by increases in accounts receivable, management fees receivable,
due from affiliated physician groups, prepaid and other current assets and other
assets and decreases in accrued expenses and other current liabilities totaling
$15.1 million. This positive cash flow from operations in 1997 marked an
improvement over 1996 and 1995, in which the Company experienced usage of cash
in operations of $1.2 million and $0.9 million, respectively.

The Company had aggregate cash expenditures of $22.4 million and issued or
committed to issue an aggregate of 3.5 million shares of its common stock for
the acquisition of clinic assets during the year ended December 31, 1997. Of the
cash expenditures, $1.0 million was for additional physicians at existing
clinics and deferred payments associated with previously completed acquisitions.
Capital expenditures amounted to $2.8 million for the year ended December 31,
1997. Although each of the Company's service agreements with its affiliated
physician groups requires the Company to provide capital for equipment,
expansion, additional physicians and other major expenditures, no specific
amounts have been committed in advance. Capital expenditures are made based
partially upon the availability of funds, the sources of funds, alternative
projects and an acceptable repayment period.

In November 1997, the Company completed an expansion of its Credit Facility
from $25 million to $50 million. The Credit Facility provides for working
capital and acquisition financing, subject to certain restrictions. The interest
rate is, at the Company's option, either the adjusted 30-day commercial paper
rate or one month LIBOR plus 2.70% to 3.25%, or the bank's base rate plus 0.35%
to 0.88%, depending on certain debt levels. The Credit Facility, which expires
January 2, 2004, contains certain restrictive covenants, including prohibitions
on paying dividends, limitations on capital expenditures and maintenance of
minimum net worth and certain financial ratios. At December 31, 1997,
outstanding borrowings against the Credit Facility were $33.0 million and the
effective interest rate was 8.5%. In April 1998 the Credit Facility was expanded
to $70 million.

In connection with the August 1997 Christie Clinic affiliation, the Company
agreed to lend the physician group a total of $42.7 million, the proceeds of
which are being utilized by the group's physicians. An initial loan of $3.0
million was funded in November 1997 and $16.4 million in December 1997, with
additional loans of $5.825 million to be funded each December through 2001. This
note receivable is recorded in long term receivables in the Company's
consolidated balance sheet. The note receivable earns interest at 8% and is an
interest-only loan, payable monthly, through November 2007, after which the
balance is to be repaid in annual installments through December 2022. After
December 2007, an amount equal to one twelfth of the annual amortization is
required to be set aside by the physician group each month to fund each upcoming
annual installment.

In connection with the March 1997 Naples affiliation, the Company issued
$8.6 million of notes payable in three equal annual installments in April 1998,
1999 and 2000. The notes bear interest at 9%, with interest payable in options
to purchase the Company's Common Stock at a price of $9.00 per share (valued in
accordance with the Black-Scholes model), provided the market price for the
stock is above the exercise price at the time of payment. Interest may be paid
in cash at the option of either party if the market price for the stock is $9.00
or less at the time of payment.

The Company had cash and cash equivalents of $15.8 million at December 31,
1997. In addition to cash, the Company's principal sources of liquidity were
accounts receivable of $24.4 million at December 31, 1997 and availability under
the working capital portion of the Credit Facility of $7.3 million. The Company
believes that the combination of these sources, together with the proceeds of
the Offering, will be sufficient to meet its working capital needs for the next
twelve months. The Company's future acquisition, expansion and capital
expenditure programs will require substantial amounts of capital resources. To
meet the capital needs of these programs, the Company will continue to evaluate
alternative sources of financing, including short- and long-term bank
indebtedness, additional equity and other forms of financing, the availability
and terms of which will depend upon market and other conditions. There can be no
assurance that additional financing will be available on terms acceptable to the
Company.

19
<PAGE> 21

BERKSHIRE AFFILIATION

During the year ended December 31, 1997, Berkshire generated total net
revenue of $43.7 million (net of contractual and bad debt allowances) and
incurred a net loss of $6.7 million. See Consolidated Financial Statements of
Berkshire Physicians & Surgeons, P.C. The Company believes that Berkshire's loss
was largely the result of expenses associated with changing the strategic
direction of Berkshire to managed care, high outside provider costs, and
distributions to newly employed physicians under guaranteed-compensation
arrangements not yet commensurate with physician productivity. Under the
Company's service agreement with Berkshire, all physician distributions are
based upon productivity. The Company estimates that annual physician
distributions would have been reduced by $7.2 million had the service agreement
been effective throughout 1997. The Company also believes that it can, through
PMC, substantially improve Berkshire's managed care operations. See Pro Forma
Consolidated Financial Statements.

20
<PAGE> 22

BUSINESS

GENERAL

The Company currently is affiliated with multi-specialty physician groups
in 11 states, comprised of 435 physicians and 115 mid-level providers (primarily
physician assistants and nurse practitioners), and is associated with 540
physicians in associated IPA networks. This includes Berkshire, a
multi-specialty physician group comprised of 79 physicians, 15 mid-level
providers and 14 IPA physicians with which the Company affiliated in April 1998.
Since the Company's March 1997 initial public offering, the total number of
ProMedCo's providers has grown to 1,090 from 192, its annual physician groups
revenue has grown to $265 million from $65 million (each on a pro forma basis),
and the number of states in which it operates has increased nearly threefold.

The Company has also significantly augmented its managed care contracting,
information systems, and clinical expertise through its December 1997
acquisition of Health Plans, Inc., since renamed PMC. PMC is a provider of
medical management services to capitated physician networks. Utilizing
state-of-the-art information systems, PMC provides a full range of managed care
services to capitated providers, including clinical quality assessment,
credentialing, claims processing and payment, referral and utilization
management, and case management. PMC is currently providing such services to the
Company's associated IPAs and to those of its affiliated groups that have
entered into capitation arrangements, together covering over 100,000 managed
care capitated lives.

INDUSTRY OVERVIEW

The healthcare delivery system in the United States has been undergoing
substantial change, largely in response to concerns over the quality and
escalating cost of healthcare. National expenditures for healthcare grew from
$250 billion in 1980 to $1,035 billion in 1996. Of the total estimated 1996
expenditures, physicians received approximately $202 billion for their own
services and controlled an additional $600 billion through the referral of
patients for additional care and services provided by others.

The substantial increase in healthcare expenditures has led to the
widespread establishment and growth of MCOs, consisting primarily of HMOs and
preferred provider organizations ("PPOs"). As MCO enrollment has grown, so has
MCO influence over physicians and other healthcare providers. MCOs have
increased their efforts to reduce costs and bring about greater accountability
with respect to the quality and appropriateness of care.

As a result of increased enrollment in managed care health plans,
physicians and other healthcare providers, in order to retain broad access to
patients, are seeking to become components of vertically integrated healthcare
delivery systems that provide a full range of services for the MCOs that operate
those plans. Typically, the physician and hospital components of these
integrated systems contract with MCOs to provide medical and hospital services
to MCO members pursuant to risk-sharing and other arrangements. Such
risk-sharing arrangements commonly consist of "capitated" risk contracts, under
which providers undertake to provide a specified range of services for a
predetermined fixed fee per member. Such an arrangement results in a greater
predictability of revenues, but exposes the provider to the risk of fluctuations

21
<PAGE> 23

in the costs of providing the services. To the extent that patients or enrollees
covered by such contracts require more frequent or extensive care than is
anticipated, operating margins may be reduced and the revenues derived from such
contracts may be insufficient to cover the costs of the services provided. Many
physician groups are concluding that, in order to compete effectively in the
managed care environment, they need to have greater control over the delivery of
a wider range of healthcare services and expenditures. Accordingly, an
increasing number of physician groups are entering into capitation arrangements
under which they assume contractual risk and responsibility for healthcare
provided by others.

The private practice of medicine remains a largely fragmented market. The
American Medical Association reports that, of the approximately 613,000
physicians actively involved in patient care in the United States, only 34% are
currently practicing in groups. Many of these are small to mid-sized physician
groups, which are at a competitive disadvantage in the managed care environment.
They generally do not have the market presence, expertise, or sophisticated cost
accounting and quality management systems required for capitated risk-sharing
arrangements. In addition, they often lack the capital required to purchase new
medical equipment and information systems to enhance the efficiency and quality
of their practices.

Physician groups are increasingly turning to physician-driven organizations
such as ProMedCo to provide the professional management expertise and capital
required to compete in the managed care environment and otherwise to assist them
with the increasingly complex management of physician practices. ProMedCo
believes that this has resulted in a need for management organizations committed
to preserving the professional autonomy of physician groups and whose economic
incentives are fully aligned with those of physicians. Because of the unique
position of primary care physicians in managing the delivery of healthcare by
both providing primary care and controlling patient referrals, ProMedCo further
believes that multi-specialty groups with a substantial primary care orientation
are likely to be best positioned to succeed in the emerging managed care
environment.

STRATEGY

The Company's strategy is to affiliate with leading physician groups in
pre-managed-care secondary markets and expand and integrate them into
comprehensive multi-specialty networks to increase their market presence and
position them to become the physician component of managed care delivery systems
as they develop in their local markets. Management believes that it has
consistently demonstrated its discipline to follow this strategy by declining to
pursue affiliation opportunities that have significantly deviated from it. The
key elements of the Company's strategy are as follows:

Continue to Penetrate Pre-Managed-Care Markets. Notwithstanding the
increasing presence of MCOs, managed care is just beginning to reach many
communities, located outside or adjacent to large metropolitan areas. ProMedCo
seeks to affiliate in such markets with high quality physician groups that
recognize the need for outside managerial, financial, and business expertise,
that are committed to expanding their practices, and that are, or have the
potential to be, the leading multi-specialty groups within their markets.

Affiliate with Primary-Care-Oriented Multi-Specialty Groups. ProMedCo
believes that the primary care physician increasingly will manage the delivery
of healthcare services to patients by providing primary care and controlling
patient referrals for specialist, hospital, and other healthcare services.
Because of this central role, the Company believes that multi-specialty
physician groups with a primary care orientation can more effectively manage
capitated risk than other participants in the healthcare delivery system. The
Company believes that a single multi-specialty network of primary care
physicians and specialists not only provides a comprehensive range of services
that is attractive to MCOs, but also offers flexibility to MCOs to contract for
a broad or narrow range of physician services.

Expand Existing Groups. ProMedCo seeks to increase the market presence of
each of its affiliated groups within the group's local market. The Company
facilitates expansion of the groups through affiliations with and recruitment of
other primary care physicians and selected specialists, recruitment of physician
extenders, and expansion of selected ancillary services.

22
<PAGE> 24

Optimize Managed Care Opportunities. ProMedCo seeks to optimize managed
care contracting opportunities initially by affiliating with physician groups
having a strong local market presence. At the appropriate time in each market,
the Company establishes local systems and programs for the medical management of
capitated risk and, as MCOs move into the market, seeks to negotiate favorable
managed care contracts. ProMedCo believes that the strong market positions of
its affiliated groups, combined with PMC's demonstrated medical management
expertise, will enable its affiliated groups to manage such risk effectively
while generating new sources of revenue.

Align Economic Interests. ProMedCo believes that affiliations with
practice management organizations whose incentives are fully aligned with the
interests of physicians are more attractive to physicians than affiliations with
hospitals or MCOs. Accordingly, ProMedCo employs an affiliation structure under
which the income of both the Company and the physicians within each group
depends upon the operating income of the group, providing a common incentive to
expand the group and increase its efficiency.

DEVELOPMENT AND OPERATIONS

Market Development

ProMedCo's development objective is to affiliate with leading primary care
groups or primary-care-oriented multi-specialty groups within pre-managed-care
secondary markets. The Company performs research and market analyses to identify
priority markets, which generally are communities that have populations of at
least 30,000 and less than 500,000, typically have less than 20% HMO
penetration, and meet other market criteria. Such market criteria relate to,
among other things, the number of primary care physicians relative to demand,
Medicare payment rates, physician group competition, proximity to other ProMedCo
groups, the number of hospitals, demographics, population growth, and the
likelihood of significant future HMO growth. The Company estimates that there
are over 1,200 markets representing a total population of approximately 120
million, and containing an estimated 144,000 physicians generating $50 - 60
billion in revenues, that currently satisfy its priority market criteria. The
Company ranks these markets based upon the degree to which they satisfy its
criteria, enabling the Company further to prioritize its development efforts.

Within its priority markets, ProMedCo seeks to affiliate either with
primary care groups or with multi-specialty groups that are committed to the
importance of primary care physicians. The Company seeks to affiliate with
groups that have a reputation for providing high quality care and have a
substantial share of their local markets or the potential to acquire such share.
These groups are frequently the largest groups in their markets.

Once ProMedCo has identified a group meeting its criteria, the Company
conducts preliminary discussions to ascertain the group's interest in an
affiliation. If such interest is established, the Company conducts site visits,
analyzes financial and other data, and conducts an extensive due diligence
investigation into the group's operations, leadership, and commitment to
long-term growth. Assuming a favorable outcome of the investigation, the Company
prepares a comprehensive business plan for presentation to the group and
proposes to purchase the group's operating assets and enter into a long-term
service agreement. See "-- Affiliation Structure."

Upon affiliation with a group, the Company immediately begins to facilitate
expansion of the group within its local market. Group expansion may be
accomplished through affiliations with additional primary-care and specialty
physicians in the community, recruitment of physicians from outside the
community, addition of physician extenders and expansion of ancillary services
such as radiology and laboratory services. The Company will also seek to improve
the group's profitability through management of expenses and strengthening of
existing managed care contracts and conversion to capitation.

Current Operations

The Company currently provides medical management expertise to 1,090
providers in 11 states, consisting of approximately 435 physicians and 115
mid-level providers in affiliated physician groups and 540 physicians in
associated IPA networks.

23
<PAGE> 25

Approximately 60% of the physicians in ProMedCo's affiliated physician
groups are primary care providers. The primary care physicians consist of family
practitioners, general internists, pediatricians, obstetrician/gynecologists,
and urgent-care physicians. Increasingly, these physicians are augmented by mid-
level providers, primarily consisting of physician assistants and nurse
practitioners, whom the Company believes significantly increase the efficiency
of delivery of a group's primary care services. Each of the physician groups
also provides, to varying degrees, medical specialty services and ancillary
services. Medical specialties currently include anesthesiology, endocrinology,
gastroenterology, general surgery, infectious diseases, nephrology, neurology,
occupational medicine, orthopedic surgery, otolaryngology, pulmonology,
rheumatology, and urology. Each of the physician groups is continually seeking
to expand its practice through the addition of primary care physicians and
specialties. The physician groups offer, to varying degrees, a range of
ancillary services such as audiology, clinical laboratories, diagnostic imaging,
and stress testing. The Company and each of its affiliated groups continually
evaluate the addition of ancillary services to enhance the growth and
profitability of such group.

The IPAs are organizations of independent primary care providers and
specialists that contract to provide physician and other healthcare services to
HMOs and other MCOs. The members maintain their individual practices and,
through the IPA organization, share information and managed care systems,
actuarial and financial analysis, medical management and managed care contract
services provided by the Company through PMC.

The following table sets forth information concerning the Company's
providers.

<TABLE>
<CAPTION>
BEGINNING OF
PROMEDCO MID-LEVEL MEDICAL
LOCATION AFFILIATION PHYSICIANS PROVIDERS SPECIALTIES
------------------ -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
AFFILIATED PHYSICIAN GROUPS:
North Texas Medical Surgical,
P.A............................... Denton, TX June 1995 8 -- 3
Abilene Diagnostic Clinic
Practices......................... Abilene, TX December 1995 36 11 9
Cullman Primary Care, P.C........... Cullman, AL March 1996 11 3 1
Morgan-Haugh, P.S.C................. Mayfield, KY April 1996 13 2 6
HealthFirst Medical Group, P.A...... Lake Worth, TX June 1996 14 7 4
King's Daughters Clinic, P.A........ Temple, TX September 1996 44 13 17
The Medical Group of Northern
Nevada............................ Reno, NV October 1996 17 11 7
Naples Medical Center, P.A.......... Naples, FL March 1997 38 4 18
Beacon Medical Group, P.C.(1)....... Harrisburg, PA April 1997 37 3 7
Intercoastal Medical Group, Inc..... Sarasota, FL August 1997 24 2 4
Christie Clinic Association......... Champaign, IL August 1997 87 39 44
Thomas-Spann Clinic, P.A............ Corpus Christi, TX December 1997 12 1 3
HealthStar Physicians, P.C.......... Knoxville, TN December 1997 13 4 6
Berkshire Physicians & Surgeons, February
P.C............................... Pittsfield, MA 1998(2) 79 15 14
--- ---
433 115
IPA PHYSICIANS:
PMC Medical Management IPA.......... Maine and New June 1997 510
Hampshire
Christie Clinic IPA................. Champaign, IL August 1997 18
Berkshire Physicians & Surgeons February
IPA............................... Pittsfield, MA 1998(2) 14
---
542
Total Providers.............. 1,090
</TABLE>

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

(1) In December 1997 Beacon Medical Group combined with Cowley Medical
Associates, which had become affiliated with ProMedCo effective November
1997.

(2) Operated under an interim service agreement pending the April 1998
affiliation.

24
<PAGE> 26

Management Services

Upon affiliating with a physician group, ProMedCo immediately assumes the
management of all aspects of the group's operations other than the provision of
medical services. The operating assets acquired by the Company are provided for
the exclusive use of the group, and substantially all non-physician personnel
utilized in the group's practice become employees of the Company. ProMedCo
provides the full range of administrative services required for the group's
operations, including facilities management and the purchase of medical
malpractice insurance, supplies, and equipment, and a broad spectrum of
financial and accounting services, including budgeting, billing and third-party
reimbursement services. The Company also provides each group with operating
capital and expansion capital for affiliations with other physicians, additions
of ancillary services, and improvements of existing facilities and equipment. As
MCOs expand their presence into the local market, the Company provides expertise
in the negotiation of managed care contracts and the management of risk-sharing
arrangements. Currently, four of the Company's affiliated groups derive a
significant portion of their revenues from managed care contracts.

While the Company provides a centralized source of expertise in all aspects
of management, it believes that each physician group presents different
operational issues and challenges and therefore employs a system of
decentralized local management of each group. The Company generally retains the
group's existing administrative staff as ProMedCo employees, adding additional
management personnel as the group expands. The physicians in the group continue
to maintain full professional control of the practice of medicine, including the
hiring and termination of physicians and the setting of practice guidelines and
standards. The Company establishes for each group a policy council comprised
equally of physicians and ProMedCo representatives to determine the broad
strategic and operational policies of the group. See "-- Affiliation Structure."

The Company believes that sophisticated information systems are essential
to reducing the cost and improving the quality of healthcare. Basic practice
management systems have long been necessary for efficient patient scheduling and
registration, billing, and collections. In the future, the integration of
financial practice, managed care, and clinical systems is expected to be
imperative for physician groups to remain competitive. Clinical systems will
provide information in the physician's workplace -- such as case management,
practice guidelines, and clinical pathways -- that will facilitate the
improvement of patient care. Electronic medical records will automate the
clinical workflow and allow access to patient records from multiple sites, thus
providing more effective clinical decision support and increasing the quality of
care. Systems that effectively measure clinical outcomes and patient
satisfaction are likely to become increasingly important as quality becomes a
more significant factor in maintaining and increasing market share.

Rather than attempting to develop its own proprietary information systems,
ProMedCo believes it is more cost-effective, in light of the rapidly changing
healthcare and information technology environments, to utilize systems developed
and proven by independent companies. Although there are many systems currently
under development, none is yet available that, in the Company's opinion,
effectively addresses all of the evolving needs of physician groups. The Company
initially works with its affiliated physician groups to maximize the performance
of the groups' existing systems. As MCOs increase their penetration of each
group's market, new or enhanced information systems will be implemented as
required. Ultimately, the Company expects to interface all of its affiliated
clinics with a central data repository for consolidation and evaluation of
operating, clinical, and financial data. It has made substantial progress toward
that end, having selected its preferred practice management system vendors and
having installed a new general ledger software package that it expects to extend
to all of its affiliated groups by year end.

Additionally, the Company significantly augmented its managed care
contracting, information systems, and clinical expertise through the acquisition
of PMC, a provider of medical management services to capitated providers of
physician services. Utilizing state-of-the-art information systems, including
some proprietary systems, PMC provides a full range of managed care services to
capitated providers, including clinical quality assessment, credentialing,
claims processing and payment, referral and utilization management and case
management. PMC is currently providing such services, covering over 100,000 MCO
members, to the Company's affiliated physician groups that have entered into
risk-sharing contracts with MCOs and to the
25
<PAGE> 27

Company's three associated IPAs, the largest of which was being managed by PMC
at the time of the acquisition. The Company believes that PMC's information
systems and physician network managed care expertise will enable the Company to
effectively manage the medical risk undertaken by the Company and its affiliated
groups under risk-sharing contracts.

AFFILIATION STRUCTURE

ProMedCo utilizes an affiliation structure that fully aligns the interests
of the Company with those of its physician partners. Moreover, each physician
group retains professional autonomy and control over its medical practices
through continued ownership and governance of its professional corporation or
similar organization.

When a physician group has agreed to affiliate with ProMedCo, the Company
generally purchases the group's operating assets, excluding real estate, and the
group enters into a long-term service agreement with the Company in exchange for
a combination of Common Stock, cash, other securities of the Company, and/or
assumption of certain liabilities. The Company has utilized, and may continue to
utilize, Common Stock in payment of a portion of its consideration for the
assets of affiliated physician groups.

The service agreements between the Company and the physician groups are for
a term of 40 years and cannot be terminated by either party without cause,
consisting primarily of bankruptcy or material default. Under the service
agreement, the Company provides the physician group with the facilities and
equipment used in the group's medical practice, assumes responsibility for the
management of the operations of the practice, and employs substantially all of
the non-physician personnel utilized by the group. Upon expiration of the term
of a service agreement or in the event of termination, the physician group is
required to purchase the assets related to the practice, including intangible
assets, then owned by the Company at their current book value. Concurrently with
the execution of a service agreement, the physician group is required to enter
into an employment contract with each of its physicians, typically for an
initial term of five years. In those affiliations involving the Company's
purchase of the group's operating assets, the employment contract provides for
the repayment by the physician of all or a portion of the physician's share of
the consideration paid by ProMedCo for such assets and service agreement in the
event of the physician's breach of the contract. Each physician group also
enters into an agreement not to compete with the Company, and each physician's
employment contract includes an agreement not to compete with the physician
group during the period of his or her employment and for a period of time
thereafter, typically two years. The employment contract also provides that the
Company is a third-party beneficiary entitled to enforce the repayment provision
and the agreement not to compete.

The income of both the Company and the physicians within each group is
dependent upon the operating income of the group. Under its service agreement,
the Company receives a fixed percentage (typically 15-20%) of group operating
income, which is defined as the group's net revenue less certain contractually
agreed-upon clinic expenses before physician salaries and other
physician-related expenses. In addition, the Company typically receives
implementation and transitional fees in return for significant up-front services
required in the first one to three months of the affiliation. The distribution
to the Company is increased or decreased by a percentage (typically ranging from
25% to 50%) of the group's surplus or deficit under risk-sharing arrangements
pursuant to capitated managed care contracts. Thus, both the Company and the
physicians have incentives to improve the group's operating income and surplus
under risk-sharing arrangements, and both share the risk that the group may have
limited or no operating income or a deficit under its risk-sharing arrangements.
Although the risk-sharing provisions did not have a material effect upon the
Company's operating income through 1997, the Company expects such provisions to
become significant as managed care emerges in its groups' local markets and its
groups increase their participation in risk-sharing arrangements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The policy council established for each group is comprised equally of
physicians and ProMedCo representatives. The council meets periodically to
consider and determine broad policies regarding strategic and operational
planning, marketing, arrangements with MCOs, and other major issues involved in
the group's

26
<PAGE> 28

operations. This ensures that the physicians within each group retain a
significant voice in the expansion and operation on their group, while
benefiting from ProMedCo's management experience and expertise.

COMPETITION

The physician practice management industry is highly competitive. The
Company is subject to significant competition both in affiliating with physician
groups and in seeking managed care contracts on behalf of its affiliated groups.
Its competitors include hospitals, managed care organizations, other physician
groups, and other physician practice management companies. Many of the Company's
competitors are larger, have substantially greater resources, and have longer
established relationships with purchasers of healthcare services than the
Company. There can be no assurance that the Company will be able to compete
effectively, that additional competitors will not enter the market, or that such
competition will not make it more difficult to enter into affiliations with
physician groups on terms beneficial to the Company.

GOVERNMENT REGULATION

As a participant in the healthcare industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal and state levels. The Company believes its
operations are in material compliance with applicable laws. Because the
structure of its relationship with physician groups is relatively new, however,
many aspects of the Company's business operations have not been the subject of
state or federal regulatory interpretation. There can therefore be no assurance
that a review of the Company's or the affiliated physicians' business by courts
or regulatory authorities will not result in a determination that could
adversely affect the operations of the Company or that the healthcare regulatory
environment will not change so as to restrict or require modification of the
Company's or its affiliated physician groups' operations or limit their
liability to expand.

The Company estimates that approximately 25% of the net physician groups
revenue of the Company is derived from payments made by government-sponsored
healthcare programs (principally Medicare and Medicaid). As a result, any change
in government reimbursement regulations, policies, practices, interpretations,
or statutes could adversely affect the operations of the Company. There are also
state and federal civil and criminal status imposing substantial penalties,
including civil and criminal fines and imprisonment, on healthcare providers
that fraudulently or wrongfully bill governmental or other third-part payors for
healthcare services.

The laws of many states prohibit business corporations such as the Company
from practicing medicine and employing physicians to practice medicine. The
Company performs only non-medical administrative services, does not hold itself
out as a provider of medical services, and does not exercise influence or
control over the practice of medicine by the physicians with whom it is
affiliated. Accordingly, the Company believes it is not in violation of
applicable state laws relating to the practice of medicine. In addition to
prohibiting the practice of medicine, numerous states limit the ability of
entities such as the Company to control physician revenues or to receive
portions of such revenues in excess of the value of services provided. In most
states, such so-called "fee-splitting" laws provide that the laws are violated
only if a physician shares fees with a referral source. The Florida Board of
Medicine, however, has recently interpreted the Florida fee-splitting law very
broadly so as arguably to include the payment of any percentage-based management
fee, even to a management company that does not refer patients to the managed
group. The interpretation of the Florida Board of Medicine has been appealed. If
it is not reversed, the decision could require modification of the service
agreements covering the Company's affiliated groups in Florida. There can be no
assurance that further action by government authorities regarding the structure
of the Company's relationship with its affiliated physician groups and managed
IPAs, in Florida or elsewhere, will not have an adverse effect upon the Company.
27
<PAGE> 29

Certain provisions of the Social Security Act, commonly referred to as the
fraud and abuse provisions, prohibit the payment or receipt of any form of
remuneration in return for the referral of Medicare or Medicaid patients care
opportunities, or in return for the recommendation, arrangement, purchase,
lease, or order of items or services that are covered by Medicare or Medicaid
programs. Many states have adopted similar prohibitions against payments that
are intended to induce referrals of Medicaid and other third-party payor
patients. Although the Company believes that neither it nor any of its
affiliated physician groups is in violation of any such prohibitions, its
operations do not fit within any of the existing or proposed federal safe
harbors and may therefore be subject to challenge.

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

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

Several states regulate the managed care support activities of
organizations other than insurers. In particular, claims administration and
utilization review functions may require licensure and the various elements of
the operations of the Company may be subject to regulation. The Company believes
that PMC holds all necessary licenses for its business activities. However, it
cannot be assured that it will receive necessary regulatory approvals for all
states in which it intends to conduct business, nor that the applicable
operational requirements will not adversely affect the profitability of the
Company.

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

INSURANCE

The Company's affiliated physician groups maintain medical malpractice
liability insurance in the amount of $1 million per occurrence and $3 million in
the aggregate. The Company is named as the additional insured on the policies
maintained by each of its affiliated groups. The Company also maintains general
liability and umbrella coverage, including excess malpractice coverage of $10
million per occurrence and $10 million in the aggregate. The cost and
availability of such coverage has varied widely in recent years. The Company
maintains individual and aggregate stop-loss insurance coverage with respect to
its and its affiliated groups' risk-sharing contracts. While the Company
believes its insurance coverage is adequate for its current operations, there
can be no assurance that the coverage maintained by the Company will be
sufficient to cover all future claims or will continue to be available in
adequate amounts or at a reasonable cost.

EMPLOYEES

The Company currently employs approximately 2,300 people including those
employed in its corporate office. The Company is not party to any collective
bargaining agreement with a labor union and considers its

28
<PAGE> 30

relations with its employees to be good. The Company does not employ any of the
physicians practicing in its affiliated groups.

PROPERTIES

The Company currently leases approximately 5,500 square feet of space at
801 Cherry Street in Fort Worth, Texas, where its headquarters are located,
under a lease terminable upon 60 days' notice by either party. The Company
believes these facilities are adequate for its current uses and that additional
space is available to accommodate its anticipated growth.

The Company leases, subleases, or occupies pursuant to its service
agreements the clinic facilities at which its affiliated physician groups
conduct their practices. The leases have varying terms ranging from
month-to-month to ten years. The Company anticipates that as the affiliated
practices continue to grow and add new services, expanded facilities will be
required.

LEGAL PROCEEDINGS

The Company and its affiliated physician groups are from time to time
subject to medical malpractice claims and other various claims and legal actions
that arise in the ordinary course of business. Such claims, if successful, could
result in substantial damage awards that may exceed the limits of insurance
coverage. The Company does not engage in the practice of medicine or provide
medical services, nor does it control the practice of medicine by its affiliated
physician groups or the compliance with regulatory requirements directly
applicable to such groups. Nevertheless, there can be no assurance that the
Company will not become subject to such claims in the future.

29
<PAGE> 31

MANAGEMENT

The following table sets forth certain information regarding the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
H. Wayne Posey(1)(2).................. 59 President, Chief Executive Officer, and Director
Dale K. Edwards....................... 35 Senior Vice President -- Development
Deborah A. Johnson.................... 45 Senior Vice President -- Administration and Secretary
Charles W. McQueary................... 45 Senior Vice President -- Operations
Robert M. Sontheimer.................. 57 Senior Vice President -- Managed Care
Robert D. Smith....................... 37 Vice President -- Finance
Gregory A. Wagoner, M.D............... 51 Vice President -- Medical Affairs
Richard E. Ragsdale(1)(2)(3).......... 54 Chairman and Director
David T. Bailey, M.D.(4).............. 52 Director
Charles J. Buysse, M.D................ 57 Director
E. Thomas Chaney(1)(2)(3)............. 55 Director
James F. Herd, M.D.................... 62 Director
Jack W. McCaslin(4)................... 58 Director
</TABLE>

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

(1) Member of Executive Committee

(2) Member of Compensation Committee

(3) Member of Option Committee

(4) Member of Audit Committee

H. WAYNE POSEY, a co-founder of the Company, has been the President, Chief
Executive Officer, and a Director since its inception. Mr. Posey was a
healthcare consultant from 1975 until 1994, most recently as the principal in
charge of the healthcare services division of McCaslin & Company, P.C., a public
accounting and consulting company in Fort Worth, Texas. Mr. Posey was employed
by Hospital Affiliates International, Inc., a publicly owned hospital management
company, from 1970 until 1975, holding the positions of Controller, Vice
President and Controller, and Senior Vice President of Operations, and he also
served on the company's Board of Directors and Executive Committee. He serves as
a director of Gentle Dental Services Corporation, a publicly held dental
practice management company.

DALE K. EDWARDS has served as a Vice President of the Company with primary
responsibility for developing affiliations with physician groups since November
1994 and as Senior Vice President since July 1997. From November 1993 to
November 1994, Mr. Edwards was Vice President of Physician Network Development
with Columbia/HCA Healthcare Corporation, an integrated healthcare delivery
company, and with Medical Care America, Inc., a publicly owned operator of
outpatient surgical centers, prior to its acquisition by Columbia/HCA. From 1991
to 1993, Mr. Edwards was Vice President of Managed Care and Regional Vice
President of Sales of Medical Care America. Previously, he was employed by
HealthPlus, a regional HMO in the State of Washington, as an Account Executive.

DEBORAH A. JOHNSON has served as Senior Vice President -- Administration of
the Company since October 1996 and as Secretary since February 1997. From
February 1995 to October 1996 Ms. Johnson was, successively, Senior Vice
President -- Operations and Senior Vice President -- Administration of
MedPartners, Inc., a physician practice management company. From 1978 to 1994
Ms. Johnson served in various executive capacities with Humana Inc., an
integrated healthcare delivery company, Galen Health Care, Inc., a hospital
management company, and Columbia/HCA. Her positions have included Legal Counsel,
Director of Strategic Planning, Vice President -- Information Systems, and Vice
President -- Internal Audit.

CHARLES W. MCQUEARY has served as Senior Vice President -- Operations of
the Company since December 1997. Prior to joining the Company in May 1997, he
was Regional Vice President for MedPartners,

30
<PAGE> 32

Inc., a publicly traded physician practice management company, from November
1995 to May 1997. He served as Chief Operating Officer and Chief Financial
Officer of Asthma and Allergy Care America, Inc., a physician practice
management company, from September 1993 to November 1995. From October 1987 to
September 1993, Mr. McQueary was president of his own privately held consulting
firm, specializing in healthcare acquisitions and physician practice management.

ROBERT M. SONTHEIMER has served as Senior Vice President with primary
responsibility for managed care services to affiliated physicians and formation
and management of IPA networks since December 1997. He was the founder of PMC,
the capitation management services provider acquired by the Company in December
1997, and has served as its president and chief executive officer since
September 1992.

ROBERT D. SMITH served as Vice President and Controller of the Company
since January 1997 and Vice President -- Finance since April 1, 1998. From
September 1996 to January 1997, Mr. Smith was Controller of Rykoff-Sexton, Inc.,
a publicly owned foodservice distribution company. He was Controller of US
Foodservice, a privately owned foodservice distribution company, from November
1993 until its merger with Rykoff-Sexton in 1996. Mr. Smith was employed by
White Swan, Inc., a privately owned foodservice distribution company, from July
1992 until it was acquired by US Foodservice in 1993. He joined White Swan as
its Controller and subsequently served as Chief Financial Officer and was a
member of its board of directors. Prior to joining White Swan, Mr. Smith was a
Senior Manager with Ernst & Young.

GREGORY A. WAGONER, M.D., who also holds an M.B.A. degree, has been Vice
President -- Medical Affairs of the Company since December 1997. He also serves
as Medical Director of PMC, a position he has held since April 1997. From 1995
to March 1997 he served as Vice President of Medical Affairs of FHP
International Corporation, an HMO that was publicly held until its acquisition
in February 1997. From 1991 to 1994, he served as Regional Medical Director with
Cigna HealthCare of California.

RICHARD E. RAGSDALE, a co-founder of the Company, has served as the
Chairman of its Board of Directors since its inception. He was also a co-founder
and has served as the Chairman of the Board of Directors of Community Health
Systems, Inc., a non-urban hospital management company, since its inception in
1985, and has been a director of The RehabCare Group, Inc., a publicly owned
rehabilitation services management company, since 1993.

DAVID T. BAILEY, M.D. has served as a Director of the Company since January
1996. Dr. Bailey also serves as President of Abilene Diagnostic Clinic,
P.L.L.C., a ProMedCo affiliated physician group. Dr. Bailey is Board Certified
with the American Board of Family Practice and has been a full-time practicing
family physician since 1973. He has served as Chairman of the Department of
Family Practice both at Hendrick Medical Center and Abilene Regional Hospital in
Abilene. He also served as Chairman of the Board of Trustees at Abilene
Christian Schools from 1983 to 1994.

CHARLES J. BUYSSE, M.D. has been in the private practice of medicine in
Naples, Florida, since 1975. He is President of Naples Medical Center, P.A., a
ProMedCo affiliated physician group, and has been a Director of the Company
since November 1997.

E. THOMAS CHANEY has served as President, Chief Executive Officer, and as
director of Community Health Systems, Inc., which he co-founded in 1985, since
its inception. A co-founder of the Company, he has served as a Director since
its inception.

JAMES F. HERD, M.D. has been in private practice in obstetrics and
gynecology in Fort Worth, Texas since 1968. During 1994, he was the President of
the Tarrant County Medical Society. From 1986 to 1990, he served as Chief and
Vice Chief of Staff of Harris Methodist Hospital in Fort Worth. He has served as
a Director of the Company since its inception.

JACK W. MCCASLIN has been the managing principal of McCaslin & Company,
P.C. and its predecessor, McCaslin, Wright & Greenwood, P.C. since 1983. He has
served as a Director of the Company since its inception.

The Board of Directors has established an Executive Committee, a
Compensation Committee, an Option Committee, and an Audit Committee. The
Executive Committee exercises the powers of the Board of
31
<PAGE> 33

Directors in the management of the business and affairs of the Company between
Board meetings to the extent permitted by applicable law. The Compensation
Committee reviews and determines the compensation of executive officers. The
Option Committee administers the Company's option plan and determines the grant
of options to persons eligible under the plans. The Audit Committee's functions
include recommending to the Board of Directors the engagement of the Company's
independent public accountants, reviewing with such accountants the plans for
and the results and scope of their auditing engagement, and certain other
matters relating to their services provided to the Company, including the
independence of such accountants.

32
<PAGE> 34

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 13, 1998 by (i) each person
who is known by the Company to be the beneficial owner of more than five percent
of the Company's outstanding Common Stock, (ii) each Director of the Company,
(iii) certain executive officers of the Company, (iv) the Selling Stockholder,
and (v) all Directors and executive officers of the Company as a group, together
with their respective percentage ownership of such shares before the Offering
and as adjusted to reflect the sale of Common Stock offered hereby. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. Unless otherwise indicated, the address of each
stockholder is: c/o ProMedCo Management Company, 801 Cherry Street, Suite 1450,
Fort Worth, Texas 76102.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED AFTER
BEFORE THE OFFERING(1) THE OFFERING
NUMBER AND ADDRESS ----------------------- SHARES -------------------
OF BENEFICIAL OWNER NUMBER PERCENT BEING SOLD NUMBER PERCENT
- ------------------- ----------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
H. Wayne Posey.............................. 1,544,665 11.2% 400,000 1,144,665 5.8%
Richard E. Ragsdale......................... 2,086,540 15.1% -- 2,086,540 10.5%
David T. Bailey, M.D.(2).................... 2,350 * -- 2,350 *
Charles J. Buysse, M.D. .................... 2,200 * -- 2,200 *
E. Thomas Chaney............................ 1,114,780 8.3% -- 1,114,780 5.7%
James F. Herd, M.D. ........................ 155,020 1.2% -- 155,020 *
Jack W. McCaslin............................ 377,952 2.9% -- 377,952 2.0%
Robert D. Smith............................. 11,500 * -- 11,500 *
Robert M. Sontheimer........................ 348,242 2.7% -- 348,242 1.8%
Charles W. McQueary......................... 8,000 * -- 8,000 *
Richard D'Antoni(3)......................... 321,000 2.4% -- 321,000 1.7%
Dale K. Edwards............................. 104,000 * -- 104,000 *
R. Alan Gleghorn............................ 69,400 * -- 69,400 *
Deborah A. Johnson.......................... 31,666 * -- 31,666 *
Abilene Diagnostic Clinic, P.L.L.C. ........ 1,994,250 15.4% -- 1,994,250 10.5%
T. Rowe Price Associates(4)................. 844,900 6.5% -- 844,900 4.5%
Bessemer Venture Partners III L.P.(5)....... 691,528 5.3% -- 691,528 3.6%
All Directors and executive officers as a
group (14 persons)........................ 6,177,315 38.7% 400,000 5,777,315 26.3%
</TABLE>

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

* Less than 1%

(1) Includes shares issuable upon the exercise of options that are exercisable
within 60 days of the date of this Prospectus. The shares underlying such
options are deemed to be outstanding for the purpose of computing the
percentage of outstanding stock owned by such persons individually and by
each group of which they are a member, but are not deemed to be outstanding
for the purpose of computing the percentage of any other person.

(2) Excludes 1,994,250 shares held by Abilene Diagnostic Clinic, P.L.L.C., of
which Dr. Bailey is President.

(3) Mr. D'Antoni resigned as an officer of the Company in November 1997.

(4) Based upon a Schedule 13G filed with the Securities and Exchange Commission
(the "Commission") on February 10, 1998. The stockholder has sole investment
power with respect to all of such shares and sole voting power with respect
to 362,300 of such shares. These securities are owned by various individual
and institutional investors for which T. Rowe Price Associates, Inc. serves
as investment adviser with power to direct investments and/or sole power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, T. Rowe Price Associates is deemed to be a
beneficial owner of such securities; however, T. Rowe Price Associates
expressly disclaims that it is in fact, the beneficial owner of such
securities. The address of T. Rowe Price Associates is 100 East Pratt
Street, Baltimore, Maryland 21202.

(5) Based upon a Schedule 13G filed with the Commission on February 12, 1998.
Comprised of 655,310 shares as to which the owner has sole investment and
voting power and 36,218 shares as to which it has shared investment and
voting power. The address of Bessemer Venture Partners is 1025 Old Country
Road, Suite 205, Westbury, New York 11590.

33
<PAGE> 35

SHARES ELIGIBLE FOR FUTURE SALE

As of December 31, 1997, on a pro forma basis after giving effect to the
subsequent issuance of shares in connection with certain prior physician group
affiliations and the Offering, 18,906,893 shares of Common Stock (19,866,893 if
the Underwriters' over-allotment option is exercised in full) were outstanding.
Upon completion of the Offering, approximately 10.7 million or 56.6%, of such
shares may be sold without restriction under the Securities Act. The remaining
shares are "restricted securities" within the meaning of Rule 144 promulgated
under the Securities Act (the "Restricted Shares"), and may be publicly resold
only if registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as Rule 144.

In general, under Rule 144 as currently in effect, a person who has
beneficially owned Restricted Shares for at least one year, including an
"affiliate" of the Company, is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of 1% of the
then outstanding shares of Common Stock of the Company or the average weekly
trading volume of Common Stock on the open market during the four calendar weeks
preceding the date of which notice of the sale is filed with the Commission.
Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice and availability of current public information about the Company. A
person who has not been an "affiliate" at any time during the 90 days preceding
a sale, and who has beneficially owned shares for at least two years, is
entitled to sell such shares free of certain of these restrictions.

The shares of Common Stock offered hereby may be resold without restriction
under the Securities Act except for any such shares acquired by an "affiliate"
of the Company, which shares will be subject to the resale limitations of Rule
144. The Company is unable to make any prediction as to the effect, if any, that
the availability of Common Stock for sale, or the future sales of Common Stock,
under Rule 144 or otherwise, will have on the prevailing market price of Common
Stock. Sales of substantial amounts of Common Stock in the public market, or the
perception of the availability of shares for sale, could adversely affect the
prevailing market price of the Common Stock.

The Company's directors and officers have agreed not to dispose of any
shares of Common Stock for a period of 90 days from the date of this Prospectus,
other than pursuant to the Offering, without the prior written consent of Piper
Jaffray Inc., as representative of the Underwriters. See "Underwriting."

Certain holders have demand and "piggyback" registration rights with
respect to shares of Common Stock held by them or issuable to them, which rights
allow them to require the Company, subject to certain conditions, to file a
registration statement covering the sale of such shares. In addition, the
Company has filed a registration statement covering 3,100,000 shares of Common
Stock reserved for issuance under the Company's stock option plans.

34
<PAGE> 36

UNDERWRITING

The Underwriters named below have agreed, subject to the terms of a
Purchase Agreement, to purchase from the Company and the Selling Stockholder the
number of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- -----------
<S> <C>
Piper Jaffray Inc. .........................................
Bear, Stearns & Co. Inc. ...................................
Cowen & Company.............................................
-----------
Total..................................................
===========
</TABLE>

The Underwriters have advised the Company and the Selling Stockholder that
they propose to offer the shares directly to the public at the public offering
price set forth on the cover page of this Prospectus and to selected dealers at
such price less a concession not in excess of $ per share. The
Underwriters may allow and such dealers may reallow a concession not in excess
of $ per share to certain other brokers and dealers. After the public
offering, the public offering price, concession and reallowance, and other
selling terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, under which the
Underwriters may purchase up to an additional 960,000 shares of Common Stock
from the Company at the Price to Public less the Underwriting Discount set forth
on the cover page of the Prospectus. The Underwriters may exercise the option
only to cover over-allotments, if any. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as it was
obligated to purchase under the Purchase Agreement.

The officers and directors of the Company, who will beneficially own in the
aggregate 5,391,315 shares of Common Stock upon completion of the Offering, have
agreed that they will not sell, offer to sell, distribute, or otherwise dispose
of any shares of Common Stock owned by them for a period of 90 days after the
date of this Prospectus, without the prior written consent of Piper Jaffray Inc.
The Company has agreed that it will not, without the prior written consent of
Piper Jaffray Inc., offer, sell, issue, or otherwise dispose of any shares of
Common Stock, options, or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock during
the 90-day period following the date of this Prospectus, except that the Company
may issue shares upon the exercise of options and warrants granted prior to the
date hereof, may grant additional options under its stock option plans, and may
issue Common Stock in connection with affiliations with new physician groups.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the over-
allotment option granted to the Underwriters. In addition, the Underwriters may
stabilize or maintain the price of the Common Stock by bidding for or purchasing
shares of Common Stock in the open market and may impose penalty bids, under
which selling concessions allowed to syndicate members or other broker-dealers
participating in the Offering are reclaimed if shares of Common Stock previously
distributed in the Offering are repurchased in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the Common Stock at a level above that
35
<PAGE> 37

which might otherwise prevail in the open market. The imposition of a penalty
bid may also affect the price of the Common Stock to the extent that it
discourages resales thereof. No representations are made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

In connection with this Offering, certain Underwriters (and selling group
members) may also engage in passive market making transactions in the Common
Stock on the Nasdaq National Market. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the prices of
independent market makers and effecting purchases limited by such prices and in
response to order flow. Rule 103 of Regulation M promulgated by the Commission
limits the amount of net purchases that each passive market maker may make and
the displayed size of each bid. Passive market making may stabilize the market
price of the Common Stock at a level above that which might otherwise prevail in
the open market and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Dyer Ellis & Joseph P.C., Washington, D.C.
Certain legal matters with respect to such securities will be passed upon for
the Underwriters by Vinson & Elkins L.L.P., Dallas, Texas.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1996 and 1997 and for the years ended December 31, 1995, 1996, and 1997 included
in this Prospectus and elsewhere in the Registration Statement (as defined
herein) have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

The financial statements of Southwest Florida Clinical Practices and IMG,
Inc. incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.

The financial statements of Health Plans, Inc. appearing in the Company's
Current Report on Form 8-K dated February 17, 1998 for the year ended December
31, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements referred to above are incorporated herein
by reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

The consolidated financial statements of Berkshire Physicians & Surgeons,
P.C. as of December 31, 1996 and 1997 and for the years ended December 31, 1996
and 1997 included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.

36
<PAGE> 38

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files reports, proxy and information statements and
other information with the Commission. The reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at the principal offices of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Commission maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
Common Stock. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in this Prospectus concerning the contents of any
documents referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description, and
each such statement shall be deemed qualified in its entirety by such reference.

The Common Stock is quoted on the Nasdaq National Market under the symbol
"PMCO." Reports, proxy and information statements and other information
concerning the Company may be inspected at the offices of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission under the
Exchange Act are hereby incorporated by reference into this Prospectus:

(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;

(b) the description of the Common Stock contained in the Company's
Form 8-A Registration Statement filed with the Commission on March 3, 1997
(File No. 0-21373);

(c) the Company's definitive proxy statement for its 1998 Annual
Meeting of Stockholders filed with the Commission on April 23, 1998;

(d) the financial statements of Southwest Florida Clinic Practices,
included in the Company's Amendment to Report on Form 8-K filed with the
Commission on July 7, 1997;

(e) the financial statements of IMG, Inc. (formerly known as
Intercoastal Medical Group, Inc.), included in the Company's Amendment to
Report on Form 8-K filed with the Commission on December 22, 1997;

(f) the financial statements of Health Plans, Inc., included in the
Company's Amendment to Report on Form 8-K filed with the Commission on
February 17, 1998; and

(g) the Company's Report on Form 8-K reporting the completion of the
Berkshire affiliation filed with the Commission on May 1, 1998.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents.
37
<PAGE> 39

Any statement or information contained herein or in any document all or
part of which is incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement or information contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement or information. Any such
statement or information so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Investor Relations, ProMedCo Management Company, 801 Cherry Street,
Suite 1450, Fort Worth, Texas 76102.

38
<PAGE> 40

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C>
PROMEDCO MANAGEMENT COMPANY
Pro Forma Consolidated Financial Statements (Unaudited)..... F-2
Pro Forma Consolidated Balance Sheet as of December 31,
1997 (Unaudited)...................................... F-3
Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 1997 (Unaudited).............. F-4
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)........................................... F-5
Consolidated Financial Statements:
Report of Independent Public Accountants............... F-9
Consolidated Balance Sheets as of December 31, 1996 and
1997.................................................. F-10
Consolidated Statements of Operations for the Three
Years Ended December 31, 1997......................... F-12
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31, 1997................... F-13
Consolidated Statements of Cash Flows for the Three
Years Ended December 31, 1997......................... F-14
Notes to Consolidated Financial Statements............. F-15

BERKSHIRE PHYSICIANS & SURGEONS, P.C.
Consolidated Financial Statements:
Report of Independent Accountants...................... F-31
Consolidated Balance Sheets as of December 31, 1996 and
1997.................................................. F-32
Consolidated Statements of Operations for the years
ended December 31, 1996 and 1997...................... F-33
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the years ended December 31, 1996
and 1997.............................................. F-34
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1997...................... F-35
Notes to Consolidated Financial Statements............. F-36
</TABLE>

F-1
<PAGE> 41

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The pro forma consolidated balance sheet presented below gives effect to
the Berkshire affiliation and the Offering as if such transactions had occurred
on December 31, 1997.

The pro forma consolidated statement of operations for the year ended
December 31, 1997, gives effect to the 1997 Affiliations and the Christie
affiliation (the "1997 Transactions"), the Berkshire affiliation and the
Offering as if such transactions had been completed on January 1, 1997. The pro
forma consolidated statement of operations is based on the financial statements
of the Company and the affiliated physician groups, giving effect to the
Berkshire affiliation and the 1997 Affiliations under the purchase method of
accounting, and the assumptions and adjustments in the accompanying notes to pro
forma consolidated financial information.

The pro forma consolidated financial statements have been prepared by
management based on the audited financial statements of the affiliated physician
groups, adjusted where necessary to reflect the affiliations and related
operations as if the service agreements between the Company and such groups had
been in effect during the entire periods presented. These pro forma consolidated
financial statements are presented for illustrative purposes only and are not
indicative of the results that would have occurred if the Berkshire affiliation
and the 1997 Transactions had been completed on January 1, 1997 or that may be
obtained in the future. The pro forma consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto of the Company and Berkshire Physicians & Surgeons, P.C. included
elsewhere in this Prospectus and for, Abilene Diagnostic Clinic, P.L.L.C.
included in the Company's registration statement on Form S-1 and related
prospectus dated March 12, 1997, the Southwest Florida Clinic Practices included
in the Company's Current Report on Form 8-K dated April 23, 1997, IMG, Inc.
included in the Company's Current Report on Form 8-K dated October 8, 1997 and
Health Plans, Inc., included in the Company's Current Report on Form 8-K dated
December 2, 1997.

F-2
<PAGE> 42

PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
BERKSHIRE BERKSHIRE OFFERING PRO FORMA
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) AS ADJUSTED
------------ ------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash............................ $ 15,760,920 $ 1,185,042 $ -- $ 16,945,962 $ 33,262,000 $ 50,207,962
Accounts receivable............. 24,420,979 4,402,454 -- 28,823,433 -- 28,823,433
Management fee receivable....... 1,938,464 -- -- 1,938,464 -- 1,938,464
Due from affiliated physician
groups........................ 2,870,607 -- -- 2,870,607 -- 2,870,607
Prepaid expense and other
current assets................ 4,960,385 1,397,271 -- 6,357,656 -- 6,357,656
------------ ----------- ----------- ------------ ------------ ------------
Total current assets... 49,951,355 6,984,767 -- 56,936,122 33,262,000 90,198,122
Property and equipment.......... 10,590,561 4,649,052 (3,577,791)(b) 11,661,822 -- 11,661,822
Intangible assets............... 77,195,351 -- 28,422,994(a) 105,618,345 -- 105,618,345
Long term receivables........... 23,915,884 -- -- 23,915,884 -- 23,915,884
Other assets.................... 1,312,999 220,083 -- 1,533,082 -- 1,533,082
------------ ----------- ----------- ------------ ------------ ------------
Total assets........... $162,966,150 $11,853,902 $24,845,203 $199,665,255 $ 33,262,000 $232,927,255
============ =========== =========== ============ ============ ============
Accounts payable................ $ 6,687,168 $ 3,774,701 $ -- $ 10,461,869 $ -- $ 10,461,869
Payable to affiliated physician
groups........................ 6,562,903 -- -- 6,562,903 -- 6,562,903
Accrued physician
compensation.................. -- 1,879,175 -- 1,879,175 -- 1,879,175
Accrued salaries, wages and
benefits...................... 2,895,023 1,552,711 -- 4,447,734 -- 4,447,734
Accrued expenses and other
current liabilities........... 2,512,769 -- -- 2,512,769 -- 2,512,769
Deferred income tax liability... 174,101 -- -- 174,101 -- 174,101
Current maturities of notes
payable....................... 3,676,365 7,569,132 (7,569,132)(b) 3,676,365 -- 3,676,365
Current portion of obligations
under capital leases.......... 609,591 644,665 (644,665)(b) 609,591 -- 609,591
Current portion of deferred
purchase price................ 5,265,713 -- -- 5,265,713 -- 5,265,713
Income taxes payable............ 1,051,050 -- -- 1,051,050 -- 1,051,050
------------ ----------- ----------- ------------ ------------ ------------
Total current
liabilities.......... 29,434,683 15,420,384 (8,213,797) 36,641,270 -- 36,641,270
Notes payable, net of current
maturities.................... 39,688,325 339,172 (339,172)(b) 55,758,325 (49,038,000) 6,720,325
16,070,000(d)
Obligations under capital
leases, net of current
portion....................... 1,073,886 2,014,670 (2,014,670)(b) 1,073,886 -- 1,073,886
Deferred purchase price, net of
current portion............... 7,318,526 -- -- 7,318,526 -- 7,318,526
Convertible subordinated notes
payable....................... 1,765,058 -- 7,572,518(d) 9,337,576 -- 9,337,576
Deferred income tax liability... 1,103,876 -- -- 1,103,876 -- 1,103,876
Other long term liabilities..... 1,963,059 -- -- 1,963,059 -- 1,963,059
------------ ----------- ----------- ------------ ------------ ------------
Total liabilities...... 82,347,413 17,774,226 13,074,879 113,196,518 (49,038,000) 64,158,518
Common stock.................... 106,868 334 (334)(c) 110,812 60,000 170,812
3,944(d)
Additional paid in capital...... 58,946,838 593,052 (593,052)(c) 64,792,894 82,240,000 147,032,894
5,846,056(d)
Common stock to be issued....... 20,121,059 -- -- 20,121,059 -- 20,121,059
Stockholder notes receivable.... (369,665) (335,204) 335,204(c) (369,665) -- (369,665)
Accumulated earnings
(deficit)..................... 1,813,637 (6,178,506) 6,178,506(c) 1,813,637 -- 1,813,637
------------ ----------- ----------- ------------ ------------ ------------
Total stockholders'
equity............... 80,618,737 (5,920,324) 11,770,324 86,468,737 82,300,000 168,768,737
------------ ----------- ----------- ------------ ------------ ------------
Total liabilities and
stockholders'
equity............... $162,966,150 $11,853,902 $24,845,203 $199,665,255 $ 33,262,000 $232,927,255
============ =========== =========== ============ ============ ============
</TABLE>

F-3
<PAGE> 43

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1997 BERKSHIRE BERKSHIRE
HISTORICAL(F) TRANSACTIONS(G) ADJUSTMENTS AFFILIATION(O) ADJUSTMENTS
------------- --------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Physician groups revenue,
net........................... $127,716,775 $95,005,638 $ -- $ 42,128,650 $ --
Less: Amounts retained by
physician group............... 47,075,240 28,631,514 (28,631,514)(h) 14,877,480 (14,877,480)(p)
28,819,657(h) 7,664,957(p)
------------ ----------- ------------ ------------ ------------
Management fee revenue......... 80,641,535 66,374,124 (188,143) 27,251,170 7,212,523
Operating expenses
Clinic salaries and
benefits.................... 29,859,718 23,616,700 (2,799,907)(i) 12,035,052 (691,323)(q)
Clinic rent and lease
expense..................... 7,016,261 4,428,419 -- 2,173,514 145,000(r)
Clinic supplies............... 9,667,085 6,638,431 -- 3,319,753 --
Purchased medical services.... 7,946,989 25,647,017 -- 9,731,890 --
Other clinic costs............ 10,883,588 5,365,285 (24,322)(j) 4,435,660 (755,160)(s)
General corporate expenses.... 3,793,552 -- -- -- --
Depreciation and
amortization................ 2,942,604 932,151 (223,318)(k) 1,218,025 (359,301)(t)
311,238(l) 947,433(u)
Interest expense (revenue),
net......................... 456,175 312,285 (242,295)(m) 949,683 (949,683)(v)
(1,026,889)(g)(m) 359,695(v)
------------ ----------- ------------ ------------ ------------
72,565,972 66,940,288 (4,005,493) 33,863,577 (1,303,339)
------------ ----------- ------------ ------------ ------------
Income (loss) before provision
for income taxes.............. 8,075,563 (566,164) 3,817,350 (6,612,407) 8,515,862
Provision for income taxes..... 2,602,379 (87,406) 1,789,192(n) 58,569 664,744(w)
------------ ----------- ------------ ------------ ------------
Net income (loss).............. $ 5,473,184 $ (478,758) $ 2,028,158 $ (6,670,976) $ 7,851,118
============ =========== ============ ============ ============
Net income (loss) per share
outstanding
Basic....................... $ 0.48
Diluted..................... $ 0.38
Weighted average number of
common shares outstanding
Basic....................... 11,375,662
Diluted..................... 14,224,198

<CAPTION>
OFFERING PRO FORMA
PRO FORMA ADJUSTMENTS(X) AS ADJUSTED
------------ -------------- ------------
<S> <C> <C> <C>
Physician groups revenue,
net........................... $264,851,063 $ -- $264,851,063
Less: Amounts retained by
physician group............... 83,559,854 -- 83,559,854
------------ --------- ------------
Management fee revenue......... 181,291,209 -- 181,291,209
Operating expenses
Clinic salaries and
benefits.................... 62,020,240 -- 62,020,240
Clinic rent and lease
expense..................... 13,763,194 -- 13,763,194
Clinic supplies............... 19,625,269 -- 19,625,269
Purchased medical services.... 43,325,896 -- 43,325,896
Other clinic costs............ 19,905,051 -- 19,905,051
General corporate expenses.... 3,793,552 -- 3,793,552
Depreciation and
amortization................ 5,768,832 -- 5,768,832
Interest expense (revenue),
net......................... (141,029) (671,655) (812,684)
------------ --------- ------------
168,061,005 (671,655) 167,389,350
------------ --------- ------------
Income (loss) before provision
for income taxes.............. 13,230,204 671,655 13,901,859
Provision for income taxes..... 5,027,478 255,229 5,282,707
------------ --------- ------------
Net income (loss).............. $ 8,202,726 $ 416,426 $ 8,619,152
============ ========= ============
Net income (loss) per share
outstanding
Basic....................... $ 0.46
Diluted..................... $ 0.40
Weighted average number of
common shares outstanding
Basic....................... 18,595,099
Diluted..................... 21,443,635
</TABLE>

F-4
<PAGE> 44

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

During 1997 and through the date of this Prospectus, the Company acquired
certain operating assets and assumed certain operating liabilities of physician
groups located in Florida, Massachusetts, Pennsylvania, Tennessee and Texas. The
Company also entered into a long term service agreement with a physician group
in Illinois. In addition, the Company acquired all of the outstanding stock of
Health Plans, Inc., since renamed PMC, which provides a full range of managed
care services to capitated providers.

PHYSICIAN GROUPS REVENUE, NET

Physician groups revenue represents the revenue of the affiliated physician
groups reported at the estimated realizable amounts from patients, third-party
payors, and others for services rendered, net of contractual and other
adjustments.

MANAGEMENT FEE REVENUE

Management fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups
(typically 80-85% of the physician group operating income) represent amounts
paid to the physician groups pursuant to the service agreements between the
Company and the physician groups. Under the service agreements, the Company
provides each physician group with the facilities and equipment used in its
medical practice, assumes responsibility for the management of the operations of
the practice, and employs substantially all of the non-physician personnel
utilized by the group.

The Company's management fee revenue is dependent upon the operating income
of the physician groups. Physician group operating income is defined in the
service agreements as the physician group's net medical revenue less certain
contractually agreed-upon clinic expenses, including non-physician clinic
salaries and benefits, rent, insurance, interest, and other direct clinic
expenses. The amount of the physician groups revenue retained and paid to the
physician groups primarily consists of the cost of the affiliated physicians'
services. The remaining amount of the physician group operating income
(typically 15-20%) and an amount equal to 100% of the clinic expenses are
reflected as management fee revenue earned by the Company.

PRO FORMA CONSOLIDATED BALANCE SHEET

The adjustments reflected in the December 31, 1997 pro forma consolidated
balance sheet are as follows:

(a) To record the assets acquired and liabilities assumed by ProMedCo
(to be adjusted for assets not acquired and liabilities not assumed, as
noted in note (b)) in the Berkshire affiliation. This acquisition has been
accounted for by the purchase method of accounting and, accordingly, the
purchase price has been preliminarily allocated to the assets acquired and
liabilities assumed based on the estimated fair values as of December 31,
1997. Certain balances have been reclassified from the historical audited
financial statements of Berkshire to conform with the Company's
presentation. The total consideration of the transaction is approximately
$29.5 million, consisting of $16.1 million cash, $5.8 million of the
Company's Common Stock, and $7.6 million of convertible subordinated notes.
The cash portion of the consideration was funded through additional
borrowings under the Company's Credit Facility. The fair value of the
clinic net assets was determined based on an analysis of estimated future
clinic operating results. The following methods and assumptions were used
to estimate fair value:

Cash and cash equivalents -- The historical carrying amount
approximates fair value.

Accounts receivable, net -- The Company reviewed the specific
receivable balances and determined that their historical carrying amount
approximates their fair value.

Property and equipment, net -- The Company acquires only specific
non-real estate assets. The Company performed an asset review and
determined that the historical carrying amount approximates fair value.

Liabilities assumed -- Given the short term nature of the
liabilities assumed, the historical carrying amount approximates their
fair value.
F-5
<PAGE> 45
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible assets -- In connection with the allocation of the
purchase price to identifiable intangible assets, the Company analyzes
the nature of each group, the number of service sites and ability to
recruit addition physicians, the group's relative market position, the
length of time each group has been in existence, and the term and
enforceability of the service agreement. Because the Company does not
practice medicine, maintain patient relationships, hire physicians,
enter into employment and non-competition agreements with the
physicians, or directly contract with payors, the intangible asset
created in the purchase allocation process is associated solely with the
service agreement of the physician group. The service agreements are for
a term of 40 years and cannot be terminated by either party without
cause, consisting primarily of bankruptcy or material default.

The Company believes that there is no material value to the Company
allocable to the employment and non-competition agreements entered into
between the physician group and the individual physicians. The primary
economic beneficiary of these agreements is the physician group, an
entity that the Company does not legally control. In addition, any
damages under the agreements are paid solely to the physician group for
purposes of replacing departing physicians. Generally, due to low
expected physician turnover in the industry and the ability of the
physician group to replace departing physicians, the Company believes
there would be no significant economic loss to either the physician
group or the Company due to physician departure. The physician groups
continually recruit physicians and, as appropriate and necessary,
subsequently add qualified physicians to the group. This manner of
operations allows the physician group to perpetuate itself as individual
physicians retire or are otherwise replaced. The Company believes that
the physician groups with which it has service agreements thus are
long-lived entities with an indeterminable life, and that the
physicians, customer demographics, and various contracts will be
continuously replaced. The service agreement intangible is being
amortized on a straight-line method over a composite average life of 30
years.

(b) To eliminate assets not acquired and liabilities not assumed by
ProMedCo in the Berkshire affiliation as stated in the purchase agreement.

(d) To record borrowings under the Company's Credit Facility for the
cash payment, stock issued and subordinated notes payable issued at closing
in exchange for assets acquired and liabilities assumed in connection with
the Berkshire affiliation. The subordinated notes payable bear interest at
4.75% and are convertible at a 20% premium to the Closing Price of the
Company's Common Stock, as defined in the purchase agreement for the
Berkshire affiliation.

(e) To reflect the effects of the Offering (at an assumed offering
price of $14.50).

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The adjustments reflected in the pro forma consolidated statement of
operations for the year ended December 31, 1997 are as follows:

(f) The historical consolidated statement of operations includes the
combined results of operations of the Company and Western Medical
Management Corp., Inc. ("Reno"). The Reno business combination (the "Reno
merger") was completed on March 17, 1997, and was accounted for as a
pooling of interests.

(g) The 1997 Transactions column represents the historical revenues
and expenses of the physician groups for that portion of the year preceding
the groups' affiliation with the Company. The 1997 Transactions include
Abilene Diagnostic Clinic, P.L.L.C.; Naples Medical Center, P.A.; Naples
Obstetrics & Gynecology, M.D., P.A.; IMG, Inc.; Cowley Medical Associates,
P.C.; Health Plans, Inc.; HealthStar, Inc.; Thomas-Spann Clinic, P.A.; and
the Christie affiliation.
F-6
<PAGE> 46
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the August 1997 Christie affiliation, the Company
agreed to lend the physician group a total of $42.7 million. An initial
loan of $3.0 million was funded in November 1997 and an additional $16.4
million was funded in December 1997, with additional loans of $5.825
million to be funded each December through 2001. The note receivable earns
interest at an annual rate of 8% and is an interest only loan, payable
monthly, through November 2007, after which the balance is to be repaid in
annual installments through December 2022.

(h) To eliminate the historical amounts retained by physician groups,
physician benefits and other physician-related costs and to record the
amounts retained by physician groups to the percentage specified in the
service agreement (typically 80-85% of each of the physician group's
operating income) for each affiliated physician group in the 1997
Affiliations, the Christie affiliation and the Reno merger. The adjustment
is for the periods that the physician groups were not managed under the
service agreements.

(i) To eliminate the salaries and benefits of mid-level providers at
historical levels in the 1997 Transactions for the periods not covered by
the service agreements. The service agreements provide that these costs are
the responsibility of the physician groups and thus are included in the
amounts retained by physician groups. The adjustment is for the periods the
physician groups were not managed under the service agreements.

(j) To eliminate physician benefits and other physician related costs,
such as professional licenses, continuing education and subscriptions that
will not be paid by the Company.

(k) To eliminate the depreciation and amortization expense recorded by
the physician groups associated with assets not acquired in the 1997
Transactions at historical values. The adjustment is for the periods the
physician groups were not managed under the service agreements.

(l) To adjust depreciation expense and amortization expense in the
1997 Transactions. For service agreement rights, the adjustment for
amortization expense is computed by dividing total service agreement rights
acquired by a composite average life of 30 years, less agreement
amortization expense recorded on an historical basis. The adjustments
assume the acquired assets were held for the entire period presented.

(m) To eliminate interest expense related to liabilities not assumed
and record interest on debt issued in connection with the 1997
Transactions. Additional interest income is recorded on the loan to
Christie Clinic Association based on the outstanding balance as of December
31, 1997 as if the amount had been outstanding as of January 1, 1997.

(n) To record an estimate of the overall provision for income taxes
for the consolidated operations of the historical results of the Company
plus the 1997 Transactions at an estimated effective rate of 38%.

(o) The Berkshire affiliation represents the historical consolidated
revenues and expenses of Berkshire Physicians & Surgeons, P.C. for the year
ended December 31, 1997. Certain balances have been reclassified from the
historical financial statements to conform with the Company's presentation.

(p) To eliminate the historical amounts retained by the physician
group and record the amounts retained by the physician group based on the
percentage specified in the service agreement entered into with the
physician group.

(q) To eliminate the salaries and benefits of mid-level providers at
historical levels for the periods not covered by the service agreements.
The service agreement provides that these costs are the responsibility of
the physician group and thus are included in the amounts retained by
physician groups.

(r) To record additional rent expense related to the rental of clinic
space from the physician group.

(s) To eliminate physician related costs, such as professional
licenses, continuing education and subscriptions, that will not be paid by
the Company.

F-7
<PAGE> 47
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(t) To eliminate the depreciation and amortization expense associated
with assets not acquired, at historical values.

(u) To adjust depreciation and amortization expense. For service
agreement rights, the adjustment for amortization expense is computed by
dividing total service agreement rights acquired by a composite average
life of 30 years, less agreement amortization expense recorded on an
historical basis. The adjustments assume the acquired assets were held for
the entire period presented.

(v) To eliminate interest expense related to liabilities not assumed
and record interest on debt issued in connection with the Berkshire
affiliation.

(w) To record an estimate of the provision for income taxes for the
pro forma results of operations from the Berkshire affiliation at an
estimated effective rate of 38%.

(x) To reduce interest expense assuming repayment of outstanding
borrowings under the Credit Facility with a portion of the proceeds of the
Offering received as of January 1, 1997, net of estimated federal and state
income taxes at a combined rate of 38%.

F-8
<PAGE> 48

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
ProMedCo Management Company:

We have audited the accompanying consolidated balance sheets of ProMedCo
Management Company (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ProMedCo Management Company
and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Fort Worth, Texas,
March 3, 1998

F-9
<PAGE> 49

PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,633,534 $ 15,760,920
Accounts receivable, net of allowances of approximately
$4,035,000 and $19,281,000, respectively............. 6,227,228 24,420,979
Management fees receivable............................. 1,266,598 1,938,464
Due from affiliated physician groups................... 660,278 2,870,607
Prepaid expenses and other current assets.............. 742,845 4,960,385
----------- ------------
Total current assets.............................. 10,530,483 49,951,355
Property and equipment, net of accumulated depreciation of
approximately $865,000 and $2,630,000, respectively.... 3,930,191 10,590,561
Intangible assets, net of accumulated amortization of
$289,000 and $1,775,000, respectively.................. 14,860,171 77,195,351
Long term receivables....................................... -- 23,915,884
Other assets................................................ 1,238,929 1,312,999
----------- ------------
Total assets...................................... $30,559,774 $162,966,150
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 50

PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,505,762 $ 6,687,168
Payable to affiliated physician groups.................... 1,341,876 6,562,903
Accrued salaries, wages and benefits...................... 1,153,558 2,895,023
Accrued expenses and other current liabilities............ 2,353,381 2,512,769
Deferred income tax liability............................. -- 174,101
Current maturities of notes payable....................... 1,151,191 3,676,365
Current portion of obligations under capital leases....... 589,438 609,591
Current portion of deferred purchase price................ 181,986 5,265,713
Income taxes payable...................................... -- 1,051,050
----------- ------------
Total current liabilities............................ 8,277,192 29,434,683
Notes payable, net of current maturities.................... 4,585,173 39,688,325
Obligations under capital leases, net of current portion.... 1,030,171 1,073,886
Deferred purchase price, net of current portion............. -- 7,318,526
Convertible subordinated notes payable...................... 1,800,274 1,765,058
Deferred income tax liability............................... -- 1,103,876
Other long term liabilities................................. 393,575 1,963,059
----------- ------------
Total liabilities.................................... 16,086,385 82,347,413
----------- ------------
Commitments and contingencies
Series A redeemable convertible preferred stock, 700,000 and
0 shares authorized; 500,000 and 0 shares issued and
outstanding in 1996 and 1997, respectively................ 2,957,641 --
Redeemable common stock, 165,296 and 0 shares issued and
outstanding in 1996 and 1997, respectively................ 991,776 --
Stockholders' equity:
Preferred stock, $0.01 par value, 19,300,000 and
20,000,000 shares authorized, 0 shares issued and
outstanding in 1996 and 1997, respectively............. -- --
Class B Common Stock, $0.01 par value; 2,600,000 and 0
shares authorized; 1,226,150 and 0 shares issued and
outstanding in 1996 and 1997, respectively............. 12,262 --
Common stock, $0.01 par value; 47,400,000 and 50,000,000
shares authorized; 3,187,129 and 10,686,767 shares
issued and outstanding in 1996 and 1997,
respectively........................................... 31,871 106,868
Additional paid-in-capital................................ 11,987,480 58,946,838
Common stock to be issued, 187,482 and 2,875,073 shares,
in 1996 and 1997, respectively......................... 2,303,212 20,121,059
Stockholder notes receivable.............................. (151,306) (369,665)
Accumulated earnings (deficit)............................ (3,659,547) 1,813,637
----------- ------------
Total stockholders' equity........................... 10,523,972 80,618,737
----------- ------------
Total liabilities and stockholders' equity........... $30,559,774 $162,966,150
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 51

PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Physician groups revenue, net....................... $13,188,405 $47,036,801 $127,716,775
Less -- Amounts retained by physician groups........ 5,344,688 20,791,605 47,075,240
----------- ----------- ------------
Management fee revenue.............................. 7,843,717 26,245,196 80,641,535
Operating expenses:
Clinic salaries and benefits................... 4,249,813 11,694,973 29,859,718
Clinic rent and lease expense.................. 708,020 2,670,138 7,016,261
Clinic supplies................................ 624,370 3,213,443 9,667,085
Purchased medical services..................... 781,000 969,650 7,946,989
Other clinic costs............................. 1,759,013 5,018,876 10,883,588
General corporate expenses..................... 802,980 2,633,585 3,793,552
Depreciation and amortization.................. 203,482 723,641 2,942,604
Interest expense............................... 20,958 209,474 456,175
Merger costs................................... -- 682,269 --
----------- ----------- ------------
Total operating expenses.................. 9,149,636 27,816,049 72,565,972
----------- ----------- ------------
Income (loss) before provision (benefit) for income
taxes............................................. (1,305,919) (1,570,853) 8,075,563
Provision (benefit) for income taxes................ (54,405) -- 2,602,379
----------- ----------- ------------
Net income (loss)................................... $(1,251,514) $(1,570,853) $ 5,473,184
=========== =========== ============
Net earnings (loss) per share
Basic.......................................... $ (0.16) $ (0.20) $ 0.48
Diluted........................................ $ (0.16) $ (0.20) $ 0.38
Weighted average number of common shares outstanding
Basic.......................................... 7,871,746 7,870,908 11,375,662
Diluted........................................ 7,871,746 7,870,908 14,224,198
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 52

PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL COMMON STOCKHOLDER
--------------------- --------------------- PAID-IN STOCK TO NOTES
SHARES AMOUNT SHARES AMOUNT CAPITAL BE ISSUED RECEIVABLE
---------- -------- ---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994, as
previously reported............. 1,226,150 $ 12,262 1,878,000 $ 18,780 $ 673,561 $ -- $ (33,500)
Adjustments for pooling of
interest (Note 3)........... -- -- 421,549 4,215 1,585,003 -- --
---------- -------- ---------- -------- ----------- ----------- ---------
Balance, December 31, 1994, as
restated........................ 1,226,150 12,262 2,299,549 22,995 2,258,564 -- (33,500)
Common stock subscribed....... -- -- -- -- -- 4,000 (4,000)
Common stock and warrants
issued...................... -- -- 21,000 210 62,936 -- (10,000)
Stockholder notes payments.... -- -- -- -- -- -- 15,666
Net loss...................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ---------
Balance, December 31, 1995....... 1,226,150 12,262 2,320,549 23,205 2,321,500 4,000 (31,834)
Common stock issued........... -- -- 843,729 8,437 9,634,903 -- (120,000)
Stock options exercised....... -- -- 22,851 229 31,077 -- (31,306)
Stock subscription canceled... -- -- -- -- -- (4,000) 4,000
Common stock to be issued..... -- -- -- -- -- 2,303,212 --
Stockholder notes payments.... -- -- -- -- -- -- 27,834
Net loss...................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ---------
Balance, December 31, 1996....... 1,226,150 12,262 3,187,129 31,871 11,987,480 2,303,212 (151,306)
Common stock issued in initial
public offering, net........ -- -- 4,000,000 40,000 31,705,000 -- --
Redeemable preferred shares
converted................... -- -- 500,000 5,000 2,952,641 -- --
Redeemable common shares
converted................... -- -- 165,296 1,653 990,123 -- --
Class B common converted...... (1,226,150) (12,262) 1,226,150 12,262 -- -- --
Warrants and options
exercised................... -- -- 59,786 597 92,142 -- --
Subordinated notes payable
converted................... -- -- 3,912 39 35,177 -- --
Common stock issued and to be
issued, net................. -- -- 1,608,656 16,087 11,565,716 17,817,847 (249,671)
Treasury stock purchased and
retired..................... -- -- (64,162) (641) (381,441) -- --
Stockholder notes payments.... -- -- -- -- -- -- 31,312
Net income.................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ---------
Balance, December 31, 1997....... -- $ -- 10,686,767 $106,868 $58,946,838 $20,121,059 $(369,665)
========== ======== ========== ======== =========== =========== =========

ACCUMULATED
EARNINGS
(DEFICIT) TOTAL
----------- -----------
<S> <C> <C>
Balance, December 31, 1994, as
previously reported............. $ (169,890) $ 501,213
Adjustments for pooling of
interest (Note 3)........... (667,290) 921,928
----------- -----------
Balance, December 31, 1994, as
restated........................ (837,180) 1,423,141
Common stock subscribed....... -- --
Common stock and warrants
issued...................... -- 53,146
Stockholder notes payments.... -- 15,666
Net loss...................... (1,251,514) (1,251,514)
----------- -----------
Balance, December 31, 1995....... (2,088,694) 240,439
Common stock issued........... -- 9,523,340
Stock options exercised....... -- --
Stock subscription canceled... -- --
Common stock to be issued..... -- 2,303,212
Stockholder notes payments.... -- 27,834
Net loss...................... (1,570,853) (1,570,853)
----------- -----------
Balance, December 31, 1996....... (3,659,547) 10,523,972
Common stock issued in initial
public offering, net........ -- 31,745,000
Redeemable preferred shares
converted................... -- 2,957,641
Redeemable common shares
converted................... -- 991,776
Class B common converted...... -- --
Warrants and options
exercised................... -- 92,739
Subordinated notes payable
converted................... -- 35,216
Common stock issued and to be
issued, net................. -- 29,149,979
Treasury stock purchased and
retired..................... -- (382,082)
Stockholder notes payments.... -- 31,312
Net income.................... 5,473,184 5,473,184
----------- -----------
Balance, December 31, 1997....... $1,813,637 $80,618,737
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 53

PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $(1,251,514) $(1,570,853) $ 5,473,184
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities (net of effects of purchase
transactions)
Depreciation and amortization............. 203,482 723,641 2,942,604
Deferred provision for income taxes....... -- -- 329,840
Net gain on sale of fixed assets.......... (53,370) (229,251) --
Noncash compensation...................... -- 14,750 --
Changes in assets and liabilities
Accounts receivable.................. (345,472) (785,773) (7,179,281)
Management fees receivable........... (116,968) (1,149,630) (592,551)
Due from affiliated physician
groups............................. -- (428,830) (1,972,295)
Prepaid expenses and other current
assets............................. 63,216 (205,401) (2,574,430)
Other assets......................... (13,949) (172,985) (402,298)
Accounts payable..................... 459,442 (96,932) 2,459,925
Payable to affiliated physician
groups............................. (402) 1,242,641 5,191,027
Accrued expenses and other current
liabilities........................ 155,381 1,468,040 (2,401,270)
----------- ----------- -----------
Net cash provided by (used in)
operating activities.......... (900,154) (1,190,583) 1,274,455
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment............ (88,234) (1,102,029) (2,817,907)
Proceeds from sale of equipment................ 218,890 242,175 --
Purchases of clinic assets, net of cash........ (90,424) (2,435,905) (22,391,718)
Increase in long term receivables (net of
effects of purchase transactions)............ -- -- (20,024,375)
----------- ----------- -----------
Net cash provided by (used in)
investing activities.......... 40,232 (3,295,759) (45,234,000)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under notes payable................. 623,740 4,482,557 30,550,891
Payments on notes payable...................... (146,118) (331,715) (2,838,760)
Payments on capital leases..................... (82,895) (70,132) (561,998)
Payment of deferred financing costs............ -- (565,137) (300,500)
Payment of deferred offering costs............. -- (564,427) --
Proceeds from issuance of Series A redeemable
convertible preferred stock.................. 2,953,358 -- --
Proceeds from issuance of common stock......... 63,146 125,000 31,837,739
Purchase and retirement of treasury shares..... -- -- (382,082)
Issuance (payments) of stockholder notes
receivable, net.............................. 5,666 (3,636) (218,359)
----------- ----------- -----------
Net cash provided by financing
activities.................... 3,416,897 3,072,510 58,086,931
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.... 2,556,975 (1,413,832) 14,127,386
Cash and cash equivalents, beginning of period...... 490,391 3,047,366 1,633,534
----------- ----------- -----------
Cash and cash equivalents, end of period............ $ 3,047,366 $ 1,633,534 $15,760,920
=========== =========== ===========
Supplemental disclosure of cash flow information
(See Notes 3 and 7):
Cash paid during the year
Interest expense.......................... $ 37,320 $ 137,242 $ 689,199
Income taxes.............................. $ 67,420 $ -- $ 1,299,118
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 54

PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1996 AND 1997

1. DESCRIPTION OF BUSINESS

ProMedCo Management Company and subsidiaries ("ProMedCo" or the "Company"),
a Delaware corporation, is engaged in operating and managing physician groups.
ProMedCo commenced operations in 1994 and has since affiliated with
approximately 980 providers in 10 states consisting of approximately 350
physicians and 100 mid-level providers (primarily physician assistants and nurse
practitioners) in affiliated physician groups and approximately 530 physicians
in associated IPA networks. During 1997, the Company expanded the scope of its
services by acquiring a provider of capitation management services. These
services include clinical quality assessment, enrollment and patient
registration, capitation processing and payment, utilization management and case
management. Through this wholly-owned subsidiary, the Company contracts with
health maintenance organizations ("HMOs") and other third-party payors to
arrange for the provision of comprehensive health services to their members on a
capitation basis. Currently, the Company provides such services covering
approximately 100,000 capitated lives through its affiliated groups, as well as
through associated IPA networks.

The Company, through its wholly-owned subsidiaries, acquires certain net
assets of and manages physician groups under long term service agreements with
affiliated physician groups. The Company provides administrative and technical
support for professional services rendered by the physician groups under service
agreements. Under the service agreements, the Company is reimbursed for all
clinic expenses, as defined in the agreement, and participates at varying levels
in the excess of net clinic revenue over clinic expenses.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation/Basis of Consolidation

The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its wholly owned
subsidiaries. The Company's subsidiaries acquire the operating assets and assume
certain liabilities of the physician groups and account for the Company's
management activities with the physician groups under the Company's long term
service agreements. The Company does not consolidate the operating results and
accounts of the affiliated physician groups. For display purposes, the Company
has presented the physician groups revenues and amounts retained by the
physician groups (typically 80-85% of the physician groups' operating income and
is paid to the affiliated physicians in accordance with the service agreements)
in the accompanying consolidated statements of operations to arrive at the
Company's management fee revenue. (See further discussion below.) All
significant intercompany accounts and transactions have been eliminated.

In November 1996, the Company entered into a definitive agreement with
Western Medical Management Corp., Inc. ("Reno"), a physician management company.
Under the terms of the agreement, Reno exchanged its common stock for common
stock of the Company upon consummation of the Offering (see Notes 3 and 8). This
transaction has been accounted for as a pooling of interests, as defined by APB
No. 16, "Business Combinations." The accompanying financial statements are based
on the assumption that the companies were combined for the full periods
presented and prior financial statements have been restated to give effect to
the combination.

Certain prior year balances have been reclassified to conform to the 1997
presentation.

Physician Groups Revenue, Net

Physician groups revenue represents the revenue of the physician groups
reported at the estimated realizable amounts from patients, third-party payors,
and others for services rendered, net of contractual and other adjustments.

F-15
<PAGE> 55
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provisions for third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as final settlements are determined. There are no
material claims, disputes, or other unsettled matters that exist to management's
knowledge concerning third-party reimbursements. In addition, management
believes there are no retroactive adjustments that would be material to the
Company's financial statements. During 1996 and 1997, the Company estimates that
approximately 30% and 25%, respectively, of net physician groups revenue, was
received under government-sponsored healthcare programs (principally, the
Medicare and Medicaid programs). The physician groups have numerous agreements
with managed care organizations and other payors to provide physician services
based on negotiated fee schedules. No individual managed care organization or
other payor is material to the Company.

Management Fee Revenue

Management fee revenue represents physician groups revenue less amounts
retained by physician groups. The amounts retained by physician groups
(typically 80-85% of the physician groups' operating income) represents amounts
paid to the physicians pursuant to the service agreements between the Company
and the physician groups. Under the service agreements, the Company provides
each physician group with the facilities and equipment used in its medical
practice, assumes responsibility for the management of the operations of the
practice, and employs substantially all of the non-physician personnel utilized
by the group.

The Company's management fee revenues are dependent upon the operating
income of the physician groups. As discussed previously, the physician groups
retain a fixed percentage (typically 80-85%) of physician group operating
income. Physician group operating income is defined in the service agreements as
the physician group's net medical revenue less certain contractually agreed-upon
clinic expenses, including non-physician clinic salaries and benefits, rent,
insurance, depreciation, interest and other direct clinic expenses. The amount
of the physician groups revenue retained and paid to the physician group
primarily consists of the cost of the affiliated physician services. The
remaining amount of the physician groups operating income (typically 15-20%) and
an amount equal to 100% of the clinic expenses are reflected as management fee
revenue earned by the Company. Other revenue represents fees from management
consulting, supplemental implementation services, and other miscellaneous
revenues.

Management fee revenue is detailed as follows:

<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Component based upon percentage of physician
groups operating income.................... $ 943,180 $ 2,378,966 $ 9,043,126
Reimbursement of clinic expenses............. 6,900,537 23,866,230 65,626,945
Revenue from non-affiliated physician
groups..................................... -- -- 1,317,179
Other revenue.............................. -- -- 4,654,285
---------- ----------- -----------
Management fee revenue....................... $7,843,717 $26,245,196 $80,641,535
========== =========== ===========
</TABLE>

Concentration of Risk

F-16
<PAGE> 56
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Clinic Expenses and General Corporate Expenses

Clinic expenses represent substantially all clinic operating expenses,
including clinic salaries and benefits, rent, supplies, maintenance and repairs,
insurance, utilities, depreciation, interest and other direct clinic expenses.
General corporate expenses represent primarily the salaries and benefits of
corporate headquarters personnel, rent, travel, and other administrative
expenses.

Net Earnings (Loss) Per Share

In September 1995, the Company's Board of Directors declared a two-for-one
split of the Company's Common Stock including the Class B Common Stock. All
share and per share amounts have been restated to reflect the stock split.

The Company adopted the Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" effective December 31, 1997. SFAS No. 128
simplifies the computation of EPS by replacing the presentation of primary EPS
with a presentation of basic EPS. Basic EPS is calculated by dividing income
(loss) available to common shareholders by the weighted average number of common
shares outstanding during the period. Common stock to be issued is assumed to be
common stock outstanding and is included in the weighted average number of
common shares outstanding for the basic EPS calculation. Options, warrants, and
other potentially dilutive securities are excluded from the calculation of basic
EPS. Diluted EPS includes the options, warrants, and other potentially dilutive
securities that are excluded from basic EPS using the treasury method to the
extent that these securities are not anti-dilutive.

There is no difference between basic and diluted EPS for the years ended
December 31, 1995 and 1996 because options, warrants and convertible
subordinated notes payable have an anti-dilutive effect. Similarly, the
convertible subordinated notes payable have been excluded from diluted EPS in
the year ended December 31, 1997 because they are considered to be
anti-dilutive. The following is a reconciliation of basic and diluted EPS for
the year ended December 31, 1997:

<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS...................................... $5,473,184 11,375,662 $0.48
=====
Effect of dilutive securities
Options................................... -- 657,273
Warrants.................................. -- 2,191,263
---------- ----------
Diluted EPS.................................... $5,473,184 14,224,198 $0.38
========== ========== =====
</TABLE>

In accordance with SFAS No. 128, the net earnings (loss) per share for all
prior periods have been restated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents as of December 31, 1997, include approximately $6,317,000 of cash
held in escrow accounts for the payment of premiums under split-dollar life
insurance contracts. (See Note 6.)

F-17
<PAGE> 57
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Accounts Receivable

Accounts receivable principally represents receivables from patients and
other third party payors for medical services provided by the physician groups.
Such amounts are recorded net of contractual allowances and estimated bad debts.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and
equipment are calculated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or estimated useful life of the assets. Routine maintenance and
repairs are charged to expense as incurred, while major renewals or improvements
are capitalized.

Intangible Assets

Service Agreement Rights

The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the affiliated physician
groups. As part of the purchase allocation, the Company allocates the purchase
price to the tangible assets acquired and liabilities assumed, based on
estimated fair market values. In connection with each acquisition, the Company
enters into long term service agreements with the affiliated physician groups.
The service agreements are for a term of 40 years and cannot be terminated by
either party without cause, consisting primarily of bankruptcy or material
default.

In connection with the allocation of the purchase price to identifiable
intangible assets, the Company analyzes the nature of each group with which a
service agreement is entered into, including the number of physicians in each
group, number of service sites and ability to recruit additional physicians, the
Group's relative market position, the length of time each group has been in
existence, and the term and enforceability of the service agreement. Because the
Company does not practice medicine, maintain patient relationships, hire
physicians, enter into employment and noncompete agreements with the physicians,
or directly contract with payors, the intangible asset created in the purchase
allocation process is associated solely with the service agreement with the
physician group.

The Company believes that there is no material value allocable to the
employment and noncompete agreements entered into between the physician group
and the individual physicians. The primary economic beneficiary of these
agreements is the physician group, an entity that the Company does not legally
control. In addition, any damages under the agreements are paid solely to the
physician group for purposes of replacing departing physicians. Generally, due
to low expected physician turnover in the industry and the ability of the
physician group to actively replace departing physicians, there would be no
significant economic loss to either the physician group or the Company due to
physician departure. The physician groups continually recruit physicians and, as
appropriate and necessary, subsequently add qualified physicians to the group.
This manner of operations allows the physician group to perpetuate itself as
individual physicians retire or are otherwise replaced. The Company believes
that the physician groups with which it has service agreements thus are long-
lived entities with an indeterminable life, and that the physicians, customer
demographics, and various contracts will be continuously replaced. The service
agreement intangible is being amortized on a straight-line method over a
composite average life of 30 years.

F-18
<PAGE> 58
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Excess of Cost of Acquired Assets Over Fair Value

Excess of cost of acquired assets over fair value (goodwill) is amortized
using the straight-line method over thirty years.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company periodically reviews its intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If this review
indicates that the carrying amount of the asset may not be recoverable, based on
the undiscounted cash flows of the operations over the remaining amortization
period, then the carrying value of the asset is reduced to fair value. Among the
factors that the Company will continually evaluate are unfavorable changes in
each physician group's relative market share and local market competitive
environment, current period and forecasted operating and cash flow levels of the
physician group and its impact on the management fee earned by the Company, and
legal factors governing the practice of medicine.

Income Taxes

The Company accounts for income taxes under the liability method which
states that deferred taxes are to be determined based on the estimated future
tax effects of differences between the financial statement and tax bases of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions and benefits are based on the changes to the asset or liability
from period to period. The Company and its subsidiaries file a consolidated tax
return.

Use of Estimates

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

F-19
<PAGE> 59
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which allows entities
to measure compensation costs related to awards of stock-based compensation
using either the fair value method or the intrinsic value method. Under the fair
value method, compensation expense is measured at the grant date based on the
fair value of the award. Under the intrinsic value method, compensation expense
is equal to the excess, if any, of the quoted market price of the stock at the
grant date over the amount the employee must pay to acquire the stock. Entities
electing to measure compensation costs using the intrinsic value method must
make pro forma disclosures of net income and earnings per share as if the fair
value method had been applied. The Company has elected to account for
stock-based compensation programs using the intrinsic value method. The
following pro forma disclosures are presented to reflect amounts as if the fair
value method were applied:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net income (loss).................................... $(1,251,514) $(2,045,455) $3,921,296
=========== =========== ==========
Basic net earnings (loss) per share.................. $ (0.16) $ (0.26) $ 0.34
=========== =========== ==========
</TABLE>

The Company used the minimum value method to estimate the fair values of
options for the above pro forma information. For purposes of the minimum value
method, the Company used U.S. Treasury strip rates for its risk-free interest
rates, assumed no future dividends and assumed the expected life of the options
through the applicable expiration dates. For 1995 and 1996, the years prior to
the Offering, the Company assumed no volatility, and assumed a volatility rate
of 58% in 1997. Also see Note 8 -- Stock Option Plans.

New Accounting Pronouncement

The Financial Accounting Standards Board's Emerging Issues Task Force has
issued its abstract, Issue 97-2, "Application of FASB Statement No. 94 and APB
Opinion No. 16 to Physician Practice Management Entities and Certain Other
Entities with Contractual Arrangements" ("EITF 97-2"). EITF 97-2 addresses
issues relating to (1) whether a "controlling financial interest" can be
established through a contractual management agreement under FASB Statement No.
94, (2) whether a transaction between a physician practice management entity
("PPM") and a physician practice in which the PPM enters into a management
agreement with the physician practice should be considered a business
combination and thus accounted for under APB No. 16, (3) whether the
pooling-of-interests method of accounting may be followed in certain
circumstances, (4) what are the common types of intangibles that should be
considered in performing the purchase price allocation and (5) whether an
employee of the physician practice should be considered an employee of the PPM
for purposes of accounting for that individual's stock-based compensation.

The primary effect of this pronouncement on the Company will be the
presentation of revenues. The Company currently presents net physician groups
revenues in its statement of operations. The Company expects to adopt this
pronouncement in the fourth quarter of 1998 and, with such, will no longer
present net physician groups revenue in its consolidated statement of
operations.

F-20
<PAGE> 60
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITIONS

Medical Clinics

During 1997, 1996, and 1995, the Company, through its wholly-owned
subsidiaries, acquired certain operating assets or all of the outstanding stock
of the following physician groups:

<TABLE>
<CAPTION>
PHYSICIAN GROUP EFFECTIVE DATE LOCATION
--------------- ------------------ ------------------
<S> <C> <C> <C>
1997: Naples Medical Center March 1, 1997 Naples, FL
Abilene Diagnostic Clinic June 1, 1997(a) Abilene, TX
Intercoastal Medical Group August 1, 1997 Sarasota, FL
Beacon Medical Group October 1, 1997(b) Harrisburg, PA
Cowley Medical Associates(c) November 1, 1997 Harrisburg, PA
Thomas-Spann Clinic December 1, 1997 Corpus Christi, TX
HealthStar, Inc. December 1, 1997 Knoxville, TN

1996: Cullman Primary Care March 6, 1996 Cullman, AL
Morgan-Haugh April 1, 1996 Mayfield, KY
HealthFirst Medical Group June 1, 1996 Lake Worth, TX
King's Daughters Clinic September 1, 1996 Temple, TX

1995: North Texas Medical Surgical June 1, 1995 Denton, TX
</TABLE>

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

(a) Abilene Diagnostic Clinic was operated by the Company under an interim
service agreement effective December 1, 1995. The Company completed its
acquisition of certain operating assets on June 5, 1997, and entered into a
long term service agreement with the physician group effective June 1,
1997.

(b) Beacon Medical Group was operated by the Company under an interim service
agreement effective April 1, 1997. The Company completed its acquisition of
certain operating assets on October 1, 1997, and entered into a long term
service agreement effective on that date.

The acquisitions of the operating assets and liabilities have been
accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible assets acquired and
liabilities assumed based on the estimated fair values at the dates of
acquisition. Simultaneous with each acquisition, the Company entered into a long
term service agreement with each physician group. In conjunction with certain
acquisitions, the Company is obligated to make deferred payments to physician
groups. Such amounts are included in deferred purchase price in the accompanying
consolidated balance sheets. The following is the preliminary allocation of
purchase price for the acquisitions completed during the year ended December 31,
1997.

<TABLE>
<S> <C>
Fair value of assets acquired............................... $ 33,468,257
Liabilities assumed......................................... (11,296,484)
Intangible assets........................................... 63,821,926
------------
85,993,699
Less -- Fair value of common stock issued and to be
issued.................................................... 29,964,077
Less -- Notes issued........................................ 9,780,602
Less -- Deferred purchase price (payable in cash)........... 12,402,253
------------
Cash purchase price......................................... $ 33,846,767
============
</TABLE>

For certain acquisitions occurring close to or at the end of the period,
the estimated fair values are preliminary and, therefore, are subject to change.
Under the purchase agreements, the purchase price is

F-21
<PAGE> 61
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITIONS -- (CONTINUED)

adjustable by the Company for a period between 90 to 120 days after the closing
of the transaction in order to finalize the fair values of the assets acquired
and liabilities assumed.

Health Plans, Inc.

Effective December 1, 1997, the Company, through its wholly-owned
subsidiary, completed its acquisition of Health Plans, Inc., and renamed the
company PMC Medical Management, Inc. ("PMCMM"). PMCMM provides capitation
management services through risk contracting with HMOs and other third-party
payors. The total consideration for the transaction was approximately $8.5
million which consisted of $1.7 million cash and $6.8 million of the Company's
common stock and stock options.

Pro Forma Information

The following unaudited pro forma information reflects the effect of
acquisitions on the consolidated results of operations of the Company had the
acquisitions occurred at January 1, 1996. Future results may differ
substantially from pro forma results and cannot be considered indicative of
future results.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Physician groups revenue, net.......................... $122,605,838 $171,827,614
Less -- Amounts retained by physician groups........... 43,701,877 58,001,796
------------ ------------
Management fee revenue................................. $ 78,903,961 $113,825,818
============ ============
Net income............................................. $ 2,525,608 $ 5,372,738
============ ============
Basic net earnings per share........................... $ 0.29 $ 0.44
============ ============
Weighted average number of shares outstanding.......... 8,757,139 12,200,655
============ ============
</TABLE>

Pro forma net income and pro forma net income per share for the year ended
December 31, 1997 are lower than historical net income and net earnings per
share for the same period primarily due to a higher pro forma tax rate, which
assumes that all net operating loss carryforwards would have been recognized
prior to 1997.

F-22
<PAGE> 62
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITIONS -- (CONTINUED)

Western Medical Management Corp. Inc.

As discussed in Note 1, the Company completed its merger with Reno in March
1997, the date of the Offering. The accompanying condensed consolidated
financial statements are based on the assumption that the companies were
combined for the full periods presented and prior financial statements have been
restated to give effect to the combination. The following unaudited information
reflects the separate results of the combined entities for periods prior to the
combination:

<TABLE>
<CAPTION>
TWELVE MONTHS ENDING TWELVE MONTHS ENDING THREE MONTHS ENDING
DECEMBER 31, 1995 DECEMBER 31, 1996 MARCH 31, 1997
------------------------ ------------------------- ------------------------
PROMEDCO RENO PROMEDCO RENO PROMEDCO RENO
---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Physician groups revenue, net......... $1,918,029 $11,270,376 $34,641,222 $12,395,579 $17,343,665 $3,381,912
Less: amounts retained by physician
groups.............................. 759,513 4,585,175 15,322,220 5,469,385 7,669,484 1,338,687
---------- ----------- ----------- ----------- ----------- ----------
Management fee revenue................ 1,158,516 6,685,201 19,319,002 6,926,194 9,674,181 2,043,225
---------- ----------- ----------- ----------- ----------- ----------
Operating expenses
Clinic expenses................... 1,023,606 7,098,610 16,460,181 7,106,899 8,025,524 1,671,579
General corporate expenses........ 802,980 -- 2,633,585 -- 818,772 --
Depreciation and amortization..... 34,302 169,180 610,827 112,814 391,507 44,368
Interest expense.................. (5,030) 25,988 163,714 45,760 112,666 3,283
Merger costs...................... -- -- -- 682,269 -- --
---------- ----------- ----------- ----------- ----------- ----------
1,855,858 7,293,778 19,868,307 7,947,742 9,348,469 1,719,230
---------- ----------- ----------- ----------- ----------- ----------
Income (loss) before provision for
income taxes........................ (697,342) (608,577) (549,305) (1,021,548) 325,712 323,995
Provision for income taxes............ -- (54,405) -- -- 97,714 97,198
---------- ----------- ----------- ----------- ----------- ----------
Net income (loss)..................... $ (697,342) $ (554,172) $ (549,305) $(1,021,548) $ 227,998 $ 226,797
========== =========== =========== =========== =========== ==========
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Furniture, fixtures, and equipment........................ $4,193,498 $12,212,561
Leasehold improvements.................................... 601,241 1,008,421
---------- -----------
4,794,739 13,220,982
Less -- Accumulated depreciation.......................... (864,548) (2,630,421)
---------- -----------
Property and equipment, net............................... $3,930,191 $10,590,561
========== ===========
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Service agreement rights.................................. $15,148,866 $73,200,258
Excess of cost of acquired assets over fair value......... -- 5,770,534
----------- -----------
15,148,866 78,970,792
Less -- Accumulated amortization.......................... (288,695) (1,775,441)
----------- -----------
Intangible assets, net.................................... $14,860,171 $77,195,351
=========== ===========
</TABLE>

F-23
<PAGE> 63
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG TERM RECEIVABLES

During 1997, the Company entered into an agreement to lend up to $42.7
million to an affiliated physician group. The loan will be funded in six
advances. The first advance was made on November 15, 1997 in the amount of $3
million. The second advance was made on December 1, 1997 in the amount of $16.4
million. The next four advances of $5.825 million each will be made annually on
December 1, beginning in 1998. Interest is payable to the Company monthly at an
annual rate of 8.0%. The loan will be repaid in fifteen annual payments
beginning on November 30, 2008. Certain assets of the affiliated physician group
have been pledged as security under the loan, and the loan provides certain
rights to offset against distributions under the service agreement in the event
of default under the loan agreement. As of December 31, 1997, the outstanding
loan totaled $19.4 million, and the Company estimates that the carrying value of
this receivable approximates fair value.

During 1997 and in connection with the certain acquisitions, the Company
entered into split-dollar life insurance agreements with the physicians and
prior owners of the physician groups. Under these agreements, the Company
purchases life insurance in the name of the individual seller. Upon the death of
the individual seller, the amount of the premiums paid by the Company will be
returned. In addition, these receivables are guaranteed by the individual policy
holders. The total of the premiums that will be returned to the Company is $25.0
million. The $3.9 million carrying value of these receivables as of December 31,
1997, represents the present value of the premiums that will be returned to the
Company based on the estimated actuarial life of the policy holders and an
implied interest rate of 6.75%. The accretion of this receivable from the
initial carrying value to the full premium amount is recorded as a reduction to
amortization expense in the accompanying consolidated statements of operations.

In May 1997, the Company loaned $600,000 to an officer of the Company.
Beginning in May 2001, the loan will be repaid in five equal annual payments
plus accrued interest of 6.5%.

7. NOTES PAYABLE, OTHER LONG TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES

Notes payable are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Borrowings under Revolving Credit Facility.................. $ 4,157,027 $32,968,000
Notes payable to physician group; unsecured; due in three
annual installments in April 1998, 1999, and 2000; 9%
interest payable in cash or options to purchase the
Company's common stock.................................... -- 8,608,602
Notes payable to physician group; unsecured; due in four
annual installments in December 1998, 1999, 2000, and
2001; 5% interest payable annually........................ -- 1,172,000
Note payable to physician group; unsecured; due in two equal
installments of principal and 7% interest in April 1997
and 1998.................................................. 851,549 440,173
Note payable to a bank, interest at prime plus 1.5%, paid in
February 1997............................................. 300,000 --
Other notes payable......................................... 427,788 175,915
----------- -----------
5,736,364 43,364,690
Less -- Current portion..................................... (1,151,191) (3,676,365)
----------- -----------
Notes payable, net.......................................... $ 4,585,173 $39,688,325
=========== ===========
</TABLE>

F-24
<PAGE> 64
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. NOTES PAYABLE, OTHER LONG TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES -- (CONTINUED)

The maturities of notes payable at December 31, 1997, are as follows:

<TABLE>
<S> <C>
1998........................................................ $ 3,676,365
1999........................................................ 8,210,199
2000........................................................ 9,755,926
2001........................................................ 6,886,600
2002........................................................ 6,593,600
Thereafter.................................................. 8,242,000
-----------
$43,364,690
===========
</TABLE>

In connection with the issuance of notes payable to stockholders and one
other party in 1995, the Company issued 150,000 warrants to purchase common
stock at $2.50 per share. On June 30, 1996, the warrants were exercised in
exchange for forgiveness of the notes payable.

Revolving Credit Facility

Effective July 15, 1996, the Company entered into a revolving credit
agreement which was subsequently amended and restated November 13, 1997 (the
"Credit Facility"). The Credit Facility provides for a six-year commitment to
fund revolving credit borrowings of up to $50.0 million for acquisitions and
general working capital purposes. Beginning on April 1, 1999, the Credit
Facility converts to a term loan with twenty quarterly payments equal to 5% of
the outstanding balance on January 1, 1999. Under the terms of the Credit
Facility, the Company paid a commitment fee of approximately $780,000 which has
been capitalized in other assets in the accompanying consolidated balance sheets
and amortized as an adjustment to interest expense using the effective interest
method. The interest rate under the Credit Facility will be set at the Company's
option and varies based on selected financial ratios, as defined, as follows:
(i) 30-day commercial paper rate of an issuer whose corporate bonds are rated
"AA," plus 2.70% to 3.25%; (ii) reserve adjusted LIBOR, as defined, plus 2.70%
to 3.25%; or (iii) prime rate plus 0.35% to 0.88% depending on certain debt
levels. As of December 31, 1997, the effective interest rate on the Credit
Facility was 8.5% based on the 30-day commercial paper rate as adjusted. The
Credit Facility includes certain restrictive covenants including limitations on
the payment of dividends as well as the maintenance of certain financial ratios.
The Credit Facility is secured by substantially all the assets of the Company.
As of December 31, 1997, the Company had $17.0 million available for acquisition
purposes under the Credit Facility of which $7.3 million was also available for
working capital, subject to certain conditions as defined by the agreement.

Convertible Subordinated Notes Payable

On March 29, 1996, in connection with the affiliation of two physician
groups, the Company issued $1,800,274 in convertible subordinated notes. The
notes bear interest at 7.0% and mature in March 2003. The notes may, at the
election of the noteholders, be converted into shares of common stock at a
conversion price of $9.00 per share, subject to certain limitations and
automatic conversions as defined in the note agreements. During 1997, one
noteholder converted $35,216 of notes into 3,912 shares of the Company's common
stock.

F-25
<PAGE> 65
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. NOTES PAYABLE, OTHER LONG TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES -- (CONTINUED)

Obligations Under Capital Leases

In connection with affiliations with physician groups and in the ordinary
course of business, the Company assumed the obligation of various equipment
under capital leases. As of December 31, 1997, future minimum lease payments
under capital leases are as follows:

<TABLE>
<S> <C>
1998........................................................ $ 749,017
1999........................................................ 582,706
2000........................................................ 424,458
2001........................................................ 198,685
----------
1,954,866
Less -- Portion attributable to interest.................... (271,389)
----------
Obligations under capital leases............................ 1,683,477
Less -- Current portion..................................... (609,591)
----------
$1,073,886
==========
</TABLE>

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK,
AND STOCKHOLDERS' EQUITY

The Company has authorized the issuance of 70,000,000 shares of stock, of
which (a) 20,000,000 shares, par value $0.01 per share, are to be designated
Preferred Stock (of which 700,000 shares are to be designated Series A
Redeemable Convertible Preferred Stock), (b) 47,400,000 shares, par value $0.01
per share, are to be of a class designated Common Stock, and (c) 2,600,000
shares, par value $0.01 per share, are to be of a class designated Class B
Common Stock.

During March 1997, the Company completed the initial public offering of its
common stock (the "Offering"). The Offering consisted of 4,000,000 shares of
common stock sold at a price of $9.00 per share. Gross and net proceeds from the
Offering were $36.0 million and $33.5 million, respectively. In addition, net
proceeds were reduced by approximately $1.8 million of expenses relating to the
Offering.

Series A Redeemable Convertible Preferred Stock

During 1996, the Company issued 500,000 shares of Series A Redeemable
Convertible Preferred Stock and warrants to purchase an additional 200,000
shares of Preferred Stock. The warrants are exercisable at $4.50 per share and
expire on December 6, 2000. Upon the completion of the Offering, the 500,000
shares of Series A Redeemable Convertible Preferred Stock were automatically
converted into Common stock.

Between December 6, 1995 and the completion of the Offering, the Company
was required for all shares or share equivalents of Common stock issued,
excluding shares and share equivalents issued in connection with an acquisition
or shares issued in connection with a redemption or conversion when the share
equivalent was issued prior to December 6, 1995, to grant options to purchase
shares of Common stock to Preferred Stockholders in an amount equal to their
percentage ownership of the Company prior to the issuance. During 1996, options
to purchase 47,230 shares of Common stock were granted to Preferred
Stockholders, of which 7,743 were exercisable at prices ranging from $6.00 to
$10.20 per share. During 1997 and prior to the completion of the Offering,
additional options to purchase 294 shares of Common stock were granted to
Preferred Stockholders with an exercise price of $12.00.

F-26
<PAGE> 66
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK,
AND STOCKHOLDERS' EQUITY -- (CONTINUED)

Redeemable Common Stock

In connection with an acquisition in 1995, the Company issued 165,296
shares of Redeemable Common Stock for $991,776. On the completion of the
Offering, the 165,296 shares of Redeemable Common Stock were automatically
converted into Common stock.

Class B Common Stock

During 1994, the Company issued 613,075 Class B units, each consisting of
two shares of Class B Common Stock and a warrant to purchase 1.5756 shares of
Class B Common Stock at an exercise price of $1.25 per share. The warrants are
exercisable on or before June 30, 2004. The Company also granted an option to
purchase 77,500 Class B units at an exercise price of $0.50 per unit. The
options are fully vested and may be exercised until September 30, 2004. As of
December 31, 1997, no warrants or options have been exercised. The Class B
Common Stock had a liquidation preference, subordinate to the Preferred Stock,
at an amount equal to $1.00 per share. Each share of Class B Common Stock was
automatically converted into Common stock on the completion of the Offering.

Common Stock

During 1994, the Company issued 907,000 Common stock units, each consisting
of two shares of Common stock and a warrant to purchase 1.5756 shares of Common
stock at an exercise price of $1.25 per share. The warrants are exercisable on
or before June 30, 2003. As of December 31, 1997, 56,686 warrants have been
exercised.

Common Stock To Be Issued

In connection with acquisitions completed in 1997, common shares valued at
$20,121,059 will be issued in 1998. The number of common shares to be issued and
the price per share was fixed at the consummation date of the specific
acquisitions in 1997.

In connection with acquisitions completed in 1996, common shares valued at
$2,303,212 were issued in 1997. The number of shares to be issued and the price
per share was fixed at the consummation date of the specific acquisitions in
1996 and 1995.

Stock Option Plans

The Company has reserved 1,500,000 shares of Common stock for issuance
under its 1994 Stock Option Plan and 2,100,000 shares of Common stock for
issuance under its 1996 Stock Option Plan (collectively the "Stock Option
Plans"). Options granted under the Plans may be either incentive stock options
("ISO") or nonqualified stock options ("NQSO"). The option price per share shall
not be less than the fair market value of the Company's Common stock at the date
of grant. Generally, options vest over a five-year period and expire in either
2004 or 2006. As of December 31, 1997, options to purchase 1,947,729 shares
remain available for grant under the Stock Option Plans.

F-27
<PAGE> 67
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK,
AND STOCKHOLDERS' EQUITY -- (CONTINUED)

The following table summarizes the activity in the Stock Option Plans:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OUTSTANDING PRICE PER SHARE EXERCISE PRICE
----------- --------------- ----------------
<S> <C> <C> <C>
December 31, 1994........................ 80,000 $0.50 - $ 2.50 $1.50
Granted............................. 546,200 $0.50 - $ 6.00 $4.99
Exercised........................... -- -- --
Canceled............................ (121,000) $3.00 - $ 6.00 $3.36
----------
December 31, 1995........................ 505,200 $0.50 - $ 6.00 $4.83
Granted............................. 805,800 $6.00 - $14.00 $7.81
Exercised........................... (23,200) $0.50 - $ 6.00 $5.24
Canceled............................ (223,400) $0.50 - $ 9.00 $5.89
----------
December 31, 1996........................ 1,064,400 $0.50 - $14.00 $6.85
Granted............................. 626,071 $6.00 - $12.00 $7.88
Exercised........................... (3,100) $6.00 $6.00
Canceled............................ (61,400) $6.00 - $ 9.00 $6.67
----------
December 31, 1997........................ 1,625,971 $0.50 - $14.00 $6.71
==========
</TABLE>

Stock options available for exercise under the Stock Option Plans as of
December 31, 1995, 1996, and 1997, totaled 8,000, 170,720, and 653,464,
respectively.

When the Company entered into the Credit Facility in 1996 (see Note 7), the
Company issued 46,875 options to purchase the Company's Common stock at $10.00
per share. These options are outstanding and exercisable.

9. INCOME TAXES

The provision for income tax expenses for the years ended December 31,
1995, 1996 and 1997 consists of:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Current
Federal....................................... $ 1,731 $ -- $2,146,759
State......................................... -- -- 125,780
Deferred
Federal....................................... (56,136) -- 306,510
State......................................... -- -- 23,330
--------- --------- ----------
$ (54,405) $ -- $2,602,379
========= ========= ==========
</TABLE>

F-28
<PAGE> 68
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES -- (CONTINUED)

Total provision for income taxes differed from the amount computed by
applying the U.S. Federal income tax rate of 35% to earnings before taxes as a
result of the following:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Federal tax (benefit) at statutory rate............ $(365,441) $(534,090) $2,826,447
State income taxes, net of federal income tax
benefit.......................................... (13,947) (10,986) 422,352
Change in valuation allowance...................... 360,023 571,118 (992,301)
Amortization of nondeductible goodwill............. -- -- 209,234
Other.............................................. (35,040) (26,042) 136,647
--------- --------- ----------
Total provision for income taxes......... $ (54,405) $ -- $2,602,379
========= ========= ==========
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
-------- -----------
<S> <C> <C>
Current deferred tax assets (liabilities)
Operating loss carryforwards......................... $493,153 $ --
Unrealized gains on security investments............. -- (381,323)
Non-deductible accrued expenses...................... 346,637 207,222
-------- -----------
839,790 (174,101)
-------- -----------
Non-current deferred tax liabilities
Property and equipment, principally due to
differences in depreciation........................ -- (299,838)
Clinic service agreements............................ -- (729,896)
Other................................................ 152,511 (74,142)
-------- -----------
152,511 (1,103,876)
-------- -----------
Net deferred tax asset (liability)........................ 992,301 (1,277,977)
Valuation allowance....................................... (992,301) --
-------- -----------
$ -- $(1,277,977)
======== ===========
</TABLE>

10. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure about the fair value of financial instruments for which it
is practicable to estimate fair value. As of December 31, 1996 and 1997, the
fair value of the Company's cash and cash equivalents, accounts receivable,
accounts payable, due to physician groups and accrued expenses approximated
their carrying value because of the short maturities of those financial
instruments. The fair value of the Company's long term debt also approximates
its carrying value since the related notes bear interest at current market
rates.

The estimated fair value of the convertible subordinated notes payable to
physician groups was approximately $1,800,274 and $1,985,690 as of December 31,
1996 and 1997, respectively. The carrying value of these notes was $1,800,274
and $1,765,058 as of December 31, 1996 and 1997, respectively. The estimated
fair value of these convertible subordinated notes payable is based on the
greater of their face value and the closing market value of the common shares
into which they could have been converted at the respective balance sheet date.

F-29
<PAGE> 69
PROMEDCO MANAGEMENT COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

Leases

Operating leases generally consist of short-term leases for the office
space where the physician groups are located. Lease expense of approximately
$716,000, $2,740,000, and $7,086,000 for the years ended 1995, 1996 and 1997,
respectively, reflect lease commitments for medical practice office space,
medical practice equipment, corporate office space, and corporate equipment.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1997.

<TABLE>
<S> <C>
1998........................................................ $ 5,929,466
1999........................................................ 5,428,666
2000........................................................ 4,906,781
2001........................................................ 4,150,848
2002........................................................ 3,649,947
Thereafter.................................................. 20,952,100
-----------
$45,017,808
===========
</TABLE>

Litigation

The Company is subject to various claims and legal actions that arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.

Insurance

The Company and the physician groups are insured with respect to medical
malpractice risks on a claims-made basis. Management is not aware of any claims
against the Company or the physician groups that might have a material impact on
the Company's financial position or results of operations.

Year 2000

The Company continues to assess the impact of the Year 2000 Issue on its
information systems and operations. With disparate systems in place at the
Company's various affiliated groups, the assessment process also extends to each
new affiliation. Noncompliant practice management systems could be acquired in a
new affiliation, which would require system remediation or replacement. Given
these issues, the Company is unable to estimate the costs of remediation or
replacements that may be required. With its current strategy of replacing
inadequate practice management systems, however, the Company does not believe
that Year 2000 issues will cause a conversion to be any more difficult than a
typical system conversion. If the issues prove more significant than
anticipated, or if noncompliant third-party systems "re-infect" the Company's
Year 2000 compliant systems, there could be a material adverse impact on the
Company.

F-30
<PAGE> 70

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Berkshire Physicians & Surgeons, P.C.:

We have audited the accompanying consolidated balance sheets of Berkshire
Physicians & Surgeons, P.C. and subsidiaries (the "Corporation") as of December
31, 1996 and 1997, and the related consolidated statements of operations,
changes in shareholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Berkshire
Physicians & Surgeons, P.C. and subsidiaries as of December 31, 1996 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

BOSTON, MASSACHUSETTS
MARCH 31, 1998, EXCEPT
FOR NOTES 1 AND 14,
AS TO WHICH THE DATE

IS APRIL 17, 1998

F-31
<PAGE> 71

BERKSHIRE PHYSICIANS & SURGEONS, P.C.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

ASSETS

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 822,190 $ 1,185,042
Patient accounts receivable (net of allowance for
doubtful accounts of $873,000 and $1,165,000 in 1996
and 1997, respectively)............................... 4,798,917 4,402,454
Other receivables...................................... 1,256,889 886,484
Inventories............................................ 324,153 439,846
Prepaid and other current assets....................... 213,270 70,941
----------- -----------
Total current assets.............................. 7,415,419 6,984,767
Property and equipment, net................................. 4,411,680 4,649,052
Other assets................................................ 453,858 220,083
----------- -----------
Total assets...................................... $12,280,957 $11,853,902
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable -- line of credit......................... $ 3,062,781 $ 6,755,136
Accounts payable and accrued expenses.................. 2,640,575 3,774,701
Accrued pension plan contribution...................... 1,256,710 1,552,711
Accrued physician compensation......................... 753,819 1,879,175
Current portion of long-term debt...................... 220,980 813,996
Current portion of obligations under capital leases.... 510,451 644,665
----------- -----------
Total current liabilities......................... 8,445,316 15,420,384
Long-term debt, net of current installments................. 789,014 339,172
Obligations under capital leases, net of current
installments.............................................. 1,927,432 2,014,670
----------- -----------
Total liabilities................................. 11,161,762 17,774,226
----------- -----------
Commitments and contingencies (Notes 1, 2, 5, 6, 9, 10, 11,
12 and 14)
Shareholders' equity (deficit):
Common stock, $1 par value, 1,000 shares authorized;
334 and 352 shares issued and outstanding at December
31, 1997 and 1996, respectively....................... 352 334
Paid-in capital........................................ 728,034 593,052
Advances to shareholders............................... (101,661) (335,204)
Retained earnings (deficit)............................ 492,470 (6,178,506)
----------- -----------
Total shareholders' equity (deficit).............. 1,119,195 (5,920,324)
----------- -----------
Total liabilities and shareholders' equity
(deficit)...................................... $12,280,957 $11,853,902
=========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE> 72

BERKSHIRE PHYSICIANS & SURGEONS, P.C.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net patient service revenue................................. $30,326,902 $32,698,750
Risk contract revenue....................................... 10,676,064 10,026,491
Other revenue............................................... 722,857 957,409
----------- -----------
Total revenue..................................... 41,725,823 43,682,650
----------- -----------
Operating expenses:
Physicians' salaries and wages......................... 11,208,235 12,354,057
Other salaries and wages............................... 7,993,601 9,246,413
Physician benefits..................................... 2,096,542 2,523,423
Employee benefits...................................... 2,417,907 2,788,639
Referral services...................................... 9,600,821 9,731,890
Supplies and other expenses............................ 6,348,943 6,915,722
Rent................................................... 1,639,834 2,173,514
Professional liability insurance....................... 817,949 803,917
Interest............................................... 367,525 949,683
Depreciation and amortization.......................... 1,239,214 1,218,025
Provision for doubtful accounts........................ 796,000 1,554,000
----------- -----------
Total operating expenses.......................... 44,526,571 50,259,283
----------- -----------
Loss from operations.............................. (2,800,748) (6,576,633)
Other expense............................................... (4,443) (35,774)
----------- -----------
Loss before income taxes.......................... (2,805,191) (6,612,407)
Income tax expense (benefit)................................ (1,400,684) 58,569
----------- -----------
Net loss.......................................... $(1,404,507) $(6,670,976)
=========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-33
<PAGE> 73

BERKSHIRE PHYSICIANS & SURGEONS, P.C.

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED SHAREHOLDERS'
--------------- PAID-IN ADVANCES TO EARNINGS EQUITY
SHARES AMOUNT CAPITAL SHAREHOLDERS (DEFICIT) (DEFICIT)
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996...... 364 $364 $ 817,670 $(159,408) $ 1,896,977 $ 2,555,603
Issuance of additional shares to
physicians.................... 4 4 29,996 -- -- 30,000
Cancellation of shares due to
physician retirement or
termination................... (16) (16) (119,632) -- -- (119,648)
Payments received on advances to
shareholders.................. -- -- -- 57,747 -- 57,747
Net loss........................ -- -- -- -- (1,404,507) (1,404,507)
--- ---- --------- --------- ----------- -----------
Balance at December 31, 1996.... 352 352 728,034 (101,661) 492,470 1,119,195
Cancellation of shares due to
physician retirement or
termination................... (18) (18) (134,982) -- -- (135,000)
Advances to shareholders........ -- -- -- (268,427) -- (268,427)
Payments received on advances to
shareholders.................. -- -- -- 34,884 -- 34,884
Net loss........................ -- -- -- -- (6,670,976) (6,670,976)
--- ---- --------- --------- ----------- -----------
Balance at December 31, 1997.... 334 $334 $ 593,052 $(335,204) $(6,178,506) $(5,920,324)
=== ==== ========= ========= =========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-34
<PAGE> 74

BERKSHIRE PHYSICIANS & SURGEONS, P.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(1,404,507) $ (6,670,976)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 1,239,214 1,218,025
Provision for doubtful accounts................... 796,000 1,554,000
Loss on disposal of property and equipment........ -- 35,774
Deferred income taxes............................. (1,445,616) --
Changes in operating assets and liabilities:
Patient accounts receivable.................. (219,531) (1,157,537)
Other receivables............................ (1,105,166) 370,405
Inventories.................................. (79,341) (115,693)
Prepaid and other current assets............. 75,245 142,329
Accounts payable and accrued expenses........ 729,313 1,134,126
Accrued pension plan contribution............ 47,766 296,001
Accrued physician compensation............... 145,163 1,125,356
----------- ------------
Net cash used in operating activities... (1,221,460) (2,068,190)
----------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment............. (1,699,303) (1,233,504)
Decreases in other assets.............................. 15,459 (23,892)
----------- ------------
Net cash used in investing activities... (1,683,844) (1,257,396)
----------- ------------
Cash flows from financing activities:
Proceeds from note payable -- line of credit........... 10,902,781 24,292,701
Proceeds from equipment loans.......................... 270,000 --
Proceeds from capital lease financing.................. 2,011,633 770,597
Proceeds from mortgage................................. -- 600,000
Principal payments on note payable -- line of credit... (9,790,000) (20,600,346)
Principal payments under capital lease obligations..... (261,985) (549,145)
Principal payments on mortgage payable................. (6,075) (242,826)
Principal payments on equipment loan................... (209,500) (214,000)
Additional advances to shareholders.................... -- (268,427)
Principal payments on notes from shareholders.......... 57,747 34,884
Cash received from issuance of common stock............ 30,000 --
Cash paid to terminated physicians for common stock.... (119,648) (135,000)
----------- ------------
Net cash provided by financing
activities............................ 2,884,953 3,688,438
----------- ------------
Net increase (decrease) in cash and cash equivalents........ (20,351) 362,852
Cash and cash equivalents, at beginning of year............. 842,541 822,190
----------- ------------
Cash and cash equivalents, at end of year................... $ 822,190 $ 1,185,042
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.......................................... $ 358,501 $ 754,238
Income taxes...................................... 12,300 63,769
Supplemental disclosure of noncash financing activities:
In 1997, the Corporation refinanced an equipment lease obligation totaling $786,233
with another lessor who directly repaid the outstanding balance on the refinanced
lease.
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE> 75

BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

Organization

Berkshire Physicians & Surgeons, P.C. (the "Corporation" or "BP&S") is a 81
physician, primary care, multi-specialty and multiple location professional
services corporation. The Corporation's service areas include central and
southern Berkshire County, Hampden County, and Hampshire County, Massachusetts,
and adjacent areas of Litchfield County, Connecticut, and Columbia County, New
York.

Its principal services include primary, specialty and urgent care,
surgical, laboratory, mammography and radiological services.

The Corporation has three wholly owned subsidiaries, Commonwealth Health
Management Services, Inc. ("CHMS"), Commonwealth Independent Practice
Association, Inc. ("CIPA") and Great Barrington Medical Realty, LLC (GBMR). CHMS
is a management services organization formed in 1994. The purpose of CHMS is to
provide the necessary administrative and medical management structure to enable
the physicians within the Corporation's network to collectively enter into
health service contracts. CIPA was established as an independent practice
membership association to organize physicians to provide services to the
Corporation's members. CHMS is the only member of the association. During 1997,
the Corporation established GBMR, a limited liability company whose sole purpose
is to develop, own and operate a medical office building. This building will be
leased to the Corporation as general medical office space.

Basis of Presentation

The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. The Corporation has suffered
recurring operating losses from operations, has a significant amount of debt
which is currently payable and has a net capital deficiency, however, on April
14, 1998, the Corporation executed an irrevocable merger agreement with ProMedCo
Management Company (PMCO) (Note 14), which should provide the Corporation with
adequate financial support on an ongoing basis.

Basis of Accounting

The financial statements are prepared on the accrual basis of accounting.

Principles of Consolidation

The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiaries CHMS, CIPA and GBMR. All
significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for the collectibility of patient accounts receivable
and other receivables, depreciation and amortization, accrued expenses and
taxes.

Cash and Cash Equivalents

The Corporation considers all highly liquid debt instruments with a
maturity at date purchased of three months or less to be cash equivalents.

F-36
<PAGE> 76
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Net Patient Service Revenue and Patient Accounts Receivable

Net patient service revenue is reported at the established net realizable
amounts from patients, third party payors and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third party payors. Net patient service revenue and accounts receivable are
recorded when patient services are performed. Adjustments and settlements under
reimbursement agreements with third party payors are accrued on an estimated
basis in the period the related services are rendered and adjusted in future
periods as final settlements are determined. Such adjustments and final
settlements with third-party payors, which could materially and adversely affect
the Corporation, are reflected in operations at the time of the adjustment or
settlement.

Inventories

Inventories which consist of pharmaceuticals, and medical and office
supplies are recorded at the lower of cost, determined by the first-in,
first-out method, or market.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for renewals and
betterments are capitalized and maintenance and repairs are expensed. The
Corporation provides for depreciation of property and equipment for financial
statement reporting purposes using the straight-line method over the estimated
useful lives of the various assets. Capital leases are recorded at the lower of
the fair market value of the asset or the present value of the minimum lease
payments. Assets recorded under capital leases are amortized using the
straight-line method over the life of the related lease or the life of the
asset, whichever is shorter. The carrying amounts of assets sold or otherwise
disposed of and the related allowance for depreciation are eliminated from the
accounts in the period of disposal, with the resulting gain or loss reflected in
operations.

Impairment of Long-Lived Assets

The Corporation reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeded the
fair value of the assets.

Other Assets

Other assets, which primarily consist of costs incurred in connection with
the organization and start-up of the Corporation, as well as costs and
intangible assets resulting from the acquisition of physician groups, have been
capitalized and are being amortized over three years. Amortization expense of
other assets amounted to $257,621 and $257,667 for the years ended December 31,
1996 and 1997, respectively. Accumulated amortization amounted to $380,187 and
$637,854 at December 31, 1996 and 1997, respectively.

Risk Contract Revenue and Referral Services

The Corporation has entered into risk sharing agreements with health
maintenance organizations (HMOs). Under these agreements, the Corporation earns
revenue based on the number of members to which it provides services to,
regardless of the amount of services actually performed. Throughout the year,
cash is distributed by the HMO's on a capitated and fee-for-service basis to the
Corporation for services provided by the Corporation. The HMO's also distribute
cash on a fee-for-service basis to other providers. The
F-37
<PAGE> 77
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Corporation records payments to other providers under these agreements as risk
referral services expenses. The amount of revenues earned is subject to a
settlement calculation performed subsequent to year-end based on actual
performance under the agreements. Total revenue recorded on these contracts for
1996 and 1997 amounted to $13.4 million and $13.3 million, respectively, of
which $2.7 million and $3.3 million have been recorded as net patient service
revenue representing medical services provided by the Corporation's physicians.
As of December 31, 1996 and 1997, amounts due to BP&S from the HMOs were
approximately $1.1 million and $497,000, respectively. Settlements with the
HMOs, which could materially and adversely affect the Corporation, are reflected
in operations at the time of the settlement.

Income Taxes

The Corporation uses the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes".

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.

Reclassifications

Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.

2. NET PATIENT SERVICE REVENUE:

The Corporation has agreements with Medicare, Medicaid, Blue Cross, and
various other commercial insurance companies, preferred provider organizations
and health maintenance organizations that provide for payments to the
Corporation at amounts different from its established rates. The basis of these
payments include discounts from established charges, capitated rates, and fee
screens. Differences between established rates and agreed-upon payments are
included as a reduction to net patient service revenue or risk contract revenue.
A significant portion of the Corporation's revenue is derived through
arrangements with these third-party payors. As such, the Corporation is
dependent on these payors to carry out its operating activities.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Land and buildings......................................... $ 325,000 $ 1,420,661
Equipment, furniture and fixtures.......................... 6,778,464 7,141,644
Leasehold improvements..................................... 1,142,715 1,175,930
Construction in progress................................... 754,283 446,174
----------- -----------
9,000,462 10,184,409
Accumulated depreciation and amortization.................. (4,588,782) (5,535,357)
----------- -----------
Property and equipment, net................................ $ 4,411,680 $ 4,649,052
=========== ===========
</TABLE>

F-38
<PAGE> 78
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT -- (CONTINUED)

Depreciation and amortization expense for the years ended December 31, 1996
and 1997 was $981,593 and $960,358, respectively.

4. ADVANCES TO SHAREHOLDERS:

The Corporation provides financing to shareholder physicians to enable them
to purchase shares of stock from the Corporation. Interest is accrued at market
interest rates on outstanding amounts. Total principal outstanding at December
31, 1996 and 1997 was $101,661 and $66,777, respectively. The Corporation
accrued approximately $5,182 and $4,799 of interest income from advances to
shareholders for the year ended December 31, 1996 and 1997, respectively. In
addition, during 1997, the Corporation advanced $268,427 to shareholder
physicians in compensation beyond their earned compensation for 1997. The
Corporation expects the advances to be collected or netted against compensation
in 1998.

5. INSURANCE:

The Corporation is insured with respect to professional liability insurance
on a claims made basis up to $1,000,000 per individual claim and $3,000,000 in
the aggregate. The policies are subject to annual renewal and cover only those
claims made during the term of the policy but not for occurrences for which
claims made after expiration of the policy. The Corporation is self insured for
claims exceeding the insured amounts. The physicians also have professional
liability insurance, primarily on an occurrence basis, up to $1,000,000 or
$2,000,000 per individual claim and $3,000,000 or $6,000,000 in the aggregate.
The Corporation intends to renew its present insurance coverage. Management was
not aware of any claims against it or its providers which are estimated to
exceed their insurance limits.

The Corporation is self insured for the majority of employee health
insurance up to $65,000 per participant and approximately $1,620,000 in the
aggregate. Management has recorded an estimated liability of its exposure under
the plan as of December 31, 1996 and 1997.

6. NOTE PAYABLE AND LONG-TERM DEBT:

Note Payable

The Corporation maintains a demand bank line of credit collateralized by
certain of the Corporation's assets in the amount of $7,500,000 ($3,500,000 at
December 31, 1996). The loan agreement stipulates interest at the bank's base
rate plus 1% in 1996 (9.25% at December 31, 1996) and 3% in 1997 (11.50% at
December 31, 1997) and the line expires on May 31, 1998. Total outstanding on
the line of credit was $3,062,781 and $6,755,136 at December 31, 1996 and 1997,
respectively. The loan agreement also stipulates that the Corporation will have
to pay additional interest when the line is repaid equal to .8125% of the
greater of the assumed value of the Corporation in cash or equivalents in a
Capital Placement, as defined or $25,000,000 if repaid on or before April 15,
1998. The rate to calculate the additional interest increases to .875% if the
line is repaid between April 16, 1998 and May 31, 1998 and increases to 1.625%
if the line is repaid after May 31, 1998. The Corporation estimated and accrued
additional interest of $146,000 payable through December 31, 1997 in accounts
payable and accrued expenses. This estimate was based on a pro-rata share of the
additional interest, assuming a repayment date of April 15, 1998, for the period
from May 30, 1997 (the date of the loan agreement) through April 15, 1998.

F-39
<PAGE> 79
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. NOTE PAYABLE AND LONG-TERM DEBT -- (CONTINUED)

Long-Term Debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Variable rate equipment loan, at bank's base rate plus 1%
(9.50% at December 31, 1997), payable in monthly
installments of variable amounts, with a fixed principal
portion of $13,333 per month through May 2000,
collateralized by certain of the Corporation's assets..... $ 546,667 $ 386,608
Variable rate equipment loan, at bank's base rate plus 1%
(9.50% at December 31, 1997), payable in monthly
installments of variable amounts, with a fixed principal
portion of $4,500 through January 2001, collateralized by
certain of the Corporation's assets....................... 220,500 166,560
Fixed rate, 8.0% mortgage payable to a bank, collateralized
by a building............................................. 242,827
Fixed rate, 16% mortgage payable to a group of investors,
interest payable monthly and principal payable in full on
April 3, 1998, collateralized by a building............... 600,000
---------- ----------
1,009,994 1,153,168
Less current portion................................... 220,980 813,996
---------- ----------
$ 789,014 $ 339,172
========== ==========
</TABLE>

Maturities of long-term debt as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1998................................................... $ 813,996
1999................................................... 214,065
2000................................................... 120,607
2001................................................... 4,500
----------
$1,153,168
==========
</TABLE>

The variable note equipment loans were paid in full subsequent to year-end
as part of a lease refinancing (Note 14). The Corporation is currently in
negotiations to extend the maturity of the $600,000 mortgage to April 3, 1999.

F-40
<PAGE> 80
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES:

The income tax expense (benefit) included in the statement of operations
for the years ended December 31, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -------
<S> <C> <C>
Currently payable:
Federal................................................... $ 44,932 $58,569
State..................................................... -- --
----------- -------
$ 44,932 $58,569
=========== =======
Deferred:
Federal................................................... (1,104,301) --
State..................................................... (341,315) --
----------- -------
(1,445,616) --
----------- -------
Income tax expense (benefit)................................ $(1,400,684) $58,569
----------- -------
</TABLE>

The Corporation's income tax expense (benefit) differs from the statutory
benefit as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Expected federal benefit at statutory rate................ $ (953,764) $(2,248,218)
State taxes, net of federal income tax benefit............ (382,233) (396,744)
Meals and entertainment disallowance...................... 17,675 18,293
Valuation allowance on deferred tax assets................ 280,090 2,626,669
Other, net................................................ (362,452) 58,569
----------- -----------
$(1,400,684) $ 58,569
=========== ===========
</TABLE>

Significant components of net deferred tax liabilities, which are primarily
the result of the Corporation recording amounts for financial statements
purposes using the accrual method and for tax reporting purposes using the cash
basis, are as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Patient accounts receivable.......................... $ 1,932,464 $ 1,772,868
Depreciation......................................... 188,676 232,716
Other accrued assets................................. 715,917 556,779
----------- -----------
Total deferred tax liabilities.................. 2,837,057 2,562,363
----------- -----------
Deferred tax assets:
Accounts payable and accrued expenses................ 1,366,922 2,276,815
Operating loss carryforwards......................... 1,750,225 3,095,410
----------- -----------
Total deferred tax assets....................... 3,117,147 5,372,225
----------- -----------
Net deferred tax asset before valuation allowance.... 280,090 2,809,862
Valuation allowance.................................. (280,090) (2,809,862)
----------- -----------
Net deferred tax liabilities.................... $ -- $ --
=========== ===========
</TABLE>

At December 31, 1997, the Corporation has net operating loss carryforwards
of approximately $7.1 million for federal and state income tax reporting
purposes. These net operating loss carryforwards expire in 2013 for federal
income taxes and 2003 for state income taxes. As required by SFAS No. 109,
management of the Corporation has evaluated the positive and negative evidence
bearing on the realizability of its deferred tax
F-41
<PAGE> 81
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES -- (CONTINUED)

assets. Management has considered the Corporation's earnings history and
established the above valuation allowance due to the uncertainty associated with
the future utilization of operating loss carryforwards above existing net
deferred tax liabilities.

8. EMPLOYEE BENEFIT PLANS:

The Corporation has a defined contribution 401(k) and Retirement Plan that
covers substantially all shareholders and employees. The Corporation, at the
Board of Directors' election, provides a base contribution and matches
shareholder and employee contributions up to approved levels of eligible
compensation. The Corporation has expensed contributions to the 401(k) and
Retirement Plan for 1996 and 1997 of $1,256,710 and $1,552,711, respectively.

9. LEASES:

The Corporation has entered into various operating leases for office and
clinical space, and medical equipment. These leases are classified as operating
leases with the rental expense charged to operations as incurred. Rental expense
under all leases was $1,639,834 and $2,173,514 for 1996 and 1997, respectively.

Included in property, plant and equipment are assets, primarily computer,
medical equipment and office equipment, held under capital leases. Assets held
under capital leases at gross amounted to approximately $3.1 million (net book
value of $1.6 million) and $3.9 million (net book value of $1.9 million) at
December 31, 1996 and 1997, respectively.

The following is a schedule by year of future minimum lease payments under
operating and capital leases as of December 31, 1997 (Note 14):

<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- ----------
<S> <C> <C>
Year ending December 31,
1998................................................ $ 1,916,468 $ 886,484
1999................................................ 1,843,966 872,093
2000................................................ 1,885,110 680,676
2001................................................ 1,695,197 564,817
2002................................................ 1,536,998 227,246
Thereafter.......................................... 6,049,536 4,649
----------- ----------
Total minimum lease payments............................. $14,927,275 3,235,965
===========
Less amounts representing interest....................... 576,630
----------
2,659,335
Less current portion..................................... 644,665
----------
Long-term portion........................................ $2,014,670
==========
</TABLE>

10. CONCENTRATION OF CREDIT RISK:

Financial instruments which potentially subject the Corporation to
concentrations of credit risk consist primarily of cash and cash equivalents,
accounts receivable, other receivables and advances to shareholders. The
Corporation places its cash and cash equivalents with an institution who
management believes is of high quality. At times, such amounts may be in excess
of the Federal Deposit Insurance Corporation insurance limits. However,
management believes that credit risk related to these deposits is minimal.
Advances to shareholders are due from practicing physicians only (see Note 4).
The Corporation has the ability to retain bonus payments and final termination
benefits to settle outstanding advances.

F-42
<PAGE> 82
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CONCENTRATION OF CREDIT RISK -- (CONTINUED)

The primary business of the Corporation is to provide health care services
to its patients. The Corporation grants credit without collateral to its
patients, many of whom are local residents and are insured under various third
party agreements. The Corporation is dependent upon these payors. As of December
31, 1996 and 1997, the composition of accounts receivable from patients and
third party payors, was as follows:

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Medicare and Medicaid....................................... 30% 32%
HMO Blue.................................................... 15 14
Blue Shield................................................. 5 7
Commercial and managed care................................. 29 33
Self-pay and other.......................................... 21 14
--- ---
100% 100%
=== ===
</TABLE>

At December 31, 1996 and 1997, other receivables primarily consist of
settlements from HMOs related to risk sharing agreements and receivables for
contractual services.

11. RELATED PARTY TRANSACTIONS:

In addition to advances to shareholders (see Note 4), the Corporation rents
office space from certain physicians which have ownership in the Corporation.
Total rental payments made to these physicians were $63,729 and $78,129 in 1996
and 1997, respectively. These lease agreements extend through 2001.

12. CONTINGENCIES:

General

The Corporation is subject to complaints, claims and litigation which have
arisen in the normal course of business, including professional liability claims
(Note 5) and several asserted and unasserted litigation cases. It is
management's and legal counsel's belief that the outcome of these matters will
not have a material adverse effect on the Corporation's financial position,
results of operations or cash flows.

Regulatory

The Corporation is subject to compliance with laws and regulations of
various governmental agencies. Recently, governmental review of compliance with
these laws and regulations has increased, resulting in fines and penalties for
noncompliance by individual health care providers. While no regulatory inquiries
have been made at the Corporation, compliance with these laws and regulations is
subject to future government review, interpretation or actions which are unknown
and unasserted at this time.

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENT:

The methods and assumptions used to estimate the fair value of each class
of financial instruments, for those instruments for which it is practicable to
estimate that value, and the estimated fair values of the financial instruments
are as follows:

Cash and Cash Equivalents

The carrying amount approximates fair value because of the short effective
maturity of these instruments.

F-43
<PAGE> 83
BERKSHIRE PHYSICIANS & SURGEONS, P.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENT -- (CONTINUED)
Notes Payable and Long-term Debt

The fair value of the Corporation's notes payable and long-term debt is
estimated based on the current rates offered to the Corporation for similar
debt. The carrying value of the Corporation's long-term debt approximates its
fair value as of December 31, 1997.

14. SUBSEQUENT EVENTS:

Merger

On April 14, 1998, the Corporation executed a merger agreement with
ProMedCo Management Company (PMCO), a physician practice management company
based in Fort Worth, Texas, wherein the Corporation will become a wholly-owned
subsidiary of PMCO. The closing for the merger took place on April 17, 1998. The
merger agreement required PMCO to discharge all debt as of the closing date.

Lease Agreement

On March 30, 1998, the Corporation entered into a noncancelable sale
leaseback agreement in which it agreed to refinance or sell furniture and
equipment with a net book value of approximately $1.8 million to the
Corporation's current equipment leasing vendor. As part of the agreement, the
leasing company refinanced or paid the outstanding balances on all of the
capital leases and the outstanding balances of the two equipment loans owed to a
bank which totaled $3.2 million. The new lease specifies that the Corporation
will make 57 monthly payments of $67,032 beginning on April 1, 1998. At the end
of the lease, the Corporation has the option of purchasing the equipment from
the leasing company at a fixed price of $550,000, to extend the term of the
lease or to procure a replacement lease or purchase by an unrelated party.

F-44
<PAGE> 84

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 11
Price Range of Common Stock and Dividend
Policy................................. 11
Capitalization........................... 12
Selected Financial Data.................. 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 14
Business................................. 21
Management............................... 30
Principal and Selling Stockholders....... 33
Shares Eligible for Future Sale.......... 34
Underwriting............................. 35
Legal Matters............................ 36
Experts.................................. 36
Available Information.................... 37
Incorporation of Certain Documents by
Reference.............................. 37
Index to Financial Statements............ F-1
</TABLE>

6,400,000 SHARES

[PROMEDCO LOGO]

COMMON STOCK
--------------------------------
PROSPECTUS
--------------------------------
PIPER JAFFRAY INC.

BEAR, STEARNS & CO. INC.

COWEN & COMPANY
, 1998
<PAGE> 85

PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses payable in connection with the
registration of the Common Stock that is the subject of this Registration
Statement, all of which shall be borne by the Company. All the amounts shown are
estimates except for the registration fee, the Nasdaq listing fee, and the NASD
filing fee.

<TABLE>
<CAPTION>
TO BE PAID BY
REGISTRANT
-------------
<S> <C>
Securities and Exchange Commission registration fee......... $ 29,718.30
Nasdaq listing fee.......................................... 17,500.00
National Association of Securities Dealers filing fee....... 10,574.00
Printing and engraving expenses............................. 65,000.00
Legal fees and expenses..................................... 85,000.00
Accounting fees and expenses................................ 80,000.00
Blue sky filing fees........................................ 5,000.00
Miscellaneous............................................... 57,207.70
-----------
Total..................................................... $350,000.00
===========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Certificate of Incorporation and By-laws provide for
indemnification of directors, officers, agents, and employees of the Company to
the fullest extent permitted by law. Under Delaware law, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to an action (other than an action by or in the right of the corporation) by
reason of his service as a director or officer of the corporation, or his
service, at the corporation's request, as a director, officer, employee, or
agent of another corporation or other enterprise, against expenses (including
attorneys' fees) that are actually and reasonably incurred by him ("Expenses"),
and judgments, fines and amounts paid in settlement that are actually and
reasonably incurred by him, in connection with the defense or settlement of such
action, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. Although Delaware law permits a corporation to
indemnify any person referred to above against Expenses in connection with the
defense or settlement of an action by or in the right of the corporation,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the corporation's best interests, if such person has
been judged liable to the corporation, indemnification is only permitted to the
extent that the Court of Chancery (or the court in which the action was brought)
determines that, despite the adjudication of liability, such person is entitled
to indemnity for such Expenses as the court deems proper. The determination as
to whether a person seeking indemnification has met the required standard of
conduct is to be made (1) by a majority vote of a quorum of disinterested
members of the board of directors, or (2) by independent legal counsel in a
written opinion, if such a quorum does not exist or if the disinterested
directors so direct, or (3) by the stockholders. The General Corporation Law of
the State of Delaware also provides for mandatory indemnification of any
director, officer, employee or agent against Expenses to the extent such person
has been successful in any proceeding covered by the statute. In addition, the
General Corporation Law of the State of Delaware provides the general
authorization of advancement of a director's or officer's litigation expenses in
lieu of requiring the authorization of such advancement by the board of
directors in specific cases, and that indemnification and advancement of
expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement or otherwise.

II-1
<PAGE> 86

ITEM 16. EXHIBITS.

(a) The following is a list of exhibits furnished:

<TABLE>
<S> <C>
1 Form of Purchase Agreement.
2 Asset Purchase Agreement dated as of January 19, 1996 by and
among ProMedCo, Inc., ProMedCo of Abilene, inc. and Abilene
Diagnostic Clinic, P.L.L.C.(1)
2(a) First Amendment to Asset Purchase Agreement dated as of
January 19, 1996 by and among ProMedCo, Inc., ProMedCo of
Abilene, inc., and Abilene Diagnostic Clinic, P.L.L.C.(1)
2.1 Plan and Agreement for Reorganization dated as of September
13, 1996 by and between ProMedCo, Inc., ProMedCo of Temple,
Inc., and King's Daughters Clinics, P.A.(1)
2.2 Agreement for Statutory merger dated as of November 7, 1996
by and between ProMedCo, Inc., ProMedCo of Northern Nevada,
Inc. and Western medical Management Corporation, Inc.(1)
3.1 Form of Restated Certificate of Incorporation of ProMedCo
Management Company.(1)
3.2 By-laws of ProMedCo Management Company.(1)
4 Form of Rights Agreement.(1)
5 Opinion of Counsel
10.1 Interim Service Agreement dated as of January 19, 1996 by
and between ProMedCo of Abilene, inc. and Abilene Diagnostic
Clinic, P.L.L.C.(1)(2)
10.1(a) First Amendment to Service Agreement and Interim Service
Agreement dated as of January 19, 1996 by and between
ProMedCo of Abilene, inc. and Abilene Diagnostic Clinic,
P.L.L.C.(1)
10.2 Service Agreement dates as of January 19, 1996 by and
between ProMedCo of Abilene, Inc. and Abilene Diagnostic
Clinic, P.L.L.C.(1)(2)
10.3 Service Agreement dates as of March 12, 1996 by and between
ProMedCo, Inc. of Cullman, Inc. and Cullman Primary Care,
P.C.(1)(2)
10.4 Service Agreement dated as of April 1, 1996 by and between
ProMedCo of Mayfield, Inc. and Morgan-Haugh, P.S.C.(1)(2)
10.5 Amended and Restated Service Agreement dated as of June 24,
1996 by and between ProMedCo of Lake Worth, Inc. and Tarrant
Family Practice, P.A.(1)(2)
10.6 Service Agreement dated as of June 30, 1995 by and between
ProMedCo of Denton, Inc. and North Texas Medical Surgical
Clinic, P.A.(1)(2)
10.7 Credit Agreement dated as of June 12, 1996 among ProMedCo,
Inc., the Lenders referred to therein, and Nationscredit
Commercial Corporation, as Agent.(1)
10.8 1996 Stock Option Plan.(1)
10.9 Employee Stock Purchase Plan.(1)
10.10 Employment Agreement with H. Wayne Posey.(1)
10.11 Employment Agreement with Richard R. D'Antoni.(1)
10.12 Amended and Restated Employment Agreement with Dale K.
Edwards.(1)
10.13 Employment Agreement with R. Alan Gleghorn.(1)
10.14 Employment Agreement with Rick E. Weymier.(1)
10.15 Employment Agreement with Deborah A. Johnson.(1)
10.16 Service Agreement dated as of September 1, 1996 by and
between ProMedCo of Temple, Inc. and Physicians of King's
Daughters, P.A.(1)
10.17 Employment Agreement with Robert D. Smith.(1)
</TABLE>

II-2
<PAGE> 87

<TABLE>
<S> <C>
10.18 Form of Service Agreement by and between ProMedCo of Northern Nevada, Inc. and Knutzen Goring Medical
Group, Ltd. DBA The Northern Nevada Medical Group.(1)(2)
10.19 1994 Stock Option Plan.(1)
10.20 Asset Purchase Agreements as of April 23, 1997 by and between ProMedCo Management Company, ProMedCo of
Southwest Florida, Inc., Naples Medical Center, P.A. and Naples Obstetrics & Gynecology, M.D., P.A.
Included as Appendix 2.9A to the Agreement is the Service Agreement by and between ProMedCo of
Southwest Florida and Naples Medical Center, P.A.(3)
10.21 Asset Purchase Agreement as of August 12, 1997 by and between ProMedCo Management Company, PHB
Management Company, Inc. and HealthAmerica Pennsylvania, Inc. Service Agreement by and between PHB
Management Company, Inc. and HealthAmerica Pennsylvania, Inc. effective October 1, 1997.(4)
10.22 Stock Purchase Agreement as of October 8, 1997 by and between ProMedCo Management Company, ProMedCo of
Sarasota, Inc., IMG, Inc. (formerly known as Intercoastal Medical Group, Inc.), and Intercoastal
Medical Group, Inc. Service Agreement by and between ProMedCo of Sarasota and Intercoastal Medical
Group, Inc., effective August 1, 1997.(5)
10.23 Agreement for Statutory Merger by and between HP Acquisition Corp., a Wholly Owned Subsidiary of
ProMedCo Management Company, with PBMA Health Systems, Inc. and Health Plans, Inc. dated July 25,
1997.(6)
10.24 Amended and Restated Credit Agreement dated as of November 13, 1997 among ProMedCo Management Company,
the Lenders referred to therein, and Nationscredit Commercial Corporation, as Agent.(7)
10.25 Agreement for Statutory Merger between ProMedCo Management Company, ProMedCo of Berkshire, Inc. and
Berkshire Physicians & Surgeons, P.C., dated April 14, 1998.(8)
10.26 Service Agreement between Commonwealth Health Management Services, Inc. and BP&S, P.C., dated April 1,
1998.(8)
10.27 Second Amended and Restated Credit Agreement dated as of April 16, 1998 among ProMedCo Management
Company, the Lenders referred to therein, and NationsCredit Commercial Corporation, as Agent.
11 Computation of Net Income Per Share.(7)
22 List of Subsidiaries.(7)
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
24* Power of Attorney (included in signature page).
27* Financial Data Schedule.
</TABLE>

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

* Previously filed.

(1) Filed as an exhibit of the same number to the Company's registration
statement on Form S-1 (File No. 333-10557).

(2) Confidential treatment has been requested and an application has been
separately filed with the Commission.

(3) Filed as exhibit 2.3 to the Company's report on Form 8-K filed with the
Commission on May 7, 1997.

(4) Filed as an exhibit to the Company's report on Form 8-K filed with the
Commission on October 15, 1997.

(5) Filed as an exhibit to the Company's report on Form 8-K filed with the
Commission on October 23, 1997.

(6) Filed as an exhibit to the Company's report on Form 8-K filed with the
Commission on December 17, 1997.

II-3
<PAGE> 88

(7) Filed as an exhibit to the Company's report on Form 10-K filed with the
Commission on March 26, 1998.

(8) Filed as an exhibit to the Company's report on Form 8-K filed with the
Commission on May 1, 1998.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.

(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(3) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.

(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-4
<PAGE> 89

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Worth and State of
Texas on the 7th day of May 1998.

PROMEDCO MANAGEMENT COMPANY

By: *

---------------------------------------
H. WAYNE POSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

* President, Chief Executive Officer, May 7, 1998
- --------------------------------------------- and Director
H. WAYNE POSEY (Principal Executive Officer)

* Vice President -- Finance May 7, 1998
- --------------------------------------------- (Principal Financial and Accounting
ROBERT D. SMITH Officer)

Chairman and Director May , 1998
- ---------------------------------------------
RICHARD R. RAGSDALE

Director May , 1998
- ---------------------------------------------
DAVID T. BAILEY, M.D.

Director May , 1998
- ---------------------------------------------
CHARLES J. BUYSSE, M.D.

* Director May 7, 1998
- ---------------------------------------------
E. THOMAS CHANEY

* Director May 7, 1998
- ---------------------------------------------
JAMES F. HERD, M.D.

* Director May 7, 1998
- ---------------------------------------------
JACK W. MCCASLIN

*By: /s/ MICHAEL JOSEPH
---------------------------------------
MICHAEL JOSEPH
ATTORNEY-IN-FACT
</TABLE>

II-5

<PAGE> 1
6,400,000 SHARES(1)

PROMEDCO MANAGEMENT COMPANY

COMMON STOCK

PURCHASE AGREEMENT

May ___, 1998

PIPER JAFFRAY INC.
BEAR, STEARNS & CO., INC.
COWEN & COMPANY
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

Gentlemen:

ProMedCo Management Company, a Delaware corporation (the "Company"),
and H. Wayne Posey (the "Selling Stockholder") propose to sell to the several
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
6,000,000 shares and 400,000 shares, respectively (the "Firm Shares"), of
Common Stock, $0.01 par value per share (the "Common Stock"), of the Company.
The Firm Shares consist of 6,000,000 authorized but unissued shares of Common
Stock to be issued and sold by the Company and 400,000 shares of Common Stock
to be sold by the Selling Stockholder. The Company has also granted to the
several Underwriters an option to purchase up to 960,000 additional shares of
Common Stock on the terms and for the purposes set forth in Section 3 hereof
(the "Option Shares"). The Firm Shares and any Option Shares purchased
pursuant to this Purchase Agreement are herein collectively called the
"Securities."

The Company and the Selling Stockholder hereby confirm their agreement
with respect to the sale of the Securities to the several Underwriters, for
whom you are acting as Representatives (the "Representatives").

1. Registration Statement and Prospectus. A registration statement on
Form S-3 (File No. _________) with respect to the Securities, including a
preliminary form of prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933 (the "Act") and the rules
and regulations ("Rules and Regulations") of the Securities and Exchange

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

(1) Plus an option to purchase up to 960,000 additional shares to cover
over-allotments.

<PAGE> 2
Commission (the "Commission") thereunder and has been filed with the
Commission; one or more amendments to such registration statement have also
been so prepared and have been, or will be, so filed; and, if the Company has
elected to rely upon Rule 462(b) of the Rules and Regulations to increase the
size of the offering registered under the Act, the Company will prepare and
file with the Commission a registration statement with respect to such increase
pursuant to Rule 462(b). Copies of such registration statement(s) and
amendments and each related preliminary prospectus have been delivered to you.

If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to
the registration statement and an amended prospectus (including a term sheet
meeting the requirements of Rule 434 of the Rules and Regulations). If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, it
will prepare and file a prospectus (or a term sheet meeting the requirements of
Rule 434) pursuant to Rule 424(b) that discloses the information previously
omitted from the prospectus in reliance upon Rule 430A. Such registration
statement as amended at the time it is or was declared effective by the
Commission, and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such registration
statement as so amended (but only from and after the effectiveness of such
amendment), including a registration statement (if any) filed pursuant to Rule
462(b) of the Rules and Regulations increasing the size of the offering
registered under the Act and information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rules 430A(b)
and 434(d) of the Rules and Regulations, is hereinafter called the
"Registration Statement." The prospectus included in the Registration
Statement at the time it is or was declared effective by the Commission is
hereinafter called the "Prospectus," except that if any prospectus (including
any term sheet meeting the requirements of Rule 434 of the Rules and
Regulations provided by the Company for use with a prospectus subject to
completion within the meaning of Rule 434 in order to meet the requirements of
Section 10(a) of the Rules and Regulations) filed by the Company with the
Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the Rules
and Regulations or any other such prospectus provided to the Underwriters by
the Company for use in connection with the offering of the Securities (whether
or not required to be filed by the Company with the Commission pursuant to Rule
424(b) of the Rules and Regulations) differs from the prospectus on file at the
time the Registration Statement is or was declared effective by the Commission,
the term "Prospectus" shall refer to such differing prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and Regulations) from
and after the time such prospectus is filed with the Commission or transmitted
to the Commission for filing pursuant to such Rule 424(b) (and Rule 434, if
applicable) or from and after the time it is first provided to the Underwriters
by the Company for such use. The term "Preliminary Prospectus" as used herein
means any preliminary prospectus included in the Registration Statement prior
to the time it becomes or became effective under the Act and any prospectus
subject to completion as described in Rule 430A or Rule 434 of the Rules and
Regulations.

Any reference in this Agreement to the Registration Statement, any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Act, as of the date of the Registration Statement, such
Preliminary Prospectus or the
<PAGE> 3
Prospectus, as the case may be, and any reference to any amendment or
supplement to the Registration Statement, any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents filed after
such date under the Securities Exchange Act of 1934 (the "Exchange Act") which,
upon filing, are incorporated by reference therein, as required by paragraph
(b) of Item 12 of Form S-3. As used herein, the term "Incorporated Documents"
means the documents which at the time are incorporated by reference in the
Registration Statement, any Preliminary Prospectus or the Prospectus, as the
case may be, or any amendment or supplement thereto.

2. Representations and Warranties of the Company and the Selling
Stockholder.

(a) The Company and the Selling Stockholder jointly and severally
represent and warrant to, and agree with, the several Underwriters as
follows:

(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and no
proceedings for such purpose are pending before or, to the
Company's knowledge, threatened by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing
shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter
through you, specifically for use in the preparation thereof.

(ii) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act.
As of the time the Registration Statement (or any post-effective
amendment thereto, including a registration statement (if any)
filed pursuant to Rule 462(b) of the Rules and Regulations
increasing the size of the offering registered under the Act) is
or was declared effective by the Commission, upon the filing or
first delivery to the Underwriters of the Prospectus (or any
supplement to the Prospectus (including any term sheet meeting the
requirements of Rule 434 of the Rules and Regulations)) and at the
First Closing Date and Second Closing Date (as hereinafter
defined), (A) the Registration Statement and Prospectus (in each
case, as so amended and/or supplemented) conformed or will conform
in all material respects to the requirements of the Act and the
Rules and Regulations, (B) the Registration Statement (as so
amended) did not or will not include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (C) the Prospectus (as so supplemented) did not or
will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in
which they are or were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any
such document in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter
through you, specifically for use in the preparation thereof. If
the Registration Statement has been declared effective by the
Commission, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no

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<PAGE> 4
proceeding for that purpose has been initiated or, to the Company's
knowledge, threatened by the Commission.

(iii) The Incorporated Documents heretofore filed, when
they were filed (or, if any amendment with respect to any such
document was filed, when such amendment was filed), conformed in
all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder; any further Incorporated
Documents so filed will, when they are filed, conform in all
material respects with the requirements of the Exchange Act and
the rules and regulations thereunder; no such document when it was
filed (or, if an amendment with respect to any such document was
filed, when such amendment was filed), contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and no such further document,
when it is filed, will contain an untrue statement of a material
fact or will omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.

(iv) The Company manages the business operations of each of
North Texas Medical Surgical, P.A., Cullman Primary Care, P.C.,
Family Medical Clinic, P.C., Morgan-Haugh, P.S.C., HealthFirst
Medical Group, P.A., Abilene Diagnostic Clinic Practices, King's
Daughters Clinic, P.A., The Medical Group of Northern Nevada,
Naples Medical Center, P.A., Beacon Medical Group, P.C.,
Intercoastal Medical Group, Inc., Christie Clinic Association,
Cowley Medical Association, P.C., Thomas-Spann Clinic, P.A.,
HealthStar Physicians, P.C., Berkshire Physicians and Surgeons,
P.C. and PMC Medical Management, Inc. (collectively, the "Acquired
Companies") but does not manage the business operations of any
other professional association or other business.

(v) The financial statements of the Company, together with
the notes thereto, set forth in the Registration Statement and
Prospectus (or any amendment or supplement thereto) comply in all
material respects with the requirements of the Act and fairly
present the financial condition of the Company as of the dates
indicated and the results of operations and changes in cash flows
for the periods therein specified in conformity with generally
accepted accounting principles consistently applied throughout the
periods involved (except as otherwise stated therein); and the
supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The
financial statements of each of the Acquired Companies, together
with the notes thereto, set forth in the Registration Statement
and Prospectus comply in all material respects with the
requirements of the Act and fairly present the financial condition
of each Acquired Company as of the dates indicated and the results
of operations and changes in cash flows for the periods therein
specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved
(except as otherwise stated therein). The pro forma financial
statements (including the notes thereto) and the other pro forma
financial information included in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) (i)
comply (except as expressly noted therein) as to form in all
material respects with the applicable requirements of Regulation
S-X promulgated under the Exchange

-4-
<PAGE> 5
Act, (ii) have been prepared in accordance with the Commission's
rules, regulations and guidelines with respect to pro forma
financial statements (except as expressly noted therein), and
(iii) have been properly computed on the bases described therein;
the assumptions used in the preparation of the pro forma financial
data and other pro forma financial information included in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto) are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein. No other financial statements
or schedules are required to be included in the Registration
Statement or Prospectus. Arthur Andersen LLP, Coopers & Lybrand
L.L.P. and Ernst & Young LLP, which have expressed their
respective opinions with respect to the financial statements and
schedules of the Company, Berkshire Physicians and Surgeons, P.C.
and PMC Medical Management, Inc., respectively, filed as a part of
the Registration Statement and included in the Registration
Statement and Prospectus, are independent public accountants as
required by the Act and the Rules and Regulations.

(vi) Each of the Company, its subsidiaries and the Acquired
Companies has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. Each of the Company, its subsidiaries and the
Acquired Companies has full corporate power and authority to own,
lease and operate its properties and conduct its business as
currently being carried on and as described in the Registration
Statement and Prospectus, and is duly qualified to do business as
a foreign corporation in good standing in each jurisdiction in
which it owns or leases real property or in which the conduct of
its business makes such qualification necessary and in which the
failure to so qualify would have a material adverse effect upon
its business, condition (financial or otherwise) or properties,
taken as a whole.

(vii) Except as contemplated in the Prospectus (or any
amendment or supplement thereto), subsequent to the respective
dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries nor any of the Acquired Companies has incurred any
material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any
dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital
stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options,
warrants, convertible securities or other rights to purchase the
capital stock, of the Company, any of its subsidiaries or any of
the Acquired Companies, or any material adverse change, or any
development involving a prospective material adverse change, in
the general affairs, condition (financial or otherwise), business,
key personnel, property, prospects, net worth or results of
operations of the Company, its subsidiaries and the Acquired
Companies, taken as a whole.

(viii) Except as set forth in the Prospectus (or any
amendment or supplement thereto), there is not pending or, to the
knowledge of the Company, threatened or

-5-
<PAGE> 6
contemplated, any action, suit or proceeding to which the Company,
any of its subsidiaries or any of the Acquired Companies is a
party before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material
adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the
Company and its subsidiaries and the Acquired Companies, taken as
a whole.

(ix) There are no contracts or documents of the Company,
any of its subsidiaries or any of the Acquired Companies that are
required to be described in the Registration Statement or the
Prospectus or to be filed as Incorporated Documents or exhibits to
the Registration Statement that are not described or filed as
required by the Act, the Rules and Regulations, or the Exchange
Act.

(x) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and
binding obligation of the Company, enforceable in accordance with
its terms, except as rights to indemnity hereunder may be limited
by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, any agreement or
instrument to which the Company, any subsidiary of the Company or
any of the Acquired Companies is a party or by which it or any
such subsidiary or any such Acquired Company is bound or to which
any of its or any such subsidiary's or any such Acquired Company's
property is subject, the Company s charter or by-laws, or any
order, rule, regulation or decree of any court or governmental
agency or body having jurisdiction over the Company or any such
subsidiary or any such Acquired Company or any of its or any such
subsidiary's or any such Acquired Company's properties; no
consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or for the
consummation of the transactions contemplated hereby, including
the issuance or sale of the Securities by the Company or the
Selling Stockholder, except such as may be required under the Act,
the Exchange Act or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement
and to authorize, issue and sell the Securities as contemplated by
this Agreement.

(xi) All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common
Stock, are duly authorized and validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase securities, and the holders thereof are not subject to
personal liability by reason of being such holders; the Securities
which may be sold hereunder by the Company have been duly
authorized and, when issued, delivered and paid for in accordance
with the terms hereof, will have been validly issued and will be
fully paid and nonassessable, and the holders thereof will not be
subject to

-6-
<PAGE> 7
personal liability by reason of being such holders; and the
capital stock of the Company, including the Common Stock, conforms
to the description thereof in the Registration Statement and
Prospectus. Except as otherwise stated in the Registration
Statement and Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to
the Company s charter, by-laws or any agreement or other
instrument to which the Company is a party or by which the Company
is bound. Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated by this
Agreement gives rise to any rights for or relating to the
registration of any shares of Common Stock or other securities of
the Company other than such rights as have been duly waived. All
of the issued and outstanding shares of capital stock of each of
the Company s subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and, except as
otherwise described in the Registration Statement and Prospectus
and except for any directors qualifying shares, the Company owns
of record and beneficially, free and clear of any security
interests, claims, liens, proxies, equities or other encumbrances,
all of the issued and outstanding shares of such stock. Except as
described in the Registration Statement and the Prospectus, there
are no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or any
subsidiary of the Company any shares of the capital stock of the
Company or any subsidiary of the Company. The Company has an
authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus.

(xii) Each of the Company, its subsidiaries and the
Acquired Companies holds, and is operating in compliance in all
material respects with, all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates (including,
without limitation, certificates of need) and orders of any
governmental or self-regulatory body required for the conduct of
its business and all such franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders
are valid and in full force and effect; and each of the Company,
its subsidiaries and the Acquired Companies are in compliance in
all material respects with all applicable federal, state, local
and foreign laws, regulations, orders and decrees.

(xiii) The Company, its subsidiaries and the Acquired
Companies have good and marketable title to all property described
in the Registration Statement and Prospectus as being owned by
them, in each case free and clear of all liens, claims, security
interests or other encumbrances except such as are described in
the Registration Statement and the Prospectus; the property held
under lease by the Company, its subsidiaries and the Acquired
Companies is held by them under valid, subsisting and enforceable
leases with only such exceptions with respect to any particular
lease as do not interfere in any material respect with the conduct
of the business of the Company, its subsidiaries or the Acquired
Companies; each of the Company, its subsidiaries and the Acquired
Companies owns or possesses all patents, patent applications,
trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions,
trade secrets and rights necessary for the conduct of the business
of the Company, its subsidiaries and the Acquired Companies as
currently carried on and as

-7-
<PAGE> 8
described in the Registration Statement and Prospectus; except as
stated in the Registration Statement and Prospectus, no name which
the Company, any of its subsidiaries or any of the Acquired
Companies uses and no other aspect of the business of the Company,
any of its subsidiaries or any of the Acquired Companies will
involve or give rise to any infringement of, or license or similar
fees for, any patents, patent applications, trademarks, service
marks, tradenames, trademark registrations, service mark
registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others material to the business or
prospects of the Company, its subsidiaries and the Acquired
Companies, taken as a whole, and neither the Company nor any of
its subsidiaries nor any of the Acquired Companies has received
any notice alleging any such infringement or fee.

(xiv) Neither the Company nor any of its subsidiaries nor
any of the Acquired Companies is in violation of its respective
charter or by-laws or in breach of or otherwise in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which
it is subject or by which any of them may be bound, or to which
any of the material property or assets of the Company, any of its
subsidiaries or any of the Acquired Companies are subject.

(xv) The Company, its subsidiaries and the Acquired
Companies have filed all federal, state, local and foreign income
and franchise tax returns required to be filed and are not in
default in the payment of any taxes which were payable pursuant to
said returns or any assessments with respect thereto, other than
any which the Company, any of its subsidiaries or any of the
Acquired Companies is contesting in good faith and for which
adequate reserves have been made on the Company's most recently
prepared balance sheet.

(xvi) Each of the Company, its subsidiaries and the
Acquired Companies has timely filed all reports required to be
filed in connection with federal Medicare and applicable state
Medicaid programs and due on or before the date hereof, and all
such required reports are true and complete in all material
respects; there are no claims, actions or appeals pending (and the
Company, its subsidiaries and the Acquired Companies have not
filed anything that would result in any claims, actions or
appeals) before any commission, board or agency with respect to
any state or federal Medicare or Medicaid cost reports or claim
filed by the Company, any of its subsidiaries or any of the
Acquired Companies on or before the date hereof, or with respect
to any disallowances by any intermediary, carrier, other insurer,
commission, board or agency in connection with any audit of any
cost reports that, if adversely determined, would have a material
adverse effect on the Company, its subsidiaries and the Acquired
Companies, taken as a whole; no validation review or program
integrity review related to the Company, any of its subsidiaries
or the Acquired Companies has been conducted by any commission,
board or agency in connection with federal Medicare or state
Medicaid programs, and no such reviews are scheduled, pending or,
to the Company's knowledge, threatened against or affecting the
Company, any of its subsidiaries or any of the Acquired Companies;
each of the Company, its subsidiaries and the Acquired Companies
has

-8-
<PAGE> 9
timely filed all material reports, data and other information
required by any other regulatory agency with authority to regulate
the Company, its subsidiaries, the Acquired Companies or the
business of any of them in any manner; and except as disclosed in
the Registration Statement and Prospectus, (i) each of the
Company, its subsidiaries and the Acquired Companies is in
compliance in all material respects with all rules, regulations
and requirements of all regulatory agencies, except where such
noncompliance would not have a material adverse effect on the
Company, its subsidiaries and the Acquired Companies taken as a
whole and (ii) the conduct of the business of each of the Company,
its subsidiaries and the Acquired Companies does not violate 42
U.S.C. Section 1320a-7b (commonly known as the "Anti-Kickback
Statute") or 42 U.S.C. Section 1395nn (commonly known as the
"Stark Amendments"), including all amendments thereto to the
extent effective on the date hereof, unless any noncompliance
would not have a material adverse effect on the Company, its
subsidiaries and the Acquired Companies, taken as a whole.

(xvii) Each of the Company, its subsidiaries and the
Acquired Companies maintain reasonably adequate insurance.

(xviii) PMC Medical Management, Inc. is not required to be
licensed as a health maintenance organization, insurer or similar
organization or business under the laws of any jurisdiction.

(xix) The Company has not distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Securities other than any
Preliminary Prospectus or the Prospectus or other materials
permitted by the Act to be distributed by the Company.

(xx) The Common Stock is quoted and the Securities have
been approved for quotation on the Nasdaq National Market.

(xxi) All the Company's subsidiaries other than ProMedCo of
Berkshire, Inc. (collectively, the "Subsidiaries") are listed in
an exhibit to the Company's Annual Report on Form 10-K, which is
incorporated by reference into the Registration Statement.

(xxii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances
that (a) transactions are executed in accordance with management s
general or specific authorization; (b) transactions are recorded
as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (c) access to assets is
permitted only in accordance with management s general or specific
authorization; and (d) the recorded accountability for assets is
compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

-9-
<PAGE> 10
(xxiii) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder s or broker
s fee or agent s commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.

(xxiv) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.

(xxv) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any
person or affiliate located in Cuba.

(b) The Selling Stockholder represents and warrants to, and
agrees with, the several Underwriters as follows:

(i) The Selling Stockholder is the record and beneficial
owner of, and has, and on the First Closing Date will have, valid
and marketable title to the Securities to be sold by the Selling
Stockholder, free and clear of all security interests, claims,
liens, restrictions on transferability, legends, proxies, equities
or other encumbrances; and upon delivery of and payment for such
Securities hereunder, the several Underwriters will acquire valid
and marketable title thereto, free and clear of any security
interests, claims, liens, restrictions on transferability,
legends, proxies, equities or other encumbrances. The Selling
Stockholder is selling the Securities to be sold by the Selling
Stockholder for the Selling Stockholder s own account and is not
selling such Securities, directly or indirectly, for the benefit
of the Company, and no part of the proceeds of such sale received
by such Selling Stockholder will inure, either directly or
indirectly, to the benefit of the Company other than as described
in the Registration Statement and Prospectus.

(ii) The Selling Stockholder has the power and authority to
enter into this Agreement and to sell, transfer and deliver the
Securities to be sold by the Selling Stockholder.

(iii) This Agreement has been duly authorized, executed and
delivered by the Selling Stockholder and constitutes a valid and
binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnity hereunder
or thereunder may be limited by federal or state securities laws
and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or laws affecting the rights of
creditors generally and subject to general principles of equity.
The execution and delivery of this Agreement and the performance
of the terms hereof and the consummation of the transactions
herein contemplated will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under,
any agreement or instrument to which the Selling Stockholder is a
party or by which the Selling Stockholder is bound, or any law,
regulation, order or decree applicable to the Selling Stockholder;
no consent, approval, authorization or order of, or filing with,
any

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<PAGE> 11
court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or for the
consummation of the transactions contemplated hereby, including
the sale of the Securities being sold by the Selling Stockholder,
except such as may be required under the Act, the Exchange Act or
state securities laws or blue sky laws.

(iv) The Selling Stockholder has not distributed and will
not distribute any prospectus or other offering material in
connection with the offering and sale of the Securities other than
any Preliminary Prospectus or the Prospectus or other materials
permitted by the Act to be distributed by the Selling Stockholder.

(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the
matters covered thereby; and any certificate signed by or on behalf of
the Selling Stockholder as such and delivered to you or to counsel for
the Underwriters shall be deemed a representation and warranty by such
Selling Stockholder to each Underwriter as to the matters covered
thereby.

3. Purchase, Sale and Delivery of Securities.

(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to issue and sell 6,000,000 of the
Firm Shares, and the Selling Stockholder agrees to sell 400,000 of the
Firm Shares, to the several Underwriters, and each Underwriter agrees,
severally and not jointly, to purchase from the Company and the Selling
Stockholder the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto. The purchase price for each Firm
Share shall be $[_____] per share. The obligation of each Underwriter
to the Company and the Selling Stockholder shall be to purchase from the
Company and the Selling Stockholder that number of Firm Shares (to be
adjusted by the Representatives to avoid fractional shares) which
represents the same proportion of the number of Firm Shares to be sold
by the Company and the Selling Stockholder pursuant to this Agreement as
the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto represents to the total number of Firm
Shares to be purchased by all Underwriters pursuant to this Agreement.
In making this Agreement, each Underwriter is contracting severally and
not jointly; except as provided in paragraph (c) of this Section 3 and
in Section 8 hereof, the agreement of each Underwriter is to purchase
only the respective number of Firm Shares specified in Schedule I.

The Firm Shares will be delivered by the Company and the Selling
Stockholder to you for the accounts of the several Underwriters against
payment of the purchase price therefor in immediately available funds to
the Company and the Selling Stockholder, as appropriate, at the offices
of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually
acceptable, at 9:00 a.m. Central time on the third (or if the Securities
are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act,
after 4:30 p.m. Eastern time, the fourth) full business day following
the date hereof, or at such other time and date as you and the Company
determine pursuant to Rule 15c6-1(a) under the Exchange Act, such time
and date of delivery being herein referred to as

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<PAGE> 12
the "First Closing Date." If the Representatives so elect, delivery of
the Firm Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the
Representatives. Certificates representing the Firm Shares, in
definitive form and in such denominations and registered in such names
as you may request upon at least two business days prior notice to the
Company, will be made available for checking and packaging not later
than 10:30 a.m., Central time, on the business day next preceding the
First Closing Date at the offices of Piper Jaffray Inc., Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable.

(b) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company hereby grants to the several Underwriters
an option to purchase all or any portion of the Option Shares at the
same purchase price as the Firm Shares, for use solely in covering any
over-allotments made by the Underwriters in the sale and distribution of
the Firm Shares. The option granted hereunder may be exercised at any
time (but not more than once) within 30 days after the effective date of
this Agreement upon notice (confirmed in writing) by the Representatives
to the Company setting forth the aggregate number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the certificates for the Option Shares are to be
registered and the date and time, as determined by you, when the Option
Shares are to be delivered, such time and date being herein referred to
as the "Second Closing" and "Second Closing Date," respectively;
provided, however, that the Second Closing Date shall not be earlier
than the First Closing Date nor earlier than the second business day
after the date on which the option shall have been exercised. If the
option is exercised, each Underwriter shall purchase from the Company
that number of Option Shares (to be adjusted by the Representatives to
avoid fractional shares) which represents the same proportion to the
number of Option Shares to be purchased from the Company as the number
of Firm Shares to be purchased by each Underwriter represents to the
total number of Firm Shares to be purchased by all of the Underwriters
pursuant to this Agreement. No Option Shares shall be sold and
delivered unless the Firm Shares previously have been, or simultaneously
are, sold and delivered.

The Option Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase
price therefor in immediately available funds to the Company at the
offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota, or such other location as may be
mutually acceptable at 9:00 a.m., Central time, on the Second Closing
Date. If the Representatives so elect, delivery of the Option Shares
may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
Certificates representing the Option Shares in definitive form and in
such denominations and registered in such names as you have set forth in
your notice of option exercise, will be made available for checking and
packaging not later than 10:30 a.m., Central time, on the business day
next preceding the Second Closing Date at the office of Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable.

(c) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be
obligated to) make payment to the Company or the Selling

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<PAGE> 13
Stockholder, on behalf of any Underwriter for the Securities to be
purchased by such Underwriter. Any such payment by you shall not
relieve any such Underwriter of any of its obligations hereunder.
Nothing herein contained shall constitute any of the Underwriters an
unincorporated association or partner with the Company or the Selling
Stockholder.

4. Covenants.

(a) The Company covenants and agrees with the several
Underwriters as follows:

(i) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its
best efforts to cause the Registration Statement and any
post-effective amendments thereto to become effective as promptly
as possible; the Company will notify you promptly of the time when
the Registration Statement or any post-effective amendment to the
Registration Statement has become effective or any supplement to
the Prospectus (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations) has been filed and of any
request by the Commission for any amendment or supplement to the
Registration Statement or Prospectus or additional information; if
the Company has elected to rely on Rule 430A of the Rules and
Regulations, the Company will prepare and file a Prospectus (or
term sheet within the meaning of Rule 434 of the Rules and
Regulations) containing the information omitted therefrom pursuant
to Rule 430A of the Rules and Regulations with the Commission
within the time period required by, and otherwise in accordance
with the provisions of, Rules 424(b), 430A and 434, if applicable,
of the Rules and Regulations; if the Company has elected to rely
upon Rule 462(b) of the Rules and Regulations to increase the size
of the offering registered under the Act, the Company will prepare
and file a registration statement with respect to such increase
with the Commission within the time period required by, and
otherwise in accordance with the provisions of, Rule 462(b); the
Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration
Statement or Prospectus (including any term sheet within the
meaning of Rule 434 of the Rules and Regulations) or file any
document which upon filing, becomes an Incorporated Document that,
in your opinion, may be necessary or advisable in connection with
the distribution of the Securities by the Underwriters; and the
Company will not file any amendment or supplement to the
Registration Statement or Prospectus (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations) or
file any document which, upon filing, becomes an Incorporated
Document to which you shall reasonably object by notice to the
Company after having been furnished a copy a reasonable time prior
to the filing.

(ii) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceeding for any such purpose;
and the Company will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a
stop order should be issued.

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<PAGE> 14
(iii) Within the time during which a prospectus (including
any term sheet within the meaning of Rule 434 of the Rules and
Regulations) relating to the Securities is required to be
delivered under the Act, the Company will comply with all
requirements imposed upon it by the Act, as now and hereafter
amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of
or dealings in the Securities as contemplated by the provisions
hereof and the Prospectus. If during such period any event occurs
as a result of which the Prospectus would include an untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or
supplement the Prospectus (or to file under the Exchange Act any
document that, upon filing, becomes an Incorporated Document) to
comply with the Act, the Company will promptly notify you and will
forthwith prepare and file with the Commission an appropriate
supplement or amendment thereto (or to such document) (at the
expense of the Company) so as to correct such statement or
omission or effect such compliance.

(iv) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such
jurisdictions as you reasonably designate and to continue such
qualifications in effect so long as required for the distribution
of the Securities, except that the Company shall not be required
in connection therewith to qualify as a foreign corporation or to
execute a general consent to service of process in any state.

(v) The Company will furnish to the Underwriters copies of
the Registration Statement (five of which will be signed and will
include all exhibits), each Preliminary Prospectus, the
Prospectus, all amendments and supplements (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations)
to such documents, in each case as soon as available and in such
quantities as you may from time to time reasonably request. In
addition, the Company will furnish to the Underwriters copies of
the Incorporated Documents and the exhibits to the Incorporated
Documents, in each case in such quantities as you may from time to
time reasonably request.

(vi) During a period of five years commencing with the date
hereof, the Company will (i) mail as soon as reasonably
practicable after the end of each fiscal year to the record
holders of its Common Stock a financial report of the Company and
its subsidiaries on a consolidated basis, all such financial
reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows
and a consolidated statement of stockholders' equity as of the end
of and for such fiscal year, together with comparable information
as of the end of and for the preceding year, certified by
independent certified public accountants, and (ii) mail and make
generally available as soon as practicable after the end of the
first three quarters of each fiscal year (beginning with the
quarter ending March 31, 1998) to the record holders of its Common
Stock, unaudited consolidated summary financial information of the
Company and its subsidiaries for each such quarter in reasonable
detail.

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<PAGE> 15
(vii) During a period of five years commencing with the
date hereof, the Company will furnish to the Representatives, and
to each Underwriter who may so request in writing, copies of all
periodic and special reports furnished to the stockholders of the
Company and all information, documents and reports filed with the
Commission, the National Association of Securities Dealers, Inc.,
the Nasdaq National Market or any securities exchange.

(viii) The Company will make generally available to its
security holders as soon as practicable, but in any event not
later than 15 months after the end of the Company s current fiscal
quarter, an earnings statement (which need not be audited)
covering a 12-month period beginning after the effective date of
the Registration Statement that shall satisfy the provisions of
Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.

(ix) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is
prevented from becoming effective under the provisions of Section
9(a) hereof or is terminated, will pay or cause to be paid (A)
all expenses (including transfer taxes allocated to the respective
transferees) incurred in connection with the delivery to the
Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company s
accountants and counsel but, except as otherwise provided below,
not including fees of the Underwriters counsel) in connection
with the preparation, printing, filing, delivery, and shipping of
the Registration Statement (including the financial statements
therein and all amendments, schedules, and exhibits thereto), the
Securities, each Preliminary Prospectus, the Prospectus, and any
amendment thereof or supplement thereto, and the printing,
delivery, and shipping of this Agreement and other underwriting
documents, including blue sky memoranda, (C) all filing fees and
fees and disbursements of the Underwriters counsel incurred in
connection with the qualification of the Securities for offering
and sale by the Underwriters or by dealers under the securities or
blue sky laws of the states and other jurisdictions which you
shall designate in accordance with Section 4(a)(iv) hereof, (D)
the fees and expenses of any transfer agent or registrar, (E) the
filing fees incident to any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale
of the Securities, (F) listing fees, if any, and (G) all other
costs and expenses incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein.
If the sale of the Securities provided for herein is not
consummated by reason of action by the Company pursuant to Section
9(a) hereof which prevents this Agreement from becoming effective,
or by reason of any failure, refusal or inability on the part of
the Company or the Selling Stockholder to perform any agreement on
its or his part to be performed, or because any other condition of
the Underwriters obligations hereunder required to be fulfilled
by the Company or the Selling Stockholder is not fulfilled, the
Company will reimburse the several Underwriters for all
out-of-pocket disbursements (including fees and disbursements of
counsel) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or
in contemplation of performing their obligations hereunder. The
Company shall not in any event be liable to any of the

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<PAGE> 16
Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.

(x) The Company will apply the net proceeds from the sale
of the Securities to be sold by it hereunder for the purposes set
forth in the Prospectus.

(xi) The Company will not, without the prior written
consent of Piper Jaffray Inc., offer for sale, sell, contract to
sell, grant any option for the sale of or otherwise issue or
dispose of any Common Stock or any securities convertible into or
exchangeable for, or any options or rights to purchase or acquire,
Common Stock, except (A) to the Underwriters pursuant to this
Agreement, (B) under the Company's stock option plans that are
described in the Prospectus and (C) in connection with
affiliations with or acquisitions of physician groups, physician
practice management companies or other healthcare companies, for a
period of 90 days after the commencement of the public offering of
the Securities by the Underwriters; provided, however, that all
transferees of Common Stock in accordance with (C) above agree to
be subject to the restrictions in this paragraph (xi).

(xii) The Company has caused to be delivered to you a
letter from each of the Company s directors and officers stating
that such person agrees that such person will not, without the
prior written consent of Piper Jaffray Inc., offer for sale, sell,
contract to sell or otherwise dispose of any shares of Common
Stock or rights to purchase Common Stock, except to the
Underwriters pursuant to this Agreement, for a period of 90 days
after commencement of the public offering of the Securities by the
Underwriters.

(xiii) The Company has not taken and will not take,
directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in, or which has
constituted, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities.

(xiv) The Company will not incur any liability for any
finder s or broker s fee or agent s commission in connection with
the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.

(xv) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the
distribution of the Securities by the Underwriters if it commences
engaging in business with the government of Cuba or with any
person or affiliate located in Cuba. Such information will be
provided within 90 days after the commencement thereof or after a
change occurs with respect to previously reported information.

(xvi) The Company will use its best efforts to do and
perform all things required or necessary to be done and performed
under this Agreement by the Company prior to the First Closing
Date or the Second Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the
Securities.

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<PAGE> 17
(b) The Selling Stockholder covenants and agrees with the several
Underwriters as follows:

(i) Except as otherwise agreed to by the Company and the
Selling Stockholder, the Selling Stockholder will pay all taxes,
if any, on the transfer and sale, respectively, of the Securities
being sold by the Selling Stockholder, the fees of the Selling
Stockholder s counsel, if any, and the Selling Stockholder s
proportionate share (based upon the number of Securities being
offered by such Selling Stockholder pursuant to the Registration
Statement) of all costs and expenses (except for legal, accounting
and printing expenses and fees of the registrar and transfer
agent) incurred by the Company pursuant to the provisions of
Section 4(a)(ix) of this Agreement; provided, however, that the
Selling Stockholder agrees to reimburse the Company for any
reimbursement made by the Company to the Underwriters pursuant to
Section 4(a)(ix) hereof to the extent such reimbursement resulted
from the failure or refusal on the part of the Selling Stockholder
to comply under the terms or fulfill any of the conditions of this
Agreement.

(ii) If this Agreement shall be terminated by the
Underwriters because of any failure, refusal or inability on the
part of the Selling Stockholder to perform any agreement on the
Selling Stockholder s part to be performed, or because any other
condition of the Underwriters obligations hereunder required to
be fulfilled by the Selling Stockholder is not fulfilled, the
Selling Stockholder agrees to reimburse the several Underwriters
for the Selling Stockholder's proportionate share of out-of-pocket
disbursements (including fees and disbursements of counsel for the
Underwriters) incurred by the Underwriters in connection with
their investigation, preparing to market and marketing the
Securities or in contemplation of performing their obligations
hereunder. The Selling Stockholder shall not in any event be
liable to any of the Underwriters for loss of anticipated profits
from the transactions covered by this Agreement.

(iii) The Securities to be sold by the Selling Stockholder
are subject to the interest of the several Underwriters; and the
obligations of the Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement, by any act of
the Selling Stockholder, by operation of law, by the death of the
Selling Stockholder, or by the occurrence of any other event.

(iv) The Selling Stockholder will not, without your prior
written consent, offer for sale, sell, contract to sell, grant any
option for the sale of or otherwise dispose of any Common Stock or
any securities convertible into or exchangeable for, or any
options or rights to purchase or acquire, Common Stock, except to
the Underwriters pursuant to this Agreement, for a period of 90
days after the commencement of the public offering of the
Securities by the Underwriters.

(v) The Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in

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<PAGE> 18
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.

(vi) The Selling Stockholder shall immediately notify you
if any event occurs, or of any change in information relating to
the Selling Stockholder or the Company or any new information
relating to the Company or relating to any matter stated in the
Prospectus or any supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations),
which results in the Prospectus (as supplemented) including any
untrue statement of a material fact or omitting to state any
material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.

5. Conditions of Underwriters Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company and the Selling Stockholder contained
herein, to the performance by the Company and the Selling Stockholder of their
respective obligations hereunder and to the following additional conditions:

(a) The Registration Statement shall have become effective not
later than 5:00 p.m., Central time, on the date of this Agreement, or
such later time and date as you, as Representatives of the several
Underwriters, shall approve and all filings required by Rules 424, 430A
and 434 of the Rules and Regulations shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement or
any amendment thereof shall have been issued; no proceedings for the
issuance of such an order shall have been initiated or threatened; and
any request of the Commission for additional information (to be included
in the Registration Statement or the Prospectus or otherwise) shall have
been complied with to your satisfaction.

(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto (including any term sheet within the meaning of Rule
434 of the Rules and Regulations), contains an untrue statement of fact
which, in your opinion, is material, or omits to state a fact which, in
your opinion, is material and is required to be stated therein or
necessary to make the statements therein not misleading.

(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries shall have incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions, or declared or paid any dividends or made any distribution
of any kind with respect to its capital stock; and there shall not have
been any change in the capital stock (other than a change in the number
of outstanding shares of Common Stock due to the issuance of shares upon
the exercise of outstanding options or warrants), or any material change
in the short-term or long-term debt of the Company, or any issuance of
options, warrants, convertible securities or other rights to

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<PAGE> 19
purchase the capital stock of the Company or any of its subsidiaries, or
any material adverse change or any development involving a prospective
material adverse change (whether or not arising in the ordinary course
of business), in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to
offer or deliver the Securities on the terms and in the manner
contemplated in the Prospectus.

(d) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, the opinion of Dyer
Ellis & Joseph, counsel for the Company and the Selling Stockholder,
dated such Closing Date and addressed to you, to the effect that:

(i) Each of the Company, its subsidiaries and the Acquired
Companies has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. Each of the Company, its subsidiaries and the
Acquired Companies has full corporate power and authority to own
its properties and conduct its business as currently being carried
on and as described in the Registration Statement and Prospectus,
and is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which it owns or
leases real property or in which the conduct of its business makes
such qualification necessary and in which the failure to so
qualify would have a material adverse effect upon the business,
condition (financial or otherwise) or properties of the Company
and its subsidiaries, taken as a whole.

(ii) The capital stock of the Company conforms as to legal
matters to the description thereof incorporated by reference in
the Company's Form 8-A Registration Statement filed with the
Commission on March 3, 1997. All of the issued and outstanding
shares of the capital stock of the Company have been duly
authorized and validly issued and are fully paid and
nonassessable, and the holders thereof are not subject to personal
liability by reason of being such holders. The Securities to be
issued and sold by the Company hereunder have been duly authorized
and, when issued, delivered and paid for in accordance with the
terms of this Agreement, will have been validly issued and will be
fully paid and nonassessable, and the holders thereof will not be
subject to personal liability by reason of being such holders.
Except as otherwise stated in the Registration Statement and
Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting
or transfer of, any shares of Common Stock pursuant to the Company
s charter, by-laws or any agreement or other instrument known to
such counsel to which the Company is a party or by which the
Company is bound. To the best of such counsel s knowledge,
neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated by this Agreement gives
rise to any rights for or relating to the registration of any
shares of Common Stock or other securities of the Company other
than such rights as have been duly waived.

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<PAGE> 20
(iii) All of the issued and outstanding shares of capital
stock of each of the Company s subsidiaries have been duly and
validly authorized and issued and are fully paid and
nonassessable, and, to the best of such counsel s knowledge,
except as otherwise described in the Registration Statement and
Prospectus, the Company owns of record and beneficially, free and
clear of any security interests, claims, liens, proxies, equities
or other encumbrances, all of the issued and outstanding shares of
such stock. To the best of such counsel s knowledge, except as
described in the Registration Statement and Prospectus, there are
no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or any
subsidiary any shares of the capital stock of the Company or any
subsidiary of the Company.

(iv) The Registration Statement has become effective under
the Act and, to the best of such counsel s knowledge, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of such counsel, threatened by the
Commission.

(v) The descriptions in the Registration Statement and
Prospectus of statutes, legal and governmental proceedings,
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel does not know
of any statutes or legal or governmental proceedings required to
be described in the Prospectus that are not described as required,
or of any contracts or documents of a character required to be
described in the Registration Statement or Prospectus or included
as exhibits to the Registration Statement that are not described
or included as required.

(vi) The Company has full corporate power and authority to
enter into this Agreement, and this Agreement has been duly
authorized, executed and delivered by the Company and constitutes
a valid, legal and binding obligation of the Company enforceable
in accordance with its terms (except as rights to indemnity
hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity);
the execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, rule or
regulation, any agreement or instrument known to such counsel to
which the Company or any subsidiary of the Company is a party or
by which it or such subsidiary is bound or to which any of its or
such subsidiary's property is subject, the Company s charter or
by-laws, or any order or decree known to such counsel of any court
or governmental agency or body having jurisdiction over the
Company or such subsidiary or any of its or such subsidiary's
respective properties; and no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement or for the consummation of the transactions contemplated
hereby, including the issuance or sale of the Securities by the
Company, except such as may be required under the Act, the
Exchange Act or state securities laws.

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<PAGE> 21
(vii) To the best of such counsel s knowledge, each of the
Company, its subsidiaries and the Acquired Companies holds, and
is operating in compliance in all material respects with, all
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates (including, without limitation,
certificates of need) and orders of any governmental or
self-regulatory body required for the conduct of its business and
all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in
full force and effect.

(viii) To the best of such counsel s knowledge, neither the
Company, any of its subsidiaries nor any of the Acquired Companies
is in violation of its respective charter or by-laws. To the best
of such counsel s knowledge, neither the Company, any of its
subsidiaries nor any of the Acquired Companies is in breach of or
otherwise in default in the performance of any material
obligation, agreement or condition contained in any bond,
debenture, note, indenture, loan agreement or any other material
contract, lease or other instrument to which it is subject or by
which it may be bound, or to which any of the material property or
assets of the Company, any of its subsidiaries or any of the
Acquired Companies are subject.

(ix) To the best of such counsel's knowledge, there are no
legal or governmental proceeding pending or threatened to which
the Company, any of its subsidiaries or any of the Acquired
Companies is a party or to which any of their respective property
or assets are subject which is required to be described in the
Registration Statement or Prospectus and is not so described;

(x) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;

(xi) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations) or
any document incorporated by reference therein, comply as to form
in all material respects with the requirements of the Act, the
Rules and Regulations and the Exchange Act; and on the basis of
conferences with officers of the Company, examination of documents
referred to or incorporated by reference in the Registration
Statement and Prospectus and such other procedures as such counsel
deems appropriate, nothing has come to the attention of such
counsel that causes such counsel to believe that the Registration
Statement or any amendment thereof or any document incorporated by
reference therein, at the time the Registration Statement became
effective and as of such Closing Date (including any Registration
Statement filed under Rule 462(b) of the Rules and Regulations),
contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the
Prospectus (as of its date and as of such Closing Date), as
amended or supplemented, includes any untrue statement of material
fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; it being

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<PAGE> 22
understood that such counsel need express no opinion as to the
financial statements or other financial data included in any of
the documents mentioned in this clause.

(xii) The Selling Stockholder is the sole record and
beneficial owner of the Securities to be sold by the Selling
Stockholder and delivery of the certificates for the Securities to
be sold by the Selling Stockholder pursuant to this Agreement,
upon payment therefor by the Underwriters, will pass marketable
title to such Securities to the Underwriters and the Underwriters
will acquire all the rights of the Selling Stockholder in the
Securities (assuming the Underwriters have no knowledge of an
adverse claim), free and clear of any security interests, claims,
liens or other encumbrances.

(xiii) The Selling Stockholder has the power and authority
to enter into this Agreement and to perform and discharge his
obligations hereunder; and this Agreement has been duly and
validly authorized, executed and delivered by the Selling
Stockholder and is a valid and binding agreement of the Selling
Stockholder, enforceable in accordance with its terms (except as
rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws
affecting creditors rights generally and subject to general
principles of equity).

(xiv) The execution and delivery of this Agreement and the
performance of the terms hereof and the consummation of the
transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any statute, rule or regulation, or any agreement
or instrument known to such counsel to which the Selling
Stockholder is a party or by which the Selling Stockholder is
bound or to which any of his property is subject or any order or
decree known to such counsel of any court or government agency or
body having jurisdiction over the Selling Stockholder or any of
his properties; and no consent, approval, authorization or order
of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement or for the consummation of the transactions contemplated
hereby, including the sale of the Securities being sold by the
Selling Stockholder, except such as may be required under the Act,
the Exchange Act or state securities laws or blue sky laws.

(xv) Such other matters as you may reasonably request.

In rendering such opinion such counsel may rely (i) as to matters
of law other than Delaware and federal law, upon the opinion or opinions of
local counsel reasonably satisfactory to the Representatives, and (a) as to
matters covered by clauses (i), (vii), (viii) and (ix), upon the opinion of
Deborah A. Johnson, Senior Vice President of the Company and (b) as to the
matters covered by clause (i), upon the opinion of Boult Cummings Conners &
Berry PLC, provided that the extent of such reliance is specified in such
opinion and that such counsel shall state that such opinion or opinions are
satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel
deems reasonable upon certificates of officers of the Company and its
subsidiaries and

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<PAGE> 23
of the Selling Stockholder provided that the extent of such reliance is
specified in such opinion.

(e) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, such opinion or opinions
from Vinson & Elkins L.L.P., counsel for the several Underwriters, dated
such Closing Date and addressed to you, with respect to the formation of
the Company, the validity of the Securities, the Registration Statement,
the Prospectus and other related matters as you reasonably may request,
and such counsel shall have received such papers and information as they
request to enable them to pass upon such matters.

(f) On each Closing Date, you, as Representatives of the several
Underwriters, shall have received a letter of Arthur Andersen LLP, dated
such Closing Date and addressed to you, confirming that they are
independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the
qualifications of accountants under Rule 2-01 of Regulation S-X of the
Commission, and stating, as of the date of such letter (or, with respect
to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Prospectus,
as of a date not more than five days prior to the date of such letter),
the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the
letter so to be delivered on such Closing Date shall be to confirm the
conclusions and findings set forth in such prior letter.

(g) On each Closing Date, you, as Representatives of the several
Underwriters, shall have received a letter of Coopers & Lybrand L.L.P.,
dated such Closing Date and addressed to you, confirming that they are
independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the
qualifications of accountants under Rule 2-01 of Regulation S-X of the
Commission, and stating, as of the date of such letter (or, with respect
to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Prospectus,
as of a date not more than five days prior to the date of such letter),
the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the
letter so to be delivered on such Closing Date shall be to confirm the
conclusions and findings set forth in such prior letter.

(h) On each Closing Date, you, as Representatives of the several
Underwriters, shall have received a letter of Ernst & Young LLP, dated
such Closing Date and addressed to you, confirming that they are
independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the
qualifications of accountants under Rule 2-01 of Regulation S-X of the
Commission, and stating, as of the date of such letter (or, with respect
to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Prospectus,
as of a date not more than five days prior to the date of such letter),
the conclusions and findings of said firm with

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<PAGE> 24
respect to the financial information and other matters covered by its
letter delivered to you concurrently with the execution of this
Agreement, and the effect of the letter so to be delivered on such
Closing Date shall be to confirm the conclusions and findings set forth
in such prior letter.

(i) On each Closing Date, there shall have been furnished to you,
as Representatives of the Underwriters, a certificate, dated such
Closing Date and addressed to you, signed by the chief executive officer
and by the chief financial officer of the Company (or such other
officers as are acceptable to you), to the effect that:

(i) The representations and warranties of the Company in
this Agreement are true and correct as if made at and as of such
Closing Date, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;

(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment
thereof or the qualification of the Securities for offering or
sale has been issued, and no proceeding for that purpose has been
instituted or, to the best of their knowledge, is contemplated by
the Commission or any state or regulatory body; and

(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any
amendments thereof or supplements thereto (including any term
sheet within the meaning of Rule 434 of the Rules and
Regulations), and (A) such documents contain all statements and
information required to be included therein, the Registration
Statement, or any amendment thereof, does not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented, does not include any untrue statement of material
fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, (B) since the effective date of the
Registration Statement, there has occurred no event required to be
set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries nor
any of the Acquired Companies has incurred any material
liabilities or obligations, direct or contingent, or entered into
any material transactions, not in the ordinary course of business,
or declared or paid any dividends or made any distribution of any
kind with respect to its capital stock, and except as disclosed in
the Prospectus, there has not been any change in the capital stock
(other than a change in the number of outstanding shares of Common
Stock due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options,
warrants, convertible securities or other rights to purchase the
capital stock, of the Company, any of its subsidiaries or any of
the Acquired Companies, or any material adverse change or any
development involving a prospective material adverse change

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<PAGE> 25
(whether or not arising in the ordinary course of business), in
the general affairs, condition (financial or otherwise), business,
key personnel, property, prospects, net worth or results of
operations of the Company, its subsidiaries and the Acquired
Companies, taken as a whole, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending,
or, to the knowledge of the Company, threatened or contemplated,
any action, suit or proceeding to which the Company, any of its
subsidiaries or any of the Acquired Companies is a party before or
by any court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in
the condition (financial or otherwise), business, prospects or
results of operations of the Company, its subsidiaries and the
Acquired Companies, taken as a whole.

(j) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, a certificate or
certificates, dated such Closing Date and addressed to you, signed by
the Selling Stockholder or the Selling Stockholder s Attorney-in-Fact to
the effect that the representations and warranties of the Selling
Stockholder contained in this Agreement are true and correct as if made
at and as of such Closing Date, and that the Selling Stockholder has
complied with all the agreements and satisfied all the conditions on the
Selling Stockholder s part to be performed or satisfied at or prior to
such Closing Date.

(k) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you
or they may have reasonably requested.

(l) The Common Stock is quoted and the Securities have been
approved for quotation on the Nasdaq National Market.

All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and counsel for the Underwriters. The Company will furnish
you with such number of conformed copies of such opinions, certificates,
letters and other documents as you shall reasonably request.

6. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise (including in settlement of any litigation if such settlement
is effected with the written consent of the Company), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation,
warranty, agreement or covenant of the Company contained herein, or (ii)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, including the information
deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rules 430A and 434(d) of the Rules and
Regulations, if applicable, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto (including any term sheet within
the meaning of Rule 434 of the Rules and Regulations), or arise out of
or are based upon the omission or alleged omission to state therein

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<PAGE> 26
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by it in connection
with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or
any such amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you, or
by any Underwriter through you, specifically for use in the preparation
thereof.

In addition to its other obligations under this Section 6(a), the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or
omission, described in this Section 6(a), it will reimburse each
Underwriter on a monthly basis for all reasonable legal fees or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company s obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriter
that received such payment shall promptly return it to the party or
parties that made such payment, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) announced
from time to time by NationsBank of Texas, N.A. (the "Prime Rate"). Any
such interim reimbursement payments which are not made to an Underwriter
within 30 days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request. This indemnity agreement
shall be in addition to any liabilities which the Company may otherwise
have.

(b) The Selling Stockholder agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject, under
the Act or otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Selling
Stockholder), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any
breach of any representation, warranty, agreement or covenant of the
Selling Stockholder contained herein, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, including the information deemed to be a part of
the Registration Statement at the time of effectiveness pursuant to
Rules 430A and 434(d) of the Rules and Regulations, if applicable, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations), or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance
upon and in conformity

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<PAGE> 27
with written information furnished to the Company or such Underwriter by
such Selling Stockholder, specifically for use in the preparation
thereof, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending against such loss, claim, damage, liability or action;
provided, however, that the Selling Stockholder shall not be liable in
any such case to the extent that any such loss, claim, damage, liability
or action arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or
any such amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you, or
by any Underwriter through you, specifically for use in the preparation
thereof. In no event shall the Selling Stockholder be liable under the
provisions of this Section 6 for any amount in excess of the aggregate
amount of proceeds that the Selling Stockholder received from the sale
of the Securities pursuant to this Agreement.

In addition to his other obligations under this Section 6(b), the
Selling Stockholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 6(b), he
will reimburse each Underwriter on a monthly basis for all reasonable
legal fees or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Selling Stockholder's
obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the
Underwriter that received such payment shall promptly return it to the
party or parties that made such payment, together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to an Underwriter
within 30 days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request. This indemnity agreement
shall be in addition to any liabilities which the Selling Stockholder
may otherwise have.

(c) Each Underwriter will indemnify and hold harmless the Company
and the Selling Stockholder against any losses, claims, damages or
liabilities to which the Company and the Selling Stockholder may become
subject, under the Act or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of
such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations), or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment

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<PAGE> 28
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by you, or by such Underwriter
through you, specifically for use in the preparation thereof, and will
reimburse the Company and the Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or the Selling Stockholder
in connection with investigating or defending against any such loss,
claim, damage, liability or action.

(d) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may have to any
indemnified party. In case any such action shall be brought against any
indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of the
indemnifying party s election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
such subsection for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the
sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to
represent the Representatives and all Underwriters who may be subject to
liability arising from any claim in respect of which indemnity may be
sought by the Underwriters under subsection (a) of this Section 6, in
which event the reasonable fees and expenses of such separate counsel
shall be borne by the indemnifying party or parties and reimbursed to
the Underwriters as incurred (in accordance with the provisions of the
second paragraph in subsection (a) above). An indemnifying party shall
not be obligated under any settlement agreement relating to any action
under this Section 6 to which it has not agreed in writing.

(e) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other from the
offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company
and the Selling Stockholder on the one hand and the Underwriters on the
other shall be

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<PAGE> 29
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and Selling
Stockholder bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Selling Stockholder or the Underwriters and the parties
relevant intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, the
Selling Stockholder and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (d) were to
be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first sentence of this subsection (d). The amount
paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending against any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Securities underwritten
by it and distributed to the public were offered to the public exceeds
the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters obligations in this
subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.

(f) The obligations of the Company and the Selling Stockholder
under this Section 6 shall be in addition to any liability which the
Company and the Selling Stockholder may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 6 shall be in addition to any
liability that the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each director of the
Company (including any person who, with his consent, is named in the
Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement
and to each person, if any, who controls the Company or the Selling
Stockholder within the meaning of the Act.

7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company and the Selling
Stockholder herein or in certificates delivered pursuant hereto, and the
agreements of the several Underwriters, the Company and the Selling Stockholder
contained in Section 6 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any controlling person thereof, or the Company or any of its officers,
directors, or controlling persons, or the Selling Stockholder, and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.

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<PAGE> 30
8. Substitution of Underwriters.

(a) If any Underwriter or Underwriters shall fail to take up and
pay for the amount of Securities agreed by such Underwriter or
Underwriters to be purchased hereunder, upon tender of such Securities
in accordance with the terms hereof, and the amount of Securities not
purchased does not aggregate more than 10% of the total amount of
Securities set forth in Schedule I hereto, the remaining Underwriters
shall be obligated to take up and pay for (in proportion to their
respective underwriting obligations hereunder as set forth in Schedule I
hereto except as may otherwise be determined by you) the Securities that
the withdrawing or defaulting Underwriters agreed but failed to
purchase.

(b) If any Underwriter or Underwriters shall fail to take up and
pay for the amount of Securities agreed by such Underwriter or
Underwriters to be purchased hereunder, upon tender of such Securities
in accordance with the terms hereof, and the amount of Securities not
purchased aggregates more than 10% of the total amount of Securities set
forth in Schedule I hereto, and arrangements satisfactory to you for the
purchase of such Securities by other persons are not made within 36
hours thereafter, this Agreement shall terminate. In the event of any
such termination neither the Company nor the Selling Stockholder shall
be under any liability to any Underwriter (except to the extent provided
in Section 4(a)(ix), Section 4(b)(ii) and Section 6 hereof) nor shall
any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to
purchase the amount of Securities agreed by such Underwriter to be
purchased hereunder) be under any liability to the Company or the
Selling Stockholder (except to the extent provided in Section 6 hereof).

If Securities to which a default relates are to be purchased by
the non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, for
not more than seven business days in order that the necessary changes in
the Registration Statement, Prospectus and any other documents, as well
as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under
this Section 8.

9. Effective Date of this Agreement and Termination.

(a) This Agreement shall become effective at 10:00 a.m., Central
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time
of the Registration Statement as you in your discretion shall first
release the Securities for sale to the public; provided, that if the
Registration Statement is effective at the time this Agreement is
executed, this Agreement shall become effective at such time as you in
your discretion shall first release the Securities for sale to the
public. For the purpose of this Section, the Securities shall be deemed
to have been released for sale to the public upon release by you of the
publication of a newspaper advertisement relating thereto or upon
release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter
specified before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the

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<PAGE> 31
Company may prevent this Agreement from becoming effective without
liability of any party to any other party, except that the provisions of
Section 4(a)(ix), Section 4(b)(ii) and Section 6 hereof shall at all
times be effective.

(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the First Closing Date,
and the option referred to in Section 3(b), if exercised, may be
canceled at any time prior to the Second Closing Date, if (i) the
Company shall have failed, refused or been unable, at or prior to such
Closing Date, to perform any agreement on its part to be performed
hereunder, (ii) any other condition of the Underwriters obligations
hereunder is not fulfilled, (iii) trading on the New York Stock Exchange
or the American Stock Exchange shall have been wholly suspended, (iv)
minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required, on the New
York Stock Exchange or the American Stock Exchange, by such Exchange or
by order of the Commission or any other governmental authority having
jurisdiction, (v) a banking moratorium shall have been declared by
Federal, New York or Texas authorities, or (vi) there has occurred any
material adverse change in the financial markets in the United States or
an outbreak of major hostilities (or an escalation thereof) in which the
United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or
occurrence of a similar character shall have occurred since the
execution of this Agreement that, in your judgment, makes it impractical
or inadvisable to proceed with the completion of the sale of and payment
for the Securities. Any such termination shall be without liability of
any party to any other party except that the provisions of Section
4(a)(ix), Section 4(b)(ii) and Section 6 hereof shall at all times be
effective.

(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section,
the Company and the Selling Stockholder shall be notified promptly by
you by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, you and the
Selling Stockholder shall be notified by the Company by telephone or
telegram, confirmed by letter.

10. Information Furnished by Underwriters. The statements set forth in
the last paragraph of the cover page and under the caption "Underwriting" in
any Preliminary Prospectus and in the Prospectus constitute the written
information furnished by or on behalf of the Underwriters referred to in
Section 2 and Section 6 hereof.

11. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters,
shall be mailed, telegraphed or delivered to the Representatives c/o Piper
Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota 55402, except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such Underwriter at the address stated in the
Underwriters Questionnaire furnished by such Underwriter in connection with
this offering; if to the Company or the Selling Stockholder, shall be mailed,
telegraphed or delivered to it at ProMedCo Management Company, 801 Cherry
Street, Suite 1450, Fort Worth, Texas 76102, Attention: Mr. H. Wayne Posey; or
in each case to such other address as the person to be notified may have
requested in writing. All notices given by telegram

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<PAGE> 32
shall be promptly confirmed by letter. Any party to this Agreement may change
such address for notices by sending to the parties to this Agreement written
notice of a new address for such purpose.

12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal
or equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Securities
from any of the several Underwriters.

13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota.

-32-
<PAGE> 33
Please sign and return to the Company the enclosed duplicates
of this letter whereupon this letter will become a binding agreement between
the Company, the Selling Stockholder and the several Underwriters in accordance
with its terms.

<TABLE>
<S> <C>
Very truly yours,

PROMEDCO MANAGEMENT COMPANY

By
--------------------------------------------------
President and Chief Executive Officer

--------------------------------------------------
H. WAYNE POSEY

Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.

PIPER JAFFRAY INC.

BEAR, STEARNS & CO., INC.

COWEN & COMPANY

As Representatives of the Several Underwriters

By PIPER JAFFRAY INC.

By
- --------------------------------------------------
Managing Director
</TABLE>

-33-
<PAGE> 34
SCHEDULE I

TO BE UPDATED

<TABLE>
<CAPTION>
Underwriter Number of Firm Shares (1)
----------- -------------------------
Piper Jaffray Inc.
Bear, Stearns & Co., Inc.
Cowen & Company
<S> <C>

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

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

- ----------------
(1) The Underwriters may purchase up to an additional 960,000 Option
Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner described
in the Agreement.

-34-

<PAGE> 1
EXHIBIT 5

May 6, 1998

ProMedCo Management Company
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102

Ladies and Gentlemen:

We have acted as counsel for ProMedCo Management Company, a Delaware
corporation (the"Company"), in connection with the issuance and sale pursuant
to the Company's registration statement on Form S-3, File No. 333-50105, (the
"Registration Statement") of up to 7,360,000 shares of its Common Stock, par
value $0.001 per share (the "Shares"). Based upon our examination of such
corporate records and other documents and such questions of law as we have
deemed necessary and appropriate, we are of the opinion that the Shares have
been duly authorized and, when sold as provided in the Purchase Agreement
described in the Registration Statement, will be validly issued, fully paid,
and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

Very truly yours,

Dyer Ellis & Joseph PC

<PAGE> 1
EXHIBIT 10.27

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

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

DATED AS OF APRIL 16, 1998

AMONG

PROMEDCO MANAGEMENT COMPANY

THE LENDERS REFERRED TO HEREIN

AND

NATIONSCREDIT COMMERCIAL CORPORATION,
AS AGENT

================================================================================
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 1.01. CERTAIN DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 1.03. OTHER DEFINITIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE II - REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

SECTION 2.01. REVOLVING CREDIT LOANS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.02. REVOLVING CREDIT NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.03. INTEREST ON THE REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.04. ADVANCING REVOLVING CREDIT LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.05. MANDATORY REPAYMENTS AND PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.06. OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.07. APPLICATION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.08. REDUCTION OF COMMITMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE III - CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

SECTION 3.01. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.02. CONDITIONS TO ACQUISITION LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.03. CONDITIONS TO EACH LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE IV - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

SECTION 4.01. CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION . . . . . . . . . . . . . . . . . 28
SECTION 4.03. BINDING EFFECT; LIENS OF SECURITY DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.04. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.05. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.06. OWNERSHIP OF PROPERTY, LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.07. NO DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.08. NO BURDENSOME RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.09. LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.10. SUBSIDIARIES; OTHER EQUITY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.11. INVESTMENT COMPANY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.12. MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.13. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.14. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.15. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.16. EMPLOYMENT, SHAREHOLDERS AND SUBSCRIPTION AGREEMENTS . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.17. FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.18. PRIVATE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.19. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS; NO HAZARDOUS MATERIALS . . . . . . . . . . . . . 33
SECTION 4.20. REAL PROPERTY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.21. THIRD PARTY REIMBURSEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.22. ADDITIONAL REPRESENTATIONS; SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE V - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 5.01. FINANCIAL STATEMENTS AND OTHER REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.02. PAYMENT OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.04. MAINTENANCE OF PROPERTY; INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5.05. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.07. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.08. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.09. LENDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.10. HEDGING FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.11. HAZARDOUS MATERIALS; REMEDIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 5.12. COLLATERAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.13. COLLECTIONS; RIGHT TO NOTIFY ACCOUNT DEBTORS . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.14. ENFORCEMENT OF COVENANTS NOT TO COMPETE . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.15. LANDLORD AND WAREHOUSEMAN WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.16. ADDITIONAL SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.17 ACCREDITATION AND LICENSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

ARTICLE VI - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

SECTION 6.01. DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.02. NEGATIVE PLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.03. CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.04. RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.05. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.06. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.07. PURCHASE OF ASSETS, INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.08. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.09. AMENDMENTS OR WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.10. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.11. MANAGEMENT COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.12. LEASE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.13. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.14. TOTAL DEBT COVERAGE RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.15. DEBT TO CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.16. SENIOR DEBT TO EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.17. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.18. MINIMUM NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.19. TRANSITION RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.18 CHANGES RELATING TO SUBORDINATED DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE VII -EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

SECTION 7.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE VIII - FEES, EXPENSES AND INDEMNITIES; GENERAL PROVISIONS RELATING TO PAYMENTS . . . . . . . . . . 55

SECTION 8.01. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 8.02. COMPUTATION OF INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.03. GENERAL PROVISIONS REGARDING PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.04. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.05. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 8.06. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 8.07. FUNDING LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8.08. MAXIMUM INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

ARTICLE IX - THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

SECTION 9.01. APPOINTMENT AND AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.02. AGENT AND AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.03. ACTION BY AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.04. CONSULTATION WITH EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 9.05. LIABILITY OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>

-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9.06. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.07. CREDIT DECISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.08. SUCCESSOR AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

ARTICLE X - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

SECTION 10.01. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.02. NO WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.03. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.04. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.05. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.06. SUCCESSORS AND ASSIGNS; REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.07. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.08. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.10. NOTICE OF BREACH BY AGENT OR LENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.11. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.12. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.13. SPECIAL PROVISION RELATING TO THIS AMENDMENT AND RESTATEMENT . . . . . . . . . . . . . . . 65
</TABLE>

<TABLE>
<S> <C> <C>
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Notice of Borrowing
EXHIBIT C - Company Security Agreement
EXHIBIT D - Pledge Agreement
EXHIBIT E - Subsidiary Guaranty Agreement
EXHIBIT F - Subsidiary Security Agreement
EXHIBIT G - Professional Service Provider Security Agreement
EXHIBIT H - Borrowing Base Certificate
EXHIBIT I - Opinion of counsel to the Company
EXHIBIT J - Opinion of Kilpatrick Stockton LLP, Special Counsel to the Agent
EXHIBIT K - Option Agreement
</TABLE>

<TABLE>
<S> <C> <C>
SCHEDULE 3.01(n) - Schedule of Management
SCHEDULE 4.10 - Schedule of Subsidiaries
SCHEDULE 4.16 - Employment, Shareholders' and Subscription Agreements
SCHEDULE 4.19 - Environmental Matters
SCHEDULE 4.20 - Real Property Interests
SCHEDULE 5.04 - Required Insurance
SCHEDULE 6.01 - Outstanding Debt
SCHEDULE 6.04 - Existing Additional Acquisition Liabilities
</TABLE>

-iii-
<PAGE> 5
SECOND AMENDED AND RESTATED CREDIT AGREEMENT

SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of April
16, 1998, among PROMEDCO MANAGEMENT COMPANY (F/K/A PROMEDCO, INC.), the LENDERS
listed on the signature pages hereof and NATIONSCREDIT COMMERCIAL CORPORATION,
as Agent.

The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. CERTAIN DEFINED TERMS. The following terms have
the following meanings:

"Account Debtor" shall mean any Person who may become
obligated to any Credit Party under, with respect to, or on account of a
Receivable of such Credit Party (including without limitation any guarantor of
the payment or performance of a Receivable or any Third Party Payor).

"Acquisition" means the purchase by the Company of any
physician practice or physician practice group or a majority of the assets of a
physician practice or physician practice group or of any other business the
purchase of which the Required Lenders shall consent to in their sole and
absolute discretion, with the proceeds of an Acquisition Loan provided pursuant
to Section 2.01(c).

"Acquisition Availability" has the Meaning specified in
Section 2.01(c).

"Acquisition Loans" means, collectively, the Revolving Credit
Loans of the Lenders to be made to the Company pursuant to Section 2.01(c).

"Additional Acquisition Liabilities" means the Existing
Additional Acquisition Liabilities and the Future Additional Acquisition
Liabilities.

"Adjusted LIBOR" means a rate per annum (rounded upward, if
necessary to the next higher 1/16 of 1%) equal to the rate obtained by dividing
(a) LIBOR (similarly rounded) by (b) a percentage equal to 1 minus the Reserve
Requirement in effect from time to time.

"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Company (a "CONTROLLING
PERSON") or (ii) any Person (other than the Company or any of its Subsidiaries)
which is controlled by or is under common control with a Controlling Person. As
used herein, the term "control" of a Person means the possession, directly

<PAGE> 6
or indirectly, of the power to vote 10% or more of any class of voting
securities of such Person or to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

"Agent" means NationsCredit in its capacity as agent for the
Lenders hereunder, and its successors in such capacity.

"Agreement Date," "date hereof," "even date herewith," "date
of this Agreement" and words of similar import mean the date as of which this
Agreement was originally executed, or June 12, 1996.

"AmSouth Bank" means AmSouth Bank, an Alabama banking
corporation, and its successors.

"Applicable Margin" means for any Revolving Credit Loan held
by AmSouth Bank, BankBoston or any assignee thereof, (i) in the case of Loans
bearing interest based on Adjusted LIBOR, 3.25% per annum, in the case of Loans
bearing interest based on the Index Rate, 3.25% per annum, and in the case of
Loans bearing interest based on the Prime Rate, 1.75% per annum, in each case,
from and including the Initial Restatement Effective Date, to but excluding the
first day of the month in which the Company shall first deliver financial
statements to the Lenders pursuant to Section 5.01(a) subsequent to the Initial
Restatement Effective Date that relate to a month ended on the last day of a
fiscal quarter of the Company (the "Initial Adjustment Date"), and (ii)
commencing on the Initial Adjustment Date and on the first day of each month
thereafter following the month in which the Company shall deliver financial
statements to the Lenders pursuant to Section 5.01(a) that relate to a month
ended on the last day of a fiscal quarter of the Company, the per annum
interest rate margin shall be that set forth hereafter below the applicable
rate determination option that is opposite the Leverage Ratio determined from
such statements for the fiscal quarter covered thereby:

<TABLE>
<CAPTION>
LEVERAGE RATIO INDEX RATE ADJUSTED LIBOR PRIME
<S> <C> <C> <C>
less than or equal to 1.00 1.375% 1.375% 0.000%
greater than 1.00 but less than or equal to 2.00 1.500% 1.500% 0.000%
greater than 2.00 but less than or equal to 2.50 1.750% 1.750% 0.250%
greater than 2.50 but less than or equal to 3.00 2.000% 2.000% 0.500%
greater than 3.00 but less than or equal to 3.50 2.250% 2.250% 0.750%
greater than 3.50 but less than or equal to 4.00 2.750% 2.750% 1.250%
greater than 4.00 3.250% 3.250% 1.750%
</TABLE>

Notwithstanding the foregoing, so long as a Default shall have occurred and be
continuing, the Applicable Margins shall be the highest rates specified in the
table above.

"Authorized Signatory" means a Person designated as such by
the Company to the Agent in writing.

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<PAGE> 7
"Availability Termination Date" means December 31, 1998, or
such later date to which the Lenders and the Company may mutually agree to
extend the Company's ability to incur Revolving Loans.

"BankBoston" means BankBoston, N.A. a national banking
association, and its successors.

"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.

"Blue Cross/Blue Shield" means any and all contracts or
agreements in force between any Credit Party and any Blue Cross/Blue Shield
plan.

"Borrowing Base" means, on any date, a dollar amount equal to
80% of Eligible Receivables determined as of such date.

"Borrowing Base Certificate" means a certificate, duly
executed by the chief financial officer or treasurer of the Company,
appropriately completed and substantially in the form of EXHIBIT I.

"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Chicago, Nashville, Boston or New York
City are authorized by law to close.

"Capital Lease" of any Person means any lease of any property
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of such Person.

"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as
amended from time to time, and regulations promulgated thereunder.

"CHAMPUS Receivable" means a Receivable payable pursuant to
CHAMPUS.

"CHAMPUS" means, collectively, the Civilian Health and Medical
Program of the Uniformed Service, a program of medical benefits covering former
and active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program
including (a) all federal statutes (whether set forth in 10 U.S.C. Sections
1071-1106 or elsewhere) affecting such program; and (b) all rules, regulations
(including 32 C.F.R. Section 199), manuals, orders and administrative,
reimbursement and other guidelines of all governmental authorities promulgated
in connection with such program (whether or not having the force of law), in
each case as the same may be amended, supplemented or otherwise modified from
time to time.

-3-
<PAGE> 8
"CHAMPVA Receivable" means a Receivable payable pursuant to
CHAMPVA.

"CHAMPVA" means, collectively, the Civilian Health and Medical
Program of the Department of Veteran Affairs, a program of medical benefits
covering retirees and dependents of former members of the armed services
administered by the United States Department of Veteran Affairs, and all laws,
rules, regulations, manuals, orders, guidelines or requirements pertaining to
such program including (a) all federal statutes (whether set forth in 38 U.S.C.
Section 1713 or elsewhere) affecting such program or, to the extent applicable
to CHAMPVA, CHAMPUS; and (b) all rules, regulations (including 38 C.F.R.
Section 17.54), manuals, orders and administrative, reimbursement and other
guidelines of all governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as the same may
be amended, supplemented or otherwise modified from time to time.

"Class" defines a Revolving Credit Loan by reference to the
subfacility under which it is made. A Revolving Credit Loan is either a Working
Capital Loan or an Acquisition Loan.

"Closing Date" means July 15, 1996.

"Code" means the Internal Revenue Code of 1986, as amended
from time to time.

"Collateral" means all property mortgaged, pledged or
otherwise purported to be subjected to a Lien pursuant to the Security
Documents.

"Commitment" means the Revolving Credit Commitment.

"Commitment Termination Date" shall have the meaning assigned
to it in Section 2.05.

"Common Stock" means the company's common stock, par value
___, per share.

"Company" means ProMedCo Management Company, a Delaware
corporation, which is the successor by merger to ProMedCo, Inc., a Texas
corporation.

"Company Account" means the account specified on the signature
pages hereof into which all Loans to the Company shall be made available, or
such other account as the Company shall from time to time specify by notice to
the Lenders.

"Company Security Agreement" means the Security Agreement
dated as of the Original Agreement Date between the Company and the Agent,
substantially in the form of EXHIBIT C.

"Consolidated Capital Expenditures" means, for any period, the
aggregate amount of expenditures by the Company and its Consolidated
Subsidiaries for plant, property and

-4-
<PAGE> 9
equipment during such period but excluding any such expenditures made for the
replacement or restoration of assets to the extent financed by condemnation
awards or proceeds of insurance received with respect to the loss or taking of
or damage to the asset or assets being replaced or restored.

"Consolidated Capitalization" means at any time of
determination, the sum of (a) the Consolidated Total Debt at such time, and (b)
the Consolidated Net Worth at such time.

"Consolidated Free Cash Flow" means, for any period, EBITDA
for such period minus the following amounts:

(a) all cash payments of income taxes by the Company and
its Consolidated Subsidiaries during such period;

(b) Consolidated Capital Expenditures for such period, to
the extent that such Consolidated Capital Expenditures are not
financed during such period (and are not anticipated to be financed in
any future period) with the proceeds of Debt of the Company; and

"Consolidated Net Income" means, for any period, net income of
the Company and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.

"Consolidated Net Worth" means as of the date of any
determination thereof, the amount of the shareholder's equity of the Company
and its Consolidated Subsidiaries as would be shown on the consolidated balance
sheet of the Company and its Consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that the Company shall be
deemed to have received $4,000,000 of Net Proceeds in connection with the
issuance of its common stock in the acquisition of Western Medical Management
Corporation, Inc., which amount shall be included in the calculation of
Consolidated Net Worth.

"Consolidated Senior Debt" means at any date the principal
amount of the Obligations and any Debt other than debt that is subordinated to
the Obligations on terms and conditions satisfactory to the Agent and the
Required Lenders.

"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of the
Company in its consolidated financial statements if such statements were
prepared as of such date.

"Consolidated Total Debt" means at any date the Debt of the
Company and its Consolidated Subsidiaries, determined on a consolidated basis
at such date.

-5-
<PAGE> 10

"Credit Party" means any of the Company, any Subsidiary or any
party to a Service Agreement.

"Debt" of a Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all Capital Leases of such Person, (v) all obligations
of such Person to purchase securities (or other property) which arise out of or
in connection with the issuance or sale of the same or substantially similar
securities (or property), (vi) all non-contingent obligations of such Person to
reimburse any bank or other Person in respect of amounts paid under a letter of
credit or similar instrument, (vii) all equity securities of such Person
subject to repurchase or redemption otherwise than at the sole option of such
Person, (viii) all obligations of such Person to make payments or advances with
respect to Program Loans (ix) all Debt secured by a Lien on any asset of such
Person, whether or not such Debt is otherwise an obligation of such Person, and
(ix) all Debt of others Guaranteed by such Person.

"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

"Default Rate" has the meaning set forth in Section 2.03(e),
provided that with respect to any Obligation for which a rate of interest is
not otherwise specified herein, the Default Rate shall be the Prime Rate plus
3.75% per annum.

"EBITDA" means, for any period, the consolidated net income of
the Company and its Consolidated Subsidiaries for such period, after all
expenses and other proper charges except depreciation, interest, amortization
and income taxes, determined in accordance with GAAP eliminating without
duplication: (i) all intercompany items, (ii) all earnings attributable to
equity interests in Persons that are not Subsidiaries unless actually received
by the Company or a Consolidated Subsidiary, (iii) all income arising from the
forgiveness, adjustment, or negotiated settlement of any indebtedness, (iv) any
extraordinary items of income or expense, (v) any increase or decrease in
income arising from any change in the Company's method of accounting, subject
to Section 1.02, and (vi) any interest income other than interest income
received in connection with Program Loans.

"Eligible Receivables" means, at any date of determination
thereof, the aggregate amount of all Receivables at such date due to the
Company and each of its Subsidiaries other than the following (determined
without duplication):

(a) any Receivable due from an Account Debtor that is not
both domiciled in the United States of America and (if not a natural
person) organized under the laws of the United States of America or
any political subdivision thereof and any Receivable that is not
denominated and payable in U.S. dollars;

-6-
<PAGE> 11
(b) any Receivable that does not comply with all
applicable legal requirements, including, without limitation, all
laws, rules, regulations and orders of any governmental or judicial
authority (including any Receivable due from an Account Debtor located
in the States of Indiana, New Jersey or Minnesota, unless the Company
or the applicable Subsidiary (at the time the Receivable was created
and at all times thereafter) (i) had filed and has maintained
effective a current notice of business activities report with the
appropriate office or agency of the State of Indiana, New Jersey or
Minnesota, as applicable, or (ii) was and has continued to be exempt
from filing such report and has provided Agent with satisfactory
evidence thereof);

(c) any Receivable in respect of which there is any
unresolved dispute with the Account Debtor, but only to the extent of
such dispute;

(d) any Receivable payable more than 30 days after the
date of the issuance of the original invoice therefor;

(e) any Receivable that remains unpaid for more than 120
days from the date of the original issuance of the invoice therefor;

(f) any unbilled Receivable;

(g) any Receivable arising outside the ordinary course of
business of the Credit Party whose activities gave rise thereto;

(h) (i) that portion of any Receivable in respect of
which there has been, or should have been, established by the Company
a contra account whether in respect of contractual allowances, audit
adjustments, anticipated discounts or otherwise, or (ii) which is a
Private Receivable and is due from an Account Debtor to whom the
Company owes a trade payable, but only to the extent of such account
or trade payable or (iii) which Receivable is subject to any right of
recession, set-off, recoupment, counterclaim or defense, whether
arising out of transactions concerning the provision of medical
services or otherwise, provided that this clause (iii) shall not apply
to adjustments in the ordinary course with respect to Government
Receivables;

(i) any Receivable that is not subject to a first
priority perfected Lien under the Security Documents and any
Receivable evidenced by an "instrument" (as defined in the UCC) not in
the possession of the Agent;

(j) any Receivable due from any Third Party Payor (i) as
to which on such date Receivables representing more than 25% of
aggregate amount of all Receivables of such Third Party Payor have
remained unpaid for more than 120 days from the original due date
specified at the time of the original issuance of the original invoice
therefor, (ii) in respect of which a credit loss has been recognized
or reserved by any Credit Party, (iii) in respect of which the Agent
shall have notified the Company that such Third Party Payor does not
have a satisfactory credit standing as determined in good faith by the

-7-
<PAGE> 12
Agent, (iv) that is a Subsidiary or Affiliate of the Company, (v)
that, except in the case of a Government Receivable, is the United
States of America or any state government or any department, agency or
instrumentality thereof, unless the Company has complied in all
respects with the Federal Assignment of Claims Act of 1940 or the
corresponding provision of any applicable state law, or (vi) that is
the subject of a case or proceeding of the type described in clauses
(g) and (h) of Section 7.01 or that is not Solvent;

(k) any Receivables other than Government Receivables due
from a Third Party Payor at any time, to the extent that the aggregate
outstanding amount of Receivables due from such Third Party Payor and
its affiliates at such time exceeds 10% of the aggregate amount of all
Receivables due to the Company at such time, but only to the extent of
such excess;

(l) if such Receivable is a Private Receivable, the Third
Party Payor thereon has not received such notice of the assignment
thereof to the Agent as the Agent shall reasonably require; and

(m) the Credit Party owning such Receivable has not
executed a Security Agreement or such other documents as the Agent
shall require assigning its rights to such Receivables to the Agent as
security for the Obligations.

"Employment Contracts" means the employment contracts
delivered by the Company to NationsCredit on the Closing Date pursuant to
Section 3.01(n), and listed on Schedule 4.16 from time to time.

"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and governmental restrictions, whether
now or hereafter in effect, relating to human health, the environment or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Materials or wastes into the environment, including ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Materials or wastes or the clean-up or
other remediation thereof.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.

"ERISA Group" means the Company, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Company or any Subsidiary, are treated as a single employer under Section 414
of the Code.

"Event of Default" has the meaning set forth in Section 7.01.

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<PAGE> 13
"Excess Cash Flow" means, for any period, an amount equal to:
(i) EBITDA for such period, MINUS (ii) the sum of: (x) Consolidated Capital
Expenditures (to the extent such Consolidated Capital Expenditures are
permitted pursuant to Section 6.13 and except to the extent financed by the
proceeds of Debt of the Company permitted by Section 6.01), (y) Total Debt
Service (exclusive of amortization of debt discount or premium) and all
prepayments of the Loans hereunder that result in a permanent reduction of the
Commitment, and (z) all cash payments of income taxes by the Company and its
Subsidiaries, all as determined for such period, PLUS (iii) any interest income
for such period.

"Existing Additional Acquisition Liabilities" means those
obligations (actual or contingent) of the Company and/or any of its
Subsidiaries to pay additional consideration in respect of acquisitions
existing on the Agreement Date and described on Schedule 6.04, whether arising
under the acquisition agreement relating thereto or any Service Agreement, in
the amounts and upon the terms described on Schedule 6.04.

"Financing Documents" means this Agreement, the Notes, the
Subsidiary Guaranty Agreement, the Option Agreement and the Security Documents.

"Fiscal Year" means a fiscal year of the Company.

"Future Additional Acquisition Liabilities" means those
obligations (actual or contingent), of the Company and/or any of its
Subsidiaries to pay additional consideration in respect of acquisitions,
whether arising under the acquisition agreement relating thereto, or any
Service Agreement, that are not described on Schedule 6.04.

"GAAP" has the meaning set forth in Section 1.02.

"Government Receivables" means, collectively, any and all
Receivables which are (a) Medicare Receivables, (b) Medicaid Receivables, (c)
CHAMPUS Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable
payable by a governmental authority approved by the Required Lenders.

"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.

"HCFA" shall mean the Health Care Financing Administration, an
agency of HHS, and any successor thereto.

-9-
<PAGE> 14
"HHS" means the United States Department of Health and Human
Services or any successor thereto.

"Hazardous Materials" means (i) any "hazardous substance" as
defined in CERCLA; (ii) asbestos; (iii) polychlorinated biphenyls; (iv)
petroleum, its derivatives, by-products and other hydrocarbons; and (v) any
other toxic, radioactive, caustic or otherwise hazardous substance regulated
under Environmental Laws.

"Hazardous Materials Contamination" means contamination
(whether now existing or hereafter occurring) of the improvements, buildings,
facilities, personalty, soil, groundwater, air or other elements on or of the
relevant property by Hazardous Materials, or any derivatives thereof, or on or
of any other property as a result of Hazardous Materials, or any derivatives
thereof, generated on, emanating from or disposed of in connection with the
relevant property.

"Healthcare Law" means, collectively, any and all federal,
state or local laws, rules, regulations, manuals, orders, guidelines and
requirements pertaining to Government Receivables, including without limitation
all laws, rules, regulations, manuals, orders, guidelines and requirements
pertaining to CHAMPUS, CHAMPVA, Medicaid or Medicare

"Indemnitees" has the meaning set forth in Section 8.05.

"Index Rate" means for any day in any calendar month, the rate
of interest equivalent to the money market yield for the Interest Determination
Date falling in such month on the one month commercial paper rate for
dealer-placed commercial paper of issuers whose corporate bonds are rated "AA"
or its equivalent by a nationally recognized rating agency, as such rate is
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York and published weekly by the Board of Governors of the Federal Reserve
System in its H.15 report, or any successor publication published by the Board
of Governors of the Federal Reserve System or, if such rate for such date is
not yet published in such statistical release, the rate for that date will be
the rate set forth in the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System.

"Initial Restatement Effective Date" means November 13, 1997.

"Interest Determination Date" means June 3, 1996 and the first
Business Day of each calendar month thereafter.

"Inventory" means inventory as defined in Article 9 of the
UCC.

"Investment" means any investment in any Person, whether by
means of share purchase, capital contribution, loan, time deposit or otherwise.

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<PAGE> 15
"Lender" shall mean NationsCredit, the other Lenders named on
the signature pages of the Agreement, and each other Person that becomes a
holder of a Note pursuant to Section 10.06, and their respective successors,
and "Lenders" means all of the foregoing.

"Leverage Ratio" shall mean, for any fiscal quarter of the
Company, the ratio of Consolidated Senior Debt as of the last day of such
quarter, to EBITDA for the four fiscal quarters ended on the last day of such
quarter.

"LIBOR" means, with respect to any Interest Determination
Date, (i) the London Interbank Offered Rate for deposits in U.S. dollars for a
period of time comparable to the period from and including such Interest
Determination Date to and including the next succeeding Interest Determination
Date which is published in The Wall Street Journal (Eastern Edition) under the
caption "Money Rates - London Interbank Offered Rates (LIBOR)" on such Interest
Determination Date; or (ii) if The Wall Street Journal does not publish such
rate, the offered rate for deposits in U.S. dollars for a period of time
comparable to the period from and including such Interest Determination Date to
and including the next succeeding Interest Determination Date which appears on
the Dow Jones Markets Page 3750 as of 10:00 a.m., New York time, on such
Interest Determination Date, provided that if at least two rates appear on the
Dow Jones Markets Page 3750, the "London Interbank Offered Rate" applicable to
such period shall be the arithmetic mean of such rates; or (iii) if The Wall
Street Journal does not publish such rate and no such rate appears on the Dow
Jones Markets Page 3750 at such time, the rate per annum at which deposits in
U.S. dollars are offered by the principal London office of The Chase Manhattan
Bank, N.A. to leading banks in the London interbank market at approximately
11:00 a.m., London time, on such Interest Determination Date in an amount
approximately equal to the principal amount of the Loans for a period of time
comparable to the period from and including such Interest Determination Date to
and including the next succeeding Interest Determination Date, in each case as
determined by the Agent whose determination shall be conclusive absent manifest
error.

"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the purposes of this Agreement
and the other Financing Documents, the Company or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.

"Loans" means the Revolving Credit Loans.

"Lockbox Accounts" has the meaning set forth in the Security
Agreements.

"Lockbox Agreement" means, collectively, the Lockbox
Agreements each in form and substance satisfactory to Lender, entered into
among the Agent, the Company and its Subsidiaries and the Lockbox Banks
pursuant to the Security Agreements.

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<PAGE> 16
"Lockbox Bank" means, collectively, the banks or other
depository institutions at which Lockbox Accounts are established and
maintained.

"Margin Stock" has the meaning assigned thereto in Regulation
G, U or X of the Federal Reserve Board, as the same may be amended,
supplemented or modified from time to time.

"Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), whether singly or in conjunction with any other event or events,
act or acts, condition or conditions, occurrence or occurrences, whether or not
related, a material adverse change in, or a material adverse effect upon, any
of (a) the financial condition, operations, business, properties or prospects
of the Company and its Subsidiaries, taken as a whole, (b) the rights and
remedies of the Agent or the Lenders under the Financing Documents, or the
ability of the Company or any Subsidiary to perform its obligations under the
Financing Documents to which it is a party, as applicable, (c) the legality,
validity or enforceability of any Financing Document, or (d) the existence,
perfection or priority of any security interest granted in the Financing
Documents.

"Material Plan" means at any time a Plan having Unfunded
Liabilities.

"Maximum Lawful Rate" has the meaning set forth in Section
2.03.

"Medicaid" means, collectively, the healthcare assistance
program established by Title XIX of the Social Security Act (42 U.S.C. Sections
1396 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders, guidelines or requirements pertaining to such
program including (a) all federal statutes (whether set forth in Title XIX of
the Social Security Act or elsewhere) affecting such program; (b) all state
statutes and plans for medical assistance enacted in connection with such
program and federal rules and regulations promulgated in connection with such
program; and (c) all applicable provisions of all rules, regulations, manuals,
orders and administrative, reimbursement, guidelines and requirements of all
government authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.

"Medicaid Receivable" means a Receivable payable pursuant to a
Medicaid Provider Agreement.

"Medicaid Certification" means certification of a facility by
HCFA or a state agency or entity under contract with HCFA that such healthcare
facility fully complies with all the conditions of Medicaid.

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<PAGE> 17
"Medicaid Provider Agreement" means an agreement entered into
between a state agency or other entity administering Medicaid in such state and
a health care facility or physician under which the health care facility or
physician agrees to provide services or merchandise for Medicaid patients.

"Medicare" means, collectively, the health insurance program
for the aged and disabled established by Title XVIII of the Social Security Act
(42 U.S.C. Sections 1395 et seq.) and any statutes succeeding thereto, and all
laws, rules, regulations, manuals, orders or guidelines pertaining to such
program including (a) all federal statutes (whether set forth in Title XVIII of
the Social Security Act or elsewhere) affecting such program; and (b) all
applicable provisions of all rules, regulations, manuals, orders and
administrative, reimbursement, guidelines and requirements of all governmental
authorities promulgated in connected with such program (whether or not having
the force of law), in each case as the same may be amended, supplemented or
otherwise modified from time to time.

"Medicare Receivable" means a Receivable payable pursuant to
Medicare Provider Agreement.

"Medicare Certification" mean certification of a facility by
HCFA or a state agency or entity under contract with HCFA that such healthcare
facility fully complies with all conditions for such facility's participation
in Medicare.

"Medicare Provider Agreement" means an agreement entered into
between a state agency or other entity administering Medicare in such state and
a health care facility or physician under which the health care facility or
physician agrees to provide services or merchandise for Medicare patients.

"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
ERISA Group during such five year period.

"NationsCredit" means NationsCredit Commercial Corporation, a
Delaware corporation, and its successors.

"Net Proceeds of Capital Stock" means any consideration
received by the Company or any of its Consolidated Subsidiaries in respect of
the issuance of capital stock (including, without limitation, by way of
conversion of Debt into such capital stock), after deducting therefrom all
reasonable and customary costs and expenses incurred by such Person or such
Subsidiary directly in connection with the issuance of such capital stock.

"Note" means a Revolving Credit Note.

"Notice of Borrowing" has the meaning set forth in Section
2.04.

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<PAGE> 18
"Obligations" means all unpaid principal of and accrued and
unpaid interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Company to the Lenders
or to any Lender, the Agent or any indemnified party hereunder arising under
the Financing Documents.

"Officers' Certificate" means a certificate executed on behalf
of a Person by its chairman of the board (if an officer), chief executive
officer or president or one of its vice presidents and by its chief financial
officer or treasurer.

"Option Agreement" means the Option Agreement, dated the
Original Agreement Date, in substantially the form of EXHIBIT K.

"Options" means the rights to acquire Common Stock of the
Company issued to NationsCredit pursuant to the Option Agreement.

"Original Agreement Date" means June 12, 1996.

"Payment Account" means, with respect to each Lender, the
account specified on the signature pages hereof into which all payments by or
on behalf of the Company to such Lender under the Financing Documents shall be
made, or such other account as such Lender shall from time to time specify by
notice to the Company.

"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

"Permitted Contest" means a contest maintained in good faith
by appropriate proceedings promptly instituted and diligently conducted and
with respect to which such reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; provided that
compliance with the obligation that is the subject of such contest is
effectively stayed during such challenge.

"Permitted Liens" means Liens permitted pursuant to Section
6.02.

"Permitted Refinancing" means any refunding or refinancing of
an item of Debt at a market rate of interest; provided, that (i) the principal
amount thereof shall not be increased except, in the case of a public debt
offering for accrued interest thereon (in an amount not to exceed 6 months
interest), (ii) the time for repayment therefor shall not be reduced, (iii) the
security thereof shall not be increased, and (iv) the terms thereof shall not
otherwise be materially altered.

"Person" means any natural person, corporation, limited
partnership, limited liability company, professional association, general
partnership, joint stock company, joint venture, association, company, trust,
bank, trust company, land trust, business trust or other

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<PAGE> 19
organization, whether or not a legal entity, and any government agency or
political subdivision thereof.

"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.

"Pledge Agreement" means the Pledge Agreement dated as of the
Original Agreement Date between the Company and the Agent, substantially in the
form of EXHIBIT D.

"Prime Rate" means the rate publicly announced from time to
time by NationsBank of North Carolina, N.A. as its "prime rate". Changes in the
Prime Rate shall be effective as of the opening of business on the date of each
announced change therein.

"Private Receivables" mean, collectively, any and all
Receivables that are not Government Receivables.

"Professional Service Provider Security Agreement" means any
Professional Service Provider Security Agreement between the Agent and any
professional service provider that has entered into a Service Agreement with
the Company, which agreement shall be in substantially the form of EXHIBIT G
hereto.

"Program Loans" shall mean loans made, or commitments to make
loans, to physician groups or professional associations, on terms and
conditions satisfactory to the Required Lenders, for the purpose of funding
loans or advances to members of such groups or associations or other physicians
in connection with the affiliation of such professional association or group
with the Company and the execution of a management services agreement between
the Company or one of its Subsidiaries and such association or group.

"Quarterly Date" means the first Business Day of each January,
April, July and October occurring after the Agreement Date.

"Receivable" means, as at any date of determination thereof,
the unpaid portion of the obligation, as stated in the respective invoice, of a
patient of any Credit Party in respect of Inventory or medical services
rendered in the ordinary course of business, which amount has been earned by
performance under the terms of the related contract and recognized as revenue
on the books of the Company, net of any credits, rebates or offsets owed to the
patient or any Third Party Payor in respect thereof and also net of any
commissions payable to Persons other than a Credit Party or any employee
thereof.

"Receivables Report" has the meaning given such term in
Section 5.01(m).

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<PAGE> 20
"Required Lenders" means at any time, Lenders who hold Notes
evidencing at least 51% of the aggregate unpaid principal amount of the Loans
or, if no Loans are outstanding, having at least 51% of the aggregate amount of
the Commitments, provided that so long as there are at least 2 unaffiliated
lenders hereunder, Required Lenders must also include at least two Lenders who
are not affiliates of one another.

"Reserve Requirement" means at any time the then current
maximum rate for which reserves (including any marginal, supplemental or
emergency reserve) are required to be maintained under Regulation D by member
banks of the Federal Reserve System in New York City with deposits comparable
in amount to those of NationsBank of North Carolina, N.A. against "Eurocurrency
liabilities", as that term is used Regulation D. Adjusted LIBOR shall be
adjusted automatically on and as of the effective date of any change in the
Reserve Requirement.

"Restatement Effective Date" means the date upon which all of
the conditions to the effectiveness of this Agreement under Section 10.13 have
been satisfied.

"Restricted Payment" means (i) any dividend or other
distribution on any shares of the Company's capital stock (except dividends
payable solely in shares of its capital stock of the same class or payment of
cash in lieu of fractional shares), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of the
Company's capital stock or (b) any option, warrant or other right to acquire
shares of the Company's capital stock, and (iii) any payment in respect of
subordinated Debt.

"Revolving Credit Commitment" means (i) as to each of
NationsCredit, AmSouth Bank and BankBoston, initially such Lender's Revolving
Credit Commitment as set forth on the signature pages to the Agreement, less
any amount assigned to another person that becomes a Lender after the date
hereof (a "SUBSEQUENT LENDER") and (ii) for any Subsequent Lender, the amount
of Revolving Credit Commitment assigned to such Lender, in each case as such
amount may be reduced from time to time in accordance with this agreement.

"Revolving Credit Loan" shall have the meaning assigned to it
in Section 2.01(a).

"Revolving Credit Note" shall have the meaning assigned to it
in Section 2.03 and each Revolving Credit Note shall be substantially in the
form of EXHIBIT A hereto.

"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated thereunder.

"Security Agreements" means, collectively, the Company
Security Agreement and the Subsidiary Security Agreement.

"Security Documents" means the Security Agreements, the
Professional Service Provider Security Agreements, the Pledge Agreement and any
other agreement pursuant to which the Company or any of its Subsidiaries or
Affiliates or any other Credit Party provides a Lien on

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<PAGE> 21
its assets in favor of the Agent for the benefit of the Lenders, and all
supplementary assignments, security agreements, pledge agreements,
acknowledgments or other documents delivered or to be delivered pursuant to the
terms hereof or of any other Security Document.

"Service Agreement" means an agreement between the Company
and/or one or more of its Subsidiaries and one or more physician practice
groups pursuant to which the Company and/or such Subsidiary agrees to provide
certain management services to the group.

"Solvent" shall mean, with respect to any Person, such Person:
(i) owns property whose fair salable value is greater than the amount required
to pay all of such Person's liabilities (including contingent debts), (ii) is
able to pay all of its liabilities as such liabilities mature, and (iii) has
capital sufficient to carry on its business and transactions and all business
and transactions to which it is about to engage.

"Subsidiary" means any Person of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.

"Subsidiary Guaranty Agreement" means the guaranty agreement
between the Subsidiaries listed on Exhibit A thereto and the Agent,
substantially in the form of EXHIBIT E.

"Subsidiary Security Agreement" means the Security Agreement
between the Subsidiaries listed on Exhibit A thereto and the Agent,
substantially in the form of EXHIBIT F.

"Temporary Cash Investment" means any Investment in: (i)
direct obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by Standard & Poor's Rating Group and P-1 by Moody's
Investors Service, Inc., (iii) time deposits with, including certificates of
deposit issued by, any office located in the United States of any bank or trust
company which is organized under the laws of the United States or any State
thereof and has capital, surplus and undivided profits aggregating at least
$500,000,000 and which issues (or the parent of which issues) certificates of
deposit or commercial paper with a rating described in clause (ii) above, (iv)
repurchase agreements with respect to securities described in clause (i) above
entered into with an office of a bank or trust company meeting the criteria
specified in clause (iii) above, provided in each case that such Investment
matures within one year from the date of acquisition thereof by the Company or
any of its Subsidiaries or (v) any open ended, redeemable money market or
mutual fund that invests only in the foregoing, the sponsor of which is
nationally recognized as a responsible sponsor.

"Third Party Payor" means any governmental entity, insurance
company, health maintenance organization, preferred provider organization or
similar entity that is obligated to make payments with respect to a Receivable.

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<PAGE> 22
"Total Debt Service" means, for any period, the sum of: (i)
Total Interest Expense, and (ii) the aggregate amount of all scheduled
principal payments on all Debt, including the portion of any payment under
Capital Leases that is allocable to principal.

"Total Interest Expense" means, for any period, the aggregate
interest charges incurred by the Company and its Consolidated Subsidiaries and
required to be paid in cash for such period, whether expensed or capitalized,
including the cash portion of any obligation under Capital Leases allocable to
interest expense in accordance with GAAP, less any interest income earned by
the Company and its Consolidated Subsidiaries for such period other than
interest income received in respect of Program Loans..

"UCC" has the meaning set forth in the Security Agreements.

"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.

"Working Capital Availability" has the meaning specified in
Section 2.01(b).

"Working Capital Loans" means Revolving Credit Loans made to
the Company pursuant to Section 2.01(b).

SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time ("GAAP"), applied on a basis consistent (except for changes concurred
in by the Company's independent public accountants) with the most recent
audited consolidated financial statements of the Company and its Consolidated
Subsidiaries delivered to the Lenders; provided that, if the Company notifies
the Lenders that the Company wishes to amend any covenant in Article VI or the
definition of "Excess Cash Flow" or any related definition to eliminate the
effect of any change in GAAP on the operation of such covenant or the
determination of "Excess Cash Flow" (or if the Agent notifies the Company that
the Required Lenders wish to amend Article VI or the definition of "Excess Cash
Flow" or any related definition for such purpose), then the Company's
compliance with such covenant or "Excess Cash Flow", as the case may be, shall
be determined on the basis of GAAP in effect immediately before the relevant
change in GAAP became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Company and the Required
Lenders.

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<PAGE> 23
SECTION 1.03. OTHER DEFINITIONAL PROVISIONS. References in
this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to
Articles, Sections, Schedules or Exhibits of or to this Agreement unless
otherwise specifically provided. Any of the terms defined in Section 1.01 may,
unless the context otherwise requires, be used in the singular or plural
depending on the reference. "Include", "includes" and "including" shall be
deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import. "Writing", "written" and
comparable terms refer to printing, typing and other means of reproducing words
in a visible form. References to any agreement or contract are to such
agreement or contract as amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof. References to any Person include
the successors and assigns of such Person. References "from" or "through" any
date mean, unless otherwise specified, "from and including" or "through and
including", respectively.

ARTICLE II

REVOLVING CREDIT LOANS

SECTION 2.01. REVOLVING CREDIT LOANS AND COMMITMENTS. (a) Upon
the terms and subject to the conditions set forth herein, from time to time
prior to the Availability Termination Date, each Lender severally and not
jointly agrees to make revolving credit loans ("REVOLVING CREDIT LOANS") from
time to time to the Company in an aggregate principal amount at any time
outstanding not to exceed such Lender's Revolving Credit Commitment. Such
Revolving Credit Loans shall constitute either Working Capital Loans or
Acquisition Loans. All Loans made by the Lenders hereunder shall be made pro
rata in the proportion that each such Lender's Revolving Credit Commitment
bears to the Revolving Credit Commitments.

(b) (i) Working Capital Loans shall be available for
the working capital needs of the Company and its Subsidiaries and shall not
exceed in aggregate principal amount at any time outstanding the least of (the
"WORKING CAPITAL AVAILABILITY"):

(A) $10,000,000,

(B) prior to the Availability Termination Date,
an amount equal to the Borrowing Base, and

(C) the Revolving Credit Commitment then in
effect, less the aggregate outstanding principal
amount of Acquisition Loans.

(ii) Each borrowing of Working Capital Loans shall
be in an aggregate amount of $100,000 or an integral multiple of $10,000 in
excess thereof. No more than two borrowings of Working Capital Loans shall be
made within any week beginning on Monday of such week and ending on the last
Business Day of such week.

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<PAGE> 24
(c) (i) Acquisition Loans shall be available in the
sole good faith discretion of the Agent and the Required Lenders for the
purpose of financing Acquisitions by the Company, in an aggregate principal
amount not to exceed at any time outstanding (the "ACQUISITION AVAILABILITY")
the Revolving Credit Commitment then in effect, less the aggregate outstanding
principal amount of Working Capital Loans.

(ii) Acquisition Loans may be made in such amounts
and at such times as the Agent and the Required Lenders shall agree in good
faith and upon such terms and conditions as the Agent and the Required Lenders
shall require.

(iii) In connection with the Agent's and Required
Lenders' approval of any Acquisition and any borrowing of Acquisition Loans,
the Company agrees to provide the Agent and the Lenders, as soon as practicable
following the execution thereof, with copies of any term sheet or commitment
letter agreed to in connection with such Acquisition. As promptly as
practicable following receipt of such term sheet and/or commitment, the Agent
and the Required Lenders agree to notify the Company whether they can consent
to the proposed Acquisition as the basic terms thereof are outlined in the
documents provided. Such indication shall be subject to approval of the
definitive documentation and the results of any due diligence performed in
connection therewith. At the time of such approval, the Agent shall notify the
Company of any due diligence materials that it wishes to review. Promptly upon
the completion of the definitive documentation and as soon as the due diligence
materials required are available, the Company shall furnish a copy of such
documentation and/or such materials to the Agent and the Agent and the Required
Lenders agree to review the same promptly and respond to the Company as
promptly as practicable as to whether they approve the Acquisition.

(d) Within the foregoing limits, to but excluding the
Availability Termination Date, the Company may borrow under this Section 2.01,
prepay or repay Revolving Credit Loans as required under Section 2.05(b) or to
the extent permitted by Section 2.06, and reborrow pursuant to this Section
2.01.

SECTION 2.02. REVOLVING CREDIT NOTES. The Revolving Credit
Loans of each Lender shall be evidenced by a single Revolving Credit Note,
substantially in the form of EXHIBIT A (each such note, a "REVOLVING CREDIT
NOTE"), dated the Restatement Effective Date in an aggregate principal amount
equal to the amount of such Lender's Revolving Credit Commitment, duly executed
and delivered and payable to such Lender. Each Lender shall record the date and
amount of each Revolving Credit Loan made by it, whether such Revolving Credit
Loan was a Working Capital Loan or an Acquisition Loan, and the date and amount
of each payment of principal made by the Company with respect thereto, and
prior to any transfer of its Revolving Credit Note shall endorse on Schedule A
thereto (or any continuation thereof) forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such
Revolving Credit Loan then outstanding; provided that the failure of any Lender
to make any such recordation or endorsement shall not affect the obligations of
the Company hereunder or under the Revolving Credit Notes. Each Lender is
hereby irrevocably authorized by the Company so to endorse its Revolving Credit
Note and to attach to and make a part of its Revolving Credit Note a
continuation of any such schedule as and when required.

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SECTION 2.03. INTEREST ON THE REVOLVING CREDIT LOANS. (a) The
Company shall pay interest on the Revolving Credit Loans to the Lenders monthly
in arrears on the first (1st) day of each calendar month immediately succeeding
the month for which such interest accrues, commencing with the first (1st) day
of the calendar month following the calendar month in which the Closing Date
occurs. In all cases accrued interest on all of the Revolving Credit Loans
shall be payable by the Company to the Lenders on the Commitment Termination
Date. Interest that accrues at the Default Rate shall be payable upon demand by
the Lenders. If any interest on any of the Revolving Credit Loans accrues or
remains payable after the Commitment Termination Date, such interest shall be
payable by the Company upon demand by the Lenders.

(b) (i) Except as provided in paragraphs (c)
below, the Company shall be obligated to pay interest to the Lenders on the
outstanding principal balance of each Revolving Credit Loan from the date such
Revolving Credit Loan is made until such Revolving Credit Loan is repaid in
full.

(ii) Subject to Section 2.03(e), interest on
all Revolving Credit Loans held by NationsCredit, or any Lender to
whom NationsCredit has assigned its Note or any portion thereof in
accordance with the terms of Section 10.06, outstanding during any
month shall accrue at a floating rate per annum equal, at the
Company's option, to one of: (i) the Index Rate plus three and
one-quarter percentage points (3.25%), (ii) Adjusted LIBOR plus three
and one-quarter percentage points (3.25%), or (iii) the Prime Rate
plus one-half of a percentage point (0.50%).

(iii) Subject to Section 2.03(e), prior to
December 31, 1998, interest on all Revolving Credit Loans held by
AmSouth Bank or BankBoston, or any other Lender to whom AmSouth Bank
or BankBoston has assigned its Note or any portion thereof in
accordance with the terms of Section 10.06, outstanding during any
month shall accrue at a floating rate per annum equal, at the
Company's option, to one of: (A) the Index Rate, (B) the Adjusted
LIBOR, or (C) the Prime Rate, in each case ((A),(B), and (C)) plus the
Applicable Margin. Subject to Section 2.03(e), from and after
December 31, 1998 interest on all such Revolving Credit Loans
outstanding during any month shall accrue at a floating rate per annum
equal, at the Company's option, to one of: (i) the Index Rate plus
three and one-quarter percentage points (3.25%), (ii) Adjusted LIBOR
plus three and one-quarter percentage points (3.25%), or (iii) the
Prime Rate plus one-half of a percentage point (0.50%).

(iv) On the Closing Date, continuing through
the last day of the calendar month in which the Closing Date occurs
and thereafter unless the Company shall have selected another rate or
shall be deemed to have selected another rate as provided below, the
Revolving Credit Loans shall bear interest based on the Prime Rate.
Thereafter, provided that no Default or Event of Default has occurred
and is then continuing, and subject to the terms and conditions set
forth herein, the Company may by written notice (or by telephonic
notice confirmed promptly in writing) delivered to the Agent not later
than the Second Business Day preceding the beginning of each calendar

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month, elect whether the interest payable to the Lenders for such
calendar month shall be based on the Prime Rate, Adjusted LIBOR or the
Index Rate (each such notice being referred to as a "NOTICE OF
FLOATING RATE ELECTION"). In the event that the Company shall fail to
deliver any Notice of Floating Rate Election on the date required
above, provided that no Default or Event of Default shall have
occurred and be continuing, the Company shall be deemed to have
delivered a Notice of Floating Rate Election that elects to continue
in effect for the calendar month the interest rate determination
mechanism in effect for the previous month.

(c) The Agent shall be entitled to rely upon and
shall be fully protected under this Agreement in relying on any Notice of
Floating Rate Election believed by the Agent to be genuine and to assume that
the persons giving the same on behalf of the Company were duly authorized
unless the responsible individual acting thereon for the Agent shall have
actual notice to the contrary.

(d) All computations of interest hereunder or
under the other Loan Documents for Revolving Credit Loans shall be made by the
Agent on the basis of a 360 day year for the actual number of days occurring in
the period for which such interest is payable. Each determination by the Agent
of an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.

(e) So long as any Event of Default shall have
occurred and be continuing, the interest rate applicable to the Loans or other
Obligations of the Company or any of its Subsidiaries under the Financing
Documents may be increased by the Required Lenders, at their option, by up to
two percentage points (2%) per annum above the rate otherwise applicable (the
"DEFAULT RATE").

SECTION 2.04. ADVANCING REVOLVING CREDIT LOANS. (a) Except
as provided in the last sentence of this Section 2.04(a), each Revolving Credit
Loan shall be made on notice by the Company to the Lenders, given no later than
11:00 a.m. (New York time) on the Business Day of the proposed Revolving Credit
Loan. Such notice (each a "NOTICE OF BORROWING") shall be substantially in the
form of EXHIBIT B hereto, shall be duly completed and executed by an Authorized
Signatory, and shall specify therein the requested date and amount of such
Revolving Credit Loan, and such other information as may be required by the
Agent. Each Notice of Borrowing shall be given in writing (by telecopy, telex
or cable) or by telephone and confirmed immediately in writing.
Notwithstanding the foregoing, no Notice of Borrowing that requests an
Acquisition Loan shall be effective until the Agent notifies the Company that
the Agent and the Required Lenders have consented to the proposed Acquisition
after having been provided such information respecting the proposed Acquisition
as is required to be delivered pursuant to Section 3.02 and such time to review
the same as the Agent and the Required Lenders shall reasonably deem necessary.

(b) Not later than 1:00 P.M. (New York City time) on the date of
each borrowing specified in a Notice of Borrowing, each Lender shall make
available its ratable share of such borrowing of Loans, in immediately
available funds, to the Company Account.

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(c) The failure of any Lender to make a Loan on any date shall
not relieve any other Lender of its obligation, if any, hereunder to make its
Loan on that date. Neither the Agent nor any Lender shall be responsible for
the failure of any other Person to make any Loan hereunder on the date required
therefor.

SECTION 2.05. MANDATORY REPAYMENTS AND PREPAYMENTS. (a) The
Revolving Credit Commitment of each Lender shall terminate at the opening of
business on January 2, 2004 (the "COMMITMENT TERMINATION DATE"), and there
shall become due and the Company shall pay on the Commitment Termination Date,
the entire outstanding principal amount of each Revolving Credit Loan, together
with accrued and unpaid interest thereon to but excluding the Termination Date.

(b) If at any time (i) the aggregate unpaid principal
balance of the Working Capital Loans exceeds the Working Capital Availability,
or (ii) the aggregate unpaid principal balance of the Acquisition Loans exceeds
the Acquisition Availability, then, on the next succeeding Business Day, the
Company shall prepay Working Capital Loans and/or Acquisition Loans in an
aggregate principal amount equal to such excess.

(c) Commencing on April 1, 1999 (the "AMORTIZATION
COMMENCEMENT DATE") and continuing on each Quarterly Date thereafter, the
Company shall repay the Revolving Credit Loans in equal quarterly installments
of principal equal to 5% of the aggregate principal amount of the Revolving
Credit Loan outstanding on the Amortization Commencement Date.

(d) There shall become due and payable, and the Company
shall prepay, on the 90th day following the last day of each Fiscal Year,
beginning with the Fiscal Year ending December 31, 1999, an aggregate principal
amount of Revolving Credit Loans equal to fifty percent (50%) of the Excess
Cash Flow for such Fiscal Year.

SECTION 2.06. OPTIONAL PREPAYMENTS. The Company may prepay the
Revolving Credit Loans in whole or in part (in minimum principal amounts of
$100,000 or in any larger integral multiple of $10,000, or the total remaining
amount outstanding) upon at least three Business Days' prior irrevocable
written notice to the Lenders, without premium or penalty. The aggregate
principal amount of the Revolving Credit Loans designated for prepayment in any
notice of optional prepayment given pursuant to this section shall become due
and payable on the date fixed for prepayment as specified in such notice.

SECTION 2.07. APPLICATION OF PAYMENTS. Each payment or
prepayment of the principal of the Revolving Credit Loans shall be applied pro
rata to the Revolving Credit Loans of each Lender according to their respective
outstanding principal amounts, and shall be applied to the Class of Loan
required under this Agreement or, if not so required, as directed by the
Company. The principal amount of each payment on Revolving Credit Loans
pursuant to Section 2.05(d) shall be applied to reduce the remaining payments
required by Section 2.05(c) in inverse order of the maturity thereof. The
principal amount of each payment on Revolving Credit Loans pursuant to Section
2.06 shall be applied to reduce the remaining payments required by Section

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2.05(c) (i) 50% in inverse order of the maturity thereof, and (ii) 50% in the
order of maturity thereof. Except as provided in the definition of Excess Cash
Flow, no payment of the principal amount of Acquisition Loans pursuant to
Section 2.05(b), 2.05(c) or 2.06 shall reduce the amount of any payment
required by 2.05(d). Each payment of less than all outstanding aggregate
principal amount of Revolving Credit Loans of any Class shall be applied by the
Lender receiving such payment, pro rata to all Revolving Credit Loans of such
Class held by such Lender in according to their respective outstanding
principal amounts.

SECTION 2.08. REDUCTION OF COMMITMENTS. (a) The Revolving
Credit Commitment shall reduce: (i) to the amount of the aggregate outstanding
principal amount of the Revolving Credit Loans on the Availability Termination
Date, and after such date by the amount of each payment made pursuant to
Section 2.06, and (ii) by the amount of each payment required pursuant to
Section 2.05(c) or (d).

(b) The Company shall have the right at any time to terminate in
whole this Agreement, or from time to time, irrevocably to reduce in part the
amount of the Revolving Credit Commitment, in each case without penalty or
premium, upon at least 15 days' prior written notice to the Agent. Such notice
shall be irrevocable on the part of the Company and shall specify the effective
date of such reduction or termination, whether a termination or reduction is
being made, and, in the case of any reduction, the amount thereof shall be in
an amount of Two Million Five Hundred Thousand Dollars ($2,500,000) or an
integral multiple thereof. Upon any such reduction, the Company shall
simultaneously prepay any outstanding Revolving Credit Loans to the extent
necessary so that the aggregate outstanding principal amount of the Revolving
Credit Loans does not exceed the amount of the Revolving Credit Commitment
after giving effect to any partial reduction thereof. The aforesaid prior
notice requirement shall not apply to the Agent's exercise of remedies under
Section 7.01. In the event the Company exercises its rights under this
paragraph to prepay the Revolving Credit Loans and terminate this Agreement,
the Company agrees that such prepayment shall be accompanied by the payment by
the Company of all accrued and unpaid interest and all fees and other remaining
Obligations. The amount of the Revolving Credit Commitment may not be
reinstated if it is reduced or if this Agreement is terminated by the Company.

ARTICLE III

CONDITIONS

SECTION 3.01. CONDITIONS TO CLOSING. The obligation of each
Lender to make Loans on the Closing Date shall be subject to the satisfaction
of the following conditions precedent:

(a) receipt by the Agent of counterparts hereof signed by
each of the parties hereto (or, in the case of any party as to which
an executed counterpart shall not have been received, receipt by the
Agent in form satisfactory to it of telegraphic, telex or other
written confirmation from such party of execution of a counterpart
hereof by such party);

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(b) receipt by NationsCredit of a duly executed Revolving
Credit Note for its account, in the form provided for herein;

(c) receipt by the Agent of duly executed counterparts of
each Security Document required to be effective on the Closing Date
(including the Lockbox Agreements), together with evidence
satisfactory to it in its sole good faith discretion of the
effectiveness, priority and perfection of the security contemplated
thereby and the lien search reports and any additional documents
reasonably requested by the Agent;

(d) receipt by the Agent of a duly executed counterpart
of the Option Agreement, substantially in the form of EXHIBIT K;

(e) receipt by the Agent of duly executed counterparts of
the Subsidiary Guaranty in the form of EXHIBIT E, duly executed by
each Subsidiary of the Company;

(f) receipt by the Agent of the initial Borrowing Base
Certificate, in the form of EXHIBIT H, duly executed and completed by
the Company;

(g) receipt by the Agent of an opinion of counsel for the
Company and its Subsidiaries, substantially in the form of EXHIBIT I,
and covering such additional matters relating to the transactions
contemplated hereby as NationsCredit may reasonably request (by its
execution and delivery of this Agreement, the Company authorizes and
directs such counsel to deliver such opinions to the Agent);

(h) receipt by the Agent of an opinion of Kilpatrick
Stockton LLP, special counsel for the Agent, substantially in the form
of EXHIBIT J, and covering such additional matters relating to the
transactions contemplated hereby as NationsCredit may reasonably
request;

(i) receipt by NationsCredit, including in its capacity
as Agent, of all fees and any other amounts due and payable hereunder
(including fees and expenses payable pursuant to Section 8.04) of
which the Company has received notice;

(j) receipt by NationsCredit of any information it may
request concerning the financial condition, results of operations,
liabilities (contingent and otherwise, including with respect to
environmental liabilities and employee and retiree benefits) and
prospects of, and the financial reporting and accounting systems and
the management information systems of, the Company;

(k) satisfaction of NationsCredit in its sole good faith
discretion as to the absence of any event, act, condition or
occurrence of whatever nature that constitutes, or that is reasonably
likely to result in, a Material Adverse Effect;

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(l) receipt by NationsCredit of a certificate signed by
the chief financial officer or treasurer of the Company to the effect
that, both before and immediately after the making of the Loans, and
the other transactions contemplated to take place on the Closing Date,
(i) no Default shall have occurred and be continuing and (ii) the
representations and warranties of the Company and each of its
Subsidiaries made in or pursuant to the Financing Documents executed
by such Person are true in all material respects;

(m) receipt by NationsCredit of (i) the financial
statements and balance sheet referred to in Sections 4.04(a), (b) and
(c), and (ii) payment instructions with respect to each wire transfer
to be made by the Agent on the Closing Date setting forth the amount
of such transfer, the purpose of such transfer, the name and number of
the account to which such transfer is to be made, the name and ABA
number of the bank or other financial institution where such account
is located and the name and telephone number of an individual that can
be contacted to confirm receipt of such transfer;

(n) receipt by the Agent of evidence satisfactory to it
in its sole good faith discretion of the effectiveness of employment
contracts between the Company and the Persons listed on SCHEDULE
3.01(n); and

(o) receipt by the Agent of all documents it may
reasonably request relating to the existence of the Company and its
Subsidiaries, the corporate authority for and the validity of the
Financing Documents, and any other matters relevant hereto, all in
form and substance satisfactory to the Agent in its sole good faith
discretion.

The documents referred to in this Section shall be delivered to the Agent no
later than the Closing Date. The certificates and opinions referred to in this
Section shall be dated the Closing Date.

SECTION 3.02. CONDITIONS TO ACQUISITION LOANS. The obligation
of any Lender to make an Acquisition Loan on the occasion of any borrowing is
subject to the satisfaction of the following additional conditions:

(a) receipt by the Lenders of a Notice of Borrowing in
accordance with Section 2.04;

(b) receipt by the Agent of all documents, instruments
and agreements to be delivered in connection with the Acquisition
and/or any financing therefor;

(c) completion of, and satisfaction of the Agent and the
Lenders with, such legal and/or business due diligence review of the
Acquisition, the terms thereof, and the target thereof as the Agent
and the Lenders reasonably shall deem relevant;

(d) evidence satisfactory to the Agent that all property
to be acquired in the Acquisition, including all property of any
Person that, following such Acquisition, is to

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become a Subsidiary, will be pledged to the Agent and the Lenders as
security for the Obligations and that the Liens granted pursuant
thereto will constitute perfected Liens, subject only to Permitted
Liens, and that any Person that will become a Subsidiary as a result
of such Acquisition has executed a guaranty of the Obligations in form
and substance satisfactory to the Agent and the Required Lenders and
otherwise complied with the requirements of Section 6.07;

(e) receipt by the Agent and the Lenders of such
historical financial statements and information and such market
information respecting the target of the Acquisition as the Agent and
the Lenders reasonably shall deem relevant;

(f) receipt by the Agent and the Lenders of pro forma
financial statements showing the target and the Company on a
consolidated basis after giving effect to such Acquisition as of the
date of the closing thereof and a certificate of the chief financial
officer or treasurer of the Company demonstrating that the Company,
both before and after giving effect to the Acquisition, will be in
compliance with the financial and other covenants contained herein and
in the other Loan Documents; and

(g) such other information respecting the Acquisition,
the target or the Company as the Agent and the Lenders reasonably
shall deem relevant.

SECTION 3.03. CONDITIONS TO EACH LOAN. The obligation of any
Lender to make a Loan on the occasion of any borrowing thereof (including on
the Closing Date) is subject to the satisfaction of the following additional
conditions:

(a) receipt by the Agent of a Notice of Borrowing in
accordance with Section 2.04;

(b) the fact that, immediately before and after such
borrowing, (i) in the case of all borrowings, no Default shall have
occurred and be continuing, and (ii) in the case of a borrowing of
Working Capital Loans, the aggregate outstanding principal amount of
Working Capital Loans shall be less than the Working Capital
Availability; and

(c) the fact that the representations and warranties of
the Company contained in the Financing Documents shall be true in all
material respects on and as of the date of such borrowing, except for
such changes therein as are expressly permitted by the terms of this
Agreement.

Each borrowing hereunder shall be deemed to be a representation and warranty by
the Company on the date of such borrowing as to the facts specified in clauses
(b) and (c) of this Section.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Company represents and warrants as to itself and each of
its Subsidiaries that:

SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Company and
each Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of its organization, and the Company
and each other Credit Party has all corporate powers, if applicable, and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted and as will be conducted (including,
without limitation, accreditations and certifications as a provider of health
care services eligible to receive payment and compensation and to participate
under Medicare, Medicaid, CHAMPUS or CHAMPVA). The Company and each Subsidiary
is qualified to do business as a foreign corporation in each jurisdiction in
which the failure of the Company or such Subsidiary to be so qualified could
reasonably be expected to have a Material Adverse Effect.

SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Company and each
of its Subsidiaries of the Financing Documents to which it is a party are
within the Company's or such Subsidiary's (as the case may be) corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official (other than the filing of UCC-1 financing statements, which have been
made and are in full force and effect) and do not contravene, or constitute a
default under, any provision of applicable law or regulation (including
specifically any applicable rule or regulation relating to the eligibility of
any Credit Party to receive payment and to participate as an accredited and
certified provider of health care services under Medicare, Medicaid, CHAMPUS,
CHAMPVA or any Blue Cross/Blue Shield or equivalent program or relating to the
licenses and permits required therein or in connection therewith) or of the
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company or any of its Subsidiaries or result in the
creation or imposition of any Lien (other than the Liens created by the
Security Documents) on any asset of the Company or any of its Subsidiaries.

SECTION 4.03. BINDING EFFECT; LIENS OF SECURITY DOCUMENTS. (a)
Each of the Financing Documents to which the Company is a party (other than the
Notes,) constitutes a valid and binding agreement of the Company, and each of
the Notes, when executed and delivered in accordance with this Agreement, will
constitute valid and binding obligations of the Company, in each case
enforceable in accordance with its respective terms, subject to: (i) the effect
of any applicable bankruptcy, fraudulent transfer, moratorium, insolvency,
reorganization or other similar laws affecting the rights of creditors
generally; and (ii) the effect of general principles of equity whether applied
by a court of equity or law.

(b) Each of the Financing Documents to which any
Subsidiary of the Company is a party constitutes a valid and binding agreement
of such Subsidiary enforceable in

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<PAGE> 33
accordance with its terms, subject to: (i) the effect of any applicable
bankruptcy, fraudulent transfer, moratorium, insolvency, reorganization or
other similar laws affecting the rights of creditors generally; and (ii) the
effect of general principles of equity whether applied by a court of equity or
law.

(c) The Security Documents create valid security
interests in, the Collateral purported to be covered thereby, which security
interests are and will remain perfected security interests, prior to all other
Liens other than Permitted Liens. Each of the representations and warranties
made by the Company or any of its Subsidiaries in the Security Documents is
true and correct.

SECTION 4.04. FINANCIAL INFORMATION.

(a) (i) The unaudited consolidated balance sheet of the
Company and its Consolidated Subsidiaries as of June 30, 1995 and the related
unaudited consolidated statements of operations and cash flows for the fiscal
year then ended, (ii) the unaudited consolidated balance sheet of the Company
and its Consolidated Subsidiaries as of December 31, 1995 and the related
unaudited consolidated statements of operations and cash flows for the 6 months
then ended, and (iii) the unaudited consolidated balance sheet of the Company
and its Consolidated Subsidiaries as of April 30, 1996 and the related
unaudited consolidated statements of operations and cash flows for the four (4)
months then ended, copies of each of which ((i), (ii) and (iii)) have been
delivered to each of the Lenders, fairly present, in conformity with GAAP
applied on a consistent basis the consolidated financial position of the
Company and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments). As of the date of the latest such
balance sheet and the date hereof, neither the Company nor any of its
Subsidiaries had or has any material liabilities, contingent or otherwise,
including liabilities for taxes, long-term leases or forward or long-term
commitments, which are not properly reflected on such balance sheet.

(b) The information contained in the most recently
delivered Borrowing Base Certificate is complete and correct and the amounts
shown therein as "Eligible Receivables" have been determined as provided in the
Financing Documents.

(c) Since April 30, 1996, there has been no event, act,
condition or occurrence of whatever nature that constitutes, or that could
reasonably be expected to result in, a Material Adverse Effect.

SECTION 4.05. LITIGATION. There is no action, suit or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any of its Subsidiaries before any court
or arbitrator or any governmental body, agency or official which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
There is no action, suit or proceeding pending against, or to the knowledge of
the Company threatened against or affecting, any party to any of the Financing
Documents before any court or arbitrator or any governmental body, agency or
official which in any manner draws into question the validity of any of the
Financing Documents. There is no pending investigation of any Credit Party by

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HCFA or any other governmental authority, which investigation is not otherwise
conducted in the ordinary course of business and no criminal, civil or
administrative action, audit, or investigation by a fiscal intermediary or by
or on behalf of any governmental authority exists or, to the best knowledge of
the Company, is threatened with respect to any Credit Party which could
reasonably be expected to materially and adversely affect such Credit Party's
right to receive Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement to which
such Credit Party would otherwise be entitled, or right to participate in the
Medicare, Medicaid, CHAMPUS or CHAMPVA programs, or otherwise have a Material
Adverse Effect on the receipt of Medicare, Medicaid, CHAMPUS or CHAMPVA
reimbursement by such Credit Party, and, to the best knowledge of the Company,
no Credit Party is subject to any pending but unassessed Medicare, Medicaid,
CHAMPUS or CHAMPVA claim payment adjustments, except to the extent that such
Credit Party is contesting such assessment in good faith by appropriate
proceedings diligently pursued and has established and will maintain adequate
reserves for such adjustments in accordance with GAAP.

SECTION 4.06. OWNERSHIP OF PROPERTY, LIENS. On and as of the
Restatement Effective Date, the Company and each Subsidiary is the lawful owner
of, has good and marketable title to and is in lawful possession of, or has
valid leasehold interests in, all properties and other assets (real or
personal, tangible, intangible or mixed) purported to be owned or leased (as
the case may be) by such Person on the balance sheet referred to in Section
4.04(a), and none of such Person's properties and assets is subject to any
Liens, except Permitted Liens. The Company and its Subsidiaries conduct their
business without infringement or claim of infringement of any material license,
patent, trademark, trade name, service mark, copyright, trade secret or other
intellectual property right of others and there is no infringement or claim of
infringement by others of any material license, patent, trademark, trade name,
service mark, copyright, trade secret or other intellectual property right of
the Company or any of its Subsidiaries.

SECTION 4.07. NO DEFAULT. No Default has occurred and is
continuing and neither the Company nor any of its Subsidiaries is in default
under or with respect to any material contract, agreement, lease or other
material instrument to which it is a party or by which its property is bound or
affected. Neither the Company nor any other Credit Party has received
notification from any governmental authority that any such governmental
authority has taken or intends to take action to revoke, terminate or adversely
amend any license, certificate, accreditation or permit of such Person to
operate a healthcare facility or to participate under Medicare, Medicaid,
CHAMPUS or CHAMPVA.

SECTION 4.08. NO BURDENSOME RESTRICTIONS. No contract, lease,
agreement or other instrument to which the Company or any of its Subsidiaries
is a party or by which any of its property is bound or affected, no charge,
corporate restriction, judgment, decree or order and no provision of applicable
law or governmental regulation is reasonably likely to have or result in a
Material Adverse Effect.

SECTION 4.09. LABOR MATTERS. There are no strikes or other
labor disputes pending or, to the best knowledge of the Company, threatened,
against the Company or any of its

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Subsidiaries. Hours worked and payments made to the employees of the Company
and its Subsidiaries have not been in violation of the Fair Labor Standards Act
or any other applicable law dealing with such matters. All payments due from
the Company or any of its Subsidiaries, or for which any claim may be made
against any of them, on account of wages and employee and retiree health and
welfare insurance and other benefits have been paid or accrued as a liability
on their books, as the case may be. The consummation of the transactions
contemplated by the Financing Documents will not give rise to a right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which it is a party or by which it is bound.

SECTION 4.10. SUBSIDIARIES; OTHER EQUITY INVESTMENTS. Other
than as set forth on SCHEDULE 4.10, the Company has no Subsidiaries on
Restatement Effective Date. Each such Subsidiary is, and, in the case of any
additional corporate Subsidiaries formed after the Restatement Effective Date,
each of such additional corporate Subsidiaries will be at each time that this
representation is made or deemed to be made after the Restatement Effective
Date, a wholly-owned Subsidiary that is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as then conducted. Neither the Company nor any of its Subsidiaries is
engaged in any joint venture or partnership with any other Person.

SECTION 4.11. INVESTMENT COMPANY ACT. The Company is not an
"investment company" as defined in the Investment Company Act of 1940, as
amended. The consummation of the transactions contemplated by the Financing
Documents do not and will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission
thereunder.

SECTION 4.12. MARGIN REGULATIONS. None of the proceeds from
the Loans have been or will be used, directly or indirectly, for the purpose of
purchasing or carrying any Margin Stock, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
any Margin Stock or for any other purpose which might cause any of the loans
under this Agreement to be considered a "purpose credit" within the meaning of
Regulation G, U or X of the Board of Governors of the Federal Reserve Board.

SECTION 4.13. TAXES. The Company's federal tax identification
number is 75-2529809 and the federal tax identification number for each
Subsidiary is accurately listed for such Subsidiary on Schedule 4.10. All
Federal, state and local tax returns, reports and statements required to be
filed by or on behalf of the Company and its Subsidiaries have been filed with
the appropriate governmental agencies in all jurisdictions in which such
returns, reports and statements are required to be filed, and all taxes
(including real property taxes) and other charges shown to be due and payable
have been timely paid prior to the date on which any fine, penalty, interest,
late charge or loss may be added thereto for nonpayment thereof, except any of
the foregoing as may be subject to a Permitted Contest. All state and local
sales and use taxes required to be paid by the Company or any of its
Subsidiaries have been paid, except any of the foregoing as may be subject to a
Permitted Contest. All Federal and state returns have been filed

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by the Company and its Subsidiaries for all periods for which returns were due
with respect to employee income tax withholding, social security and
unemployment taxes, and the amounts shown thereon to be due and payable have
been paid in full or adequate provisions therefor have been made.

SECTION 4.14. COMPLIANCE WITH ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code with respect to each Plan. No member of the ERISA Group has (i) sought a
waiver of the minimum funding standard under Section 412 of the Code in respect
of any Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could
reasonably be expected to result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA.

SECTION 4.15. BROKERS. No broker, finder or other intermediary
has brought about the obtaining, making or closing of the transactions
contemplated by the Financing Documents, and the Company has and will have no
obligation to any Person in respect of any finder's or brokerage fees in
connection herewith or therewith.

SECTION 4.16. EMPLOYMENT, SHAREHOLDERS AND SUBSCRIPTION
AGREEMENTS. Except for the agreements described in SCHEDULE 4.16 (which
schedule may be updated from time to time by the Company with the consent of
the Agent which consent shall not be unreasonably withheld), true and complete
copies of which have been delivered to the Lenders, there are no (i) employment
agreements covering the management of the Company or any of its Subsidiaries,
(ii) collective bargaining agreements or other labor agreements covering any
group of employees of the Company or its Subsidiaries, or (iii) agreements
regarding the Company or any of its Subsidiaries, their respective assets or
operations or any investment therein to which any of its stockholders is a
party.

SECTION 4.17. FULL DISCLOSURE. None of the information
(financial or otherwise) furnished by or on behalf of the Company to the Agent
or any Lender in connection with the consummation of the transactions
contemplated by any of the Financing Documents contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements were made. All financial projections
delivered to the Lenders have been prepared on the basis of the assumptions
stated therein. Except as previously disclosed to the Agent in writing, such
projections represent the Company's best estimate of the Company's future
financial performance and such assumptions are believed by the Company to be
fair in light of current business conditions at the time such projections were
delivered to the Agent.

SECTION 4.18. PRIVATE OFFERING. Neither the Company nor any
Person acting on its behalf has offered the Notes or any similar securities for
sale to, or solicited any offer to buy

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any of the same from, or otherwise approached or negotiated in respect thereof
with, any Person other than the Lenders and not more than five other
institutional investors. Neither the Company nor any Person acting on its
behalf has taken, or will take, any action which would subject the issuance or
sale of the Notes to Section 5 of the Securities Act.

SECTION 4.19. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS; NO
HAZARDOUS MATERIALS. Except as provided on SCHEDULE 4.19:

(a) Other than generation in compliance with all
applicable Environmental Laws, no Hazardous Materials are located on
any properties now or previously owned, leased or operated by the
Company or any of its Subsidiaries or have been released into the
environment, or deposited, discharged, placed or disposed of at, on,
under or near any of such properties except such of the foregoing as
could not reasonably be expected to have a Material Adverse Effect. No
portion of any such property is being used in, or has been used at any
previous time, for the disposal, storage, treatment, processing or
other handling of Hazardous Materials (other than processing or
handling incidental to the generation of Hazardous Materials in
compliance with all applicable Environmental Laws), nor is any such
property affected by any Hazardous Materials Contamination except for
such of the foregoing as could not reasonably be expected to have a
Material Adverse Effect.

(b) No asbestos or asbestos-containing materials are
present on any of the properties now or previously owned, leased or
operated by the Company or any of its Subsidiaries except such of the
foregoing as could not reasonably be expected to have a Material
Adverse Effect.

(c) No polychlorinated biphenyls are located on or in any
properties now or previously owned, leased or operated by the Company
or any of its Subsidiaries, in the form of electrical transformers,
fluorescent light fixtures with ballasts, cooling oils or any other
device or form except such of the foregoing as could not reasonably be
expected to have a Material Adverse Effect.

(d) No underground storage tanks are located on any
properties now or previously owned, leased or operated by the Company
or any of its Subsidiaries, or were located on any such property and
subsequently removed or filled except such of the foregoing as could
not reasonably be expected to have a Material Adverse Effect.

(e) Except as disclosed on SCHEDULE 4.19 (as such
schedule may be updated from time to time by the Company with the
consent of the Agent which consent shall not be unreasonably
withheld), no notice, notification, demand, request for information,
complaint, citation, summons, investigation, administrative order,
consent order and agreement, litigation or settlement with respect to
Hazardous Materials or Hazardous Materials Contamination is in
existence or, to the Company's knowledge, proposed, threatened or
anticipated with respect to or in connection with the operation of any
properties now or previously owned, leased or operated by the Company
or any of its

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Subsidiaries. All such properties and their existing and prior uses
comply and at all times have complied with any applicable governmental
requirements relating to environmental matters or Hazardous Materials
except for such noncompliances as could not reasonably be expected to
have a Material Adverse Effect. Except as disclosed on SCHEDULE 4.19
there is no condition on any of such properties which is in violation
of any applicable governmental requirements relating to Hazardous
Materials, and neither the Company nor any of its Subsidiaries has
received any communication from or on behalf of any governmental
authority that any such condition exists. Except disclosed on SCHEDULE
4.19 (as such schedule may be updated from time to time by the Company
with the consent of the Agent which consent shall not be unreasonably
withheld), none of such properties nor any property to which the
Company has, directly or indirectly, transported or arranged for the
transportation of any material is listed or, to the Company's
knowledge, proposed for listing on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or
on any similar federal, state or foreign list of sites requiring
investigation or cleanup, nor, to the knowledge of the Company, is any
such property anticipated or threatened to be placed on any such list.

(f) There has been no environmental investigation, study,
audit, test, review or other analysis conducted of which the Company
has knowledge in relation to the current or prior business of the
Company or any property or facility now or previously owned, leased or
operated by the Company or any of its Subsidiaries which has not been
delivered to the Lenders at least five days prior to the date hereof.

(g) For purposes of this Section 4.19, the terms
"Company" and "Subsidiary" shall include any business or business
entity (including a corporation) which is, in whole or in part, a
predecessor of the Company or any Subsidiary.

SECTION 4.20. REAL PROPERTY INTERESTS. Except for the
ownership, leasehold or other interests set forth in SCHEDULE 4.20, the Company
and its Subsidiaries have, as of the Closing Date, no ownership, leasehold or
other interest in real property.

SECTION 4.21. THIRD PARTY REIMBURSEMENT . If any Credit Party
is or has been audited by Medicare, Medicaid, CHAMPUS, CHAMPVA or similar
governmental Third Party Payors, (i) none of such audits provides for
adjustments in reimbursable costs or asserts claims for reimbursement or
repayment by such Credit Party of costs and/or payments theretofore made by
such governmental Third Party Payor that, if adversely determined, could
reasonably be expected to have or result in a Material Adverse Effect and (ii)
none of the Credit Parties have had requests or assertions of claims for
reimbursement or repayment by it of costs and/or payments heretofore made by
any other Third Party Payor that, if adversely determined, could reasonably be
expected to have or result in a Material Adverse Effect, except in either case
to the extent described on SCHEDULE 4.21.

SECTION 4.22. ADDITIONAL REPRESENTATIONS; SCHEDULES. All
certifications, information, statements, conclusions and the like contained in
any Borrowing Base Certificate, Receivable Report, certificate, financial
statement or other instrument delivered by or on behalf

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of the Company or any Subsidiary pursuant to any of the Financing Documents
(including but not limited to any such made in or in connection with any
amendment to any of such documents) shall constitute representations and
warranties made under this Agreement. Wherever a representation and warranty
made under this Agreement refers to a schedule or an amended schedule, it shall
be deemed to refer to the schedule attached hereto or, if one or more amended
schedules have been furnished, the amended schedule most recently so furnished
prior to the date as of which the representation and warranty is made, and the
later delivery of an amended schedule shall not retroactively effect a
correction of any representation and warranty which was incorrect or untrue
when made.

ARTICLE V

AFFIRMATIVE COVENANTS

The Company agrees that, so long as any Lender has any
Commitment hereunder or any amount payable under any Note remains unpaid:

SECTION 5.01. FINANCIAL STATEMENTS AND OTHER REPORTS. The
Company will maintain a system of accounting established and administered in
accordance with sound business practices to permit preparation of financial
statements in accordance with GAAP, and will deliver to each of the Lenders:

(a) as soon as practicable and in any event within 45
days after the end of each month, a consolidated balance sheet of the
Company and its Consolidated Subsidiaries as at the end of such month
and the related consolidated statements of operations and cash flows
for such month, and for the portion of the Fiscal Year ended at the
end of such month setting forth in each case in comparative form the
figures for the corresponding periods of the previous Fiscal Year and
the figures for such month and for such portion of the Fiscal Year
ended at the end of such month that are set forth in the annual
operating and capital expenditure budgets and cash flow forecast
delivered pursuant to Section 5.01(j), all in reasonable detail and
certified by the chief financial officer of the Company as fairly
presenting the financial condition and results of operations of the
Company and its Consolidated Subsidiaries and as having been prepared
in accordance with GAAP applied on a basis consistent with the audited
financial statements of the Company, subject to changes resulting from
audit and normal year-end adjustments;

(b) as soon as available and in any event within 100 days
after the end of each Fiscal Year, a consolidated balance sheet of the
Company and its Consolidated Subsidiaries as of the end of such Fiscal
Year and the related consolidated statements of operations,
stockholders' equity and cash flows for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous
Fiscal Year and the figures for such Fiscal Year that are set forth in
the annual operating and capital expenditure budgets and cash flow
forecast delivered pursuant to Section 5.01(j), certified (solely with
respect to

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such consolidated statements) without qualification by Arthur,
Andersen & Co. or other independent public accountants of nationally
recognized standing;

(c) (i) together with each delivery of financial
statements pursuant to (a) and (b) above, an Officers' Certificate of
the Company stating that the officers executing such certificate have
reviewed the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail of the
transactions and condition of the Company during the accounting period
covered by such financial statements and that such review has not
disclosed the existence during or at the end of such accounting
period, and that such officers do not have knowledge of the existence
as at the date of such Officers' Certificate, of any Default, or, if
any such Default existed or exists, specifying the nature and period
of existence thereof and what action the Company has taken or is
taking or proposes to take with respect thereto; (ii) together with
each delivery of financial statements for each month and Fiscal Year,
a compliance certificate of the chief financial officer or treasurer
of the Company (x) providing details of all transactions between the
Company and any Person referred to in Section 6.08, (y) demonstrating
in reasonable detail compliance during and at the end of such
accounting period with the covenants contained in Sections 6.11
through 6.18, provided, however, that such Officers' Certificate shall
be required to calculate compliance with Sections 6.12, 6.14, 6.16 and
6.17 only quarterly and (z) if not specified in the financial
statements delivered pursuant to (a) or (b) above, as the case may be,
specifying the aggregate amount of interest paid or accrued and the
aggregate amount of depreciation and amortization charged, during such
accounting period; and (iii) beginning with the delivery of the fiscal
year end 1998 financial statements, together with each delivery of
financial statements pursuant to (b) above, a statement setting forth
in reasonable detail the computation of Excess Cash Flow, if any, for
such Fiscal Year, certified by the chief financial officer or
treasurer of the Company as having been prepared from such financial
statements in accordance with this Agreement;

(d) together with each delivery of financial statements
pursuant to (b) above, a written statement by the independent public
accountants giving the report thereon (i) stating that their audit
examination has included a review of the terms of this Agreement as it
relates to accounting matters, (ii) stating whether, in connection
with their audit examination, any Default has come to their attention,
and if such a condition or event has come to their attention,
specifying the nature and period of existence thereof, and (iii)
stating that based on their audit examination nothing has come to
their attention which causes them to believe that the information
contained in the certificates delivered therewith pursuant to (c)
above is not correct and that the matters set forth in the compliance
certificate delivered therewith pursuant to clause (ii) of (c) above
for the applicable Fiscal Year are not stated in accordance with the
terms of this Agreement;

(e) promptly upon receipt thereof, copies of all reports
submitted to the Company by independent public accountants in
connection with each annual, interim or special audit of the financial
statements of the Company made by such accountants,

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including the comment letter submitted by such accountants to
management in connection with their annual audit;

(f) promptly upon their becoming available, copies of (i)
all financial statements, reports, notices and proxy statements sent
or made available generally by the Company to its security holders,
(ii) all regular and periodic reports and all registration statements
and prospectuses filed by the Company with any securities exchange or
with the Securities and Exchange Commission or any governmental
authority succeeding to any of its functions and (iii) all press
releases and other statements made available generally by the Company
to the public concerning material developments in the business of the
Company;

(g) promptly upon any officer of the Company obtaining
knowledge (i) of the existence of any Default, or becoming aware that
the holder of any Debt of the Company or any Subsidiary that singly,
or when aggregated with all other Debt of the Company or its
Subsidiaries the holders of which have taken similar action, equals or
exceeds $50,000 in principal amount outstanding has given any notice
or taken any other action with respect to a claimed default
thereunder, (ii) of any change in the Company's certified accountant
or any resignation, or decision not to stand for re-election, by any
member of the Company's board of directors, (iii) that any Person has
given any notice to the Company or any Subsidiary or taken any other
action with respect to a claimed default under any agreement or
instrument (other than the Financing Documents) to which the Company
or any of its Subsidiaries is a party or by which any of their assets
are bound the indebtedness or obligation under which either singly or
when aggregated with all other claims of Persons taking similar
action, is equal to or greater than $50,000 or (iv) of the institution
of any litigation or arbitration involving an alleged liability of the
Company or any of its Subsidiaries equal to or greater than $50,000 or
any adverse determination in any litigation or arbitration proceedings
that singly or when aggregated with all other outstanding litigation
or arbitration claims involve a potential liability of the Company or
any of its Subsidiaries equal to or greater than $50,000, an Officers'
Certificate of the Company specifying the nature and period of
existence of any such condition or event, or specifying the notice
given or action taken by such holder or Person and the nature of such
claimed default (including any Default), event or condition, and what
action the Company or any affected Subsidiary has taken, is taking or
proposes to take with respect thereto;

(h) if and when any member of the ERISA Group (i) gives
or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan which
might constitute grounds for a termination of such Plan under Title IV
of ERISA, or knows that the plan administrator of any Plan has given
or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to
the PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy
of such notice; (iii) receives notice from the PBGC under Title IV of
ERISA of an intent to

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terminate, impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or appoint a trustee to administer any
Plan, a copy of such notice; (iv) applies for a waiver of the minimum
funding standard under Section 412 of the Code, a copy of such
application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information
filed with the PBGC; (vi) gives notice of withdrawal from any Plan
pursuant to Section 4063 of ERISA, a copy of such notice; or (vii)
fails to make any payment or contribution to any Plan or Multiemployer
Plan or in respect of any Benefit Arrangement or makes any amendment
to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief
accounting officer of the Company setting forth details as to such
occurrence and action, if any, which the Company or applicable member
of the ERISA Group is required or proposes to take;

(i) copies of any material reports or notices (but
excluding tax returns) related to taxes and any other material reports
or notices received by the Company from, or filed by the Company with,
any Federal, state or local governmental agency or body regulating the
activities of the Company;

(j) within 30 days after the conclusion of each Fiscal
Year, the Company's annual operating and capital expenditure budgets
and cash flow forecast for the following Fiscal Year presented on a
monthly basis, which shall be in a format reasonably consistent with
projections, budgets and forecasts theretofore provided to the
Lenders;

(k) together with each Notice of Borrowing and on the
seventh Business Day of each month, a Borrowing Base Certificate as of
the close of business of the last Business Day of the preceding month;

(l) within five Business Days after any request therefor,
such information in such detail concerning the amount, composition and
manner of calculation of the Borrowing Base as any Lender may
reasonably request;

(m) within twenty days after the end of each month, a
report, in form and substance acceptable to the Required Lenders, as
to all accounts receivable of the Company outstanding as of the last
day of such month (a "RECEIVABLES REPORT"), which shall set forth in
summary form an aging of such Receivables and such other information
as the Agent shall reasonably request;

(n) together with the next delivery of a Receivables
Report after the Company becomes aware thereof, notice of any dispute
between any Third Party Payor and the Company, any Subsidiary or any
other Credit Party, with respect to any amounts due and owing that
singly, or when aggregated with all other similar disputes with other
Third Party Payors of the Company, the Subsidiaries and the other
Credit Parties, equals or exceeds $100,000, with an explanation in
reasonable detail of the reason for the dispute, all claims related
thereto and the amount in controversy; and

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(o) with reasonable promptness, such other information
and data with respect to the Company or any of its Subsidiaries or any
other Credit Party as from time to time may be reasonably requested by
any Lender.

SECTION 5.02. PAYMENT OF OBLIGATIONS. The Company (i) shall
pay and discharge, and cause each of its Subsidiaries to pay and discharge, at
or before maturity, all of their respective material obligations and
liabilities, including tax liabilities, except where the same may be the
subject of a Permitted Contest, (ii) shall maintain, and cause each of its
Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the
accrual of any of the same and (iii) shall not breach or permit any of its
Subsidiaries to breach, in any material respect, or permit to exist any default
under, the terms of any material lease, commitment, contract, instrument or
obligation to which it is a party, or by which its properties or assets are
bound, subject to Permitted Contests.

SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF
EXISTENCE. The Company will continue, and will cause each of its Subsidiaries
to continue, to engage in business of the same general type as now conducted by
the Company and its Subsidiaries, and will preserve, renew and keep in full
force and effect, and will cause each Subsidiary to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing contained in this Section shall be deemed to
prohibit any merger or consolidation that is otherwise permitted under Section
6.06.

SECTION 5.04. MAINTENANCE OF PROPERTY; INSURANCE. (a) The
Company will keep, and will cause each of its Subsidiaries to keep, all
property necessary in its business in good working order and condition,
ordinary wear and tear excepted.

(b) The Company will maintain, and will cause each of its
Subsidiaries to maintain, (i) physical damage insurance on all real and
personal property on an all risks basis (including the perils of flood and
quake where reasonably required and available at a reasonable cost), covering
the repair and replacement of all such property and consequential loss coverage
for business interruption and extra expense, covering such risks, for amounts
not less than those, and with deductible amounts not greater than those, set
forth in Part I of SCHEDULE 5.04, (ii) public liability insurance (including
products/completed operations liability and professional injury liability
coverage) covering such risks, for amounts not less than those, and with
deductible amounts not greater than those, set forth in Part II of SCHEDULE
5.04 and (iii) such other insurance coverage in such amounts and with respect
to such risks as the Required Lenders may reasonably request. All such
insurance shall be provided by insurers having an A.M. Best policyholders
rating of not less than B+ or such other insurers as the Required Lenders may
approve in writing. The Company and each of its Subsidiaries will cause each
other Credit Party to comply with the insurance requirements specified in the
Service Agreement to which such Credit Party is a party.

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(c) On or prior to the Closing Date, the Company shall
cause the Agent to be named as an additional insured and loss payee on each
insurance policy required to be maintained pursuant to this Section 5.04. The
Company will deliver to the Lenders (i) on the Closing Date, a certificate from
the Company's insurance broker dated such date showing the amount of coverage
as of such date, and certifying that, in the opinion of such broker, such
amounts are reasonable and customary for companies of established repute
engaged in the same or a similar business, that such policies will include
effective waivers (whether under the terms of any such policy or otherwise) by
the insurer of all claims for insurance premiums against all loss payees and
additional insureds and all rights of subrogation against all loss payees and
additional insureds, and that if all or any part of such policy is canceled,
terminated or expires, the insurer will forthwith give notice thereof to each
additional insured and loss payee and that no cancellation, reduction in amount
or material change in coverage thereof shall be effective until at least 30
days after receipt by each additional insured and loss payee of written notice
thereof, (ii) upon the request of the Agent from time to time full information
as to the insurance carried, (iii) within five days of receipt of notice from
any insurer, a copy of any notice of cancellation, nonrenewal or material
change in coverage from that existing on the Closing Date and (iv) forthwith,
notice of any cancellation or nonrenewal of coverage by the Company or any of
its Subsidiaries.

SECTION 5.05. COMPLIANCE WITH LAWS. The Company will comply,
and cause each of its Subsidiaries to comply with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including Environmental Laws and ERISA and the rules and regulations
thereunder), except for such noncompliances that, individually or when
aggregated with all other noncompliances, could not reasonably be expected to
have a Material Adverse Effect.

SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The
Company will keep, and will cause each of its Subsidiaries and the other Credit
Parties to keep, proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation to
its business and activities; and will permit, and will cause each of its
Subsidiaries and the other Credit Parties to permit, representatives of any
Lender, at the Lenders' expense, to visit and inspect any of their respective
properties, to examine and make abstracts or copies from any of their
respective books and records, to conduct a collateral audit and analysis of
their respective inventories and accounts receivable and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.

SECTION 5.07. USE OF PROCEEDS. The proceeds of Working Capital
Loans shall be used by the Company solely for working capital needs of the
Company and its Subsidiaries. The proceeds of Acquisition Loans shall be used
by the Company solely to fund Acquisitions consented to by the Agent and the
Lenders in their sole good faith discretion. None of such proceeds will be used
in violation of any applicable law or regulation.

SECTION 5.08. FURTHER ASSURANCES. The Company will, and the
Company will cause each of its Subsidiaries and each other Credit Party to, at
the Company's cost and expense,

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cause to be promptly and duly taken, executed, acknowledged and delivered all
such further acts, documents and assurances (x) as may from time to time be
necessary or as the Required Lenders may from time to time reasonably request
in order to carry out the intent and purposes of the Financing Documents and
the transactions contemplated thereby, including all such actions to establish,
preserve, protect and perfect the estate, right, title and interest of the
Lenders to the Collateral (including Collateral acquired after the date
hereof), including first priority Liens thereon, subject only to Permitted
Liens and (y) as the Lenders may from time to time reasonably request, to
establish, preserve, protect and perfect first priority Liens in favor of the
Lenders on any and all assets of the Company and its Subsidiaries and on the
Receivables of the other Credit Parties, now owned or hereafter acquired, that
are not Collateral on the date hereof. The Company shall promptly give notice
to the Agent of the acquisition after the Restatement Effective Date by the
Company or any Subsidiary of any real property (including leaseholds in respect
of real property), trademark, copyright or patent.

SECTION 5.09. LENDERS' MEETINGS. Within 45 days after the end
of each Fiscal Year, the Company will conduct a meeting of the Lenders to
discuss such Fiscal Year's results and the financial condition of the Company
at which shall be present the chief executive officer and the chief financial
officer of the Company and such other officers of the Company as the Company's
chief executive officer shall designate. Such meetings shall be held at a time
and place convenient to the Lenders and to the Company.

SECTION 5.10. HEDGING FACILITIES. If the aggregate principal
amount of Revolving Credit Loans outstanding reaches at any time an amount
equal to or greater than $15,000,000, the Lenders may require that the Company,
at its sole cost and expense, enter into and thereafter maintain in full force
and effect interest rate cap agreements in such amounts and on such terms as
shall reasonably be requested by the Agent.

SECTION 5.11. HAZARDOUS MATERIALS; REMEDIATION. The Company
will (i) promptly give notice to the Lenders in writing of any complaint,
order, citation, notice or other written communication from any Person with
respect to, or if the Company becomes aware of, (x) the existence or alleged
existence of a violation of any applicable Environmental Law or the incurrence
of any liability, obligation, loss, damage, cost, expense, fine, penalty or
sanction or the requirement to commence any remedial action resulting from or
in connection with any air emission, water discharge, noise emission, Hazardous
Material or any other environmental, health or safety matter at, upon, under or
within any of the properties now or previously owned, leased or operated by the
Company or any of its Subsidiaries, or due to the operations or activities of
the Company, any Subsidiary or any other Person on or in connection with any
such property or any part thereof or (y) any release on any of such properties
of Hazardous Materials in a quantity that is reportable under any applicable
Environmental Law; (ii) promptly comply, subject to Permitted Contests, with
any governmental requirements requiring the removal, treatment or disposal of
such Hazardous Materials or Hazardous Materials Contamination and provide
evidence satisfactory to the Required Lenders of such compliance; and (iii)
provide the Lenders, within 30 days after demand therefor by the Required
Lenders, with a bond, letter of credit or similar financial assurance
evidencing to the satisfaction of the Required Lenders that sufficient funds
are available to pay the cost of removing, treating and disposing of such

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Hazardous Materials or Hazardous Materials Contamination and discharging any
assessment which may be established on any such property as a result thereof
where the projected cost thereof exceeds $100,000.

SECTION 5.12. COLLATERAL REPORTS. The Company shall keep, and
shall cause each of its Subsidiaries and the other Credit Parties to keep,
accurate and complete records of its accounts receivable in at least so much
detail as to enable the Company to provide the Receivables Reports and other
information described in Section 5.01.

SECTION 5.13. COLLECTIONS; RIGHT TO NOTIFY ACCOUNT DEBTORS. At
any time following the occurrence of an Event of Default and during the
continuance thereof, in addition to the Lenders' rights under the Security
Documents, the Company hereby authorizes the Agent, at any time, to (i) notify
any or all account debtors that the accounts receivable of the Company and its
Subsidiaries and the other Credit Parties have been assigned to the Agent and
that the Agent has a security interest therein and (ii) direct such account
debtors to make all payments due from them to the Company upon such accounts
receivable directly to the Agent or to a lockbox designated by the Agent. The
Agent shall promptly furnish the Company with a copy of any such notice sent.
Any such notice, in the Agent's sole discretion, may be sent on the Company's,
such Subsidiaries' or such other Credit Parties' stationery, in which event the
Company shall, or shall cause such Subsidiary or other Credit Party to, if
requested by the Agent, co-sign such notice with the Agent. At any subsequent
time that no Events of Default are continuing, the Agent will withdraw such
notice at the Company's request.

SECTION 5.14. ENFORCEMENT OF COVENANTS NOT TO COMPETE. The
Company and each of its Subsidiaries shall preserve, protect and defend, to the
extent permitted by applicable law, all of its rights, if any, with respect to
any covenant not to compete contained in any of the material contracts of such
Person or contained in any employment agreement with any employee whose annual
salary and other compensation payable by the Company and any Subsidiary of
either thereof is $100,000 or more.

SECTION 5.15. LANDLORD AND WAREHOUSEMAN WAIVERS. Upon the
request of the Agent, the Company shall use its best efforts to deliver to the
Agent waivers of contractual and statutory landlord's, landlord's mortgagee's
and warehouseman's Liens in form and substance satisfactory to the Agent under
each existing lease, warehouse agreement or similar agreement to which the
Company or any Subsidiary is a party; provided that such waivers will in any
event be incorporated when the existing lease, warehouse agreement or similar
agreement is amended, renewed or extended and the Company will obtain waivers
of both contractual and statutory landlord's, landlord's mortgagee's and
warehouseman's Liens in form and substance satisfactory to the Agent in
connection with each new lease, warehouse agreement or similar agreement
entered into by the Company or any Subsidiary.

SECTION 5.16. ADDITIONAL SUBSIDIARIES. Promptly after the
creation or acquisition of any Subsidiary by the Company, the Company shall
execute and deliver or cause to be executed and delivered, (i) a Subsidiary
Guaranty Agreement and a Subsidiary Security Agreement from such Subsidiary,
(ii) one or more Professional Service Provider Security

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Agreements, and (iii) such other related documents as the Lender may request,
all in form and substance reasonably satisfactory to the Agent.

SECTION 5.17. ACCREDITATION AND LICENSING. The Company shall,
and shall cause each other Credit Party to, keep itself fully licensed with all
licenses required to operate such Person's business under applicable law and
maintain such Person's qualification for participation in, and payment under,
Medicare, Medicaid, CHAMPUS, CHAMPVA and any other federal, state or local
governmental program or private program providing for payment or reimbursement
for services rendered by such Person, except to the extent that the loss or
relinquishment of such qualification would not or could not reasonably be
expected to have or result in a Material Adverse Effect; provided, however,
that nothing in this Agreement shall require the Company or any other Credit
Party to participate in the CHAMPUS or CHAMPVA programs if it elects not to
accept patients covered by such programs. The Company will promptly furnish the
Agent with copies of all reports and correspondence relating to any loss or
revocation (or threatened loss or revocation) of any qualification described in
this Section.

ARTICLE VI

NEGATIVE COVENANTS

The Company agrees that, so long as any Lender has any
Commitment hereunder or any amount payable under any Note remains unpaid:

SECTION 6.01. DEBT. The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee or otherwise become or remain directly or indirectly liable with
respect to, any Debt, except for:

(a) Debt of the Company outstanding on the date of this
Agreement as set forth in SCHEDULE 6.01 and any Permitted Refinancing
thereof;

(b) The Existing Additional Acquisition Liabilities;

(d) Debt of the Company or any of its Subsidiaries
incurred or assumed for the purpose of financing all or any part of
the cost of acquiring any fixed asset (including through Capital
Leases), in an aggregate principal amount at any time outstanding not
greater than $500,000;

(e) Debt of the Company or any of its Subsidiaries to a
wholly-owned Subsidiary of the Company, or of any Subsidiary of the
Company to the Company;

(f) Purchase money Debt of the Company incurred in
connection with an acquisition in accordance with terms and conditions
of Section 6.07, which Debt shall be

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subordinated in all respects to any and all Debt of the Company to the
Agent and the Lenders, upon terms and conditions satisfactory to the
Lenders and the incurrence of which Debt does not result in a Default
or an Event of Default.

(g) Debt constituting liabilities under letters of
credit, surety bonds or similar instruments issued in the ordinary
course of business to secure bids, purchase orders, statutory
obligations such as workers compensation insurance or sales tax bonds,
operating leases and similar obligations (but not Debt), provided that
the aggregate outstanding obligation (whether fixed or contingent,
drawn or undrawn) of the Company and its Subsidiaries under all such
instruments shall not at any time exceed $50,000; and

(h) Other Debt of the Company and its Subsidiaries in an
aggregate principal amount (whether fixed or contingent, drawn or
undrawn) not to exceed at any time $50,000.

SECTION 6.02. NEGATIVE PLEDGE. Neither the Company nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:

(a) any Lien on any asset securing Debt permitted under
Section 6.01(d) incurred or assumed for the purpose of financing all
or any part of the cost of acquiring such asset, provided that such
Lien attaches to such asset concurrently with or within 90 days after
the acquisition thereof, and provided further that the principal
amount of the Debt secured shall not be less than 70% of the value of
the asset subject to such Lien;

(b) Liens existing on the date of this Agreement securing
Debt permitted by Section 6.01(a);

(c) Liens arising in the ordinary course of its business
which (i) do not secure Debt, (ii) do not secure any obligation in an
amount exceeding $50,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use
thereof in the operation of its business;

(d) Liens arising in connection with Debt incurred
pursuant to Section 6.07; provided, however such Lien shall be
subordinate to any Lien under paragraph (e) below upon terms and
conditions satisfactory to the Lenders; and

(e) Liens created by the Security Documents.

SECTION 6.03. CAPITAL STOCK. The Company will not permit any
Subsidiary to, issue any shares of capital stock except shares of capital stock
issued by any Subsidiary to the Company which are delivered to the Agent in
pledge for the benefit of the Agent and the Lenders.

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SECTION 6.04. RESTRICTED PAYMENTS. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, declare, order, pay,
make or set apart any sum for any Restricted Payment or make any payment in
respect of any Additional Acquisition Liabilities; provided that the foregoing
shall not restrict or prohibit:

(i) dividends or distributions by the Company at such
times or in such amounts as are necessary to permit purchases of
shares of (or options to purchase shares of) Common Stock from
employees of the Company or of any Subsidiary upon their death,
termination or retirement, so long as, (x) before and after giving
effect to any such dividend or distribution for such purpose, no
Default shall have occurred and be continuing and (y) such purchases
or payments after the date hereof do not exceed in any one Fiscal Year
$75,000;

(ii) payments of Additional Acquisition Liabilities, so
long as, at the time of such payment, no Default shall have occurred
and be continuing, and prior to making such payment, the Company shall
have delivered to the Agent a certificate showing that, after giving
effect to such proposed payment, no Default will exist; and

(iii) scheduled payments of interest with respect to the
subordinated Debt, provided that no Default or Event of Default shall
have occurred and be continuing or would result after giving effect to
any payment pursuant to this clause (iii).

SECTION 6.05. ERISA. The Company will not, and will not permit
any of its Subsidiaries to:

(a) engage in any transaction in connection with which
the Company or any of its Subsidiaries could be subject to any
material liability arising from either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975
of the Code;

(b) terminate any Plan in a manner, or take any other
action, which could result in any material liability of any member of
the ERISA Group to the PBGC;

(c) fail to make full payment when due of all amounts
which, under the provisions of any Plan, it is required to pay as
contributions thereto, or permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Plan;

(d) permit the present value of all benefit liabilities
under all Plans to exceed the fair market value of the assets of such
Plans; or

(e) fail to make any payments to any Multiemployer Plan
that it may be required to make under any agreement relating to such
Multiemployer Plan or any law pertaining thereto.

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SECTION 6.06. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The
Company will not, and will not permit any of its Subsidiaries to, (i)
consolidate or merge with or into any other Person or (ii) sell, lease or
otherwise transfer, directly or indirectly, any of its or their assets, other
than (w) sales of any asset or group of related assets, the value of which does
not exceed $20,000, (x) sales of inventory in the ordinary course of their
respective businesses, (y) dispositions of Temporary Cash Investments and (z)
other dispositions for cash and fair value of assets that the board of
directors of the Company determines in good faith are no longer used or useful
in the business of the Company and its Subsidiaries, provided that immediately
after any such disposition, the aggregate fair market value of all such assets
disposed of pursuant to this clause (z) after the Original Agreement Date does
not exceed $250,000 and the aggregate fair market value of all such assets
disposed of during the Fiscal Year in which such disposition is made does not
exceed $100,000.

SECTION 6.07. PURCHASE OF ASSETS, INVESTMENTS. The Company
will not, and will not permit any Subsidiary to, acquire any assets other than
in the ordinary course of business, or to make, acquire or own any Investment
in any Person other than (a) Temporary Cash Investments, (b) Investments in
Subsidiaries, and (c) (i) acquisitions of a physician practice or physician
practice group or the assets of a physician practice or physician practice
group or an Investment (that constitutes a loan or advance for working capital
or capital expenditure purposes made pursuant to a Service Agreement in the
ordinary course of business, but not a Program Loan unless the Required Lenders
shall, in their sole discretion, give their prior written consent) in a
physician practice or physician practice group which acquisition the chief
financial officer or treasurer shall certify to the Agent meets the following
criteria:

(v) the physician practice or group to be acquired will not
represent more than 33% of the pro forma consolidated revenues of the
Company,

(w) the purchase price is not more than eight (8) times greater
than any first year management fees reasonably projected to be paid by
the physician practice to the Company or any of its Subsidiaries,

(x) the sole consideration for such purchase is (1) the issuance
of Common Stock and/or a seller note upon terms and conditions
satisfactory to the Lenders and that is subordinate to the Obligations
on terms and conditions satisfactory to the Lenders and/or (2) cash on
hand of the Company, provided that the aggregate amount of cash on
hand used in any one acquisition shall not exceed $3,000,000 and the
aggregate amount of cash on hand used in all such acquisitions in any
one Fiscal Year shall not exceed $5,000,000 (cash on hand of the
Company expressly excludes the proceeds of any Revolving Credit
Loans);

(y) the Service Agreement and other agreements executed in
connection with such acquisition contain terms that are substantially
similar (except for price and payment terms) to the terms of
acquisitions made by the Company through the Closing Date, and

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<PAGE> 51
(z) the Company shall provide to the Agent a certificate
immediately prior to such Acquisition demonstrating to the Agent's
reasonable satisfactions that both before and after giving effect to
such acquisition no Default will have occurred and be continuing,

or (ii) Acquisitions approved by the Required Lenders in their sole good faith
discretion. Without limiting the generality of the foregoing, the Company will
not, and will not permit any Subsidiary to, (i) acquire or create any
Subsidiary without the consent of the Required Lenders (except that such
consent shall not be required to create a corporate subsidiary that is wholly
owned by the Company and that is formed solely for the purpose of an
acquisition permitted pursuant to the preceding sentence) and arrangements
satisfactory to the Required Lenders for (w) a pledge of the stock of such
Subsidiary to the Agent for the benefit of the Lenders, (x) such Subsidiary to
execute a joinder to the Subsidiary Guaranty Agreement, (y) such Subsidiary to
execute a joinder to the Subsidiary Security Agreement and all financing
statements and other documents and instruments required thereunder, and (z)
cause each professional association party to a Service Agreement with such
Subsidiary to execute a Professional Service Provider Security Agreement and
all financing statements, documents and instruments required in connection
therewith, or (ii) engage in any joint venture or partnership with any other
Person.

SECTION 6.08. TRANSACTIONS WITH AFFILIATES. The Company will
not, and will not permit any Subsidiary to, directly or indirectly, enter into
or permit to exist any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company, on terms that are less favorable to the Company or such
Subsidiary, as the case may be, than those which might be obtained at the time
from a Person who is not an Affiliate of the Company.

SECTION 6.09. AMENDMENTS OR WAIVERS. Without the prior written
consent of the Required Lenders, the Company will not, nor will it permit any
Subsidiary to, agree to (i) any amendment to or waiver of or in respect of the
certificate of incorporation or Bylaws of the Company or any Financing Document
or (ii) any other material amendment to or waiver of any material contract
constituting a part of the Collateral.

SECTION 6.10. FISCAL YEAR. The Company shall not change its
fiscal year from a fiscal year ending December 31.

SECTION 6.11. MANAGEMENT COMPENSATION. The Company shall not,
and shall not permit any Subsidiary to, directly or indirectly, pay or become
obligated to pay, any compensation for services in any form to or for the
account of any Person listed on Schedule 4.16, except as expressly provided in
the Employment Contracts. In addition to the foregoing, the aggregate amount of
bonuses paid to such Persons in any Fiscal Year shall not exceed $1,000,000 and
the aggregate outstanding amount of any deferred compensation payable to any
such Person or any other employee shall not at any time exceed $500,000. The
limitation set forth in the preceding sentence shall not apply to payments in
the form of stock or stock options.

SECTION 6.12. INTEREST COVERAGE. The Company shall not permit
the ratio, calculated on the last day of any fiscal quarter for the number of
consecutive fiscal quarters then

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<PAGE> 52
most recently ended since the Closing Date (considered as a single account
period, but not to exceed four quarters), of (i) Consolidated Free Cash Flow to
(ii) Total Interest Expense to be less than the ratio set forth below opposite
the period in which such last day shall fall:

<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
from the Closing Date through 1.75
and including June 30, 1998

July 1, 1998 through and including
December 31, 1998 2.00

January 1, 1999 and thereafter 2.25
</TABLE>

SECTION 6.13. CAPITAL EXPENDITURES. The aggregate amount of
Consolidated Capital Expenditures for any period of four consecutive fiscal
quarters shall not exceed 2.50% of net revenues for such period through and
including March 31, 1998, and thereafter 2.00% of such net revenues. Any
amounts permitted to be spent for Capital Expenditures for any such period in
excess of the amounts actually expended during such period may be carried
forward to the next period of four fiscal quarters as permitted Capital
Expenditures during such period.

SECTION 6.14. TOTAL DEBT SERVICE COVERAGE RATIO. The Company
shall not permit the ratio, calculated on the last day of any fiscal quarter
for the number of consecutive fiscal quarters then most recently ended since
the Closing Date (considered as a single account period, but not to exceed four
quarters), of (i) Consolidated Free Cash Flow to (ii) Total Debt Service, to be
less than 1.20:1.00.

SECTION 6.15. DEBT TO CAPITALIZATION. At no time shall the
ratio of (i) Consolidated Total Debt to (ii) Consolidated Capitalization exceed
66.7%.

SECTION 6.16. SENIOR DEBT TO EBITDA. The Company shall not
permit the ratio of (i) the sum, at such time, of (a) Consolidated Senior Debt
minus (b) the amount by which cash plus Temporary Cash Investments of the
Company and its Consolidated Subsidiaries exceeds $2,000,000, to (ii) EBITDA
for the four consecutive fiscal quarters then most recently ended (considered
as a single accounting period), to exceed the limit set forth below opposite
the period in which such fiscal quarter shall fall:

<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
from the Closing Date through and including
December 31, 1998 4.50

from January 1, 1999 through and
including December 31, 1999 3.75
</TABLE>

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<PAGE> 53
<TABLE>
<S> <C>
from January 1, 2000 through and including
December 31, 2000 3.25

from January 1, 2001 and thereafter 2.75
</TABLE>

SECTION 6.17. [Reserved]

SECTION 6.18. MINIMUM NET WORTH. At no time shall Consolidated
Net Worth be less than the sum of:

(i) $3,300,000, plus

(ii) 75% of the positive amount of Consolidated Net Income
for each fiscal period ended after the Closing Date,
plus

(iii) 100% of the Net Proceeds of Capital Stock received
following the Agreement Date.

SECTION 6.19. TRANSITION RULES. Except as otherwise
specifically provided herein, in calculating compliance with the financial
covenants for the period from the Closing Date through the first anniversary
thereof, compliance will be measured from the Closing Date to the date that
such compliance shall be required to be measured. For any test that requires
measurement over an entire year, results for the period from the Closing Date
through such date shall be annualized. In delivering pro forma covenant
calculations at any time for or including any entity that is the target of an
acquisition (whether such information is required pursuant to Section 3.02,
Section 6.04 or Section 6.07 or otherwise) or when including an acquisition
target that has not been under management by the Company or one of its
Subsidiaries for an entire fiscal quarter in calculating financial covenant
compliance, the Company shall use the actual EBITDA for the target over the
relevant period, as if such target had been a Subsidiary of the Company during
such period. To the extent such target has been under management by the Company
or one of its Subsidiaries for one or more entire fiscal quarters but less than
one year, the Company shall calculate EBITDA and net revenues with respect to
the target based on the annualized actual performance of the target during the
most recently ended number of complete quarters that such target has been under
management of the Company or one of its Subsidiaries. For the purposes of
calculating compliance with Sections 6.14, 6.15 and 6.16, Existing Additional
Acquisition Liabilities shall be excluded from:

(i) in the case of Section 6.14, Total Debt
Service,

(ii) in the case of Section 6.15, Consolidated
Total Debt and Consolidated Total Capitalization (to the
extent that such amounts would otherwise be included in
Consolidated Total Debt), and

(iii) in the case of Section 6.16, Consolidated
Senior Debt.

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<PAGE> 54
SECTION 6.20. CHANGES RELATING TO SUBORDINATED DEBT. Neither
the Company nor any of its Subsidiaries shall change or amend the terms of any
subordinated Debt (or any indenture or agreement in connection therewith) if
the effect of such amendment is to: (a) increase the interest rate on such
subordinated Debt; (b) change the dates upon which payments of principal or
interest are due on such subordinated Debt other than to extend such dates; (c)
change any default or event of default or covenant other than to delete or make
less restrictive any default or covenant provision therein, or add any covenant
with respect to such subordinated Debt; (d) change the redemption or prepayment
provisions of such subordinated Debt other than to extend the dates therefor or
to reduce the premiums payable in connection therewith; (e) grant any security,
collateral or guaranty to secure payment of such subordinated Debt; or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights to
the holder of such subordinated Debt in a manner adverse to the Company, any
Subsidiary, the Agent or any Lender.

ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01. EVENTS OF DEFAULT. If any one or more of the
following events (each an "EVENT OF DEFAULT") shall occur and be continuing for
any reason whatsoever (whether voluntary or involuntary, by operation of law or
otherwise):

(a) the Company shall fail to pay any principal amount
due hereunder when due, or shall fail to pay any interest or premium
on any Note, or any fees or any other amount payable hereunder within
3 days following the due date therefor;

(b) the Company shall fail to observe or perform any
covenant contained in Section 5.13 or Article VI hereof, or Section
3(B) of the Pledge Agreement or the Company, or any of its
Subsidiaries shall fail to perform or observe any covenant contained
in Section 5 or Sections 4(A), (E) or (I) of the Security Agreements;

(c) the Company or any of its Subsidiaries shall fail to
observe or perform any covenant or agreement contained in the
Financing Documents (other than those covered by clause (a) or (b)
above) for 30 days after notice thereof has been given to the Company
by the Agent;

(d) any representation, warranty, certification or
statement made by the Company or any of its Subsidiaries in any
Financing Document or in any certificate, financial statement or other
document delivered pursuant to the Financing Documents shall prove to
have been incorrect in any respect (or in any material respect if such
representation, warranty, certification or statement is not by its
terms already qualified as to materiality) when made (or deemed made);

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<PAGE> 55
(e) the Company or any of its Subsidiaries shall fail to
make any payment in respect of any Debt (other than the Notes) the
aggregate outstanding principal amount of which Debt, either singly or
when aggregated with all other Debt with respect to which the Company
or any of its Subsidiaries has failed to make a payment equals or
exceeds $100,000 (such Debt, hereinafter "MATERIAL DEBT");

(f) any event or condition shall occur which (i) results
in the acceleration of the maturity of any Material Debt of the
Company or any of its Subsidiaries, or (ii) enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of
such Debt or any Person acting on such holder's behalf to accelerate
the maturity thereof, or (iii) results in a violation of, or a default
under, any provision of the certificate of incorporation of the
Company;

(g) Company or any of its Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidation,
custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be
commenced against the Company or any of its Subsidiaries seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 90
days; or an order for relief shall be entered against the Company or
any of its Subsidiaries under the federal bankruptcy laws as now or
hereafter in effect;

(i) any one or more members of the ERISA Group shall fail
to pay when due an amount or amounts aggregating in excess of $100,000
which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Material Plan shall be filed under
Title IV of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a trustee to be appointed to administer any
Material Plan; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Material
Plan must be terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a
current payment obligation in excess of $100,000;

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<PAGE> 56
(j) a judgment or order for the payment of money which
when aggregated with other such judgments or orders equals or exceeds
$100,000, shall be rendered against, the Company or any of its
Subsidiaries and such judgment or order shall continue unsatisfied and
unstayed for a period of 10 days or any judgment shall be rendered
against the Company or any Subsidiary that exceeds by more than
$2,000,000 any insurance coverage applicable thereto;

(k) except as the result of any transfer made pursuant to
the Pledge Agreement, the Company shall fail at any time to be the
record and beneficial owner of 100% of the issued and outstanding
capital stock any Subsidiary, free and clear of any Lien other than
inchoate tax Liens and Liens in favor of the Agent and the Lenders;
any person or group of persons (within the meaning of Rule 13d-3
promulgated by the Securities and Exchanges Commission under the
Securities Exchange Act of 1934, as amended), other than the current
owners, other employees and other than doctors who acquire Common
Stock as consideration for acquisitions, shall have acquired
beneficial ownership (within the meaning of such Rule 13d-3) of 5% or
more of the Common Stock of the Company; or both Wayne Posey and
Richard D'Antoni shall cease to perform the functions of Chief
Executive Officer and Chief Operating Officer, respectively, of the
Company and a successor shall not have been appointed by the Company
and approved by the Required Lenders within 90 days thereafter; or the
Persons listed on SCHEDULE 7.01(k), in the aggregate, shall cease to
own beneficially at least 51% of the shares (determined assuming the
exercise of all options or warrants to purchase Common Stock and
adjusted for stock splits, combinations and similar events) of each
class of Common Stock; or, during any period of twelve consecutive
calendar months, individuals who were directors of the Company on the
first day of such period shall cease to constitute a majority of the
board of directors of the Company;

(l) (i) the auditor's report or reports on the audited
statements delivered pursuant to Section 5.01 shall include any
material qualification (including with respect to the scope of audit)
or exception, or (ii) the Company shall fail to deliver to the Agent
on or prior to July 30, 1996, either (A) consolidated financial
statements for the Company for the fiscal period ended June 30,1996,
with an audit report thereon without qualification as to opinion or
scope of review by Arthur Andersen & Co. or other nationally
recognized accounting firm, or (B) a financial due diligence review
performed by such accountants, in each case (A) or (B), which
financial statements, audit, report and/or due diligence review
(including the results thereof) shall be satisfactory to the Agent and
the Lenders in their sole good faith discretion;

(m) the Lien created by any of the Security Documents
shall at any time fail to constitute a valid and perfected Lien on any
portion of the Collateral purported to be secured thereby which is
deemed material by the Agent, subject to no prior or equal Lien except
Permitted Liens, or the Company or any of its Subsidiaries shall so
assert in writing;

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<PAGE> 57
(n) the Company or any of its Subsidiaries shall be
prohibited or otherwise materially restrained from conducting the
business theretofore conducted by it by virtue of any determination,
ruling, decision, decree or order of any court or governmental
authority of competent jurisdiction and such determination, ruling,
decision, decree or order remains unstayed and in effect for any
period of 10 days beyond any period for which any business
interruption insurance policy of the Company and its Subsidiary shall
provide full coverage to the such person of any losses and lost
profits;

(o) any of the Financing Documents shall for any reason
fail to constitute the valid and binding agreement of any party
thereto to the extent described in Section 4.03, or any such party
shall so assert in writing; or

(p) any default under the Service Agreement, dated as of
February __, 1998, among ProMedCo of the Coastal Bend, Inc., a Texas
corporation, Thomas-Spann Clinic, P.A., a Texas professional
corporation, and TCS-Corpus Christi, P.A., a Texas professional
corporation (the "Spann Service Agreement'), the Spann Service
Agreement is terminated or any action, proceeding or investigation is
commenced which challenges the legality, validity or binding effect of
the Spann Service Agreement or any provision thereof.

then, and in every such event and at any time thereafter during the continuance
of such event, the Agent shall if requested by the Required Lenders, (i) by
notice to the Company terminate the Commitments and they shall thereupon
terminate and/or (ii) by notice to the Company declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company; provided
that in the case of any of the Events of Default specified in clause (g) or (h)
above with respect to the Company, without any notice to the Company or any
other act by the Agent or the Lenders, the Commitments shall thereupon
terminate and the Notes (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company.

ARTICLE VIII

FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS

SECTION 8.01. FEES. (a) Participation Fees. On the earlier
of: (i) the Closing Date and (ii) July 15, 1996, the Company shall pay to each
Lender a fee in an amount equal to 2.0% of the sum of such Lender's Revolving
Credit Commitment. Such fee shall be fully earned and nonrefundable on the
date of the execution hereof, whether or not any funding hereunder shall occur.

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(b) Unused Commitment Fee. The Company shall pay to each
Lender a fee on the daily average amount by which the amount of such Lender's
Revolving Credit Commitment exceeds the aggregate outstanding principal amount
of its Loans, (i) from and including the Agreement Date, to but excluding the
Initial Restatement Effective Date, at the rate of 0.50% per annum, and (ii)
from and including the Initial Restatement Effective Date and thereafter, at
the rate of 0.375% per annum. Accrued fees under this Section shall be payable
quarterly in arrears on each Quarterly Date prior to the Availability
Termination Date and on such date.

(c) Administrative Fee. On the Initial Restatement
Effective Date and on each anniversary thereof the Company shall pay to the
Agent an administration fee in the amount of $30,000.

SECTION 8.02. COMPUTATION OF INTEREST AND FEES. Commitment
fees pursuant to Section 8.01(b) and all interest hereunder and under the Notes
shall be calculated on the basis of a 360-day year for the actual number of
days elapsed.

SECTION 8.03. GENERAL PROVISIONS REGARDING PAYMENTS. All
payments (including prepayments) to be made by the Company under any Financing
Document, including payments of principal of and premium and interest on the
Notes, fees, expenses and indemnities, shall be made without set-off or
counterclaim and in immediately available funds. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension. The Company shall make all payments in immediately
available funds to each Lender's Payment Account before 11:00 A.M. (New York
City time) on the date when due. Each payment (including prepayments) by the
Company on account of principal of and interest on any Loans shall be made pro
rata according to the respective outstanding principal amounts of Loans held by
each Lender. All amounts payable by the Company hereunder or under any other
Financing Document not paid within 5 days of the date when due (other than
payments of principal and interest on the Notes, which shall bear interest as
set forth therein) shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the Default Rate.

SECTION 8.04. EXPENSES. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to pay on demand
(i) all costs and expenses of preparation of this Agreement, the other
Financing Documents and of the Company's performance of and compliance with all
agreements and conditions contained herein and therein, (ii) the fees, expenses
and disbursements of counsel to, and independent appraisers and consultants
retained by, the Lenders in connection with the negotiation, preparation,
execution and administration of this Agreement, the other Financing Documents
and any amendments hereto or thereto and waivers hereof and thereof, (iii) all
reasonable costs and expenses of creating, perfecting and/or maintaining the
Liens pursuant to the Financing Documents, including filing and recording fees
and expenses, the costs of any bonds required to be posted in respect of future
filing and recording fees and expenses, title investigations and fees and
expenses of such local counsel as the Agent shall request (iv) the fees,
expenses and disbursements of independent accountants or other experts retained
by the Agent in connection with accounting and collateral

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audits or reviews of the Company, its Subsidiaries and its and their affairs,
provided that, in the absence of the occurrence and continuance of an Event of
Default such audits and/or reviews shall be limited to one per year (it being
expressly agreed that audits and/or reviews conducted during an Event of
Default shall not be limited) and (v) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Agent and each Lender, including fees
and disbursements of counsel based upon time spent), in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom. Notwithstanding the foregoing, the fees,
expenses and disbursements of accountants, appraisers, attorney's and
consultants, and the costs of lien and title searches, in each case, to the
extent (but only to the extent) incurred in connection with the initial funding
of the Loan, shall not exceed $40,000.

SECTION 8.05. INDEMNITY. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to indemnify, pay
and hold harmless the Agent and each Lender and any subsequent holder of any of
the Notes, and the officers, directors, employees and agents of the Agent, each
Lender and such holders (collectively called the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including the fees and disbursements of counsel for
such Indemnitee) in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitee shall be designated a party
thereto and including any such proceeding initiated by or on behalf of the
Company or any Subsidiary, and the expenses of investigation by engineers,
environmental consultants and similar technical personnel and any commission,
fee or compensation claimed by any broker (other than any broker retained by
NationsCredit) asserting any right to payment for the transactions contemplated
hereby, which may be imposed on, incurred by or asserted against such
Indemnitee as a result of or in connection with the transactions contemplated
hereby or by the other Financing Documents (including (i)(A) as a direct or
indirect result of the presence on or under, or escape, seepage, leakage,
spillage, discharge, emission or release from, any property now or previously
owned, leased or operated by the Company or any of its Subsidiaries of any
Hazardous Materials or any Hazardous Materials Contamination, (B) arising out
of or relating to the offsite disposal of any materials generated or present on
any such property or (C) arising out of or resulting from the environmental
condition of any such property or the applicability of any governmental
requirements relating to Hazardous Materials, whether or not occasioned wholly
or in part by any condition, accident or event caused by any act or omission of
the Company or any of its Subsidiaries, and (ii) proposed and actual extensions
of credit under this Agreement) and the use or intended use of the proceeds of
the Notes, except that the Company shall have no obligation hereunder to an
Indemnitee with respect to any liability resulting from the gross negligence or
willful misconduct of such Indemnitee. To the extent that the undertaking set
forth in the immediately preceding sentence may be unenforceable, the Company
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all such indemnified
liabilities incurred by the Indemnitees or any of them. Without limiting the
generality of any provision of this Section, to the fullest extent permitted by
law, the Company hereby waives all rights for contribution or any other rights
of recovery with respect to liabilities, losses, damages, costs and expenses
arising under or relating to Environmental Laws that it might have by statute
or otherwise against any Indemnitee; except to

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the extent that any thereof are finally determined by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct
of such Indemnitee.

SECTION 8.06. TAXES. The Company agrees to pay all
governmental assessments, charges or taxes (except income or other similar
taxes imposed on any Lender or any holder of a Note), including any interest or
penalties thereon, at any time payable or ruled to be payable in respect of the
existence, execution or delivery of this Agreement, the other Financing
Documents, or the issuance of the Notes, and to indemnify and hold each Lender
and each and every holder of the Notes harmless against liability in connection
with any such assessments, charges or taxes.

SECTION 8.07. FUNDING LOSSES. If the Company fails to borrow
any Loans after notice has been given to any Lender in accordance with Section
2.04 or make any payment when due (including pursuant to a notice of optional
prepayment), the Company shall reimburse each Lender within 15 days after
demand for any resulting loss or expense incurred by it (or by an existing or
prospective participant in the related Loan), including any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or failure to borrow;
provided that such Lender shall have delivered to the Company a certificate
calculating in reasonable detail the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.

SECTION 8.08. MAXIMUM INTEREST. (a) In no event shall the
interest charged with respect to the Note or any other obligations of the
Company or any Subsidiary under the Financing Documents exceed the maximum
amount permitted under the laws of the State of Georgia or of any other
applicable jurisdiction.

(b) Notwithstanding anything to the contrary herein or
elsewhere, if at any time the rate of interest payable for the account of any
Lender hereunder or under the Note or other Financing Document (the "STATED
RATE") would exceed the highest rate of interest permitted under any applicable
law to be charged by such Lender (the "MAXIMUM LAWFUL RATE"), then for so long
as the Maximum Lawful Rate would be so exceeded, the rate of interest payable
for the account of such Lender shall be equal to the Maximum Lawful Rate;
provided, that if at any time thereafter the Stated Rate is less than the
Maximum Lawful Rate, the Company shall, to the extent permitted by law,
continue to pay interest for the account of such Lender at the Maximum Lawful
Rate until such time as the total interest received by such Lender is equal to
the total interest which such Lender would have received had the Stated Rate
been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable for the account of such Lender shall be
the Stated Rate unless and until the Stated Rate again would exceed the Maximum
Lawful Rate, in which event this provision shall again apply.

(c) In no event shall the total interest received by any
Lender exceed the amount which such Lender could lawfully have received had the
interest been calculated for the full term hereof at the Maximum Lawful Rate
with respect to such Lender.

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(d) In computing interest payable with reference to the
Maximum Lawful Rate applicable to any Lender, such interest shall be calculated
at a daily rate equal to the Maximum Lawful Rate divided by the number of days
in the year in which such calculation is made.

(e) If any Lender has received interest hereunder in
excess of the Maximum Lawful Rate with respect to such Lender, such excess
amount shall be applied to the reduction of the principal balance of its Loans
or to other amounts (other than interest) payable hereunder, and if no such
principal or other amounts are then outstanding, such excess or part thereof
remaining shall be paid to the Company.

ARTICLE IX

THE AGENT

SECTION 9.01. APPOINTMENT AND AUTHORIZATION. Each Lender
irrevocably appoints and authorizes the Agent to enter into each of the
Security Documents on its behalf and to take such action as agent on its behalf
and to exercise such powers under the Financing Documents as are delegated to
the Agent by the terms thereof, together with all such powers as are reasonably
incidental thereto.

SECTION 9.02. AGENT AND AFFILIATES. NationsCredit shall have
the same rights and powers under the Financing Documents as any other Lender
and may exercise or refrain from exercising the same as though it were not the
Agent, and NationsCredit and its affiliates may lend money to and generally
engage in any kind of business with the Company or any Subsidiary or affiliate
of the Company as if it were not the Agent hereunder.

SECTION 9.03. ACTION BY AGENT. The obligations of the Agent
hereunder are only those expressly set forth herein and under the other
Financing Documents. Without limiting the generality of the foregoing, the
Agent shall not be required to take any action with respect to any Default,
except as expressly provided in Article VII.

SECTION 9.04. CONSULTATION WITH EXPERTS. The Agent may consult
with legal counsel (who may be counsel for the Company), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.

SECTION 9.05. LIABILITY OF AGENT. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or not taken by it in connection with the Financing Documents (i) with
the consent or at the request of the Required Lenders or (ii) in the absence of
its own gross negligence or willful misconduct. Neither the Agent nor any of
its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with any Financing Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Company; (iii) the satisfaction of any condition

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specified in Article III, except receipt of items required to be delivered to
the Agent; or (iv) the validity, effectiveness, sufficiency or genuineness of
any Financing Document or any other instrument or writing furnished in
connection therewith. The Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex, facsimile transmission or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.

SECTION 9.06. INDEMNIFICATION. Each Lender shall, ratably in
accordance with its Revolving Credit Commitment (whether or not the Revolving
Credit Commitments have been terminated), indemnify the Agent (to the extent
not reimbursed by the Company) against any cost, expense (including counsel
fees and disbursements), claim, demand, action, loss or liability (except such
as result from the Agent's gross negligence or willful misconduct) that the
Agent may suffer or incur in connection with the Financing Documents or any
action taken or omitted by the Agent hereunder or thereunder.

SECTION 9.07. CREDIT DECISION. Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking any action under the Financing Documents.

SECTION 9.08. SUCCESSOR AGENT. The Agent may resign at any
time by giving written notice thereof to the Lenders and the Company. Upon any
such resignation, the Required Lenders shall have the right to appoint a
successor Agent which, absent the occurrence and continuance of a Default, must
be reasonably acceptable to the Company. If no successor Agent shall have been
so appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent gives notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be an institution organized or licensed under the laws of the United
States of America or of any State thereof. Upon the acceptance of its
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.

ARTICLE X

MISCELLANEOUS

SECTION 10.01. SURVIVAL. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the other Financing Documents and the execution, sale and
delivery of the Notes. The indemnities and agreements

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set forth in Articles VIII and IX shall survive the payment of the Notes and
the termination of this Agreement.

SECTION 10.02. NO WAIVERS. No failure or delay by the Agent or
any Lender in exercising any right, power or privilege under any Financing
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein and
therein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.

SECTION 10.03. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including prepaid
overnight courier, telex, facsimile transmission or similar writing) and shall
be given to such party at its address or telecopy or telex number set forth on
the signature pages hereof (or, in the case of any such Lender who becomes a
Lender after the date hereof, in a notice delivered to the Company and the
Agent by the assignee Lender forthwith upon such assignment) or at such other
address or telecopy or telex number as such party may hereafter specify for the
purpose by notice to the Agent and the Company. Each such notice, request or
other communication shall be effective (i) if given by telex or telecopy, when
such telex or telecopy is transmitted to the telex or telecopy number specified
in this Section and the appropriate answerback is received (in the case of
telex) or telephonic confirmation of receipt thereof is obtained (in the case
of telecopy) or (ii) if given by mail, prepaid overnight courier or any other
means, when received at the address specified in this Section or when delivery
at such address is refused.

SECTION 10.04. SEVERABILITY. In case any provision of or
obligation under this Agreement or the Notes or any other Financing Document
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

SECTION 10.05. AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the other Financing Documents may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Company
and the Required Lenders (and, if the rights or duties of the Agent are
affected thereby, by the Agent); provided that no such amendment or waiver
shall, unless signed by all the Lenders, (i) increase or decrease any Revolving
Credit Commitment of any Lender (except for a ratable decrease in the Revolving
Credit Commitments of all Lenders) or subject any Lender to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or
fees hereunder, (iii) postpone the date fixed for any payment of principal of
any Loan, or of interest on any Loan or any fees hereunder or for any
termination of any Commitment, (iv) release any guarantor, or permit the
modification, release or substitution of all or any substantial portion of the
Collateral, or (iv) change the definition of Required Lenders or amend this
Section.

SECTION 10.06. SUCCESSORS AND ASSIGNS; REGISTRATION. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns (including any
transferee of any Note), except that the

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<PAGE> 64
Company may not assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all Lenders.

(b) The terms and provisions of this Agreement shall
inure to the benefit of any transferee or assignee of any Note to which the
Company, in the absence of the occurrence and continuance of an Event of
Default (in which case no consent shall be required), shall have consented
(such consent not to be unreasonably withheld) and, in the event of such
transfer or assignment, the rights and privileges herein conferred upon the
assigning Lender shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. Any assignment
shall be for an equal percentage of such assignor Lender's Loans and its
Revolving Credit Commitment, and any such assignee Lender shall, upon its
registration in the Note Register referred to below, become a "Lender" for all
purposes hereunder. Upon any such assignment, the assignor Lender shall be
released from its Revolving Credit Commitment to the extent assigned to and
assumed by the assignee Lender. Notwithstanding the foregoing, in the absence
of the occurrence and continuance of an Event of Default, NationsCredit
covenants for the benefit of the Company that it will not assign its Revolving
Credit Commitment below $15,000,000 except that NationsCredit retains the
unrestricted right to transfer, sell or assign any or all of its interest and
obligations in the Revolving Credit Commitment and the Obligations without
respect to this sentence in the following cases: (i) the transfer, sale or
assignment to any Affiliate of NationsCredit, (ii) any transfer, sale or
assignment to any Person to the extent required to comply with any order,
directive or request from any regulating authority, or (iii) any transfer, sale
or assignment to any Person in connection with the sale by NationsCredit of all
or any substantial portion of its corporate finance portfolio.

(c) Upon any assignment of any Note(s), the assigning
Lender shall surrender its Note(s) to the Company for exchange or registration
of transfer, and the Company will promptly execute and deliver in exchange
therefor a new Note or Note(s) of the same tenor and registered in the name of
the assignor Lender (if less than all of such Lender's Notes are assigned) and
the name of the assignee Lender.

(d) The Company shall maintain a register (the "NOTE
REGISTER") of the Lenders and all assignee Lenders that are the holders of all
the Notes issued pursuant to this Agreement. The Company will allow any Lender
to inspect and copy such list at the Company's principal place of business
during normal business hours. Prior to the due presentment for registration of
transfer of any Note, the Company may deem and treat the Person in whose name a
Note is registered as the absolute owner of such Note for the purpose of
receiving payment of principal of and premium and interest on such Note and for
all other purposes whatsoever, and the Company shall not be affected by notice
to the contrary.

(e) Each Lender (including any assignee Lender at the
time of such assignment) represents that it (i) is acquiring its Note solely
for investment purposes and not with a view toward, or for sale in connection
with, any distribution thereof, (ii) has received and reviewed such information
as it deems necessary to evaluate the merits and risks of its investment in the
Note, (iii) is an "accredited investor" within the meaning of Rule 501(a) under

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the Securities Act and (iv) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment in the Note, including a complete loss of its investment.

(f) Each Lender understands that the Note is being
offered only in a transaction not involving any public offering within the
meaning of the Securities Act, and that, if in the future such Lender decides
to resell, pledge or otherwise transfer the Note, the Note may be resold,
pledged or transferred only (i) to the Company, (ii) to a person who such
Lender reasonably believes is a qualified institutional buyer that purchases
for its own account or for the account of a qualified institutional buyer to
whom notice is given that such resale, pledge or transfer is being made in
reliance on Rule 144A under the Securities Act or (iii) pursuant to an
exemption from registration under the Securities Act.

(g) Each Lender understands that the Note will, unless
otherwise agreed by the Company and the holder thereof, bear a legend to the
following effect:

THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT
THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1) TO THE COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT.

(h) If the Note becomes mutilated and is surrendered by
the Lender with respect thereto to the Company, or if any Lender claims that
its Note has been lost, destroyed or wrongfully taken, the Company shall
execute and deliver to such Lender a replacement Note, upon the affidavit of
such Lender attesting to such loss, destruction or wrongful taking with respect
to such Note and such lost, destroyed, mutilated, surrendered or wrongfully
taken Note shall be deemed to be canceled for all purposes hereof. Such
affidavit shall be accepted as satisfactory evidence of the loss, wrongful
taking or destruction thereof and no indemnity shall be required as a condition
of the execution and delivery of a replacement Note. Any costs and expenses of
the Company in replacing any such Note shall be for the account of such Lender.

SECTION 10.07. COLLATERAL. Each of the Lenders represents to
the Agent and each of the other Lenders that it in good faith is not relying
upon any Margin Stock as collateral in the extension or maintenance of the
credit provided for in this Agreement.

SECTION 10.08. HEADINGS. Headings and captions used in the
Financing Documents (including the Exhibits and Schedules hereto and thereto)
are included herein and

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therein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose or be given any substantive effect.

SECTION 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF GEORGIA. THE COMPANY HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF GEORGIA AND OF ANY GEORGIA COURT SITTING IN THE CITY OF ATLANTA,
GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION
10.03. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS
AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

SECTION 10.10. NOTICE OF BREACH BY AGENT OR LENDER. The
Company agrees to give the Agent and the Lenders notice of any action or
inaction by the Agent or any Lender or any agent or attorney of the Agent or
any Lender in connection with this Agreement or any other Financing Document or
the obligations of the Company under this Agreement or any other Financing
Document that may be actionable against the Agent or any Lender or any agent or
attorney of the Agent or any Lender or a defense to payment of any obligations
of the Company under this Agreement or any other Financing Document for any
reason, including commission of a tort or violation of any contractual duty or
duty implied by law. The Company agrees, to the fullest extent that it may
lawfully do so, that unless such notice is given promptly (and in any event
within ten (10) days after the Company has knowledge, or with the exercise of
reasonable diligence could have had knowledge, of any such action or inaction),
the Company shall not assert, and the Company shall be deemed to have waived,
any claim or defense arising therefrom to the extent that the Agent or any
Lender could have mitigated such claim or defense after receipt of such notice.

SECTION 10.11. WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY AND TO THE FULLEST EXTENT PERMITTED BY
LAW WAIVES ANY RIGHTS THAT IT MAY HAVE TO CLAIM OR RECEIVE CONSEQUENTIAL OR
SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING ARISING

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OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY.

SECTION 10.12. COUNTERPARTS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement and the other Financing Documents constitute the entire
agreement and understanding among the parties hereto and supersede any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.

SECTION 10.13. SPECIAL PROVISION RELATING TO THIS AMENDMENT
AND RESTATEMENT. (a) This Agreement shall be effective upon receipt by the
Agent of the following items which shall be in form and substance satisfactory
to the Agent:

(i) counterparts of this Agreement duly executed by the
Borrower, AmSouth Bank and BankBoston;

(ii) receipt by NationsCredit of a duly executed Amended
and Restated $35,000,000 Revolving Credit Note for its
account, in the form provided for herein;

(iii) receipt by AmSouth Bank of a duly executed Amended
and Restated $15,000,000 Revolving Credit Note for its
account, in the form provided for herein;

(iv) receipt by BankBoston of a duly executed $20,000,000
Revolving Credit Note for its account, in the form provided
for herein;

(v) counterparts of the Agreement Regarding Security
Documents duly executed by each Subsidiary in favor of the
Agent;

(vi) counterparts of the Agreement Regarding Professional
Service Provider Security Agreements duly executed by each
physician or physician practice group party to a Service
Agreement;

(vii) an opinion of counsel to the Company and the
Subsidiaries as to the due execution and enforceability of
this Agreement, the Notes and the Agreement Regarding Security
documents;

(viii) a certificate of the Company and each Subsidiary as
to the due authorization, execution and delivery of this
Second Amended and Restated Agreement, the Financing Documents
executed in connection therewith, the truth of the
representation and warranties hereunder and the fact that
immediately before and after the effectiveness of this Second
Amended and Restated Agreement, no Default shall have occurred
and be continuing;

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(ix) receipt by NationsCredit and by BankBoston of its
commitment fee in the amount of $50,000 and $150,000,
respectively, which fee will be fully earned and
non-refundable on the date of this Agreement;

(x) receipt by NationsCredit of the fees and expenses due
to their counsel from the Company, which amount will be
$_____________ plus expenses in respect of this Second
Amendment and Restatement for counsel to NationsCredit plus
other amounts due with respect to other matters arising under
this Agreement both prior to and concurrent with this Second
Amendment and Restatement; and

(xi) such other documents as the Agent or the Lenders
shall request.

(b) This Agreement may be executed in any number of
counterparts, all of which shall be deemed to constitute but one original and
shall be binding upon all parties, their successors and permitted assigns.

(c) This Agreement shall amend and restate and replace
that certain prior Amended and Restated Credit Agreement, dated as of November
13, 1997, among the Company, the Lenders signatories thereto and the Agent,
which amended and restated and replaced that certain Credit Agreement, dated as
of June 12, 1996, among the Company, the Lenders signatories thereto and the
Agent (the "Prior Credit Agreement"). This Agreement is not intended nor shall
it be construed to be a novation or an accord and satisfaction of the
Obligations or any other indebtedness, liabilities or obligations of the
Company or its Subsidiaries under this Agreement or the other Financing
Documents. References to the Prior Credit Agreement contained in any Financing
Document shall be deemed to be a reference to such agreement as amended and
restated hereby.

(d) The following Schedules and Exhibits to the Prior
Credit Agreement are being added or replaced by this Amendment and Restatement:

Schedule 4.10

(e) The Company hereby acknowledges that, the Company
Security Agreement and the Pledge Agreement are and shall remain in full force
and effect, and hereby ratifies, confirms and approves the Company Security
Agreement and the Pledge Agreement and all of the terms and provisions thereof,
and agrees that each of the Company Security Agreement and the Pledge Agreement
constitutes the valid and binding obligation of the Company, enforceable by the
Agent and the Lenders in accordance with its terms.

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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

<TABLE>
<S> <C>
BORROWER:

PROMEDCO MANAGEMENT COMPANY

By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------

Address:
-------------------------------------------

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

-------------------------------------------
Attn:
--------------------------------------
Telecopy:
-------------------------------------------

LENDERS:

Revolving Loan Commitment: NATIONSCREDIT COMMERCIAL
$35,000,000 CORPORATION

By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------

Address:
-------------------------------------------

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

-------------------------------------------
Attn:
--------------------------------------
Telecopy:
-------------------------------------------
</TABLE>

<PAGE> 70
<TABLE>
<S> <C>
Revolving Loan Commitment: AMSOUTH BANK
$15,000,000

By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------

Address:
-------------------------------------------

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

-------------------------------------------
Attn:
--------------------------------------
Telecopy:
-------------------------------------------

Revolving Loan Commitment: BANKBOSTON
$20,000,000

By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------

Address:
-------------------------------------------

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

-------------------------------------------
Attn:
--------------------------------------
Telecopy:
-------------------------------------------

AGENT:

NATIONSCREDIT COMMERCIAL
CORPORATION

By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------

Address:
-------------------------------------------

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

-------------------------------------------
Attn:
--------------------------------------
Telecopy:
-------------------------------------------
</TABLE>

<PAGE> 1
Exhibit 23.1

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 incorporated by
reference in this Registration Statement.

ARTHUR ANDERSEN LLP

May 7, 1998

<PAGE> 1
Exhibit 23.2

Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-50105) and
related Prospectus of ProMedCo Management Company for the registration of
7,360,000 shares of its common stock and to the incorporation by reference
therein of our report dated May 8, 1997, with respect to the financial
statements of Health Plans, Inc. for the year ended December 31, 1996, included
in its Current Report on Form 8-K dated February 17, 1998, filed with the
Securities and Exchange Commission.

May 6, 1998
Boston, Massachusetts

<PAGE> 1
Exhibit 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-3
(File No. 333-50105) of our report dated March 31, 1998, except for
Notes 1 and 14, as to which the date is April 17, 1998, on our audits of the
financial statements of Berkshire Physicians and Surgeons, P.C. We also
consent to the reference to our firm under the caption "Experts."

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 7, 1998